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

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.

The district court dismissed the plaintiff’s CFA and HCSA claims without prejudice for two reasons. First, the plaintiff failed to allege an unlawful practice. The plaintiff alleged that the Membership Agreement’s omission of a bond or other security statement, failure to conspicuously disclose plaintiff’s total payment obligation, and alleged use of misleading cancellation provisions effectively functioned to obligate consumers to renew the contract. The court disagreed, holding that even if the cancellation provisions made it difficult to cancel the agreement, this purported hardship was not tantamount to an “obligation to renew,” and therefore did not constitute an unlawful practice. Because the CFA and HCSA require analysis of whether an ascertainable loss is caused by the unlawful conduct, the court could not “merely credit Plaintiff’s bald assertion” that the Membership Agreement obligated her to renew the contract in effect.

Second, the district court concluded that the plaintiff also failed to allege any ascertainable loss. The plaintiff claimed that the Membership Agreement’s cancellation provisions caused consumers to incur a debt for at least one additional month of membership dues upon cancellation, which constituted an ascertainable loss under the CFA. Analyzing the plaintiff’s pleading under the loss-in-value theory, the court rejected the plaintiff’s argument because she failed to “allege that she incurred the debt in the first place.” Without alleging that she actually incurred such debt by cancelling or attempting to cancel the agreement, the plaintiff’s argument that she could have been charged an extra month of dues was, according to the trial court, the textbook “hypothetical loss” that did not pass muster under the CFA.

Turning to the TCCWNA claims, the plaintiff alleged a violation of Section 15, which prohibits the inclusion of any provision in a consumer contract that violates any clearly established legal right of the consumer. The district court, relying on the Third Circuit’s interpretation of Section 15 in Watkins v. DineEquity, Inc., which you can read about here, emphasized that to impute liability under the TCCWNA, a contract must “include” illegal provisions. Therefore, the district court rejected the plaintiff’s claim that the Membership Agreement violated Section 15 for omission of a conspicuous statement of the total payment obligation and lack of a bond or other security statement. For this same reason, the plaintiff’s claim that the contract violated the TCCWNA because it allegedly obligated her to renew the agreement failed, because she did not adequately allege that the Membership Agreement included such a provision. This interpretation of TCCWNA is consistent with the district court’s recent holding in Matijakovich v. P.C. Richard & Sons, which you can also read about here.

In addition, the plaintiff also argued that the alleged unlawful practice of including misleading cancellation provisions in the Membership Agreement violated the TCCWNA. The court did not reach the merits of whether this allegation, despite a lack of ascertainable loss under the CFA, could sustain a claim under TCCWNA, questioning instead whether it had subject matter jurisdiction over the case in light of the defendants’ motion to dismiss. In the wake of the defendants’ motion to dismiss, only this part of the plaintiff’s TCCWNA claim remained. The district court observed that this sole claim could only potentially result in a statutory remedy of $100 per class member. As a result, the court was uncertain whether it had CAFA jurisdiction over the matter in the absence of ascertainable loss and granted the defendants 20 days to show why the matter should not be remanded to state court based on a lack of subject matter jurisdiction.

This decision not only confirms the key elements of pleading claims under the CFA and TCCWNA, but also raises an interesting question about CAFA jurisdiction following removal and a mostly successful motion to dismiss. Check back on this blog for an update on how this shakes out following supplemental briefing.