New Jersey Supreme Court Makes the Spade Case an Ace for Businesses Facing TCCWNA
In a decision issued this month, the New Jersey Supreme Court has spoken on two pivotal issues bearing on whether New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act, N.J.S.A. §§ 56:12-14 et seq. (“TCCWNA” or “the Act”) will have a greater or lessened impact on consumer litigation against businesses within—and even outside—this state. To understand the import of this recent decision, a brief synopsis of the TCCWNA jurisprudential landscape is helpful.
For more than two years, businesses have seen a rising tide of cases filed in New Jersey state and federal courts, as well as courts around the country alleging violations of the TCCWNA. The TCCWNA is a consumer protection statute that prohibits sellers from “offer[ing] to any consumer or prospective consumer or enter[ing] into any written consumer contract or giv[ing] or display[ing] any written consumer warranty, notice or sign” that “violates any clearly established legal right of a consumer.” N.J.S.A. § 56:12-15 (emphasis added). The Act also provides that “[n]o consumer contract, notice or sign shall state 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; provided, however, that this shall not apply to warranties.” N.J.S.A. § 56:12-16. The damages provision of the Act provides that “any person who violates the provisions of this Act shall be liable to the aggrieved consumer for a civil penalty of not less than $100, or actual damages or both, at the election of the consumer, together with reasonable attorney fees and costs.” N.J.S.A. § 56:12-17 (emphasis added).
Although many of the most recent case filings have challenged companies’ online terms and conditions, since its adoption in the 1980s, the TCCWNA historically has been used to challenge unlawful provisions in more traditional consumer contracts. Since the onslaught of these new TCCWNA case filings, courts in New Jersey and elsewhere have narrowed the scope and reach of the statute. For example, some federal courts have used the Article III standing requirements set forth in the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548, 194 L. Ed. 2d 635 (2016) to place limits on plaintiffs’ claims. See e.g., Rubin, et al., v. J. Crew Group, Inc., No. 16-cv-2167-FLW, Slip Op. at *1 (D.N.J. Mar. 29, 2017); Hecht v. Hertz Corp., No. 16-cv-1485, 2016 U.S. Dist. LEXIS 145589 (D.N.J. Oct. 20, 2016) (dismissing website TCCWNA claim where plaintiff failed to allege any concrete harm sufficient to meet Article III standing requirement); Russell v. Croscill Home LLC, No. 16-cv-1190, 2016 WL 6571278 (D.N.J. Oct. 12, 2016) (dismissing TCCWNA claim where plaintiff failed to allege a “concrete injury . . . as required under Spokeo” and failed to “demonstrate that he [was] ‘aggrieved’ under TCCWNA”).
The federal courts’ most recent pronouncement came on March 29, 2018, when the U. S. Court of Appeals for the Ninth Circuit weighed in for a second time in Candelario v. Rip Curl, Inc., 2018 U.S. App. LEXIS 7962, 2018 WL 1531138 (9th Cir. 2018). There, the Court affirmed the district court’s dismissal based on the lack of Article III standing of plaintiff’s putative class action lawsuit against Rip Curl, Inc. In her complaint, Candelario alleged that Rip Curl violated the TCCWNA because Rip Curl’s website terms and conditions allegedly deprived the plaintiff of a cause of action for “unreasonable risk of harm” created by Rip Curl and absolved Rip Curl of its duty to protect consumers from illegal acts of third parties. Id. at *2-3. Plaintiff argued that she suffered “intangible, informational injuries” sufficient to trigger Article III standing because of Rip Curl’s violation of the TCCWNA.
The Ninth Circuit relying on its previous decision in Bassett v. ABM Parking Services, Inc., 883 F.3d 776, 2018 WL 987954, at *1 (9th Cir. 2018), found that plaintiff failed to identify any concrete so-called “informational” injury. Candelario’s conclusory allegation that she suffered “intangible, informational injuries” based on a violation of the Act alone was too speculative to establish Article III standing. See id.
Despite a measure of clarity afforded by Spokeo and the cases that followed that decision, courts have still struggled with the definition of what constitutes a “clearly established right” and what it means to be an “aggrieved” consumer and practitioners and businesses have understandably craved much-needed guidance on the statute’s application. Last year, Dugan v. TGI Fridays, Inc., No. A-92-15, 2017 WL 4399352 (N.J. 2017), provided some foreshadowing of what would come in this latest installment of decisions whittling away at TCCWNA. The Dugan court suggested that too liberal of an interpretation of the TCCWNA would present potentially billion-dollar penalties and crushing liability on companies, contrary to the statute’s legislative intent. Id. at *25.
And now we arrive at the present – the much anticipated Spade decision, handed down April 16, 2018, is largely favorable to businesses. By way of background, in November 2016, the Third Circuit certified two questions to the New Jersey Supreme Court: (1) 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; and (2) 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? See Wenger v. Bob’s Discount Furniture LLC, No. 16-cv-1572 (3d Cir. Order dated Nov. 23, 2016); Spade v. Select Comfort Corp., No. 16-cv-1558 (3d Cir. Order dated Nov. 23, 2016).
The New Jersey Supreme Court answered the first question in the affirmative and the second in the negative. Spade v. Select Comfort Corp., A-57, 2018 N.J. LEXIS 483, *1-2 (N.J. 2018). Specifically, the Court held that a consumer who receives a contract that includes language prohibited by N.J.A.C. 13:45A-5.3(c), but who suffers no monetary or other harm as a result of that noncompliance, is not an “aggrieved consumer” entitled to a remedy under the TCCWNA. N.J.S.A. § 56:12-17. Spade, 2018 N.J. LEXIS at *3-4 (emphasis added). In both cases, the plaintiffs purchased furniture from the defendants and claimed that each of their sales contracts included language that violated various furniture delivery regulations. Id. at *15; see N.J.A.C. 13:45A-5.3(c); N.J.A.C. 13:45A-5.2(a); N.J.A.C. 13:45A-5.3(a); N.J.A.C. 13:45A-5.3(c); N.J.A.C. 13:45A-5.2(a); N.J.A.C. 13:45A-5.3(a). Despite these alleged violations, both plaintiffs received their furniture deliveries in a timely manner. Spade, 2018 N.J. LEXIS at *15. Both putative class actions were original filed in state court, but were removed to federal court. Id. at *16. Select Comfort filed a motion for judgment on the pleadings and Bob’s Discount Furniture filed a motion to dismiss the complaint. Id. at *17. After consolidating the cases, the district court granted both motions. Plaintiffs appealed. Id. at *18. After briefing, the Third Circuit panel determined that the appeals raised important and unresolved questions of New Jersey law. Id. Pursuant to Rule 2:12A-3, the Third Circuit certified the questions to the New Jersey Supreme Court. Id. at *18.
In a unanimous twenty-seven page opinion, the Supreme Court found that four elements must be proven for a TCCWNA cause of action: (1) defendant must have been a “seller, lessor, creditor, lender or bailee or assignee of any of the aforesaid”; (2) defendant must have offered or entered into a “written consumer contract” or gave or displayed “any written consumer warranty, notice or sign”; (3) the written consumer contract or the written consumer warranty, notice or sign contains a provision that “violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee” at the time of signing or displaying the offending material, as established by State or Federal law; and (4) finally, that the plaintiff is an “aggrieved consumer.” Id. at *21-22; see N.J.S.A. § 56:12-15, -17.
With respect to the question of whether the furniture delivery regulations could alone constitute a “clearly established right”, the Court found that it could, reasoning that nothing in either the TCCWNA’s plain language or its legislative history suggested that language that violates a regulation cannot be the basis for a claim under N.J.S.A. § 56:12-15. Id. at *24. The Court further recognized that the Legislature did not limit the term “State or Federal law” to statutes. Id. The Court found that a TCCWNA violation may be premised on a violation of a regulation, id. at *25, concluding that a furniture seller’s inclusion in a consumer sales contract of language prohibited by N.J.A.C. 13:45A-5.3(c) may alone constitute a violation of a “clearly established legal right of a consumer or responsibility of a seller” under N.J.S.A. § 56:12-15, and thus may provide a basis for relief under the TCCWNA. Id. at *27.
With respect to the question of whether a consumer is “aggrieved” when she receives a contract containing provisions that violate a regulation, but when she has suffered no adverse consequences as a result of the contract’s noncompliance with the regulation, the Court found that a consumer must suffer harm to be “aggrieved” within the meaning of the statute. Id. at *31. In reaching this conclusion, the Court recognized that “[t]he TCCWNA does not specifically define what makes a ‘consumer’ an ‘aggrieved consumer’ for purposes of N.J.S.A. § 56:12-17.” Id. at *27 (citing Dugan, 231 N.J. at 69). The Court noted that when the Legislature defined the conduct barred by the TCCWNA, it chose expansive language to describe the consumers and potential consumers whom the statute was enacted to protect. Id. at *31. In the TCCWNA’s remedial provision, however, the Legislature chose a more precise term: “aggrieved consumer”. Id. at *30; N.J.S.A. § 56:12-17. The Court reasoned that the Legislature clearly intended to differentiate between “consumers and prospective consumers” – the broad category of people whom the Legislature seeks to shield from offending provisions – and “aggrieved consumers” entitled to a remedy under the TCCWNA. Id. The Court interpreted the word “aggrieved” so as to give it significance; it distinguished consumers who have suffered harm because of a violation of N.J.S.A. § 56:12-15 from those who have merely been exposed to unlawful language in a contract or writing, to no effect. Id. at *30. Relying on reference sources contemporaneous to the TCCWNA’s enactment, the Court found that the term “aggrieved consumer” denotes a consumer who has suffered some form of harm as a result of the defendant’s conduct. Id. at *30. Thus, an “aggrieved consumer” is required to have been harmed in order to maintain a claim under the TCCWNA. Id.
While a showing of monetary harm suffices under the statute, the Court elaborated that it does not view harm as limited to injury compensable by monetary damages as evidenced by the fact that the provided for “a civil penalty of not less than $100.00 or . . . actual damages, or both at the election of the consumer.” Id. at *32; see N.J.S.A. § 56:12-17. The TCCWNA thus contemplates that a consumer may be entitled to a remedy notwithstanding the absence of proof of monetary damages. Id. The Court went on to note examples emanating from the failure of timely delivery of when a consumer might be “aggrieved,” but not suffer monetary harm.
Spade is significant because it provides practitioners, companies doing business in New Jersey, and lower courts with guidance on how to apply the TCCWNA. We should expect Spade to result in either the dismissal or substantial reworking of the class definitions in many pending and/or currently stayed TCCWNA cases. Many of the more recent case filing, especially those concerning a company’s website terms and conditions define overboard classes consisting of individuals who in fact have suffered no harm (economic or otherwise). While the decision is largely positive for businesses, the Court left open the question of what “other harm” may mean in a particular case as the examples offered by the Court relate only to the failure of timely delivery.
Both Spade and Candelario can be expected to result in the continued curtailment in new case filings, but practitioners and companies doing business in New Jersey should be alert to the reality that the TCCWNA is a unique consumer protection statute that imposes broad compliance obligations on businesses to not attempt to contract against or around governing law. As a result, businesses must continue to be vigilant in ensuring that their website terms and conditions, form contracts, and other consumer-facing communications are up-to-date and consistent with applicable law.