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SmartEtailing sues retailer over credit card refunds

Published January 8, 2021

CAMBRIDGE, Mass. (BRAIN) — SmartEtailing is suing a Massachusetts bike store, CrimsonBikes, LLC. The website developer is charging that CrimsonBikes fraudulently told customers to ask their credit card company for refunds for undelivered bikes. A payment service is holding SmartEtailing liable for $400,000 in chargebacks.

The dispute stems from the 2020 bike drought that left many retailers taking orders for bikes they were unable to deliver in time to satisfy some consumers.

However in the suit filed in Minnesota this week, SmartEtailing charges that CrimsonBikes' actions went further.

"(W)hile Plaintiff (SmartEtailing) initially believed Defendant (CrimsonBikes)'s difficulties with fulfilling orders was related to the COVID-19 pandemic Plaintiff now believes a Defendant is, in fact, committing fraud."

CrimsonBikes, in a statement to BRAIN, said the issue is "a simple business dispute, not fraud." The retailer said it has made "extraordinary, ethical and entrepreneurial efforts to resolve an untenable situation," including importing 5,000 bikes from Mexico to fulfill orders when the store's regular suppliers were unable to do so.

SmartEtailing's president, Ryan Atkinson, told BRAIN he was unable to comment on the suit. "I appreciate your interest but we are not able to comment," Atkinson said in an email.

CrimsonBikes has a brick-and-mortar store in Cambridge, a few blocks from Harvard Square on Massachusetts Avenue. According to its website the store has been in business since 2008. The store's website lists bikes from Benotto (the Mexican brand), Dahon, Cannondale, Fuji, Felt, Raleigh, Haro and more.

According to the suit, in late 2018 the retailer contracted SmartEtailing to build its e-commerce-enabled website. As part of the agreement SmartEtailing sponsored the retailer's account with Stripe, a payment processing service.

The suit said CrimsonBikes accepted payment for "pre-sold" bikes through Stripe. When customers later canceled their orders or returned bikes, Stripe issued chargebacks to them. The complaint includes screenshots of the store's Yelp page, showing customers complaining about the policy. 

"I just received an email from CrimsonBikes asking me to call my credit card to ask them to reverse the charges for the money they owe me!!!" one Yelp review reads. "I am not an attorney, but this certainly seems like fraud to me. This was clearly an email they have sent to others as well, so I wonder how many bikes they are expecting to offload this responsibility to credit card companies to pay out for.”

The store's average rating on Yelp is two and a half stars out of five.

In its statement to BRAIN, CrimsonBikes objected to SmartEtailing's use of Yelp in its complaint. "Instead of honorably working out a resolution, SmartEtailing has chosen to use Yelp complaints as a basis for a federal lawsuit designed to damage the reputation and business of CrimsonBikes in the face of what is an ordinary business dispute," the store's statement said.

The store said "the system broke down" between Stripe, SmartEtailing and CrimsonBikes.

"In some instances, customers wound up getting refunds directly from CrimsonBikes as well as refunds on their credit cards," the store said. "In some cases, they got refunds and also the bicycles they ordered from CrimsonBikes. But instead of working with CrimsonBikes, SmartEtailing cut off CrimsonBikes from SmartEtailing’s platform, rendering CrimsonBikes unable to access order history, validate order status, issue refunds or even give customers accurate information. Despite this, CrimsonBikes has fulfilled or refunded $5 million worth of orders and only a fraction of customers are still waiting for the dispute process to close."

According to the complaint the chargebacks depleted a reserve balance that CrimsonBikes had held with Stripe; the retailer did not replenish the reserve and in mid-December had a negative balance of nearly $400,000 with Stripe.

Because SmartEtailing had sponsored CrimsonBikes, Stripe held it liable for the balance. According to the suit Stripe was holding $405,000 of SmartEtailing's money in reserve for those chargebacks.

The suit said that the agreement between SmartEtailing and CrimsonBikes makes the retailer ultimately liable for the balance, as well as the costs of any legal action necessary to resolve the dispute. It said it had been harmed by the alleged fraud and would seek damages in excess of $75,000, the threshold for federal civil cases of this sort.

SmartEtailing is asking the court to order CrimsonBikes to indemnify and defend SmartEtailing for the amounts it has been required to pay as a result.

The suit is filed in Minnesota, SmartEtailing's corporate address. A court filing related to the suit describes SmartEtailing as a subsidiary of QBP, but Atkinson told BRAIN that is in error. SmartEtailing is owned by himself and Steve Flagg, who is the founder of QBP, Atkinson said in an email to BRAIN. He added that SmartEtailing "is an entirely separate company from QBP. The lawsuit has absolutely nothing to do with QBP."

On Monday, a judge ordered SmartEtailing to provide more information about the principal places of business of SmartEtailing and CrimsonBikes to show the case is entitled to be heard in a federal court. SmartEtailing has until Jan. 15 to provide those details.

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