Online Sellers Beware: Plaintiffs' Lawyers Use Old New Jersey Law to Unleash Flurry of Class Action Claims Against Website Terms of Use


HHR Advisories & Publications | Litigation, Arbitration and Investigations

February 15, 2017 - In 2016, plaintiffs' lawyers representing consumers used a 35-year-old, pre-worldwide-web statute as the basis for putative class action lawsuits against online sellers of a variety of products and services alleging that provisions of their websites' Terms of Use ("TOU") violated New Jersey's Truth-In-Consumer Contract, Warranty & Notice Act ("TCCWNA" or the "Act"). Arguing that the statutory civil penalty of $100.00 for violations applies to each consumer who visited the defendants' websites, plaintiffs' lawyers seek millions of dollars in damages, plus attorney's fees and court costs.
 
The TCCWNA was enacted in 1981 to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties. The Act contains two sections that prohibit certain provisions in consumer contracts and other covered writings. The first of these sections — Section 15 — prohibits the use of provisions in any written consumer contract or written consumer warranty, notice or sign that "violates any clearly established legal right of a consumer or responsibility of a seller . . . as established by State or Federal law . . . ." N.J. STAT. ANN. § 56:12-15 (West). The prohibited conduct applies to any "seller, lessor, creditor, lender or bailee," and, therefore, potentially applies to a wide range of industries that deal with a "consumer," such as retailers, banks, hotel chains, car rental companies, etc. Id. "Consumer" is defined in the Act and "means any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes." Id. Section 16 prohibits any consumer contract, warranty, notice or sign from containing any provision by which the consumer waives his rights under the Act, and prohibits any consumer contract, notice or sign from stating that any of its provisions "is 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 . . . ." § 56:12-16. For violations of the Act, an "aggrieved consumer" can recover a civil penalty of $100.00 or actual damages, or both, together with reasonable attorney's fees and court costs. § 56:12--17.
 
Last year, over twenty such lawsuits were filed in or removed to the United States District Court for the District of New Jersey alone. In nearly all of these cases, motions to dismiss have been filed. Defendants have won motions decided thus far, but many remain undecided, and decisions are not expected until the latter half of the year. The reason: Decisions in many of the remaining cases have been stayed by court order or joint stipulation pending a decision from the Third Circuit Court of Appeals in Russell v. Croscill Home, L.L.C., No. 16-03939 (3d Cir. filed Oct. 25, 2016). Some of the stays also reference two other appeals pending in the Third Circuit — Wenger v. Bob's Discount Furniture L.L.C., No. 16-01572 (3d Cir. filed Mar. 17, 2016) and Spade v. Select Comfort Corp., No. 16-01558 (3d Cir. filed Mar. 17, 2016).
 
Here is a summary of what's at stake in the pending appeals, what online sellers of products and services can expect in 2017, and what they should consider doing to avoid being named a defendant in one of these class action lawsuits.

Russell v. Croscill Home
 
At issue in Russell is whether the plaintiff meets the injury-in-fact requirement of Article III standing under the United States Supreme Court's decision in Spokeo v. Robins, 136 S.Ct. 1540 (2016), and whether the plaintiff is an "aggrieved consumer" under the TCCWNA.
 
In Russell, the plaintiff ordered a tea-light holder through the defendant's website. According to plaintiff's complaint, the website's TOU violated the TCCWNA by including allegedly illegal exculpatory provisions and limiting various remedies. Plaintiff alleged that these provisions violated Section 15 of the Act. As noted by the district court, the complaint lacked any allegations that the product was defective, or that any of the provisions of the TOU were invoked by defendant, or that plaintiff even read the TOU, or was in any way injured. Transcript of Opinion at 4, Russell v. Croscill Home, L.L.C., No. 16-1190 (PGS) (D.N.J. Oct. 11, 2016). However, plaintiff claimed he and each member of the proposed class were entitled to the statutory civil penalty afforded to an "aggrieved consumer."
 
In granting defendant's motion to dismiss, the district court focused on whether plaintiff met the injury-in-fact requirement of standing under Article III of the Constitution and whether plaintiff is an "aggrieved consumer" under the TCCWNA. Id. at 6. On the issue of standing, the district court cited to the Supreme Court's recent decision in Spokeo and held that plaintiff did not meet the injury-in-fact requirement as the plaintiff had sustained no concrete injury. Id. at 8. Relying on Spokeo, the district court held that a "[c]oncrete injury must be de facto, that is, it must actually exist" and "a plaintiff [does not] automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right." Id. (quoting Spokeo, 136 S.Ct. at 1548-49).
 
Based on similar reasoning, the district court also held that plaintiff was not an "aggrieved consumer" under the TCCWNA. Adopting the definition of "aggrieved party" in Black's Law Dictionary as "one entitled to a remedy, especially a party who's [sic] personal, pecuniary or property rights have been adversely affected by another person's action," the district court held that plaintiff was not an "aggrieved consumer" because he had not alleged any losses stemming from the terms and conditions of the defendant's website. Id. at 9.
 
Briefing on plaintiff's appeal to the Third Circuit is scheduled to be completed by the end of March, and a decision should be rendered sometime in the second half of 2017. Incidentally, an appeal of a dismissal of a TCCWNA claim on Spokeo grounds is also pending in the Ninth Circuit, with briefing scheduled to be completed in April. See Candelario v. Rip Curl, Inc., No. 16-56382 (9th Cir. Sept. 22, 2016).

Wenger v. Bob's Discount Furniture L.L.C. and Spade v. Select Comfort Corp.
 
Neither of these cases involves an online TOU. However, each case may provide clarification of the term "aggrieved consumer" and what constitutes a violation of a "clearly established legal right of a consumer or responsibility of a seller . . . ."   See §§ 56:12-17, 56:12-15.
 
In Wenger and Spade, plaintiffs brought claims for statutory damages under the TCCWNA predicated on alleged violations of New Jersey's Delivery of Household Furniture and Furnishings Regulations ("Furniture Delivery Regulations"), N.J. ADMIN. CODE § 13:45A-5.1 (2012) et seq. The Furniture Delivery Regulations include rules about timely furniture delivery and language that must be included in a furniture sales contact. In both cases, the furniture was timely delivered but the contracts allegedly did not fully comply with the regulations. The district court ruled in both cases that plaintiffs failed to allege a cause of action under the TCCWNA because they were not "aggrieved." Transcript of Opinion at 15, Wenger v. Bob's Discount Furniture, L.L.C., No. 14-7707 (PGS) and Spade v. Select Comfort Corp., No. 15-1826 (PGS) (D.N.J. Feb. 29, 2016). The district court reasoned that "both defendants provided delivery dates and timely delivered the merchandise, and in Spade, the plaintiff received a refund for defective furniture;" therefore, the defendants' actions were in accordance with the spirit of the Furniture Delivery Regulations, even if they may not have met the written requirements. Id.
 
On appeal, the Third Circuit, in turn, has in each case certified two 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 noncompliance, 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?" Petition for Certification of Question of State Law at 5, Spade v. Select Comfort Corp., No. 16-1558 (3d Cir. Nov. 18, 2016); Petition for Certification of Question of State Law at 5, Wenger v. Bob's Discount Furniture, L.L.C., No. 16-1572 (3d Cir. Nov. 18, 2016). The New Jersey Supreme Court has not yet decided whether to accept the certified questions. But, answers to these questions by either the New Jersey Supreme Court or the Third Circuit have the potential to inform the decision on appeal in Russell and the other cases stayed in the District of New Jersey.

Conclusion
 
If the Third Circuit affirms in Russell, Wenger and Spade, some plaintiffs in the stayed cases with pending motions may abandon their claims. Other plaintiffs, on the other hand, may try to amend their complaints to meet whatever the Third Circuit may say is required to withstand a motion to dismiss based on the pleadings.
 
If the Third Circuit rules in favor of the plaintiffs on the questions of Article III standing and "aggrieved consumer," viable defenses remain to defeat these claims. The district court will have to consider other arguments raised in these motions that are not the subject of the pending appeals, including whether the TOU provisions at issue violate a "clearly established legal right of a consumer or responsibility of a seller" or, in cases alleging a Section 16 violation, whether the TOU contains a prohibited geographic qualifier, or whether a TOU that contains a choice-of-law provision that requires application of the law of a state other than New Jersey bars application of the TCCWNA. See, e.g., Palomino v. Facebook, Inc., No. 16-cv-04230-HSG, 2017 U.S. Dist. LEXIS 2971 (N.D. Cal. Jan. 9, 2017) (granting motion to dismiss TCCWNA claim on the ground that California choice-of-law clause in Facebook's online TOU was enforceable).
 
Even if the pending cases can overcome motions to dismiss, the question remains as to whether these cases are appropriate for class certification. That question may be informed by two more cases pending before the New Jersey Supreme Court — Dugan v. TGI Friday's, Inc., No. 077567 (N.J. Sup. Ct. July 26, 2016) and Bozzi v. OSI Restaurant Partners, L.L.C., No. 077556 (N.J. Sup. Ct. July 26, 2016). In both cases, the court will decide whether class certification is appropriate where plaintiffs allege that defendant violated the Consumer Fraud Act and the TCCWNA by failing to include drink prices on its menu.
 
Online sellers can expect fewer new case filings than in 2016 until the Third Circuit decides the appeals in Russell, Wenger, and Spade. If you are an online seller who has not yet been sued, you may want to consider reviewing and revising your website's TOU now to strengthen your defenses and minimize your risk of being a defendant in a class action lawsuit before new case filings potentially resume in earnest in the second half of the year.