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Court of Appeals Holds No Violation of GBL 349 In the Absence of Affirmative Conduct That Tends to Deceive Consumers

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  • Posted on: Apr 6 2020

It is not often that the Court of Appeals issues an opinion about the same statute within a short period of time. But, in the span of nine days, the Court issued two opinions addressing General Business Law § 349. 

On March 24, 2020, the Court of Appeals decided Plavin v. Group Health Inc., 2020 N.Y. Slip Op. 02025 (Mar. 24, 2020) (here), a case in which the Court was asked to decide whether an insurance company’s alleged misstatements and omissions about its insurance plan satisfied the consumer-oriented element of a claim under General Business Law §§ 349 and 350. Less than 10 days later, on April 2, 2020, the Court decided Collazo v. Netherland Prop. Assets LLC, 2020 N.Y. Slip Op. 02128 (here), a case in which the Court was asked to decide whether a defendant violates GBL § 349 in the absence of affirmative conduct that tends to deceive consumers. As discussed below, the Court held that there is no violation of the statute under those circumstances.

[Ed. Note: This Blog examined Plavin here.]

In Collazo, plaintiffs sought a declaration that their apartments were subject to rent stabilization laws, and recovery for overcharges, treble damages and attorney’s fees, as well as damages pursuant to GBL § 349.  Plaintiffs are 30 current or former tenants of 18 apartments in a building currently owned and operated by defendants. The building is subject to the Rent Stabilization Law. From 1990-2016, defendants and their predecessors received J-51 tax benefits pursuant to Administrative Code of City of NY § 11-24. Nevertheless, 15 of the apartments at issue were registered as permanently exempt, high rent vacancies – i.e., were deregulated – during that time period (see Rent Stabilization Law of 1969 (Administrative Code of City of NY) former § 26-504.2 (a)). Following guidance issued by the New York State Division of Housing and Community Renewal in 2016, defendants reregistered the 15 apartments as rent stabilized.

Plaintiffs alleged that, following the issuance of the Court’s decision in Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270 (2009), defendants knew, or should have known, that high rent vacancy deregulation was not available with respect to apartments in buildings for which a landlord was receiving J-51 benefits. Plaintiffs also alleged that defendants violated GBL § 349 by engaging in deceptive, consumer-oriented acts – namely, representing to the public at large that the apartments in question were exempt from rent regulation.

In Roberts, the Court held that apartments in buildings receiving benefits under New York City’s J-51 tax incentive program remained subject to rent stabilization for at least as long as the building continued to enjoy J-51 benefits.

Defendants moved to dismiss the complaint, claiming, among other things, that the GBL cause of action failed to state a claim upon which relief. Supreme Court granted defendants’ motion, and the Appellate Division, First Department affirmed. 155 A.D.3d 538 (1st Dept 2017). The Court affirmed the dismissal of the GBL claim.

Relying on Schlessinger v. Valspar Corp., 21 N.Y.3d 166, 172 (2013), the Court held that plaintiffs failed to allege “any affirmative conduct that would tend to deceive consumers.” Slip Op. at *1. 

In Schlessinger, furniture buyers brought a putative class action against a provider of furniture protection plans for breach of contract and violation of GBL § 349 based upon the defendant’s violation of GBL § 395-a, which generally prohibits providers of maintenance agreements from terminating the agreement during the contract term. Under the terms of the plan, the defendant would try to repair or replace any damaged furniture if the damage occurred during the contract period. However, if the furniture store where the plaintiff purchased the furniture closed, the defendant would instead issue a refund of the plan price. The plaintiffs argued that the store closure provision was voided by GBL § 395-a. As a result, said the plaintiffs, the defendant breached the contracts by denying their claims under the plan and “engaged in ‘deceptive practices’ . . . by selling maintenance agreements which contain[ed] the purportedly illicit store closure provision.”

The Court understood the plaintiffs to be arguing that the defendant’s “violation of section 395-a is perforce a violation of section 349(a) because, by inserting an unlawful provision in the contract, Valspar impliedly represented that this provision was valid and thereby engaged in a deceptive act or practice.” Id. at 172. However, this reasoning was “too attenuated to be plausible,” said the Court, because “[s]ection 349 does not grant a private remedy for every improper or illegal business practice, but only for conduct that tends to deceive consumers.” Id. It could not “fairly be understood to mean that everyone who acts unlawfully, and does not admit the transgression, is being ‘deceptive,’” as “[s]uch an interpretation would stretch the statute beyond its natural bounds to cover virtually all misconduct by businesses that deal with consumers.” Id.; see also Fuchs v. Wachovia Mortg. Corp., 9 Misc.3d 1129(A), 2005 N.Y. Slip Op. 51852(U), at *2-3 (Sup. Ct., Nassau County Nov. 15, 2005) (dismissing GBL § 349 claim based upon defendant charging an allegedly illicit document preparation fee because defendant represented that it would charge such a fee and did not have a duty to advise plaintiffs that the charge violated the law or to disclose the relevant provisions of the law).

Against the foregoing analysis, the Collazo Court found that plaintiffs only alleged “that defendants failed to admit that they violated the Rent Stabilization Law in deregulating plaintiffs’ apartments – three of which were, in fact, never deregulated.” Slip Op. at *1. They did not allege “any affirmative conduct that would tend to deceive consumers.” Id. 

In a brief dissent, Judge Rivera concluded that the conduct at issue satisfied the element of consumer-oriented deception under GBL § 349. Slip Op. at *2. In that regard, Judge Rivera explained that, in the landlord-tenant context, “nothing prevents a plaintiff from asserting a claim based on a misrepresentation that an apartment was exempt from rent regulation following deregulation in violation of the Rent Stabilization Law.” Id. The reason, Judge Rivera said, is because “section 349 contemplates that a cause of action under that section may overlap with other statutory prohibitions and remedies.” Id. (citing GBL § 349 (g) (“This section shall apply to all deceptive acts or practices declared to be unlawful, whether or not subject to any other law of this state”)).

Takeaway

GBL § 349 provides a remedy to consumers who have been subject to deceptive or misleading acts or business practices. Oswego Laborers Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20 (1985). A deceptive act or practice, for the purposes of GBL §349, is one which is likely to mislead a reasonably prudent consumer. Karlin v. IVF America, Inc., 93 N.Y.2d 282 (1999). Collazo shows that a plaintiff cannot show a deceptive business practice when the alleged deception is based upon a failure to admit the violation of a contract or statute. More is needed – as in an affirmative act of consumer-oriented deception.  

The dissenting opinion is notable because it considered the failure to admit the violation of a contract or statute to be an act of consumer-oriented deception. In many ways, this reasoning is similar to the United States Supreme Court’s adoption of the implied false certification theory of liability under the False Claims Act (“FCA”). Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). Under the “implied false certification” theory, a defendant may violate the FCA by failing to disclose noncompliance with a relevant statutory, regulatory, or contractual requirement. In other words, “misrepresentations by omission can give rise to liability.” 

[Ed. Note: This Blog wrote about Escobar here.]

It will be interesting to see whether Judge Rivera’s dissent will one day find its way to the majority of the Court. In the meantime, under New York law, a plaintiff will not satisfy GBL § 349 without alleging affirmative conduct that tends to deceive consumers – i.e., the plaintiff alleges more than a failure to admit a violation of law or contract. 

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