District of New Jersey Allows Consumer Fraud Act Claim to Proceed for New Jersey Resident, Dismisses Claim for Non-Resident

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In deciding a motion to dismiss under Rule 12(b)(6) in a putative class action, the United States District Court for the District of New Jersey recently addressed, among other things, what is quickly becoming a hot button issue: whether claims under the New Jersey Consumer Fraud Act (“CFA”) and New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”) can be asserted by non-New Jersey residents. In Morcom v. LG Electronics USA, Inc., Judge Claire C. Cecchi answered this question in the negative, dismissing the CFA and TCCWNA claims asserted by a class representative from Washington State while allowing the same claims asserted by a New Jersey class representative to proceed.

Here, plaintiffs alleged that LG washing machines suffered defects which caused a load of laundry to take up to six hours to complete. Class representative, Steve Morcom, resides in and purchased his LG washing machine at a Best Buy in Washington State while the other class representative, David McGeown, resides in and purchased his LG washing machine at a Best Buy in New Jersey. The Amended Class Action Complaint that was the subject of the motion to dismiss asserted a number of claims, including CFA and TCCWNA claims on behalf of both Morcom and McGeown.

In analyzing the CFA claim asserted by Morcom, Judge Cecchi noted that the elements of a Washington Unfair Business Practices Act (“WUBPA”) claim and the elements of a CFA claim differed, thus requiring a choice of law analysis. Applying the Restatement (Second) of the Conflict of Laws § 148, Judge Cecchi found that Washington (as opposed to New Jersey) law should apply to Morcom because LG’s alleged fraudulent omission took place in Washington and Morcom purchased the washing machine in Washington. Therefore, no other state had a more significant relationship to the event. “Because Morcom cannot bring a NJCFA claim when the most significant relationship test points to Washington law instead,” Judge Cecchi dismissed Morcom’s CFA claim. Applying this same analysis, Judge Cecchi likewise dismissed Morcom’s TCCWNA claim.

In contrast, Judge Cecchi allowed McGeown’s CFA claim to proceed, finding that he adequately pled unlawful conduct by LG, an ascertainable loss, and a causal relationship between the unlawful conduct and ascertainable loss. McGeown alleged that the unlawful conduct was LG’s knowing, material omission that that “TrueBalance Technology” was not working properly, leading to the defects. LG had issued a service bulletin to its retailers describing the imbalance defects the month before McGeown purchased his washing machine. However, it did not disclose these defects to the consuming public. This was a material omission, which caused McGeown an ascertainable loss because the washing machine was worth less than he was expecting and he incurred out-of-pocket repair and replacement costs.

The Morcom decision is significant in that it limits the size of any putative class to those individuals who, unlike Morcom, can satisfy the “most significant relationship” test for purposes of New Jersey choice of law analysis. At a minimum, Morcom further strengthens the argument of defendants in these putative CFA and TCCWNA class actions that any class must be limited to those individuals who either reside in or purchased products in New Jersey.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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