Case Information
*3 JORDAN, Circuit Judge .
Larissa Shelton and Gregory Bohus (the “Plaintiffs”) appeal from an order of the United States District Court for the District of New Jersey dismissing their putative class action suit against Restaurant.com. A total of five prior opinions have been issued in this case by, variously, the District Court, the Supreme Court of New Jersey, and our Court. See Shelton v. Restaurant.com ( Shelton V ), No. CIV.A. 10-824 JAP, 2014 WL 3396505 (D.N.J. July 10, 2014); Shelton v. Restaurant.com, Inc. ( Shelton IV ), 543 F. App’x 168 (3d Cir. 2013); Shelton v. Restaurant.com, Inc. ( ), 70 A.3d 544 (N.J. 2013); Shelton v. Restaurant.com, Inc. ( Shelton II ), No. 10-2980, 2011 WL 10844972 (3d Cir. May 17, 2011); Shelton v. Restaurant.com, Inc. ( Shelton I ), No. CIV. A 10-0824 (JAP), 2010 WL 2384923 (D.N.J. June 15, 2010). But the end, one may hope, is finally near. We will reverse and remand for entry of judgment solely in favor of the named plaintiffs. I. *4 Background [1]
The Plaintiffs purchased gift certificates from
Restaurant.com that allegedly violated several New Jersey
statutes. Restaurant.com sells gift certificates online that
“provide a credit for the hоlder for purchases of food and
beverages at the restaurant named on the certificate.”
Shelton
IV
,
Each certificate displayed on its face various restaurant-specific conditions in addition to standard terms and conditions imposed by Restaurant.com. Two standard terms and conditions on the … certificates were the following: 1) the certificate “[e]xpires one (1) year from date of issue, except in California and where otherwise provided by law[,]” and 2) the *5 certificate is “[v]oid to the extent prohibited by law.”
Id. at 547-48 (alterations in original).
The Plaintiffs filed a purported class action against Restaurant.com in New Jersey state court, and the case was later removed to federal court on the basis of diversity jurisdiction. Id. at 548. The class has not been certified. The Plaintiffs’ complaint alleges two claims: in Count I, violations of the New Jersey Gift Certificate Statute, N.J. Stat. Ann. § 56:8-110, and the New Jersey Cоnsumer Fraud Act, N.J. Stat. Ann. §§ 56:8-1 et seq. ; and, in Count II, violations of the Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”), id. §§ 56:12-14 to 12-18. The New Jersey Gift Certificate Statue prohibits gift certificates from expiring within 24 months of the date of sale, id. § 56:8-110(a)(1), and the Consumer Fraud Act provides a cause of action for violations of the Gift Certificate Statute, id. §§ 56:8-11, 8- 112. The TCCWNA prohibits giving notice to a consumer or offering or entering into any written consumer contract that violates any clearly established consumer right or seller responsibility. Id. § 56:12-15. The TCCWNA also provides that any notice or consumer contract that states that any of its provisions are or may be void, unenforceable, or inapplicable in some jurisdictions must also specify “which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey.” Id. § 56:12-16. The TCCWNA authorizes “the aggrieved consumer” to recover “a civil penalty of not less than $100.00 or … actual damages, or both at the election of the consumer, together with reasonable attorney’s fees and court costs.” Id. § 56:12-17.
The District Court initially granted a motion to dismiss
for failure to state a claim. As to the first count, the Court
concluded that the Plaintiffs had failed to allege any
ascertainable loss, as is required under relevant state law.
Shelton I
,
1. Does the TCCWNA apply to both tangible and intangible property, or is its scope limited to only tangible property?
2. Does the purchase of a gift certificate, which is issued by a third-party internet vendor, and is contingent, i.e., subject to particular conditions that must be satisfied in order to obtain its face value, qualify as a transaction for “property ... which is primarily for personal, family or household purposes” so as to come within the definition of a “consumer contract” under section 15 of the TCCWNA?
Shelton II
,
1. Whether Restaurant.com’s coupons, which were issued to plaintiffs and redeemable at particular restaurants, constitute “property” under the New Jersey Truth-in-Consumer Contract, Warranty, and Notice Act, N.J.S.A. 56:12-14 to -18;
2. If the coupons constitute “property,” whether they are “primarily for personal, family or household purposes,” N.J.S.A. 56:12-15; [and] 3. Whether the sale of the coupons by Restaurant.com to plaintiffs constituted a “written consumer contract,” or whether the coupons “gave or displayed any written consumer warranty, notice, or sign,” under N.J.S.A. 56:12-15.
Shelton III
,
The New Jersey Supreme Court then determined in a thorough and carefully crafted opinion – Shelton III – that the term “property” as used in the TCCWNA encompasses intangible property such as the gift certificates issued by Restaurant.com, id. at 554, 558-59, that the gift certificates were primarily for personal, family, or household purposes, id. at 555, 558-59, that the sale of the gift certificates constituted a written consumer contract, id. at 556, 559, and that the terms listed on the gift certificates constituted notice, id. at 558-59. In sum, the court concluded, “The statute as drafted … covers the certificates in question.” Id. at 559.
Next, we vacated the District Court’s dismissal of the TCCWNA count and remanded for further proceedings consistent with the New Jersey Supreme Court’s explication of the law in Shelton III . Shelton IV , 543 F. App’x at 171. Upon remand, Restaurant.com again filed a motion to dismiss, arguing that should apply only prospectively. The District Court agreed. It acknowledged that decisions are ordinarily applied retroactively under New Jersey law. But it concluded that retroactive application was inappropriate here because Shelton III established a new rule of law by resolving an issue of first impression, and retroactive application would yield substantial inequitable results. The District Court acknowledged the fact-sensitive nature of its analysis of the equities, but it rejected the Plaintiffs’ argument that an evidentiary record was needed to reach a decision. It instead decided that, because the Plaintiffs “have not suffered any actual, non-theoretical damages” (App. at 12) – in fact, there was “no allegation that Plaintiffs were unable to enjoy the bargained-for discounts at the third-party restaurants that they selected” – they should not be entitled to “windfall statutory damages and attorneys’ fees.” ( Id. at 13.) In the District Court’s view, “common sense” dictated that the many “unsuspecting companies” that would be subject to the new law should be given a chance to change their conduct before being exposed to “extraordinary statutory penalties.” ( Id. at 11.) In such a situation, the District Court concluded, even limited retroactive application to the plaintiffs in this case would be inequitable.
The Plaintiffs timely appealed the District Court’s order.
II. Discussion [2]
The Plaintiffs raise three main arguments challenging the District Court’s retroactivity ruling. First, as a preliminary matter, they argue that the Supreme Court of New Jersey has already conducted a retroactivity analysis and determined that its decision was to apply to the parties in this case, and hence we need not revisit the issue. Alternatively, they suggest that we certify the question of retroactivity to the Supreme Court of New Jersey. Second, they argue that the question of retroactivity need not even arise because the rule announced in Shelton III is not new. Finally, they argue that even if the rule announced in Shelton III is new, the District Court should have applied the general rule that litigants who bring about a change or clarification in the law are entitled to the bеnefit of that new rule. We consider each of those arguments in turn.
A. Whether
Shelton III
Addressed Retroactivity
As just noted, the Plaintiffs contend that already determined the retroactive effect to be accorded that
decision, and that, if not, we should certify the issue of
*10
retroactivity to the Supreme Court of New Jersey. The
Plaintiffs correctly observe that contains several
passages that suggest the Supreme Court of New Jersey was
applying its ruling to the parties before it. For example, when
it reformulated the questions of law that we certified, it
phrased each new question
in
terms of whether
“Restaurant.com’s coupons” fell within the relevant statutory
terms.
Shelton III
,
Thus, plaintiffs can properly be considered “consumers” within the scope of the TCCWNA because the certificates acquired by them through the Restaurant.com website are property primarily for personal, family, or household purposes. Further, in construing the plain language of the terms of the TCCWNA and the Act’s relationship to the Plain Language Act, we conclude the certificates purchased from Restaurant.com can be considered “consumer contracts[,]” and the standard terms *11 provided on the certificates can be considered “notices” subject to the TCCWNA.
Id. at 559. In other words, the court stated, “The statute as drafted … covers the certificates in question.” Id.
While spoke in terms of the TCCWNA’s application to Restaurant.com, nothing in that opinion expressly addresses the issue of retroactivity. None of New Jersey’s cases on retroactivity are cited, nor is the test for departing from the general rule of retroactivity mentioned. Nevertheless, the Plaintiffs argue that, to the extent Shelton III is silent as to its retroactive effect, its intent is clear and we should presume that the Supreme Court of New Jersey meant for its interpretation of the TCCWNA to be retroactive.
New Jersey law suggests that any appellate opinion that considers remedial issues in the course of its analysis, or remands for consideration of such issues, ordinarily contemplates retroactive application to the parties in that case. The Supreme Court of New Jersey adopted that approach when it addressed one of its cases that had been reviewed by the United States Supreme Court:
Although the [United States] Supreme Court’s opinion is silent on the issue of retrospective application, the remand to this Court to determine severability and “for further proceedings” carries with it the implicit direction that we determine the relief appropriate to the holding that the [legislatiоn at issue] is partially pre-empted. If the Court conceived that its decision might apply only *12 prospectively, which would significantly affect the remedy we must fashion, it is reasonable to assume that the opinion would at least have adverted to that possibility.
Exxon Corp. v. Hunt
,
In the Plaintiffs’ view, that reasoning should guide us
here. But it cannot. That reasoning is sound when
applicable, but it is plainly not applicable in the context of an
opinion given on certification. The Supreme Court of New
Jersey was not called upon to directly fashion a remedy or
resolve the Plaintiffs’ case. Nor did it sit as an appellate
tribunal reviewing a decision of the federal courts and
remanding for a determination of the appropriate remedy.
See Ex parte Bollman
, 8 U.S. (4 Cranch) 75, 101 (1807)
(Marshall, C.J.) (defining appellate jurisdiction as “the
revision of a decision of an inferior court”);
Marbury v.
Madison
,
Certified questions should be such as to “control the outcome of a case pending in the federal court.” L.A.R. 110.1; see also N.J. R. 2:12A-1 (providing that the Supreme Court of New Jersey has authority to accept a certified question from our court “if the answer may be determinative of an issue in litigation pending in the Third Circuit”). But there is a distinction between deciding a controlling legal issue and resolving a dispute. In answering the certified question, the Supreme Cоurt of New Jersey was not applying the law to the facts of this case in the sense that it was resolving a dispute among litigants. That can only be done by a court with jurisdiction over the dispute itself, and jurisdiction, coupled with the mutual respect inherent in the seeking and granting of certification of a controlling question of law, circumscribes the opinion rendered. The Supreme Court of Utah has insightfully provided a state-court perspective on the process:
We routinely refer to surrounding facts and circumstances not just to set the stage for our resolution of questions certified by federal courts, but also to illustrate the application of our answer in the context of the case. That is not to say that our opinion on certification will itself resolve the underlying federal case. The resolution of the parties’ competing claims and arguments will be up to the federal courts, which of course retain jurisdiction to decide this case under the law as they see it. … Those courts retain the independent authority to decide whether and to *14 what extent to apply our law or to recognize limitations on or caveats to it.
Fundamentalist Church of Jesus Christ of Latter-Day Saints
v. Horne
, 289 P.3d 502, 505-06 (Utah 2012) (Lee, J.)
(footnote and paragraph numbering omitted));
cf. Nemours
Found. v. Manganaro Corp.
,
We also doubt the wisdom of returning to that court with the question of retroactivity. We have already imposed upon it once in this case, and it graciously answerеd our call for help in clarifying the scope of the TCCWNA. We are no longer faced with a “[n]ovel, unsettled question[] of state law,” which is a prerequisite for certification. Arizonans for Official English v. Arizona , 520 U.S. 43, 79 (1997). Certification would be inappropriate here – indeed, it would serve no purpose – because the requirements of New Jersey law on the issue of retroactivity are clear. All that remains is to apply them to the acknowledged facts. It appears that, in essence, the Plaintiffs are attempting to escape the effect of the removal of their case to federal court and would like to have the Supreme Court of New Jersey аdjudicate the matter. They chose a state forum in the first instance, so their efforts *15 are perhaps understandable, but we are not free to shirk our responsibility to decide what is properly before us.
B. New Rule
The Plaintiffs next challenge the District Court’s determination that Shelton III established a new rule of law. They argue that there was no old rule from which the court could have departed; rather, the law was silent on the issue, which, they say, prevents from constituting a “new” rule.
There is a ringing lack of logic in that assertion.
Things are commonly understood as “new” not only when
contrasted with something “old” but when they are, in
themselves, without precedent. Thus, while it is true that,
“[u]nless a new rulе of law is at issue, the Court need not
engage in retroactivity analysis,”
US Bank Nat’l Ass’n v.
Guillaume
, 38 A.3d 570, 585 n.3 (N.J. 2012), it is not true
that a “new rule” only arises when it supplants an old one.
An opinion establishes a “new” rule “‘
either
by overruling
clear past precedent on which litigants may have relied, …
or
by deciding an issue of first impression whose resolution was
not clearly foreshadowed.’”
Coons v. Am. Honda Motor Co.
(“
Coons II
”),
[3]
476 A.2d 763, 768 (N.J. 1984) (omission in
original; emphasis added) (quoting
Chevron Oil Co. v. Huson
,
*16
404 U.S. 97, 106 (1971));
accord In re Contest of Nov. 8,
2011 Gen. Election of Office of N.J. Gen. Assembly
, 40 A.3d
684, 707 (N.J. 2012). “Generally, an issue of statutory
construction that implicates an established practice and that
courts have not yet addressed presents an issue of first
impression.”
Henderson v. Camden Cnty. Mun. Util. Auth.
,
The New Jersey Supreme Court’s decision in Shelton III was not foreshadowed by an unambiguous reading of the text of the statute or by other state court decisions. As we stated in our certification order, “The panel has examined the decisions of the courts of the State of New Jersey and found no decision that addresses the question of how the term ‘property’ is defined in the TCCWNA.” Shelton II , 2011 WL 10844972, at *1. We explained that only one case “addressed the question of whether gift certificates were considered property, and that case did not involve the TCCWNA,” nor was there anything in that case from which we could “infer what the Supreme Court of New Jersey would say regarding the question of tangible and intangible property in the context of the TCCWNA.” Shelton II , 2011 WL 10844972, at *3. Furthermore, we noted that “the Legislature did not expressly omit gift certificates from the types of property covered by the TCCWNA,” and determining the import of that silence was complicated by the fact that a separate act, the Gift Certificate Act, “specifically addresses restrictions on gift certificates.” Id. at *4. Nothing in Shelton III contradicts our earlier assessment. Because the rule announced in Shelton III was not foreshadowed by the case law or an unambiguous *17 statute, it qualifies as new. [4] We must therefore determine whether the District Court properly limited the rule to purely prospective application.
C. Equitable Analysis
Under New Jersey law, judicial decisions that adopt
new rules аre generally given retroactive effect.
Coons II
,
476 A.2d at 767. Courts may, however, depart from that
general rule when they determine that “retroactive application
could produce substantial inequitable results.”
Selective Ins.
Co. of Am. v. Rothman
, 34 A.3d 769, 773 (N.J. 2012). To
determine “what is just and consonant with public policy in
the particular situation presented,” courts generally consider
three factors: “(1) justifiable reliance by the parties and the
community as a whole on prior decisions, (2) a determination
*18
that the purpose of the new rule will not be advanced by
retroactive application, and (3) a potentially adverse effect
retrospectivity may have on thе administration of justice.”
Coons II
, 476 A.2d at 767;
see also In re Contest of Nov. 8,
2011 Gen. Election
,
“(1) make the new rule of law purely prospective, applying it only to cases whose operative facts arise after the new rule is announced; (2) apply the new rule to future cases and to the parties in the case announcing the new rule, while aрplying the old rule to all other pending and past litigation; (3) grant the new rule limited retroactivity, applying it to cases in (1) and (2) as well as to pending cases where the parties have not yet exhausted all avenues of direct review; and, finally, (4) give the new rule complete retroactive effect, applying it to all cases, even those where final judgments have been entered and all avenues of direct review exhausted.” Coons II , 476 A.2d at 767 (quoting State v. Burstein , 427 A.2d 525, 529 (N.J. 1981)).
The Plaintiffs of course challenge the District Court’s ruling that should be given purely prospective *19 application. They first argue that Restaurant.com did not carry its burden to demonstrate actual, reasonable reliance on an earlier interpretation of the law. On a related note, they say that, because there was no record developed to support the conclusion that it would be inequitable to apply the new rule retroactively, it was error for the District Court to refuse retroactive effect. The Plaintiffs next contend that the District Court erred by not applying the general rule that parties who successfully push for a clarification of the law are entitled to application of the new law to their case, even when full retroactivity is inappropriate. They argue that the District Court’s reasoning for departing from the general rule – namely, that application to the Plaintiffs would result in a “windfall” because Restaurant.com may have to pay statutory damages and attorney fees when there were no actual damages – was insufficient as a matter of law. While the first of those arguments – the one focused on reasonable reliance – is not persuasive, the second – concerning the propriety of statutory damages – is.
1.
Reasonable Reliance
New Jersey precedent calls on courts to consider the
impact that retroactive application of a new rule would have
on those who have reasonably relied on a contrary
interpretation of the law.
See SASCO 1997 NI, LLC v.
Zudkewich
, 767 A.2d 469, 477 (N.J. 2001) (considering the
financial impact of a new rule on “the entire commercial
lending industry” when the new rule invalidated “a practice
apparently dominant throughout the industry”);
Rutherford
Educ. Ass’n
, 489 A.2d at 1159 (noting that retroactive
application “may have serious consequences on the tax
structure of many communities and other community
*20
services”). Reliance on a contrary interpretation of the law is
reasonable “when a court renders a first-instance or clarifying
decision in a murky or uncertain area of the law.”
Montells
,
627 A.2d at 662 (internal quotation marks omitted). “[A]
party seeking to avoid retrospective application of a decision
must show actual reliance on a contrary principle of law.”
New Jersey Election Law Enforcement Comm’n v. Citizens to
Make Mayor-Council Gov’t Work
,
The quantum of evidence required to show actual
reliance depends on the nature of the inquiry in each case.
Compare Selective Ins.
, 34 A.3d at 773-74 (noting that the
record was “largely devoid of evidence” that “might imply
that there was general reliance on the interpretation of the
statute and regulations that we have found wanting” or that
“anyone other than this defendant found the law in this regard
to be ‘murky’ or so uncertain that a retroactive application of
our judgment would be mаnifestly unjust”),
with Rutherford
Educ. Ass’n
, 489 A.2d at 1159 (noting that the court had
examined the record, and that there was “no question that in
this case the school boards acted properly and in good faith in
relying on prior law,” but also assuming that boards of
education in general acted similarly). In appropriate cases,
“[s]ome level of generality” may be required, and common
sense inferences may be drawn to determine whether a
practice is widespread or whether defendants relied on a
contrary interpretation of the law.
Coons II
,
The District Court in this case did not err by presuming that businesses similarly situated to Restaurant.com had been operating with the understanding that the TCCWNA did not apply to intangible property. Under Shelton III ’s interpretation of the TCCWNA, businesses may not sell gift certificates and other intangible property intended for household use if they indicate that certain provisions – such as expiration dates – “may be void, unenforceable, or inapplicable in some jurisdictions without specifying which рrovisions are or are not void, unenforceable or inapplicable within the State of New Jersey.” N.J. Stat. Ann. § 56:12-16; Shelton III , 70 A.3d at 558-59. The District Court determined that reliance on competing interpretations of the TCCWNA was reasonable. It had initially ruled that, because the gift certificates in question were simply “a contingent right to a discount,” Shelton I , 2010 WL 2384923, at *5, the Plaintiffs were not consumers within the meaning of the TCCWNA. Although ultimately incorrect, that interpretation was reasonable. It is safe to assume, without more specific proof, that many internet retailers selling intangible property intended for household use would likewise have considered the requirements of the TCCWNA and concluded that gift certificates and other intangible property qualify as contingent rights rather than “property” under that statute.
Furthermore, the District Court correctly determined that the impact of a fully retroactive application of Shelton III would be widespread. has the potential to affect not only Restaurant.com, but also any business – including *22 internet retailers located in any part of the world – that markets intangible property to consumers in New Jersey. Specific proof of the extent of ’s impact was not necessary here, since common sense reveals that its impact will be truly far-reaching. The District Court thus correctly rеfused to apply the general rule of full retroactivity.
2. Propriety of Statutory Damages for the Named Plaintiffs Even though full retroactivity is not appropriate here, it does not follow that the new rule should be applied purely prospectively. Instead, New Jersey courts generally apply a new rule at least to the litigants whose efforts helped produce it. The Supreme Court of New Jersey has explained that,
[b]alanced against [the factors of reasonable reliance, the purpose of the rule, and the rule’s impact] is our belief that those responsible for effecting a change in the law should benefit from their efforts. Accordingly, we have recognized that purely prospective rulings fail to reward litigants for their efforts and fail to further the broader goal of providing an inducement to challenge existing interpretations of the law. It has long been our position that fundamental fairness generally requires that champions of the cause should be rewarded for their effort and expense in challenging existing law.
Rutherford Educ. Ass’n
, 489 A.2d at 1158;
accord James v.
Bd. of Trustees of Pub. Emps.’ Ret. Sys.
,
Here, the District Court rejected that approach. It
decided that, because the Plaintiffs had suffered no
“ascertainable loss” and there had been reasonable reliance on
a contrary interpretation of the law, it would be unjust for
Restaurant.com to have to pay “windfall statutory damages
and attorneys’ fees.” (App. at 13.) The Court quite rightly
was concerned with whether the purpose of the new rule
would be best served by something less than full retroactive
effect.
Coons II
,
That does not mean, however, that the District Court could not limit the extent of the windfall. The approach taken by the New Jersey Supreme Court in Henderson is instructive. Retroactive application was limited to the named plaintiffs, and that option is available here. By following that approach, the otherwise significant financial imрact on Restaurant.com and other potential defendants would be more limited and change the calculus of the equities.
III. Conclusion
Although the District Court correctly determined that the new rule announced in Shelton III is not fully retroactive, it erred by failing to apply that new rule to the Plaintiffs, Shelton and Bohus. We will therefore reverse the judgment *25 and remand the case for entry of an order giving the two named plaintiffs the benefit of the new rule of law that their efforts helped to create.
[1] Because we are reviewing the District Court’s ruling on a motion to dismiss brought under Rule 12(b)(6) of the Federal Rules of Civil Procedure, we accept all well-pleaded allegatiоns in the complaint as true and draw all reasonable inferences in favor of the non-moving parties, the Plaintiffs. Pearson v. Sec’y Dep’t of Corr. , 775 F.3d 598, 604 (3d Cir. 2015).
Notes
[2] The District Court had jurisdiction under 28 U.S.C.
§ 1332(d)(2)(A); we have jurisdiction pursuant to 28 U.S.C.
§ 1291. We exercise plenary review over a dismissal under
Rule 12(b)(6).
Pearson
, 775 F.3d at 601. When a district
court dismisses on the basis of an affirmative defense, as is
the case here, we will affirm only when the defense is
“apparent on the face of the complaint” and documents relied
on in the complaint.
Schmidt v. Skolas
,
[3]
Coons II
involved a rehearing of
Coons v. American
Honda Motor Co.
(“
Coons I
”),
[4] One case may be read as implying that an issue of first impression is not involved when a court “merely applie[s] existing rules to a new factual variant.” See Malinowski v. Jacobs , 915 A.2d 513, 515 (N.J. 2007) (referring to the opinion of the dissenting judge of the intermediate appellate court, and, after discussing that dissenting opinion at length, stating that the court was reversing “substantially for the reasons given by” that dissenting judge). Taken to an extreme, such a reading might undermine the principle that an unprecedented circumstance can produce an application of law so novel as to be “new” for purposes of retroactivity. Even under that formulation of the test, however, our conclusion is the same: given our statements in Shelton II and the analysis in , the Supreme Court of New Jersey was not simply applying settled law to a new factual variant.