Johnson v. Priceline.com, Inc.
711 F.3d 271 (2013)
Rule of Law:
An agency relationship, which gives rise to fiduciary duties, exists only when a principal maintains the right of interim control over the agent's actions during the undertaking. Merely setting the initial parameters for a service in an arm's-length transaction, without retaining subsequent control, does not establish an agency relationship.
Facts:
- Priceline.com operates a 'Name Your Own Price' service where consumers can bid for hotel rooms.
- A consumer using the service specifies the reservation date, geographic area, minimum hotel star quality, and the price they are willing to pay ('the bid').
- After the consumer submits the bid and payment information, the transaction is irrevocable.
- Priceline's system then searches a proprietary inventory of discounted hotel rooms to fulfill the request.
- If Priceline finds a room meeting the consumer's criteria for a price lower than the consumer's bid, it accepts the bid, books the room, and retains the difference as profit, in addition to a disclosed service fee.
- Priceline does not explicitly disclose this pricing structure and profit model to consumers during the bidding process.
- Lee Johnson placed a successful bid of $125 for a hotel room in Richmond, and Joey Marie Kelly placed a successful bid of $150 for a room in Boston.
- Both Johnson and Kelly received hotel reservations that conformed to the parameters they had specified at the price they had bid.
Procedural Posture:
- Plaintiffs Lee Johnson and Joey Marie Kelly filed a putative class action suit against Priceline.com, Inc. in the United States District Court for the District of Connecticut.
- The complaint alleged breach of fiduciary duty, breach of contract, and a violation of the Connecticut Unfair Trade Practices Act (CUTPA).
- Priceline filed a motion to dismiss the amended complaint for failure to state a claim under Fed. R. Civ. P. 12(b)(6).
- The district court granted Priceline's motion to dismiss, holding as a matter of law that no fiduciary relationship existed between Priceline and its customers.
- Plaintiffs (as appellants) appealed the district court's judgment of dismissal to the U.S. Court of Appeals for the Second Circuit, with Priceline as the appellee.
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Issue:
Does Priceline.com, in its 'Name Your Own Price' service, enter into an agency relationship with its customers, thereby creating a fiduciary duty to disclose that it retains a profit by securing hotel rooms at a cost lower than the customer's bid?
Opinions:
Majority - Judge Reena Raggi
No. Priceline.com does not enter into an agency relationship with users of its 'Name Your Own Price' service because customers do not retain the right of control over Priceline's actions, which is the essential element of agency. The court reasoned that for an agency relationship to exist, the principal must have the right to control the agent's undertaking. In this case, while customers set the initial parameters for the transaction (date, location, quality, and price), they cede all subsequent control over how Priceline procures the reservation. Once the bid is submitted, the customer has no authority over the manner or price at which Priceline secures the room. This lack of 'interim control' distinguishes the parties' relationship from a true agency and defines it as a standard, arm's-length contractual transaction. The court found an analogy to an auction more fitting than to a real estate agency, as an auction bidder does not expect to be told the auctioneer's cost basis or profit. Because no agency relationship exists, no fiduciary duties, including a duty to disclose profits, arise.
Analysis:
This decision clarifies the boundary between an agent and a mere service provider in the context of e-commerce. It establishes that creating the initial terms of a transaction does not amount to the ongoing control necessary to form a fiduciary agency relationship. The ruling protects the business models of online intermediaries that rely on opaque pricing and inventory to generate profit, shielding them from fiduciary-based disclosure requirements as long as they fulfill the explicit terms of their contracts with consumers. The case solidifies the principle that without the element of principal control, a technologically sophisticated transaction remains an arm's-length contract rather than a relationship of special trust and confidence.
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