Also published in the Socially Aware blog
If your company is involved in selling products or services to consumers in New Jersey over the web or through mobile apps, you’ll want to read this Client Alert.
In what amounts to a feeding frenzy, plaintiffs’ lawyers are working overtime bringing class action suits against e-commerce companies, alleging that their online terms and conditions violate New Jersey’s unusual Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”). Some of the online retailers to have been sued include Victoria’s Secret, Bed Bath & Beyond and TOYS ‘R’ US, with more suits being filed every day.
Unlike most consumer protection laws, the TCCWNA focuses specifically on the contractual terms governing certain transactions with consumers, imposing limitations on such terms even if such contractual terms are governed by the law of a state other than New Jersey—creating a potential gotcha for e-tailers who are based outside of New Jersey and who traditionally have their online terms and conditions reviewed only by lawyers admitted to practice in the state whose laws govern such terms and conditions.
Although the TCCWNA was enacted in 1981, it has only recently achieved notoriety, as more and more plaintiffs’ lawyers have embraced the statute due to its broad scope and its statutory penalty of not less than $100 per violation without the need to prove actual harm.
Overview of the TCCWNA
New Jersey adopted the TCCWNA over 30 years ago not to create new rights for consumers, but rather to “bolster rights and responsibilities established by other laws,” particularly those established by New Jersey’s Consumer Fraud Act (“CFA”). Observers have noted that the number of TCCWNA cases has been increasing in the last few years, particularly since 2013 when the Supreme Court of New Jersey in Shelton v. Restaurant.com, Inc. found that online certificates or coupons were subject to TCCWNA rules and opened the door to TCCWNA class actions stemming from e-commerce.
The TCCWNA applies where a company is a “seller, lessor, creditor, lender or bailee,” offering its services to a “consumer” or “prospective consumer” in New Jersey. A “consumer,” under the TCCWNA, is defined as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” Indeed, courts have emphasized that the TCCWNA is inapplicable unless the plaintiffs are consumers.
The text of the TCCWNA prohibits three types of provisions in consumer contracts, warranties, notices and signs.
First, it prohibits provisions violating “clearly established” legal rights of a consumer or responsibilities of a seller, lessor, creditor, lender or bailee. These rights and responsibilities may arise from federal or state law. For example, one court found that provisions restricting limitations periods for initiating lawsuits, asserting counterclaims or raising affirmative defenses violate consumers’ rights under federal and New Jersey procedural rules
Second, the TCCWNA prohibits provisions waiving a consumer’s rights under the TCCWNA. In Johnson v. Wynn’s Extended Care, Inc., for example, the U.S Court of Appeals for the Third Circuit held that a provision in a service contract that prevented the recovery of attorneys’ fees and costs constituted a waiver of a consumer’s rights under the TCCWNA, and was therefore prohibited.
Note, however, that at least two cases have found that a claim under the TCCWNA cannot be based merely upon an omission. As one court noted, the statute’s use of the term “includes” suggests that only a statement affirmatively “included” in the consumer contract, warranty, notice or sign should give rise to liability; in addition, the legislative history does not include any examples of an omission triggering liability.
Third, the TCCWNA prohibits blanket “inapplicable in some jurisdictions” savings clauses (e.g., phrased “void where prohibited”)—though, notably, it does not prohibit such savings clauses in any warranty. In order for a savings clause to be acceptable under the TCCWNA, the statute requires the clause to specify which provisions, if any, are unenforceable in New Jersey.
In one recent case, Martinez-Santiago v. Public Storage, the following language was found to be in violation of the TCCWNA’s prohibition against overly broad savings clauses: “If any provision of this [agreement] shall be invalid or prohibited under [the law of the state where the applicable premises are located], such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions.”
Certain courts, however, have refused to find such a violation of the TCCWNA when the consumer contract, notice or sign is only available within New Jersey, or when the clause uses the alternative “to the extent permitted by law” phrasing, as discussed below.
TCCWNA’s Potential Danger to Online Companies
The TCCWNA is potentially dangerous for companies operating online for at least three reasons.
First, plaintiffs’ lawyers are pushing for an extremely broad application of the statute. They argue that the TCCWNA applies to almost every company providing consumer products online that are available to New Jersey residents, and to any “written consumer contract” and “written consumer warranty, notice or sign” made available to these residents—presumably encompassing nearly all material displayed or offered by a company online.
Third, the TCCWNA is potentially dangerous for companies because it provides an “aggrieved consumer” with the option to seek recovery of a civil penalty of not less than $100. This means the penalties in class actions—especially the penalties in class actions over online terms and conditions—could add up quickly. The text of the statute also allows for actual damages, reasonable attorneys’ fees and court costs in addition to the civil penalty, and further states that such remedies are cumulative and do not preclude recovery available under other laws.
Some Guidance for Online Companies From Emerging TCCWNA Case Law
Because claims arguing that online terms and conditions violate the TCCWNA have been filed only recently, there is only sparse guidance from the courts on how online companies selling into New Jersey can protect against these lawsuits.
Moreover, any such company, if it has not already done so, should promptly contact New Jersey counsel for advice on how to ensure its online terms and conditions are compliant with the TCCWNA.
With those important caveats in mind, recent court decisions applying the TCCWNA do highlight some potential precautionary measures for website operators.
For example, as a first line of defense, it may be prudent for companies to include, and seek to bolster the enforceability of, an arbitration provision and a related class action waiver clause in their online terms and conditions. As an example, in one TCCWNA case, the Supreme Court of New Jersey indicated that an arbitration provision would have been enforceable if it had clearly and unambiguously notified the consumer that she was waiving her statutory right to seek relief in the court of law. While there is no prescribed wording for a valid arbitration provision, one New Jersey court found the following arbitration notice to be acceptable:
The parties to this agreement agree to arbitrate any claim, dispute, or controversy, including all statutory claims and any state or federal claims, that may arise out of or relating to the [subject matter of the agreement]. By agreeing to arbitration, the parties understand and agree that they are waiving their rights to maintain other available resolution processes, such as a court action or administrative proceeding, to settle their disputes.
As a second line of defense, it may be prudent for companies, working with New Jersey counsel, to review and potentially revise their online contracts, warranties and notices in light of TCCWNA cases to date. One approach suggested by existing TCCWNA case law is that businesses can avoid violating the TCCWNA’s prohibition on blanket “inapplicable in some jurisdictions” savings clauses by using different language in their savings clauses to achieve the same result. As noted above, the text of the TCCWNA prohibits savings clauses that state that certain terms “may be void, unenforceable or inapplicable in some jurisdictions” if such clauses do not identify which terms are or are not void, unenforceable or inapplicable in New Jersey. In Kendall v. CubeSmart L.P., however, the United States District Court for the District of New Jersey found that companies could use savings clauses that “attempt…to conform to New Jersey law.” Citing several cases, it held that the phrases “to the extent permitted by law,” “in the manner permitted by applicable law,” “allowed by applicable law” and “or as otherwise permitted by applicable law” were acceptable in savings clauses under the TCCWNA.
Even if companies adjust their savings clauses as suggested by TCCWNA case law, it may still be prudent to pay particular attention to any language in their online contracts, warranties and notices that may violate “clearly established” legal rights, with particular attention to language that:
In addition to the above, current TCCWNA case law suggests that companies should present disclaimers and limitations of liability, in particular, conspicuously to consumers (e.g., use capital letters).
The Spokeo, Inc. v. Robins Decision and Its Potential Impact on TCCWNA Litigation
Although, as noted, the TCCWNA allows aggrieved consumers to elect a $100 civil remedy instead of their actual damages, the recent U.S. Supreme Court decision inSpokeo, Inc. v. Robins may make it more difficult for plaintiffs to maintain TCCWNA class actions in federal court where concrete and particularized harm has not been established.
The Spokeo case arose out of a claim by Robins that Spokeo, an operator of a “people search engine” that gathers and provides personal information about individuals to users, sold inaccurate information in violation of the Fair Credit Reporting Act. The U.S. Supreme Court held that standing to sue in federal court, even in the context of a statutory violation, requires proof of “concrete and particularized” harm inflicted on each individual plaintiff. It also held that “particularized” harm means “personal and individualized”—a relatively high threshold for class action plaintiffs claiming statutory violations. In fact, the First Circuit recently held in Hochendoner v. Genzyme Corp. that plaintiffs did not satisfy the “particularized harm” requirement because the plaintiffs’ alleged injuries due to a shortage of a drug could not be linked to any specific plaintiff, and therefore the class actions were dismissed. At least one company has even submitted the Spokeo decision in support of its motion to dismiss in a case filed by a New Jersey consumer in federal court alleging that the company’s online terms and conditions were in violation of the TCCWNA.
As it is too soon to definitively conclude how Spokeo will affect TCCWNA class actions, e-commerce companies will want to closely monitor TCCWNA developments, including any legislative initiatives that may result from recent lobbying efforts. In the meantime, companies would be well advised to review their online terms and conditions carefully with qualified counsel—indeed, the sharp increase in TCCWNA cases presents an opportunity for all website operators and mobile app developers to take a look at their terms and conditions and make sure that they are up to date.