In the past several years, plaintiffs’ firms have threatened or brought class actions against different companies under New Jersey’s Truth-in-Consumer Contract Warranty and Notice Act, N.J.S.A. §§ 56:12-14, et seq. (TCCWNA). This statute applies to a “consumer or prospective consumer” who is offered or enters a “written consumer contract” that “includes any provision that violates any clearly established legal right of a consumer” under state or federal law “at the time the offer is made or the consumer contract is signed … .” N.J.S.A. § 56:12-15. Relevant to product manufacturers, resellers, lessees or servicers, the Act applies to any “seller [or] lessor” and defines a “consumer” as “any individual who buys, leases, [or] borrows any … property or service which is primarily for personal, family or household purposes.” Id. A company that violates TCCWNA is liable for a civil penalty of not less than $100 or actual damages, or both, at the election of the consumer, together with attorney fees and court costs. N.J.S.A. § 56:12-17.
The sparse legislative history of TCCWNA reflects the concern that including legally invalid or unenforceable provisions in consumer contracts may deceive consumers into not pursuing their rights. See Sponsor’s Statement to Assembly Bill No. 1660 (May 1, 1980). See also Shelton v. Restaurant.com, 214 NJ 419, 431 (2013); Walters v. Dream Cars Nat., LLC, No. BER-L-9571-14, 2016 WL 890783, at *6 (N.J. Super. L. Mar. 7, 2016).
The “TCCWNA does not establish consumer rights or seller responsibilities. Rather, the statute bolsters rights and responsibilities established by other laws.” Watkins v. DineEquity, Inc., 591 Fed. App’x 132, 134 (3d Cir. 2014). That the source of a consumer right is a statute does not make it “clearly established” under TCCWNA, especially where it is facially ambiguous. McGarvey v. Penske Automotive Group, Inc., No. 08-5610-JBS-AMD, 2011 WL 1325210, at *4 (D.N.J. Mar. 31, 2011), aff’d, 486 Fed. App’x 276 (2012). TCCWNA should apply only where the violation is “so clear that no reasonable vendor could fail to know that its conduct was prohibited … .” Id.
The statute lends itself well to class actions because if a violation is established, a common issue of law applicable to the entire class is often inescapable, and penal damages are imposed automatically without evidence of actual injury. Johnson v. Wynn’s Extended Care, Inc., 35 Fed. App’x 59 (3d Cir. 2015). TCCWNA class actions are challenging to defend and present high risk damage exposure. Based on our recent experience representing various manufacturers, we explore several strategies for opposing class certification on the grounds of overbreadth, ascertainability, predominance, typicality and superiority.
Overbroad Class Definitions
As a preliminary matter, TCCWNA only applies to “consumers.” See Shelton, 214 N.J. 419, 429 (2013). See also Watkins v. DineEquity, Inc., No. 11-7182-JBS-AMD, 2012 WL 3776350, at *3 (D.N.J. Aug. 29, 2012); DeHart v. U.S. Bank, N.A., ND, 811 F. Supp. 2d 1038, 1052 (D.N.J. 2011); Baker v. Inter Nat’l Bank, No. 08-5668, 2012 WL 174956, at *9 (D.N.J. Jan. 19, 2012). Determining whether the named plaintiff’s use of the defendants’ “property or service” is “primarily for personal, family or household purposes” implicates both the Act’s “consumer” requirement and predominance issues for class certification purposes. The Shelton court determined that the phrase “primarily for personal, family or household purposes” modifies the term “property,” and that the New Jersey legislature intended to describe the “use to which the property is put” rather than the “nature of the property.” Id. at 434-35. If the primary use is for business purposes, the plaintiff does not qualify as a “consumer” under TCCWNA.
TCCWNA class definitions that apply to non-consumers, such as “all persons who used defendants’ products and/or services” during a particular time frame are susceptible to an overbreadth attack. A class is not ascertainable if it “is overbroad and could include a substantial number of people who have no claim under the theory advanced by the named plaintiff.” Vigus v. S. Ill. Riverboat/Casino Cruises, Inc., 274 F.R.D. 229, 235 (S.D. Ill. 2011); see also Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 137-38 (3d Cir. 2000); Franco v. Conn. Gen. Life Ins. Co., 289 F.R.D. 121, 141 (D.N.J. 2013).
To the extent the defendant can demonstrate from its records or expert analysis that its customers include a meaningful percentage of corporations, companies and businesses — which are not “consumers” under TCCWNA — the class is overbroad and should not be certified. See Mann v. TD Bank, N.A., No. 09-1062-RBK-AMD, 2010 WL 4226526, at *12 (D.N.J. Oct. 20, 2010); Franco, 289 F.R.D. at 143; Bright v. Asset Acceptance, LLC, 292 F.R.D. 190, 198 (D.N.J. 2013).
Plaintiffs will likely argue that if the majority of customers in the industry or company defendant are consumers, then the statutory prerequisite is satisfied. See Korrow v. Aarons, Inc., No. 10-6317, 2013 WL 5811496 (D.N.J. July 31, 2013) (rent-to-own furniture). The problem with this argument is that it reads the “consumer” definition out of the statute, and would impermissibly extend the Act’s protections to businesses merely by the fortuity of having been included in the class.
If a plaintiff cannot present a plan demonstrating an objective, reliable and administratively feasible mechanism to determine class-wide each user’s primary purpose for the good or service, the class is not certifiable. See Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 356 (3d Cir. 2013); Carrera v. Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013) (“[A] plaintiff may not merely propose a method of ascertaining a class without any evidentiary support that the method will be successful.”). This is especially so where the company’s records do not readily lend themselves to this determination.
The defendant should submit competent affidavits describing the customers, industries and businesses that purchase the company’s goods or services, whether agreements may be entered into by individuals for a business purpose, and whether customer lists alone or other documents that contain “indicia of use” information are reliable and objective proxy indicators. Demonstrate that information provided by customers or employees in the agreement, ancillary forms or databases is insufficient for this purpose. Customer category information used for marketing, for instance, may not be verified or accurate: “[W]here nothing in company databases shows or could show whether individuals should be included in the proposed class, the class definition fails.” Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 593-94 (3rd Cir. 2002) and Deitz v. Comcast Corp., No. 06-06352, 2007 WL 2015440, at *8 (N.D. Cal. July 11, 2007) (defendant’s records did not differentiate between subscribers that owned cable ready TV boxes or other devices); see also Carrera, 727 F.3d at 308; Mladenov v. Wegmans Food Mkts., Inc., 124 F.Supp. 3d 360, 371 (D.N.J. 2015).
If the court would need to engage in individualized factual inquiries regarding each customer’s intentions, ascertaining the class is not practical. See Simer v. Rios, 661 F.2d 655, 669 (7th Cir. 1981); Corder v. Ford Motor Co., 283 F.R.D. 337, 342 (W.D. Ky. 2012). And where there is no method to identify “consumers” class-wide that would permit a defendant to exercise its due process rights to challenge the claim, certification is improper.
Rule 23(b)(3) requires that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Additionally, “[a] plaintiff must demonstrate that the element of [the legal claim] is capable of proof at trial through evidence that is common to the class rather than individual to its members.” Marcus, 687 F.3d at 600 (quoting In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008), as amended (Jan. 16, 2009) (“If proof of the essential elements of the cause of action requires individual treatment, then class certification is unsuitable.”) (citation omitted)).
Courts that have considered TCCWNA claims, and claims arising from statutes that apply to goods or services “primarily for personal” use, have denied class certification because individualized investigation is required to establish statutory liability. See, e.g., Dugan v. TGI Fridays, Inc., 445 N.J. Super. 59 (App. Div. 2016), affirmed as modified, 2017 WL 4399352 (Oct. 4, 2017) (menu beverage pricing); Corder v. Ford Motor Co., 283 F.R.D. at 343 (recognizing defendants right to litigate each element of the cause of action “and for each putative class member no less.”). See also In re OnStar Litig., 278 F.R.D. 352, 380 (E.D. Mich. 2011) (denying class certification because “[m]otor vehicles can be purchased for commercial use, personal use, or both.”); Johnson v. Harley-Davidson Motor Co. Group, LLC, 285 F.R.D 573, 583 (E.D. Cal. 2012); Arabian v. Sony Elec., Inc., No. 05-1741, 2007 WL 627977, at *14 (S.D. Cal. 2007) (denying class certification because “this legal requirement will require an individual examination of the purpose for which each laptop was acquired”).
For the same reason, the commonality requirement of Rule 23 also is not satisfied. In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 528 (3d Cir. 2004) (“the Rule 23(b)(3) predominance requirement, which is far more demanding, incorporates the Rule 23(a) commonality requirement.”).
Another avenue of attack is to argue that the representative plaintiff is not typical of the absent class members as required by Rule 23(a)(3). The typicality requirement is designed to “screen out class actions in which the legal or factual position of the representatives is markedly different from that of other members of the class even though common issues of law or fact [may be] present.” Marcus, 687 F.3d at 598 (3d Cir. 2012) (citation omitted). See also Lerch v. Citizens First Bancorp, Inc., 144 F.R.D. 247, 251 (D.N.J. 1992). The court must “consider the attributes of the plaintiff, the class as a whole, and the similarity between the plaintiff and the class.” Marcus, 687 F.2d at 598. A defense unique to a named plaintiff renders him atypical and inadequate to represent a class. Beck v. Maximus, Inc., 457 F.3d 291, 297 (3d Cir. 2006). If an overbroad class definition potentially includes business customers, a purely “consumer” plaintiff cannot represent them. Where the named plaintiff is experienced with similar agreements and knowledgeable of his legal rights or the impact of certain provisions, he may not be typical. See Marcus, 687 F.3d at 598-599 (acknowledging “typicality problem” if named plaintiff knew of potential issues because “he would be unable to represent fairly the interests of class members who did not have such knowledge.”). Typicality concerns also arise where the plaintiff joins interrelated entities, but is not in privity with the actual seller, lessor, or lender that provided goods or services to class members.
Last, certification may be inappropriate if the plaintiff cannot satisfy the superiority prong of Rule 23(b)(3), which requires the court to consider the “difficulties likely to be encountered in the management of a class action.” See Fed. R. Civ. P. 23(b)(3)(D); Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615-16 (1997). Many courts have questioned the propriety of, and denied certification to, classes of statutory penalty claims under state and federal statutes where there would be astronomical class-wide damages awarded for no-injury claims and access to small claims courts is available to obtain relief. This is especially true if the plaintiff’s cause of action provides for fee shifting, such as under the TCCWNA, which ameliorates the risk that claims will be too small to warrant individual suits. N.J.S.A. § 56:12-17. See, e.g., Smith v. Chrysler Fin. Co., No. 00-cv-6003, 2004 WL 3201002, at *5 (D.N.J. Dec. 30, 2004).
New Jersey courts have found class certification inappropriate in claims involving statutory penalties. See Local Baking Prod., Inc. v. Kosher Bagel Munch, Inc., 421 N.J. Super. 268, 280-81 (App. Div. 2011); Levine v. 9 Net Ave., Inc., No. A-1107-00T1, 2001 WL 34013297 (N.J. Super. App. Div. June 7, 2001). Courts in other jurisdictions applying similar statutes imposing automatic penalties have repeatedly held that they are not amenable to class treatment. See, e.g., Rowden v. Pac. Parking Sys., 282 F.R.D. 581, 586 (C.D. Cal. 2012); Forman v. Data Tansfer, 164 F.R.D. 400, 405 (E.D. Pa. 1995) (TCPA class action inconsistent with remedy Congress provided “to address the minor nuisance of unsolicited facsimile advertisements”); Watkins v. Simmons & Clark, 618 F.2d 398, 399 (6th Cir. 1980) (“clear purpose of the [Truth-in-Lending Act] statutorily mandated minimum recovery was to encourage lawsuits by individual consumers … ”); Shroder v. Suburban Coastal Corp., 729 F.2d 1371, 1377-78 (11th Cir. 1984).
The far superior alternative to a class action is individual proceedings in state small claims court to obtain statutory penalty damages, attorneys’ fees and costs. Local Baking Prod., Inc. v. Kosher Bagel Munch, Inc., 421 N.J. Super. at 276. See also Klay v. Humana, Inc., 382 F.3d 1241, 1271 (11th Cir. 2004) (“[W]here ‘the defendants’ potential liability would be enormous and completely out of proportion to any harm suffered by the plaintiff,’ … individual suits, rather than a single class action, are the superior method of adjudication … .” (citation and quotation marks omitted)), abrogated in part on other grounds by Bridge v. Phoenix Bond & lndem. Co., 553 U.S. 639 (2008).
Steven P. Benenson is a senior litigation principal with Porzio, Bromberg & Newman, PC, in Morristown, NJ, and chairs the firm’s complex litigation practice. He has over 30-years’ experience defending class actions in diverse industries and businesses in state and federal trial and appellate courts across the country.
The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.