New York Law Review

Tag: Deceptive Practices

  • Schlessinger v. Valspar Corp., 21 N.Y.3d 168 (2013): Enforceability of Contractual Provisions Violating General Business Law

    21 N.Y.3d 168 (2013)

    Contractual provisions that run contrary to General Business Law § 395-a are not automatically void as against public policy, and a violation of § 395-a alone does not create a cause of action under § 349.

    Summary

    This case addresses whether a contractual provision violating New York General Business Law § 395-a is void and whether such a violation gives rise to a cause of action under § 349, which prohibits deceptive business practices. Plaintiffs purchased furniture protection plans that contained a “store closure provision,” allowing the insurer to refund the plan’s price if the store closed. After the store closed, plaintiffs argued this provision violated § 395-a, which prohibits terminating maintenance agreements. The Court of Appeals held that § 395-a does not automatically invalidate conflicting contract clauses and that a violation alone does not establish a § 349 claim, thus enforcement is assigned exclusively to government officials.

    Facts

    Plaintiffs Schlessinger and Pianko purchased furniture and a “Guardsman Elite 5 Year Furniture Protection Plan” from Fortunoff. The plan, provided by Valspar Corporation, covered furniture damage. It included a “store closure provision” stipulating that if the purchasing store closed, Guardsman would refund the plan’s purchase price. Fortunoff subsequently went bankrupt and closed the store where the plaintiffs purchased their furniture. Pianko filed a claim for damage to her furniture and received a refund for the plan ($100) based on the store closure provision. Schlessinger did not file a claim.

    Procedural History

    Plaintiffs filed a diversity action in the U.S. District Court for the Eastern District of New York, alleging breach of contract under General Business Law § 395-a and deceptive practices under § 349. The District Court dismissed the complaint, holding that a breach-of-contract claim cannot arise solely from conduct prohibited by § 395-a, nor can a § 349 claim be based solely on a violation of § 395-a. The plaintiffs appealed to the Second Circuit, which certified two questions to the New York Court of Appeals.

    Issue(s)

    1. May parties seek to have contractual provisions that run contrary to General Business Law § 395-a declared void as against public policy?

    2. May plaintiffs bring suit pursuant to § 349 on the theory that defendants deceived them by including a contractual provision that violates § 395-a and later enforcing this agreement?

    Holding

    1. No, because the legislature assigned enforcement exclusively to government officials and did not include language invalidating inconsistent contract provisions in § 395-a.

    2. No, because a violation of § 395-a alone does not constitute a deceptive act or practice under § 349.

    Court’s Reasoning

    The Court reasoned that General Business Law § 395-a does not explicitly provide a private right of action; instead, enforcement is assigned to government officials. The legislature did not include language invalidating inconsistent contract provisions, unlike other sections of the General Business Law. Citing Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. Partnership, the Court refused to create a “backdoor private cause of action” to enforce a statute where no such right exists.

    Regarding the § 349 claim, the Court stated that the statute prohibits conduct that tends to deceive consumers. It rejected the argument that merely acting unlawfully and not admitting the transgression constitutes deception. Such an interpretation would stretch the statute too far. The Court distinguished Llanos v. Shell Oil Co., Lonner v. Simon Prop. Group, Inc., and Goldman v. Simon Prop. Group, Inc., noting that printing contract clauses in small type (as in those cases) may tend to deceive consumers, whereas including a termination provision in a maintenance agreement does not. As the court noted, “[Section 349] cannot fairly be understood to mean that everyone who acts unlawfully, and does not admit the transgression, is being ‘deceptive.’ Such an interpretation would stretch the statute beyond its natural bounds to cover virtually all misconduct by businesses that deal with consumers.” Therefore, a violation of § 395-a, without more, does not give rise to a claim under § 349.

  • Goshen v. Mutual Life Ins. Co., 98 N.Y.2d 314 (2002): Territorial Scope of New York Consumer Protection Act

    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.

  • Stutman v. Chemical Bank, 95 N.Y.2d 24 (2000): Deceptive Practices Under General Business Law § 349

    95 N.Y.2d 24 (2000)

    To state a claim for deceptive practices under New York General Business Law § 349, a plaintiff must demonstrate that the challenged act was consumer-oriented, materially misleading, and caused actual injury, but need not prove reliance on the deceptive act.

    Summary

    Michael Stutman and Jeanette Rodriguez sued Chemical Bank, alleging a deceptive practice under General Business Law § 349. Chemical Bank charged a $275 “attorney’s fee” for a simultaneous transfer of collateral during a loan refinancing, which Stutman and Rodriguez claimed was a disguised prepayment charge, violating the terms of their loan agreement. The New York Court of Appeals held that while reliance is not an element of a § 349 claim, the plaintiffs failed to prove that the bank’s assessment of the fee was a deceptive act because the fee was not actually a prepayment charge.

    Facts

    In 1991, Michael Stutman and Jeanette Rodriguez borrowed $175,000 from Chemical Bank, secured by their cooperative apartment shares. The loan agreement allowed prepayment without any prepayment charge. In 1994, they sought to refinance with Citibank, which required simultaneous transfer of collateral from Chemical. Chemical charged a $275 “attorney’s fee” for this arrangement. Stutman and Rodriguez paid the fee under protest and later sued, alleging the fee was a deceptive practice under General Business Law § 349.

    Procedural History

    The case was initially removed to federal court, where the TILA claim was dismissed and the case remanded to state court. In state Supreme Court, Chemical Bank’s motion to dismiss was partially denied concerning the General Business Law § 349 claim. The Appellate Division reversed, dismissing the § 349 claim. Stutman and Rodriguez appealed to the New York Court of Appeals, abandoning their claim that the fee was excessive.

    Issue(s)

    Whether the $275 “attorney’s fee” assessed by Chemical Bank during the refinancing of Stutman and Rodriguez’s loan constituted a deceptive practice under General Business Law § 349, given that the loan agreement stated there would be no prepayment charge.

    Holding

    No, because Stutman and Rodriguez failed to demonstrate that the fee was a disguised prepayment charge; it was a charge for the special arrangement of a simultaneous transfer of collateral, not a penalty for early repayment of the loan.

    Court’s Reasoning

    The Court of Appeals analyzed the elements of a General Business Law § 349 claim, emphasizing that it requires a consumer-oriented act that is materially misleading and causes actual injury. The court clarified that reliance is not an element of a § 349 claim, correcting the Appellate Division’s error. The court stated, “Intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim.” However, the court upheld the dismissal because Stutman and Rodriguez failed to prove that the $275 fee was a deceptive act. The court determined that the fee was not a prepayment charge but a charge for the special arrangement of delivering the collateral to Citibank. The court noted, “Thus, at bottom, plaintiffs’ argument is not that the note was deceptive in stating that there would be no prepayment charge. Clearly, no such charge was assessed. Rather, plaintiffs’ argument is that the $275 fee was excessive because it was not necessary for Chemical to retain an attorney.” Because Stutman and Rodriguez abandoned their excessiveness claim on appeal, the deceptive practice claim failed.

  • Elite Laundry, Inc. v. Underwriters at Lloyd’s, 787 N.E.2d 832 (N.Y. 1991): Enforceability of Contractual Limitations Periods in Insurance Policies

    Elite Laundry, Inc. v. Underwriters at Lloyd’s Ins. Co., 787 N.E.2d 832 (N.Y. 1991)

    A contractual limitation period in an insurance policy is enforceable, barring claims brought after the agreed-upon period, unless the insurer’s deceptive conduct prevented the insured from timely filing suit.

    Summary

    Elite Laundry sustained fire damage to its property insured by Underwriters at Lloyd’s. The insurance policy required the insured to comply with policy terms and commence any legal action within two years of the loss. After a fire loss, the insurer investigated, requesting documents and conducting examinations under oath. The insured failed to provide all requested documents and return signed transcripts. The insurer neither denied nor paid the claim. The insured sued over three years after the fire, alleging breach of contract and deceptive practices. The court held that the contractual limitation period barred the breach of contract claim and the deceptive practices claim lacked evidentiary support, affirming summary judgment for the insurer.

    Facts

    Elite Laundry owned property insured by Underwriters at Lloyd’s. The policy included a two-year limitation period for legal actions. A fire caused significant damage to the property. The insurer suspected arson and investigated the claim. The insurer conducted multiple examinations of the insured under oath, but the insured failed to provide all requested documents and return signed transcripts of the examinations. The insurer never formally denied or paid the claim. The insured sued more than three years after the fire.

    Procedural History

    The insured filed suit in Supreme Court alleging breach of contract and deceptive acts in violation of General Business Law § 349. The Supreme Court granted summary judgment to the insurer, dismissing the contract claim as time-barred and the § 349 claim for failure to state a claim. The Appellate Division affirmed. The New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether the insurer engaged in deceptive acts or practices under General Business Law § 349 by internally rejecting the insured’s claim but withholding the decision to avoid triggering insurance regulations regarding notification of the time limit to sue.
    2. Whether the insurer acted deceptively in processing the claim to avoid triggering the notification requirements.
    3. Whether the insurer waived or is estopped from asserting the time bar on the breach of contract claim.

    Holding

    1. No, because the insured offered no evidence to support the contention that the insurer internally decided to reject the claim.
    2. No, because the insured’s failure to produce documents and execute transcripts prevented the triggering of the notification requirements.
    3. No, because the insured failed to demonstrate any conduct by the insurer that would constitute waiver or estoppel.

    Court’s Reasoning

    The Court of Appeals found that the insured provided no evidence to support its claim that the insurer internally rejected the claim or acted improperly to avoid triggering notification requirements. The court emphasized that the insured’s own actions in failing to produce requested documents and execute transcripts prevented the conclusion of the investigation and, consequently, the triggering of any notification requirements. The court implicitly applied the principle that parties are bound by valid contractual agreements, including limitation periods, unless there’s evidence of waiver, estoppel, or deceptive conduct preventing timely action. The court stated, “Rather, plaintiff’s actions in failing to produce its documents as promised and execute the transcripts precluded the triggering of the notification requirements. Thus, as a matter of law, plaintiff’s claims under section 349 fail.” The court also held that the insured’s remaining arguments were without merit, reinforcing the enforcement of contractual terms and the requirement for plaintiffs to substantiate claims of deceptive practices with concrete evidence.