Goldman v. Simon Prop., Inc.

• Decision Date: 25 November 2008
• Docket Number: 2007-07571.
• Citation: 58 A.D.3d 208,869 N.Y.S.2d 125,2008 NY Slip Op 09353
• Parties: ALIZA GOLDMAN, Appellant-Respondent, v. SIMON PROPERTY GROUP, INC., Respondent-Appellant.
• Court: New York Supreme Court — Appellate Division

58 A.D.3d 208

869 N.Y.S.2d 125

2008 NY Slip Op 09353

ALIZA GOLDMAN, Appellant-Respondent, v. SIMON PROPERTY GROUP, INC., Respondent-Appellant.

2007-07571.

Appellate Division of the Supreme Court of New York, Second Department.

November 25, 2008.

Trief & Olk, New York City (Barbara E. Olk of counsel), for appellant-respondent.

Sills Cummis & Gross, P.C., New York City (Jeffrey J. Greenbaum and James M. Hirschhorn of counsel), for respondent-appellant.

OPINION OF THE COURT

DICKERSON, J.

We have previously examined the phenomena of plastic gift cards¹ (see Lonner v Simon Prop. Group, Inc., 57 AD3d 100 [2008]; Llanos v Shell Oil Co., 55 AD3d 796 [2008]).

The instant action, like the Lonner action, challenges the imposition by the defendant Simon Property Group, Inc. (hereinafter Simon) of a dormancy fee in the sum of $2.50 per month and alleges, inter alia, that Simon "began to automatically deduct $2.50 per month as Dormancy Fees beginning the seventh month after the purchase of the Gift Card held by plaintiff without proper notice to plaintiff," that the card did not place the user on notice of the deduction of the dormancy fees, that the card "was deceptive in its failure to provide reasonable notice of the deductions of Dormancy Fees," and that the defendant's "sale, distribution, and marketing of the Gift Cards without providing proper notice of the deductions of Dormancy Fees was deceptive and materially misleading."

According to its terms, the Simon Gift Card (hereinafter the card) is "a prepaid, stored-value card," which may be used anywhere Visa cards are accepted. The card resembles a credit card and is programmed to hold a balance chosen by the purchaser. Each time the card is used, the amount of the transaction is deducted from the available balance of the card. There is a magnetic strip on the back of the card, below which it states, in pertinent part: "[a]n administrative fee of $2.50 per month will be deducted from your balance beginning with the seventh month from the month of card purchase."

Federal Preemption

Initially, the defendant moved to dismiss the complaint pursuant to, inter alia, CPLR 3211 (a) (2). On appeal, this Court reversed the Supreme Court's determination that the plaintiff's claims were preempted by federal law, reasoning that "[t]he record indicates that the defendant and the national bank are separate entities [and] that it is the defendant, and not the bank, that sells and markets the card, and charges and collects the disputed fees" (Goldman v Simon Prop. Group, Inc., 31 AD3d 382, 383 [2006] [citations omitted]; see Lonner v Simon Prop. Group, Inc., 31 AD3d 398 [2006]; see also SPGGC, LLC v Blumenthal 505 F3d 183, 187-191 [2007] ["The Connecticut Gift Card Law prohibits the sale of any `gift certificate' subject to inactivity or dormancy fees or to an expiration date . . . Gift certificates are defined to include gift cards and other stored-value cards . . . We have no difficulty concluding . . . that SPGGC has failed to state a valid claim for preemption of the Connecticut Gift Card Law insofar as it prohibits SPGGC from imposing inactivity and certain other fees on consumers of the Simon Giftcard . . . SPGGC, however, does state a valid claim for preemption insofar as the Connecticut Gift Card Law prohibits expiration dates"]). Accordingly, this Court remitted the matter for a determination of the merits of each cause of action.

The Amended Complaint

The plaintiff filed an amended class action complaint, which identified the card as a gift certificate. The plaintiff alleged that she received the card from her employer in or about April 2003, that the card was sold at malls and through the Internet, and that Simon's "wrongful acts" were consumer-oriented and affected thousands of its customers. The amended complaint set forth five causes of action, and sought to recover damages for breach of contract based upon a breach of the implied covenant of good faith and fair dealing, unjust enrichment, money had and received, and violations of General Business Law §§ 349 and 396-i, the amended complaint also sought declaratory relief and injunctive relief enjoining and restraining Simon from "further applying and implementing the policies and acts complained of."

Motion to Dismiss

Simon thereafter moved pursuant to CPLR 3211 (a) (1) and (7) to dismiss the amended complaint. The Supreme Court granted those branches of the motion which were to dismiss the causes of action to recover damages for violations of General Business Law §§ 349 and 396-i, the former for the plaintiff's failure to articulate the necessary elements of such a claim and the latter because the statute, as amended (L 2004, ch 170, § 1), applied only to gift cards that were issued after October 18, 2004, and not to the plaintiff's card, which was issued in or about April 2003. The court noted that the amended complaint did not expressly assert that the card was a "gift certificate" or "store credit" within the meaning of General Business Law § 396-i, as that statute defined those terms prior to the 2004 amendment (L 1997, ch 126, § 1). Further, the court determined that the "cause of action seeking the declaratory and injunctive relief is not appropriate in this case." However, the court ruled that the causes of actions to recover damages for breach of contract and unjust enrichment, and to recover money had and received, were viable claims.

General Business Law § 349

The amended complaint alleges, inter alia, that the type size used by Simon is impermissibly small, that Simon failed to clearly and conspicuously disclose the terms of the dormancy fee, and that such conduct, combined with deceptive marketing, damaged the plaintiff. The foregoing allegations are sufficient to state a cause of action under General Business Law § 349 (see Lonner v Simon Prop. Group, Inc., 57 AD3d 100 [2008]). As the Appellate Division, First Department, held in Sims v First Consumers Natl. Bank (303 AD2d 288, 289 [2003]),

"[t]he gist of plaintiffs' deceptive practices claim [was] that the typeface and location of the fee disclosures, combined with high-pressure advertising, amounted to consumer conduct that was deceptive or misleading in a material way, causing plaintiffs damages for purposes of General Business Law § 349. Whether defendants' conduct was deceptive or misleading is a question of fact."

"Allegations of a bank's [or card issuer's] unilateral imposition of illegal and/or unwarranted fees upon its customers states a valid claim of consumer fraud" in violation of General Business Law § 349 (Negrin v Norwest Mtge., 263 AD2d 39, 50 [1999]; see Relativity Travel, Ltd. v JP Morgan Chase Bank, 13 Misc 3d 1221[A], 2006 NY Slip Op 51926[U] [2006]).²

General Business Law § 396-i

General Business Law § 396-i (3) provides that "[t]he terms and conditions of a gift certificate store credit shall be clearly and conspicuously stated thereon." In 2004 the definition of "gift certificate" was amended, and now provides:

"For the purposes of this section, `gift certificate' shall mean . . . electronic payment device that: (i) is usable at . . . multiple, unaffiliated merchants or service providers; and (ii) is issued in a specified amount; and (iii) may or may not be increased in value or reloaded; and (iv) is purchased and/or loaded on a prepaid basis for the future purchase or delivery of any goods or services; and (v) is honored upon presentation." (General Business Law § 396-i [1].)

The amendment applies to gift certificates sold or issued on and after the effective date, i.e., October 18, 2004.

The supporting memorandum of the Senate sponsor of the 2004 amendment stated, under the heading entitled "Purpose," that "[t]his legislation would clarify that the definition for gift certificates includes gift cards" (Senate Introducer Mem in Support, Bill Jacket, L 2004, ch 170, at 3; Senate Mem in Support, 2004 McKinney's Session Laws of NY, at 1709). In addition, the memorandum stated that "[w]hile gift certificate has always included gift cards, the definition is amended to reflect this practice" (Senate Introducer Mem in Support, Bill Jacket, L 2004, ch 170, at 3). Thus, the memorandum indicates that the amendment was not adding a new definition but, rather, clarifying an existing definition. Therefore, it is clear that General Business Law § 396-i applies to the gift card held by the plaintiff.

However, General Business Law § 396-i does not expressly provide a private right of action to enforce its terms.

"When, as here, a statute does not provide an express private right of action, the courts will imply a private right of action only upon examination of the following three factors: `(1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; (2) whether recognition of a private right of action would promote the legislative purpose; and (3) whether creation of such a right would be consistent with the legislative scheme'" (Ahmad v Nassau Health Care Corp., 8 AD3d 512, 513 [2004], quoting Sheehy v Big Flats Community Day, 73 NY2d 629, 633 [1989]; see People v Grasso, 11 NY3d 64, 70-71 [2008]; Pelaez v Seide, 2 NY3d 186, 200 [2004]; Uhr v East Greenbush Cent. School Dist., 94 NY2d 32, 38 [1999]; Bhandari v Isis, 45 AD3d 619, 621 [2007]).

"Avoiding unwarranted interference with the legislative scheme is the `most critical' factor in determining whether a private cause of action may be fairly implied from the enactment of a statute" (Hudes v Vytra Health Plans Long Is., 295 AD2d 788, 789 [2002], quoting Mark G. v Sabol, 93 NY2d 710, 720 [1999]). As the Court of Appeals has written, "[o]ur decisions have established that the most critical inquiry in determining whether to recognize a private cause of action where one is not expressly provided is whether such action would be consistent with the over-all legislative scheme" (Brian Hoxie's Painting Co. v Cato-Meridian Cent. School...