Have You Heard About New Jersey’s Truth in Consumer Contract, Warranty and Notice Act?   

New Jersey’s Truth in Consumer Contract, Warranty and Notice Act, N.J.S.A. §56:12-18 (“TCCWNA”), is the basis for a recent flurry of pre-suit demand letters to retailers and class action lawsuits filed in New Jersey state and federal courts. While the TCCWNA was enacted in the early 1980’s, it has been largely overlooked until the last few years when the plaintiffs’ bar began to bring class action lawsuits alleging violations of this statute.

In these cases, plaintiffs typically allege that the TCCWNA provides standing to sue for alleged violations resulting from various terms on websites, in loyalty programs, contracts, or that are incorporated in any type of other written notice. Plaintiffs are in the process of testing the boundaries of the TCCWNA with courts, which means that the law is unsettled and subject to swift change. The courts’ current trend of broadly interpreting the TCCWNA poses significant obstacles for retailers conducting business in New Jersey or with New Jersey residents via their US websites, loyalty programs, etc.

What Is The TCCWNA?

The TCCWNA’s purported purpose is to prevent deceptive practices in customer contracts by prohibiting the use of illegal terms or warranties in consumer contracts. This prohibition 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. As a result, all customer-facing language, notices and disclosures should be evaluated to ensure that the rights of New Jersey customers are not being waived or restricted. Otherwise, retailers risk violating the requirements of the TCCWNA. But, the statute also contains language indicating that a general disclaimer directed to New Jersey residents is not sufficient to satisfy the requirements of the statute. Instead, it appears the customer-facing language used by a retailer should identify the specific provisions of its contracts, warranties, notices, loyalty programs, signs, etc. that are void, unenforceable or inapplicable in New Jersey. This requirement imposes a significant challenge for retailers to ensure that they have no exposure under the TCCWNA.

Perhaps most worrying of all, 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. The plaintiffs’ bar has argued that a violation of the TCCWNA occurs each time an actual or prospective customer visits a retailer’s website. Thus, a website that has been visited 10,000 times may be subject to liability of at least $1,000,000 ($100 per click), plus fees, costs and an injunction prohibiting the retailer from publishing or imposing its terms and conditions on New Jersey customers. In addition, courts applying New Jersey law interpreting the TCCWNA have suggested that a second actionable violation occurs when a retailer fails to identify which of its written terms are or are not enforceable in New Jersey. The practical result of this second prong of the TCCWNA is to double the potential statutory damages that can be awarded to New Jersey customers.

How Does This Affect My Business?

The TCCWNA is troubling for a number of reasons. First, compliance with the statute is a moving target. The broad language of the TCCWNA, coupled with the specificity required to set forth all provisions that are unenforceable under New Jersey law, make it a challenge for retailers to ensure that their websites and other programs comply with the requirements.

Second, as shown above, the potential damages at stake in litigation are potentially enormous and are grossly disproportionate to any harm suffered by the customer. As noted above, 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 internet sales 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 for sale on the endless websites.   Due to the sheer volume of offerings that are accessible by New Jersey residents, 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.

Are There Any Defenses?

While the current trend is for courts to broadly interpret the TCCWNA and to impose liability, there is one recent decision that provides a glimmer of hope to defendants and we are watching developments closely.

Are These Claims Covered By Insurance?

If you receive a pre-suit demand letter or are sued, carefully examine all applicable insurance policies to determine whether there is coverage for this type of claim. Even if the policy excludes coverage for damages, the cost of defending a TCCWNA claim may be covered. In addition, insurance policies typically contain language regarding the notification of claims or suits, and it is critical for retailers to timely comply with the notice requirements.

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