Gregory Bohus v. Restaurant.Com Inc

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 14-3316
_____________
GREGORY BOHUS, ON BEHALF OF THEMSELVES
AND OTHERS SIMILARLY SITUATED;
LARISSA SHELTON, ON BEHALF OF THEMSELVES
AND OTHERS SIMILARLY SITUATED
v.
RESTAURANT.COM, INC.
Gregory Bohus; Larissa Shelton
Appellants
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3-10-cv-00824)
District Judge: Honorable Joel A. Pisano
_______________
Argued on February 12, 2015
Before: CHAGARES, JORDAN, and VANASKIE,
Circuit Judges.
(Filed: April 30, 2015)
_______________
Katrina Carroll, Esq.
Lite, DePalma, Greenberg
211 West Wacker Dr.
Chicago, IL 60606
Bruce D. Greenberg, Esq. [ARGUED]
Lite, DePalma, Greenberg
Two Gateway Center, 12th Floor
Newark, NJ 07102
Christopher J. McGinn, Esq.
79 Paterson St.
New Brunswick, NJ 08901
Andrew R. Wolf, Esq.
Henry P. Wolfe, Esq.
The Wolf Law Firm
1520 U.S. Highway 130, Suite 101
North Brunswick, NJ 08902
Counsel for Appellants
Michael R. McDonald, Esq. [ARGUED]
Caroline E. Oks, Esq.
Damian V. Santomauro, Esq.
Jennifer M. Thibodaux, Esq.
Gibbons
One Gateway Center
Newark, NJ 07102
Counsel for Appellee
2
_______________
OPINION
_______________
JORDAN, Circuit Judge.
Larissa Shelton and Gregory Bohus (the “Plaintiffs”)
appeal from an order of the United States District Court for
the District of New Jersey dismissing their putative class
action suit against Restaurant.com. A total of five prior
opinions have been issued in this case by, variously, the
District Court, the Supreme Court of New Jersey, and our
Court. See Shelton v. Restaurant.com (Shelton V), No.
CIV.A. 10-824 JAP, 2014 WL 3396505 (D.N.J. July 10,
2014); Shelton v. Restaurant.com, Inc. (Shelton IV), 543 F.
App’x 168 (3d Cir. 2013); Shelton v. Restaurant.com, Inc.
(Shelton III), 70 A.3d 544 (N.J. 2013); Shelton v.
Restaurant.com, Inc. (Shelton II), No. 10-2980, 2011 WL
10844972 (3d Cir. May 17, 2011); Shelton v. Restaurant.com,
Inc. (Shelton I), No. CIV. A 10-0824 (JAP), 2010 WL
2384923 (D.N.J. June 15, 2010). But the end, one may hope,
is finally near. We will reverse and remand for entry of
judgment solely in favor of the named plaintiffs.
3
I. Background1
The Plaintiffs purchased gift certificates from
Restaurant.com that allegedly violated several New Jersey
statutes. Restaurant.com sells gift certificates online that
“provide a credit for the holder for purchases of food and
beverages at the restaurant named on the certificate.” Shelton
IV, 543 F. App’x at 169. “[T]he amount paid does not always
coincide with the face amount of the certificate.” Id. at 169
n.2. The gift certificate may contain conditions imposed by
the restaurant, “such as prohibiting the use of a certificate on
weekends or for the purchase of alcoholic beverages.”
Shelton III, 70 A.3d at 547. Substantially all gift certificates
issued by Restaurant.com since April 4, 2006 – including the
gift certificates purchased by the Plaintiffs – share the
following characteristics:
Each certificate displayed on its face various
restaurant-specific conditions in addition to
standard terms and conditions imposed by
Restaurant.com. Two standard terms and
conditions on the … certificates were the
following: 1) the certificate “[e]xpires one (1)
year from date of issue, except in California and
where otherwise provided by law[,]” and 2) the
1
Because we are reviewing the District Court’s ruling
on a motion to dismiss brought under Rule 12(b)(6) of the
Federal Rules of Civil Procedure, we accept all well-pleaded
allegations in the complaint as true and draw all reasonable
inferences in favor of the non-moving parties, the Plaintiffs.
Pearson v. Sec’y Dep’t of Corr., 775 F.3d 598, 604 (3d Cir.
2015).
4
certificate is “[v]oid to the extent prohibited by
law.”
Id. at 547-48 (alterations in original).
The Plaintiffs filed a purported class action against
Restaurant.com in New Jersey state court, and the case was
later removed to federal court on the basis of diversity
jurisdiction. Id. at 548. The class has not been certified. The
Plaintiffs’ complaint alleges two claims: in Count I, violations
of the New Jersey Gift Certificate Statute, N.J. Stat. Ann.
§ 56:8-110, and the New Jersey Consumer Fraud Act, N.J.
Stat. Ann. §§ 56:8-1 et seq.; and, in Count II, violations of the
Truth-in-Consumer Contract, Warranty, and Notice Act
(“TCCWNA”), id. §§ 56:12-14 to 12-18. The New Jersey
Gift Certificate Statue prohibits gift certificates from expiring
within 24 months of the date of sale, id. § 56:8-110(a)(1), and
the Consumer Fraud Act provides a cause of action for
violations of the Gift Certificate Statute, id. §§ 56:8-11, 8-
112. The TCCWNA prohibits giving notice to a consumer or
offering or entering into any written consumer contract that
violates any clearly established consumer right or seller
responsibility. Id. § 56:12-15. The TCCWNA also provides
that any notice or consumer contract that states that any of its
provisions are or may be void, unenforceable, or inapplicable
in some jurisdictions must also specify “which provisions are
or are not void, unenforceable or inapplicable within the State
of New Jersey.” Id. § 56:12-16. The TCCWNA authorizes
“the aggrieved consumer” to recover “a civil penalty of not
less than $100.00 or … actual damages, or both at the election
of the consumer, together with reasonable attorney’s fees and
court costs.” Id. § 56:12-17.
5
The District Court initially granted a motion to dismiss
for failure to state a claim. As to the first count, the Court
concluded that the Plaintiffs had failed to allege any
ascertainable loss, as is required under relevant state law.
Shelton I, 2010 WL 2384923, at *4. As to the second count,
the Court concluded that the Plaintiffs were not consumers
within the meaning of the TCCWNA because the gift
certificates they purchased were not “money, property or
service[s],” N.J. Stat. Ann. § 56:12-15, but provided only “a
contingent right to a discount.” Shelton I, 2010 WL 2384923,
at *5. We ultimately affirmed the dismissal of the first count,
Shelton IV, 543 F. App’x at 169-70, but before resolving
Plaintiffs’ challenge to the dismissal of the second count, we
certified the following questions to the Supreme Court of
New Jersey:
1. Does the TCCWNA apply to both tangible
and intangible property, or is its scope limited
to only tangible property?
2. Does the purchase of a gift certificate, which
is issued by a third-party internet vendor, and is
contingent, i.e., subject to particular conditions
that must be satisfied in order to obtain its face
value, qualify as a transaction for “property ...
which is primarily for personal, family or
household purposes” so as to come within the
definition of a “consumer contract” under
section 15 of the TCCWNA?
Shelton II, 2011 WL 10844972, at *4. The Supreme Court of
New Jersey accepted the certification but reformulated the
questions as follows:
6
1. Whether Restaurant.com’s coupons, which
were issued to plaintiffs and redeemable at
particular restaurants, constitute “property”
under the New Jersey Truth-in-Consumer
Contract, Warranty, and Notice Act, N.J.S.A.
56:12-14 to -18;
2. If the coupons constitute “property,” whether
they are “primarily for personal, family or
household purposes,” N.J.S.A. 56:12-15; [and]
3. Whether the sale of the coupons by
Restaurant.com to plaintiffs constituted a
“written consumer contract,” or whether the
coupons “gave or displayed any written
consumer warranty, notice, or sign,” under
N.J.S.A. 56:12-15.
Shelton III, 70 A.3d at 549 (alteration in original).
The New Jersey Supreme Court then determined in a
thorough and carefully crafted opinion – Shelton III – that the
term “property” as used in the TCCWNA encompasses
intangible property such as the gift certificates issued by
Restaurant.com, id. at 554, 558-59, that the gift certificates
were primarily for personal, family, or household purposes,
id. at 555, 558-59, that the sale of the gift certificates
constituted a written consumer contract, id. at 556, 559, and
that the terms listed on the gift certificates constituted notice,
id. at 558-59. In sum, the court concluded, “The statute as
drafted … covers the certificates in question.” Id. at 559.
7
Next, we vacated the District Court’s dismissal of the
TCCWNA count and remanded for further proceedings
consistent with the New Jersey Supreme Court’s explication
of the law in Shelton III. Shelton IV, 543 F. App’x at 171.
Upon remand, Restaurant.com again filed a motion to
dismiss, arguing that Shelton III should apply only
prospectively. The District Court agreed. It acknowledged
that decisions are ordinarily applied retroactively under New
Jersey law. But it concluded that retroactive application was
inappropriate here because Shelton III established a new rule
of law by resolving an issue of first impression, and
retroactive application would yield substantial inequitable
results. The District Court acknowledged the fact-sensitive
nature of its analysis of the equities, but it rejected the
Plaintiffs’ argument that an evidentiary record was needed to
reach a decision. It instead decided that, because the
Plaintiffs “have not suffered any actual, non-theoretical
damages” (App. at 12) – in fact, there was “no allegation that
Plaintiffs were unable to enjoy the bargained-for discounts at
the third-party restaurants that they selected” – they should
not be entitled to “windfall statutory damages and attorneys’
fees.” (Id. at 13.) In the District Court’s view, “common
sense” dictated that the many “unsuspecting companies” that
would be subject to the new law should be given a chance to
change their conduct before being exposed to “extraordinary
statutory penalties.” (Id. at 11.) In such a situation, the
District Court concluded, even limited retroactive application
to the plaintiffs in this case would be inequitable.
The Plaintiffs timely appealed the District Court’s
order.
8
II. Discussion2
The Plaintiffs raise three main arguments challenging
the District Court’s retroactivity ruling. First, as a
preliminary matter, they argue that the Supreme Court of
New Jersey has already conducted a retroactivity analysis and
determined that its decision was to apply to the parties in this
case, and hence we need not revisit the issue. Alternatively,
they suggest that we certify the question of retroactivity to the
Supreme Court of New Jersey. Second, they argue that the
question of retroactivity need not even arise because the rule
announced in Shelton III is not new. Finally, they argue that
even if the rule announced in Shelton III is new, the District
Court should have applied the general rule that litigants who
bring about a change or clarification in the law are entitled to
the benefit of that new rule. We consider each of those
arguments in turn.
A. Whether Shelton III Addressed Retroactivity
As just noted, the Plaintiffs contend that Shelton III
already determined the retroactive effect to be accorded that
decision, and that, if not, we should certify the issue of
2
The District Court had jurisdiction under 28 U.S.C.
§ 1332(d)(2)(A); we have jurisdiction pursuant to 28 U.S.C.
§ 1291. We exercise plenary review over a dismissal under
Rule 12(b)(6). Pearson, 775 F.3d at 601. When a district
court dismisses on the basis of an affirmative defense, as is
the case here, we will affirm only when the defense is
“apparent on the face of the complaint” and documents relied
on in the complaint. Schmidt v. Skolas, 770 F.3d 241, 249 (3d
Cir. 2014) (internal quotation marks omitted).
9
retroactivity to the Supreme Court of New Jersey. The
Plaintiffs correctly observe that Shelton III contains several
passages that suggest the Supreme Court of New Jersey was
applying its ruling to the parties before it. For example, when
it reformulated the questions of law that we certified, it
phrased each new question in terms of whether
“Restaurant.com’s coupons” fell within the relevant statutory
terms. Shelton III, 70 A.3d at 549. Similarly, it stated that its
“task [was] to define ‘property’ in order to determine whether
the certificates offered by Restaurant.com are within the
scope of the TCCWNA,” id. at 550, “whether the certificates
offered by Restaurant.com qualify as property ‘which is
primarily for personal, family or household purposes,’” id. at
554, and “whether the coupons or certificates issued by
Restaurant.com to plaintiffs are ‘written consumer
contract[s]’ or whether the coupons ‘gave or displayed any
written consumer warranty, notice or sign,’” id. at 555.
Although the court concluded its opinion with a generic
summary of its legal rulings, id. at 558-59, it followed that
summary with the following case-specific language:
Thus, plaintiffs can properly be considered
“consumers” within the scope of the TCCWNA
because the certificates acquired by them
through the Restaurant.com website are
property primarily for personal, family, or
household purposes. Further, in construing the
plain language of the terms of the TCCWNA
and the Act’s relationship to the Plain Language
Act, we conclude the certificates purchased
from Restaurant.com can be considered
“consumer contracts[,]” and the standard terms
10
provided on the certificates can be considered
“notices” subject to the TCCWNA.
Id. at 559. In other words, the court stated, “The statute as
drafted … covers the certificates in question.” Id.
While Shelton III spoke in terms of the TCCWNA’s
application to Restaurant.com, nothing in that opinion
expressly addresses the issue of retroactivity. None of New
Jersey’s cases on retroactivity are cited, nor is the test for
departing from the general rule of retroactivity mentioned.
Nevertheless, the Plaintiffs argue that, to the extent Shelton
III is silent as to its retroactive effect, its intent is clear and we
should presume that the Supreme Court of New Jersey meant
for its interpretation of the TCCWNA to be retroactive.
New Jersey law suggests that any appellate opinion
that considers remedial issues in the course of its analysis, or
remands for consideration of such issues, ordinarily
contemplates retroactive application to the parties in that case.
The Supreme Court of New Jersey adopted that approach
when it addressed one of its cases that had been reviewed by
the United States Supreme Court:
Although the [United States] Supreme Court’s
opinion is silent on the issue of retrospective
application, the remand to this Court to
determine severability and “for further
proceedings” carries with it the implicit
direction that we determine the relief
appropriate to the holding that the [legislation at
issue] is partially pre-empted. If the Court
conceived that its decision might apply only
11
prospectively, which would significantly affect
the remedy we must fashion, it is reasonable to
assume that the opinion would at least have
adverted to that possibility.
Exxon Corp. v. Hunt, 534 A.2d 1, 7 (N.J. 1987).
In the Plaintiffs’ view, that reasoning should guide us
here. But it cannot. That reasoning is sound when
applicable, but it is plainly not applicable in the context of an
opinion given on certification. The Supreme Court of New
Jersey was not called upon to directly fashion a remedy or
resolve the Plaintiffs’ case. Nor did it sit as an appellate
tribunal reviewing a decision of the federal courts and
remanding for a determination of the appropriate remedy.
See Ex parte Bollman, 8 U.S. (4 Cranch) 75, 101 (1807)
(Marshall, C.J.) (defining appellate jurisdiction as “the
revision of a decision of an inferior court”); Marbury v.
Madison, 5 U.S. (1 Cranch) 137, 175 (1803) (Marshall, C.J.)
(“It is the essential criterion of appellate jurisdiction, that it
revises and corrects the proceedings in a cause already
instituted … .”). As the New Jersey Supreme Court itself put
it in Delta Funding Corp. v. Harris, “[t]he purpose of the
certification process is to answer the question of law
submitted pursuant to [New Jersey Rule of Court] 2:12A, not
to resolve … factual differences.” 912 A.2d 104, 108 (N.J.
2006). In Delta Funding, the court addressed how the facts of
that case interacted with the legal principles governing
arbitration agreements, id. at 111-12, but it clarified that it did
so in furtherance of its effort to “identify general principles of
New Jersey contract law that the Third Circuit and the
arbitrator can then apply to the agreement.” Id. at 110.
12
Certified questions should be such as to “control the
outcome of a case pending in the federal court.” L.A.R.
110.1; see also N.J. R. 2:12A-1 (providing that the Supreme
Court of New Jersey has authority to accept a certified
question from our court “if the answer may be determinative
of an issue in litigation pending in the Third Circuit”). But
there is a distinction between deciding a controlling legal
issue and resolving a dispute. In answering the certified
question, the Supreme Court of New Jersey was not applying
the law to the facts of this case in the sense that it was
resolving a dispute among litigants. That can only be done by
a court with jurisdiction over the dispute itself, and
jurisdiction, coupled with the mutual respect inherent in the
seeking and granting of certification of a controlling question
of law, circumscribes the opinion rendered. The Supreme
Court of Utah has insightfully provided a state-court
perspective on the process:
We routinely refer to surrounding facts and
circumstances not just to set the stage for our
resolution of questions certified by federal
courts, but also to illustrate the application of
our answer in the context of the case.
That is not to say that our opinion on
certification will itself resolve the underlying
federal case. The resolution of the parties’
competing claims and arguments will be up to
the federal courts, which of course retain
jurisdiction to decide this case under the law as
they see it. … Those courts retain the
independent authority to decide whether and to
13
what extent to apply our law or to recognize
limitations on or caveats to it.
Fundamentalist Church of Jesus Christ of Latter-Day Saints
v. Horne, 289 P.3d 502, 505-06 (Utah 2012) (Lee, J.)
(footnote and paragraph numbering omitted)); cf. Nemours
Found. v. Manganaro Corp., 878 F.2d 98, 101 (3d Cir. 1989)
(stating that an order of the district court certifying a question
to the Delaware Supreme Court “does not mean the effective
end of the federal litigation. Further proceedings, including
possibly a trial on the merits, will be held in the district court
after the Delaware Supreme Court either answers the certified
questions or declines to accept them.”). Thus, despite the
Plaintiffs’ insistence to the contrary, Shelton III could not and
did not adjudicate the question of retroactivity, and we doubt
that the New Jersey Supreme Court intended any such thing.
We also doubt the wisdom of returning to that court
with the question of retroactivity. We have already imposed
upon it once in this case, and it graciously answered our call
for help in clarifying the scope of the TCCWNA. We are no
longer faced with a “[n]ovel, unsettled question[] of state
law,” which is a prerequisite for certification. Arizonans for
Official English v. Arizona, 520 U.S. 43, 79 (1997).
Certification would be inappropriate here – indeed, it would
serve no purpose – because the requirements of New Jersey
law on the issue of retroactivity are clear. All that remains is
to apply them to the acknowledged facts. It appears that, in
essence, the Plaintiffs are attempting to escape the effect of
the removal of their case to federal court and would like to
have the Supreme Court of New Jersey adjudicate the matter.
They chose a state forum in the first instance, so their efforts
14
are perhaps understandable, but we are not free to shirk our
responsibility to decide what is properly before us.
B. New Rule
The Plaintiffs next challenge the District Court’s
determination that Shelton III established a new rule of law.
They argue that there was no old rule from which the court
could have departed; rather, the law was silent on the issue,
which, they say, prevents Shelton III from constituting a
“new” rule.
There is a ringing lack of logic in that assertion.
Things are commonly understood as “new” not only when
contrasted with something “old” but when they are, in
themselves, without precedent. Thus, while it is true that,
“[u]nless a new rule of law is at issue, the Court need not
engage in retroactivity analysis,” US Bank Nat’l Ass’n v.
Guillaume, 38 A.3d 570, 585 n.3 (N.J. 2012), it is not true
that a “new rule” only arises when it supplants an old one.
An opinion establishes a “new” rule “‘either by overruling
clear past precedent on which litigants may have relied, … or
by deciding an issue of first impression whose resolution was
not clearly foreshadowed.’” Coons v. Am. Honda Motor Co.
(“Coons II”),3 476 A.2d 763, 768 (N.J. 1984) (omission in
original; emphasis added) (quoting Chevron Oil Co. v. Huson,
3
Coons II involved a rehearing of Coons v. American
Honda Motor Co. (“Coons I”), 463 A.2d 921 (N.J. 1983), to
revisit the retroactivity ruling of that earlier opinion. Because
New Jersey case law consistently uses the appellation “Coons
II” to refer to the later opinion, regardless of whether Coons I
has been discussed, we do the same.
15
404 U.S. 97, 106 (1971)); accord In re Contest of Nov. 8,
2011 Gen. Election of Office of N.J. Gen. Assembly, 40 A.3d
684, 707 (N.J. 2012). “Generally, an issue of statutory
construction that implicates an established practice and that
courts have not yet addressed presents an issue of first
impression.” Henderson v. Camden Cnty. Mun. Util. Auth.,
826 A.2d 615, 620 (N.J. 2003).
The New Jersey Supreme Court’s decision in Shelton
III was not foreshadowed by an unambiguous reading of the
text of the statute or by other state court decisions. As we
stated in our certification order, “The panel has examined the
decisions of the courts of the State of New Jersey and found
no decision that addresses the question of how the term
‘property’ is defined in the TCCWNA.” Shelton II, 2011 WL
10844972, at *1. We explained that only one case “addressed
the question of whether gift certificates were considered
property, and that case did not involve the TCCWNA,” nor
was there anything in that case from which we could “infer
what the Supreme Court of New Jersey would say regarding
the question of tangible and intangible property in the context
of the TCCWNA.” Shelton II, 2011 WL 10844972, at *3.
Furthermore, we noted that “the Legislature did not expressly
omit gift certificates from the types of property covered by
the TCCWNA,” and determining the import of that silence
was complicated by the fact that a separate act, the Gift
Certificate Act, “specifically addresses restrictions on gift
certificates.” Id. at *4. Nothing in Shelton III contradicts our
earlier assessment. Because the rule announced in Shelton III
was not foreshadowed by the case law or an unambiguous
16
statute, it qualifies as new.4 We must therefore determine
whether the District Court properly limited the rule to purely
prospective application.
C. Equitable Analysis
Under New Jersey law, judicial decisions that adopt
new rules are generally given retroactive effect. Coons II,
476 A.2d at 767. Courts may, however, depart from that
general rule when they determine that “retroactive application
could produce substantial inequitable results.” Selective Ins.
Co. of Am. v. Rothman, 34 A.3d 769, 773 (N.J. 2012). To
determine “what is just and consonant with public policy in
the particular situation presented,” courts generally consider
three factors: “(1) justifiable reliance by the parties and the
community as a whole on prior decisions, (2) a determination
4
One case may be read as implying that an issue of
first impression is not involved when a court “merely
applie[s] existing rules to a new factual variant.” See
Malinowski v. Jacobs, 915 A.2d 513, 515 (N.J. 2007)
(referring to the opinion of the dissenting judge of the
intermediate appellate court, and, after discussing that
dissenting opinion at length, stating that the court was
reversing “substantially for the reasons given by” that
dissenting judge). Taken to an extreme, such a reading might
undermine the principle that an unprecedented circumstance
can produce an application of law so novel as to be “new” for
purposes of retroactivity. Even under that formulation of the
test, however, our conclusion is the same: given our
statements in Shelton II and the analysis in Shelton III, the
Supreme Court of New Jersey was not simply applying
settled law to a new factual variant.
17
that the purpose of the new rule will not be advanced by
retroactive application, and (3) a potentially adverse effect
retrospectivity may have on the administration of justice.”
Coons II, 476 A.2d at 767; see also In re Contest of Nov. 8,
2011 Gen. Election, 40 A.3d at 707 (focusing on the purpose
and impact of the new rule); Selective Ins., 34 A.3d at 773
(focusing on reasonable reliance). “Depending upon the facts
of a case, one of the factors may be pivotal.” Rutherford
Educ. Ass’n v. Bd. of Educ. of Borough of Rutherford, Bergen
Cnty., 489 A.2d 1148, 1156 (N.J. 1985). Once those factors
are taken into account, there are four ways to proceed:
“(1) make the new rule of law purely
prospective, applying it only to cases whose
operative facts arise after the new rule is
announced; (2) apply the new rule to future
cases and to the parties in the case announcing
the new rule, while applying the old rule to all
other pending and past litigation; (3) grant the
new rule limited retroactivity, applying it to
cases in (1) and (2) as well as to pending cases
where the parties have not yet exhausted all
avenues of direct review; and, finally, (4) give
the new rule complete retroactive effect,
applying it to all cases, even those where final
judgments have been entered and all avenues of
direct review exhausted.”
Coons II, 476 A.2d at 767 (quoting State v. Burstein, 427
A.2d 525, 529 (N.J. 1981)).
The Plaintiffs of course challenge the District Court’s
ruling that Shelton III should be given purely prospective
18
application. They first argue that Restaurant.com did not
carry its burden to demonstrate actual, reasonable reliance on
an earlier interpretation of the law. On a related note, they
say that, because there was no record developed to support
the conclusion that it would be inequitable to apply the new
rule retroactively, it was error for the District Court to refuse
retroactive effect. The Plaintiffs next contend that the District
Court erred by not applying the general rule that parties who
successfully push for a clarification of the law are entitled to
application of the new law to their case, even when full
retroactivity is inappropriate. They argue that the District
Court’s reasoning for departing from the general rule –
namely, that application to the Plaintiffs would result in a
“windfall” because Restaurant.com may have to pay statutory
damages and attorney fees when there were no actual
damages – was insufficient as a matter of law. While the first
of those arguments – the one focused on reasonable reliance –
is not persuasive, the second – concerning the propriety of
statutory damages – is.
1. Reasonable Reliance
New Jersey precedent calls on courts to consider the
impact that retroactive application of a new rule would have
on those who have reasonably relied on a contrary
interpretation of the law. See SASCO 1997 NI, LLC v.
Zudkewich, 767 A.2d 469, 477 (N.J. 2001) (considering the
financial impact of a new rule on “the entire commercial
lending industry” when the new rule invalidated “a practice
apparently dominant throughout the industry”); Rutherford
Educ. Ass’n, 489 A.2d at 1159 (noting that retroactive
application “may have serious consequences on the tax
structure of many communities and other community
19
services”). Reliance on a contrary interpretation of the law is
reasonable “when a court renders a first-instance or clarifying
decision in a murky or uncertain area of the law.” Montells,
627 A.2d at 662 (internal quotation marks omitted). “[A]
party seeking to avoid retrospective application of a decision
must show actual reliance on a contrary principle of law.”
New Jersey Election Law Enforcement Comm’n v. Citizens to
Make Mayor-Council Gov’t Work, 526 A.2d 1069, 1074 (N.J.
1987) (emphasis omitted).
The quantum of evidence required to show actual
reliance depends on the nature of the inquiry in each case.
Compare Selective Ins., 34 A.3d at 773-74 (noting that the
record was “largely devoid of evidence” that “might imply
that there was general reliance on the interpretation of the
statute and regulations that we have found wanting” or that
“anyone other than this defendant found the law in this regard
to be ‘murky’ or so uncertain that a retroactive application of
our judgment would be manifestly unjust”), with Rutherford
Educ. Ass’n, 489 A.2d at 1159 (noting that the court had
examined the record, and that there was “no question that in
this case the school boards acted properly and in good faith in
relying on prior law,” but also assuming that boards of
education in general acted similarly). In appropriate cases,
“[s]ome level of generality” may be required, and common
sense inferences may be drawn to determine whether a
practice is widespread or whether defendants relied on a
contrary interpretation of the law. Coons II, 476 A.2d at 772.
For example, in a case involving a statute of limitations
tolling provision that had been struck down, the Supreme
Court of New Jersey noted that, “given the nature of th[e]
statute” in question, one would be “justified in presuming”
that many plaintiffs had not brought challenges under the
20
belief that the pertinent statute of limitations had been tolled.
Id.
The District Court in this case did not err by
presuming that businesses similarly situated to
Restaurant.com had been operating with the understanding
that the TCCWNA did not apply to intangible property.
Under Shelton III’s interpretation of the TCCWNA,
businesses may not sell gift certificates and other intangible
property intended for household use if they indicate that
certain provisions – such as expiration dates – “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.” N.J. Stat. Ann. § 56:12-16; Shelton III, 70 A.3d at
558-59. The District Court determined that reliance on
competing interpretations of the TCCWNA was reasonable.
It had initially ruled that, because the gift certificates in
question were simply “a contingent right to a discount,”
Shelton I, 2010 WL 2384923, at *5, the Plaintiffs were not
consumers within the meaning of the TCCWNA. Although
ultimately incorrect, that interpretation was reasonable. It is
safe to assume, without more specific proof, that many
internet retailers selling intangible property intended for
household use would likewise have considered the
requirements of the TCCWNA and concluded that gift
certificates and other intangible property qualify as contingent
rights rather than “property” under that statute.
Furthermore, the District Court correctly determined
that the impact of a fully retroactive application of Shelton III
would be widespread. Shelton III has the potential to affect
not only Restaurant.com, but also any business – including
21
internet retailers located in any part of the world – that
markets intangible property to consumers in New Jersey.
Specific proof of the extent of Shelton III’s impact was not
necessary here, since common sense reveals that its impact
will be truly far-reaching. The District Court thus correctly
refused to apply the general rule of full retroactivity.
2. Propriety of Statutory Damages for the
Named Plaintiffs
Even though full retroactivity is not appropriate here, it
does not follow that the new rule should be applied purely
prospectively. Instead, New Jersey courts generally apply a
new rule at least to the litigants whose efforts helped produce
it. The Supreme Court of New Jersey has explained that,
[b]alanced against [the factors of reasonable
reliance, the purpose of the rule, and the rule’s
impact] is our belief that those responsible for
effecting a change in the law should benefit
from their efforts. Accordingly, we have
recognized that purely prospective rulings fail
to reward litigants for their efforts and fail to
further the broader goal of providing an
inducement to challenge existing interpretations
of the law. It has long been our position that
fundamental fairness generally requires that
champions of the cause should be rewarded for
their effort and expense in challenging existing
law.
Rutherford Educ. Ass’n, 489 A.2d at 1158; accord James v.
Bd. of Trustees of Pub. Emps.’ Ret. Sys., 753 A.2d 1061, 1072
22
(N.J. 2000); Kibble v. Weeks Dredging & Const. Co., 735
A.2d 1142, 1150-51 (N.J. 1999). For example, in Henderson
v. Camden County Municipal Utility Authority, the court
determined in a putative class action that a new rule
prohibiting utilities from charging compound interest should
not be given full retroactive effect because charging
compound interest was a widespread, long-standing,
established practice. 826 A.2d at 620. Nevertheless, the
court decided that, even though the class would not receive
the benefit of the new rule, the named plaintiff would,
“because of her efforts in litigating [the] appeal.” Id. at 621.
Here, the District Court rejected that approach. It
decided that, because the Plaintiffs had suffered no
“ascertainable loss” and there had been reasonable reliance on
a contrary interpretation of the law, it would be unjust for
Restaurant.com to have to pay “windfall statutory damages
and attorneys’ fees.” (App. at 13.) The Court quite rightly
was concerned with whether the purpose of the new rule
would be best served by something less than full retroactive
effect. Coons II, 476 A.2d at 767. But the Court’s emphasis
on what it deemed the “windfall” nature of the Plaintiffs’
recovery was misplaced. As explained in Shelton III, “the
TCCWNA is a remedial statute, entitled to a broad
interpretation to facilitate its stated purpose,” 70 A.3d at 558,
and the New Jersey legislature decided to impose a civil
penalty as a “deterrent,” id., to effectuate that purpose – “to
prevent deceptive practices in consumer contracts by
prohibiting the use of illegal terms or warranties in consumer
contracts,” id. at 549 (quoting Kent Motor Cars, Inc. v.
Reynolds & Reynolds Co., 25 A.3d 1027, 1044 (N.J. 2011)).
We cannot disregard the legislature’s choice to award
statutory damages in the absence of actual damages. See
23
Tigner v. Texas, 310 U.S. 141, 148 (1940) (“How to
effectuate policy – the adaptation of means to legitimately
sought ends – is one of the most intractable of legislative
problems. Whether proscribed conduct is to be deterred by
qui tam action or triple damages or injunction, or by criminal
prosecution, or merely by defense to actions in contract, or by
some, or all, of these remedies in combination, is a matter
within the legislature’s range of choice.”). If it is a windfall,
it is one purposefully and lawfully provided. It is true that
New Jersey law indicates there may be cases where a
defendant’s reliance interests and other equities are such that
a new rule should be applied purely prospectively. See Tax
Auth., Inc. v. Jackson Hewitt, Inc., 898 A.2d 512, 522-23
(N.J. 2006) (applying new rule prospectively, with the result
that a settlement agreement that plaintiff was trying to void
was enforced). But whatever those circumstances may be,
this is not such a case.
That does not mean, however, that the District Court
could not limit the extent of the windfall. The approach taken
by the New Jersey Supreme Court in Henderson is
instructive. Retroactive application was limited to the named
plaintiffs, and that option is available here. By following that
approach, the otherwise significant financial impact on
Restaurant.com and other potential defendants would be more
limited and change the calculus of the equities.
III. Conclusion
Although the District Court correctly determined that
the new rule announced in Shelton III is not fully retroactive,
it erred by failing to apply that new rule to the Plaintiffs,
Shelton and Bohus. We will therefore reverse the judgment
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and remand the case for entry of an order giving the two
named plaintiffs the benefit of the new rule of law that their
efforts helped to create.
25