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Check Your Terms & Conditions—Marketing to New Jersey Residents Could Mean Liability Even Without Making A Sale

Businesses with an online presence overwhelmingly include disclaimers, limitations of liability, and severability clauses in their Terms and Conditions or similar notices posted on their website.  Because these terms are intended to minimize or eliminate the seller’s liability risk and other legal obligations where allowed by law, they are often broadly worded and meant to apply to consumers regardless of the state in which they reside.  Online retailers and service providers should take note of a recent string of class-action lawsuits involving contracts, website terms and conditions, and other notices directed at New Jersey consumers or prospective consumers.  The cases are challenging consumer notices based on a decades-old New Jersey law called the Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”), which makes it illegal to display any written consumer warranty or notice that violates any “clearly established legal right or responsibility” of New Jersey residents.  Aggrieved consumers are entitled to statutory damages and/or actual damages, along with attorneys’ fees and court costs.

What is the TCCWNA?

The TCCWNA has two provisions which should be concerning to businesses, both of which are broadly worded.  The first, Section 56:12-15, states:
“No sellers…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…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.”
The second provision, Section 56:12-16 states in part:
“….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.”

Courts have historically supported a broad interpretation as to whom the law applies.  For example, it applies any entity involved in producing a consumer good, part of the chain of distribution, or even a business that was “not a stranger” or “obtained a benefit” from the transaction. Smith v. Vanguard Dealer Servs., L.L.C., No. A-3875-09T2, 2010 WL 5376316, at *3 (N.J. Super. Ct. App. Div. Dec. 21, 2010).   They have also held that law applies to not only to consumer contracts, but even to language on gift certificates and restaurant menus. See Shelton v. Restaurant.com, Inc., 214 N.J. 419, 442-443, 70 A.3d 544 (2013); Dugan v. TGI Fridays, Inc., No. A-3485-14T3, 2016 WL 1136486, at *4 (N.J. Super. Ct. App. Div. Mar. 24, 2016).

What Would a Case Under TCCWNA Look Like?
By way of example, suppose Company runs an online retail business that sells products directly to consumers via Company’s website.  Because the website is accessible to individuals in any state, Company includes on its website a Terms and Conditions section that attempts to limit Company’s liability as much as possible.  The website contains the following language:
“These Terms and Conditions are entered into by an between User and Company.  By accessing and using this Site, User hereby accepts as binding all terms and conditions stated herein.  By using this site, User hereby waives any indirect, consequential, incidental, special, punitive or other damages, whether in contract or tort, including negligence or intentional acts, arising in any way from any product or service sold or provided on the Site. The Terms and Conditions shall be governed and construed in accordance with the laws of the state in which the sale occurs. If any provision of these Terms and Conditions shall be invalid or prohibited under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions contained in the Terms and Conditions.”
This language would arguably violate both aforementioned provisions of the TCCWNA.  First, exculpatory provisions disclaiming liability for any and all forms of liability are actionable under Section 56:12-15 because the provision is contrary to New Jersey common law which hold that one cannot disclaim liability for intentional torts or negligence generally. At least one case has allowed TCCWNA claims to proceed based on excessive exculpatory provisions contained in contracts. See Martinez-Santiago v. Pub. Storage, 38 F. Supp. 3d 500, 512-513 (D.N.J. 2014).  Second, by failing to specify which provisions are unenforceable or invalid in New Jersey, the Terms and Conditions arguably violate Section 56:12-16. See Martinez-Santiago, 38 F. Supp. 3d 500 [“If N.J.S.A. 56:12-16 means anything, it must mean that the…agreement needs to specify which provision are unenforceable under New Jersey law.”].  Language that fails to specify which provisions, if any, are or are not enforceable in New Jersey specifically violate the Act.
How Does the TCCWNA Affect Online Businesses?
Plaintiffs’ firms are testing the limits of the law by suing using the TCCWNA to attack  websites’ Terms and Conditions.  Russell v. Croscill Home LLC, No. 16-cv-01190 (D.N.J. Mar 2, 2016) is a putative class action case alleging the Terms and Conditions located on defendant’s website violated the TCCWNA.  The same allegations are made in the case Braden v. TTI Floor North Am. Inc. d/b/a Hoover, No. 3:16-cv-00743 (D.N.J. Feb. 10, 2016) (“Hoover“).  In the Hoover case, the Terms and Conditions did not facially apply to the purchase of goods on the site, but rather only to the use of the site in general. In both cases, the Terms and Conditions contained standard exculpatory language without specifically mentioning New Jersey law.  How the New Jersey Federal District Court will handle these claims remains to be seen.
There are two primary reasons the TCCWNA is so dangerous to online businesses: First, neither the statutory language nor the case law define precisely what a “clearly established” right or responsibility is.  At least one court has said that a clearly established right is when “no reasonable vendor could fail to know that its conduct was prohibited,” but that definition is less than clear. See McGarvey v. Penske Auto. Grp., Inc., No. CIV. 08-5610 JBS/AMD, 2011 WL 1325210 (D.N.J. Mar. 31, 2011), aff’d sub nom. McGarvey v. Penske Auto Grp., Inc., 486 F. App’x 276 (3d Cir. 2012).  While the TCCWNA is a cumulative remedy to other state and federal laws, there is not bright-line rule as to when a legal right or responsibility is “clearly established.”  Cases have allowed plaintiffs to premise TCCWNA liability on both statutory and common law.  As a result, businesses should assume any legal right or responsibility is clearly established.  Second, businesses may not fully insulate themselves from TCCWNA liability with the traditional savings clauses. In Martinez-Santiago, 38 F. Supp. 3d at 514, the agreement at issue stated that if any provision “shall be invalid or prohibited under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity….” (Martinez-Santiogo, at 511). The court held this language did not escape the dictates of the TCCWNA and explained that the language “needs to specify which provisions are unenforceable under New Jersey law.” (Id.).   This ruling suggests companies need to include New Jersey-specific savings clauses in order to comply with the law.
The limits of the law are currently being tested with respect to website terms and conditions. However, because TCCWNA “is a remedial statute, entitled to broad interpretation,” business should review and revise their notice language accordingly. Non-New Jersey businesses, including California retailers, have been targeted by plaintiffs’ firms for violation of the TCCWNA.  Courts have historically affirmed class-action status to these cases, so the potential for statutory damages and attorneys’ fees can easily reach into the millions of dollars, Plaintiffs firms undoubtedly see easy money in litigating these types of claims.

How Should Businesses Protect Themselves From Exposure to Liability Under the TCCWNA?

Businesses should protect themselves by first reviewing their Terms and Conditions, contracts, warranties, and any other notice provisions that could reach New Jersey residents.  Careful attention should be paid to often-standard legal clauses like exculpatory and savings provisions, which may need to be revised to comply with New Jersey law.  Business would also do well to remove the consumer goods or services from the scope of a website’s Terms and Conditions notices.  Instead, limit the that language to use of the website only—this arguably removes that notice from the grasp of TCCWNA’s reach.  In fact, this issue may soon be decided in Braden v. TTI Floor North America, Inc. d/b/a Hoover, supra.  An online presence nearly always means interacting with customers in the fifty states.  Businesses would do well to continually review and revise their contracts, terms and conditions, or any other legal document it presents to the public.

Michael Hellbusch, Esq. is a business, intellectual property, and privacy law litigator with the firm TLD Law in Irvine, CA.  He is a member of member of the Sedona Conference’s Working Group 11 on Data Security and Privacy Liability and the International Association of Privacy Professionals.  You are invited to contact Mike at mhellbusch@tldlaw.com

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