Consumer Class Actions in New York - New York City Bar Association

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Incorporated v. Levinson, 485 U.S. 224, 243 (1988) and In re Laser Arms Corp. Sec. Litig., 794 F. Supp. 475 (S.D.N.Y. 1989), aff’d, 969 F.2d 15 (2d Cir. 1992), the Aplaintiff seeking compensatory damages must show that the defendant engaged in a material deceptive act or practice that caused actual, although not necessarily pecuniary harm.@ Oswego, 85 N.Y.2d at 25. In short, reliance can be presumed but actual injury cannot. In the wake of Oswego, courts have grappled with the reliance-causation nexus. The Court of Appeals recently addressed the issue in Stutman v. Chemical Bank, 95 N.Y.2d 24 (2000). In affirming the dismissal of a GBL ' 349 claim asserted on behalf of a nationwide class, the Court of Appeals reaffirmed that Areliance is not an element of a section 349 claim,@ id. at 28, but that plaintiff Amust show that the defendant=s >material deceptive act= caused the injury.@ Id. citing Oswego, 85 N.Y.2d at 26. It then endeavored to clarify the point by examining closely the grounds for the Appellate Division=s dismissal of Stutman’s ' 349 claim. The Appellate Division had dismissed Stutman’s '349 claim on the ground that plaintiffs failed to show justifiable reliance, that is Athat [defendant=s] failure to disclose [a] $275 attorney=s fee >had any effect on plaintiffs= decision to borrow from defendant in the first place.=@ Id. at 29. But, the Court of Appeals said that this was Athe wrong standard, reasonable reliance on erroneous statements in order to obtain relief@). 18
ecause reliance is not an element of a §349 claim.@ Id. at 30; Anotably, even after Oswego, the Appellate Division has occasionally applied an incorrect standard in section 349 cases, imposing a reliance requirement when in fact there is none. Id. See, e.g., Gershon v. Hertz Corp., 215 A.D.2d 202, 202-203 (no §349 claim where plaintiff=s >allegations do not show materially deceptive conduct on which plaintiff relied to his detriment=). The Court of Appeals continued, 95 N.Y.2d at 30. [n]or did the Appellate Division merely apply the causation standard in the guise of reliance. The Appellate Division=s ruling clearly imposed a reliance requirement that plaintiffs made the decision to take the loan in reliance on their belief that the $275 fee would not apply. In contrast to section 349 claims, that is precisely the type of reliance that must be shown in order to state a common law fraud claim. The Court of Appeals used the Stutman facts to illustrate the difference between reliance and causation, stating Id. at 30. plaintiffs alleged that because of defendant=s deceptive act, they were forced to pay a $275 fee that they had been led to believe was not required. In other words, plaintiffs alleged that defendant=s material deception caused them to suffer a $275 loss. This allegation satisfies the causation requirement. Plaintiffs need not additionally allege that they would not otherwise have entered into the transaction. Nothing more is required. The court likened the issue to cases in the securities context where Aproof of reliance is not required where a duty to disclose material information has been breached or 19
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Consumer Class Actions in New York - New York City Bar Association

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