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Consumer Protection Class Actions Have Important Position, Applying New York's Statutory Scheme |
New York Law Journal, November 23, 1998 |
| Consumer class actions play an integral role in protecting the purchasers of products and services from unfair, deceptive and fraudulent business practices. This article examines the nature, benefits and purposes of consumer class actions, and the initiation of such actions under New York's Consumer Protection From Deceptive Acts and Practices statutes. |
| 1. What is a Consumer Protection Class Action? |
| Consumer protection class actions typically involve claims by large numbers of individuals seeking modest money damages and/or injunctive relief to redress deceptive business practices or false advertising by a manufacturer or seller of a product or service. Consumer class actions generally do not include claims for personal injuries or for substantial individual damages. Consumer class actions are most often based on misleading statements or the concealment of information about the quality or performance of a product or service ice that affect a class of consumers in a substantially uniform manner. |
| For example: Acme Products, Inc., a Texas company sells hearing aids. The company claims in promotional material, packaging, advertising and in-person sales pitches that its new hearing aid, the "Super Ear," is the best on the market because, as a result of unique and proprietary technology, users will hear more clearly with the Super Ear than with any other available hearing device. Acme charges twice what its competitors charge for their top of the line hearing aids. Tens of thousands of people throughout the county have purchased the Super Ear. |
| Ed Tort, who lives on a fixed income in a retirement home in New York, buys two Super Ears for $600.00. Unfortunately, Ed finds he hears no better than he did with his old hearing aids. Ed contacts a lawyer, P.C. Winner, who agrees to investigate. P.C. consults with expert audiologists who tell him Acme's Super Ear is a fraud, that it is no better than any other (and much cheaper) hearing aid. P.C. believes this would be an excellent consumer protection class action. He refers to the New York consumer protection statutes. |
| 2. New York's Consumer Protection From Deceptive Acts and Practices Statutes. |
| New York's key consumer protection statutes are Sections 349 and 350, Chapter 20 of the General Business Law. Section 349 provides: "Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." N.Y. Gen. Bus. L. § 349(a). Section 349(h) provides that in addition to the right of the Attorney General to seek injunctive relief and restitution under Section 349(a), any "person" injured as a result of the prohibited deceptive acts or practices "may bring an action in his own name to enjoin such unlawful act or practice," and may also seek to "recover his actual damages or fifty dollars whichever is greater." N.Y. Gen. Bus. L § 349(h). Moreover, the court may, "in its discretion increase the award of damages to an amount not to exceed three times the actual damages up to one thousand dollars, if the court finds the defendant willfully or knowingly violated this section. The court may award reasonable attorney's fees to a prevailing plaintiff." Id. |
| Section 350 provides: "False advertising in the conduct of any business, trade or commerce, or in the furnishing of any service in this state is hereby declared unlawful." N.Y. Gen Bus. L. § 350. The term "false advertising" means "advertising, including labeling, of a commodity," if such advertising is "misleading in a material respect." N.Y. Gen. Bus. L. § 350-a(1). Section 350-e(3) provides that any "person" injured as a result of misleading advertising "may bring an action in his own name to enjoin such unlawful act or practice," and may also seek to "recover his actual damages or $50, whichever is greater." N.Y. Gen. Bus. L. § 350-e(3). This section also provides for discretionary trebling of damages and an award of attorneys fees to the prevailing plaintiff. Id. |
| The elements of a Section 349 or 350 claim are (1) that the defendant engaged in an act or practice, or advertising, that was deceptive or misleading in a material respect, and (2) that the plaintiff was injured as a result. See, Berrios v. Sprint Corporation, 1998 WL. 199842 at *3 (E.D.N.Y. March 16, 1998); BNI New York LTD v. DeGanto, 675 N.Y.S.2d 752, 755 (1998); McDonald v. North Shore Yacht Sales, Inc., 513 N.Y.S.2d 590, 914 (1987). "There is no requirement that the plaintiff show specific dollar injury, or to obtain injunctive relief that there even be pecuniary injury at all. Nor is there any requirement that the deceptive practice or false advertising be intentional or even reckless or amount to fraud." N.Y. Gen. Bus. L. § 349, Practice Commentaries. "Nor does plaintiff have to prove reliance upon defendant's deceptive practices." BNI New York, 675 N.Y.S.2d at 755. See also, Small v. Lorillard Tobacco Company, 677 N.Y.S.2d 518, 519 (1st Dept. 1998) (Section 349 "does not require proof of justifiable reliance"). |
| The standard for whether an act or practice or advertisement is misleading is objective, requiring a showing that a reasonable consumer would have been misled by the defendant's conduct. Berrios, 1998 WL 199842 at * 3, quoting S.Q.K.F.C., Inc. v. Bell Atl. Tricon Leasing Corp., 84 F.3d 629, 636 (2d Cir. 1996); Oswetto Laborers Local 214 Pension Fund v. Marine Midland Bank, 623 N.Y.S.2d 529, 533 (1995). Though not contained in the statute nor required by the New York Court of Appeals, several federal courts have determined that a private right of action under Sections 349 and 350 requires some sort of offense to the public interest. See, e.g., Franklin Electronic Publishers, Inc. v. Unisonic Products Corporation, 763 F. Supp. 1, 5 (S.D.N.Y. 1991); Jenesco Entertainment v. Kotch, 593 F. Supp. 743, 751-52 (S.D.N.Y. 1984). |
| Having concluded that Ed has a cause of action under both Section 349 and Section 350, P.C. explains to his client the benefits and economic desirability of pleading his case as a class action. |
| 3. The Benefits of Consumer Protection Class Actions. |
| Consumer class actions often provide the only available means for large numbers of similarly injured consumers to seek and obtain recovery for the wrongful conduct of established corporations and unscrupulous operators. By presenting their substantially uniform claims in a single action, consumers, whose damages are typically too small to justify multiple individual suits, can even the economic playing field against well-financed and powerful institutions. As the California Supreme Court has recognized: |
Protection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society .... The alternatives of multiple litigation (joinder, intervention, consolidations, the test case) do not sufficiently protect the consumer's rights because these devices presuppose a group of economically powerful parties who are obviously able and willing to take care of their interests individually through individual suits or individual decision about joinder or intervention. |
| Vasquez v. Superior Court, 4 Cal.3d 800, 804 (1971). |
| In addition, using the class action device to remedy deceptive business practices impacting large numbers of people allows consumers to spread the costs, including attorneys fees, of complex and expensive litigation among all class members. Often, the costs and fees of single plaintiff proceeding on an individual basis would exceed the entire value of a judgment in favor of that one plaintiff. As the United States Supreme Court has stated: "A significant benefit to claimants who choose to litigate their individual claims in a class-action context is the prospect of reducing their costs of litigation, particularly attorney's fees by allocating such costs among all members of the class who benefit from any recovery." Deposit Guarantee National Bank v. Roper, 445 U.S. 326, 338 n. 9 (1980). See also Philips Petroleum Co. v. Schutts, 472 U.S. 797, 809 (1985) ("Class Actions ... may permit the plaintiffs to pool claims which would be uneconomical to litigate individually. For example, this lawsuit involves claims averaging about $100 per plaintiff most of the plaintiffs would have no realistic day in court if a class action were not available"); Amchem Products Inc. v. Windsor, ___ U.S. ___, 112 S.Ct. 2231, 2246 (1997) (dominant concern of the class action rules is the vindication of "rights of groups of people who individually would be without effective strength to bring their opponents into court at all"). |
| Consumer protection class actions can also serve the important function of deterrence. Although the nation's attorneys general have stepped up their enforcement of state consumer protection laws (consider the attorneys general activity in tobacco litigation), their offices lack the resources to challenge all wrongful and fraudulent schemes perpetrated on the citizens of their states. Indeed, in New York, the legislature recognized the need for private enforcement of the State's consumer protection laws in 1980 by providing a right of action to "any person who has been injured" as a result of another's deceptive business, act or practice. See Note: New York Creates A Private Right of Action to Combat Fraud: Caveat Venditor, 48 Brooklyn L.R. 509 (1982); Burns v. Volkswagen of America, Inc., 460 N.Y.S.2d 410, 411-413 (Sup. Ct. 1982) (discussing the causation of the private right of action). |
| In a June 19, 1980 memorandum from the governor's office approving the creation of the private right of action, it was pointed out that the new laws "will encourage private enforcement of these consumer protection statutes [and] add a strong deterrent against deceptive business practices and supplement the activities of the Attorney General in the prosecution of consumer fraud complaints." Beslity v. Manhattan Honda, 450 N.Y.S.2d 278, 280-81 (1982). See also, Genesco Entertainment v. Coch, 593 F. Supp. 743, 751 (S.D.N.Y. 1984) ("Section 349 is a powerful remedy for consumer fraud. Its broad language was intended to provide a 'strong deterrent against deceptive business practices' and to 'increase the effectiveness of the consumer protection laws'"). |
| P.C. Winner and Ed Tort agree that it would serve the public interest and make sound economic sense to assert Ed's claims on a class basis. They have found that a number of Ed's friends in the retirement home also bought the Super Ear and are dismayed at its failure to perform as promised by Acme. Neither Ed or his friends can afford to sue Acme individually. The expenses alone would be far greater than a complete recovery. P.C. too cannot afford to bring just one or a few Super Ear cases. The only way to get Acme's attention is to file a class action. P.C. checks to see that Section 459 and 350 claims may be brought on a class-wide basis. |
| 4. Class Actions Under Sections 349 and 350. |
| Neither Section 349 or 350 make reference to class actions, presumably leaving their propriety to the applicable general provisions of Article 9 of New York Civil Practice Law and Rules. The only restriction posed by Article 9 on class actions brought for violations of Sections 349 and 350 is the prohibition against class actions for statutory minimum damages and penalties. CPLR § 901(b). In other words, a consumer class action may be maintained under CPLR Section 901(a) as long as the action seeks only injunctive relief or damages: |
Although CPLR § 901(b) bars a class action to recovery a penalty or minimum damages imposed by statute, where, as here, the statute does not explicitly authorize a class recovery thereof, the named plaintiff in a class action may waive that relief and bring an action for actual damages only. ... Thus, the weight of authority holds that a class action may be maintained to recover actual damages and injunctive relief pursuant to General Business Law §349(h). ... Clearly, this was the intent of the legislature when it enacted General Business Law § 349(h).
|
| Super Glue Corp. v. Avis Rent A Car System, Inc., 517 N.Y.S.2d 764, 767 (2d Dept. 1987) (citations omitted) (certifying a class of persons challenging the propriety of an automobile rental company's practice of including refueling charge, collision damage waiver and penalty for late return of automobile in standardized rental agreement). See also Ridge Meadows Homeowners Association, Inc. v. Tara Development Company, Inc., 665 N.Y.S.2d 361 (4th Dept. 1997) ("Although the Supreme Court properly found that the prerequisites for class action certification set forth in CPLR § 901(a) have been met, plaintiffs are barred by CPLR § 901(b) from maintaining a class action for the minimum and treble damages imposed by section 349(h) of the General Business Law"). |
| Having satisfied himself that Section 349 and 350 may be pleaded and proven on a class basis, P.C. Winner next evaluates whether the claims of Ed Tort and the other class members will satisfy the requirements of CPLR § 901(a) and § 902. Those sections, predicated on Rule 23(a)(l)-(4) and (b)(3) of the Federal Rules of Civil Procedure, govern class actions brought in New York State courts. The federal rules, of course, govern Sections 349 and 350 claims sought to be certified in federal court. |
| The requirement of CPLR § 901(a)(1) and Federal Rule 23(a)(1), that the class must be so numerous that the joinder of all members is impracticable, should always be satisfied in a consumer protection class action. The vast majority of consumer protection class actions involve thousands, if not tens of thousands, of prospective class members. Even before discovery, P.C. is aware from Acme's public statements that it has sold tens of thousands of Super Ear hearing aids throughout the country. |
| The requirements of CPLR § 901(a)(2) and Federal Rule 23(a)(2) and (b)(3), that there be questions of law and fact common to the class which predominate over questions of affecting only individual members of the class, will be satisfied in most consumer protection cases. P.C. figures common questions of fact common to the class include whether Super Ear can perform as represented by Acme, whether Acme engaged in deceptive or misleading acts, and whether Acme's advertisements were misleading. Remember, the question of whether a defendant's act or practice is misleading is subject to an objective standard of consideration, not a subjective analysis that might implicate the mental state of individual class members. Remember also that there is no reliance element under Sections 349 or 350, thereby eliminating related individual issues. |
| Much has been made about the propriety of class actions involving claims for personal injuries following the Supreme Court's decision in Amchem Products, 117 S. Ct. 2231. Most consumer protection class actions should, however, be unaffected by that case. Unlike mass tort cases, which typically involve personal injuries of varying significance allegedly caused by exposure to or use of a substance or product, consumer protection classes involve economic losses derived from the same deceptive conduct or course of conduct. The Supreme Court in Amchem observed that: "Predominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the anti-trust laws." Id. at 2250. |
| The requirement of CPLR § 901(a)(3) and Federal Rule 23(a)(3), that the claims of the representative plaintiff be typical of the claims of the entire class, should always be satisfied in a consumer protection cases. The analysis here is closely related to that under the commonality prong of the rules. The claims of Ed Tort and all class members are based on the same deceptive course of conduct, and the substantially same false and misleading statements, by Acme concerning the quality and performance of the Super Ear hearing aid. |
| P.C. is aware that Acme may argue that because Ed received Acme's alleged misrepresentations through a specific advertisement and a specific oral sales pitch, his claims are not typical of the claims of class members who saw different advertisements or heard a different sales pitch from a different sales person. (Acme may also argue that these distinctions give rise to predominant individual issues.) P.C. knows, however, that with 'respect to the requirement of typicality, it is not necessary that the claims of the named plaintiff be identical to those of the class, and, should it prove necessary, the option of creating subclasses remains." Super Glue Corp., 517 N.Y.S.2d at 767. |
| The requirement of CPLR § 901(a)(4) and Federal Rule 23(a)(4), that the representative plaintiff and his counsel fairly and adequately protect the interest of the class, should never be a hindrance to the certification of a consumer protection class. The interests of Ed Tort "would not be adverse to those of a class seeking actual damages only," and both Ed and P.C. will "vigorously and adequately pursue the action" against Acme. Super Glue Corp., 517 N.Y.S.2d at 76748. |
| Finally, the requirement of CPLR § 901(a)5 and Federal Rule 23(b)(3), that a class action be superior to other available methods for the fair and efficient adjudication of the class, is most often satisfied in the consumer protection context. There "can be little doubt that a class action is the only feasible mechanism of addressing the claims of the individual members of the proposed class. The small amount of damages sustained by the individual class members would discourage many of them from pursuing their claims individually, and the number of claimants would render a consolidation unfeasible." Super Glue Corp., 517 N.Y.S.2d at 768. See also Pruitt v. Rockefeller Center Properties, Inc., 574 N.Y.S.2d 672, 677 (1st Dept. 1991) ("[S]ince the relatively insignificant amount of damages suffered by many members of the class makes individual actions cost prohibitive, and the large number of class members renders consolidation unworkable, a class action is not only superior but, indeed, the only practical method of adjudication"). |
| Satisfied that he is on sound legal and factual footing in pursuing Ed's claims under Sections 349 and 350 on a class basis, P.C.'s final prefiling inquiry is how broadly he can define the class. |
| 5. Jurisdictional Questions in Class Actions Under Sections 349 and 350 |
| Because he knows Acme sold its Super Ear hearing aids in all 50 states, and Acme's conduct was substantially the same as to all purchasers of the hearing aid, P.C. would like to pursue Ed's Sections 349 and 350 claims on behalf of a nationwide class in a New York state court. The important question, P.C. knows, is whether Sections 349 and 350 can apply to the claims of Super Ear purchasers outside of New York. |
| Both Sections 349(a) and 350 prohibit deceptive acts or practices and false advertising "in this state." N.Y. Gen. Bus. Law §§ 349(a), 350. Further, at least one New York court has concluded that "by its terms, GBL § 349 is applicable herein only to those claims which arose out of transactions occurring in New York State and so may not be raised in favor of any plaintiff who claims to have been injured by the purchase [of a product or service] in any other jurisdiction." Goshen v. The Mutual Life Insurance Company of New York, 1997 WL 710669 at *13 (N.Y. Sup. Ct. Oct. 21, 1997). |
| P.C. concludes that he may not assert class claims under Sections 349 and 350 on behalf of Super Ear purchasers outside of New York (and because Acme is not a New York company, he has no argument that the "transactions" all occurred in New York). He decides to file Ed's case in the New York Supreme Court on behalf of a class of persons who purchased their Super Ear hearing aids in New York. |