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Miller v. American Family Publishers

March 1, 1995

JANET MILLER, TAMI ABELL, CARY REED, AND MIRIAM KOTEEN, PLAINTIFFS,
v.
AMERICAN FAMILY PUBLISHERS, DEFENDANT



Arthur J. Lesemann, J.s.c.

The opinion of the court was delivered by: Lesemann

ARTHUR J. LESEMANN, J.S.C.

This suit raises novel questions as to the application and interpretation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to-48 (the Act). It comes before the court on defendant's motion for summary judgment dismissing the complaint of four individual plaintiffs, not only as to the alleged violations of the Act, but also as to additional charges that the actions complained of constitute common law fraud.

Plaintiffs have cross-moved for summary judgment. That motion, together with the common law fraud issues, will be discussed later in this opinion. The major issues, however, arise from defendant's motion to dismiss the charge of violations of the Act, and they will be discussed first.

A. INTRODUCTION AND GENERAL DESCRIPTION OF THE PARTIES

Defendant American Family Publishers is in the business of selling magazine subscriptions. Its major sales campaign consists of a highly publicized "sweepstakes" offering million dollar prizes, conducted by a mass mailing to homes throughout the country. Since the parties have agreed that information as to the volume of mailings, number of responses, and dollar amounts of sales should be treated as confidential, those numbers will not be set out here. Suffice it to say that the number of responses received by defendant to its sweepstakes mailing is great, and while less than half of those responses contain orders for magazines, that number alone is more than substantial.

Plaintiffs are four persons who entered defendant's sweepstakes. Two of the them--Cary Reed and Miriam Koteen--ordered magazines from defendant. The two others--Janet Miller and Tami Abell--did not. All claim that defendant's campaign violates the Act and also constitutes common law fraud. They seek injunctive relief, damages, and counsel fees. The damages involved seem insubstantial. The issue of injunctive relief, however, is substantial indeed.

Defendant is neither the oldest nor the largest sweepstakes operator in the magazine subscription business. However, it is a major operator in that field. It enhances its program by use of celebrities such as television personalities Ed McMahon and Dick Clark, and announces its winners on the nationally televised "Today Show."

Defendant's campaign is not a "soft sell" effort. Its mailings are designed to be eye-catching and dramatic. They are multi-colored; employ large, block letters; pictures of their featured celebrities; and direct appeals to individually named addressees. Each addressee is assigned seven designated numbers and is urged to return enclosed stamps bearing those numbers because one of them might be a winner in the sweepstakes. Prizes are said to include four awards of ten million dollars each and three of two million dollars each.

Defendant asserts that one need not buy a magazine subscription in order to participate in, or win, its sweepstakes. Its mailings so state, and plaintiffs do not deny that proposition.

However, plaintiffs do contend that defendant's mailings fraudulently suggest that one has a better chance to win if one buys a magazine subscription than if one does not. In that way, plaintiffs claim, defendant misleads the public and violates the Consumer Fraud Act. *fn1

Before analyzing those charges, a Discussion of the Consumer Fraud Act will be helpful in order to view defendant's actions in the context of the Act they are said to violate.

B. THE CONSUMER FRAUD ACT

1. General Purpose and Application of the Act.

The key substantive provisions of the Consumer Fraud Act are set out in Section 2, N.J.S.A. 56:8-2:

The act, use, or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise..., whether or not any person has in fact been misled, deceived, or damaged thereby, is declared to be an unlawful practice....

In Cox v. Sears Roebuck & Co., 138 N.J. 2, 647 A.2d 454 (1994), our Supreme Court reviewed the Act, analyzed many of its key provisions, and set out a number of principles applicable to this case.

The Act, noted the Court, was adopted in 1960 "to permit the Attorney General to combat the increasingly wide-spread practice of defrauding the consumer." Id. at 14. It was amended in 1971 with the intent of giving "New Jersey one of the strongest consumer protection laws in the nation." Id. at 15. That amendment expanded the critical definition of an "unlawful practice" to include "unconscionable commercial practices." Of particular importance to us, it also provided for "private causes of action," with provisions for treble damages and awards of counsel fees. The statement of then Governor Cahill--quoted in Cox--was that

those provisions would provide 'easier access to the courts for the consumer, [would] increase the attractiveness of consumer actions to attorneys and [would] also help reduce the burdens on the Division of Consumer Affairs.' [Cox, (supra) , 138 N.J. at 15.]

In Cox, the Court also repeated its earlier statement in Barry v. Arrow Pontiac, Inc., 100 N.J. 57, 69, 494 A.2d 804 (1985), that "the Act should be construed liberally in favor of consumers." Cox, supra, 138 N.J. at 15. And it also noted that it is the "capacity to mislead" which is at the heart of the definition of an "unlawful practice." Id. at 17. A practice can be unlawful "even if no person was in fact misled or deceived thereby." Ibid. See also the statement in Barry that the test of whether sales material violates the Act is whether it is "misleading to the average consumer." Barry, supra, 100 N.J. at 69.

2. "Affirmative Acts" and "Knowing Omissions "

The Cox opinion also points out that there are two kinds of violations defined in Section 2 of the Act: affirmative acts and knowing omissions. *fn2

The "affirmative acts" defined in Section 2 as unlawful acts are set out in the disjunctive. They include:

i) unconscionable commercial practices;

ii) deception;

iii) fraud;

iv) false pretense;

v) false promise;

vi) misrepresentation.

Proof that a defendant's action contravenes any one of those standards will establish a violation of the Act--regardless of any proof of intent. With respect to "affirmative acts,"

intent is not an essential element and the plaintiff need not prove that the defendant intended to commit an unlawful act. [Cox, (supra) , 138 N.J. at 17-18.]

The second type of statutory violation--"knowing omissions"--can consist of:

i) concealment;

ii) suppression; or

iii) omission.

With respect to those violations, however, intent is an essential element. There must be proof that the defendant acted knowingly, with intent that another rely on such concealment, suppression, or omission. Id. at 18.

3. The Need for a Private Plaintiff to Show an "Ascertainable Loss "

As noted, it was a 1971 amendment which authorized private parties to sue for violation of the Consumer Fraud Act, a power previously vested only in the Attorney General. The amendment did not, however, give private litigants the same broad authority as the Attorney General.

The Attorney General may sue to halt any unlawful practice, to recover penalties, or to recover losses sustained by any victim. A private plaintiff, however, must not only show a violation of the Act, but must also demonstrate that he or she "suffered an 'ascertainable loss...as a result of' the unlawful conduct." Meshinsky v. Nichols Yacht Sales, Inc., 110 N.J. 464, 473, 541 A.2d 1063 (1988). And there must be a "causal relationship" between the unlawful practice and the "ascertainable loss" sustained by the plaintiff. Ramanadham v. New Jersey Mfrs. Ins. Co., 188 N.J. Super. 30, 33, 455 A.2d 1134 (App. Div. 1982). See also Cox, supra, 138 N.J. at 21-23.

C. PLAINTIFFS' CLAIMS OF VIOLATIONS OF THE ACT

Plaintiffs contend that defendant's advertising materials are deceptive and violate the Act in three respects:

First, plaintiffs say defendant deliberately plants the impression that chances of winning its sweepstakes are enhanced by ordering a magazine subscription.

Second, plaintiffs claim that those who respond to defendant's earlier mailings are thereafter urged to submit further responses through misrepresentations that they have survived a "winnowing down" process which has placed them in a select group of "finalists" and has increased their chances of winning.

Third, plaintiffs point to defendant's "alert" to sweepstakes participants who have not previously ordered magazines, implying that a continued failure to subscribe will ...


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