SUMMARY OF ARTICLE 9 CLASS ACTIONS IN NEW YORK STATE COURTS DURING THE YEAR 2000
In 2000 the Court of Appeals addressed the viability of three consumer class actions brought under CPLR Article 9. In Gaidon v. Guardian Life Insurance Company[2] and Goshen v. Mutual Life Insurance Company[3], " vanishing premium " life insurance policies were marketed in a deceptive manner; i.e., the " vanishing premiums " never vanished and consumers " were required to continue out-of-pocket payments to keep their policies in force ". The Court sustained the General Business Law [ GBL ] § 349 claim finding an " extensive marketing scheme " wherein consumers were " lured...into purchasing policies ( based upon illustrations which ) created unrealistic expectations as to the prospects of premium disappearance ". In Stutman v. Chemical Bank[4] a class of consumers claimed that a $275 mortgage refinancing fee violated GBL § 349 and the Federal Truth in Lending Act. In dismissing the complaint for failing " to show... a deceptive act ", the Court enumerated the necessary elements of a GBL § 349 claim and emphasized, once again [ " as we have repeatedly stated " ] that " reliance is not an element of a ( GBL § 349 ) claim ".
Mass Torts, Maybe?
With a few exceptions[5] the Courts of New York have consistently denied class certification to mass tort class actions involving personal injury or property damage. In Geiger v. American Tobacco Company[6], a smokers' failure to warn class action, the Appellate Division denied class certification because individual issues of causation, proof of addiction and the extent of injuries were not subject to class treatment. In Tegnazian v. Consolidated Edison, Inc.,[7] a class action brought by 300,000 electricity consumers alleging gross negligence and seeking damages arising from a two day blackout in 1999, the Supreme Court denied class certification because individual questions of causation and damages predominated. In addition, the decision to limit recoverable class wide damages made the class representatives inadequate. In Goldberg v. Tishman Construction Corp.[8], a class action brought by businesses in the Times Square area that were forced to close due to the negligent collapse of a 700 foot tall construction elevator, the Appellate Division dismissed the complaint because the " economic loss damages " sought were " too attenuated to be reasonably foreseeable consequences ".
However, some courts may be prepared to revisit mass tort class actions. In 532 Madison Avenue Gourmet Foods, Inc. v. Finlandia Center. Inc.[9] ( not a class action ) and 5th Avenue Chocolatiere, Ltd. v. 540 Acquisition Co.,[10] a class action brought by retailers alleging negligence and nuisance arising from the closure of a 15-block area due to the collapse of a section of an office building wall during renovations, the Appellate Division sustained a claim for economic losses [ " A deviation from the ' economic loss rule ' is appropriate... because of defendants' alleged knowledge and reckless disregard of the risk of ( renovations in a building ) which already had major pre-existing structural defects " ]. And in Godwin Realty Associates v. CATV Enterprises, Inc.[11], the Appellate Division granted class certification to building owners seeking damages for alleged misappropriation and conversion of electricity and physical damage to buildings by the use, installation and removal of cable [ " claims that would not be economically litigatable except by means of a class action " ].
Insurance
In Cole v. The Equitable Life Assurance Society[12], another class action brought by purchasers of " vanishing premium " life insurance policies alleging, among other claims, a violation of GBL § 349, the Appellate Division applied Florida law and dismissed all of the claims as time barred. In Taylor v. American Banker's Insurance Group[13], a class action brought by purchasers of credit insurance alleging breach of contract and a violation of GBL § 349, the Appellate Division granted certification to a nationwide class [ " substantive law of ( New York State ) is applicable...no apparent conflict between law of New York and that of Florida " ] finding uniform misrepresentations and noting that individual issues of reliance and causation were " insignificant ". In Makastchian v. Oxford Health Plans, Inc.[14], a class of insureds allegedly victimized by defendant's " general practice of terminating ( health insurance ) policies for nonpayment of premium without notice ", the Appellate Division granted class certification [ " many subscribers who have no financial stake...But do have an interest in resolving ( the notice issue ) " ] and sustained the GBL § 349 claim [ " engaged in deceptive practices that would cause subscribers to believe that they still had health insurance when coverage had already been canceled " ]. In Sheth v. New York Life Insurance Company[15], a class action brought by life insurance agents claiming their employer failed " to disclose (a) clandestine practice of applying unacknowledged production quotas ", the Appellate Division sustained a claim of fraudulent concealment while dismissing a GBL § 349 claim. And in Jim & Phil's Family Pharmacy, Ltd. v. Aetna U.S. Healthcare, Inc.[16], a class action brought by 1,600 pharmacies seeking to recover contingency funds which should have been distributed semi-annually but were not, the Appellate Division granted class certification [ " only economically viable means of pursuing redress " ].
Mortgages
In Kidd v. Delta Funding Corp.[17], a class action brought by 50,000 consumers claiming that a mortgagor violated New York Banking Law in charging an illegal processing fee in connection with a mortgage loan application, the Supreme Court granted class certification [ " Given the relatively small individual sums there can be little if any benefit derived from individual prosecution or control. " ]. In Walts v. First Union Mortgage Corp.[18], a class of consumers claimed they were induced to continue paying for private mortgage insurance [ PMI ] beyond the requirements of New York Insurance Law § 6503. " Mortgage lenders... require home buyers, who obtain first mortgages with down payments of less than 20 percent, to purchase PMI ". When the ratio of down payment to principal falls below 75% New York Insurance Law § 6503 prohibits additional PMI. The Supreme Court granted class certification on the remaining[19] claims of breach of contract and violation of GBL § 349 [ " The amount of damages is small relative to the amount it would cost the class to litigate individually " ].
Telephones
Naevus International, Inc. v. AT&T Corp.[20], a class action brought by wireless phone subscribers seeking damages for " frequent dropped calls, inability to make or receive calls and failure to obtain credit for calls that were involuntarily disconnected ", the Supreme Court dismissed the breach of contract claim as preempted by the Federal Communications Act but sustained the fraud and GBL §§ 349, 350 claims. In Cruz v. NYNEX Information Systems[21], a class of advertisers claimed that the publisher of the " Yellow Pages " failed to deliver the telephone directory in a timely manner, failed to attempt notice of changes in the issue period and failed to make refunds for errors and omissions in distribution. The Appellate Division dismissed the GBL §§ 349, 350 claims noting that business advertising in the Yellow Pages was not sufficiently " consumer oriented ( to ) fall within the parameters of the statute ".
Tax Refund Anticipation Loans
In Carnegie v. H & R Block, Inc.[22], a class action brought by H & R Block's customers claiming they were " induced...through allegedly deceptive conduct, to obtain an unneeded and unwanted ' refund anticipation loan '...for which ( customers ) incurred... an extremely high annual percentage rate of interest ", the Appellate Division denied class certification to a GBL § 349 claim finding that oral misrepresentations " cannot be proven on a class basis ".
Travel & Entertainment
In Liechtung v. Tower Air, Inc.[23], a class action brought by airline passengers promised a non-stop flight to Tel Aviv but who were inconvenienced for two hours when the air carrier made an unscheduled stop in Paris, the Appellate Division granted class certification to the breach of contract claims. In Meachum v. Outdoor World Corporation[24] and Colbert v. Rank America, Inc., the Appellate Division granted certification to a consumer class action alleging " defendants...advertise to consumers that they have won...prizes and then sell ( them ) campground membership contracts having only illusory benefits ". Subsequently, the Supreme Court[25] denied defendant's summary judgment motion. And in Castillo v. Tyson[26], a class action brought by boxing fans who were promised a " ' legitimate heavyweight title fight ' fought ' in accordance with the applicable rules and regulations ' " but were disappointed when the fight was stopped because Mike Tyson bit off his opponent's ear, the Appellate Division dismissed the complaint noting that fans " received what they paid for, namely, ' the right to view whatever event transpired ' ".
Furniture, Books & Power Bars
In Colon v. Rent-A-Center, Inc.[27], a class action brought by renters of household goods seeking to require " rent-to-own " businesses to reveal the " effective economic interest rate " in their rental contracts, the Appellate Division dismissed the injunctive relief claim because the governing statute, Article 11 of the Personal Property Law, does not require any interest rate be revealed. The Court suggested, however, that the claim of " an overly inflated cash price " may violate GBL Section 349. In Lacoff v. Buena Vista Publishing, Inc.[28], a class of consumers who purchased " The Beardstown Ladies' Common-Sense Investment Guide " claimed that the promised " 23.4% annual return " on investments which appeared on the book's jacket was false and fraudulent since the actual rate of return was 9.1%. The Supreme Court dismissed the complaint finding the contents of the book " protected by the First Amendment " and the remaining language on the cover [ " How We Beat The Stock Market--And How You Can Too ", " secret recipe for investment success " ] as non-actionable " puffery or opinion ". And in Morelli v. Weider Nutrition Group, Inc.[29], a class of consumers of nutritional " Power Bars " claimed the following misrepresentations; the Bars promised 5 grams of fat when they had 16 grams, the Bars contained sucrose but failed to reveal it and the Bars do not contain fractionated conola oil when the label once stated they did. The Appellate Division held that the state law claims were not preempted by federal Nutritional Labeling and Education Act and a three year statute of limitations applied to all claims.
CD's, Bail Bonds & Interest Rates
In Zuckerman v. BMG Direct Marketing, Inc.[30], a class of music fans charged that a music club violated GBL Section 349 by charging " false, inflated shipping and handling charges " for CD's and tapes. The Supreme Court dismissed the complaint noting that " the amount of the shipping and handling charges ( was ) fully disclosed " and " excessive prices...without more, are not deceptive practices, and hence, are not actionable ". In McKinnon v. International Fidelity Insurance Company[31], a class action brought by criminal defendants claiming they were charged excessive and unlawful fees on bail bonds, the Supreme Court sustained the fraud, GBL Section 349 and unjust enrichment claims. In Broder v. MBNA Corporation[32], a class action brought by credit card holders charging a bank with misrepresenting the application of its low introductory Annual Percentage Rate to cash advances, the Supreme Court sustained the claims for breach of implied covenant to act in good faith and a violation of GBL Section 349. And in Hayes v. County Bank[33], a class action brought by recipients of " payday " loans claiming excessive interest charges ranging from 638.75% to 1,825.05%, the Supreme Court refused to enforce an arbitration clause pending discovery on the unconscionability of the loan agreements.
ENDNOTES
[1]. Thomas A. Dickerson is a Westchester County Court Judge and author of Class Actions: The Law of 50 States, Law Journal Press, 1988-2001, with a Web Page at http://members.aol.com/judgetad/index.html. Judge Dickerson is also the author of over 180 papers and articles on consumer law issues some of which are available at http://courts.state.ny.us/tandv.html. Kenneth A. Manning is a partner in Phillips, Lytle, Hitchcock, Blaine & Huber in Buffalo, New York.
[2]. Gaidon v. Guardian Life Insurance Company of America, 94 N.Y. 2d 330, 704 N.Y.S. 2d 177, 725 N.E. 2d 598 ( 1999 ).
[3]. Goshen v. Mutual Life Insurance Company, 94 N.Y. 2d 330, 704 N.Y.S. 2d 177, 725 N.E. 2d 598 ( 1999 ).
[4]. Stutman v. Chemical Bank, 95 N.Y. 2d 24, 709 N.Y.S. 2d 892, 731 N.E. 2d 608 ( 2000 ).
[5]. State v. Phillip Morris, Inc., N.Y.L.J., Dec. 29, 1998, p. 26, col. 5 ( N.Y. Sup. )( smoking; settlement of N.Y. Attorney General's Medicaid reimbursement claims approved ); Friedman v. Northville Industries, N.Y.L.J., Dec. 27, 1991, p. 27, col. 4 ( N.Y. Sup. 1991 )( oil spill; certification denied but class wide settlement approved ); Leo v. General Electric Co., N.Y. L.J., Jan. 25, 1989, p. 29, col. 1 ( N.Y. Sup. 1989 )( commercial fishermen claim damages from poisoning of striped bass in Hudson River; certification granted ).
[6]. Geiger v. American Tobacco Company, 2000 N.Y. App. Div. 12305 ( 1st Dept. 2000 ).
[7]. Tegnazian v. Consolidated Edison Inc., N.Y.L.J., Aug. 10, 2000, p. 22, col. 1 ( N.Y. Sup. ).
[8]. Goldberg Weprin & Ustin, LLP v. Tishman Construction Corp., 713 N.Y.S. 2d 57, 2000 N.Y. App. Div. LEXIS 9157 ( 1st Dept. 2000 ).
[9]. 532 Madison Avenue Gourmet Foods, Inc. v. Finlandia Center, Inc., 271 A.D. 2d 49, 711 N.Y.S. 2d 391 ( 1st Dept. 2000 ).
[10]. 5th Avenue Chocolatiere, Ltd. v. 540 Acquisition Co., L.L.C., 272 A.D. 2d 23, 712 N.Y.S. 2d 8 ( 1st Dept. 2000 ).
[11]. Godwin Realty Associates v. CATV Enterprises, Inc., 275 A.D. 2d 269, 712 N.Y.S. 2d 39 ( 1st Dept. 2000 ).
[12]. Cole v. The Equitable Life Assurance Society, 271 A.D. 2d 271, 707 N.Y.S. 2d 56 ( 1st Dept. 2000 ).
[13]. Taylor v. American Bankers Insurance Group, 267 A.D. 2d 178, 700 N.Y.S. 2d 458 ( 1st Dept. 1999 ).
[14]. Makastchian v. Oxford Health Plans, Inc., 270 A.D. 2d 24, 704 N.Y.S. 2d 44 ( 1st Dept. 2000 ).
[15]. Sheth v. New York Life Insurance Company, 709 N.Y.S. 2d 74, 2000 N.Y. Slip. Op. 05665 ( 1st Dept. 2000 ).
[16]. Jim & Phil's Family Pharmacy, Ltd. v. Aetna U.S. Healthcare, Inc., 271 A.D. 2d 281, 707 N.Y.S. 2d 58 ( 1st Dept. 2000 ).
[17]. Kidd v. Delta Funding Corporation, 2000 N.Y. Misc. LEXIS 378 ( N.Y. Sup. 2000 ). See also Kidd v. Delta Funding Corporation, 270 A.D. 2d 81, 704 N.Y.S. 2d 66 ( 1st Dept. 2000 )( motion to change venue to Nassau County granted ).
[18]. Walts v. First Union Mortgage Corporation, N.Y.L.J., April 25, 2000, p. 26, col. 1 ( ( N.Y. Sup. 2000 ).
[19]. Walts v. First Union Mortgage Corporation, 259 A.D. 2d 322, 686 N.Y.S. 2d 428 ( 1st Dept. 1999 ), appeal dismissed 94 N.Y. 2d 795, 700 N.Y.S. 2d 424, 722 N.E. 2d 504 ( 1999 )( no private right of action under New York Insurance Law § 6503; money had and received, breach of fiduciary duty and tortious interference with contractual relation claims dismissed ).
[20]. Naevus International, Inc. v. AT&T Corp., 2000 WL 1410160 ( N.Y. Sup. 2000 ).
[21]. Cruz v. NYNEX Information Resources, 263 A.D. 2d 285, 703 N.Y.S. 2d 103 ( 2000 ).
[22]. Carnegie v. H & R Block, Inc., 269 A.D. 2d 145, 703 N.Y.S. 2d 27 ( 1st Dept. 2000 ).
[23]. Liechtung v. Tower Air, Inc., 269 A.D. 2d 363, 702 N.Y.S. 2d 111 ( 2d Dept. 2000 ).
[24]. Meachum v. Outdoor World Corporation and Colbert v. Rank America, Inc., 273 A.D. 2d 209, 709 N.Y.S. 2d 449 ( 2d Dept. 2000 )
[25]. Colbert v. Rank America Inc., N.Y.L.J., December 11, 2000, p. 35, col. 6 ( N.Y. Sup. ).
[26]. Castillo v. Tyson, 268 A.D. 2d 336, 701 N.Y.S. 2d 423 ( 1st Dept. 2000 ).
[27]. Colon v. Rent-A-Center, Inc., 2000 N.Y. App. Div. LEXIS 11269 ( 1st Dept. 2000 ).
[28]. Lacoff v. Buena Vista Publishing, Inc., 183 Misc. 2d 600, 705 N.Y.S. 2d 183 ( N.Y. Sup. 2000 ).
[29]. Morelli v. Weider Nutrition Group, Inc., 712 N.Y.S. 2d 551, 2000 N.Y. Slip. Op. 07642 ( 1st Dept. 2000 ).
[30]. Zuckerman v. BMG Direct Marketing, Inc., N.Y.L.J., July 13, 2000, p. 28, col. 1 ( N.Y. Sup. ).
[31]. McKinnon v. International Fidelity Insurance Company, 182 Misc. 2d 517, 704 N.Y.S. 2d 774 ( N.Y. Sup. 2000 ).
[32]. Broder v. MBNA Corporation, March 2, 2000, p. 29, col. 4 ( N.Y. Sup. ).
[33]. Hayes v. County Bank, 713 N.Y.S. 2d 267, 2000 WL 1410029( N.Y. Sup. 2000 ).