Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

Doomed CFA and TCCWNA Claims for Proposed Health Club Class Action Lead District Court to Question CAFA Jurisdiction

Posted in Class Action Defense

The District of New Jersey’s recent decision in Truglio v. Planet Fitness, Inc. provides valuable lessons on pleading claims under the New Jersey Consumer Fraud Act (“CFA”), Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”), and Health Club Services Act (“HCSA”). Not only does the district court’s opinion reinforce the requirement of an ascertainable loss to sustain a CFA claim, but it also confirms that omissions are not actionable under the TCCWNA. Moreover, the district court’s conclusion that the plaintiff in this putative class action did not plead an ascertainable loss directly called into question the subject matter jurisdiction of the court: is there $5 million in controversy under the Class Action Fairness Act (“CAFA”) if the plaintiff has not alleged an ascertainable loss? Read below for more on this case, and stay tuned for additional developments after supplemental briefing on the CAFA issue.

By way of background, the plaintiff in Truglio enrolled in a health club membership through a “Membership Agreement.” Without cancelling or attempting to cancel the membership, the plaintiff filed a putative class action lawsuit, alleging that the agreement’s lack of bond or other security statement, alleged failure to conspicuously state the plaintiff’s total payment obligation, and use of allegedly misleading cancellation provisions, violated the CFA, TCCWNA, and HCSA. Following removal to district court based on CAFA jurisdiction, the defendants filed a motion to dismiss for failure to state a claim. The court granted the defendants’ motion in part, but also remanded for further briefing.

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TCCWNA Back Before the New Jersey Supreme Court

Posted in Class Action Defense

This year the federal courts in New Jersey have seen a dramatic uptick in the filing of class action lawsuits seeking statutory damages under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”), particularly cases targeting merchants selling or promoting goods or services via the internet. These cases are premised on the notion that the “terms and conditions” or “terms of use” on a company’s website constitute a contract and thus subject companies to potentially massive class-wide penalty damages should the terms of use contain language which violates the TCCWNA. As motions to dismiss are pending in many of these cases, the federal courts in New Jersey may soon provide further clarity on a number of important questions, including: (1) whether online website users are “aggrieved consumers” as required under the statute; (2) whether plaintiffs bringing bare TCCWNA claims have Article III standing given the U.S. Supreme Court’s recent Spokeo decision; and (3) whether the statute reaches contractual provisions wholly unrelated to a consumer’s transaction.

While the federal courts grapple with a variety of questions about whether complaints in the “terms of use” context adequately plead viable claims for relief, the New Jersey Supreme Court is poised to consider questions of statutory interpretation of the TCCWNA within the context of class certification in state court. Specifically, on July 26, 2016, the New Jersey Supreme Court agreed to hear two separate, but related, appeals – Dugan v. TGI Friday’s, Inc. and Bozzi v. OSI Restaurant Partners, LLC.

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The Ties That Bind: When Will a Court Expel a Member of an LLC?

Posted in General Litigation

In IE Test, LLC v. Carroll, the New Jersey Supreme Court addressed when a limited liability company (LLC) can expel a member under a statute authorizing a member’s disassociation for conduct that has made it “not reasonably practicable to carry on” the LLC’s activities.

IE Test had three members, two of whom actively ran the business and drew salaries, and a third who played no role in the LLC’s day-to-day affairs. Before an operating agreement was executed, a dispute arose between the two active members and the passive member over the passive member’s compensation. Consequently, no operating agreement was ever signed. The two active members then sought to judicially disassociate the passive member on the statutory ground that the impasse and absence of an operating agreement made it “not reasonably practicable” that he could continue as a member. The trial court granted summary judgment, expelling the passive member, and the Appellate Division affirmed.

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New Jersey Supreme Court Holds Denial of Right to Jury Trial Not Within Panoply of Sanctions in a Trial Court’s Arsenal

Posted in General Litigation

Recently, the New Jersey Supreme Court unanimously held that trial courts may not deprive civil litigants of their constitutionally protected right to a jury trial as a sanction for failure to comply with a procedural rule.

In Williams v. American Auto Logistics, the pro se plaintiff’s complaint did not include a jury demand, but the defendant’s answer did. The defendant later sought to waive its jury demand, but the plaintiff withheld his consent, which was required by court rules. Notwithstanding the lack of consent, the trial judge granted the request to waive the jury as a sanction against the plaintiff for his failure to provide the pre-trial disclosures required by Rule 4:25-7. The Appellate Division affirmed the trial court’s waiving of the jury as a sanction for the plaintiff’s failure to comply with Rule 4:25-7.

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Arbitration Clause Held Too Vague to Cover Statutory Claims

Posted in Alternative Dispute Resolution

Employers drafting arbitration clauses for employment contracts and others drafting arbitration agreements generally need to be familiar with the line of New Jersey cases involving arbitration clauses, including the Appellate Division’s recent opinion in Anthony v. Eleison Pharmaceuticals LLC, Docket No. A-932-15T4 (App. Div. July 18, 2016), where the court held that an arbitration clause that does not include reference to a waiver of plaintiff’s statutory rights or a jury trial does not constitute a valid waiver of the right to have claims decided in a judicial forum.

In Anthony, the plaintiff filed a five-count complaint in Superior Court against Eleison, including four alleged violations of the New Jersey Wage Payment Act for failing to pay him once a month, failing to pay him minimum wage, failing to pay him overtime compensation, and failing to pay him upon separation of his employment. Central to the dispute was plaintiff’s employment contract which contained the following dispute resolution provision: “The parties agree that should any dispute arise out of this Agreement, a phased dispute resolution process shall resolve the dispute.” The “phased” process culminated in binding arbitration. In response to the complaint, defendants filed a motion to compel arbitration, arguing in part that plaintiff had agreed to the dispute resolution provision in his employment contract, and, thus, to arbitration. The trial court agreed, finding that the arbitration provision was clear and the dispute “arose out of the Agreement.”

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Parties Must Clearly Agree to Delegate Arbitrability to an Arbitrator, Says the NJ Supreme Court

Posted in Class Action Defense, General Litigation

In its most recent pronouncement on arbitration clauses, the New Jersey Supreme Court confirmed that it is for the Court, and not an arbitrator, to determine whether the parties have agreed to arbitrate consumer fraud claims in the absence of a clear delegation clause to the contrary. In Morgan v. Sanford Brown Inst., the New Jersey Supreme Court reversed an order of the Appellate Division holding that arbitrability was for the arbitrator to decide, finding that under Atalese v. U.S. Legal Servs. Grp. and First Options of Chi., Inc. v. Kaplan, the agreement to delegate arbitrability to an arbitrator must, as with the other arbitration provisions, clearly inform the average consumer of the rights he or she is giving up.

In Sanford Brown, the Court reviewed an arbitration provision contained in enrollment agreements for admission into an ultrasound technician program which read, in part: “Any disputes, claims, or controversies . . . arising out of or relating to (i) this Enrollment Agreement; (ii) the Student’s recruitment, enrollment, attendance, or education; (iii) financial aid or career service assistance by SBI; (iv) any claim . . . or (v) any objection to arbitrability . . . shall be resolved pursuant to this paragraph.” The Court held that the provision was unenforceable under Atalese and First Options, because the enrollment agreement failed to explain that an arbitrator would decide whether the parties agreed to arbitrate legal claims or that arbitration was a substitute for the right to bring a claim before a court or jury. As with the arbitration provision in Atalese, inclusion of this minimal information regarding arbitration was deemed necessary to establish a meeting of the minds sufficient to form a valid contract.

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Wrap Up of United States Supreme Court’s 2015-2016 Term

Posted in General Litigation

With the close of the United States Supreme Court’s 2015-16 term, we offer this wrap up of the Court’s term, focusing on decisions of special interest from the business and commercial perspective (excluding patent cases):

Upon being granted a discharge from a Bankruptcy Court, a bankrupt’s debts are discharged unless a particular debt falls within one of the Bankruptcy Code’s statutory exclusions. One of those exclusions is for debts arising from “false pretenses, a false representation, or actual fraud.” Husky Int’l Elecs., Inc. v. Ritz asked whether a debt arising from a fraudulent transfer made for the purpose of frustrating a creditor, but accomplished without making a false representation, is subject to this exclusion. The Court held that it is, stating that the exclusion “encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a false representation.” The Court also stated, however, that the placement of the adjective “actual” before “fraud” means that the fraud must involve “moral turpitude or intentional wrong” and distinguishes it from “implied fraud or fraud ‘in law.’” Thus, debts arising from constructively fraudulent conveyances, which do not require showing a bad intent, presumably are not subject to the exclusion and can still be discharged.

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New Jersey Federal Court Confirms TCCWNA Doesn’t Reach “Omissions”

Posted in Class Action Defense

In the thick of a torrent of litigation, mostly class actions, premised upon purportedly unlawful contractual provisions under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”) – a statute that permits “no-injury” claims – the District of New Jersey has reaffirmed a bright-line rule concerning this law: Omissions don’t trigger liability.

In Matijakovich v. P.C. Richard & Son, Matijakovich purchased a washing machine from P.C. Richard & Son. The written contract documenting the purchase did not, according to Matijakovich, include mandatory “language disclosing a seller’s obligations in case of the delayed delivery of furniture.” Matijakovich therefore brought a putative TCCWNA class action on behalf of himself and anyone else who purchased appliances and furniture from the same P.C. Richard & Son branch, seeking a $100 penalty for every putative class member who entered into such an agreement.

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Contractual Limitations Period Bars TCCWNA Class Action

Posted in Class Action Defense

Class actions brought under the New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”) are on the rise. This year alone, Wal-Mart, J. Crew, Avis, Toys R Us, and Apple – among many others – have been sued under this unique state statute that prohibits certain types of unlawful provisions in consumer contracts and other documents. In the past decade, courts have continued to expand the scope of this law – from the New Jersey Supreme Court, which, in 2013, instructed lower courts to construe the statute broadly, to the District of New Jersey, which, in 2014, allowed a TCCWNA class action to go forward against contracts containing commonly-worded exculpatory and indemnification provisions.

This fertile ground has led to a skyrocketing number of TCCWNA cases brought by plaintiffs hoping to further expand the bounds of this statute. On June 22, 2016, however, the District of New Jersey dismissed a TCCWNA class action, showing that the law indeed does have its limits.

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New Jersey Appellate Division Agrees: EIFS is EIFS (Even If Technically It Isn’t)

Posted in Insurance

EIFS litigation is no stranger to New Jersey. EIFS (or “exterior insulation and finish system”) – a popular, post-World War II building system that resembles stucco while simultaneously providing watertight exterior insulation – originated in Europe and migrated to American homes in the late 1960s and early 1970s. According to The New York Times, it was utilized in the construction of “countless homes built in New Jersey,” which meant that the state was deeply affected when it became evident that, installed in a certain way, EIFS trapped water behind its siding and led to crumbling wall sheathing and rampant mold. Nationwide lawsuits ensued and, while a class action settlement was eventually reached with the largest EIFS manufacturer in 2003, New Jersey courts – at every level – returned to EIFS litigation again and again.

The New Jersey Appellate Division recently addressed EIFS in Crum & Forster Ins. Co. v. The Breese Corp.. In an earlier suit, Lakeside at North Haledon Condominium Association (“Lakeside”) alleged that The Breese Corporation (“Breese”) “negligently installed the stucco and an external insulation and finish system (EIFS).” Breese’s insurer – Crum & Forster – then brought this lawsuit, seeking a judgment that it was not required to provide insurance coverage in light of an exclusion in the relevant policy that stated it did not apply to EIFS.

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