BILL NUMBER: S6070

SPONSOR: JACOBS
 
TITLE OF BILL:  An act to amend the general business law, in relation
to damage awards in class action proceedings involving deceptive acts or
practices

 
PURPOSE:

This bill would amend general business law to enable members of class
action lawsuits against businesses for deceptive acts or practices, to
be awarded only actual damages.

 
SUMMARY OF PROVISIONS:

Section one of this bill, amends subdivision h of section 349 of the
general business law (GBS) to allow members of class actions to be
awarded only actual damages for injuries resulting from violation(s) of
GBS section 349, rather than a minimum of fifty dollars. GBS section
349(h) provides individual consumers with the ability to bring an action
against a business that has violated New York's prohibition against
              

deceptive acts and practices. Any individual that has experienced injury
due to a violation(s) of GBS 349(h) may bring an action to recover
either actual damages or fifty dollars, whichever amount is greater. The
fifty-dollar minimum recovery will not pertain to class actions pursuant
to this section of law.

Section two of the bill sets forth the effective date.

 
EXISTING LAW:

 
JUSTIFICATION:

In recent years, there has been a substantial increase in the number of
class action lawsuits filed in the U.S. District Courts located in New
York State, particularly in the Eastern District (Brooklyn)and Southern
District (Manhattan) Courts. According to the U.S. Chamber Institute for
Legal Reform, approximately 22% of all food related class action
lawsuits are currently in U.S. District Courts located in New York. Only
federal courts in California have a larger percentage (36%) of class
actions related to food. The recent rise in class action claims brought
in New York is due primarily to the U.S. Supreme Court's decision in
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co. (2010).
Because of this close (5-4) and somewhat controversial Supreme Court
ruling, class actions against businesses claiming deceptive acts or
practices, may be filed pursuant to General Business Law (GBS) section
349 in federal court; and the prohibition against class actions to
recover "a penalty, or minimum measure of recovery" under New York's
Civil Practice Laws and Rules (CPLR) section 901(b), does not apply.
Since the Shady Grove decision, all members of class actions that sue
for violations of GBS 349(h) in federal court are entitled to either
actual damages or fifty dollars, whichever is greater. The Shady Grove
decision has created immense potential liability and has provided plain-
tiffs with tremendous advantage in negotiating favorable settlement
agreements with defendant businesses. For this reason, law firms that
specialize in consumer class actions, often file claims in the federal
districts courts in New York.


GBS section 349(h) was enacted to help protect consumers against decep-
tive acts and practices by allowing individuals to bring their own
action for damages resulting from violations of GBS Sec 349. Under GBS
section 349(h), an individual may bring an action to recover either
actual damages due to a violation(s) or $50.00 whichever amount is
greater. The $50 minimum was included in this statute to incentivize
lawsuits in which actual damages accounted for only small monetary
amounts. Providing incentives for legitimate lawsuits under section
349(h), was intended to discourage businesses from using deceptive acts
or practices. However, the State Legislature did not intend for the $50
minimum recovery to apply to all members of massive class actions.

Under CPLR section 901(b) "an action to recover a penalty, or minimum
measure of recovery or imposed by statute may not be maintained as a
class action" unless the relevant statute "specifically authorizes the
recovery thereof in a class action." The Legislature understood that
penalties and minimum recoveries in class actions could create excessive
liability for businesses and acted to limit such liability when it
passed CPLR section 901(b). The Shady Grove decision has created unan-
ticipated and unintended motivation for some trial attorneys to bring
actions in federal courts where defendant businesses face the possibil-
ity of paying out at least $50 to thousands of individual consumers.

Numerous law firms now specialize in filing "strike suits," legal
actions created with the intent of reaching quick and costly settlements
with businesses. Not only is the cost of litigating and settling massive
class actions expensive for defendant businesses, it is also contributes
to New York's reputation as a state that is hostile to business. In
addition, higher numbers of class action lawsuits further burden the
already cumbersome and slow moving judicial system.

Some argue that the Legislature should repeal the limitations placed on
class actions in CPLR section 901(b), but doing so would likely increase
the number of class actions in New York state courts. A better solution
is to amend GBS Sec 349(h), in order to provide to specific statutory
damages ($50 minimum recovery) to individual consumer plaintiffs, not
all members of class actions. Several states including Colorado, New
Mexico and Utah have enacted similar legislation to limit specific stat-
utory damages to individuals. Businesses that utilize unlawful deceptive
acts or practices must be held responsible for the resulting injuries to
consumers. However, in providing at least a $50 recovery to any success-
ful claimant, the State Legislature intended to assist individual
consumers with the cost of bringing legitimate actions against deceptive
businesses. The $50 minimum recovery for all plaintiffs was never
intended to be used in large class action suits, in order to threaten
businesses and reach quick and costly settlements. This bill corrects
the unfortunate results of the Shady Grove decision and restores the
State Legislature's original intent in passing General Business Law
section 349 and Civil Practice Laws and Rules section 901(b).

 
LEGISLATIVE HISTORY:

This is a new bill.

 
FISCAL IMPLICATIONS:

None.

 
LOCAL FISCAL IMPLICATIONS:

None.

 
EFFECTIVE DATE:
This act shall take effect on the one hundred and eightieth day after it
shall become law.