Antitrust Law Daily Wrap Up, ADVERTISING—3d Cir.: Ruling that gift certificates were property could apply retroactively to plaintiffs, (May 4, 2015)

By Linda O’Brien, J.D., LL.M.

In a class action suit by two consumers against Internet marketer Restaurant.com for alleged deceptive practices in selling gift certificates at participating restaurants, the retroactive application of the state supreme court’s finding that the certificates were property was limited to the two named plaintiffs and allowed them to recover a civil penalty, the U.S. Court of Appeals in Philadelphia has ruled. Thus, the district court’s dismissal of the plaintiffs’ consumer contract claim was reversed (Bohus v. Restaurant.com, Inc., April 30, 2015, Jordan, K.).

Restaurant.com, Inc. is an Internet business that markets, advertises, and sells certificates redeemable at participating restaurants. Consumers search the website for a specific restaurant, select the amount of the certificate, and make an online payment for the certificate, which is typically less than the face value of the certificate. Participating restaurants may impose conditions on the certificate. Substantially all of the gift certificates issued by Restaurant.com since April 2006, included provisions that the certificates expired within one year from date of issue and were void to the extent prohibited by law.

Gregory Bohus and Larissa Shelton, who purchased gift certificates from Restaurant.com, filed a putative class action suit alleging that the gift certificates violated the New Jersey Gift Certificate Statute (GCS), the New Jersey Consumer Fraud Act (CFA), and the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA). The district court granted a motion to dismiss the complaint for failure to state a claim. In dismissing the TCCWNA claim, the court determined that the gift certificates were not “money, property, or services” and therefore the plaintiffs were not consumers for purposes of the TCCWNA.

The appellate court affirmed the dismissal of the GCS and CFA counts and, in resolution of the dismissal of the TCCWNA claim, certified the question of whether the gift certificates were property to the New Jersey Supreme Court. The Supreme Court determined that the TCCWNA applied to restaurant certificates purchased by consumers through a third-party vendor, such as Restaurant.com. On remand, the district court again granted Restaurant.com’s motion to dismiss on the grounds that the new rule applied only prospectively and limited retroactive application to the plaintiffs would be inequitable. The plaintiffs timely appealed the district court order.

The TCCWNA prohibits sellers from offering to a consumer or prospective consumer a written consumer contract which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller. The Act also authorizes an aggrieved consumer to recover a civil penalty of not less than $100 or actual damages.

The district court did not err in finding that businesses similarly situated to Restaurant.com reasonably relied on the understanding that the TCCWNA did not apply to intangible property, the prior interpretation of the law, according to the appellate court. Under state law, judicial decisions that adopt new rules generally are given retroactive effect unless retroactive application could produce substantial equitable results. The plaintiffs’ argument that the Restaurant.com did not demonstrate actual, reasonable reliance on the prior interpretation of the law was rejected. The Supreme Court determination had potential to affect, not only Restaurant.com, but any business that marketed intangible property to consumers in New Jersey. Since the impact of the decision was truly far-reaching, the district court correctly refused to apply the general rule of full retroactivity.

However, the new rule should not be applied purely prospectively. According to the appellate court, considering the purpose of the rule, those responsible for effecting the change in the law should benefit from their efforts. Although the district court was rightly concerned that the plaintiffs suffered no ascertainable loss and could receive a windfall recovery, the TCCWNA was a remedial statute which imposes a civil penalty as a deterrent to deceptive practices in consumer contracts. The district court could, however, limit the extent of the windfall and the retroactive application should be limited to the named plaintiffs. Therefore, the district court judgment was reversed and remanded for entry of an order allowing the two named plaintiffs to recover a civil penalty, the appellate court concluded.

The case is No. 14-3316.

Attorneys: Katrina Carroll and Bruce D. Greenburg (Lite DePalma Greenberg LLC), Christopher J. McGinn (The Law Office of Christopher J. McGinn), and Andrew R. Wolf and Henry P. Wolfe (The Wolf Law Firm) for Gregory Bohus and Larissa Shelton. Michael R. McDonald, Caroline E. Oks, Damian V. Santomauro, and Jennifer M. Thibodaux (Gibbons P.C.) for Restaurant.com, Inc.

Companies: Restaurant.com, Inc.

Cases: Advertising StateUnfairTradePractices DelawareNews NewJerseyNews PennsylvaniaNews