New Jersey Expands Consumer Warranty Law to Cover Coupons

The New Jersey Supreme Court recently addressed whether the Truth-In-Consumer Contract, Warranty and Notice Act (the Act) applies to online retailers selling coupons. Namely, the Court recently decided that coupon sales may be viewed as transactions involving “property” for purposes of the Act and that such sales must, therefore, comply with the Act’s requirement to expressly state any provision or condition that is void under New Jersey law. The decision effectively prohibits broad statements such as “unless otherwise prohibited by law” in the fine print of coupons sold in the state.

This suit stemmed from a class action against Restaurant.com, which sells coupons that provide discounts at third-party restaurants across the country. On each coupon, Restaurant.com stated “the certificate expires one (1) year from date of issue, except … where otherwise provided by law” and “void to the extent prohibited by law.” Two plaintiffs filed a class-action suit in New Jersey state court alleging a violation of the Act (among other claims) for failing to explicitly state what provisions were void in New Jersey. Specifically, the one-year expiration provision violated a New Jersey law that requires all gift cards and gift certificates to be valid for at least two years. The case was subsequently removed to federal district court and then appealed to the Third Circuit, which certified the question of the applicability of the Act to Restaurant.com’s coupons to the New Jersey Supreme Court. The Third Circuit will later determine the rest of the issues surrounding that case.

Once at the New Jersey Supreme Court, the Court reasoned that in order for the Act to apply, (i) the transaction must involve property, (ii) the property must be “primarily for personal, family or household purposes,” and (iii) the transaction must contain a written consumer contract. The Supreme Court determined that the coupon transactions met this three-part test. First, the Court determined that the coupons constituted “property” under the definition of the statute. Because the term “property” is not defined in the Act, the Court looked to the general statutory definition of property, which would include intangible property. Second, the Court held that the coupons were property “primarily for personal, family or household purposes.” The Court rejected Restaurant.com’s argument that the coupons conferred only a right to a discount, not personal property, instead analogizing the coupons to gift certificates, which the Court found were used for “quintessential personal, family, or household pursuits.” Finally, the Court found that the coupons were written consumer contracts that contained notices. The notices were the various provisions on the coupons, including the one stating “void to the extent prohibited by law.” To comply with the Act, all notices require an explicit statement explaining what provisions are void under New Jersey law. Therefore, the Court found that the Act applied to Restaurant.com’s coupons and a failure to state which provisions are void under New Jersey law would be a violation of the Act.

All companies that provide products or services in New Jersey, but especially those who do so online, should be aware of this ruling as well as New Jersey’s gift card requirements, which we have discussed in our previous alert. Violations of the Act incur a penalty of at least $100 per violation even if the actual damages are substantially below $100. Violations of the gift card law may result in additional penalties. Further, the Act does not require a completed sale for a violation; even an offer of sale can constitute a violation. Therefore, this ruling opens the door for additional claims, especially class action claims, against companies who sell coupons or gift certificates that might be used in New Jersey.

Arent Fox is continuing to monitor this issue and will provide additional information as the matter progresses. Please contact the listed attorneys for additional information.