July 15, 2013

NJ Court Clears Way for Class Actions Seeking Mandatory Statutory Penalties in Consumer Disputes

By Matthew J. Fedor

On July 9, 2013, the New Jersey Supreme Court issued a decision broadly interpreting a longstanding, but previously little-used, consumer protection statute that exposes companies to substantial mandatory statutory penalties for mere technical violations of a wide array of federal and state laws.  The decision and the underlying statute are virtually certain to play a key role in shaping the future of consumer class action litigation against companies that sell, lease, lend or bail products, services, property or money in New Jersey, including those that do so over the internet. 

At issue in Shelton v. Restaurant.com, Inc., was the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), N.J.S.A. 56:12-14 to -18, a broad consumer protection statute that, with limited exception, applies to contracts, notices, warranties, and signs related to the purchase, lease, borrowing, or bailment of any money, property, or service that is primarily for personal, family or household purposes.  Although enacted over 30 years ago, case law interpreting the TCCWNA is sparse.  And until fairly recently, the TCCWNA largely was ignored by plaintiffs’ lawyers in consumer class actions in favor of the New Jersey Consumer Fraud Act (CFA).  That likely will change in the wake of Shelton.  Indeed, in the context of a class action, the TCCWNA’s mandatory $100 statutory penalty can quickly add up to potentially extraordinary liability, something the Shelton Court was indifferent to and content to leave for the Legislature to fix. 

The TCCWNA makes it unlawful to “offer to any consumer or prospective consumer or enter into any written consumer contract or give or display any written consumer warranty, notice or sign … which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee as established by State or Federal law ….”  The TCCWNA also prohibits use of standard disclaimers in consumer contracts, notices, and signs (but not warranties), which state certain provisions are or may be “void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey.”  Anyone who violates the TCCWNA is “liable to the aggrieved consumer for a civil penalty of not less than $100.00 or for actual damages, or both,” plus reasonable attorneys’ fees and costs. 

Plaintiffs in Shelton purchased “coupon” certificates from Restaurant.com that were redeemable for discounts on meals at third-party restaurants.  Under New Jersey’s Gift Card Act (GCA), gift cards and gift certificates must remain valid for two years from the date of purchase.  According to Restaurant.com, the certificates never expired.  However, on their face the certificates stated that they expired one year after purchase “except in California and where otherwise provided by law” and that they were “Void to the extent prohibited by law.”  Plaintiffs filed a putative class action alleging that the expiration provision and the disclaimers “except … where otherwise provided by law” and “Void to the extent prohibited by law,” violated the CFA, GCA, and TCCWNA. 

Addressing certified questions from the United States Court of Appeals for the Third Circuit, the New Jersey Supreme Court unanimously concluded that the TCCWNA applied to the certificates.  The Court held that plaintiffs were “consumers” under the TCCWNA, rejected Restaurant.com’s argument that the TCCWNA did not apply to “intangible” property, and concluded that the certificates constitute “property” that “is primarily for personal, family or household purposes.”  The Court further held that the certificates were “consumer contracts” and the associated terms and conditions were “notices” under the ordinary definition of that term; i.e., a “written or printed announcement.”

According to the Court, the TCCWNA was intended to strengthen the provisions of the CFA, and its purpose “is to prevent deceptive practices in consumer contracts,” warranties, notices, and signs.  The Court concluded that “the Legislature enacted the TCCWNA to permit consumers to know the full terms and conditions of the offer made to them by a seller or of the consumer contract into which they decide to enter.”  Consumer contracts and notices “must clearly identify which provisions are void, inapplicable, or unenforceable in New Jersey.”  Put differently, “a contract or notice cannot simply state in a general, nonparticularized fashion that some of the provisions of the contract or notice may be void, inapplicable, or unenforceable in some states.”   

In rejecting Restaurant.com’s various arguments to narrow the TCCWNA’s scope, the Court concluded that the TCCWNA is a remedial statute that must be interpreted broadly.  Moreover, the Court was unsympathetic to the potential mandatory statutory penalties that Restaurant.com faced.  Although it recognized the certificates are the product of technology developed long after the TCCWNA’s enactment, the Court concluded that the statute, as drafted, covers the certificates, and noted that the “Legislature remains free to change the law should it so choose.”

In light of the Shelton Court’s broad interpretation of the statute, it is likely the plaintiffs’ bar will increasingly turn to the TCCWNA as their primary weapon of choice in consumer class actions.  The TCCWNA arguably is far broader in scope than the CFA because it expressly applies to notices, signs, and warranties, in addition to traditional consumer contracts, and it states that it applies not only to consumers, but also to prospective consumers.  Unlike the CFA, the TCCWNA does not require showing of an “ascertainable loss” to state a claim.  And the TCCWNA’s minimum $100 statutory penalty potentially exposes class action defendants to substantial aggregate liability, even in connection with low value consumer transactions and even where there may be no actual damages.  Shelton is a perfect example:  plaintiffs seek a $100 statutory penalty per putative class member per certificate even though the certificates only cost between $1 and $6, and never expired.

Fortunately, there are several issues Shelton did not address, which leaves open various avenues to challenge TCCWNA claims.  For example, the Court did not resolve whether a plaintiff must show some measure of harm to qualify as an “aggrieved consumer,” what qualifies as a “clearly established legal right,” whether the $100 minimum statutory penalty amounts to a due process violation, or whether TCCWNA claims are appropriate for class certification.  But this much is clear:  absent legislative action, TCCWNA claims are virtually certain to increase because plaintiffs’ lawyers have little to lose and much to gain from asserting them.

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