Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—3rdCir: South Carolina Law Applied to Purchase That Took Place in the State, (Mar 11, 2013)

By Jody Coultas, J.D.

The U.S. Court of Appeals in Philadelphia has affirmed a decision by a district court finding that Brother International (USA) Corporation (BIC) was not liable under the New Jersey Consumer Fraud Act (CFA) for allegedly failing to disclose two design defects in its Multi-Function Center machines (Maniscalco v. Brother International (USA) Corporation, March 8, 2013, Barry, M.).

A South Carolina resident purchased a Multi-Function center—a small printer, fax machine, scanner and copier—in 2003 from BIC. The machine came with a limited warranty that stated the machine would be “free from defects in materials and workmanship, when used under normal conditions” for one year, and BIC agreed to repair or replace machines if a defect was reported to BIC or an authorized service center within the applicable warranty period.

In 2007, the purchaser’s machine began showing an error message indicating a voltage issue in the print heads that caused the machine to stop printing until the error message was cleared. Years prior to the resident purchasing the machine, BIC had become aware of the issue causing the error message through numerous customer calls. BIC’s parent company had provided BIC with a “temporary troubleshooting guide” with potential solutions BIC field personnel could implement when encountering customers complaining of the defects, and in June 2005, discovered a permanent fix and applied it to new machines. BIC was also aware of a defect in some models that would cause the machines to purge excess amounts of ink in 2004.

The purchaser joined a putative class action alleging that his machine ceased functioning as a result of BIC’s failure to disclose defects, causing losses because he had to purchase more ink than he otherwise would have, paid more for his machine than it was worth, and had to purchase a replacement machine.

Federal courts sitting in diversity apply the choice-of-law rules of the forum state to determine the controlling law. New Jersey uses the “most significant relationship” test set forth in the Restatement (Second) of Conflict of Laws., which requires the court to first determine whether an actual conflict exists between the laws of the potential forums and then determine which forum has the most significant relationship to the claim.

South Carolina law applied to the purchaser’s claims against BIC, according to the court. Under subsection (1) of the Restatement, where a party’s action in reliance took place in the state where the false representations were made and received, there is a presumption that the law of that state applies. Some courts have held the representations, even when they originated from the company’s headquarters, are actually made in the purchaser’s home state when they are directed to the purchaser’s home state at the point of sale. However, the court found this to be contradictory to the Restatement and would make the plaintiff’s state of receipt the only relevant contact in nearly every case in which a defendant is a multistate seller and would disregard the locale of a defendant’s actual misconduct. Because the purchaser received and relied on BIC’s representations in his home state of South Carolina, and there was no evidence demonstrating that BIC made any omissions or misrepresentations in South Carolina, the presumption outlined in subsection (1) did not apply.

The place where the purchaser acted in reliance upon BIC’s representations, received the representations, and where the machine was situated at the time all weighed heavily in favor of applying South Carolina law, according to the court. Under subsection (2) of the Restatement, when the plaintiff’s action in reliance takes place in a different state than where the false representations were made and received, courts look at (a) the place where the plaintiff acted in reliance upon the defendant’s representations; (b) the place where the plaintiff received the representations; (c) the place where the defendant made the representations; (d) the domicile, residence, nationality, place of incorporation and place of business of the parties; (e) the place where the subject of the transaction between the parties was situated at the time; and (f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.

The purchaser’s argument that New Jersey law should apply because BIC’s representations were made in New Jersey did not warrant application of New Jersey law, according to the court. Other than the location of BIC’s headquarters, nothing else about the relationship between the parties took place in New Jersey.

Finally, the court noted that Section 6 of the Restatement also required the holding that South Carolina had a greater interest in the litigation. Section 6 outlines choice-of-law principles that must be considered, including the interests of interstate comity, the interests of the parties, the interests underlying the field of tort law, the interests of judicial administration, and the competing interests of the states. Applying New Jersey law to every potential out-of-state claimant would frustrate the policies of the claimant’s state. The interest of the parties favored South Carolina because the only contact took place in South Carolina. South Carolina had the greatest interest in having its law apply to its own consumers, outweighing any interest New Jersey had in protecting out-of-state consumers from consumer fraud.

The case is No. 11-3032.

Attorneys: Michael R. McDonald (Gibbons) for Mark Maniscalco. Douglas J. McNamara (Cohen Milstein) for Brother International (USA) Corporation.

Company: Brother International (USA) Corporation

Cases: StateUnfairTradePractices DelawareNews NewJerseyNews PennsylvaniaNews