Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.Y. Sup.: Heating fuel was not consumer product subject to New York deceptive practices law, (Dec 6, 2013)

By John W. Arden, J.D., LL.M.

Allegations that a distributor of heating fuel delivered adulterated oil to apartment buildings did not state a claim under the New York deceptive practices law, since heating fuel is not considered a “consumer product” under the statute, the New York Supreme Court, County of New York has held (Mid Island LP v. Hess Corporation, December 2, 2013, Kornreich, S.). Thus, claims brought against the distributor under New York General Business Law §349 were dismissed with prejudice.

Mid Island LP and Carnegie Park Associates, L.P. are limited partnership that own apartment buildings in New York City. The limited partnerships contracted with Hess Corporation for heating fuel No. 4 and No. 6, which are used in older commercial and residential buildings. To deliver the fuel to customers, Hess employs third-party trucking companies. The limited partnerships alleged that the trucks frequently would partially fill their tanks with oil that had already been used for some other purpose and then proceed to Hess to fill the rest of their tanks. This mixture would then be delivered to customers, according to the partnerships. They alleged two particular deliveries—on March 3, 2010 and July 9, 2010—that were partially comprised of used oil.

The partnerships filed a putative class action on behalf of themselves and all other persons who purchased No. 4 or No. 6 fuel oil, but actually received a product that had been mixed with used oil. The complaint alleged claims of breach of warranty under the Magnuson-Moss Act and the Uniform Commercial Code, violations of New York General Business Law §349, breach of contract, negligence, and unjust enrichment. The partnerships moved for a preliminary injunction prohibiting Hess from selling or delivering fuel that did not comply with regulations promulgated by the State or City of New York. This motion was settled on stipulation, with Hess agreeing to refrain from delivering No. 4 or No. 6 oil that failed to conform to the specifications of the applicable laws and regulations. Hess then moved to dismiss the complaint in its entirety.

Breach of warranty. The crux of the breach of warranty claims were that Hess delivered oil that was not “heating oil” and that the partnerships were entitled to the difference between what they paid and the value of what they actually received. However, the partnerships did not cite to any statute, case, or regulation that defined what compounds or products may or may not be legally sold as “heating oil” or “fuel oil,” the court noted.

As far as could be discerned from the complaint and submissions, the standard against which the partnerships sought to hold the oil was their own invention, with no authority supporting their contention that a mixture of used oil and new oil could not be properly called “fuel oil.” The mere fact that Hess does not agree with the partnerships” interpretation of the term was immaterial at this stage of the proceedings. It would be the partnerships’ burden to prove that the term “fuel oil” means what they claim it means, according to the court.

The problem with the claim was the question of why the discrepancy in the makeup of the oil mattered—how the partnerships were harmed. It appeared that the partnerships were unaware that the oil they received in 2010 was defective until they were informed by their current counsel, years later, the court found. While the partnership claimed that the fuel was defective because its “heat content” was lowered than what they had ordered, they appear to have been oblivious to this supposed shortfall. The claim for damages did not appear to be based on any injury sustained by use of the oil, but rather on the supposed difference in value between the “pure” fuel oil and the product that was delivered.

If the partnerships had been harmed, they must explain how, rather than take refuge in “scholastic inquiries into the true nature of fuel oil.” Accordingly, the complaint was dismissed in its entirety, with leave to replead.

Magnuson-Moss Act, New York deceptive practices law. The federal Magnuson-Moss Warranty Act provides a private right of action to “a consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation … under a written warranty, implied warranty, or service contract.” 15 U.S.C. §2310(d)(1). The Act defines a “consumer” as a buyer of any “consumer product.” A “consumer product” is defined as “any tangible personal property which is distributed in commerce and which is normally used for personal, family or household purposes.”

New York General Law §349 likewise provides a private right of action for persons who are injured by reason of a violation of the statute. However, the statute is “directed at wrongs against the consuming public” and plaintiffs claiming the benefits of §349 must allege conduct by the defendant that is “consumer-oriented,” the court observed. Under New York Law, the term “consumer” is associated with an individual or natural person who purchases goods, services, or property primarily for personal, family, or household purposes. No action under this statute may be maintained where the complained-of conduct was directed towards the purchase of goods or services not meant for the general public.

No 4 and No. 6 oil are not consumer products, according to the court. They are used to fuel the boilers of large buildings and are procured by businesses, like the partnerships, that manage and maintain those buildings. “Simply put, No.4 and No. 6 oil are never bought for ‘personal, family or household purposes,’ but rather to fuel commercial or industrial burners run by building staff,” the court concluded.

Thus, the Magnuson-Moss Act and New York deceptive practices law claims were dismissed with prejudice.

The case is Index No. 650911/2013.

Attorneys: Wachtel Missry LLP for Mid Island LP. White & Case LLP for Hess Corp.

Companies: Mid Island LP; Carnegie Park Associates, L.P.; Hess Corp.

Cases: StateUnfairTradePractices NewYorkNews