A four-year-old consumer suit against Restaurant.com over time limits for online dining deals has been thrown out by a federal judge in New Jersey. But a lawyer for the would-be plaintiffs class said he will appeal.
The case, Shelton v. Restaurant.com, has already been up to the U.S. Court of Appeals for the Third Circuit, which held that the plaintiffs had a cognizable claim, based on an advisory opinion it obtained from the New Jersey Supreme Court.
Despite that holding, U.S. District Judge Joel Pisano dismissed the case on July 10 on the basis that the Supreme Court decision “created a new rule of law that would lead to gravely inequitable results if applied retroactively.”
Plaintiffs Larissa Shelton and Gregory Bohus sued in January 2010 under two New Jersey consumer protections statutes, the Consumer Fraud Act (CFA) and the Truth-in-Consumer Contract, Warranty, and Notice Act (TCCWNA), which provides a cause of action for contracts that violate a “clearly established legal right of a consumer” or “responsibility of a seller” under state or federal law.
The complaint was filed in state court but removed to federal court in Trenton under the Class Action Fairness Act, based on diversity jurisdiction.
The TCCWNA applies only to consumer contracts that involve “property…which is primarily for personal, family or household purposes” and provides for recovery of at least $100 in statutory damages and legal fees.
Shelton and Bohus alleged that they made multiple online purchases from Restaurant.com of gift certificates for discounted meals at various New Jersey eateries and that the certificates all expired one year from the date they were issued.
Both claims relied on the New Jersey Gift Certificate statute, which prohibits expiration dates of less than two years.
Many of the certificates they bought contained language saying that the one-year time limit for using them did not apply in California and “where otherwise prohibited by law” and that they were “void to the extent prohibited by law,” said the complaint.
The plaintiffs alleged those disclaimers did not suffice under TCCWNA, which prohibits such language in consumer contracts unless it specifies “which provisions are or are not void, unenforceable or inapplicable” in New Jersey.
On June 15, 2012, Pisano dismissed the case in its entirety.
He held that the plaintiffs had bought “a contingent right to services from a third party” and thus did not fall within TCCWNA’s protection for consumers who buy goods or services for personal use.
Precedent interpreting TCCWNA was sparse but in the few cases that exist, courts have applied it only to noncontingent tangible property and services sold directly by the provider, Pisano said.
He also tossed the CFA claims, finding that the plaintiffs failed to allege the requisite “ascertainable loss.” There was no claim that they tried to use a certificate after it expired and the restaurant refused. Instead, the plaintiffs claimed the certificates were less valuable than they would have been without the one-year use-by date.
On appeal, Third Circuit Judges Kent Jordan, Joseph Greenaway Jr. and Leonard Garth asked the New Jersey Supreme Court to provide guidance on the scope of the TCCWNA.
The state court obliged with a July 2013 determination that the law encompasses discount restaurant coupons.
The case went back to the Third Circuit, which, on Nov. 4, 2013, reinstated the TCCWNA claim but upheld dismissal of the claim under the CFA.
On remand, Restaurant.com moved to dismiss, arguing that the question of whether TCCWNA applied was an issue of first impression and it would be unfair to penalize it for not anticipating the outcome.
He found that the Supreme Court’s ruling was novel, given that no court had previously held that TCCWNA applied to intangible property.
He cited statements by the Third Circuit when it asked for guidance that the case raised “important and unresolved questions of state law” and that no court in New Jersey had addressed the question of how the terms “property” and “consumer” are defined in the TCCWNA.
It would be inequitable to apply that new rule of law to Restaurant.com because “it relied on a plausible but incorrect interpretation of the law,” Pisano said.
He rejected the plaintiffs’ contention that retroactivity was justified because the company violated the longstanding Gift Certificate Act prohibition.
Pisano expressed concern about the impact that retroactive application would have on “not only similarly situated Internet merchants, but anyone who markets anything intangible in New Jersey.”
It could result in “extraordinary statutory penalties against unsuspecting companies without any consumers actually suffering any ascertainable losses,” he noted.
In contrast, applying the rule going forward only “will allow such businesses or people to make the necessary adjustments to their contacts, notices, warranties and signs to account for the fact that they are now subject to the TCCWNA.”
Andrew Wolf, of the Wolf Law Firm in North Brunswick, N.J., who represents the putative class, said, “We plan to appeal because even though the New Jersey Supreme Court did not specifically state that its decision would apply retroactively or prospectively, we believe it intended its decision to apply to this case.”
Wolf referred to Perez v. Rent-A-Center, a 2006 decision that applied the Consumer Fraud Act and the Retail Installment Sales Act to rent-to-own contracts and applied the ruling to the parties in the case, who later settled for more than $100 million.
Restaurant.com attorney Michael McDonald, of Gibbons in Newark, provided a statement saying his client was pleased with Pisano’s opinion, which “properly determined that considerations of fairness and justice strongly favor prospective application of a new rule of law.”
McDonald added that “the case was never about harm to consumers, but windfall statutory damages.”
According to its website, Restaurant.com, which is based in Arlington Heights, Ill., no longer sells deals that expire at any time.
Similar lawsuits against Groupon over expiration dates on vouchers for restaurants and other types of deals were centralized in the Southern District of California.
An $8.5 million settlement, approved in December 2102, is the subject of a pending appeal before the U.S. Court of Appeals for the Ninth Circuit.
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