Extreme Pro-Plaintiff Changes Proposed To New York’s Consumer-Protection Law

Patterson Belknap Webb & Tyler LLP

Patterson Belknap Webb & Tyler LLP

It’s hard to argue that New York’s consumer-protection laws (Gen. Bus. Law §§ 349350) are being underutilized by private plaintiffs.  But, on that claimed basis, the state’s Legislature is considering a multifaceted amendment that would make those laws vastly more plaintiff-friendly—and business-unfriendly—than they already are.  It’s hard to understate the impact these changes would have on the business community.  We’re not sure what the bill’s odds of passage are, but given the extremity of the amendments, we’re a bit surprised they haven’t attracted more public attention.

As it stands, aspects of New York’s consumer laws make them particularly attractive for the plaintiff’s bar.  For example, in some states, plaintiffs must plead and prove actual, fraud-style reliance on the challenged practice.  Not in New York.  In some states, plaintiffs must serve notice on the defendant and give it an opportunity to make things right before suing.  Not in New York.  In some states, consumer-protection class actions are prohibited and claims must be prosecuted individually or by the Attorney General.  Not in New York.  And in most states, plaintiffs’ recovery is limited to their actual, provable damages.  Again, not in New York, where plaintiffs are guaranteed minimum “statutory” damages of $50 (for a violation of § 349) or $500 (for a violation of § 350), even if their actual harm is far less than that.

No doubt in part because of these features of New York’s consumer laws, the state’s courts are a haven for questionable consumer-protection suits—almost always brought as class actions.  In the last couple of years, New York courts have seen a flood of “slack fill” suits seeking damages for foods, cosmetics, and over-the-counter drugs that leave some empty space in the package.  We’ve witnessed a bevy of lawsuits challenging the “naturalness” of food products, famously including La Croix sparkling water.  We’ve seen a high-profile suit accusing Chobani Greek-style yogurt of deceiving consumers because the brand’s founder is Turkish.  And just weeks ago, T.G.I. Friday’s was hit with a lawsuit claiming that the name of its “potato skins” snack tricks consumers into perceiving it as “healthy” and “nutritious.”  This is just the tip of the iceberg; a 2017 study found that, despite comprising just 6% of the nation’s population, New York’s federal courts harbor almost a quarter of its food class actions.

Yet some legislators maintain that private enforcement of the state’s consumer laws is inadequate and must be even further incentivized.  To that end, Rep. Yuh-Line Niou of Lower Manhattan and Sen. Leroy Comrie of Queens have introduced A.679/S.2407 in their respective chambers.  In its words, the bill seeks to “modernize” Gen. Bus. Law § 349, which it claims “is outdated and incapable of providing the protections needed for modern commerce and service.”  Even as plaintiffs’ lawyers flock to New York’s courts to invoke its consumer-protection law, the bill maintains (without elaboration) that the current statute “lacks” proper protections, provides an insufficient “deterrent” to would-be violators, and “lags behind [analogous] statutes in at least 39 other states.”

Among other things, the bill would make the following substantive changes to § 349:

  • In addition to banning “deceptive” acts and practices, as the statute currently does, § 349 would also ban “unfair” and “abusive” acts and practices.  The term “deceptive” has a well-understood meaning in consumer law.  But “unfairness” and “abusiveness” are squishy concepts that would open the door to unbounded and unpredictable liability.  The bill does attempt to provide some content to these terms, but the vagueness of its definitions only underscores the point.  A practice is defined as “unfair” if (among other things) it “cause[s] substantial injury” that is “not outweighed by countervailing benefits.”  But when is injury “substantial,” and how is the required “weighing” to take place? Meanwhile, a practice is defined as “abusive” if (among other things) it “takes unreasonable advantage of … a person’s lack of understanding of the material risks, costs, or conditions of the product or service.”  But when is an advantage “unreasonable?”  The bill provides no way for businesses to know what acts will result in liability, and would guarantee years or decades of costly litigation to hash out these standards.
  • To make matters worse, the bill would also allow a consumer to sue a business for any “act or practice [that] is unlawful,” even if it isn’t “deceptive,” “unfair,” or “abusive.”  A practice is “unlawful”—and would therefore provide a basis for a § 349 suit—when it “violates any law be it civil or criminal, federal, state, municipal, statutory, administrative, or any other law applicable in this state.”  Read literally, the bill would allow plaintiffs to sue businesses for their transgressions of any source of positive law under the sun, from environmental regulations to the tax code to international human rights treaties.  Apparently, it would not matter whether the underlying statute or regulation intentionally omits a private right of action, or whether it was intended to be enforced by public-minded prosecutors or regulators rather than profit-minded private attorneys.  The enactment of such a “universal private right of action” would guarantee all manner of mischief—as we have seen in California, where attorneys search the statute books and regulatory codes for obscure and hyper-technical violations on which to premise consumer class actions.
  • For decades, New York’s courts have limited § 349 to conduct that is “consumer-oriented”—that is, conduct that has an impact on consumers “at large.”  To put it another way, courts have held that the statute does not apply to conduct aimed at sophisticated businesses or to private disputes.  The bill would abrogate this well-settled precedent by providing that a claim “may be brought regardless of whether or not the underlying violation is consumer-oriented or has a public impact.”
  • The current version of § 349 contains a “regulatory compliance” defense applicable where “the [challenged] act or practice is … subject to and complies with the rules and regulations of … [any] agency of the United States.”  This prevents the courts from second-guessing the decisions of federal agencies on matters within their jurisdiction and expertise.  We’re not aware of any argument that this defense has led to any injustice, let alone injustice that outweighs the benefits of uniform enforcement of federal regulations.  The bill, however, would strike this “regulatory compliance” defense from the statute, thereby subjecting businesses to the potentially inconsistent demands of federal regulators and juries of laypersons.
  • The bill would vastly expand the types of plaintiffs who can bring claims under the statute.  For decades, private standing under § 349 has been limited to consumers who have been deceived.  The bill would extend standing to “firm[s], corporation[s], partnership[s], cooperative[s], association[s], coalition[s] or any other … group of individuals however organized.”  Moreover, it would permit an “organization” to sue not just “on behalf of itself” or its “members,” but also “on behalf of … members of the general public” with whom it has no relationship whatsoever.  If the bill passes, get ready for ideologically driven “consumer protection” suits brought by advocacy groups with agendas to push, purporting to act in the public interest.  Likewise, steel yourselves for fake “front groups” created by lawyers for the sole purpose of serving as the plaintiff in § 349 suits.  You don’t have to take our word for it—that’s exactly what happened in California before the state’s voters amended its consumer-protection law to abolish such “public interest” standing.  See In re Tobacco II Cases, 207 P.3d 20, 32 (Cal. 2009) (“Attorneys form[ed] a front ‘watchdog’ or ‘consumer’ organization. They scour[ed] public records on the Internet for what [were] often ridiculously minor violations of some regulation or law by a small business, and sue[d] that business in the name of the front organization…. [T]he attorneys then contact[ed] the business (often owned by immigrants for whom English is a second language), and point[ed] out that a quick settlement … would be in the business’s long-term interest.”).
  • The bill would even authorize lawsuits by organizations who “purchase[] or receive[]” goods or services “in order to test or evaluate [their] qualities.”  Thus, organizations would not even need to point to “members of the general public” who have been deceived or harmed; all they would have to do to become a plaintiff is go out and buy—or even just receive—a product with the purported intent to “test or evaluate” it.  Coupled with the right to sue over anything and everything “unlawful,” this would appear to open the door to lawsuits where absolutely no one—not the plaintiff, and not any member of the public—has actually been deceived or injured.
  • Even as it undermines the statute’s injury requirement, the bill would increase the minimum (a.k.a. “statutory”) damages available for a violation of § 349 by a factor of 40—from $50 to $2,000.  And for the first time ever, the bill would make “punitive damages” available under the statute—apparently in addition to “actual” and “statutory” damages.
  • Finally, the bill would expressly authorize class actions “to recover [not just] actual [damages],” but also “statutory and/or punitive damages.”  In other words, the bill would permit class actions to recover thousands or even millions of $2,000 statutory damage awards or punitive damages awards—one for each class member.  This means that even an innocent, technical, and largely harmless violation of § 349—or any other statute or regulation, since § 349 would now subsume them all—could result in a class-wide judgment in the billions of dollars.  This would run counter to the Legislature’s intent in making § 349 privately enforceable in the first place: at that time, it insisted, for fairness reasons, that class actions be limited to the recovery of actual damages only.  See Sperry v. Crompton Corp., 863 N.E.2d 1012, 1015 (N.Y. 2007) (noting legislative judgment “that recoveries beyond actual damages [on a class-wide basis] could lead to excessively harsh results”). True, federal-court defendants already face this statutory-damage aggregation problem, contrary to the Legislature’s intent, due to the U.S. Supreme Court’s controversial 2010 Shady Grove decision, but state-court defendants don’t; the bill would change that. And, in all events, the 40-fold increase in statutory damages would make the aggregation problem much, much worse.

This list of statutory revisions does not read like an attempt to fix bona fide problems with New York’s consumer law.  Indeed, as noted above, plaintiffs seem to be doing just fine under the current version.  Instead, the bill reads like the most ambitious wish list that the trial bar could possibly have come up with.  No state in the nation—and especially no state as large and business-centric as New York—has a consumer statute this punitive of business and this open to abuse.  Enacting it would sending the nation’s third-largest economy into uncharted waters.

Once again, we don’t know whether A.679/S.2407 has a realistic chance of becoming law.  But even a remote chance is something businesses should take seriously.  If the bill were enacted, the litigation exposure of companies that do business in New York would instantly skyrocket.  As noted, a violation of any law or regulation on the books—federal, state, or local—could threaten an annihilating multi-billion-dollar class judgment under the guise of a “consumer protection” claim.  And many of the defenses now available in consumer-protection suits—lack of deception, lack of consumer-orientation, lack of standing, regulatory compliance—would be severely curtailed or eliminated.  That’s nothing to scoff at.

Companies that do business or sell products in New York should watch A.679/S.2407 closely and consider making their opposition known.  New York consumers who want a functional court system, a strong economy, and access to reasonably priced goods and services should do the same.

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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