Sateriale v. R.J. Reynolds Tobacco Company

United States Court of Appeals for the Ninth Circuit
D.C. No. 2:09-cv-08394-CAS-SS (2012)

ELI5:

Rule of Law:

An advertisement for a customer rewards program constitutes an offer to enter into a unilateral contract when it invites the performance of a specific act, does not require further negotiation, and a reasonable consumer would believe their performance creates a binding agreement.

Facts:

In 1991, R.J. Reynolds Tobacco Company (RJR) initiated the Camel Cash customer loyalty program.
RJR represented on cigarette packages and in media that customers could save 'C-Notes' from Camel cigarette packs and exchange them for merchandise from a catalog.
The plaintiffs enrolled in the Camel Cash program, purchased Camel cigarettes, and collected C-Notes over a period of many years.
Plaintiffs accumulated hundreds or thousands of C-Notes with the expectation of redeeming them for valuable merchandise.
In October 2006, RJR mailed a notice to program members announcing the program would terminate on March 31, 2007, and advised them to redeem their C-Notes before then.
Beginning in October 2006, RJR allegedly stopped printing catalogs and informed consumers that it had no merchandise available for redemption.
Several plaintiffs attempted to redeem their C-Notes or obtain a catalog during the final six months of the program but were unsuccessful, rendering their collected C-Notes worthless.

Procedural Posture:

The plaintiffs filed a class action complaint against R.J. Reynolds Tobacco Company in the U.S. District Court, which is the federal trial court.
The complaint alleged claims for breach of contract, promissory estoppel, and violations of California consumer protection laws.
The district court granted RJR's motion to dismiss the entire action for failure to state a claim.
The plaintiffs, as appellants, appealed the district court's dismissal to the U.S. Court of Appeals for the Ninth Circuit.

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Issue:

Does a customer rewards program that invites consumers to purchase products and save certificates for future redemption constitute an offer to form a unilateral contract that is plausibly breached when the company terminates the program and ceases all redemptions prior to the announced end date?

Opinions:

Majority - Judge Fisher

Yes. A customer rewards program can constitute an offer for a unilateral contract, and the plaintiffs have plausibly alleged that RJR breached such a contract. While advertisements are typically invitations to negotiate rather than offers, an exception exists for offers of a reward, such as for the redemption of coupons. This case falls into the exception because the risk of over-acceptance, the traditional rationale for the general rule, is not present; RJR controlled the number of C-Notes in circulation. The plaintiffs accepted RJR's offer by performing the requested acts: purchasing Camel cigarettes, enrolling in the program, and saving the C-Notes. The alleged contract is not too indefinite to be enforced, as the breach alleged is not the failure to provide specific merchandise, but the complete failure to make any merchandise available for redemption, in violation of the implied duty of good faith performance.

Analysis:

This decision solidifies the application of unilateral contract theory to modern customer loyalty and rewards programs. It distinguishes long-term, reliance-inducing programs from ordinary advertisements, holding that companies cannot treat them as mere invitations to negotiate that can be revoked without consequence. The ruling establishes that even where a company retains discretion over the terms of performance (e.g., what merchandise is offered), it is bound by an implied duty of good faith and cannot render the program illusory by completely ceasing to perform. This case serves as a key precedent for consumer protection in the context of rewards programs, affirming that consumers' sustained performance in response to a company's promise creates enforceable contractual rights.

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