Business Litigation Alert

Business Litigation Alert

Practical Perspectives on Litigation Developments & Trends

In Suit Alleging Misleading Employment Rates, Third Circuit Rejects Class Certification Premised Upon Invalid Damages Theory

Posted in Class Action Defense

The Third Circuit recently affirmed a decision from the District Court of New Jersey denying class certification in an action alleging that Widener University School of Law defrauded its students by publishing and marketing misleading statistics about graduates’ employment rates. In its precedential opinion adjudicating plaintiffs’ interlocutory appeal pursuant to Fed. R. Civ. P. 23(f), the Third Circuit concluded that although the District Court misconstrued plaintiffs’ damages theory, the error was harmless because the Court would have nonetheless concluded that plaintiffs failed to satisfy the predominance requirement. This opinion, authored by Circuit Judge Chagares, is an example of defendants defeating class certification when plaintiffs cannot proffer a valid method of proving class-wide damages, as required by the U.S. Supreme Court in Comcast v. Behrend several years ago.

By way of background, plaintiffs were graduates of Widener Law who alleged that the school violated the New Jersey Consumer Fraud Act (“NJCFA”) and the Delaware Consumer Fraud Act (“DCFA”) by advertising misleading statistics about alumni employment rates; they claimed that the statistics included non-legal and part-time positions without categorical break down, thereby causing students to believe that the statistics were for full-time legal employment. Plaintiffs alleged that the misleading statistics allowed Widener Law to charge higher tuition than it would have received if the accurate statistics were marketed and published. Plaintiffs sought damages in the amount of overpaid tuition.

Continue Reading

Data Breach Victims Grounded: Third Circuit Affirms Dismissal of Putative Class Action Based on Economic-Loss Doctrine and Absence of Explicit Contractual Obligations

Posted in General Litigation

The Third Circuit’s recent decision affirming the district court’s dismissal of a proposed class action in its entirety highlights the difficulties faced by Plaintiffs pursuing data-security class actions in situations where the claims are not based upon explicit contractual language. This is an important decision for defense counsel to keep in mind in considering options to get rid of a class action before it takes off.

Plaintiffs were former employees and customers of Benecard, a prescription benefit administration services company, who provided Benecard with personal information, including social security numbers and dates of birth, as a prerequisite to employment or use of Benecard’s services. In 2015, Benecard’s computer system was hacked and unknown third parties accessed Plaintiffs’ personal information. The hackers then used Plaintiffs’ personal information to file fraudulent tax returns and subsequently receive tax refunds from the Internal Revenue Service.

Plaintiffs filed a putative class action against Benecard on behalf of all former and current employees and customers of Benecard whose information was accessed through the data breach. Plaintiffs asserted claims against Benecard for negligence and breach of implied contract, but the district court dismissed both claims for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). In a unanimous opinion issued on August 25, 2016, the Third Circuit affirmed the district court’s dismissal of the putative class action in its entirety.

Continue Reading

Nordic Naturals Vindicated Again with Third Circuit Affirming Class Action Dismissal and Granting Sanctions for Frivolous Appeal under FRAP 38

Posted in Class Action Defense

On September 14, 2016, in a precedential opinion, the Third Circuit upheld the dismissal of a serial, pro se attorney’s class action lawsuit against international dietary supplement manufacturer Nordic Naturals, Inc., which asserted label-related claims under the N.J. Consumer Fraud Act. Notably, the Third Circuit also entered a separate order, which granted Nordic’s motion for sanctions under Federal Rule Appellate Procedure 38 for Plaintiff’s frivolous appeal.

After Plaintiff filed a putative class action in state court, Nordic removed to federal court and the District Court rejected Plaintiff’s motion for remand, and then granted Nordic’s motion to dismiss for failure to state a claim (Hoffman I). Though the court expressly allowed Plaintiff leave to amend within the 30 days, he filed, instead, a second class action against Nordic in state court, alleging virtually identical claims and the same facts, but significantly narrowing the putative class definition to avoid the $5 million jurisdictional threshold for removal under the Class Action Fairness Act (CAFA). Nordic removed to federal court and filed another motion to dismiss on various grounds, including claim preclusion, entire controversy, and failure to state a claim. The motion was granted, and Plaintiff appealed.

Continue Reading

Court Compels Arbitration of Lawsuit Filed by Employees Discharged After Discovery of Personal Text Messages About a Coworker on a Company-Issued iPad

Posted in Class Action Defense, General Litigation

A recent decision from the District of New Jersey granting a motion to compel arbitration not only reinforces the strong federal policy in favor of arbitration, but also highlights issues pertaining to company-issued devices and employees’ personal use of these devices.

While employed by Anheuser-Busch, Victor Nascimento received a company-issued iPad. Nascimento and other employees exchanged text messages about a coworker over their personal cell phones outside of the work day, but the messages were received on Nascimento’s company-issued iPad because the iTunes account on his iPad was linked to his personal cell phone. The company-issued iPad was later reassigned to the coworker who was the subject of the text messages, and that person discovered the text messages on the device and inferred that they were about him. Following an investigation by Anheuser-Busch, Nascimento and several other employees were fired. The terminated employees later sued Anheuser-Busch, alleging violations of the Law Against Discrimination.

Continue Reading

New Jersey District Court Enforces Comprehensive Arbitration Clause Between Car Dealer and Consumer

Posted in Class Action Defense

Notwithstanding a recent trend of seemingly anti-arbitration decisions in the state courts, a New Jersey District Court recently dismissed a consumer fraud complaint that it found to be duplicative of a prior arbitration award.

In 2009, the plaintiff purchased a vehicle, and then leased an additional car from the same dealer in 2010. Despite signing agreements to arbitrate with the dealer, the plaintiff filed a complaint in state court against the dealer, Metro Honda, which was dismissed on the ground that the arbitration agreements were enforceable and required her to arbitrate her dispute. Plaintiff filed a demand for arbitration, citing a variety of consumer fraud statutes. An arbitration award was entered denying all of the plaintiff’s claims, and she neither appealed nor moved to vacate or modify the award.

Continue Reading

E-Commerce in New Jersey Threatened by Rise of TCCWNA Class Actions

Posted in Class Action Defense

Owners and operators of e-commerce websites should be aware of an eruption in threatened and filed class actions against online retailers under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”). The TCCWNA was enacted decades ago, as the New Jersey Supreme Court has explained, to “prohibit[] businesses from offering or using provisions in consumer contracts, warranties, notices and signs that violate any clearly established right of a consumer.” Yet, as laudable as this goal may be, with the potential for class-wide statutory penalty damages, the brevity and breadth of the statute has led to a tidal wave of litigation now targeting terms and conditions within e-commerce websites—an application of the law that could not have even been conceived of when the TCCWNA was passed in 1981.

These lawsuits—brought against dozens of retailers, including Wal-Mart, Toys R Us, Whirlpool, Bed Bath & Beyond, and others—generally take aim at broad indemnification and exculpatory provisions, although the filed complaints find violations of “clearly established legal rights” throughout sets of online terms and conditions. For a thirty-year old statute, there is an unfortunate lack of case law interpreting its provisions—a function of the reality that TCCWNA class actions are less than ten years old.

The legal precedent that does exist is, at times, contradictory, leading to a murky and complex compliance environment. However, a fairly recent spate of decisions permitting TCCWNA class actions against certain types of liability limitations in traditional written contracts has emboldened plaintiffs and engendered much of the present litigation. It remains to be seen whether and to what degree courts will approve of plaintiffs’ efforts to apply the TCCWNA to website terms and conditions. However, given the law’s statutory damages provision—which allows for “a civil penalty of not less than $100.00 or for actual damages, or both at the election of the consumer”—and the national reach of online retail, there is much at stake in the outcome of these litigations, both for parties and the retail industry generally.

Continue Reading

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.

Continue Reading

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.

Continue Reading

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.

Continue Reading

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.

Continue Reading

Lexblog