The House Folds

The Columbia House Co. has agreed to pay roughly $5.2 million to settle two long-simmering lawsuits over how it presents shipping and handling charges.

As a result of the deal, which is expected to be finalized in April, the music club operator will also change the way it describes the charges in its solicitations. It will substitute the words “shipping and processing” for “shipping and handling” in all of its promotions.

While the deal is not unduly harsh, some observers warn that other firms could face similar suits, especially those that offer low-cost incentives or freebies.

The agreement resolves two class-action suits put together by the law firms of Milberg Weiss Bershad Hynes & Lerach and Levine, Steinberg, Miller & Huver. The first was filed in Sonoma County, CA Superior Court in 1997. The second was initiated last year in the Supreme Court of New York, County of New York.

In the California case, plaintiff Reed Nieme responded to an offer for 11 CDs for 1 cent. However, he was billed “exorbitant and undisclosed shipping and handling charges,” the suit alleges.

These charges amounted to more than $2 per CD despite the fact that all 11 were sent via fourth class mail in a single parcel, the complaint continues.

While the initial offers referred to shipping and handling costs in fine print on the offer, Columbia House did not disclose the amount of the charges until consumers received their music selections, the papers state.

On its face, the case appears to be about reduced-cost offers, and whether shipping and handling charges are clearly explained, said Jerry Cerasale, senior vice president for government affairs at the Direct Marketing Association.

Catalog firms often have been criticized for marking up their shipping and handling charges, but that does not appear to be part of these cases. The Federal Trade Commission does not require that firms state specific shipping and handling charges.

A similar case against BMG Direct Marketing Inc. was dismissed in 2000 for failure to support the case.

As part of the settlement, Columbia House has to add the following phrase to its membership guides: “The shipping and processing charge is designed to compensate Columbia House for the services we provide that enable our members to enjoy the convenience of home selection and delivery of our products as well as overhead costs associated with these services.”

Columbia House must provide certificates allowing each member of the class action to purchase one compact disk or tape at a reduced price. In addition, the firm will pay $5 million in attorney's fees and $200,000 in costs.

Some observers see these penalties, agreed to with no admission of wrongdoing by Columbia House, as a slap on the wrist.

“I think this is a big ho-hum,” said Lee Helman, vice president at direct marketing investment banking firm Gruppo Levey & Co., New York. “Columbia House has to just change some language that is relatively benign and perhaps not even read. I don't know what the benefit is.”

But Cerasale thinks that direct marketers should pay attention.

He speculated that the phrase “shipping and processing” might replace “shipping and handling” as a standard. “We are going to take a look at that and take a look at our guidelines as well,” he said.

Article 11 of the DMA's guidelines now states that “Postage, shipping or handling charges, if any, should bear a reasonable relationship to actual costs incurred.”

Columbia House's marketing strategy “doesn't correspond across the board to what direct marketers do. Not everyone has free offers.”

According to the papers, Nieme, who received his introductory package in 1993, was a member as of 1997.

Columbia House will have to contact any of its 12 million members who received an enrollment package between June 19, 1993 and Dec. 24, 2001 and were billed for shipping and handling. Lawyers for both sides declined to speculate on the number of individuals involved.

Current members will receive a redemption certificate as part of a regular Columbia House mailing. The firm must also send a note reminding members to redeem their certificates. This must be done in a regular mailing between six and nine months after the initial certificate is sent.

Former members need to either visit Columbia House's Web site (www.columbiahouse.com) or write to the distribution center in Terre Haute, IN to obtain a certificate. The certificates are non-transferable and expire April 30, 2003.

The coupon does not entitle members to free CDs or tapes. Instead, it allows them to purchase one item at a reduced price of $10.49 for those who have not yet purchased enough music to satisfy their initial membership requirements, and $5.49 for those who have.

The agreement also mandates that Columbia House purchase an advertisement alerting consumers to the settlement in both USA Today and Rolling Stone by March 15.

The settlement was reached under the guidance of Daniel Weinstein, a retired judge who served as a court-appointed moderator.