Why Apple Hopes You Don’t Know About the New Jersey Consumer Fraud Act

What happens when “freemium” isn’t free? Parents of children who allegedly spent (in some cases) over $300 “at a time” on free-to-download apps are wondering the same thing. The controversy is centered on apps marketed to the public as “free” but that allow for the purchase of game currency (at real cost) once game play begins. According to parents in In re Apple In-App Purchase Litigation, 5:11-CV-1758 (N.D. Cal.; Mar. 31, 2012), their children added hundreds of charges for in-game currency during a fifteen minute window (while their password was still active) after downloading the free app. These parents believe this practice was deceptive and violates California’s Consumer Legal Remedies Act, Cal. Civ. Code 1.5 Sec. 1750-1784.

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Parents in New Jersey may be protected by New Jersey’s Consumer Fraud Act. N.J.S.A. 56:8-1 et seq. The NJ CFA is nationally recognized as consumer friendly and represents one of the strongest stands against deceptive business practices. It includes provisions for mandatory treble damages, attorney’s fees and does not require the plaintiff to prove intent. See Cox v. Sears Roebuck & Co., 138 N.J. 2, 24; N.J.S.A. 56:8-19. Considering the number of downloaded apps in New Jersey alone, there exists the potential for massive liability on Apple’s part. Rather than be subject to New Jersey’s strong consumer protection law, Apple would prefer to stick with California’s. A New Jersey parent suing Apple in New Jersey under the CFA will certainly face an objection to the application of NJ law. Apple will say that when the parent downloaded the app, she agreed to the “Terms & Conditions” and so CA law applies.

To be protected by the CFA, an injured parent-consumer must convince a court that the CFA should apply despite the transaction being apparently governed by California law. To resolve this classic conflict of law, New Jersey follows the “most significant relationship” test of the Restatement (Second) of Conflict of Laws. P. V. v. Camp Jaycee, 197 N.J. 132, 142-43 (2008). This means that a parent-consumer must convince a court that New Jersey has the “more significant relationship” to the dispute. Determining if New Jersey has the “more significant relationship” requires identifying an actual conflict between the CFA and California’s Consumer Legal Remedies Act. An actual conflict is a distinction between the substance of the potentially applicable laws.

The major point of distinction between the CFA and California law is the CFA’s provision for mandatory attorney’s fees. The New Jersey Supreme Court explained that the CFA includes attorney’s fees in its recovery provision to “attract competent counsel to counteract the community scourge of fraud by providing incentive for an attorney to take a case involving a minor loss to the individual.” Wanetick v. Gateway Mitsubishi, 163 N.J. 484 (2000). Although California law allows for punitive damages and other discretionary relief, attorneys fees are not mandatory. This distinction represents New Jersey’s strong consumer position and desire to provide vindication for even the smallest instance of fraud.

Treating the attorney’s fees provision as an actual conflict, the analysis moves to whether New Jersey has a “more significant relationship with the occurrence and the parties” than California. A more significant relationship is determined by weighing the typical principles of contacts with the dispute. Contacts include: 1) the place of the injury; 2) the place of the conduct causing the injury; 3) the domicile, residence, place of incorporation, or principle place of business of the parties; and 4) the place where the relationship between the parties is centered.

Taken one-by-one, both sides of the contact ledger are appear balanced. The injury (being exploited by a freemium app) took place in New Jersey where the consumer downloaded the app. Also, the consumer resides in New Jersey. Arguably, the injurious conduct emanates from California where Apple is based. Along the same lines, the relationship of the parties could be centered in California.

Fortunately for potential consumer-plaintiffs, one important aspect of the analysis remains. The final step is a consideration of “interest” principles including 1) the interests of interstate comity; 2) the interest of the parties; 3) the interests underlying the field of tort law and 4) the competing interests of the states. Here, the most convincing case of applying the CFA is made.

As mentioned, New Jersey has perhaps the strongest consumer protection law. The provisions for mandatory fees and treble damages (regardless of the “size” of the fraud) carve out a staunch consumer advocate position. These provisions are essential to the interests underlying the fraud-tort and New Jersey’s interest in its consumer laws. Although it is a close call, this final step of the analysis tends to favor application of the CFA.

New Jersey victims of “freemium” apps, may find comfort in the potential to avail themselves of the nation’s strongest consumer protection law. Despite having clicked-through contrary terms and conditions, a conflicts of law analysis can yield the application of the CFA. As the growth of mobile based activity continues, consumers should know that agreeing to terms and conditions is not akin to surrendering your right to recovery. Before it debuts the next “freemium” app, Apple should know the same.

Offit Kurman represents and fights for the rights of consumers and tenants across New York and New Jersey. The firm maintains an active practice in and around New York City (Manhattan, New York County, Brooklyn, Kings County, Queens, Queens County, Bronx County, Staten Island) and New Jersey (Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County). The Firm invites you to visit the “Promises” page for our new way of doing business. Contact us today for a guaranteed free initial consultation.

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