Treble damages are not available in Donnelly Act class actions. The New York Court of Appeals recently held that treble damages are not recoverable in Donnelly Act class actions because the Donnelly Act’s treble damages provision, G.B.L. § 340(5), serves as a penalty for purposes of the New York class action statute, CPLR § 901(b).
The defendant businesses in Sperry v. Crompton Corp., 2007 NY Slip Op. 1425, 2007 N.Y. LEXIS 189 (N.Y. Feb. 22, 2007), produced and sold rubber-processing chemicals, and the purported plaintiff class sought damages on behalf of all consumers who had purchased tires that were manufactured using the defendants’ rubber-processing chemicals. The plaintiffs alleged that the defendants had entered into a price-fixing agreement and had overcharged tire manufacturers for the chemicals, and that these overcharges were passed on to consumers of tires.
The plaintiffs brought three claims under New York law: (1) violation of New York’s antitrust statute, commonly known as the Donnelly Act, General Business Law § 340 et seq.; (2) deceptive practice in violation of General Business Law § 349; and (3) unjust enrichment. The plaintiffs sought, among other relief, “three-fold the actual damages,” costs and attorneys’ fees under General Business Law § 340(5). The Supreme Court granted the defendants’ motion to dismiss, and the Appellate Division affirmed.
As the Donnelly Act does not address private class actions, the issue of first impression before the Court of Appeals was whether treble damages are available to class action plaintiffs or are barred by New York’s class action statute, CPLR § 901(b). CPLR § 901(b) provides, “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” The court explained that the purpose of § 901(b) was “to make class actions unavailable where individual plaintiffs were afforded sufficient economic encouragement to institute actions . . . , unless a statute expressly authorized the option of class action status. This makes sense, given that class actions are designed in large part to incentivize plaintiffs to sue when the economic benefit would otherwise be too small.”
The court held that the Donnelly Act’s treble damages provision is a penalty for purposes of CPLR § 901(b), and that such damages therefore are not available in class actions. This conclusion was based on the Donnelly Act treble damages provision’s failure to state that such damages are compensatory and the lack of a clear indication in the legislative history that such damages serve a compensatory purpose. “Although one third of the award unquestionably compensates a plaintiff for actual damages, the remainder necessarily punishes antitrust violations, deters such behavior (the traditional purposes of penalties) or encourages plaintiffs to commence litigation -- or some combination of the three.”
The Court of Appeals rejected any suggestion that its decision was controlled by United States Supreme Court decisions describing the federal antitrust treble damages provision as remedial in nature. The court noted that, although it ordinarily construes the Donnelly Act in light of federal antitrust case law, it interprets the New York statute differently from federal law where justified by state policy, differences in statutory language, or legislative history. In any event, the United States Supreme Court had not considered whether antitrust treble damages should be considered a “penalty” for purposes of a particular statute, and the federal class action provision, Fed. R. Civ. P. 23, contains no limitation like the one in CPLR § 901(b). The court described its task – viewing G.B.L. § 340(5)’s treble damages provision in light of CPLR § 901(b)’s limitation – as “a state law question that federal precedent is not very helpful in resolving.”
The court declined to consider whether the plaintiff could maintain a Donnelly Act class action by forgoing treble damages in favor of actual damages, as the plaintiff had consistently sought treble damages throughout the litigation and had not previously attempted to waive them to pursue only actual damages.