Everything's legal in Jersey: NJ SCt makes class certification harder in price disclosure case

Dugan v. TGI Fridays, Inc., 171 A.3d 620 (N.J. 2017)

Plaintiffs alleged that the defendants failed to fairly disclose prices charged to customers for alcoholic and non-alcoholic beverages. The New Jersey Supreme Court held that one set of plaintiffs failed to show that common issues of law and fact predominated because they argued a price inflation theory that New Jersey law didn’t support. However, other claims that the restaurants violated New Jersey’s consumer protection law (the NJCFA) by increasing the price charged to a customer for the same brand, type, and volume of beverage in the course of the customer’s visit to the restaurant, without notifying the customer of the change.  Consumers with that specific claim could proceed with class certification.

The first set of plaintiffs alleged that TGIF had a practice of offering certain beverages in New Jersey TGIF restaurants’ menus without listing their prices of those beverages, violating the NJCFA as well as a regulatory provision governing “merchandise that is not price marked at the point of purchase.”  In the original complaint, named plaintiff Dugan claimed that during a visit to a TGIF restaurant she was charged $2.00 for a beer at the bar and later charged $3.59 for the same brand of beer after moving to a table.  Dugan admitted that during the visit to a TGIF restaurant in which she paid different prices for two orders of identical beverages at the bar and at the table, she did not read the beverage section of the menu, though she later submitted she had looked at the TGIF menu on many occasions and expected to pay the same price at the bar that she paid when she sat at a table. Training materials for TGIF servers stated that servers seating customers should hand opened menus to customers.  Plaintiffs also submitted a TGIF consultant’s analysis of consumer behavior in the ordering of beverages in restaurants in which customers informed of beverage prices spent an average of $1.72 less per visit than the customers to whom the prices were not disclosed.

This group couldn’t show commonality; they didn’t claim what they bought was defective, deficient, or worthless, but rather received what they ordered.  However, they couldn’t prove that every claimant in their multi-million-member class would have purchased fewer or less expensive beverages, or none at all, had TGIF informed him or her of the beverage prices. The research underlying the $1.72 per visit damages claim wasn’t similar to anything else that had been accepted as a method of proving ascertainable loss and causation in a CFA class action; it was too similar to rejected “fraud on the market”/price inflation damages calculations.

For the second group (the Bozzi class), there were common questions of fact relating to the defendant’s pricing practices and “at least one common question of law—whether increasing the price of a beverage during a customer’s restaurant visit without informing the customer constitutes an unlawful practice.”  Existing records would apparently enable the parties to determine where and when each class member was charged disparate prices for the same brand, type, and volume of beverage on the same restaurant visit, allowing them to account for happy hours and other restaurant-specific practices.

However, neither group could proceed under the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), a statute enacted “to prevent deceptive practices in consumer contracts” that contained unenforceable or invalid terms that nonetheless deceived consumers into thinking the terms were enforceable and deterred them from asserting their rights. Thus, covered entities must not use “any provision that violates any clearly established legal right of a consumer or responsibility of a seller ….” Plaintiffs argued that by failing to list prices for beverages on the menus, the defendant restaurants violated plaintiffs’ “clearly established” legal rights and defendants failed to meet their “clearly established” legal responsibilities requiring the prices to be plainly marked. However, there were too many individual questions.  The TCCWNA addressed “contract[s],” “warrant[ies],” “notice[s],” and “sign[s]” and didn’t apply when a defendant failed to provide the consumer with a required writing. At a minimum, a claimant would have to prove that he or she was presented with a menu during his or her visit to the restaurant in order to establish liability, which couldn’t be resolved by customer receipts or other documents. It wasn’t enough to show evidence that TGIF servers were instructed to hand menus to customers; that didn’t even prove that any individual consumer received a menu.  The majority thought that inferring that servers complied with corporate policy would be to wrongly allow a claim element to be proven for the class as a whole with a single piece of evidence; the dissent would allow such an inference, but even the plaintiffs conceded that not all customers received the menu at issue.  The majority also doubted whether defendants violated a “clearly established legal right” or a “clearly established ... legal responsibility.” No published opinion held that restaurants and other food service businesses couldn’t offer food or beverages to customers without listing the prices for those items on their menu. “Moreover, as plaintiffs acknowledge, many food-service businesses in New Jersey—ranging in size from corporate chain restaurants to family-owned delicatessens and diners—routinely offer customers food and beverage specials and other items without designating in writing the prices for those items.” Even if a menu lacking beverage prices were a relevant writing within the meaning of TCCWNA, that was a dubious result because a penalty of $100 per violation would lead to a total of more than a billion dollars.

Justice Albin dissented, arguing that the majority wrongly raised barriers to class actions.  TGIF could charge what it wanted, but it couldn’t fail to list beverage prices when it knew through its own study that consumers would pay, on average, $1.72 more per meal without such prices.  “TGIF does not pretend to be in compliance with the law; rather, its defense is that a class action is not a proper vehicle to be used by the patrons victimized by TGIF’s practices. However, a single consumer, even if defrauded, cannot engage in costly litigation over a sum involving, at most, several dollars. Only through a class action that aggregates thousands of small claims of similarly defrauded patrons can a viable lawsuit proceed.” 

Justice Albin pointed out that TGIF itself labeled the price consumers were willing to pay the “fair” price, as opposed to the “think-twice” price; “the beauty of not placing beverage prices on menus in violation of the CFA is that uninformed patrons do not know when their purchases have exceeded the ‘fair’ price and reached the ‘think-twice’ price. TGIF learned through the study what is commonly known—that an informed consumer will make rational pricing decisions.”  To prevent that, TGIF made the corporate decision not to put alcohol prices on the menu: “TGIF determined that it did not pay to conform to the law and that it was more profitable to capitalize on the ignorance of its patrons. From TGIF’s own statistical analysis comes the calculation of ascertainable loss to its patrons and the gain to itself.” 

This common issue was qualitatively more important than the others, and individual differences could be addressed later on; the statistical evidence here was acceptable evidence of ascertainable loss.  Plaintiffs’ theory wasn’t “fraud on the market.”  First, the CFA didn’t require proof of reliance, but only a causal connection between the unlawful practice and ascertainable loss. Second, plaintiffs weren’t trying to avoid their burden of proving a causal nexus between TGIF’s statutory violation and the ascertainable loss suffered by TGIF’s patrons. 

“Moreover, the majority is mistaken if it is suggesting that the CFA does not protect consumers from price gouging.  The purpose of requiring that the price of merchandise be listed at the point of sale … is to allow consumers to make informed decisions in making purchases.”  Justice Albin also would have allowed the TCCWNA claims to proceed. At the pleading stage, the fair inference was that TGIF’s servers complied with corporate policy and that patrons received menus.  Moreover, “[t]he plain and simple statutory language clearly indicates that TGIF is required to list beverage prices on its menus”: the law prohibits the sale of “merchandise” without a price at the point of sale; merchandise included goods; clearly, beverages were goods, and at the very least, were included in “anything offered ... to the public for sale.” “TGIF did not have to wait for a published opinion by this Court to reach this common-sense conclusion.”  The majority hinted that the law might not apply to beverages on menus, meaning that restaurants wouldn’t be required to post any prices, since there’s no difference between a hamburger and a milkshake. Even if the Attorney General has never sued to enforce this provision, the CFA vests individuals with the power to act as private attorneys general as a separate enforcement mechanism. There’d be no point in remanding the Bozzi class-certification case for further proceedings, as the majority did, if there was still a question about whether restaurants must place beverage prices on their menus.  Further, the majority didn’t explain why in the Bozzi case it vacated the trial court’s injunction, which mandated that the relevant defendant restaurants list beverage prices on menus. If the law was too broad, the legislature could act to fix it.  Now, however, any relief from TGIF’s violation of consumer fraud law would have to come from the AG.