HIGHLIGHTS:

  • In what has been described as a landmark ruling on behalf of both national retailers and consumers alike, the New Jersey Supreme Court has established critical law to limit exposure to purported class action claims involving the New Jersey Truth-in-Consumer Contract Warranty and Notice Act (TCCWNA).
  • Specifically, the Court's recent 7-0 opinion enforced TCCWNA as the New Jersey Legislature intended – requiring that a consumer asserting a TCCWNA claim must be adversely affected by the alleged violation in order to establish a claim for relief.
  • The decision is a victory for national retailers that were facing "gotcha litigation" where no real harm or impact had occurred and, instead, were being held hostage to threats of protracted litigation by consumer class counsel with mounting legal fees and costs.

Earlier this year, Holland & Knight's publication on the New Jersey Truth-in-Consumer Contract Warranty and Notice Act (TCCWNA) concluded that the New Jersey Supreme Court had two options when interpreting the certified questions of law posed by the U.S. Court of Appeals for the Third Circuit. TCCWNA's application could continue to embolden class claims even where a consumer incurred no harm or adverse consequences. Alternatively, it could limit TCCWNA's intended reach to its logical conclusion such that only those consumers who have suffered actual harm could sustain a claim. (See Holland & Knight's alert, "With Some Progress in 2017, Where Does TCCWNA Head in 2018?", March 1, 2018.)

In what has been described as a landmark ruling on behalf of both national retailers and consumers alike, the New Jersey Supreme Court established critical law to limit exposure to purported class action claims involving TCCWNA. Specifically, the Court's recent 7-0 opinion enforced TCCWNA as the New Jersey Legislature intended – requiring that a consumer asserting a TCCWNA claim must be adversely affected by the alleged violation in order to establish a claim for relief. This pronouncement confirms a significant shift in favor of all retailers, which protects them against the abuse of TCCWNA's reach by consumer class counsel.

TCCWNA Background

During the past five years or so, the recent wave of purported consumer class actions brought under TCCWNA did not just target "bad actors" in order to protect the rights of New Jersey consumers. Rather, the vast majority of these claims target legitimate companies that contribute lawfully to commerce across the country, including in New Jersey, seemingly in order to line the pockets of class counsel without regard to whether there are actually legitimate consumer issues at stake.

Retailers were forced to spend millions of dollars defending questionable class claims that have little to do with protecting consumers' rights. Emboldened by the concept that a mere technical violation of TCCWNA – even without any resulting impact, harm or loss – was enough to sustain a claim, counsel presented purported class claims with alleged damages ranging from tens of millions of dollars to more than $100 million based upon TCCWNA's $100 penalty per violation, plus attorneys' fees and costs. Class counsel gained traction in some friendly state courts, which found that the mere presence of language that violated a consumer's right in a written contract was enough, without anything more, to sustain a claim. Examples of the far-reaching effects of this result included suing numerous retailers in class claims for alleged offending language contained on websites that the consumer only visited rather than used for purchase.

New Jersey Supreme Court's Landmark Decision

In Spade v. Select Comfort Corp., __ A.3d ___, 2018 WL 1790394 * 1 (April 16, 2018) (consolidated for appeal with Wenger v. Bob's Discount Furniture LLC), the Court addressed two questions referred from the Third Circuit: a) whether a consumer who receives a contract that violates a regulation but has not suffered any adverse consequence from noncompliance is an "aggrieved consumer" under TCCWNA and b) whether a violation of a regulation can, on its own, constitute a violation of a "clearly established legal right" under TCCWNA. Extensive briefing by the parties and eight amicus parties along with oral argument preceded the Court's decision, with Holland & Knight representing the interests of Bob's Discount Furniture (Bob's).

The Court decided these issues in the context of the plaintiffs' arguments that Bob's and Select Comfort violated TCCWNA merely by including language in their consumer contracts, which allegedly violated the New Jersey Delivery of Household Furniture and Furnishing Regulations (which prescribe rules for timely delivery and require certain language in consumer contracts). Despite timely receiving conforming furniture and suffering no adverse consequences as a result of the alleged regulation violation, the plaintiffs, in Wegner, sought tens of millions of dollars in relief. The U.S. District Court for the District of New Jersey dismissed both complaints, finding that neither plaintiff could sustain a TCCWNA claim for relief because they were not "aggrieved consumer[s]," as TCCWNA requires, because they did not "suffer the effects of a violation ... ."1 On appeal to the Third Circuit, the plaintiffs argued that they were not required to establish "actual harm" to sustain a TCCWNA claim and, instead, the mere receipt of language which violates a regulation alone was sufficient. Citing a lack of persuasive precedent, the Third Circuit certified the two questions of law above to the New Jersey Supreme Court.

Critically, the New Jersey Supreme Court's unanimous opinion in Spade/Wenger: a) established a critical distinction between the terms "consumer" versus "aggrieved consumer," whereby aggrieved has specific meaning and impact in deciding whether recovery is even available under TCCWNA; b) flatly rejected the argument that mere receipt of a consumer contract/notice, which violates a clearly established legal right, is, in and of itself, sufficient in order to sustain a claim for recovery under TCCWNA; and c) established that, as a matter of law, a consumer must be "aggrieved" in order to sustain a TCCWNA claim such that the consumer must suffer an "adverse consequence" as a result of an alleged violation in the form of "monetary or other harm."

"Aggrieved" Modifies the Defined Term "Consumer"

The Spade/Wegner decision clarified a critical element for viable TCCWNA claims – what makes a "consumer" an "aggrieved consumer." The requirement for a plaintiff to be an aggrieved consumer is not new.2 However, the Supreme Court of New Jersey had not directly addressed the definition of an aggrieved consumer and the TCCWNA left this critical term undefined.3 The Court found "ample evidence" in the plain language of the TCCWNA and in reference sources that existed contemporaneous with its enactment – an interpretive tool commonly used in construing legislative language – that indicated the Legislature's intent to differentiate between a broad category of people whom the Legislature sought to shield from offending provisions and a more precise group of people entitled to a remedy.4 "Aggrieved" modified the term "consumer," limiting who may recover for a violation of the TCCWNA.

So who is an aggrieved consumer? The simple answer is that an "aggrieved consumer" is a consumer who has suffered harm as a result of a defendant's violation of the TCCWNA.5 To this end, the Legislature's use of the "more precise term" of "aggrieved consumer" distinguishes "consumers who have suffered harm because of a violation of [the Furniture Regulation] from those who have merely been exposed to unlawful language in a contract or writing, to no effect." Where there is exposure with "no effect," a claim cannot be sustained because the consumer must be one "who has suffered some form of harm as a result of the defendant's conduct." And, while the Court found that harm is not limited to injury compensable by monetary damages, "[i]n the absence of evidence that the consumer suffered adverse consequences as a result of the defendant's regulatory violation, a consumer is not an 'aggrieved consumer' for purposes of the TCCWNA."6

In the context of the Spade-Wegner appeals, the Court found that the plaintiffs were entitled to timely and conforming delivery of their furniture.7 If the plaintiffs' "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]."8

Regulations May Serve as Basis for TCCWNA Claims if "Clearly Established"

The Court concluded that "[t]he inclusion of language prohibited by [the Furniture Delivery Regulation] . . . may give rise to a violation of a 'clearly established legal right of a consumer or responsibility of a seller' for purposes of the TCCWNA." (emphasis supplied). This finding, however, does not nullify the Supreme Court's decision in Dugan v. TGI Fridays, Inc., 171 A.3d 620, 647 (N.J. 2017), which concluded that not every regulatory violation constituted a violation of a clearly established legal right under TCCWNA. Indeed, the clearly established analysis must occur on an individualized basis in each case.

What Happens from Here?

There is little doubt that the Spade decision is a victory for common sense application of the law and, more importantly, for national retailers that were facing "gotcha litigation" where no real harm or impact had occurred and, instead, were being held hostage to threats of protracted litigation with mounting legal fees and costs. The decision forces class counsel to abandon the theory that "aggrieved" means nothing. Instead, it forces them to establish what TCCWNA always intended – that the consumer must suffer actual harm in order to sustain a claim. TCCWNA claims with "no injuries" should, hopefully, be a thing of the past. And, even where harm is established, class certification should become increasingly difficult given the "unique" harm that a consumer will likely have experienced in order to sustain a claim.

The positive impact of the Spade decision was realized after the Third Circuit asked counsel in the Wenger action (along with counsel in the Spade action) to brief the impact of the Spade decision on the pending appeals. Counsel for Wenger conceded that, in light of the Spade decision, it had no viable claim to pursue against Bob's, stating " the statutory interpretation in Spade leaves them without basis to continue to seek reversal of the district court's order . . ." On May 9, 2018, a stipulation of dismissal with prejudice of the appeal was filed with the Third Circuit awarding costs in favor of Bob's, which the Court entered on May 30, 2018.

Despite this progress, retailers must still analyze carefully all consumer-facing contracts and notices (including, critically, websites) to ensure compliance with New Jersey law.