SHELTON et al v. RESTAURANT.COM INC
Filing
32
OPINION. Signed by Judge Joel A. Pisano on 7/10/2014. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
LARISSA SHELTON AND GREGORY
:
BOHUS, on behalf of themselves and others :
similarly situated,
:
:
Plaintiffs,
:
Civil Action No. 10-824 (JAP) (DEA)
:
v.
:
OPINION
:
RESTAURANT.COM,
:
:
Defendant.
:
____________________________________:
PISANO, District Judge.
This matter returns to the Court on remand from the United States Court of Appeals for
the Third Circuit. Defendant, Restaurant.com (“Defendant” or “Restaurant.com”), moves to
dismiss the Complaint, arguing that the Third Circuit opinion, adopting the New Jersey Supreme
Court’s answer to certain certified questions of law, should be applied prospectively only. The
named Plaintiffs, Larissa Shelton and Gregory Bohus (together, “Plaintiffs”), oppose this motion.
The Court decides these matters without oral argument pursuant to Federal Rule of Civil
Procedure 78. For the reasons set forth below, the Court grants Defendant’s motion.
I.
Background
This case has traversed the Third Circuit, the New Jersey Supreme Court for two rounds
of briefing and oral argument, and back to the Third Circuit, before returning “home” to this
Court. Because numerous courts have now summarized the factual background of this case, the
Court will recite only those facts that are pertinent to this current motion.
Restaurant.com is an internet business that sells certificates, which it calls “gift
certificates” (the “Certificates”). These Certificates provide a credit for the holder for purchases
of food and beverages at the restaurant named on the Certificate. While Restaurant.com markets
and sells these Certificates, the third-party restaurant is the issuer of the Certificates and provides
whatever goods are subject to the discount. Restrictions apply to the use of the Certificates,
including limitations imposed on the redemption of the Certificate by the restaurant and
Restaurant.com’s standard provisions. Accordingly, Resturant.com sells a contingent right to
use the Certificate to obtain a future discount, if all the conditions are satisfied.
In 2010, Plaintiffs filed this putative class action against Restaurant.com, claiming that its
Certificates contain certain language that is in violation of certain New Jersey statutes,
specifically the New Jersey Gift Card Act (N.J. Stat. Ann. § 56:8–110) (“GCA”), the New Jersey
Consumer Fraud Act (N.J. Stat. Ann. §§ 56:8–1 to 8–20) (“CFA”), and the Truth-in-Consumer
Contract, Warranty, and Notice Act (N.J. Stat. Ann. §§ 56:12–14 to 12–18) (“TCCWNA”).
Restaurant.com removed the matter to this Court, and filed a motion to dismiss. This Court
dismissed the Complaint in its entirety, finding that Plaintiffs had failed to supply any factual
allegations sufficient to support the “ascertainable loss” requirement under the CFA. The Court
noted that Plaintiffs had failed to allege any loss other than a purely theoretical one:
Plaintiffs do not allege that they attempted to use such certificates and were
refused by a restaurant, that their certificates in fact had ‘expired,’ that certificates
were destroyed or remained unused based on a false belief regarding the
expiration date or that they suffered any other type of economic injury arising out
of the purchase of these certificates.
Shelton v. Restaurant.com, CIV. A. No. 10-824, 2010 U.S. Dist. LEXIS 59111, at *10 (D.N.J.
June 15, 2010) [hereinafter Shelton I].
2
The Court then turned to the TCCWNA count. In order to have stated a viable claim
under the TCCWNA, the Certificates must constitute “consumer contracts” within the meaning
of the TCCWNA, and Plaintiffs themselves must be considered “consumers” as defined under
the TCCWNA. While a consumer contract is notably not defined in the TCCWNA, the
TCCWNA does limit a “consumer” to “any individual who buys, leases, borrows, or bails any
money, property or service which is primarily for personal, family or household purposes.” N.J.
Stat. Ann. § 56:12–15. This Court dismissed the claim, finding that the plain language of the
TCCWNA limits a “consumer” to “one who buys services or property primarily for personal
purposes, not one who buys a contingent right to services from a third party.” Shelton I, 2010
U.S. Dist. LEXIS 59111, at *15. The Court’s statutory interpretation was based upon its reading
of the plain language of the statute, and the Court concluded that the TCCWNA applies “only to
non-contingent tangible property and services sold directly by the provider.” Id.
Plaintiffs appealed this Court’s dismissal of their Complaint to the Third Circuit. After a
full round of briefing and oral argument on the appeal, the Third Circuit found no guidance on
the question of how the term “property” is defined in the TCCWNA. The Third Circuit found
that the answer to this question not only was determinative of an issue in the case before it, but
would “have broad-based application in myriad circumstances.” Shelton v. Restaurant.com, No.
10-2980, 2011 U.S. App. LEXIS 26594, at *4–5 (3d Cir. May 17, 2011) [hereinafter Shelton II].
Accordingly, the Third Circuit certified two questions to the New Jersey Supreme Court,
pursuant to New Jersey Court Rule (“N.J. Ct. R.”) 2:12A–1:
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 . . .
3
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?
Id. at *12–13.
Thereafter, the New Jersey Supreme Court conducted briefing and oral argument on the
certified questions. For reasons not articulated in the Supreme Court’s opinion, the Supreme
Court reformulated the questions, and requested a second round of briefing and an additional oral
argument on the reformulated questions. See Shelton v. Restaurant.com, 70 A.3d 544, 548–49
(N.J. 2013) [hereinafter Shelton III]. These reformulated questions were:
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. Stat. Ann. §§]
56:12–14 to –18;
2) If the coupons constitute “property,” whether they are “primarily for personal,
family or household purposes,” [N.J. Stat. Ann. §] 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. Stat. Ann. §] 56:12–15.
Id. at 549. The Supreme Court’s effort to answer the certified questions was complicated
because it found that no language in the TCCWNA could clearly be applied. In order to construe
the statute, then, the Supreme Court considered the State’s general statutory body of work,
concluding that the statute is remedial and therefore should be applied broadly, in order to
complement New Jersey’s expansive consumer protection regime. The New Jersey Supreme
Court “conclude[d] that the TCCWNA covers the sale of tangible and intangible property” and
“that certificates issued by participating restaurants and offered for purchase by an internet
marketer are intangible property primarily for personal, family, or household use, thereby
qualifying plaintiffs as consumers.” Id. at 547.
4
On November 4, 2013, the Third Circuit issued its decision on Plaintiffs’ appeal. The
Third Circuit affirmed the part of this Court’s Order dismissing the CFA count, agreeing that
Plaintiffs had failed to allege or raise any other argument regarding an ascertainable loss suffered
when Restaurant.com violated the GCA, which is part of the CFA, by providing that its
Certificates expire within one year. See Shelton v. Restaurant.com Inc., 543 F. App’x 168, 170
(3d Cir. 2013) [hereinafter Shelton IV]. The Third Circuit then vacated the decision of this Court
as it related to the TCCWNA count, and remanded to this Court “for further proceedings
consistent with the decision of the New Jersey Supreme Court.” Id. at 171. Restaurant.com has
moved to dismiss the Complaint, arguing that retroactive application of the Shelton decision is
not appropriate. While this Court is constrained to follow the Supreme Court’s interpretation of
the TCCWNA, this Court now must decide whether the Supreme Court’s decision created a new
rule of law that should be applied prospectively, in order to prevent inequitable results.
II.
Discussion
Under New Jersey law, decisions are ordinarily applied retroactively. 1 Courts, however,
“depart from that general principle and turn to prospective application when ‘considerations of
fairness and justice, related to reasonable surprise and prejudice to those affected’ counsel[] us to
do so.” Selective Ins. Co. of America v. Rothman, 34 A.3d 769, 773 (N.J. 2012) (quoting
Malinowski v. Jacobs, 915 A.2d 513 (N.J. 2007) (quoting N.J. Election Law Enforcement
Comm'n v. Citizens to Make Mayor-Council Gov't Work, 526 A.2d 1069 (N.J. 1987))).
Accordingly, a judgment should be limited to prospective application “when (1) the decision
establishes a new rule of law, by either overruling past precedent or deciding an issue of first
impression, and (2) when retroactive application could produce substantial inequitable results.”
1
“[I]n diversity cases, federal courts apply the substantive law produced by the state legislature or the highest court
of the state. In re Asbestos Lit., 829 F.2d 1233, 1237 (3d Cir. 1987) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64
(1938)), cert. denied, 485 U.S. 1029 (1988).
5
Id. (quoting Velez v. City of Jersey City, 850 A.2d 1238, 1246 (N.J 2004)). Prospective
application is particularly appropriate in those instances where the court addresses a “firstinstance or clarifying decision in a murky or uncertain area of law, or when a member of the
public could reasonably have relied on a different conception of the state of the law.” SASCO
1997 NI, LLC v. Zudkewich, 767 A.2d 469, 477 (N.J. 2001) (internal quotations and citation
omitted); see also Henderson v. Camden Cnty. Mun. Util. Auth., 826 A.2d 615, 620 (N.J. 2003)
(explaining that decisions on an issue of first impression or that overrule past precedent justify
prospective application); Cox v. RKA Corp., 753 A.2d 1112, 1127 (N.J. 2000) (finding
prospective relief appropriate where, prior to the appeal, “there was little precedent on which the
parties could definitively rely and no direct authority in New Jersey”).
A.
The New Jersey Supreme Court’s Decision Established a New Rule of Law
A review of every opinion on this case makes it clear that the New Jersey Supreme Court
made a decision on a matter of first impression, establishing a new rule of law. Throughout the
course of this litigation, each court that addressed the issue of whether the TCCWNA covered
intangible property recognized that there was a paucity of cases that construe the TCCWNA
generally, and that no court had ever considered the notion that the TCCWNA could apply to
intangible property. For example, when the Third Circuit certified its questions of law to the
New Jersey Supreme Court, it stated that “the appeal raises important and unresolved questions
of state law” and that “no court in New Jersey has addressed the question of how the terms
‘property’ and ‘consumer’ are defined in the TCCWNA.” Shelton II, 2011 U.S. App. LEXIS
26594, at *3 (emphasis added).
Plaintiffs’ proposition that intangible property was covered by the TCCWNA was not
based upon any authority. Rather, the only decisions interpreting the TCCWNA concerned
6
tangible property. No earlier court had delved into what constitutes “property” under the
TCCWNA, see Shelton II, 2011 U.S. App. LEXIS 26594, at *11, or whether a contingent,
inchoate right (as exists here) amounts to “property . . . primarily for personal, family or
household purposes” within the meaning of the TCCWNA. See, e.g., SASCO, 767 A.2d at 478;
see also Shelton II, 2011 U.S. App. LEXIS 26594, at *11 (commenting that there was only one
New Jersey case, which did not even involve the TCCWNA, that addressed the question of
whether gift certificates were considered property).
Here, the Third Circuit certified certain questions to the New Jersey Supreme Court
specifically because no court had ever addressed the issue of what constitutes “property” (or, for
that matter, who a “consumer” is) under the TCCWNA. While the Supreme Court ultimately
concluded that the TCCWNA covered intangible property such as the Certificates, it qualified its
discussion as follows:
The certificates or coupons at issue are the product of commercial ventures
enabled by technology that developed after the Legislature adopted the
TCCWNA. We do not know whether the Legislature specifically envisioned
certificates or coupons like the ones Restaurant.com offers [to fall within the
TCCWNA] and meant to impose a $100 penalty per occurrence in such
cases.
Shelton III, 214 N.J. at 559 (emphasis added). 2, 3 Under the circumstances, this Court finds that
Restaurant.com “reasonably relied on a plausible, although [now] incorrect, interpretation of the
law.” SASCO, 767 A.2d at 477.
2
If the goal of statutory construction is to ascertain legislative intent, this is a strange statement.
This Court also interprets this statement as “suggest[ing] intent to deviate from” the rule of retroactive relief. See
Burlington Ins. Co. v. Northland Ins. Co., 766 F. Supp. 2d 515, 527 (D.N.J. 2011). This recognition at least implies
that the decision created a new rule of law. It should also be noted that the New Jersey Supreme Court has not
always announced or discussed prospective or retroactive applicability in its decisions that create a new law. See,
e.g., Perez v. Rent-A-Center, Inc., 902 A.2d 1232 (N.J. 2006) (clarifying the Court’s earlier opinion by announcing
that the “judgment of the Court is prospective, except that it applies to plaintiff . . .”).
3
7
B.
Retroactive Application Would Produce “Substantial Inequitable Results”
Even if a decision establishes a new rule of law, retroactive application should still apply
unless such application “could produce substantial inequitable results.” Henderson, 826 A.2d at
620 (quoting Montells v. Haynes, 627 A.2d 654, 661 (N.J. 1993)). Whether or not prospective
application is justified is a “very fact sensitive” inquiry. Twp. of Stafford v. Stafford Twp. Zoning
Bd. of Adjustment, 711 A.2d 282, 288 (N.J. 1998). Along with the consideration of whether or
not the decision created a new rule of law, New Jersey courts have weighed whether applying a
decision retroactively could produce substantial inequitable results. See, e.g., Selective Ins. Co.,
34 A.3d at 773; Henderson, 826 A.2d at 620–21; Jersey Shore Med. Ctr.-Fitkin Hosp. v. Baum's
Estate, 417 A.2d 1003, 1010–11 (N.J. 1980). Because “questions of civil retroactivity are
equitable in nature, involving a special blend of what is necessary, fair and workable,” courts
should consider the “practical realities and necessities inescapably involved in reconciling
competing interests” when making a determination regarding retroactivity. Love v. JohnsManville Canada, Inc., 609 F. Supp. 1457, 1464 (D.N.J. 1985) (quotation omitted). Overall,
“[t]he primary concern with retroactivity questions is with ‘considerations of fairness and justice,
related to reasonable surprise and prejudice to those affected.’” Accountemps Div. of Robert
Half, Inc. v. Birch Tree Group, Ltd., 560 A.2d 663, 670 (N.J. 1989) (quoting N.J. Election Law
Enforcement Comm’n, 526 A.2d at 1073).
After weighing various considerations, the Court concludes that prospective application
of the new rule of law established in Shelton is appropriate. First, the creation of a new rule of
law generally favors prospective application because the affected parties could not have
reasonably predicted the result, and therefore “the interests of justice will better be served by
prospective application . . . .” Velez, 850 A.2d at 1246 (quotation omitted) (finding prospective
8
relief warranted because the case was one of first impression and the issue was uncertain); see
also SASCO, 767 A.2d at 477. Here, for the reasons expressed, the New Jersey Supreme
Court’s determination that the TCCWNA covered intangible property created a new rule of law.
Therefore, that finding alone strongly suggests that it would be inequitable to apply that
determination to Restaurant.com, which relied on a plausible, but incorrect, interpretation of the
law. 4 See SASCO, 767 A.2d at 477.
The particulars of this case, however, also make it clear that retroactive application of the
Shelton decision would create substantially inequitable results. While Plaintiffs have argued that
Restaurant.com has not created any evidential record to show that other companies would be
affected by retroactive application, the Court disagrees that such evidence is necessary. To find
that retroactive application is necessary because there was no “record” created by
Restaurant.com puts procedure over equity. This is not a case where the Court is unsure about
the impact of this decision; rather, common sense dictates that the New Jersey Supreme Court’s
expansive interpretation of what is covered by the TCCWNA will impact not only other similarly
situated internet merchants, but anyone who markets anything intangible in New Jersey.
Retroactive application could result in extraordinary statutory penalties against unsuspecting
companies without any consumers actually suffering any ascertainable losses. See Henderson,
826 A.2d at 620–21 (applying its determination prospectively where “retroactive application . . .
4
The Court also disagrees with Plaintiffs’ contention that prospective application is inappropriate because
Restaurant.com “intentionally violated the longstanding GCA, thereby incurring TCCWNA liability. Merely
because Restaurant.com chose to ignore the law does not give it the right to avoid retroactivity and its
consequences.” Pls.’ Opp. Br. at 24–25. This is a misstatement of the law. Any alleged liability on
Restaurant.com’s behalf under the TCCWNA stems from the fact that its “gift certificates” stated in general terms
that some of the provisions of the “gift certificate” may be void or unenforceable in some states. Had the New
Jersey Supreme Court not expansively interpreted the TCCWNA to include intangible property, Restaurant.com
most likely would not have violated the GCA, because the Restaurant.com “gift certificates” do not have an
expiration date of less than two years, but rather state that they expire in one year, “except . . . where otherwise
prohibited by law.” Compl. ¶ 60; see N.J. Stat. Ann. § 56:8–110. As discussed, Restaurant.com relied upon a
plausible, although now incorrect, interpretation of what the TCCWNA covered. Merely because the New Jersey
Supreme Court disagreed with Restaurant.com’s interpretation does not make it per se unreasonable. See SASCO,
767 A.2d at 478 (“Although we disagree, that position is not unreasonable.”).
9
likely would cause other companies throughout the state to incur considerable expense and
administrative hardship”); SASCO, 767 A.2d at 477 (considering how retroactive application
would greatly prejudice not only the affected party, “but the entire commercial lending
industry”); Rutherford Educ. Ass'n v. Board of Educ., 489 A.2d 1148, 1159 (N.J. 1985)
(analyzing the financial impact on boards of education generally throughout the state if the
decision was applied retroactively). As the Third Circuit stated during oral argument, such
windfall statutory damages could have “a traumatic impact not just on Resturant.com, but
anybody who’s in the business of marketing something intangible.” See Declaration of Michael
R. McDonald (“McDonald Decl.”) Ex. A at T29:19–30:3; see also Shelton II, 2011 U.S. App.
LEXIS 26594, at *4–5 (certifying questions for the New Jersey Supreme Court because a
determination on what “property” is under the TCCWNA will affect “other similarly situated
internet merchants . . . , thus potentially impacting businesses and consumers throughout New
Jersey”). Prospective application will allow such businesses or people to make the necessary
adjustments to their contracts, notices, warranties, and signs to account for the fact that they are
now subject to the TCCWNA.
Furthermore, while the Court agrees that the policy behind the TCCWNA is to afford
protection to consumers, Plaintiffs have not suffered any actual, non-theoretical damages here.
The Court, therefore, does not find that the purpose of the rule “would be furthered by retroactive
application.” See Twp. of Stafford, 711 A.2d at 288. In contrast to other cases cited by Plaintiffs,
prospective relief will not cause Plaintiffs to suffer any real prejudice because there has been no
loss here. Compared to the great hardship that could be caused to unsuspecting companies if the
decision was applied retroactively, mandating Restaurant.com and other marketers of intangible
property to follow the requirements under the TCCWNA will cause no substantial inequity. See
10
Henderson, 826 A.2d at 620–21 (noting that prospective relief is appropriate where it causes no
“substantial inequity”). There is no allegation that Plaintiffs were unable to enjoy the bargainedfor discounts at the third-party restaurants that they selected; indeed, counsel for Plaintiffs has
stated that Ms. Shelton has “used most, if not all of her – of the gift certificates she purchased.”
McDonald Decl. Ex. A at T17:3-11. Plaintiffs are not seeking to be made whole because they
suffered some sort of injury, but are rather seeking windfall statutory damages and attorneys’
fees for an alleged violation of the TCCWNA.
Plaintiffs have not provided any reason or argument disputing the fact that retroactive
application would produce inequitable results. Plaintiffs have cited to no case, and this Court has
found no case, in which a court has determined retroactive application to be appropriate where
there was no allegation of harm or injury, but only an attempt to procure nothing more than
windfall damages and attorneys’ fees. While Plaintiffs argue that limited prospective application
(where the decision is applied to the parties involved on direct appeal) is appropriate here
because Plaintiffs’ efforts in this case have resulted in a “clarification” of the law, the Court
disagrees. The cases to which Plaintiff has cited for this proposition have all involved a litigant
that had suffered an ascertainable loss that would not be remedied unless the new rule of law
applied to him or her. See, e.g., Henderson, 826 A.2d at 621 (applying decision disallowing
compound interest in utility contracts prospectively, but permitting plaintiff to recover “the full
amount of any compound interest that she had paid”); Perez, 902 A.2d at 1232 (clarifying that
the Court’s earlier decision applied prospectively, but applying the decision to the plaintiff, who
allegedly incurred damages as a result of usurious contract); Calvert v. K. Hovnanian at
Galloway, VI, 607 A.2d 156, 163 (N.J. 1992) (decision that mandated an attorney-review clause
be included in certain real estate contracts applied prospectively, except as to the plaintiff who
11
had lost over $6,000 on a real estate deposit). It is hard for this Court to conceive how Plaintiffs
would be prejudiced if the determination applies prospectively; rather, the necessary
considerations of fairness and justice and prejudice to those affected strongly favor prospective
relief. See Accountemps, 560 A.2d at 670.
IV.
Conclusion
Here, this Court has the obligation of determining whether the New Jersey Supreme
Court’s decision created a new rule of law such that prospective application is necessary to avoid
inequitable results. In this case, it is clear that the Supreme Court’s determination created a new
rule of law that would lead to gravely inequitable results if applied retroactively. Accordingly,
and for the aforementioned reasons, this Court will grant Defendant Restaurant.com’s motion to
dismiss. An appropriate Order accompanies this Opinion.
/s/ Joel A. Pisano
JOEL A. PISANO, U.S.D.J.
Dated: July 10, 2014
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?