One-year limits on redeeming gift certificates from dining-deal site Restaurant.com may violate a New Jersey consumer-protection law, says a putative class-action suit given a green light by the U.S. Court of Appeals for the Third Circuit.
The judges based their ruling in Shelton v. Restaurant.com on an advisory opinion by the New Jersey Supreme Court that such certificates fall within the province of the Truth-in-Consumer Contract, Warranty and Notice Act.
Lead plaintiffs Larissa Shelton and Gregory Bohus claim that the website, by stating the certificates are good for only a year, violates the law, which requires that gift certificates and gift cards be redeemable for two years.
“We will move forward with discovery and litigation,” says the plaintiffs’ lead attorney, Andrew Wolf, who is hoping that the case will become a class action. “We believe this ruling is sufficient to get the class certified,” he says.
Because the case originally had been dismissed on summary judgment, the potential size of the class is not known, says Wolf, of the Wolf Law Firm in North Brunswick. “We believe that each member of the class could be awarded as much as $100 per coupon,” he says. “That will be a significant amount.”
Customers purchase and print certificates redeemable at specific restaurants from Restaurant.com’s website for a discounted price. Participating restaurants may impose certain conditions, such as barring the use of a certificate on weekends or for the purchase of alcoholic beverages. Each gift certificate details its value, the restaurant where the certificate is redeemable, any limitations imposed by the restaurant and standard terms imposed by Restaurant.com.
Shelton and Bohus first sued in Middlesex County Superior Court seeking penalties under the New Jersey Gift Certificate Act, the Consumer Fraud Act and the TCCWNA. After the case was removed to federal court on diversity grounds, U.S. District Judge Joel Pisano dismissed it, concluding that the plaintiffs failed to allege an ascertainable loss, one of the three necessary elements for a claim under the CFA. Further, he found the plaintiffs were not “consumers” as defined by the TCCWNA, since the gift certificates were not “property.”
The Third Circuit heard arguments last year but deferred a ruling after asking the New Jersey court for guidance under N.J. Court Rule 2:12A-1.
The Supreme Court held in July that the TCCWNA covers the sale of tangible and intangible property and that certificates issued by participating restaurants and offered for purchase by sites like Restaurant.com are intangible property primarily for personal, family, or household use, thereby qualifying plaintiffs as consumers.
“Plaintiffs and other purchasers paid money to Restaurant.com, which in turn issued a certificate for use at a participating restaurant. Upon presentation, the purchaser receives goods, namely food and drinks, at a discounted price,” Judge Mary Cuff wrote for the court.
She added that online transactions are covered by the 2001 Uniform Electronic Transaction Act. “The transaction has all the basic features of a contract: offer, acceptance, consideration, and performance by both parties,” she said.
Cuff said the TCCWNA, enacted in 1982, was part of an area of law that was being “treated aggressively” by the Legislature. She noted Gov. Brendan Byrne’s signing statement that the TCCWNA was meant to “strengthen the provisions” of the CFA.
“In other words, the proposed legislation did not recognize any new consumer rights but merely imposed an obligation on sellers to acknowledge clearly established consumer rights and provided remedies for posting or inserting provisions contrary to law,” she said.
The TCCWNA’s legislative history also shows it was not intended to mirror the federal Magnuson-Moss Warranty-Federal Trade Commission Improvement Act, which applies only to tangible property, Cuff said.
In its Nov. 4 ruling, the Third Circuit agreed. Federal courts “are required to apply state substantive law to diversity actions,” U.S. Circuit Judge Joseph Greenaway Jr. wrote, citing the seminal case of Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
Restaurant.com’s lawyer, Michael McDonald, of Gibbons in Newark, did not return a telephone call seeking comment.