The Landmines Lurking in Your Website: The Explosion of Class Actions Targeting Terms of Use and Other Online Agreements and Notices

Think that no one will ever pay attention to the terms of use or privacy policy that you had your web designer draft as an afterthought?  Think again.  Because if they haven’t been already, they may soon be scrutinized by a plaintiffs’ lawyer who would like nothing more than to file a class action seeking $100 in statutory penalties for every man, woman, and child who has ever visited your website.  This latest wave of “gotcha” class actions comes courtesy of a statute that predates the internet: the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”), N.J.S.A. 56:12-14 et seq. 

What Does TCCWNA Prohibit?   

The New Jersey Supreme Court has explained that TCCWNA was meant “to prevent deceptive practices in consumer contracts by prohibiting the use of illegal terms or warranties in consumer contracts.” Kent Motor Cars, Inc. v. Reynolds & Reynolds Co., 207 N.J. 428, 457 (2011). The statute has three primary provisions: 

Section 15:     A seller, lessor, creditor, lender or bailee may not “offer,” “give,” “display,” or “enter into” any written consumer contract, warranty, notice, or sign that “includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee….”  N.J.S.A. 56:12-15. 

Section 16:     A consumer contract, warranty, notice, or sign may not “contain any provision by which the consumer waives his rights under this act,” and, with the exception of warranties, may not “state that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey….”  N.J.S.A. 56:12-16. 

Section 17:     If a defendant “violates the provisions of this act,” an “aggrieved consumer” may seek a “civil penalty of not less than $100.00 or for actual damages, or both at the election of the consumer, together with reasonable attorney's fees and court costs.”  N.J.S.A. 56:12-17.

What Documents Are Affected?

TCCWNA applies to a “consumer contract, warranty, notice or sign,” and defines “consumer” as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” N.J.S.A. 56:12-15. That definition has two important limitations. First, it applies only to agreements with or notices to “individuals,” meaning people rather than businesses. See Shelton v. Restaurant.com, Inc., 214 N.J. 419, 429 (2013). Second, it applies only to agreements for or notices regarding “buy[ing], leas[ing], borrow[ing], or bail[ing] any money, property or service which is primarily for personal, family or household purposes,” which further limits the scope of the statute based on the nature and purpose of the transaction. However, this definition has yet to be widely litigated, and it is fair to assume that plaintiffs will try to stretch it well beyond its intended scope. 

What Language Is Being Targeted?

Although many kinds of customer-facing documents could be challenged under TCCWNA, entrepreneurial class action lawyers from outside of New Jersey are scouring the internet for terms and conditions, terms of use, privacy policies, and any other readily available documents that arguably implicate TCCWNA. New cases are being filed or threatened every day. Knowing what kind of language they are targeting can help you avoid becoming a target yourself. 

Savings Clauses and Severability Provisions

Plaintiffs have challenged common formulations of severability provisions and savings clauses such as “unless prohibited by law,” “to the extent allowed by law,” and “except as required by law,” arguing that they “state” that a provision “may be void, unenforceable or inapplicable in some jurisdictions,” which would then trigger a duty to “specify which provisions are or not void, unenforceable or inapplicable within the State of New Jersey.” The better reading of such clauses is that they do not in and of themselves “state” anything about any “jurisdictions.” Although a number of courts have held just that, the law is not yet settled and complaints continue to be filed every day.  To the extent possible, drafters should consider avoiding such language, especially variants that come close to having “jurisdictional” triggers.

Limiting Liabilities or Remedies

Because Section 15 does not explain what it means to be “clearly established,” class action plaintiffs have been creative in conjuring “rights” or “responsibilities” that they claim have been “violated.” Their main target to date has been provisions that limit a defendant’s liability or a plaintiff’s remedies. For example, they have challenged provisions that:

• Prohibit consumers from asserting claims arising from the use of an allegedly dangerous product, which they have alleged violates rights established by the New Jersey Products Liability Act, N.J.S.A. 2A:58C-1 et seq., the New Jersey Uniform Commercial Code, N.J.S.A. 12A:1-101 et seq., and common law duties;
   
• Require consumers to indemnify businesses for damages caused by the businesses’ own negligence, which they have alleged violates a right established by New Jersey common law;
   
• Prohibit consumers from recovering punitive damages, which they have alleged violates a right established by the New Jersey Punitive Damages Act, N.J.S.A. 2A:15-5.9 et seq.;
   
• Prohibit consumers from recovering attorneys’ fees or require consumers to split costs, which they have alleged violates rights established by statutes that permit prevailing plaintiffs to recover fees and costs, see, e.g., New Jersey’s Consumer Fraud Act, N.J.S.A. § 56:8–19; TCCWNA N.J.S.A. § 56:12-17;    
   
• Require consumers to assert claims within a certain period of time, which they have alleged violates rights established by the applicable statute of limitations, see N.J.S.A. 2A:14-1 (six-year limitations period for consumer protection claims); N.J.S.A. 12A:2-725 (four-year limitations period for contract claims);    
   
• Prohibit consumers from asserting claims arising from data breaches by third parties, which they have alleged violates a “responsibility” that they try to cobble together from the New Jersey Identity Theft Prevention Act, N.J.S.A. 56:8-163, and various guidelines and suggestions offered by the FTC and FCC.   

What Should Businesses Do?

The theories of liability described above are flawed for a number of reasons, not the least of which being that they try to conjure “rights” and “responsibilities” that are not “clearly established,” and that they confuse provisions that waive rights with provisions that “violate” them.  But, as in many “gotcha” class actions, TCCWNA cases rarely challenge practices that are critical to businesses or customers. Although that is part of what makes defending them so frustrating, it also means that the likelihood of having to defend them can be mitigated by making mostly modest modifications to terms and conditions, terms of use, privacy policies, and other customer-facing documents. The time to review and revise those documents is now.