April 12, 2017

Courts Continue Crackdown on New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act

By Michael P. Daly, Matthew J. Fedor, Andrew L. Van Houter, and Jenna M. Poligo

A year ago we predicted an explosion of “gotcha” class actions targeting website terms of use under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”). That prediction has been borne out, as the past year has seen dozens of complaints and an untold number of demand letters threatening potentially annihilating aggregate statutory damages arising from arguable violations that caused no harm to the plaintiffs or anyone else.

As we have previously noted, however, TCCWNA creates a private right of action only for “aggrieved consumers.” That is critical because many of the plaintiffs in these contrived cases do not even allege that they read the documents at issue, let alone that they suffered any actual harm as a result of doing so. Last year, several courts invoked the “aggrieved consumer” requirement in dismissing such suits. That trend has continued this year, as a number of trial courts have rejected such claims for lack of statutory or constitutional standing, and a number of appellate courts have heard or agreed to hear oral argument on who is and is not “aggrieved.”

Statutory Standing

The plaintiff in Hite v. Lush Internet, Inc., claimed that the defendant’s terms of use contained provisions that violated TCCWNA in various ways. Like many of the plaintiffs in these cases, however, she did not allege that she had actually read those terms of use. In fact, in an attempt to avoid the arbitration agreement in the terms of use, she affirmatively alleged that she had not read them.

Chief Judge Simandle of the District of New Jersey denied the defendant’s motion to compel arbitration but granted its alternative motion to dismiss, finding that the plaintiff was not “aggrieved” for purposes of TCCWNA. In doing so, the court cited three bases for finding that the plaintiff was not “an aggrieved party within the zone of protection of the TCCWNA.” Id. at 16. First, she had never even seen the terms of use:

[B]ecause the Terms of Use were not displayed to her, she cannot claim harm from their existence in a hidden corner of the Lush website. Based upon the allegations in the Amended Complaint, the harm that Plaintiff has suffered from the allegedly unlawful limitations of liability in the Terms of Use is metaphysical at best.

Id. at 21. Second, even if she had known about the terms of use, she had not accepted them:

Plaintiff has suffered no cognizable harm because . . . these Terms do not bind this Plaintiff. Where the alleged contract fails for lack of mutual assent, it follows that the Terms comprising that contract become a nullity as to the individual. Whether or not the nullified contract contained terms that would have violated New Jersey law does not matter to this Plaintiff as a matter of law because she cannot allege that such terms have harmed her . . . .

Id. at 21 (citation omitted). Finally, even if she had been bound by the terms of use, she still would have lacked statutory standing because she had not alleged that the purportedly improper language had affected her “underlying rights” or otherwise harmed her in any way:

Because Plaintiff does not seek to vindicate any underlying rights secured by the TCCWNA – i.e. she is seeking only to bring the Terms of Use into accord with what she believes New Jersey law requires, not to actually bring a suit or recover damages which she believes are unlawfully barred by the Terms of Use – she does not have standing to sue.

Id. at 20-21 (emphasis added). In other words, the statute does not confer standing to assert claims based on bare procedural violations that cause no underlying harm.

Constitutional Standing

Like the plaintiff in Hite, the plaintiff in Rubin v. J. Crew Group, Inc., filed a TCCWNA action based on website terms of use that she had never seen. Although Judge Wolfson of the District of New Jersey dismissed the case due to a lack of constitutional standing under Article III rather than a lack of statutory standing under Section 17 of TCCWNA, her analysis was similar to Chief Judge Simandle’s analysis in Hite:

[W]ithout an underlying concrete harm, a plaintiff may not base his/her complaint solely on allegations of wrongdoing predicated on TCCWNA violations. To illustrate, if a consumer alleges that the terms and conditions of an online retailer’s website violated the TCCWNA by excluding punitive damages in suits, that consumer would not have standing to bring a TCCWNA claim without also asserting an injury inflicted by the retailer that could entitle him/her to punitive damages at the outset. Absent that underlying harm, under Spokeo, the consumer’s alleged TCCWNA violation is merely procedural. Because Plaintiff’s TCCWNA claims in this case are pled . . . without any claim of injury, I find that she lacks standing to sue.

Id. at 10-11 (emphasis added). The court also rejected the notion that the plaintiff had suffered an “informational injury.” Id. at 14-15. Whether the plaintiff had accepted the agreement was beside the point, it explained, because “there are still no allegations that [she] actually read the allegedly violative terms on the Website, relied on them, and felt the resultant effects.” Id. at 15 n.2 (emphasis added). Notably, the court closed by commenting on the absurdity of this new cottage industry of litigation:

The Court is aware that there are numerous class actions filed in this district based upon similar TCCWNA violations alleged in this case. While the intent of the New Jersey legislature in enacting the TCCWNA is to provide additional protections for consumers in this state from unfair business practices, the passage of the Act is not intended, however, for litigation-seeking plaintiffs and/or their counsel to troll the internet to find potential violations under the TCCWNA without any underlying harm. In such instances, standing would be lacking.

Id. at 17-18 (emphasis added).

The Road Ahead

Spade v. Select Comfort Corp. and Wenger v. Bob’s Discount Furniture LLC, two cases that are currently pending in the Third Circuit, involve similar issues. Although the plaintiffs’ furniture was delivered without damage or delay, they filed suit under TCCWNA because their sales contracts allegedly omitted language that was required by New Jersey’s Delivery of Household Furniture and Furnishing Regulations. This, they claimed, was actionable under Section 15 of TCCWNA because it violated a “clearly established legal right of a consumer or responsibility of a seller.” Judge Sheridan of the District of New Jersey dismissed the claims last year because the plaintiffs were not “aggrieved” consumers who had statutory standing under Section 17 of TCCWNA. The plaintiffs appealed to the Third Circuit, which in turn certified the following questions to the New Jersey Supreme Court:

  1. Is a consumer who receives a contract that does not comply with the Furniture Delivery Regulations, but has not suffered any adverse consequences from the non-compliance, an “aggrieved consumer” under the TCCWNA?
  2. Does a violation of the Furniture Delivery Regulations alone constitute a violation of a clearly established right or responsibility of the seller under the TCCWNA and thus provide a basis for relief under the TCCWNA?

A few days ago, the New Jersey Supreme Court agreed to answer those questions and issued a briefing schedule. It did so just a few hours after hearing oral argument in Dugan v. TGI Friday’s and Bozzi v. OSI Restaurant Partners, LLC., which concerned the propriety of class certification for alleged TCCWNA violations stemming from the omission of beverage prices from restaurant menus, and just a few days after the Appellate Division of the Superior Court heard oral argument in the consolidated cases of Duke v. All American Ford, Inc., Barbarino v. Paramus Ford, Inc., Greenberg v. Mahwah Sales & Services, Inc., and Walters v. Dream Cars National, LLC, which concerned whether the use of innocuous phrases such as “unless prohibited by law” and “where prohibited by law” violate Section 16 of TCCWNA.

The Supreme Court’s decisions in Dugan, Bozzi, Spade, and Wenger will be the first times it has addressed TCCWNA since Shelton v. Restaurant.com, Inc., which, as we previously discussed, is a significant decision in its own right. Its decision to reach these questions is made all the more significant by the pendency of a number of bills in the New Jersey legislature that would amend TCCWNA. For example, one seeks to make it a violation of the TCCWNA for a consumer contract to waive the right to bring a class action, while another bill seeks to prohibit class certification “in the absence of an ascertainable economic loss resulting from the alleged violation” and to require administrative grievance processes before filing suit for small losses. Yet another bill seeks to expand the TCCWNA to protect consumers’ ability to “make any statement” on the internet.

The rulings in these appeals may have a dramatic effect on consumer class action litigation in New Jersey for years to come. Until there are definitive answers to these questions, however, businesses should continue to review and revise their customer-facing documents in order to make them less attractive to an increasingly aggressive plaintiffs’ bar.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Related Industries

The Faegre Drinker Biddle & Reath LLP website uses cookies to make your browsing experience as useful as possible. In order to have the full site experience, keep cookies enabled on your web browser. By browsing our site with cookies enabled, you are agreeing to their use. Review Faegre Drinker Biddle & Reath LLP's cookies information for more details.