One Win for Plaintiffs and One for Defendants in Companion Class Certification Cases Today

Dugan v. TGI Friday’s, Inc., 231 N.J. 24 (2017).  In these two closely-watched consumer class action decisions, each of which involved claims regarding defendants’ alleged failure to disclose the price of drinks at their restaurants, plaintiffs and defendants each got some comfort from the 5-1 majority opinion authored by Justice Patterson.  In Dugan, where (as discussed here) the Appellate Division rejected class certification on both Consumer Fraud Act (“CFA”) and Truth in Consumer Contract, Warranty, and Notice Act (“TCCWNA”) claims, the Supreme Court affirmed the denial of class certification of the CFA claim.  In the companion case, Bozzi v. OSI Restaurant Partners, LLC, in which the Court granted leave to appeal the certification of a class, the Court affirmed in part and reversed in part, directing the certification of a narrower CFA class than the Law Division there had approved. Justice Patterson’s opinion denied class certification on the TCCWNA claims in both cases.  Justice Albin, in dissent, would have certified the CFA class in Dugan and the TCCWNA classes in both cases.

In Dugan, applying the abuse of discretion standard of review, Justice Patterson stated that plaintiff’s theory– that because defendant had not put drink prices on menus, which plaintiffs alleged violated the CFA and the TCCWNA, defendant was able to “charge[ ] an excessive price” for its drinks — did not meet the predominance requirement of Rule 4:32-1(b)(3).  The majority characterized that theory as a “price-inflation” theory that was “closely related to fraud on the market theories,” and cited numerous prior cases that had gone against class action plaintiffs when they asserted such theories.  The majority ruled that plaintiffs here could not substitute such a theory for actual proof of causation and ascertainable loss, which are required elements of a CFA claim.  Those were individual issues that the majority held predominated over common questions, so that the predominance criterion of Rule 4:32-1(b)(3) was not satisfied.

As Justice Albin pointed out, however, the Dugan plaintiffs’ theory was not in fact “fraud on the market” or anything related to it, so for that and other reasons, there are grounds to question the validity of the majority’s opinion.  Nonetheless, the majority’s ruling is of limited import.  Justice Patterson was careful to distinguish between this “price-inflation” type of case and the “inherently different” consumer class action cases that the Court previously confronted, which involved claims that consumers “purchased defective or deficient goods” or were victims of misrepresentations.  Today’s decision on the CFA claim in Dugan thus has no impact on the more conventional CFA claims that form the basis for most consumer class actions.  So while this is a tremendous win for TGI Friday’s, it will do little for defendants in other CFA cases.

In  Bozzi, plaintiff had proffered three alternative CFA class definitions.  The Court directed that the narrowest of those classes, which Justice Patterson shaped as “persons who ordered more than one beverage of the same brand, type, and volume during a single visit to [defendant’s establishments] and were charged a higher price for a second or subsequent beverage of the same brand, type, and volume ordered during the same visit, without notice of the change in prices,” be certified.  Because there were assertedly “claimant-specific records,” in the form of receipts, those receipts, perhaps with other evidence, could be used to prove ascertainable loss and causation for a class.  That different means of proving those elements of the CFA distinguished the Bozzi case from Dugan and enabled the certification of a class, albeit a smaller one than the Law Division had certified.

Plaintiffs can be encouraged by the result in Bozzi, despite the reduction of the class.  Justice Patterson ruled that the individual receipts also helped satisfy the “superiority” requirement of Rule 4:32-1(b)(3), which requires that a class action be the superior means of adjudicating the controversy as compared to other available means.  Part of the superiority calculus in the litigation class certification context is the manageability of a potential trial, and defendants often argue that going individual by individual would be unmanageable and that superiority is therefore defeated.  (In the settlement class context, manageability is not an issue, since the proposal is that there be no trial).  Today’s ruling in Bozzi makes clear that the need to review individual records is no bar to manageability or superiority.

The decision to deny class certification on the TCCWNA claims also found a lack of predominance.  Only an “aggrieved consumer” may sue under the TCCWNA.  The majority concluded that in order to be an “aggrieved consumer” in these cases, “a claimant must prove that he or she was presented with a menu during his or her visit to the defendants’ restaurant,” because the TCCWNA “does not apply when the defendant fails to provide the consumer with a required writing.”  Determining which consumers did or did not receive menus would require individual proofs, which would defeat predominance, Justice Patterson stated.  It was not sufficient that defendants had a corporate policy requiring that patrons be given menus, since it was undisputed that not all customers in fact were given menus.

Moreover, the majority found that there were predominant individual issues as to whether a “clearly established right” had been violated.  There was only one published opinion under the section of the CFA on which plaintiffs relied, and that decision did not address whether restaurants may offer food or drink without providing menus containing prices.  Nor did a prior decision in Dugan that denied a defense motion to dismiss for failure to state a claim but did not address the merits of plaintiffs’ claims form a basis for saying that plaintiff had a “clearly established right,” another issue on which predominance was lacking.  Justice Albin’s dissent disagreed, and he appeared to have the better of that argument.

As discussed here, the Supreme Court has before it two other cases that call upon the Justices to decide who is an “aggrieved consumer” under the TCCWNA, and whether an administrative regulation embodies a “clearly established right.”  [Disclosure:  My partner at Lite DePalma Greenberg, LLC, Susana Cruz Hodge, and I filed an amicus curiae brief in support of plaintiffs in those cases, on behalf of the Consumers League of New Jersey].    Regardless, the Court’s statements about the TCCWNA claims today doubtless will come up again the context of those cases, which may be argued as early as next month.


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