Court of Appeals Decision Broadens Scope of Deceptive Business Practices Claims Under GBL § 349
December 20, 2021
New York General Business Law § 349(a) prohibits “deceptive acts or practices in the conduct or any business, trade or commerce or in the furnishing of any service.” To assert a claim under this section, a plaintiff must show that: (1) the challenged act was consumer-oriented; (2) the act was misleading in a material way; and (3) that the plaintiff suffered injury as a result. Until recently, the First Department defined “consumer-oriented” as acts involving those “who purchase goods and services for personal, family, or household use.” Medical Socy. of State of N.Y. v. Oxford Health Plans, Inc., 15 AD3d 206, 207 (1st Dept. 2005) (holding that the challenged act was not “consumer-oriented” because it was directed at physicians).
The Court of Appeals recently held that “there is no textual support in GBL § 349 for a limitation on the definition of ‘consumer’ based on use” in a case in which it found that “[l]egal professionals are merely a subclass of consumers.” – Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc., 37 NY3d 169, 177 (2021).
Himmelstein involved a law firm’s suit against Matthew Bender & Company, the prolific publisher of legal guidebooks, claiming that the company violated the deceptive business practices statute. The law firm plaintiff was joined by a non-profit organization and a housing advocate, all parties which assist or represent tenants in NYC housing courts. The plaintiffs claimed that the Tanbook, a commonly used legal resource manual on New York landlord-tenant law, was deceptively marketed by the defendant as containing “all” relevant laws and regulations governing landlord/tenant law when, in fact, it omitted certain relevant provisions. In addition, Plaintiffs brought charges of breach of contract, fraud, and unjust enrichment, all based on similar arguments.
Most lawyers are taught that while hornbooks and other legal resource manuals can be a useful primer on the law, there is no substitute for checking the current status of statutes and regulations. The plaintiffs in this case were a law firm handling landlord-tenant actions, a non-profit corporation that assists pro se litigants in housing court matters, and a tenant advocate- all presumably parties that would be aware that laws and regulations affecting landlord-tenant actions can change frequently.
Nevertheless, Plaintiffs argued on behalf of themselves and a putative class of purchasers of pre-2017 versions of the Tanbook that the publisher engaged in deceptive business practices in both marketing and selling those versions. They argued specifically that, contrary to the defendant’s marketing, the Tanbook did not contain a complete and accurate compilation of the statutes and regulations applicable to rent-controlled and rent-stabilized apartments in NYC and, in fact, omitted key portions of those laws. The Tanbook was reportedly revised in 2017 to include those omitted materials. The defendant publisher moved to dismiss the complaint arguing that plaintiffs had failed to plead the necessary elements of a GBL §349 cause of action.
The Supreme Court granted the defendant’s motion and dismissed the complaint in its entirety, Himmelstein v. Matthew Bender & Co, Inc. 2018 WL 984850 (N.Y. Sup Ct, New York County Feb. 06, 2018), rejecting the GBL § 349 claim because it found that Plaintiffs failed to demonstrate that the complained-of conduct was consumer-oriented. The Appellate Division affirmed the dismissal of the GBL cause of action but did not specifically address whether the conduct was consumer-oriented, finding instead that the plaintiffs could not maintain a GBL claim because they had not alleged a cognizable injury under the statute (alleging only the cost of the book as damages) and did not allege that several of the plaintiffs had even seen the supposedly deceptive representations. Himmelstein v. Matthew Bender & Co., Inc., 172 AD3d 405, 406 (1st Dept. 2019).
The Court of Appeals granted leave to appeal, and ultimately affirmed the dismissal of the complaint. Himmelstein v. Matthew Bender & Co., 37 NY3d 169 (2021). The Court of Appeals found that the allegedly deceptive practices were “consumer-oriented” as required by GBL § 349 but held that the plaintiffs did not sufficiently allege that defendant’s conduct was “materially misleading” and therefore affirmed the lower court finding.
Previously, the Appellate Division had relied on other statutes in the GBL that used the term “consumer” to determine that § 349’s requirement that conduct be “consumer-oriented” meant that it applied only to “goods and services for personal, family, or household use.” Med Socy v. Oxford Health Plans, Inc., 15 AD3d at 207; see also, Cruz v. NYNEX Info. Resources, 263 AD2d 285 (1st Dept 2000). The Court of Appeals abrogated both prior cases, holding that “there is no textual support in GBL § 349 for a limitation on the definition of ‘consumer’ based on use. . .and that [l]egal professionals are merely a subclass of consumers. . .” Himmelstein at 178. The Court found that Defendant’s conduct in marketing and selling the Tanbook met the definition of “consumer-oriented” sufficiently to bring that conduct in the orbit of GBL § 349. Ultimately, however, the Court held that Plaintiffs failed to plead Bender’s marketing was materially misleading, because the Tanbook both contained express disclaimers regarding the currentness of its contents, and because Plaintiffs knew that the laws and regulations at issue were subject to legislative amendment at any time.
Justice Fahey dissented, arguing that Plaintiffs sufficiently alleged Defendant’s conduct was materially misleading, and that Plaintiffs had alleged a cognizable injury caused by that conduct — i.e., the cost of the book itself. However, he agreed with the majority that GBL § 349 does not apply solely to goods purchased for personal, family or household use, but also applies to goods marketed to businesses and professionals. The relevant distinction made by GBL § 349 is that it targets “acts or practices [that] have a broader impact on consumers at large, as distinguished from private contract disputes, unique to the parties. . .” Himmelstein at 182-83 (quotations omitted, J. Fahey, dissenting). As he stated, “[a] business may be a consumer.” Id.
This is a notable development in commercial cases in NY state, and business and their attorneys can expect to encounter more GBL § 349 claims of deceptive practices in commercial disputes. Although other judicial departments had not always drawn as clear a line between household and business use as a threshold requirement for GBL § 349 claims, the Court of Appeals holding makes clear that even businesses that market their goods or services to a limited, sophisticated pool of professionals may be subject to claims of deceptive acts or practices. Cases in both the Third and Fourth Departments have cited the “consumer-oriented” requirement of Cruz; those cases would be analyzed differently post-Himmelstein. See, e.g., Citipostal, Inc. v. Unistar Leasing, 283 AD2d 916, 918 (4th Dept. 2001) (finding, in a case involving mobile communications equipment leases, that a § 349 claim did not apply, in part, because “[t]he acts complained of are limited to business rather than consumer leases”); Benetech, Inc. v. Omni Financial Group, Inc., 116 AD3d 1190, 1191 (3rd Dept. 2014) (quotation omitted) (holding, in a case involving administration services for tax-deferred retirement plans for school districts that a § 349 claim did not apply, in part, because the deceptive practices were not “aimed at the general public”).
Erin Casey represents businesses and individuals in complex disputes in federal and state courts, in arbitration, and before governmental agencies.