Supreme Court’s Decision in Shelton v. Applies Retroactively to Plaintiffs

Bohus v., Inc., 784 F.3d 918 (3d Cir. 2015).  [Disclosure:  I argued this appeal for plaintiffs in this case].  Retroactivity of judicial opinions is sometimes a difficult question.  The general rule is that judicial decisions are retroactive, not prospective (that is, applicable only to future cases, not to the plaintiffs in the case or to others).

This appeal related to the Supreme Court of New Jersey’s decision in Shelton v., Inc., 214 N.J. 419 (2013), on questions certified to the Court by the Third Circuit, which the Supreme Court then reformulated.  The Supreme Court expressly stated, in answering those questions, that the gift certificates issued by were subject to the Truth in Consumer Contract, Notice, and Warranty Act, N.J.S.A. 56:9-12 et seq. (“TCCWNA”).  The Third Circuit then applied that ruling, reversed the decision of the District Court that had granted a motion to dismiss the TCCWNA claim, and remanded that claim for further proceedings.

On remand, defendant moved again to dismiss the TCCWA claim, this time on the grounds that the Supreme Court’s decision could apply only prospectively, not to the Shelton plaintiffs.  The District Court agreed.  Plaintiffs appealed, and the Third Circuit reversed.  Judge Jordan wrote the panel’s opinion.

Judge Jordan did not find persuasive the argument that the Supreme Court’s express statements that the TCCWNA applied to the very gift certificates at issue, without more, meant that the Supreme Court’s decision applied to this case.  The fact that the Supreme Court acted in the context of answering certified questions distinguished this case, in the panel’s view, from other circumstances in which the ruling of the highest state court on an issue of state law is binding on a District or Circuit court.  The opinion went so far as to say that the Supreme Court “could not and did not adjudicate the question of retroactivity, and we doubt that the New Jersey Supreme Court intended any such thing.”  There was no authority for that statement, and the idea that the Supreme Court, which has plenary power over its cases, including those involving certified questions, could not decide whether its decision applied even to the case at hand, is questionable.

Nonetheless, Judge Jordan went on to find that the Supreme Court’s decision applied to the plaintiffs in this case.  But it required a circuitous path to get there.  The panel found that the Supreme Court had established a “new rule of law,” even though the Supreme Court found it crystal clear that the TCCWNA applied to the gift certificates at issue, so that its decision “merely applied existing rules to a new factual variant,” a circumstance that the Supreme Court has held gives rise to retroactivity.  Nonetheless, the Supreme Court has said that cases announcing new rules of law may be applied fully prospectively, fully retroactively, or at least to the parties in the case itself.  Which of those choices is appropriate depends, in part, on whether the losing party to the case had justifiably relied on the prior state of the law. did not offer any evidence that it, or anyone else, justifiably relied on prior law in allegedly entertaining the belief that the TCCWNA did not apply to intangibles such as the gift certificates at issue.  Judge Jordan ruled, however, that under Supreme Court of New Jersey law, “[t]he quantum of evidence required to show actual reliance depends on the nature of the inquiry in each case.”

Here, the panel concluded that the District Court “did not err by presuming that businesses similarly situated to had been operating with the understanding that the TCCWNA did not apply to intangible property,” even though the Supreme Court found no doubt whatsoever, based on plain statutory language and other factors, that the statute did apply to intangibles.  Moreover, Judge Jordan said, “common sense reveals” that the impact of the Supreme Court’s decision “will be truly far-reaching,” again, without any evidence that any other retailer believed that the TCCWNA applied to intangibles.

The ruling that there is no fixed standard for demonstrating reliance, and that “common sense” may suffice even without an evidential record, certainly effects a change in New Jersey law.  To whatever extent that aspect of the ruling today is considered persuasive in New Jersey state court, parties in any type of case involving retroactivity need to take it into account.

Ultimately, the panel rejected the District Court’s pure prospectivity decision, and ruled that the Supreme Court’s decision would apply to the plaintiffs here.  Judge Jordan cited Henderson v. Camden County Municipal Utilities Authority, 176 N.J. 554 (2003), in which the Supreme Court similarly limited retroactive application of a final judgment in favor of the plaintiff in a putative class action.  Henderson was not a perfect analog, though, since in that case there was actual, undisputed evidence that the defendant and other municipal utilities authorities (public agencies, not a private party that had profited from its violation of the statute at issue) had relied on a reasonable understanding of prior law and would have to have disgorged huge sums absent the Supreme Court’s limitation of its decision there.

At bottom, and despite the questionable route that the court took in this case, this was a win for plaintiffs, since they reversed (for the second time) a complete dismissal of their case and may once again proceed.  It will be interesting to see what the next move by either side in this lengthy litigation will be.  Judge Jordan began his opinion by noting that the District Court, Third Circuit, and the Supreme Court of New Jersey had collectively issued five decisions in this case to date.  “[T]he end, one may hope, is finally near.”  We shall see.

One final riddle.  It is not clear how, when, or why the name of this case, which has been listed in all the previous opinions as Shelton v., Inc., became Bohus [the second named plaintiff] v., Inc.