State Consumer Protection Laws

Enforcement and Litigation Trends in New York

November 7, 2011 1

Panel Members: • Moderator: – Bruce Colbath, Weil, Gotshal & Manges LLP

• Presenters: – Carolyn Fast, Special Counsel, Office of the New York Attorney General – Eric Hochstadt, Weil, Gotshal & Manges LLP – Kellie Lerner, Labaton Sucharow LLP •

The panelists would like to thank Jessica Costa and Melissa Whitney of Weil, Gotshal & Manges LLP for their assistance with these materials.

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These materials provide general information and should not be used or taken as legal advice. The views expressed in these materials reflect those of the authors and not the views of the Attorney General, Weil or Labaton Sucharow.

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Table of Contents I.

Overview of New York Consumer Protection Laws II. New York Attorney General Enforcement of Consumer Protection Laws III. New York Class Action Rules and Interplay with Federal Rule of Civil Procedure 23 IV. Recent New York Consumer Protection Cases And Class Certification Decisions 3

I. Overview of New York Consumer Protection Laws Bruce Colbath, Weil, Gotshal & Manges LLP Eric Hochstadt, Weil, Gotshal & Manges LLP 4

N.Y. GBL §§ 349, 350 Road Map: A. B. C. D. E. F. G. H. I. J. K. L. M. N. O.

Introduction to N.Y. GBL § 349 Elements of GBL § 349 Action Introduction to N.Y. GBL § 350 Elements of GBL § 350 Action Standing Purpose, Construction and Application of § 349 and § 350 Consumer-Oriented Practice Misleading in a Material Respect Comparison to FTC Standard Injury Extraterritoriality Preemption Summary of Defenses Remedies under § 349 and § 350 Future Considerations 5

Introduction to N.Y. GBL § 349 N.Y. GBL § 349: Deceptive acts and practices unlawful N.Y. GBL § 349(a) “Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.” 6

Elements of GBL § 349 Action A private plaintiff must show: • Act or practice was consumer-oriented; • Act or practice was misleading in a material respect; and • Plaintiff was injured as a result of the deceptive act or practice. Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (N.Y. 2000). •

Plaintiff does not need to establish defendant’s intent to defraud or mislead or proof of justifiable reliance. Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25-26 (N.Y. 1995).

•

An action under § 349 is not subject to Rule 9(b), but must satisfy the Rule 8 and plausibility pleading requirements under Twombly/Iqbal. See City of New York v. SmokeSpirits.com, 541 F.3d 425, 455 (2d Cir. 2008).

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Similarly, actions under § 349 brought in state court are not subject to the heightened pleading requirements of N.Y. CPLR § 3016(b) but still must allege the facts and circumstances of the “deceptive or misleading conduct” at issue. Jones v. OTN Enters., Inc., 922 N.Y.S.2d 810, 811 (N.Y. 2011)

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Introduction to N.Y. GBL § 350 N.Y. GBL § 350: False advertising unlawful N.Y. GBL § 350: “False advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state is hereby declared unlawful.” •

N.Y. GBL § 350-a: “The term ‘false advertising’ means advertising, including labeling, of a commodity, or of the kind, character terms or conditions of any employment opportunity if such advertising is misleading in a material respect.”

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N.Y. GBL § 350-a: “In determining whether any advertising is misleading, there shall be taken into account (among other things) not only representations made by statement, word, design, device, sound or any combination thereof, but also the extent to which the advertising fails to reveal facts material in the light of such representations . . .” 8

Elements of GBL § 350 Action A private plaintiff must show: • That the advertisement was consumer-oriented; • That the advertisement was misleading in a material respect; • That the plaintiff was thereby injured; and • That plaintiff relied on the allegedly misleading advertisement. Andre Strishak & Assocs., P.C. v. Hewlett Packard Co., 752 N.Y.S.2d 400, 403 (2d Dep’t 2002).

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Unlike § 349, § 350 requires reliance on the deceptive advertisement. Gershon v. Hertz Corp., 626 N.Y.S.2d 80, 81 (1st Dep’t 1995).

– Reliance on advertisements will not be presumed where “plaintiffs had a reasonable opportunity to discover the facts about a transaction beforehand by using ordinary intelligence or where a variety of factors could have influence[].”

Small v. Lorillard Tobacco Co., Inc., 679 N.Y.S.2d 593, 600 (1st Dep’t 1998), aff’d 94 N.Y.2d 43 (N.Y. 1999).

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Standing •

Attorney General may bring an enforcement action in the name of and on behalf of the people of the state of New York. N.Y. GBL § 349(b) and

N.Y. GBL § 350-d.

– Before AG brings action, the AG is “required to give the person against whom such proceeding is contemplated” at least five days notice and an opportunity to show why proceedings should not be instituted against him. N.Y. GBL § 349(c) and N.Y. GBL § 350-c.

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Any person who has been injured by any violation of § 349 or § 350 may also bring a private action in his own name. N.Y. GBL § 349(h) and N.Y.

GBL § 350-e.

– “Person” has been interpreted to include corporate competitors if there is “some harm to the public at large” and competitor can prove injury. City

of New York v. Smokes-Spirits.Com, Inc., 12 N.Y.3d 616, 624 n.3 (N.Y. 2009); see also Boule v. Hutton, 328 F.3d 84, 94 (2d Cir. 2003).

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Cause of action must be brought within three years of the date of injury. Statler, D.C. v. Dell, Inc., 775 F.Supp.2d 474, 484 (E.D.N.Y. 2011); Gaidon v. Guardian Life Ins. Co. of

Am., 96 N.Y.2d 201, 210 (N.Y. 2001).

– Fraudulent concealment tolls the statute of limitations. Miller, 323 F.Supp.2d 405, 411 (E.D.N.Y. 2004).

M&T Mortg. Corp. v.

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Purpose, Construction and Application of § 349 and § 350 •

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Intended to “empower consumers; to even the playing field in their disputes with better funded and superiorly situated fraudulent business.” Teller v. Bill Hayes, Ltd., 630 N.Y.S.2d 769, 744 (2d Dep’t 1995). Apply solely to matters affecting the consumer public at large. Oswego

Laborers’, 85 N.Y.2d at 25.

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Conduct does not need to reach the level of common-law fraud to be actionable. Stutman, 95 N.Y.2d at 29.

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Puffery is not actionable under either § 349 or § 350. Verizon Directories Corp.

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v. Yellow Book USA, Inc., 309 F. Supp. 2d 401, 405 (E.D.N.Y. 2004); Lacoff v. Buena Vista Publ’g, Inc., 705 N.Y.S.2d 183, 191 (Sup. Ct. N.Y. Cty 2000).

For purposes of § 350, advertising includes product labels and packaging. N.Y. GBL § 350-a. Omissions are actionable under § 349 and § 350.

N.Y. GBL § 350-a.

Stutman, 95 N.Y.2d at 29;

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Purpose, Construction and Application of § 349 and § 350 (cont.) •

Statutes are broadly applicable and liberally construed. Karlin v. IVF Am., Inc., 93

N.Y.2d 282, 290 (N.Y. 1999); see also New York v. Feldman, 210 F. Supp. 2d 294, 301 (S.D.N.Y. 2002).

– But, New York’s consumer protection laws were not intended to create a “tidal wave” of litigation. “Tidal wave” is avoided by adopting an “objective definition of deceptive acts and practices, whether representations or omissions, limited to those likely to mislead a reasonable consumer acting reasonably under the circumstances”. Oswego Laborers’, 85 N.Y.2d at 26.

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Statutes apply to virtually all economic activity. Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 55 (N.Y. 1999).

– Does not apply to “securities-related claims.” In re Evergreen Mut. Funds Fee Litig., 423 F.

Supp. 2d 249, 264 (S.D.N.Y. 2006); Gray v. Seabord Securities, Inc., 788 N.Y.S.2d 471, 472-473 (3d Dep’t 2005).

– Does not apply to acts or practices sanctioned by state or federal agencies. GBL § 349(d) and N.Y. GBL §§ 350-c and 350-d.

N.Y.

– Does not apply to any television or radio broadcasting station or to any publisher or printer of a newspaper, magazine or other form of printed advertising who broadcasts, publishes, or prints such advertisement. N.Y. GBL § 349(e) and N.Y. GBL § 350-f.

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Consumer-Oriented Practice •

Under N.Y. GBL § 349 and § 350: – – –

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Plaintiff “must demonstrate that the acts or practices have a broader impact on consumers at large.” Oswego Laborers’, 85 N.Y.2d at 25. Private contract disputes, unique to the parties are not consumer-oriented. Id. Consumer-oriented conduct does not require a repetition or pattern of deceptive behavior. Id.

Compare to Lanham Act false advertising claims: –

Second Circuit evaluates whether statements constitute “commercial advertising or promotion” by considering whether statement is “(1) commercial speech (2) for the purpose of influencing consumers to buy defendant’s goods or services; and (3) although representations less formal than those made as part of a classic advertising campaign may suffice, they must be disseminated sufficiently to the relevant purchasing public.” Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 314 F.2d 48, 56 (2d Cir. 2002).

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N.Y. GBL § 349 and § 350 address a broader spectrum of conduct than the Lanham Act.

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New York courts, in applying the Lanham Act and the New York consumer protection provisions, have consistently dismissed claims challenging non-commercial transactions, e.g., educational articles or advocacy/policy advertisements. See Lacoff,

705 N.Y.S.2d at 189-193 (citing N. Y. Pub. Interest Research Group, Inc. v. Ins. Info. Inst., 554 N.Y.S.2d 590, 592 (1st Dep’t 1990) (“sections 349 and 350 prohibit, and have only been applied to, frauds or other deceptive practices arising out of commercial transactions”)); see also Gordon & Breach Science Publishers S.A. v. Am. Inst. of Physics, 859 F. Supp. 1521, 1523, 1533-34 (S.D.N.Y. 2004).

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Misleading in a Material Respect •

Omissions may form the basis of a deceptive practices claim.

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Whether a representation or an omission, the deceptive practice must be “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Stutman,

2d at 264; Stutman, 95 N.Y.2d at 29.

In re Evergreen, 423 F. Supp.

95 N.Y.2d at 29.

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Failure to read material containing allegedly deceptive representations or an alleged failure to understand the content is insufficient to state a § 349 claim. See, e.g., Goldman

Stone Trading, Inc. v. Wayne Electro Systems, Inc., 889 N.Y.S.2d 72, 74 (2d Dep’t 2009) (“A party who executes a contract is presumed to know its contents and to assent to them and an inability to understand the English language, without more, is insufficient to avoid this general rule.”).

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Disclosure of act or practice can be sufficient to show that act or practice is not misleading, but courts have held that the existence of a disparity in bargaining power can defeat this. See, e.g., Negrin v. Norwest Mortgage, Inc., 700 N.Y.S.2d 184, 193 (2d Dep’t 1999).

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A handful of courts have held that an act or practice in violation of state or federal laws may satisfy the misleading element even if disclosed. See, e.g., Cohen v. J.P. Morgan Chase & Co., 608 F. Supp. 2d 330, 349-50 (E.D.N.Y. 2009); Negrin, 700 N.Y.S.2d at 192-93.

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Attorney General brings § 349 and § 350 actions in conjunction with Executive Law § 63(12), which has a different standard for evaluating the misleading act or practice. –

Under Executive Law § 63(12), scope of protection includes “not only the average consumer, but also the ignorant, the unthinking and the credulous.” Spitzer v. Applied Card Sys. Inc., 805 N.Y.S.2d 175, 177 (3d Dep’t 2005).

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Comparison to FTC Standard •

§ 349 and § 350 are modeled after § 5 of the Federal Trade Commission Act (FTCA). Applied Card Sys., Inc., 11 N.Y.3d at 120.; see also Bildstein v.

Mastercard Int’l Inc., 329 F. Supp. 2d 410, 414 (S.D.N.Y. 2004).

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According to the FTC, deception requires a material representation, omission or practice that is likely to mislead a reasonable consumer acting reasonably in the circumstances. FTC Policy Statement on Deception, appended

to Matter of Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984).

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“A ‘material’ misrepresentation or practice is one which is likely to affect a consumer’s choice of or conduct regarding a product.” Id.

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Courts evaluating materiality under the FTCA have held that “a material claim is one that involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product.” Bildstein, 329 F. Supp. 2d at 414.

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Injury • •

Allegations of indirect or derivative injuries will not suffice. Smokes-

Spirits.Com, Inc., 12 N.Y.3d at 623.

Injury is derivative “when the loss arises solely as a result of injuries sustained by another.” Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc., 3 N.Y.3d

200, 207 (N.Y. 2004).

– Consequently, “private attorney general” actions (where uninjured plaintiff sues to redress injuries to others) are not permitted under § 349 or § 350.

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A private plaintiff cannot claim benefit of § 349 or § 350 just by alleging “consumer injury or harm to the public interest.” Smokes-Spirits.Com,

Inc., 12 N.Y.3d at 623.

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The claimed deception cannot itself be the only injury.

Small, 94 N.Y.2d at 56 (plaintiff must show an injury caused by the alleged deception such as higher cost or physical harm); see also Bildstein, 329 F. Supp. 2d at 415.

A private plaintiff must show actual injury but not necessarily pecuniary harm. – The deprivation of the right to maintain privacy is an example of nonpecuniary harm. Meyerson v. Prime Realty Servs., LLC, 796 N.Y.S.2d 848, 856 (N.Y. App. Div.

2005); see also Bose v. Interclick, Inc., No. 10 Civ. 9183 (DAB), 2011 WL 4343517, at *9 (S.D.N.Y. Aug. 17, 16 2011).

Extraterritoriality •

The allegedly deceptive practices or acts must have occurred within New York.

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Statutes are not intended to police out-of-state transactions of New York-based entities. –

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Goshen v. Mutual Life Ins. Co. of N.Y, 98 N.Y.2d 314 (N.Y. 2002) • Florida resident who purchased life insurance from New York company through its wholly owned Florida subsidiary did not have a valid claim where resident received the deceptive information from the Florida subsidiary and paid premiums through a Florida agent. People ex rel. Spitzer v. Telehublink Corp., 756 N.Y.S.2d 285 (3d Dept. 2003) • AG was able to bring action for permanent injunction under § 349 against non-resident company where company utilized a New York address to send and receive correspondence. Leider v. Ralfe, 387 F. Supp. 2d 283 (S.D.N.Y. 2005) • Diamond supplier’s actions fell within the scope of § 349, even though supplier’s allegedly collusive agreements with other mines did not occur in New York, because supplier created advertising in New York, maintained toll-free number in New York, and consumers purchased diamonds in New York.

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Regarding class actions, § 349 and § 350 “require[] the deceptive transaction to have occurred in New York, and, therefore, no viable claim under the statute would lie for potential class members from outside the state who were victimized by defendant’s practices.” Morrissey v. Nextel Ptrs Inc., 895 N.Y.S.2d 580, 587 (N.Y. App. Div. 2010).

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Though not officially sanctioned in New York case law, one court recently suggested in dicta that “plaintiff may assert a claim under Section 349 for out-of-state deception, as long as it led him to take a related action in New York,” such as withdrawing money from an ATM in 17 New York. Gunther v. Capital One, N.A., 703 F. Supp. 2d 264, 276 (E.D.N.Y. 2010).

Preemption •

Section 1681t of the Fair Credit Reporting Act (FCRA) preempted claims under § 349 with respect to statements made to credit reporting agencies. Okocha v. HSBC Bank USA, N.A., 700 F. Supp. 2d 369, 376 (S.D.N.Y. 2010).

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Claims under § 349 and § 350 for deceptive practices by provider of real estate appraisal services were not preempted by Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) because state action preventing appraisers from making misrepresentations did not impair banks’ ability to lend and extend credit. Cuomo v. First Am. Corp., 878 N.Y.S.2d 860, 867 (Sup. Ct. N.Y. Cty. 2009).

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Section 1610(e) of the Truth in Lending Act (TILA), which preempts state laws that relate to the format, content, manner or substance of TILA-required disclosures, did not preempt claim under § 349 or § 350 because these statutes do not require any disclosure, only require that companies refrain from fraud, deception and false advertising when communicating with New York consumers. Applied Card Sys., Inc., 11 N.Y.3d at 115-18.

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Nutritional Labeling and Education Act (NLEA) does not preempt claims made under § 349 or § 350 alleging deceptive practices via lack of nutritional labeling on restaurant foods. Pelman v. McDonald’s Corp., 237 F. Supp. 2d 512, 526 (S.D.N.Y. 2003). –

Claims under § 349 and § 350 that defendant misrepresented nutritional content of product were not preempted as defendant’s alleged conduct violated the standards set forth in the NLEA and plaintiffs therefore were not seeking to impose liability for conduct permitted by the NLEA. Morelli v. Weider Nutrition Group, Inc., 712 N.Y.S.2d 551, 552 (1st Dep’t 2000). 18

Summary of Defenses •

Failure to file lawsuit within 3 year statute of limitations

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Act or practice does not affect the consumer public at large

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Act or practice is not misleading

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No injury to private plaintiff

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For § 350 claims, private plaintiff cannot demonstrate reliance

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Alleged deception did not occur within New York

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Action is preempted by Federal law

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Deceptive act or practice was merely “puffery”

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Complete defense “if the act or practice, or if in interstate commerce would be, subject to and complies with the rules and regulations of, and the statutes administered by, the Federal Trade Commission or any official department” of the United States. N.Y. GBL § 349(d)

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Complete defense if the “advertisement is subject to and complies with the rules and regulations of, and the statutes administered by, the Federal Trade Commission or any official department” of the state of New York. N.Y. GBL § 350-c and N.Y. GBL § 350-d 19

Remedies Under § 349 and § 350 Under § 349:

Under § 350:

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Attorney General may bring action to enjoin unlawful practices or obtain restitution of moneys or property obtained directly or indirectly by unlawful practices. N.Y. GBL § 349(b) – Attorney General may also seek preliminary relief. N.Y. GBL § 349(b) – Subject to civil penalty of not more than $5,000 for each violation. N.Y.

GBL § 350-d

GBL § 350-d

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GBL § 349(h)

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Additional civil penalty not to exceed $10,000 for consumer fraud against elderly persons under certain conditions. N.Y. GBL § 349-c

Private person may bring action to enjoin unlawful act, action to recover his actual damages or fifty dollars, whichever is greater, or both such actions. N.Y. GBL § 349(h) – Court may increase the award of damages to an amount up to three times the actual damages up to $1,000, if defendant willfully or knowingly violated the section. N.Y. Court may award reasonable attorney’s fees to prevailing plaintiff. N.Y. GBL § 349(h)

Attorney General may bring action against any person, firm, corporation or association who engages in false advertising. N.Y. GBL § 350-d – Attorney General may also seek preliminary relief. N.Y. GBL § 350-d – Subject to civil penalty of not more than $5,000 for each violation. N.Y.

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Additional civil penalty not to exceed $10,000 for consumer fraud against elderly persons under certain conditions. N.Y. GBL § 349-c

Private party may bring an action to enjoin unlawful practice, action to recover his actual damages or five hundred dollars, whichever is greater, or both such actions. N.Y. GBL § 350-e

• Court may increase the award of damages to an amount up to three times the actual damages up to $10,000, if defendant willfully or knowingly violated the section. N.Y. GBL § 350-e • Court may award reasonable attorney’s fees to prevailing plaintiff. N.Y. GBL § 350-e 20

Future Considerations •

“Nothing in this section shall apply to any television or radio broadcasting station or to any publisher or printer of a newspaper, magazine or other form of printed advertising, who broadcasts, publishes, or prints the advertisement.” N.Y. GBL § 349(e) (emphasis added); see also N.Y. GBL § 350-f.

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Are these exemptions limited only to news organizations?

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Or, are the exemptions applicable to any media whose activity is limited to communicating the advertisement?

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Interplay with federal law Communications Decency Act (CDA) and Internet Service Provider Immunity – The AG has pursued actions and obtained settlements against online retailers for their partnership with third-party companies that engaged in allegedly deceptive marketing practices through advertisements accessible through the retailers’ websites. The retailer settlements included limitations on retailers’ conduct relating to such advertisements. http://www.ag.ny.gov/bureaus/consumer_frauds/affinion.html

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Future Considerations (cont.) •

CDA states that “[n]o provider or user of an interactive computer service” shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. § 230(c)(1) – “Interactive computer service” is defined as “any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server.” 47 U.S.C. § 230(f)(2)

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“No cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.” 47 U.S.C. § 230(e)(3)

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Congress enacted the CDA to “promote the continuous development of the Internet and other interactive computer services and other interactive media” and “to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation. 47 U.S.C. § 230(b)(1), (2)

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Shiamili v. Real Estate Group of N.Y., 17 N.Y.3d 281, 293 (N.Y. 2011) – In a case of first impression, New York’s highest court held that claims against a website operator arising out of allegedly defamatory comments posted to the website were barred under the CDA as defamatory comments were made by a third party content provider.

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Would the same result extend to claims under § 349 and § 350? 22

II. New York Attorney General Enforcement of Consumer Protection Laws Carolyn Fast Special Counsel New York State Attorney General’s Office Bureau of Consumer Frauds & Protection

Sources of the Attorney General’s authority to prosecute consumer fraud: • Executive Law § 63(12) empowers the Attorney General to bring an enforcement action for injunctive relief, restitution, and damages against any person who engages in repeated or persistent fraudulent or illegal acts in the conduct of business. • General Business Law §§ 349 and 350 permit the Attorney General to bring an enforcement action for injunctive relief, restitution, and civil penalties against any person who engages in deceptive acts or false advertising in the conduct of business. 24

Executive Law § 63 Executive Law § 63 also provides the Attorney General with authority to: ▪

investigate, issue subpoenas, and take testimony (Executive Law § 63(12) (Note: General Business Law § 349(f) also provides such authority); and

▪

accept an “assurance of discontinuance” in lieu of a civil enforcement action (Executive Law § 63(15)) 25

What constitutes “fraud” for purposes of Executive Law § 63(12)? •

The term “fraud” has a special meaning in the context of Executive Law § 63(12). Pursuant to the statute, “fraud” includes “any device, scheme or artifice to defraud and any deception, misrepresentations, concealment, suppression, false pretense, false promise or unconscionable contractual provision.”

•

It is not necessary to establish the elements of common law fraud, such as reliance and intent to deceive, in order to establish liability for statutory fraud under Executive Law § 63(12). People v. Apple Health & Sports Clubs, Ltd., 206 A.D.2d 266, 267 (App. Dep’t 1994), appeal denied 84 N.Y.2d 1004 (1994). 26

What constitutes “fraud” for purposes of Executive Law § 63(12) (cont.)? •

The test of fraudulent conduct under Executive Law § 63(12) is whether the act “has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud.” In re People v. Applied Card Systems, Inc., 27 A.D.3d 104, 107 (3d Dep’t 2005), aff’d on other grounds, 11 N.Y.3d 105 (2008).

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The interpretation of the Section 5 of the Federal Trade Commission Act of 1914 (“FTCA”) provides a guide for construing what constitutes fraud or deception under Executive Law 63 § (12). See Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26 (1995). However, fraud under Executive Law 63 § (12) is somewhat broader than fraud under Section 5 of the FTCA: under the FTCA, fraud is defined as conduct that is “likely to deceive,” while fraud under Executive Law 63 § (12) is defined as conduct that “has the capacity or tendency to deceive.” 27

What constitutes “illegality” for purposes of Executive Law § 63(12)? •

Violation of any state or local law or regulation, including violation of General Business Law §§ 349 and 350, constitutes “illegality” within the meaning of Executive Law § 63(12). See, e.g., State v. Princess Prestige, 42 N.Y.2d 104, 107 (1977); People v. Empyre Inground Pools, Inc., 227 A.D.2d 731, 733 (3d Dep’t 1996).

•

Violation of federal law or regulation also constitutes “illegality” within the meaning of Executive Law § 63(12), “unless state action in the area of federal concern has been precluded utterly or federal courts have exclusive jurisdiction in the matter.” Oncor Communications, Inc. v. State, 165 Misc. 2d 262, 267 (Sup. Ct. Albany Co. 1995), aff’d 218 A.D.2d 60 (3d Dep’t 1996).

•

Violations of state and federal criminal law have also been found actionable under § 63(12). See, e.g., Freedom Discount Corp. v. Korn, 28 A.D.2d 517 (1st Dep’t 1967); State v. World Interactive Gaming Corp., 185 Misc.2d 852 (Sup. Ct. N.Y. Co. 1999). 28

What constitutes “repeated or persistent” for purposes of Executive Law 63(12)? • Pursuant to the statute, “persistent” fraud or illegality refers to the “continuance or carrying on of any fraudulent or illegal act or conduct.” • “Repeated” is defined by the statute as “repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person.” • The Attorney General is not required to establish a large number of violations or a large percentage of transactions in order to establish that conduct is “repeated.” See, e.g., Princess Prestige, 42 N.Y.2d at 104 (finding 16 deceptive acts out of 3600 transactions sufficient).

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Relief available pursuant to Executive Law § 63(12) and General Business Law §§ 349 and 350 •

•

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Executive Law § 63(12): The Attorney General may obtain injunctive relief, restitution, and damages. Because § 63(12) is a broad equitable statute, the full range of equitable remedies are available, including disgorgement of profits. General Business Law §§ 349 and 350: the Attorney General can obtain injunctive relief, restitution, and civil penalties in the amount of up to $5000 per violation pursuant to General Business Law § 350-d. In addition, the full range of equitable remedies are available, including disgorgement of profits. Limitations on restitution: Where a class action has resulted in a settlement, the Attorney General cannot recover restitution for class members for the period covered by the settlement. However, the Attorney General may obtain restitution on behalf of those not bound by the settlement and for time periods not covered by the settlement, as well as injunctive relief, civil penalties, damages, costs, and disgorgement of profits derived from all New York consumers, including consumers who are within the settlement class. See Applied Card, N.Y.3d at 125. 30

Individual Liability • Pursuant to Executive Law § 63(12) and General Business Law §§ 349 and 350, corporate officers and directors are personally liable for the fraudulent and illegal acts proved if they participated in the conduct or had actual knowledge of it. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d at 807; People v. Court Reporting Inst., 245 A.D.2d 564 (2d Dep’t 1997); Empyre Inground, 227 A.D.2d at 734. Individual liability may be found without “piercing the corporate veil.” • All the relief that can be obtained against the corporate entity can be obtained against the individuals, including injunctive relief, restitution, costs, and penalties. See, e.g., State v. Frink Am. Inc., 2 A.D.3d 1379, 1381 (4th Dep’t 2003); Court Reporting Inst., Inc., 245 A.D.2d at 565; People v. American Motor Club., Inc., 179 A.D.2d 277, 284-85 (1st Dep’t 1992). 31

Enforcement Mechanism: Special Proceedings • Executive Law § 63(12) empowers the Attorney General to bring either an ordinary action or an accelerated action known as a “special proceeding.” • Special proceedings are governed by Article 4 of the CPLR. • The initial pleading in a special proceeding is the “petition,” the equivalent of the complaint in an ordinary action. The pleading is accompanied by a “notice of petition,” which is the equivalent of the summons in an ordinary action. • The Attorney General may bring a special proceeding on five days notice pursuant to Executive Law § 63(12) or upon shorter notice pursuant to Article 4 of the CPLR, if the proceeding is commenced by Order to Show Cause. 32

Special Proceedings, cont. • In special proceedings, disclosure devices are allowed only by leave of court. Matter of Shore, 109 A.D.2d 842, 843 (2d Dept. 1985). • Special proceedings authorized under Executive Law § 63(12) are “intended as an expeditious means for the Attorney General to prevent further injury and seek relief for the victims of business fraud.” State v. Apple Health & Fitness Clubs, 206 A.D.2d 266, 268 (1st Dep’t 1994), appeal denied, 84 N.Y.2d 1004 (1994). • In special proceedings, the initial pleadings and supporting documents are analogous to a summary judgment motion, and the standards governing a summary judgment motion apply. Where the petition and supporting papers merit the requested relief, the burden shifts to the respondents to raise a triable issue of fact by an evidentiary showing. 33

Special Proceedings, cont. • If no triable issue of fact is raised, the court makes a ruling on the petition on the return date in the manner of a summary judgment motion. (CPLR 409(b)) • If a triable issue of fact is raised, the matter will proceed to trial.

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Standards under Executive Law § 63(12) and GBL § § 349 and 350 •

Executive Law § 63(12) protects the “credulous and unthinking as well as the cynical and intelligent; the trusting as well as the suspicious.” People v. General Electric Co., 302 A.D.2d 314 (1st Dep’t 2003). This standard also applies to the New York City Department of Consumer Affairs’ enforcement of consumer protection provisions of the Administrative Code. See Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 271 (1977).

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The test of what constitutes a deceptive practice under General Business Law § 349 or false advertising under § 350 is whether representations or omissions are “likely to mislead a reasonable consumer acting reasonably under the circumstances.” General Electric Co., 302 A.D.2d at 314-15. This is also the standard for Section 5 of the FTCA.

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As a practical matter, the difference between these standards is rarely significant in enforcement actions.

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Unique aspects of Attorney General enforcement of consumer protection laws • Injury: A private plaintiff bringing a claim under General Business Law § 349(h) must show injury. In contrast, the Attorney General is not required to demonstrate actual injury in order to prevail on a § 349 claim. “Whenever the attorney general shall believe … that any person, firm, corporation or association … has engaged in or is about to engage in any of the acts or practices stated to be unlawful he may bring an action…” GBL 349(b); Goshen v. Mutual Life Insurance Co. of New York, 98 N.Y. 2d 314, 324 (2002); Morrissey v. Nextel Partners, 22 Misc. 3d 1124, 2009 WL 4000030 (N.Y. Sup. 2009),*8. • Reliance: The Attorney General is not required to show consumer reliance or even that the advertising in question actually deceived any consumer. See State v. Abandoned Funds Information Center, Inc., 129 Misc. 2d 614, 617 (Sup. Ct. N.Y. Co. 1985). 36

III. New York Class Action Rules and Interplay with Federal Rule of Civil Procedure 23 Kellie Lerner, Labaton Sucharow LLP 37

History of Article 9 • Enacted in 1975 • Replaced C.P.L.R. 1005 • Governor Hugh Carey noted: In many instances, an individual’s own damages resulting from a pattern of illegal behavior by another may not be sufficient to justify the costs of litigation although the aggregate damages of all others similarly injured by the illegal behavior certainly would. Under present law, unless the individual thus injured is willing and able to press his legal claim as a matter of principle despite the financial loss, there is no economic deterrent to . . . deceptive or unconscionable trade practices. 38

Elements of C.P.L.R. § 901 One or more members of a class may sue or be sued as representative parties on behalf of all if: • 1. the class is so numerous that joiner of all members, whether otherwise required or permitted, is impracticable; • 2. there are questions of law or fact common to the class which predominate over any questions affecting only individual members; • 3. the claims or defenses of the representative parties are typical of the claims or defenses of the class; • 4. the representative parties will fairly and adequately protect the interests of the class; and • 5. a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

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Elements of C.P.L.R. § 902 Among the matters which the court shall consider in determining whether the action may proceed as a class action are: • 1. The interest of members of the class in individually controlling the prosecution or defense of separate actions; • 2. The impracticability or inefficiency of prosecuting or defending separate actions; • 3. The extent and nature of any litigation concerning the controversy already commenced by or against members • of the class; • 4. The desirability or undesirability of concentrating the litigation of the claim in the particular forum; • 5. The difficulties likely to be encountered in the management of a class action.

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Article 9 Interpreted: Burdens • The party seeking class certification bears the burden of establishing the criteria in CPLR 901(a). CLC/CFI Liquidating Trust v. Bloomingdale’s, Inc., 50 A.D.3d 446, 447 (1st Dep’t 2008). • The burden must be met through an evidentiary showing supporting class certification. Metros Automated Elec. Const. Corp. v. Libyan, 37 A.D.3d 313 (1st Dep’t 2007). • The Appellate Division may exercise de novo review of class certification even when there is no abuse of discretion as a matter of law. Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 53 (N.Y.1999). 41

Article 9 Interpreted: Attorneys’ Fees • No Attorneys’ Fees for Objectors. Fleming v. Barnwell Nursing Home and Health Facilities, Inc., 15 N.Y.3d 375, 379 (N.Y. 2010). – “The language of CPLR 909 permits attorney fee awards only to ‘the representatives of the class’ and does not authorize an award of counsel fees to any party, individual or counsel, other than class counsel.” 42

Article 9 Interpreted: Attorneys’ Fees (Continued) • If a common fund isn’t obtained, attorneys’ fees may only be awarded upon a showing of bad faith. Louisiana Municipal Employees’ Retirement System v. Cablevision Systems Corp., 74 A.D.3d 1291, 1293 (2d Dep’t 2010). – “Although CPLR 909 also provides that ‘if justice requires, [the court in its discretion may] allow recovery of the amount awarded from the opponent of the class,’ cases interpreting this statutory provision uniformly require a showing of bad faith or other improper conduct on the part of a defendant before approving an award of fees directly against it.” 43

Article 9 Interpreted: Arbitration Provisions and Class Action Waivers • Arbitration provisions and class action waivers are generally upheld. See e.g., State v. Philip Morris Inc., 30 A.D.3d 26 (1st Dep’t 2006). • In Frankel v. Citicorp Insurance Services, Inc., the court remanded for a hearing to assess, inter alia, issues such as unconscionability and the costs of prosecuting the claim on an individual basis. 2010 WL 4909624 (2d Dep’t Nov 30, 2010). 44

No Penalty Class Actions: C.P.L.R. § 901(b) • “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” 45

Sperry v. Crompton Corp., 8 N.Y.3d 204, 214 (N.Y. 2007) • Price-fixing class action alleging violations of GBL Sections 340 and 349. • “Where a statute is already designed to foster litigation through an enhanced award, CPLR 901(b) acts to restrict recoveries in class actions absent statutory authorization.” • Donnelly Act claims may not be certified. • GBL § 349 claims, with a discretionary penalty provision, may only be certified if the named plaintiff waives treble damages and provides notice to the class. 46

Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 130 S. Ct. 1431, 1437 (2010) • Shady Grove brought a class action against Allstate in Federal court to recover interest that was overdue from no-fault claims arising from a New York policy. • Allstate moved to dismiss, arguing that interest is a “penalty” within the meaning of C.P.L.R. 901(b). • 901(b): Procedure vs. Substance?

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Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 130 S. Ct. 1431, 1437 (2010) • •

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Does New York's bar on class actions for certain statutory-damages claims (C.P.L.R. 901(b)) preclude class certification in a federal court diversity action? 5-4 decision holding that 901(b) is a procedural rule in conflict with plain language of Rule 23. – Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rule’s prerequisites are met. We cannot contort its text, even to avert a collision with state law that might render it invalid. (Justice Scalia) If Rule 23(a)’s requirements (numerosity, commonality, typicality and adequacy) are satisfied and the suit fits into one of the three Rule 23(b) categories, the suit may proceed as a class action. Shady Grove’s impact: Plaintiffs need not waive any remedies to proceed with GBL § 349 claims on a classwide basis in federal court. 48

IV. Recent New York Consumer Protection Cases And Class Certification Decisions Bruce Colbath, Weil, Gotshal & Manges LLP Eric Hochstadt, Weil, Gotshal & Manges LLP 49

Morrissey v. Nextel Partners, Inc., 72 A.D.3d 209 (3d Dept. 2010) •

Ruling: Class certification granted in part; multi-state class denied certification. • Facts: Plaintiffs alleged that defendant cell phone company’s advertising for “bonus minutes” and billing for “Spending Limit Program” maintenance fees were deceptive practices. • GBL § 349: (a) class certification granted where all class members received allegedly deceptive “spending limit checklist;” (b) class certification denied as to “bonus minutes” promotion as it would require extensive individualized inquiries into conduct of defendant’s sales representatives for each individual purchaser. • GBL § 350: Denying class certification because individualized proof was required as to whether each class member relied upon or was even aware of allegedly false ads when purchasing a phone; courts will not presume reliance for purposes of class certification. • Extraterritoriality: Declining to certify a multi-state class because GBL § 349 requires that the deceptive act have occurred in NY and multi-state claims arose under the consumer protection statutes in as many as 31 states for deceptive transactions that occurred outside New York.

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Pelman v. McDonald’s Corp., 272 F.R.D. 82 (S.D.N.Y. 2010) • Ruling: Class certification denied. • Facts: Plaintiffs alleged they were misled by McDonald’s deceptive and misleading affirmative representations and material omissions as to healthiness of food when marketing its products and that they suffered diseases including obesity, pediatric diabetes and high blood pressure as a result. • Judge Pogue reasoned that the alleged injuries were too individualized to satisfy the predominance requirement for class certification under FRCP 23(b)(3). – Many factors other than McDonald’s food, such as other dietary intakes and exercise, could contribute to health effects such that individual issues would predominate plaintiffs’ GBL § 349 claim. 51

Bose v. Interclick, Inc., 2011 WL 4343517 (S.D.N.Y. Aug. 17, 2011) • Ruling: Defendant’s motion to dismiss denied. • Facts: Plaintiff alleged that defendant circumvented consumers’ ordinary browser privacy and security settings, deceived consumers by tracking digital information and browser history without their knowledge, and thereby deprived consumers of privacy. • Judge Batts noted that “[a]lthough collection of personal information does not constitute ‘economic’ injury for purposes of the CFAA [Consumer Fraud and Abuse Act], courts have recognized similar privacy violations as injuries for purposes of Section 349.” See, e.g., Meyerson v. Prime Realty Servs., LLC, 796 N.Y.2d 848 (N.Y. Sup. Ct. 2005); Anonymous v. CVS Corp., 728 N.Y.2d 333 (N.Y. Sup. Ct. 2001). 52

Hammond v. Bank of NY Mellon Corp., 2010 WL 2643307 (S.D.N.Y. June 25, 2010)

• Ruling: Granted summary judgment for defendant. • Facts: Plaintiffs claimed that defendant misled plaintiffs and hid the accidental loss or theft of their sensitive personal information and that defendant’s conduct resulted in increased risk of identity theft. • Increased risk of future identify theft from loss or theft of electronic records by defendant is not a cognizable injury under GBL § 349. – “Even assuming, arguendo, that Plaintiffs could be said to have standing, Defendant’s motion for summary judgment dismissing Plaintiffs’ claims would be granted because Plaintiffs’ alleged increased risk of identity theft is insufficient to support Plaintiffs’ substantive claims.” 53

Weinstein v. eBay et al., 2011 WL 2555861 (S.D.N.Y. June 27, 2011) • •

Ruling: Granted defendants’ motion to dismiss with prejudice. Facts: Plaintiff claimed that StubHub’s online secondary ticket marketplace for sporting and entertainment events violated GBL § 349 by allegedly failing to disclose the ticket seller’s identity and the face value of resold NY Yankees tickets. StubHub posted disclaimers on all website pages that tickets were being purchased from a third party and that ticket “prices were set by the sellers and may differ from face value.” • Judge Keenan held: (1) plaintiff failed to allege deception; and (2) plaintiff failed to allege injury. – “[C]ommon sense dictates that no reasonable consumer could plausibly think that StubHub tickets come directly from the Yankees…[w]hile not dispositive, these disclosures belie any claim of deception.” – “Lack of information is not an injury, it is the factual underpinning of the GBL §349 claim…. If sellers using StubHub’s website successfully charge prices above face value, they can do so because of the law of supply and demand, not because StubHub allegedly withholds price information from consumers.”

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Cohen v. J.P. Morgan Chase & Co., 608 F.Supp.2d 330 (E.D.N.Y. 2009) •

Ruling: Denied summary judgment for defendant bank on plaintiff’s GBL § 349 claim. Facts: Plaintiff claimed that defendant lender’s post-closing fee was illegal under RESPA [Real Estate Settlement Procedures Act] and that collecting such a fee was misleading and deceptive under GBL § 349. Illegal fees, even if disclosed, may constitute deceptive conduct.

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On the one hand, “[u]nder New York law, a defendant’s disclosure of a fee in advance of its payment generally is sufficient to show that the fee was not misleading” (citing Zuckerman v. BMG Direct Mktg., Inc., 290 A.D.2d 330 (1st Dept. 2002); Sands v. Ticketmaster-New York, Inc., 207 A.D.2d 687 (1st Dept. 1994); Lewis v. Hertz Corp., 181 A.D.2d 493, 581 (1st Dept. 1992)). However, “given a consumer’s reasonable assumption that all fees charged by a respectable bank are legal, collecting fees in violation of state and federal laws may satisfy the ‘misleading’ element of §349” even where fees were disclosed prior to contract. 55

City of New York v. Smokes-Spirits.com, 12 N.Y.3d 616 (N.Y. Ct. App. 2009) • •

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Ruling: In a question certified to the NY Court of Appeals by the Second Circuit, the court concluded that under the facts of this case, the City lacked standing to bring a GBL § 349 claim. Facts: New York City alleged that defendants’ websites misrepresented that their Internet cigarette sales were “tax free,” and that as a result of such deceptive statements “New York consumers were duped into purchasing cigarettes over the Internet in reliance on an entirely illusory tax savings” since the Jenkins Act requires reporting and collecting on cigarette taxes for such internet sales. While the City may bring GBL § 349 claims on its own behalf, the City lacks standing to bring derivative claims. – “In a proper case, the City may be able to avail itself of a remedy pursuant to [GBL § 349] subdivision (h)…” because § 349(h) grants any “Person” injured a private cause of action, where “Person” includes corporate competitors and Cities. – However, the City “has failed to establish standing here because its claimed injury, in the form of lost tax revenue, is entirely derivative of injuries that it alleges were suffered by misled consumers who 56 purchased defendants’ cigarettes over the Internet.”