New York Court of Appeals Makes Clear That Consumer-Oriented Conduct Under GBL 349 Focuses on The Deceptive Act or Practice, Not on Use of the Product and Confirms That Specific Disclaimers Can Bar a Claim Under the Statute

• Posted on: Jun 6 2021

On June 3, 2021, the New York Court of Appeals, the State’s highest court, handed down Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew Bender & Co., Inc., 2021 N.Y. Slip Op. 03485 (June 3, 2021) (here), a decision involving a claim under General Business Law § 349 (“GBL § 349”), New York’s consumer fraud statute. In a decision written by Judge Jenny Rivera, a majority of the Court made two rulings that will have an impact on future claims under the statute. First, the Court made clear that GBL § 349 focuses on “the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.” Second, the Court confirmed that a written disclaimer may “bar a GBL § 349 claim at the pleading stage [when] it utterly refutes plaintiff’s allegations,” and “address[es] the alleged deceptive conduct precisely, so as to eliminate any possibility that a reasonable consumer would be misled.”

The primary issue in Himmelstein was whether plaintiffs (who bought the annual edition of a legal resource manual published and sold by defendant) adequately pleaded a deceptive act or practice prohibited by GBL § 349. The claim was based on defendant’s alleged misrepresentations about the completeness of the laws reproduced in one section of the publication.

Plaintiffs brought the action on behalf of themselves and a putative class of purchasers of certain annual editions of New York Landlord-Tenant Law (the “Tanbook”), a compilation of New York legal materials on landlord-tenant law, against defendant Michael Bender & Company Inc., the publisher of the Tanbook. Plaintiffs are a law firm that handles landlord-tenant actions, a non-profit corporation that assists pro se litigants in housing court matters, and a tenant advocate and organizer.

The amended complaint alleged, inter alia, that defendant engaged in deceptive business practices in violation of GBL § 349 in its marketing and sale of the 2016 and prior editions of the Tanbook. Plaintiffs claimed that defendant materially misrepresented that Part III of the Tanbook contained a complete and accurate compilation of the statutes and regulations applicable to rent-controlled and rent-stabilized apartments in New York City, when, in fact, key portions were omitted or inaccurately presented. Plaintiffs contended that these omissions and inaccuracies rendered the Tanbook of no value to its users. Plaintiffs further alleged that, after receiving complaints, defendant included the omitted statutes and regulations in the 2017 edition, which, although published late in the calendar year, was sold to plaintiffs and other subscribers at full price.

Defendant moved to dismiss the amended complaint under CPLR § 3211(a). Supreme Court granted defendant’s motion and dismissed the complaint in its entirety. The Appellate Division, First Department affirmed the order of dismissal, in part on different grounds. 172 A.D.3d 405 (1st Dept. 2019) (here). The Court of Appeals granted plaintiffs leave to appeal (34 N.Y.3d 908 (2020)) and affirmed the First Department’s decision.

The Court held that the alleged misrepresentations constituted consumer-oriented conduct under the statute – that is, the misrepresentations were contained in a manual that was marketed to and available for purchase by consumers.

In so holding, the Court rejected the First Department’s view of who is a “consumer” under the statute. Under Department-wide authority, which Supreme Court relied upon, consumers are defined as those “who purchase goods and services for personal, family, or household use” (Himmelstein, 2018 WL 984850, at *5, quoting Med. Socy. V. Oxford Health Plans, Inc., 15 A.D.3d 206, 207 (1st Dept. 2005)); they are not business purchasers of “a widely sold service that can only be used by businesses.” Id. (quoting Cruz v. NYNEX Info. Resources, 263 A.D.2d 285, 286, 290 (1st Dept. 2000)).

The Court explained that “there [was] no textual support in GBL § 349 for a limitation on the definition of ‘consumer’ based on use.” In fact, noted the Court, “any such narrowing of the term ‘consumer’ would be contrary to the legislative intent to protect the public against all forms of deceptive business practices.” (Citations omitted.) The Court made clear that the text and purpose of GBL § 349 did “not support the importation of other statutory definitions (as the First Department had done in its decisions (see, e.g., Cruz, 263 A.D.2d at 289)) because, unlike other provisions, section 349 broadly prohibit[ed] ‘[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.’” (Quoting GBL § 349).

Significantly, the Court made clear that “the consumer-oriented element” of the statute did not “depend on the use to be made of the product, as what matters is whether the defendant’s allegedly deceptive act or practice is directed to the consuming public and the marketplace.” “In other words,” concluded the Court, “GBL § 349 is focused on the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.”

Given the foregoing, the Court rejected defendant’s argument that its conduct was not consumer oriented because the Tanbook was marketed to legal professionals (i.e., lawyers, judges, and tenant advocates) rather than consumers. “The fact that persons and businesses working in the legal field purchase the Tanbook to assist in their professional endeavors,” said the Court, did “not mean that the defendant’s conduct was not consumer oriented.” Indeed, noted the Court, “[l]egal professionals [were] merely a subclass of consumers and, as [the Court] recently clarified, ‘consumer-oriented conduct’ need not ‘be directed to all members of the public.’” (Quoting Plavin, 35 N.Y.3d at 13). [Ed. Note: This Blog wrote about Plavin here.]

The Court also held that the alleged misrepresentations were not actionable because no reasonable consumer would find them to be so. As such, said the Court, the amended complaint was properly dismissed.

Under New York law, a defendant’s actions are materially misleading when they are “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 344 (1999). What is objectively reasonable depends on the facts and context of the alleged misrepresentations and “may be determined as a matter of law or fact (as individual cases require).” Oswego, 85 N.Y.2d at 26 (1995).

The Court held that “defendant’s conduct could not materially mislead a consumer into believing that defendant guaranteed the accuracy or currentness of the publication” at issue. First, observed the Court, “the legal materials contained in Part III [were] subject to legislative amendment at any time,” thereby “seriously undermining plaintiffs’ contention that yearly publication was a representation that the Tanbook was complete and accurate.”

Second, the Court held that to the extent “defendant’s statements misrepresented the contents of the Tanbook, such purported misrepresentations [were] not materially misleading.”

The Court noted that the terms and conditions of the contract for purchase of the publication provided that in addition to the Tanbook, plaintiffs would automatically receive “any supplementation, releases, replacement volumes, new editions and revisions . . . made available during the annual subscription period” along with invoices for the additional cost of any updated materials. Therefore, explained the Court, “defendant expressly offered, and plaintiffs chose to receive, automatic serial mailings of the year’s Tanbook edition upon its publication, with any updates to that edition—if and when they became available—at an additional and separate cost charged by invoice and sent with the update.” In short, said the Court, it was “clear to a consumer that the Tanbook [was] not a completely accurate compilation of the law.”

Moreover, explained the Court, the written disclaimer that defendant did “NOT WARRANT THE ACCURACY, RELIABILITY OR CURRENTNESS OF THE MATERIALS CONTAINED IN THE PUBLICATIONS” was specific to the alleged deceptive practice “so as to eliminate any possibility that a reasonable consumer would be misled.” Under New York law, a disclaimer may not bar a GBL § 349 claim at the pleading stage unless it utterly refutes plaintiff’s allegations. Goshen, 98 N.Y.2d at 326; Fink v. Time Warner Cable, 714 F.3d 739, 742 (2d Cir. 2013). This means that the disclaimer must address the alleged deceptive conduct precisely, so as to eliminate any possibility that a reasonable consumer would be misled. Id. However, where the overall impression of the representations are misleading, notwithstanding the disclaimer, the disclaimer is not a defense as a matter of law. See Goshen, 98 N.Y.2d at 326; Delgado v. Ocwen Loan Servicing, LLC, 2014 WL 4773991, at *9 (E.D.N.Y. 2014).

The Court rejected plaintiffs’ argument that the alleged deception was an attempt to hide the Tanbook’s lack of “completeness”, as opposed to “accuracy” or “currentness”. The Court found the words of the disclaimer – “the accuracy, reliability or currentness” – to be “equivalent to a disclaimer of completeness.” “Indeed,” said the Court, “plaintiffs’ allegation that the Tanbook [was] incomplete turn[ed] entirely on whether the content [was] accurate, reliable, and current.” “The fact that a purchaser might not buy the Tanbook without an accurate and complete reproduction of the statutes and regulations—because, as plaintiffs allege[d], that would render the Tanbook unreliable—goes to whether defendant [was] offering an item worth buying, not whether defendant ha[d] deceived consumers about the nature of its product”, concluded the Court. “GBL § 349 is concerned only with the latter conduct.”

In sum, concluded the Court, “[t]he Tanbook’s susceptibility to revision at any time, coupled with the fact that the disclaimer addresse[d] the precise deception alleged in plaintiffs’ complaint, [left] no possibility that a reasonable consumer would have been misled about the contents of the Tanbook.”

Judge Eugene M. Fahey dissented in part. Judge Fahey agreed with the majority that the conduct at issue was consumer oriented: “It is irrelevant that the Tanbook was primarily marketed to and purchased by businesses and professionals. A business may be a consumer.” However, he did not agree that the alleged misrepresentation was not actionable.

Judge Fahey rejected the majority’s view that the disclaimer in the contract barred plaintiffs’ claim as a matter of law. “A disclaimer is not a per se bar to a GBL § 349 cause of action,” said Judge Fahey, “even when it is specific.” The reason, explained Judge Fahey, is to prevent “routine disclaimers” from “render[ing] the consumer protections, codified by the statute, meaningless.” According to Judge Fahey, “defendant’s disclaimer must be considered as one part of the overall analysis in determining whether the alleged deceptive conduct was ‘likely to mislead a reasonable consumer acting reasonably under the circumstances.’” (Quoting Oswego, 85 N.Y.2d at 26). Based upon that wholistic approach, Judge Fahey found that plaintiffs “adequately pleaded that element, which [was] not amenable to resolution at the motion to dismiss stage.” “In concluding otherwise,” said Judge Fahey, “the majority has treated defendant’s motion to dismiss as a motion for summary judgment.”

Judge Fahey also addressed the First Department’s holding that plaintiffs sustained no injury. He found that the court erred in holding that an injury under GBL § 349 must be more than the cost of the goods purchased. Such an injury, said Judge Fahey, is consistent with the legislative purpose of the statute as well as common sense. “The use of deception to induce a consumer to buy a product,” concluded Judge Fahey, “is precisely the kind of conduct the legislature sought to prohibit with GBL § 349.”

Takeaway

Himmelstein makes clear that the consumers protected by GBL § 349 include businesses and non-businesses alike. The decision also makes clear that the focus of the courts should be on “the seller’s deception and its subsequent impact on consumer decision-making, not on the consumer’s ultimate use of a product.” Himmelstein is, therefore, a departure from decisions of the First Department.

Himmelstein also makes clear that disclaimers specific to the alleged act or practice, which neutralize any deception such that no reasonable consumer would be misled, will bar a claim under GBL § 349.