In Palomino v. Facebook, Inc., No. 16-cv-04329-HSG, 2017 WL 76901 (N.D. Cal. Jan. 9, 2017), two putative class representatives brought a claim on behalf of all “similarly situated New Jersey residents who created a Facebook account, and/or who agreed to [Facebook’s] Terms of Service within the applicable statute of limitations” alleging that Facebook’s Terms of Service violated two provisions of New Jersey’s Truth in Consumer Contract, Warranty and Notice Act (“TCCWNA”), N.J.S.A. §§56:12-15 and 56:12-16. Id. at *1. Facebook’s Terms of Service agreement contains a California choice-of-law provision which states that “[t]he laws of the State of California will govern [the Terms of Service], as well as any claim that might arise between [a user] and [Defendant], without regard to conflict of law provisions.” Id. The Terms of Service agreement also contains provisions that “(1) disclaim liability for claims brought for Defendant’s negligent, willful, malicious and wanton misconduct; (2) bar claims for personal and economic injury and punitive damages; and (3) ban consumers from asserting claims against Defendant for deceptive and fraudulent conduct.” Id. In addition, the Terms of Service agreement states that the above limitations on liability may be inapplicable in certain jurisdictions, without specifying whether the limitations are applicable in New Jersey. Id.
Plaintiffs argued that Facebook’s Terms of Service violated Section 56:12-15 of the TCCWNA, which states in pertinent part:
No seller… shall in the course of his business offer to any consumer or prospective consumer or enter into any written consumer contract or give or display any written consumer warranty, notice or sign which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee as established by State or Federal law at the time the offer is made or the consumer contract is signed or the warranty, notice or sign is given or displayed.
N.J.S.A. 56:12-15. Plaintiffs also alleged that Facebook’s Terms of Service violated N.J.S.A. § 56:12-16 of the TCCWNA, which provides as follows in pertinent part:
No consumer contract, warranty, notice or sign, as provided for in this act, shall contain any provision by which the consumer waives his rights under this act. Any such provision shall be null and void. No consumer contract, notice or sign shall state that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey; provided, however, that this shall not apply to warranties.
N.J.S.A. § 56:12-16.
In its Motion to Dismiss the Plaintiff’s First Amended Complaint, Facebook asserted two arguments. Id. at *2. First, Facebook argued that Plaintiffs agreed to Facebook’s Terms of Service containing a California choice-of-law provision, which means that California law, instead of New Jersey law, should govern the parties’ relationship and any disputes between them. Id. Second, Facebook argued that even if New Jersey law applied, Plaintiffs could not state a claim under the TCCWNA, because Facebook is not a “seller” and Plaintiffs are not “consumers” as defined by the TCCWNA. Id.
The court began its analysis by determining that the California choice-of-law clause encompassed Plaintiffs’ claims because they arose from or related to Facebook’s Terms of Service. Id. at *3. In making this determination, the court noted that Plaintiffs agreed to Facebook’s Terms of Service, including the California choice-of-law provision, when they accessed the website. Id. Next, the court evaluated whether the clause was enforceable. Id. In its analysis, the court determined that California had a substantial relationship to the parties, because Facebook is headquartered in California and maintains its principal place of business in California. Id.
Once the court found that California had a substantial relationship to the parties, the burden shifted to Plaintiffs to show that the application of California law would violate fundamental New Jersey policy. Id. The court determined that Plaintiffs failed to meet this burden, because they did not show that California’s consumer protection law is contrary to New Jersey public policy. Id. at *4. In fact, the court noted that “…California not only has its own robust body of consumer protection law that strives to prevent consumer deception by prohibiting unlawful business practices and unconscionable contract provisions, but California law arguably goes further than the TCCWNA by also proscribing unfair or fraudulent business practices.” Id. The court found that because the TCCWNA and California consumer protection law have the same goal, California law is not contrary to fundamental New Jersey public policy. Id. The court dismissed the claim with prejudice without the need to address Plaintiffs’ second argument in favor of dismissal. Id.
Facebook’s victory in Palomino is significant. First, compliance with the TCCWNA is a moving target. The broad language of the TCCWNA, coupled with the specificity required to identify all provisions that are void, unenforceable or inapplicable under New Jersey law, make it a challenge to ensure that websites, contracts, notices and written materials comply with the requirements. Second, as noted above, the potential damages at stake in litigation are potentially enormous. At a minimum of $100 per violation the potential recovery by plaintiffs are grossly disproportionate to any harm suffered by the consumer. Some decisions interpreting the TCCWNA may support the position that Plaintiffs can sue under the TCCWNA and recover statutory damages based on a technical violation of the statute without any actual injury. Third, the current application of the TCCWNA to the internet does not appear to be consistent with the legislative intent of the Act. When the TCCWNA was enacted in 1981, the internet was a nascent enterprise that did not generally include the scope and breadth of goods and services that are now offered on the endless websites. Due to the sheer volume of offerings that are accessible by New Jersey residents via the internet, plaintiffs’ lawyers have been able to aggregate alleged violations of the TCCWNA in a manner that was neither possible nor reasonably foreseeable by the New Jersey legislature when the TCCWNA was enacted. This aggregation of worthless or de minimus claims does not further the legislative objective of protecting New Jersey consumers. Rather, the recent use of the TCCWNA by the plaintiffs’ bar simply offers the opportunity of a windfall to those who bring claims.
COMPLIANCE
TCCWNA’s prohibition of the use of illegal terms or warranties in consumer contracts has been interpreted to include language typically used by retailers in their websites’ Terms and Conditions, Rules of Use, on social media, and in contracts - such as commonly used provisions seeking to hold the retailer harmless/limit liability, requiring the customer to assume risks, provisions waiving certain fees and costs, and cost-shifting language. A general disclaimer directed to New Jersey residents is not sufficient to satisfy the requirements of the statute. As a result, our team has assisted clients with evaluating customer-facing language, notices and disclosures to ensure compliances with TCCWNA and that the rights of New Jersey customers are not being waived or restricted.
NOTICE DEMANDS
It is important to initially take TCCWNA demand letters seriously, as the economic consequences of non-compliance with the TCCWNA can be substantial. The statute allows for recovery of very significant damages even in the absence of harm to the New Jersey resident customers. A violation of the TCCWNA occurs each time an actual or prospective customer visits a retailer’s website making the retailer subject to liability of at least $100 per click, plus fees, costs and an injunction prohibiting the retailer from publishing or imposing its terms and conditions on New Jersey customers.
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