Third Circuit Reinstates Class Action Over Expiration Dates On Restaurant Gift Certificates

In Shelton v., decided on November 4, 2013, the Third Circuit Court of Appeals held that a one-year expiration date for a restaurant gift certificate violated a New Jersey statute with a cumbersome name, the Truth-in-Consumer Contract, Warranty, and Notice Act (TCCWNA). New Jersey's TCCWNA makes it illegal for a seller to enter into a consumer contract that violates a clearly established legal right of a consumer. In this case, the clearly established right in question was another New Jersey law which prohibits gift certificates from expiring within two years of purchase.

The plaintiffs sued after receiving gift certificates with one-year expiration dates. The federal district court in New Jersey originally dismissed the case because the gift certificates were purchased from and not the restaurants themselves. Therefore, the district court ruled, the gift certificates were not "consumer contracts" and the plaintiffs were not "consumers" under the TCCWNA. That ruling was issued in 2010.

The plaintiffs appealed to the Third Circuit, but because the issue had never been addressed under New Jersey law, the Third Circuit certified the issue for the New Jersey Supreme Court to decide. Three years after the district court ruling, New Jersey's Supreme Court ruled that the statute covered the gift certificates: "plaintiffs can properly be considered 'consumers' within the scope of the TCCWNA because the certificates acquired by them through the website are property primarily for personal, family, or household purposes."

The matter was referred back to the Third Circuit, who this month adopted the Supreme Court's findings and sent the case back to the district court. Because the lawsuit was filed as a class action, the Third Circuit's ruling is potentially very significant: the TCCWNA allows statutory penalties of $100 per class member. Plaintiffs' claims under the New Jersey Fraud Act were dismissed, and the dismissal affirmed by the Third Circuit, because, unlike the TCCWNA, an ascertainable loss by the consumer is required, and statutory damages are not available. Despite losing the Consumer Fraud Act claim, the ruling is a significant plaintiffs' victory.

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