DRAFTING WEBSITE TERMS AND CONDITIONS TO AVOID LITIGATION – Part 1 – the nasty TCCWNA

There’s a little consumer protection statute applicable to website terms and conditions in New Jersey that is causing some websites major headaches. This culprit is New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (N.J.S.A. 56:12-12, et seq), which goes by the unpronounceable acronym TCCWNA. The TCCWNA applies to websites that sell products or services to consumers located in New Jersey. However, your business does not need to be located in New Jersey to be sued under this statute.

 website terms and conditions

Background

The TCCWNA is 30 years old, but only recently became a favorite of class action plaintiffs’ attorneys when they realized that it can also apply to website terms and conditions.  Now the potential targets are numerous. Liability under the TCCWNA arises if there are sales terms that violate any “clearly established legal right of a consumer or responsibility of a seller” under New Jersey or federal law. The Supreme Court of New Jersey has expressly stated that online website terms are covered by the TCCWNA. That’s how the TCCWNA became a bit nasty.

Problem

The reach of TCCWNA is very broad: (1) attorneys fees and statutory damages can be awarded without any showing of financial loss to a consumer, (2) it covers customers as well as prospective customers, (3) consumers do not have to have agreed to the website terms, they just need to have been offered to the consumer, (4) good faith effort to comply with TCCWNA is no defense, and (5) it provides for a minimum statutory award of $100 per violation.

In a class action setting, given the broad reach described above, the damages based upon the $100 per violation minimum can quickly become quite large, especially considering that all prospective customers are also included.

Website terms will often attempt to avoid inadvertently violating a state or federal consumer protection statute by including a “savings clause” like: “unless prohibited by applicable law” or “Any provision of this Agreement that violates an applicable law shall be deemed modified or removed to the extent necessary so as not to violate the applicable law.” The problem is that the TCCWNA says that such a savings clause will only work if it specifically states which clauses are not applicable to New Jersey residents. What’s more, even using a standard (non-New Jersey specific) savings clause might itself be a violation of the TCCWNA! Also, what makes using a specific savings clause difficult is that it’s not always clear what New Jersey or federal consumer protection laws may be violated by particular website terms.

Advice

So what is a website to do to limit potential class action liability under the TCCWNA?

  1. Perform a compliance review of website terms and conditions, and have them modified to comply with the TCCWNA.
  2. Include a well-drafted arbitration clause that includes a class action waiver.
  3. Review your insurance to see whether TCCWNA actions would be covered.

 

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William Galkin manages GalkinLaw. Mr. Galkin has dedicated his legal practice to representing Internet, e-commerce, computer technology and new media businesses across the U.S. and around the world. He serves as a trusted adviser to both startup and multinational corporations on their core commercial transactions.

  
                                                                                                         
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