98 N.Y.2d 314 (2002)

The New York Consumer Protection Act (General Business Law § 349) applies only when the deceptive act or practice occurs within New York State, requiring the consumer to be deceived in New York for a private right of action to arise.

Summary

This case clarifies the territorial reach of New York’s Consumer Protection Act. Plaintiffs, insurance policy and DSL service purchasers, claimed to be victims of deceptive schemes originating in New York. The court held that for a private cause of action under General Business Law § 349, the deceptive transaction must occur in New York. While the creation of a deceptive scheme in New York is relevant, the actual deception of the consumer must take place within the state’s borders. Therefore, out-of-state plaintiffs’ claims were dismissed, while New York residents’ claims regarding DSL service were allowed to proceed.

Facts

In Goshen, a Florida resident purchased a “vanishing premium” insurance policy from MONY in Florida, alleging deceptive sales practices. In Scott, both New York and out-of-state residents subscribed to Bell Atlantic’s DSL service, claiming it was slow, unreliable, and lacked adequate customer support, contrary to the advertised claims of high speed, dedicated connection, and simple self-installation.

Procedural History

In Goshen, the Supreme Court initially dismissed the action, and the Appellate Division affirmed. The Court of Appeals reinstated the General Business Law § 349 claim but on remittal, the Supreme Court dismissed Goshen’s claim because he purchased the policy in Florida, which the Appellate Division affirmed. In Scott, the Supreme Court denied the motion to dismiss. The Appellate Division reversed and dismissed the complaint. The Court of Appeals granted leave to appeal to both cases.

Issue(s)

1. Whether an allegedly deceptive scheme that originates in New York, but injures a consumer in a transaction outside the state, constitutes an actionable deceptive act or practice under General Business Law § 349(a)?

2. Whether the New York plaintiffs in Scott sufficiently stated a claim for deceptive acts and practices, or false advertising, under General Business Law § 349(h) or § 350?

Holding

1. No, because the transaction in which the consumer is deceived must occur in New York for General Business Law § 349 to apply.

2. Yes, because, affording the pleadings a liberal construction, the New York plaintiffs’ allegations are sufficient to withstand a CPLR 3211 (a)(7) challenge.

Court’s Reasoning

The court focused on the language of General Business Law § 349(a), which prohibits deceptive acts or practices in the conduct of any business, trade, or commerce “in this state.” The court reasoned that the phrase “in this state” modifies the conduct of business, not the deceptive act itself. The court emphasized that the deception of a consumer must occur in New York to qualify as a prohibited act. The court noted that applying the statute to out-of-state transactions would lead to an unwarranted expansive reading of the statute and potentially lead to nationwide or even global applications of the law. The Court cited Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 NY2d 20 (1995), striking a balance between consumer protection and avoiding a potential “tidal wave of litigation against businesses…not intended by the Legislature”. Regarding the New York plaintiffs in Scott, the court found their allegations sufficient to withstand a motion to dismiss, emphasizing that pleadings are afforded a liberal construction at this stage. The Court noted that the 30 day trial period and contractual terms and conditions do not bar the plaintiffs claims for deceptive trade practices, as the documentary evidence does not utterly refute plaintiffs factual allegations. The Court noted that the plaintiffs allege that the DSL service was defective due to malfunctions within the defendant’s control and that the defendant’s promotional representations were knowingly deceptive.