Growing Class-Action Threat Targets Firms' Website Terms & Conditions

Lush Cosmetics is among companies facing proposed class actions for alleged violations of New Jersey's Truth-in-Consumer Contract, Warranty and Notice Act. Trade groups and legal experts warn the more than 30-year-old statute is being invoked increasingly by plaintiffs to attack the fine print on firms' e-commerce sites.

Personal-care companies with online business in New Jersey should review their website terms and conditions to avoid being targeted in a growing class-action trend, trade groups and legal experts warn.

The plaintiffs' bar has seized on a statute that's been on Jersey's books for more than 30 years – the Truth-in-Consumer Contract, Warranty and Notice Act – to bring potentially costly actions against companies whose websites include exculpatory provisions that violate federal or state law.

Such provisions may seek to limit sellers' liability, purport to waive attorney's fees and shift costs, or mandate that consumers waive the right to sue and submit to arbitration, Locke Lord attorneys note in a March 15 post to the Electronic Retailing Association's blog.

Generally, the language at issue is designed to reduce risk of lawsuits by spelling out acceptable-use obligations and other legal terms. In instances where such provisions may not be legally valid or enforceable, the TCCWNA can be invoked, treating the clauses as deceptive tactics to deter litigation at consumers' expense.

The plaintiffs' bar is relying increasingly on the TCCWNA as the claimed basis for class actions, arguing that consumers have standing under the statute even if they have suffered no injury or loss and maintaining that companies' good-faith compliance efforts need not be taken into account. – McCarter & English's February client alert

New Jersey's legislature enacted the law in 1981 to remedy what it viewed as increasing incidence of consumer contracts, warranties, notices and signs with built-in provisions that violate consumers' rights, typically by leading consumers to believe they lack legal options that in reality are available to them.

In essence, the TCCWNA functions not to establish consumer rights or seller responsibilities, but rather to shore up rights and responsibilities delineated by other laws.

Violations of the statute entitle plaintiffs to statutory damages of at least $100 for each separate violation – penalties that can add up quickly and substantially in the context of a class action – and/or actual damages, injunctive relief and attorney's fees.

In the digital age, terms and conditions have become standard inclusions on companies' e-commerce platforms to bound and define transactions, putting businesses at considerable risk.

In a February client alert, law firm McCarter & English notes that the plaintiffs' bar increasingly is relying on the TCCWNA as the claimed basis for class actions due to the law's "vagueness and broad scope," arguing that consumers have standing under the statute even if they have suffered no injury or loss and maintaining that companies' good-faith compliance efforts need not be taken into account.

The firm identifies the phenomenon as "a serious threat to businesses of every size and type that have broad disclaimers and warranty limitations in their website Terms and Conditions."

ICMAD Issues 'Urgent' Notice

The Independent Cosmetic Manufacturers and Distributors issued an "urgent" notice April 4 warning industry members about a rash of court decisions in New Jersey that have broadly interpreted the TCCWNA in plaintiffs' favor.

According to the trade group, a single California firm has dispatched numerous demand letters threatening class actions on grounds of alleged TCCWNA violations.

Increasingly, "pre-suit demand letters and class action complaints claim that companies' website terms and conditions, advertisements, consumer contracts and other written communications violate the statute," the small-business advocate says.

"Companies doing business in New Jersey should be aware that the statute applies not only to traditional consumer contracts, but also to terms and conditions on the web and even to gift certificates. Customers and prospective customers do not have to demonstrate actual damages to bring a claim," ICMAD adds.

According to the ERA, which represents the $350bn direct-response marketing sector, recent cases demonstrate plaintiffs' capacity under the TCCWNA to stretch its applicability to digital contracts and communications. The trade organization notes that "the sheer volume of internet activity and website analytics make 'numerosity' an easy prong to satisfy in the class-certification analysis."

The group also underscores the statute's reach in terms of entities that can be considered "sellers," which include those involved in producing a consumer good as well as any participating in the chain of distribution, advertising or sale of the good, provided that they are deemed "not a stranger" to the transaction or are found to have assisted in or benefited from the transaction.

The New Jersey Civil Justice Institute, a nonprofit focused on reform to discourage lawsuit abuse, has seen an "unprecedented number" of TCCWNA suits filed in recent years and says "the court's application of TCCWNA has reached a point that it is so broad, compliance is virtually impossible."

The ERA urges any company with business in the state – "even if only through its website" – to "be mindful of the TCCWNA and recent case law interpreting it when drafting and modifying its consumer-facing communications," including those across social-media platforms.

"The best defense to TCCWNA claims is to ensure that your company’s terms and conditions and other consumer-facing communications are up-to-date and consistent with recent case law," it says.

The New Jersey Civil Justice Institute, a nonprofit focused on reform to discourage lawsuit abuse, also has taken a keen interest in the TCCWNA and its implications for businesses.

According to the NJCJI's website, the group has seen an "unprecedented number" of related suits filed in recent years, and "the court's application of TCCWNA has reached a point that it is so broad, compliance is virtually impossible."

Warnings Come Too Late For Lush Cosmetics

Canadian firm Lush Cosmetics, LLC is facing a proposed class action in New Jersey District Court that alleges violations of the TCCWNA for unlawful website terms and conditions.

Plaintiff Norris Hite filed the complaint March 18 on behalf of herself and all similarly situated consumers, claiming that the "Terms of Use" at LushUSA.com purport to be a binding contract between the company and individuals who visit or purchase products from its site.

The legal parameters defined therein are in conflict with federal and state consumer-protection laws, rendering the "handmade cosmetics" maker in violation of the TCCWNA, she asserts.

Specifically, the plaintiff says, Lush's online clauses purport to:

• deprive Plaintiffs of their legal right to pursue a remedy for harms arising from Defendant's tortious acts;
• absolve Defendant of its responsibility to refrain from creating an unreasonable risk of harm to consumers and protecting against the unlawful acts of third parties;
• absolve Defendant from any liability for manufacturing or selling dangerous or substandard products.

"Likewise, under the Terms of Use, it appears that Plaintiffs are inappropriately barred and/or limited in seeking damages for injuries occurring from Defendant's unsafe products," Hite and her counsel note.

Specific highlighted language from Lush's Terms of Use includes:

• "Under no circumstances will any Lush parties be responsible or liable for any loss or damages of any kind."
• "Some jurisdictions do not allow the exclusion or limitation of incidental or consequential damages of the sort that are described above, so the above limitation or exclusion may not apply to you."

It's notable that the complaint cites the latter statement. According to law firm Drinker Biddle & Reath, the TCCWNA prohibits use of standard disclaimers in consumer contracts indicating that provisions 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."

Plaintiff seeks a civil penalty of not less than $100, payable to herself and each class member, for each violation of the TCCWNA, plus attorneys' fees and court costs, in addition to injunctive relief.