United States: E-Tailers Rejoice As Decisions Limit Lawsuits In Federal Court For Alleged Violations Of New Jersey's Controversial Consumer Protection Law

Online retailers are breathing a little easier since a New Jersey federal court handed down two decisions making it more difficult for plaintiffs to prevail against such retailers in federal court under New Jersey's controversial Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA).

These two decisions are expected to put a damper on the wave of class action suits being pursued in New Jersey federal court against e-commerce companies for technical violations of the TCCWNA.

Last year, this blog raised concerns regarding the TCCWNA, its growing popularity with plaintiffs' lawyers and the implications for online retailers. At a high level, the TCCWNA is a New Jersey consumer protection law that focuses on contractual terms (including online terms of service) governing transactions between sellers/service providers and New Jersey consumers. It prohibits sellers/service providers from including certain common provisions in their contracts with New Jersey consumers, and provides aggrieved New Jersey consumers with the right to recover from the seller/service provider a civil penalty of not less than $100 per violation. The TCCWNA applies even if the relevant contractual terms are expressly governed by the laws of a state other than New Jersey.

The application of the TCCWNA to online retailors initially looked to be a boon to the plaintiff's bar, based on a simple formula:  (1) assemble a class comprised of New Jersey consumers who have used an online retailer's website that has terms of service alleged to be in violation of the TCCWNA; (2) file a class action lawsuit in New Jersey state or federal court; and (3) collect at least $100 for each affected New Jersey consumer.

However, this approach now appears to have hit a serious speedbump, at least with respect to TCCWNA disputes filed or removed to federal court.

In a March 29, 2017 decision in Rubin v. J. Crew Group, Inc., Judge Wolfson of the U.S. Court for the District of New Jersey dismissed a putative TCCWNA class action claim against the retailor J. Crew. The plaintiff claimed that the terms and conditions on J. Crew's retail website included a limitation of liability provision that violated the TCCWNA. The plaintiff, however, could not point to specific harm that she suffered as a result of the alleged TCCWNA violation. Instead, she argued that the violation of her rights under New Jersey law is, itself, the underlying harm.

Judge Wolfson rejected the plaintiff's argument. Relying on the U.S. Supreme Court's recent decision in Spokeo, Inc. v. Robins, Judge Wolfson held that a bare violation of a right granted by a statute is not enough under Article III of the U.S. Constitution to provide a plaintiff with standing to sue in federal court; in order to have standing, the violation must result in a concrete harm. Because the plaintiff could not show that she suffered any concrete harm as a result of the offending provisions in J. Crew's online terms and conditions, the court dismissed her claim.

Judge Wolfson also took the opportunity to directly address the recent flood of TCCWNA lawsuits against online retailors:

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.

Not long after the J. Crew ruling, Judge Hillman, also a judge of the U.S. Court for the District of New Jersey, echoed Judge Wolfson's decision in a separate case. The fact pattern in Murray v. Lifetime Brands, Inc. is similar to that in J. Crew: the plaintiff brought a putative class action suit against an online retailer alleging that the retailer's online Terms of Use violate the TCCWNA. Noting that this case is one of several putative class action suits filed in District Court of New Jersey "all asserting basically the same claim against various sellers," Judge Hillman dismissed the plaintiff's claim under Spokeo for failure to plead that the plaintiff suffered a concrete harm from the online retailer's purported violation of the TCCWNA.

Although the J. Crew and Lifetime Brands decisions should come as some relief for online retailers, it remains important for retailers to be aware of the TCCWNA and to determine whether they are in compliance with the statute. Notably, the reasoning behind these recent retailer-friendly decisions may not be applicable to TCCWNA actions brought in New Jersey state courts, because Spokeo's concrete harm requirement is tied to jurisdictional limits placed on federal courts under Article III of the U.S. Constitution, and thus specific to actions pursued in federal courts.

Online retailers who are subject to suit in New Jersey state courts, and who do not succeed in removing such actions to federal court, could still be subject to the potentially substantial civil penalties afforded to plaintiffs under the TCCWNA. Accordingly, it is still too early to tell whether federal court decisions like J. Crew and Lifetime Brands, Inc. will ultimately reduce the volume of TCCWNA lawsuits brought against unsuspecting e-commerce providers, or merely shift the action primarily to New Jersey state courts going forward.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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