Costco Must Face Membership Refunds Class Action Lawsuit

UPDATE: November 2020, the Costco executive membership class action settlement is now open. Click here to file a claim.

A federal judge rejected Costco’s motion to dismiss class action allegations that the wholesale retailer refuses to refund membership fees to their customers.

“At this stage of the litigation, plaintiff has stated a plausible claim,” U.S. District Judge Ronnie L. White wrote in a 14-page ruling. “Any questions surrounding the veracity of his dissatisfaction can be investigated through discovery and argued at the summary judgment stage.

The court also granted a request by plaintiff Scott Pearlstone to disallow Costco to reference a website terms and conditions page that was reportedly updated in September 2018, months after the Costco class action was filed.

The Costco class action lawsuit alleges that the company failed to honor its “Risk Free” guarantee that is included in its membership contract.

In May 2017, Pearlstone reportedly paid $110 to enroll in Costco’s executive membership service. In January 2018, he was dissatisfied with the service and aimed to cancel his membership. However, Pearlstone was allegedly only refunded $86.13 rather than the full amount of his membership.

According to the Costco class action lawsuit, failing to refund the entirety of membership fees when cancelling memberships is not only a violation of the company’s “Risk Free” guarantee but also breaches a provision in the membership contract that promises full membership refunds.

Pearlstone included claims of breach of contract (alternatively unjust enrichment) and a violation of the Missouri Merchandising Practices Act.

In July 2018, Costco countered Pearlstone’s class action lawsuit with a motion to dismiss – arguing that the plaintiff failed to specifically plead why he was dissatisfied with his membership leading to a breach of contract.

Costco also claimed that the $23.87 allegedly owed to Pearlstone represents the two percent rewards accrued that is forfeited by a customer if they cancel their executive membership. The company stated that a screenshot of terms and conditions from its website supported their argument.

In Judge White’s recent ruling, he determined that Costco failed to cite any authority when arguing that Pearlstone had to specify why he was upset with the membership.

After Costco’s motion to dismiss, Pearlstone motioned to strike the screenshot evidence, claiming that the terms and conditions were updated after he filed his Costco class action lawsuit in April 2018.

Further, he says he never received terms and conditions when he signed up for the membership. Judge White’s recent decision favors Pearlstone’s argument and the evidence has been tossed.

Pearlstone and the proposed Class are represented by Lanny Darr of Darr Firm and by Myles McGuire and Paul T. Geske of McGuire Law PC.

The Costco Membership Fees Class Action Lawsuit is Pearlstone v. Costco Wholesale Corp., Case No. 4:18-­cv­-00630, in the U.S. District Court for the Eastern District of Missouri.