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G Litigation Alert April 2006 Court Opens the Door to Nationwide Consumer Fraud Class Actions Against New Jersey-Based Companies By Gavin J. Rooney, Esq. D and in some cases requires the defendant to pay o New Jersey-based companies carry with the plaintiff’s legal fees even if the plaintiff loses at them the New Jersey Consumer Fraud trial. While originally enacted to fight deceptive Act (“NJCFA”) with them wherever they practices by door-to-door salesmen, home go to market their products and services? The renovation contractors, and storefront retailers, in answer, according to a recent mid-level appellate recent years the NJCFA has been applied to decision, is a resounding yes. Breaking with pharmaceutical sales, telecommunications established precedent from both the federal courts services, automobile sales, and other sorts of mass and the courts of other states, the New Jersey marketing of consumer products. Appellate Division affirmed the certification of a What Does the Local #68 Opinion Mean nationwide NJCFA class in International Union of for New Jersey-Based Companies? Operating Engineers Local #68 Welfare Fund v. Merck & Co., Inc., ___ N.J. Super. ____ (2006), The Local #68 opinion creates significant new premised on the fact that Merck maintains its exposure to nationwide NJCFA class actions for corporate headquarters in Whitehouse Station, companies who maintain their corporate offices in New Jersey. New Jersey. In the past, the Delaware river acted as an What is the NJCFA, and What Does it effective firewall against nationwide class actions. Mean for My Company? Finding that differences among the consumer The NJCFA was passed into law in 1960, protections laws of the various states introduced a enacted to fight fraud and deceptive practices in predominance of individual questions of law consumer sales. Modeled on the Federal Trade precluding class certification — differences that Commission Act, nearly every state has some form include what conduct is deemed unlawful, the of consumer protection statute. New Jersey’s law, availability of treble damages, or even whether to however, is particularly aggressive — it provides for permit a private right of action — New Jersey mandatory treble damages, makes unlawful an courts had generally only been willing to certify amorphous category of “unconscionable” conduct, NJCFA classes limited to New Jersey residents. This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G That reluctance to certify nationwide NJCFA leaped to bring similar suits against pharmaceutical class actions has now changed. In a published manufacturers and other types of New Jersey-based decision, Local #68 side-stepped the manageability companies.Under Local #68, a plaintiff can now problems inherent in applying the contradictory argue that a defendant’s corporate office in New consumer protection laws of various states, by Jersey is alone sufficient to justify the application holding that the NJCFA could apply to all of a of the NJCFA to its sales throughout the country New Jersey-based company’s sales to consumers and, therefore, the certification of a nationwide located throughout the United States. class. This decision will make New Jersey a magnet for future nationwide consumer fraud class actions. Local #68 illustrates the potentially massive liability this decision may impose on New Jersey Is the Battle Over Yet, and What Does This companies. Arising from Merck’s recall of its Mean for the Future? blockbuster drug Vioxx from the marketplace, the No, the battle is not over yet — the New Jersey case is brought on behalf of a class of third-party Supreme Court will be hearing another case payors (i.e., insurance companies, health involving a similar choice-of-law issue, the maintenance organizations, and others who paid outcome of which may affect the precedential for prescriptions of Vioxx to patients) alleging that value of Local #68. In Rowe v. Hoffmann- Merck suppressed the disclosure of information LaRoche, Inc., another mid-level appellate panel relevant to the drug’s safety. As a remedy, plaintiffs found that New Jersey product liability law applied seek a refund of the billions of dollars paid for to a Michigan plaintiff’s complaint about a Vioxx prescriptions over the class period. Citing medical device, even though Michigan law plaintiffs’ allegation that Merck hatched its alleged immunized the defendant manufacturer against fraudulent scheme in New Jersey, the Appellate liability for marketing such an FDA-approved Division held that New Jersey law would apply to medical device. Notably, the court in Rowe all claims — irrespective of the location of the applied New Jersey law because the defendant doctor who prescribed the drug, the patient who manufacturer, Hoffman-LaRoche, was headquartered took the drug, or the third-party payor who paid in New Jersey. Because of a dissent in that opinion, for the drug. The factual allegations of Local #68 there is an automatic right of appeal to the also demonstrate how far the NJCFA has strayed Supreme Court. If the Supreme Court overturns from its roots — far from being a remedial statute the mid-level appellate decision in Rowe, then it addressing the disparity in bargaining power of will substantially undercut (if not overrule unsophisticated consumers, it is now being used by entirely) the Local #68 opinion. one category of sophisticated corporate enterprises to seek billions of dollars from another The Class Action Fairness Act of 2005 corporation. (“CAFA”) will also help New Jersey-based companies defend themselves against future suits Does Local #68 Provide a Model for Other modeled on Local #68. Applicable to cases filed Nationwide Class Actions? after February 2005, CAFA allows defendants to Absolutely, and already the plaintiffs’ bar has remove putative class actions with a nationwide

G character to federal court under principles of NJCFA, that decision ought to be respected by minimum diversity of citizenship, provided the New Jersey law. Indeed, the United States class seeks damages in excess of $5 million. CAFA Supreme Court relied on this principle when it means that future decisions about the nationwide overturned a punitive damage verdict under applicability of the NJCFA will likely be made in Alabama’s consumer protection law because that the federal courts — which view mid-level state- verdict was largely based upon product sales court appellate decisions such as Local #68 as occurring outside of the state of Alabama. BMW of informative, but not controlling, precedent. North America v. Gore, 517 U.S. 599 (1996). Finally, Local #68 gave short shrift to the profound Constitutional issues raised by having * * * * * the NJCFA control sales that occur in other states. If you have any questions or concerns regarding The Full Faith and Credit Clause of the United the content discussed in this alert, please do not States Constitution requires New Jersey to respect hesitate to contact Gavin J. Rooney, member of the the legislative jurisdiction of its sister states — and if a sister state decides not to render unlawful or firm and of the Litigation Group at 973.597.2472 or afford treble damages for conduct proscribed by the Grooney@lowenstein.com.