The DirectBuy buying club chain has reached a preliminary settlement of a class action lawsuit that claimed the club's members were wrongfully excluded from “kickbacks” and other promotional payments allegedly made by manufacturers of products sold by the clubs.
Earlier this week, West Virginia Attorney General Darrell McGraw sued DirectBuy, alleging it uses coercion, deception and high-pressure sales tactics to sell memberships that cost $3,995 or more.
The class action charged that members of the 145 franchised DirectBuy centers pay thousands of dollars to join and are promised that they will be able to buy furniture, appliances, carpeting and other products at the “direct” price – the price actually charged by the manufacturer or supplier, thus avoiding the usual retail mark-up.
But the lawsuit alleges that DirectBuy's promises are “false and misleading” because the company does not report the “kickbacks” – volume rebates, cooperative advertising funds and early payment discounts. The plaintiffs alleged that, therefore, they were paying more than the “direct” price they had been promised.
In support of the plaintiffs' claims, the lawsuit says that during the fiscal year ended July 31, 2007, DirectBuy and its affiliates received about $8,000,000 in “kickbacks.” During the same time, it generated income of about $87 million, including $77 million from the sale of memberships and about $2 million from the financing of memberships.
DirectBuy denied that it had broken any laws or misrepresented its service and said it agreed to the settlement only to avoid the cost of litigation.
The settlement applies to anyone who was a DirectBuy member during a specific time period and to certain former members. Those who are current members will receive a 28-month DirectBuy membership renewal for the price of 24 months, or a 13-month renewal for the price of 12.
Former members will be eligible for a two-month free membership at their most recent membership level.
What to do
Court documents indicate that more details of the settlement will be made available at www.settlement.direct.com, although the link was not operating at the time of this writing.
Potential class members may also contact the law firm representing the plaintiffs:
Jeffrey S. Nobel
IZARD NOBEL LLP
29 South Main Street
West Hartford, CT 06107
The preliminary settlement was reached before United States Magistrate William I. Garfinkel of Connecticut U.S. District Court in December 2010. It remains subject to final approval by the Court.