Now What? Plaintiffs Attack Popular Disclaimers in Online Terms of Use
In Short: An old New Jersey law – the Truth-in-Consumer Contract, Warranty and Notice Act or TCCWNA – is now being used to challenge website Terms of Use in a flurry of recently filed cases. These cases have not yet produced any guidance from the courts and the nebulous nature of the law complicates compliance. However, while we wait for more guidance from the courts, any business that operates a website and offers consumers goods or services should take the opportunity to review its Terms of Use and other consumer-facing contracts and attempt to address any potential vulnerabilities implicated by this wave of lawsuits.
In Full:
If you operate a website, mobile app, or other online service that operates under a Terms of Use of similar user agreement, you should be aware of a recent group of purported class-action suits filed. The suits all make claims under New Jersey’s (perplexingly hyphenated) “Truth-in-Consumer Contract, Warranty and Notice Act,” N.J. Stat. § 56:12-14 et seq. (“TCCWNA”). The TCCWNA is a long-standing law (originally enacted in 1981), but was not heavily litigated until fairly recently. After gaining steam over the past few years, however, it has been the basis for a torrent of complaints filed in recent months that give the TCCWNA a new application: using it to challenge the various defendants’ website Terms of Use.
The Law
The core provision of the TCCWNA, § 56:12-15, reads, in relevant part: “No seller … shall … offer to any consumer or prospective consumer or enter into any written consumer contract or give or display any written consumer warranty, notice or sign … which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller … as established by State or Federal law at the time the offer is made or the consumer contract is signed or the warranty, notice or sign is given or displayed.” (Note that the law is specifically applicable to contracts offered to “consumers” (i.e., those purchasing goods or services primarily for personal, family, or household use) and B2B sites offering commercial goods or services would not obviously fall under the auspices of the TCCWNA.)
Notably, the TCCWNA applies to “prospective consumers,” as well as actual customers, and violation requires only that a retailer “offer” a contract or “display” any notice that fails to comport with the TCCWNA’s requirements. A showing of actual damages is not required. As a result, the purported classes in the new wave of suits generally encompass all visitors to the applicable defendant’s website during the statute-of-limitations period preceding the suit. (Some complaints identify the period as six years, ostensibly based on New Jersey’s limitation for contract suits, while others vaguely reference the opening measurement for the class period only as the “applicable statement of limitations.”)
Adding to the appeal for the plaintiffs’ bar, § 56:12-17 of the TCCWNA grants a private cause of action and allows for both statutory damages and the recovery of attorneys' fees: "Any person who violates the provisions of this act shall be liable to the aggrieved consumer for a civil penalty of not less than $100.00 or for actual damages, or both at the election of the consumer, together with reasonable attorney’s fees and court costs."
Complicating matters further, the tack that many contract drafters would typically use to address state laws like the TCCWNA only fans the flames in this case. Many companies do business nationwide and want to offer a single form agreement to cover all comers, website Terms of Use being one such example. To address differences in state laws, drafters will often indicate that a certain provision applies only “to the extent permitted by applicable law” or that, because some states do not allow – for example – the limitation of certain types of damages, a particular provision may not apply to all users. Similarly, Terms of Use (as with almost all contracts) often include a standard severability clause, stipulating that the presence of any provision that is later deemed unlawful or unenforceable will not affect the enforceability of the remaining provisions of the agreement.
However, under the TCCWNA, including carve-outs and savings provisions like these is potentially itself a TCCWNA violation. § 56:12-16 of the TCCWNA reads: “No consumer contract, notice or sign shall state that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey; provided, however, that this shall not apply to warranties.” As a result, language included in some Terms of Use in an effort to safeguard the contract’s enforceability has now become the basis for an attack.
The Cases
The most recent spat of cases follow two significant holdings in TCCWNA jurisprudence that were issued at the end of 2015. First, a TCCWNA case against Public Storage, challenging several clauses of its standard storage-locker lease agreement for New Jersey rental properties, had its class certified in November 2015 (after previously surviving a motion to dismiss).[FN1] Then, in December, the Third Circuit reversed the dismissal of a TCCWNA claim arising out of a vehicle warranty agreement that required the consumer to waive recovery of attorneys’ fees.[FN2]
In the months since, we are aware of at least fifteen cases filed that claim that website Terms of Use violate the TCCWNA, including suits against Apple, Avis, Bed, Bath & Beyond, Burlington Coat Factory, Toys ‘R’ Us, and Victoria’s Secret. [FN3] While specific claims differ somewhat among the various suits, many allege that the defendant’s website terms violate the TCCWNA by purporting to limit plaintiff’s ability to pursue a claim (or the defendant’s liability for damages) under a number of New Jersey statutes or “clearly established” legal rights, including established common law liability for negligence or intentional torts, as well as New Jersey’s Punitive Damages Act, its Products Liability Act, and consumer remedies available under its Uniform Commercial Code. Many of the suits also attack severability clauses and other carve-outs that indicate some provisions may not apply to all users without specifying which provisions are not applicable to New Jersey users.
What Can A Website Do?
This wave of TCCWNA cases remains too new to have produced useful guidance from the courts. In addition, the nebulous nature of the TCCWNA makes compliance difficult: what exactly are the “clearly established legal right of a consumer or responsibility of a seller” under New Jersey law and how can a site operator draft its website Terms of Use to avoid running afoul of the TCCWNA? One area that websites may want to address is with regard to consumer products and limitations of liability. Given that several of the cases make claims based on purported disclaimers of liability for actual consumer products sold (e.g., the toy or article itself sold through a website), an e-commerce site will want to make sure that its online Terms of Use either do not apply to the actual goods sold, that its limitations of liability do not go too far, or that it has otherwise addressed the TCCWNA. At this stage, the best defense for most site operators may be ensuring that the website’s Terms of Use have a clear, well-crafted arbitration clause and class-action waiver and that the Terms have been properly acknowledged so as to buttress the enforceability of those provisions.
Hopefully, businesses will be provided guidance on TCCWNA compliance as these cases wind their respective way through the courts. In the meantime, now is the time to take another look at your website Terms of Use and other consumer contracts and consider protections that can be put in place to limit your exposure and help avoid becoming a potential target in a TCCWNA case.
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FN1: Martinez-Santiago v. Public Storage; 312 F.R.D. 380 (D.N.J. Nov. 17, 2015).
FN2: Johnson v. Wynn’s Extended Care, Inc., 2015 U.S. App. LEXIS 21682 (3rd Cir. Dec. 15, 2015).
FN3: Silkowski v. Apple Inc., No 5:16-cv-02338 (N.D.Cal. filed Apr. 28, 2016); Schleifer v. Avis Rent a Car System, LLC, No. 2:16-cv-02090 (D.N.J. filed Apr. 15, 2016); Sweeney v. Bed Bath & Beyond LLC, No. 2:16-cv-01927 (D.N.J. filed Apr. 6, 2016); Martinez v. Burlington Stores Inc., No. 1:16-cv-02064 (D.N.J. filed Apr. 13, 2016); Roldan v. Toys R US, Inc., No. 2:16-cv-01929 (D.N.J. filed Apr. 6, 2016); Nahas v. L Brands, Inc., No. 2:16-cv-02107 (D.N.J. filed Apr. 15, 2016).