New York Law Review

Tag: General Business Law § 349

  • 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.

  • City of New York v. Smokes-Spirits.Com, Inc., 12 N.Y.3d 616 (2009): Limits on Derivative Standing for Lost Tax Revenue & Public Nuisance Claims Predicated on Public Health Law

    12 N.Y.3d 616 (2009)

    A municipality lacks standing under General Business Law § 349(h) to sue for lost tax revenue when its injury is derivative of injuries allegedly suffered by consumers misled by deceptive acts, and cannot assert a common law public nuisance claim predicated solely on Public Health Law § 1399-ZZ when the primary legislative intent of that law was to prevent underage smoking, not to address tax evasion.

    Summary

    The City of New York sued out-of-state cigarette sellers, alleging they illegally marketed and shipped cigarettes to city residents, depriving the city of tax revenue. The City claimed violations of General Business Law § 349 and public nuisance based on Public Health Law § 1399-ZZ. The Court of Appeals held that the City lacked standing under § 349(h) because its injury was derivative of consumer injury. Further, the Court determined that the public nuisance claim, predicated on a statute primarily aimed at preventing underage smoking, could not be used to address alleged tax evasion. This decision reinforces the principle that indirect injuries are not compensable under § 349(h) and clarifies the scope of public nuisance claims related to public health laws.

    Facts

    Out-of-state cigarette sellers marketed and shipped cigarettes to New York City residents. These sellers were located in states with low cigarette taxes. Some sellers misrepresented that their sales were tax-free, or that customers didn’t have to pay cigarette taxes. The City alleged that these misrepresentations, coupled with failures to file Jenkins Act reports, led to lost tax revenue.

    Procedural History

    The federal district court dismissed the City’s General Business Law § 349 and public nuisance claims. The Second Circuit certified two questions to the New York Court of Appeals regarding the City’s standing to assert these claims.

    Issue(s)

    1. Whether the City has standing to assert its claims under General Business Law § 349?
    2. Whether the City may assert a common law public nuisance claim that is predicated on N.Y. Public Health Law § 1399-ZZ?

    Holding

    1. No, because the City’s claimed injury, lost tax revenue, is derivative of injuries allegedly suffered by consumers who purchased cigarettes over the internet.
    2. No, because the Legislature did not contemplate that Public Health Law § 1399-ZZ would be used as the predicate for public nuisance actions in cases that primarily involve alleged tax evasion, as its primary purpose was to prevent underage smoking.

    Court’s Reasoning

    Regarding the General Business Law § 349 claim, the Court relied on its prior decision in Blue Cross & Blue Shield of N.J., Inc. v Philip Morris USA Inc., holding that derivative actions are barred under § 349(h). The Court reasoned that the City’s injury was indirect because it arose solely from injuries sustained by consumers who were allegedly misled. The court emphasized that a “but for” causal connection is insufficient to state a claim under section 349(h). The Court rejected the City’s argument that alleging consumer injury or harm to the public interest was sufficient, stating that such a broad interpretation would lead to a “tidal wave of litigation.”

    Regarding the public nuisance claim, the Court noted that while the Legislature has the authority to deem certain activities public nuisances, Public Health Law § 1399-ZZ was primarily aimed at preventing underage smoking, not addressing tax evasion. The Court applied a similar analysis to that used in determining whether an implied private right of action exists, considering whether the City was in the class for whose benefit the statute was enacted, whether recognizing the action would promote the legislative purpose, and whether it would be consistent with the legislative scheme. The Court concluded that allowing the public nuisance claim would not be consistent with the legislative scheme, as the Legislature had entrusted enforcement of penalties to local district attorneys and the Commissioner of Health. As such the court stated, “The presence of such a scheme here, when coupled with the Legislature’s clear expressions that the public health thrust of section 1399-ZZ was related to the prevention of underage smoking, persuades us that the Legislature did not intend its findings to authorize a public nuisance claim based primarily upon alleged tax evasion”.

  • Empire Blue Cross v. Philip Morris, 1 N.Y.3d 88 (2003): Limits on Third-Party Recovery Under NY General Business Law § 349

    1 N.Y.3d 88 (2003)

    A third-party payer of healthcare costs lacks standing to sue for deceptive business practices under New York General Business Law § 349 because its claims are derivative and too remote from the alleged deceptive conduct.

    Summary

    Empire Blue Cross sued tobacco companies, alleging deceptive practices regarding the dangers of smoking, which led to increased healthcare costs for its insureds. The Second Circuit certified questions to the New York Court of Appeals regarding whether Empire’s claims were too remote under General Business Law § 349 and whether individualized proof of harm to subscribers was required. The Court of Appeals held that Empire’s claims were indeed too remote, precluding the lawsuit. The court reasoned that allowing such derivative claims would circumvent the common-law remedy of equitable subrogation and potentially unleash a “tidal wave of litigation” unintended by the legislature.

    Facts

    Empire Blue Cross, a healthcare cost payer, claimed that tobacco companies engaged in deceptive practices by misrepresenting the dangers of smoking. These practices allegedly caused increased medical costs for Empire’s subscribers, which Empire bore. Empire sued the tobacco companies to recover these costs, alleging direct and subrogated claims under New York General Business Law § 349.

    Procedural History

    Empire initially filed suit in the U.S. District Court for the Eastern District of New York. The jury found in favor of Empire on its direct and subrogated claims under § 349. The District Court denied the defendant’s motion for judgment as a matter of law. The Second Circuit reversed the portion of the jury award related to the subrogation claim, finding a lack of individualized proof of harm. The Second Circuit then certified questions to the New York Court of Appeals regarding the remoteness of the claims and the need for individualized proof.

    Issue(s)

    1. Are claims by a third-party payer of healthcare costs seeking to recover costs of services provided to subscribers as a result of those subscribers being harmed by a defendant’s violation of New York General Business Law § 349 too remote to permit suit under that statute?
    2. If such an action is not too remote, is individualized proof of harm to subscribers required when a third-party payer seeks to recover costs of services provided to subscribers due to harm from a § 349 violation?

    Holding

    1. Yes, because a third-party payer’s claims are derivative and too remote to permit a direct suit under General Business Law § 349.
    2. This question was not answered because the first question was answered in the affirmative, rendering it academic.

    Court’s Reasoning

    The Court emphasized that General Business Law § 349 is a consumer protection statute. While it allows “any person” injured by a deceptive practice to sue, the Court declined to interpret this broadly enough to encompass derivative injuries. The Court reasoned that such an interpretation would abrogate the common-law rule requiring equitable subrogation for insurers seeking to recover costs paid on behalf of their insureds. The Court stated, “It is axiomatic concerning legislative enactments in derogation of common law, and especially those creating liability where none previously existed, that they are deemed to abrogate the common law only to the extent required by the clear import of the statutory language.” The court warned against creating a “tidal wave of litigation” and emphasized the importance of standing, stating, “Properly framed, the issue is not whether the deceptive practice is a sufficient cause of the plaintiffs injury, but what types of injuries are cognizable under the statute. Plaintiffs injuries are not.” The Court clarified that its holding did not prevent actually injured parties from suing tortfeasors directly, but merely required the party directly injured to bring the suit. Empire’s remedy remains in equitable subrogation, requiring it to establish the elements of each subscriber’s claim individually. The court noted, “Insurers cannot sidestep their traditional remedy of subrogation and sue directly for derivative injuries using a statute that creates a cause of action for a person directly injured.”

  • 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.

  • Gaidon v. Guardian Life Ins. Co., 96 N.Y.2d 201 (2001): Statute of Limitations for Deceptive Business Practices

    Gaidon v. Guardian Life Ins. Co., 96 N.Y.2d 201 (2001)

    A claim under General Business Law § 349, concerning deceptive business practices, is governed by a three-year statute of limitations which accrues when the plaintiff suffers actual injury due to the deceptive practice, not necessarily at the time of purchase.

    Summary

    This case addresses the statute of limitations applicable to claims under New York General Business Law § 349 concerning deceptive business practices, specifically in the context of “vanishing premium” life insurance policies. The Court of Appeals held that the three-year statute of limitations for statutory claims applies, rather than the six-year period for fraud, because § 349 encompasses a broader range of conduct than common-law fraud. The Court further determined that the cause of action accrues when the policyholder is required to pay premiums beyond the date they were led to believe the premiums would vanish, not necessarily when the policy was purchased.

    Facts

    Plaintiffs purchased “vanishing premium” life insurance policies from Guardian Life and Massachusetts Mutual, respectively. They were allegedly induced by marketing materials and sales agent representations that premiums would vanish after a specified period, covered by policy dividends. Later, the insurers demanded additional premium payments beyond the projected vanishing dates.

    Procedural History

    In Gaidon, the trial court dismissed the complaint; the Appellate Division affirmed. The New York Court of Appeals reinstated the § 349 claim in Gaidon I and remitted it. On remittal, the Appellate Division held the § 349 claim was timely. In Russo, the trial court dismissed the § 349 claim as time-barred; the Appellate Division affirmed. The Court of Appeals granted leave to appeal in both cases to resolve the statute of limitations issue.

    Issue(s)

    1. Whether the three-year statute of limitations under CPLR 214(2) or the six-year statute of limitations under CPLR 213(8) applies to a cause of action brought under General Business Law § 349.

    2. Whether the plaintiffs’ actions accrued when they purchased their policies or when the defendant insurers demanded additional premium payments.

    Holding

    1. Yes, the three-year statute of limitations under CPLR 214(2) applies because General Business Law § 349 creates a statutory liability distinct from common-law fraud.

    2. The actions accrued when the insurers demanded additional premium payments because that is when the plaintiffs suffered actual, measurable injury due to the deceptive practices.

    Court’s Reasoning

    The Court reasoned that CPLR 214(2) applies to liabilities created by statute. While General Business Law § 349 may address conduct similar to common-law fraud, it encompasses a broader range of deceptive practices not previously recognized at common law. The Court distinguished the case from situations where a statute merely codifies existing common-law liability. Here, § 349 creates a new cause of action focused on consumer protection, even if the conduct does not rise to the level of common-law fraud.

    The Court emphasized that the injury occurred when the plaintiffs’ expectations of vanishing premiums were not met and they were required to pay additional premiums. The deceptive act was not a false guarantee in the policy itself, but the misleading marketing scheme that created unrealistic expectations about future dividend rates. Quoting Gaidon I, the Court noted the insurers “failed to reveal that the illustrated vanishing dates were wholly unrealistic” (94 N.Y.2d at 350). Therefore, the statute of limitations began to run when the policyholders were actually damaged – when they had to pay more premiums or risk losing coverage.

    The Court explicitly rejected the argument that injury occurred at the time of purchase, as the policies contained disclaimers and the cause of action wasn’t based on the policy terms themselves. Rather it was the deceptive marketing practices which induced unrealistic expectations. The Court concluded that the demand for additional premiums triggered the statute of limitations, making the actions timely.

  • 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.

  • Gaidon v. Guardian Life Insurance Co., 94 N.Y.2d 330 (1999): Deceptive Marketing and General Business Law § 349

    94 N.Y.2d 330 (1999)

    General Business Law § 349 prohibits deceptive acts or practices in consumer-oriented transactions, and such claims are distinct from, and may be broader than, common-law fraud claims.

    Summary

    This case involves policyholders suing insurance companies over “vanishing premium” life insurance policies, alleging deceptive marketing in violation of General Business Law § 349 and common-law fraud. The plaintiffs claimed the insurance companies falsely represented that premiums would vanish after a certain period. The Court of Appeals held that while the disclaimers in the policies were enough to defeat the fraud claims, the plaintiffs adequately pleaded a cause of action under General Business Law § 349, as the deceptive marketing practices had a broad impact on consumers and involved misrepresentations about the vanishing dates of premiums.

    Facts

    Plaintiffs purchased “Whole Life Policy With Specified Premium Period” policies from Guardian Life Insurance Company and Mutual Life Insurance Company of New York (MONY) in the mid-1980s. They allege that sales agents falsely represented that premiums would vanish after a certain period (e.g., eight years) based on dividend projections. These projections were presented through personalized “vanishing premium” illustrations. However, the policies contained limitations stating that figures dependent on dividends were not guaranteed and that actual future dividends could vary. In 1995, the companies informed plaintiffs that premiums would not vanish as projected and further payments would be required.

    Procedural History

    In Gaidon v. Guardian, the Supreme Court granted Guardian’s pre-answer motion to dismiss the complaint. The Appellate Division affirmed. In Goshen v. MONY, the Supreme Court granted MONY summary judgment on all claims after class certification and discovery. The Appellate Division affirmed, citing its decision in Gaidon. The Court of Appeals consolidated the appeals.

    Issue(s)

    1. Whether the defendants’ actions constituted a deceptive act or practice under General Business Law § 349.

    2. Whether the defendants’ actions constituted common-law fraudulent inducement.

    Holding

    1. Yes, because the plaintiffs adequately alleged that the defendants engaged in deceptive marketing practices that had a broad impact on consumers and involved misrepresentations about the vanishing dates of premiums.

    2. No, because the disclaimers in the illustrations, stating that dividend/interest rates were not guaranteed, were sufficient to absolve the defendants of fraud.

    Court’s Reasoning

    Regarding the General Business Law § 349 claim, the Court reasoned that the defendants made the vanishing dates the centerpiece of their sales presentations, creating the expectation of a firm, personalized timetable for the vanishing of premiums. The court found these illustrations misleading because they were based on unrealistic dividend/interest forecasts, and the companies failed to reveal that fact in a disclaimer. The Court cited sales training videotapes instructing agents on how to “cause the vanish to occur whenever your client wants to see it.” The Court emphasized that General Business Law § 349 is broader than common-law fraud and requires only a deceptive act or practice that is consumer-oriented.

    However, the Court held that the plaintiffs’ fraud claims failed because the disclaimers were sufficient to negate the element of misrepresentation or material omission. The Court stated, “By stating that the illustrated dividend/interest rates are not guaranteed and that they may be higher or lower than depicted, defendants made a partial disclosure. They revealed the possibility of a dividend/interest rate decline, but did not reveal its practical implications to the policyholder. Although they did not guarantee that interest rates would remain constant, they failed to reveal that the illustrated vanishing dates were wholly unrealistic.” In essence, the Court drew a line between conduct that may mislead a reasonable consumer (actionable under GBL § 349) and intentional, false representations indicative of fraud.

    Judge Bellacosa dissented in part, arguing that no deceptive act or practice occurred because a reasonable consumer should have understood that the vanishing premium concept was based on projections and not guarantees. He also noted that the policies themselves contained explicit disclaimers and merger clauses, which should have been considered in evaluating the reasonableness of the consumer’s understanding.

  • Small v. Lorillard Tobacco Co., 94 N.Y.2d 43 (1999): Injury Requirement for Deceptive Practices Claims

    Small v. Lorillard Tobacco Co., 94 N.Y.2d 43 (1999)

    To state a claim for deceptive business practices under New York General Business Law § 349, a plaintiff must demonstrate that the deceptive act caused actual harm, meaning a legally cognizable injury beyond the deception itself.

    Summary

    Plaintiffs, representing a class of New York smokers, sued tobacco companies alleging deceptive practices regarding the addictive properties of cigarettes. They sought reimbursement for the purchase price of cigarettes, claiming they would not have bought them if they knew of nicotine’s addictive nature. The New York Court of Appeals held that the plaintiffs’ claims failed because they did not demonstrate a legally cognizable injury. The court emphasized that merely alleging deception without a showing of actual harm (e.g., addiction-related health issues or inflated pricing due to deception) is insufficient to state a claim under General Business Law § 349 or common-law fraud.

    Facts

    Five class action lawsuits were filed against tobacco companies on behalf of New York residents who became or continued to be nicotine dependent after June 19, 1980, due to purchasing and smoking the defendants’ cigarettes. The plaintiffs alleged that the tobacco companies used deceptive practices to sell cigarettes, controlled nicotine levels to induce addiction, and suppressed research about nicotine addiction. Critically, the plaintiffs limited their damage claim to the purchase price of the cigarettes, arguing they would not have bought them had they known about nicotine’s addictive properties.

    Procedural History

    The trial court initially certified the class, redefining it to include purchasers of cigarettes during the period of alleged fraudulent activity, eliminating the requirement of proving individual addiction. The Appellate Division reversed, decertifying the classes and dismissing the claims. The Appellate Division found that individual issues predominated, and that the plaintiffs failed to plead a legally cognizable injury. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether plaintiffs stated a claim under General Business Law § 349 by alleging that the defendants engaged in deceptive practices, causing them to purchase cigarettes they would not have otherwise bought, even without demonstrating addiction-related harm or pecuniary loss directly linked to the deception.

    Holding

    No, because to state a claim under General Business Law § 349, a plaintiff must demonstrate that the deceptive act caused actual harm, meaning a legally cognizable injury beyond the deception itself. The plaintiffs’ claim fails because they abandoned the addiction component of their legal theory, therefore they cannot demonstrate that they were “actually harmed” or suffered pecuniary injury by reason of any alleged deception within the meaning of the statute.

    Court’s Reasoning

    The Court of Appeals reasoned that General Business Law § 349 requires proof that a material deceptive act or practice caused actual harm. While intent to defraud and justifiable reliance are not elements of a Section 349 claim, proof of actual harm is necessary to recover compensatory damages. The court found that the plaintiffs’ definition of injury was legally flawed because it contained no manifestation of either pecuniary or “actual” harm. The plaintiffs did not allege that the cost of cigarettes was affected by the alleged misrepresentation, nor did they seek recovery for injury to their health as a result of their ensuing addiction.

    The court emphasized that addiction was the cornerstone of the plaintiffs’ legal claims, quoting Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25, noting that a material deceptive act or practice caused actual, although not necessarily pecuniary, harm is required to impose compensatory damages. Because the plaintiffs chose to confine their claim to monetary recoupment of the purchase price, the court found that they were alleging deception as both act and injury, which is insufficient to state a claim under the statute.

    Without addiction as part of the injury claim, the court stated, there is no connection between the misrepresentation and any harm from the product. The court also rejected the plaintiffs’ common-law fraudulent concealment claims because an act of deception, entirely independent or separate from any injury, is not sufficient to state a cause of action under a theory of fraudulent concealment.

  • Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1995): Deceptive Acts Under General Business Law § 349

    Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1995)

    To state a claim under New York General Business Law § 349 for deceptive acts or practices, a plaintiff must demonstrate that the defendant’s conduct was consumer-oriented, deceptive or misleading in a material way, and that the plaintiff was injured as a result.

    Summary

    Oswego Laborers’ Local 214 Pension Fund sued Marine Midland Bank alleging deceptive practices under General Business Law § 349. The Funds claimed the bank failed to inform them that their commercial savings accounts, though held by not-for-profit entities, were treated as for-profit accounts subject to interest limitations under federal Regulation Q. The New York Court of Appeals held that while the bank’s conduct was consumer-oriented, factual disputes remained regarding whether the bank’s actions were materially deceptive and whether the Funds could reasonably have obtained the relevant information. The Court reversed the grant of summary judgment for the bank.

    Facts

    The Pension Fund and Welfare Fund, not-for-profit associations, had a long-standing relationship with Marine Midland Bank. In 1976 and 1977, Robert Bradshaw, administrator for both Funds, opened savings accounts at Marine Midland Bank through Bruce Whitney, a bank vice-president. Whitney provided blue signature cards, typically used for for-profit commercial accounts, rather than green cards used for nonprofit entities. Federal Regulation Q limited the amount of interest paid on commercial accounts exceeding $100,000 (later $150,000), but not-for-profit entities were exempt. The Funds were allegedly not informed of this distinction and the limitation on interest. In 1984, the bank informed the Funds that it had not been paying interest on principal exceeding the regulatory cap, resulting in lost interest.

    Procedural History

    The Funds sued Marine Midland Bank, alleging a violation of General Business Law § 349. The Supreme Court granted summary judgment to the bank, finding that the conduct did not rise to the level of a deceptive business practice. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether the bank’s conduct constituted a “deceptive act or practice” within the meaning of General Business Law § 349.

    Holding

    Yes, because the plaintiff’s allegations meet the threshold of consumer-oriented conduct. However, the order of the lower court is modified to deny the defendant’s motion for summary judgment, because there are triable issues of fact as to whether a reasonable consumer in the plaintiffs’ circumstances might have been misled by the Bank’s conduct.

    Court’s Reasoning

    The Court of Appeals analyzed General Business Law § 349, noting its purpose is to protect consumers from deceptive acts and practices. The Court stated that, “as a threshold matter, plaintiffs claiming the benefit of section 349…must charge conduct of the defendant that is consumer-oriented.” Consumer-oriented conduct requires a broader impact on consumers at large, distinguishing it from private contract disputes unique to the parties. The Court clarified that “Plaintiff, thus, need not show that the defendant committed the complained-of acts repeatedly…but instead must demonstrate that the acts or practices have a broader impact on consumers at large.”

    A prima facie case requires showing that the defendant engaged in deceptive or misleading acts in a material way and that the plaintiff was injured. While intent to defraud is not required, a plaintiff seeking damages must show that the deceptive act caused actual harm. The Court adopted an objective definition of deceptive acts, limiting them to those “likely to mislead a reasonable consumer acting reasonably under the circumstances.” This objective test is modeled after the Federal Trade Commission’s antifraud provision.

    In cases involving omissions, a business is not required to ascertain individual consumer needs, but the scenario changes “where the business alone possesses material information that is relevant to the consumer and fails to provide this information.” Here, the bank’s actions were deemed consumer-oriented because they involved standard banking documents presented to customers. However, the Court found the record inconclusive as to whether a reasonable consumer in the Funds’ circumstances might have been misled. There were disputes over whether Bradshaw received bank rules or other documentation and whether those rules adequately conveyed the different treatment of for-profit and not-for-profit entities. The bank’s liability depended on whether the Funds possessed or could reasonably have obtained the relevant information.