Over the past few years, dozens and dozens of retailers have been targeted by claims under an archaic New Jersey law that prohibits retailers from including in consumer contracts terms that could be applied in a way that violates a “clearly established legal right.” Claims under the New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA) have most often been brought against online retailers for website terms and conditions that include allegedly overbroad indemnity clauses or liability waivers, and against furniture retailers whose sales contracts do not comply with technical requirements imposed under New Jersey furniture regulations.

TCCWNA claims can be difficult and potentially expensive to defend, as the statute provides to “aggrieved consumers” $100 per violation. They can also be a nuisance to avoid, as doing so would involve reading every consumer contract that may be used in New Jersey with an eye towards New Jersey law. For these reasons, TCCWNA claims have historically joined the ranks of website accessibility cases as nuisance claims that are settled quickly, often before a suit is even filed.

This will all likely change with a new decision from the New Jersey Supreme Court.

After a year of deliberating, the Court on April 16, 2018 issued a decision clarifying that the TCCWNA does not support statutory penalties for no-injury claims. Instead, to be “aggrieved,” a consumer must have suffered an actual injury caused by the alleged violation. This decision will likely deter plaintiffs from bringing future claims and, at a minimum, provides a strong defense to retailers involved in this litigation.

Background of the TCCWNA

The TCCWNA was enacted in 1981 (long before the rise of e-commerce), and prohibits sellers from offering a written consumer contract or displaying any notice or sign that 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…” For online interstate retailers, standard terms and conditions in either Terms of Sale, or even website Terms of Use, could impose a risk of violation if any of those terms are deemed contrary to New Jersey or federal law.

Compliance is even more complicated than it sounds, because in many instances, neither the law nor courts have made clear exactly what kinds of terms are enforceable in New Jersey. For example, as to website terms, New Jersey courts have found liability waivers to be unenforceable to the extent they violate public policy; under this kind of subjective standard, it would be impossible for a retailer to know whether and how enforceable a given term may be. If the retailer overestimates the enforceability of a given provision, it may run afoul of the TCCWNA’s restriction against using terms and conditions that violate a customer’s “established legal right.” If the retailer underestimates the enforceability of a provision, it may risk opening itself up to claims that the customer otherwise would have waived.

Despite what may seem a trivial violation, the TCCWNA imposes substantial penalties. A seller who violates this law is liable to the “aggrieved consumer for a civil penalty of not less than $100.00 or for actual damages, or both at the election of the consumer, together with reasonable attorney’s fees and court costs.” N.J.S.A. 56:12–17. In the context of a class action, the TCCWNA’s mandatory $100 statutory penalty can quickly add up to potentially extraordinary liability. Moreover, plaintiffs have argued that this penalty applies per each violation in a given contract — twice, if a given term violates both the “established legal right” provision and the requirement for the website to disclose how a term would be enforced in New Jersey. Under that argument, a retailer could be liable for $200 per provision in a contract and for each New Jersey resident subject to the contract’s terms.

Plaintiffs have claimed that the mere existence of noncompliant language in a contract enables them to recover these damages, even if they never even viewed or relied on the allegedly noncompliant contract at issue.

Claims Against Furniture Retailers

Numerous furniture retailers have been targeted under the TCCWNA for their sales contracts, which plaintiffs have claimed violate the New Jersey Household Furniture and Furnishings Regulations, N.J.A.C. 13:45A-5.1, et seq, (“Furniture Regulations”). The Furniture Regulations require that furniture retailers:

  • Deliver all of the ordered merchandise by or on the promised delivery date; or
  • Provide written notice to the consumer of the impossibility of meeting the promised delivery date. The notice shall offer the consumer the option to cancel said order with a prompt, full refund of any payments already made or to accept delivery at a specified later time. The written notice must be provided prior to the delivery date.

Additionally, furniture sales agreements must include specific terms. Specifically, the agreement must:

  • Conspicuously state on the first page of the sales document in ten-point bold font, language to the effect of, “if the merchandise ordered by you is not delivered by the promised delivery date, (insert name of seller) must offer you the choice of (1) canceling your order with a prompt, full refund of any payments you have made, or (2) accepting delivery at a specific later date.”
  • Conspicuously state the date of the order and the following sentence in ten-point bold font, something such as, “the merchandise you have ordered is promised for delivery to you on or before (insert date or length of time agreed upon).”
  • Not include terms such as “all sales final,” “no cancellations” or “no refunds.” Any sales agreement containing such terms shall be null and void and unenforceable. (This part of the regulation is obviously troubling for the retail context, where custom furniture is sold such that a returned item probably cannot be re-sold without a substantial loss.)

These technical requirements—which some national furniture retailers are not aware of, and thus have not known to comply with—have been ripe for TCCWNA claims. Suits have attacked furniture companies’ failure to provide a delivery date or the other required disclosures, and to include such disclosures in 10-point bold font.

The New Jersey Supreme Court’s Decision

David Spade v. Select Comfort Corp. and Christopher Wenger v. Bob’s Discount Furniture LLC, two companion cases pending in the Third Circuit, are examples of no-injury TCCWNA cases brought against furniture companies. The plaintiffs in each case allege that the defendants’ sales contracts violated technical requirements set forth in the Furniture Regulations (for example, by including “all sales final” language, omitting required disclosures, and failing to comply with the font size requirement). Plaintiffs do not claim, however, to have suffered any concrete, actual injury caused by these alleged violations. Instead, their claims are based on the mere presence of noncompliant language in the contracts.

In November 2016, the Third Circuit asked the New Jersey Supreme Court to weigh in on whether the TCCWNA actually supports this kind of claim. The Third Circuit certified two questions:

  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 provides a basis for relief under the TCCWNA?
  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?

On April 4, 2017, the New Jersey Supreme Court announced that it would answer these two questions. On April 16, 2018, in a unanimous opinion, the Court decided that although a violation of the furniture regulations may give rise to a TCCWNA claim, consumers must prove they were actually harmed to collect statutory penalties.

As to the first question, court explained that the Furniture Delivery Regulations are “plainly” the source of a ‘clearly established legal right,’” noting that they have the force of law, that violation of the regulation would be subject to sanctions, and that “accepting regulations as a source of law … furthers the TCCWNA’s consumer-protection objectives.”

As to the second, the Court offered the precise guidance that retailers had been hoping for: A consumer who receives a contract that includes language prohibited by a given law or regulation, 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. The court explained that the plain language of the statute provided “ample evidence” that that 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.” The court continued:

If “aggrieved consumer” were construed to mean nothing more than a “consumer” to whom a contract or other writing is offered, given or displayed, the term “aggrieved” would be superfluous. That word distinguishes consumers who have suffered harm because of a violation of [the TCCWNA] from those who have merely been exposed to unlawful language in a contract or writing, to no effect. That harm is not limited to injury compensable by monetary damages. Proof of harm resulting from contract language prohibited by [the TCCWNA] may warrant a civil penalty under [the TCCWNA], even if the harm is not compensable by damages. In the setting of these appeals, if a consumer has entered into a sales contract containing a provision that violated [the Furniture Delivery Regulations], but his or her furniture was delivered conforming and on schedule, and he or she has incurred no monetary damages or adverse consequences, that consumer has suffered no harm. Such a consumer is not an “aggrieved consumer” under [the TCCWNA].

The Third Circuit will now use the New Jersey Supreme Court’s guidance in ruling on the appeals in Spade and Wenger.

Conclusion

Although the question at issue concerned the Furniture Regulations, this reasoning could easily (if not more easily) be applied to cases brought against websites for their terms of use, in which the consumer never claimed to have viewed or relied on allegedly illegal terms.

Retailers should not assume that this decision means that they are completely insulated from TCCWNA claims. This decision is limited to no-injury actions, leaving open the door for claims in which the plaintiff was actually deterred from taking a certain action based on reliance on an allegedly noncompliant contract. Businesses that do business in New Jersey—including any business that sells products online to New Jersey residents—should thus review their consumer contracts (including their online terms and conditions) to ensure that they are in compliance with New Jersey law.