Locke Lord QuickStudy: Another Setback For TCCWNA Plaintiffs: New Jersey Appellate Division Reigns In Interpretation of “Consumer” and “Consumer Contracts”

September 28, 2016

This past year, the plaintiffs’ bar has been aggressively pursuing class action claims under New Jersey’s Truth-in-Consumer Contract and Warranty Notification Act (“TCCWNA”), N.J.S.A. 56:12-14, et seq.—presumably because of its statutory damages and attorneys’ fees provisions. The TCCWNA—which was enacted in 1980—prohibits sellers from “offer[ing] to any consumer or prospective consumer or enter[ing] into any written consumer contract or giv[ing] or display[ing] any written consumer warranty, notice or sign” that “violates any clearly established legal right of a consumer.” N.J.S.A. 56:12-15. In the more than thirty cases filed this year in state and federal courts throughout the country alleging violations of TCCWNA, plaintiffs have sought an increasingly expansive application of the statute, which originally was intended “to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties” in those contracts. Kent Motor Cars, Inc. v. Reynolds & Reynolds Co., 25 A.3d 1027, 1044 (N.J. 2011). Notwithstanding this aggressive push by the plaintiffs’ bar, recent decisions of New Jersey trial and appellate courts have seemingly begun to chip away at attempts to expand TCCWNA beyond its intended purpose.1 Notably, the New Jersey Appellate Division’s ruling in Smerling v. Harrah’s Entm’t, Inc., No. A-4937-13T3, 2016 WL 4717997 (N.J. Super. Ct. App. Div. Sept. 9, 2016), is one such example.

In Smerling, Harrah’s sent promotional birthday cash coupons to the plaintiff and 320,000 other individuals that were redeemable at limited times at its Atlantic City casino. 2016 WL 4717997 at *2. After Harrah’s declined to honor the promotion when the plaintiff attempted to redeem her cash coupon outside of the limited time period, she brought a class action complaint against Harrah’s, alleging violations of the New Jersey Consumer Fraud Act (“CFA”), TCCWNA, and breach of contract. Id. Harrah’s argued that the TCCWNA did not apply because the plaintiff was not a “consumer”, the promotional birthday coupon was not a “consumer contract”, and the language in the coupon did not violate any clearly established legal rights under the Act. Id. at *2.

The TCCWNA defines “consumer” as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” N.J.S.A. 56:12-15. Although the plaintiff argued and the trial court had found that “the expenditure of the effort necessary to redeem the [promotional] offer [was] sufficient to qualify [plaintiff] as a ‘consumer’ under the [TCCWNA]”, the Appellate Division disagreed—finding that the promotional offer “did not require the payment of any cash and plaintiff did not ‘buy’ the offer with cash or on credit.” Smerling, 2016 WL 4717997 at *4. The Appellate Division noted that to find otherwise would improperly expand and render the definition of ‘buy’ “virtually meaningless.” Id. at *4. Therefore, because the plaintiff was not a “consumer” under the TCCWNA—and the promotional coupon could not be considered a “consumer contract” under the statute—the TCCWNA “did not apply to [plaintiff’s] claims based upon the [promotional coupon].” Id. The Appellate Division also contemporaneously remanded plaintiffs’ counsel fee award, finding that reconsideration of the award was necessary in light of its decision reversing summary judgment on the TCCWNA claims. Id. at *5-6.

The decision in Smerling likely will be a powerful tool in defending against TCCWNA claims, particularly for defendants in the recent slew of TCCWNA cases seeking to characterize online retailers’ website terms and conditions as “consumer contracts” and website visitors as “consumers”—whether or not they purchased any goods or services. After Smerling, plaintiffs should be hard-pressed to meet the definition of “consumer” absent an actual purchase, or demonstrate that “free” offers constitute a “consumer contract” under TCCWNA. At the very least, Smerling should serve to limit the pending TCCWNA actions that have defined their classes in an overbroad manner inconsistent with the Appellate Division’s limited view of who can be a “consumer” under the Act. Although the extent to which other courts will embrace Smerling remains to be seen, it will be important to monitor its impact on the many motions to dismiss TCCWNA claims currently pending in state and federal courts in New Jersey.

In sum, the TCCWNA landscape is rapidly evolving and companies doing business with New Jersey consumers must keep a watchful eye on this developing case law. In order to avoid potential liability under the TCCWNA, companies should take steps now to implement best practices in their form contracts, website terms and conditions and other consumer-facing communications to make themselves less attractive to a very aggressive plaintiffs’ bar.

Our previous QuickStudies highlighting important developments regarding TCCWNA can be found here: Doing Business in New Jersey? Your Website Terms & Conditions May be Plaintiffs’ Next Target, TCCWNA Class Action Tanked by Individualized Inquiries, and Businesses Take Note: New Jersey State and Federal Courts to Address the Uncertain Consumer Protection Landscape of TCCWNA.