On a ski trip a few years back, a friend of mine decided to spend his day at a local bar instead of on the slopes. He spent the afternoon drinking with a friend and a man they met at the bar. Later in the day, the man, who had been drinking with them the whole time, said he had to go to work. He stood up, walked around to the other side of the bar, and clocked in for his shift as the bartender. He promptly gave my friend one more drink on the house, and then told him he was cut off. That is consumer fraud if you ask me. But, alas, that issue was not before the New Jersey Supreme Court in Dugan v. TGI Friday’s, Inc.

In Dugan, plaintiffs alleged that TGIF violated the New Jersey Consumer Fraud Act (CFA) and the Truth in Consumer Contract Warranty and Notice Act (TCCWNA) by (1) failing to list prices for alcoholic and non-alcoholic drinks on its menus and (2) charging different prices for the same beverage depending upon where in the restaurant the beverage was served (i.e., at the bar as opposed to at a table). Plaintiffs sought to certify a class comprised of "all customers who had purchased items from the menu that did not have a disclosed price."

The first-named plaintiff alleged in the complaint that she only "became aware of the prices [of drinks she purchased at the bar] after she had consumed the beverages and was presented with a check," and that she was "charged $2.00 for a beer at the bar and later charged $3.59 for the same beer at a table in the restaurant." She was later deposed and admitted that she did not review the menu at the bar, or review the price of the beer indicated on her receipt from the bar, or review the beverage section of the menu at the table, or review the final bill before she paid it. Rather, she testified that she reviewed the receipts when she got home and noticed the discrepancies, and also noticed that she paid a "steep" price for a soda.

Another plaintiff testified that he ordered three drinks at a TGIF restaurant in Cherry Hill, New Jersey. He explained that he did so because he had a "bad day" and wanted to "adjust his attitude." He claimed that drink prices were not listed on the menu and that he "went ballistic" when he received the bill. He claimed that he expected to pay about $5.75 per drink, but was charged $6.99. Several years later, he returned to the same restaurant with his wife and experienced something similar -- the server told him that mixed drinks cost $7.00 and beer $5.00, but he was charged $7.19 for one mixed drink, $8.20 for another, and $5.29 for a beer.

In 2012, after discovery, the trial court certified the class, eventually defining it as all persons who "purchased an offered but unpriced soda, beer or mixed drink." TGIF moved for reconsideration, but its motion was denied. TGIF then sought leave to appeal the trial court's order, which was denied by the Appellate Division but overturned by the Supreme Court.

On remand, the Appellate Division reversed the trial court's order certifying the class. The Appellate Division noted that, to sustain the class certification, plaintiffs had to satisfy both Rule 4:32-1(a) -- setting forth the requirements commonly referred to as numerosity, commonality, typicality, and adequacy of representation -- and Rule 4:32-1(b) -- setting forth the requirements commonly referred to as predominance, superiority, and manageability. TGIF argued that plaintiffs could not satisfy the predominance requirement in connection with their CFA claims, and the Appellate Division agreed.

Under the CFA, plaintiffs would be required to prove (1) unlawful conduct by TGIF, (2) ascertainable loss by a plaintiff, and (3) a causal relationship between the two. The Appellate Division held that plaintiffs "failed to show that common issues of fact as to whether TGIF's customers who purchased unpriced soda, beer or mixed drinks predominate[d] over issues that pertain[ed] to individual class members." Specifically, the Appellate Division held that "a patron may have chosen to purchase a particular beverage on a specific date for any number of reasons that [had] nothing to do with the lack of menu pricing." In support of this conclusion, the Appellate Division provided the following examples:

  • Some individuals may not have looked at the beverage section of the menu before ordering a drink. If so, then TGIF's failure to list prices on the menu had no "causal nexus to the individual's decision to purchase a particular beverage."
  • Some individuals may not have relied on the menu at all before purchasing a drink, but instead may have asked the bartender or server about the price before doing so. If they did, they would have been informed of the price before ordering.
  • Some individuals may have visited TGIF restaurants more than once, and thus may have already known the price of the drink they ordered. Others may have assumed the price based on their experience at other restaurants. In either case, because of this prior experience at a TGIF restaurant or elsewhere, there would be no "causal nexus" between the drink being unpriced on the menu and any alleged harm.
  • Dugan claimed that she was charged $2 for a beer at the bar and $3.59 for the same beer at a table, but acknowledged that the bar price was the price charged during happy hour. As the Appellate Division noted: "Although Dugan may have been misled to believe she would be charged the 'happy hour' price for both drinks, that may not [have been] so as to other patrons who made similar purchases."

In light of all these individual issues, the Appellate Division held that the trial court erred by allowing plaintiffs' CFA claim to be maintained as a class action.

The Appellate Division came to the same conclusion in connection with plaintiffs' claim under the Truth in Consumer Contract Warranty and Notice Act. The purpose of that act is to "prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties in consumer contracts." TGIF argued, and the Appellate Division agreed, that plaintiffs could not establish predominance for their claims under the act because they could not show that "each individual class member . . . was provided with a menu that violate[d] the law." As the Appellate Division observed: "[A] server may have forgotten to provide the menu to a customer, or a patron may have told the server that a menu was not necessary. Individualized inquiries would be required to determine whether each class member was handed a menu that lacked beverage pricing."

Plaintiffs appealed, but the New Jersey Supreme Court affirmed the Appellate Division’s decision.

The Supreme Court observed that plaintiffs’ claims were “inherently different” than the usual CFA claims. In most CFA cases, plaintiffs allege “that they purchased defective or deficient goods.” In Dugan, however, the “beverages at issue . . . were not defective,” but were, in fact, “precisely what the customers ordered.” Instead of alleging a defect, plaintiffs in Dugan claimed that they were “charged an excessive price for the alcoholic and non-alcoholic beverages that they purchased.” According to the Supreme Court, this presented a predominance problem for plaintiffs: “[Plaintiffs] predominance claim is complicated by the fact that the products at issue are beverages sold in restaurants at a range of prices and purchased by consumers with divergent motivations, beverage preferences, and budgetary constraints.”

Plaintiffs did not argue that they could prove that each member in the “multi-million-member class would have purchased fewer or less expensive beverages, or none at all, had TGIF informed [them] of the beverage prices.” In other words, plaintiffs did not intend to show plaintiff-by-plaintiff evidence of causation or ascertainable loss. Instead, they claimed that they could use an internal TGIF study to show both without individualized proof. Apparently, TGIF had conducted market research showing that customers spent an average of $1.72 more during their visits when drink prices were not disclosed to them. (This sounds like the type of information John Taffer would share on Bar Rescue.) Plaintiffs argued that this study proved class-wide causation, and also established that $1.72 was each class member’s ascertainable loss because it represented the difference between a fair and reasonable price for a drink and what customers were actually charged for their beverages.

The Supreme Court rejected this argument, holding that “[New Jersey] case law has consistently rejected ‘price-inflation’ theories – closely related to fraud on the market theories – as a substitute for proof of ascertainable loss or causation in CFA claims.” After reviewing a litany of prior cases, the Supreme Court summed up its holding as follows:

Individual plaintiffs may be able to establish ascertainable loss and causation by showing that they would not have purchased the beverages or would have spent less money on them had they been informed of their cost. The Dugan plaintiffs cannot establish ascertainable loss and causation, however, by demonstrating that TGIF’s beverage prices were higher than they would have been had TGIF listed its prices on its restaurant menus. A “fair” or “reasonable” price derived from the per-visit expenditures of marketing research subjects is no substitute for proof of actual claimants’ ascertainable loss and causation.

Accordingly, while plaintiffs might be able to show ascertainable loss and causation on an individual basis, they could not do it on a class-wide basis.

Finally, one of the more closely watched issues in Dugan involved plaintiffs’ TCCWNA claim. Specifically, the question of whether a TCCWNA claim could be based on an omission. TCCWNA generally prohibits a seller from entering into a consumer contract that includes an illegal term. But, before Dugan, it was not clear whether TCCWNA applied to contracts that omitted allegedly required language. (I wrote about a federal court decision addressing the issue here.) That issue now appears to have been resolved. In Dugan, the Supreme Court noted that it was not determining the specific issue of “whether a defendant restaurant’s presentation of a menu that omits beverage prices gives rise to a TCCWNA claim,” but it held that, generally, “[b]y its very terms, the TCCWNA addresses ‘contracts,’ ‘warranties,’ ‘notices,’ and ‘signs’ and does not apply when a defendant fails to provide the consumer with a required writing.”