NY has jurisdiction over out-of-state processor for alleged magazine scammer

People v. Orbital Pub’g Gp., Inc., 21 N.Y.S.3d 573 (Supreme Ct. 2015)

 

The AG alleged violations of NY state consumer protection law, including a law specific to magazine subscription sales, involved here.  Respondents send official-looking solicitations that allegedly misled consumers into thinking they came from the publications themselves.  On the left side, they contain four boxes, containing numbers, labeled: “Control Number,” “Please Return By,” “Installment” and “Total Amount.” Near the four boxes are (1) a publication’s name and (2) a phrase suggestive of billing, such as “Magazine Payment Services,” “Publishers Billing Exchange,” “Publishers Billing Center,” “United Publishers Service,” “Magazine Billing Network,” “Publishers Billing Association,” “Subscription Billing Service,” “Publishers Billing Center,” or “Subscription Billing Service.” The right side of the solicitations typically contain the same four boxes under a heading of “Notice of Renewal,” and again with the publication’s name printed underneath the boxes.  Here is an example of at least a similar invoice I found at the URL http://www.phgmag.com/docs/phgfraudinvoice.pdf:

 

“Respondents, which typically do not have authorization to act as agent for the various publications, charge significantly more for the subscription than the publications themselves charge and retain the difference.” In addition, the State alleged that that respondents, when soliciting for renewal subscriptions, failed to disclose the date that existing subscriptions end, as required by New York law.

 

Respondents argued that any confusion about whether the solicitation was made by the publication itself was not their fault.  The back of the solicitations said: “We offer over 600 magazines as an independent subscription agent between magazine publishers and clearinghouses in order to facilitate sales and service. As an agent we do not necessarily have a direct relationship with publishers or publications that we offer. . . ..”

 

Respondents also argued that the court lacked jurisdiction over the individual respondents and respondent Adept.  The state argued that Adept’s exclusive business was providing support to the other corporate respondents: bookkeeping, data management, consumer mail processing, and consumer refund processing. Adept denied any involvement in consumer complaint handling or control over the content of the solicitations, though Adept made some suggestions after an investigation by the Oregon AG.  (Adept is located in Oregon.)

 

The court found jurisdiction over Adept and its principal:

 

From a technical view, Adept has been careful not to project itself into New York or to transact business here. From a practical view, it is hard to deny that Adept, albeit indirectly, has availed itself of the benefit of New York consumers, as the record shows that Adept’s reason for being is to support and facilitate the solicitations that are the subject of this proceeding. The record also shows that all of Adept’s profits flow from these same solicitations.

 

Although Adept’s contacts with New York were through the mail and sent by sister entities, together the respondents formed a single business model.  The sister entities were owned by a New York LLC, and thus Adept availed itself of New York law.  Further, the record showed that Adept processed the mailing addresses, payments, and refunds of New York consumers, and also has some role in the content of the solicitations sent to New York consumers.

 

There was no constitutional problem with asserting jurisdiction because these acts constituted minimum contacts with New York, and Adept received its revenue from a company organized under New York law. Adept could reasonably expect to be brought before a New York court if those solicitations violate New York law.

 

General Business Law § 335–a[4] provides, in relevant part, that:

 

Any person, firm, association or corporation engaged in business, the principal purpose of which is to regularly solicit magazine subscription orders for delivery in this state through the mail for profit shall, in any direct written communication to a magazine subscriber inviting the subscriber to renew a subscription, clearly, conspicuously, understandably and readably: a. disclose the month and year in which the subscription expires ...

 

There’s an exception for good faith errors made despite the existence of procedures designed to avoid such error. Respondents challenged the law as a violation of substantive due process.  (Not the First Amendment?)  But the law had a rational basis, even as applied to independent subscription agents with no relationship with the publishers (if not more so!).  Excluding non-profits from the regulation was rational.  Nor did the state instead have to rely on publishers printing an expiration date clearly on all publications sent to subscribers, allowing consumers to cross-reference those publications when they received solicitations.  The state’s consumer protection purpose was legitimate and rationally related to the regulation.  That it might preclude respondents from sending solicitations to New York was not of constitutional moment.  “The Legislature has made an implicit judgment that if a subscription agent does not know when a consumer’s current subscription ends, it cannot solicit that consumer for a renewal. Making that judgment is within the Legislature’s authority.”

 

General Business Law §§ 349 and 350: Deceptive acts or practices/false advertising.  The solicitations were clearly consumer-oriented, as required, and at least raised a fact question about misleadingness.  On their faces, the solicitations looked like they were sent directly from publishers, which could cause consumers to believe that they were being offered a standard price from the publishers, rather than a substantial premium (sometimes nearly twice the publisher’s rate). Nonetheless, the disclaimer on the back raised a fact question about whether a reasonable consumer “would have taken the time to read it and learn that the solicitations were not being sent by publishers and that the cancellation policy may be more draconian than the ones offered by publishers.”