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Arcand v. Brother International Corporation

2009 WL 4261085 (U.S. Dist. Ct. D. N.J. 2009)

CONSUMER FRAUD ACT — Even if a consumer has a viable claim that its seller engaged in an unlawful practice, the consumer is still not entitled to an award under the Consumer Fraud Act unless it can assert, and then prove, that it experienced an ascertainable loss connecting the seller’s allegedly unlawful behavior and that loss.

Purchasers of laser printers and toner cartridges were dissatisfied because a LED light message on the printers notified them of “Toner Life End” when the toner reached a certain level. Notwithstanding that some toner remained in the cartridge, the user manual explained that the light and message indicated that the printer had run out of toner. The LED light not only acted as a warning, but precluded the user from further printing until the “empty” toner cartridge was replaced, thereby preventing the purchaser from using all the toner in the cartridges. The user manual for the printer specified a maximum page yield.

The purchasers sued the distributor claiming a violation of the New Jersey Consumer Fraud Act (CFA), fraudulent concealment, trespass to chattels, and conversion. The United States District Court dismissed all the claims. As to the CFA claim, the Court held that such a cause of action must allege: (a) an unlawful practice by the seller; (b) an ascertainable loss by the buyer; and (c) a causal nexus between the first two elements – i.e., the seller’s allegedly unlawful behavior and the buyer’s ascertainable loss. Because this was a federal action, Rule 9(b) applied. That rule requires that the pleadings allege the circumstances of the alleged fraud with sufficient particularity to place the seller on notice of the precise misconduct with which it is charged. Here, the Court noted that the buyers failed to allege any facts relating to their purchase of the printers that could form the basis for such a claim. Nevertheless, the Court found that there was a misrepresentation in the “Toner Life End” message displayed on the printers. In so holding, it declared that “nothing in the language or legislative history of the [] CFA suggests that a misrepresentation *** under the Act is so limited as to only include statements made through advertising.” Because the statement was made to induce the purchase of a new toner cartridge, and was thus made in the connection or sale of merchandise, the Court concluded that the buyers had adequately pled that the seller engaged in “unlawful conduct” when it allegedly misrepresented that the toner cartridge was “empty” even though toner remained.

As to the issue of ascertainable loss, required by the second prong for a CFA action, the Court held that, at the very least, a consumer must be able to quantify what loss he or she has suffered or will suffer as a result of the unlawful conduct. Here, the Court found that the buyers did not allege why they believed that the toner’s life was tied to the amount left in the cartridge, leaving the Court to speculate as to whether this expectation was objectively reasonable, and, whether what the buyers received was ostensibly less that what the seller promised. It noted, however, that the buyers were made aware by the user manual that the toner cartridges printed up to a certain number of pages and that the buyers did not allege: (a) what they did receive; and (b) what spurred them to believe that the printer and its cartridges were supposed to produce more copies than promised in the user manual. Thus, the Court could not determine what loss, if any, the buyers sustained. The Court refused to accept the buyers’ “bald allegations that when they purchased their printers and cartridges, they inexplicably expected to be able to print to the very last drop of toner, irrespective of [seller’s] explicit disclosure that the toner provides up to a certain number of pages.” As a result, the Court did not believe that the page limit disclosures in the user manual and on the toner cartridge packaging were merely surplusage. Any other approach, the Court believed, “would place the [seller] in a Catch-22: produce a printer cartridge without a page limit that would permit a consumer to use all the toner, even where this may lead to substandard printing and possibly expose [the seller] to claims of defective design, or, on the other hand, place an explicit page limit on its toner that ensures the highest print quality only to find itself defending itself against claims of fraudulent misrepresentation and false advertising.”

Since the Court found that the buyers failed to plead an ascertainable loss, it dismissed their CFA claim. However, it gave the buyers twenty days to file an amended claim since they could potentially plead ascertainable loss by providing the Court with factual allegations concerning their individual experiences with their printers and by alleging that they received less than the amount of pages specified in the user manual.

As for the “causal nexus” requirement, the Court stated that the complaint alleged that the buyers would not have purchased new cartridges for their printers had it not been for seller’s misrepresentations that the toner cartridge was empty. It concluded that such allegations, where the consumer urges that his or her purchase was the “but-for” consequence of the seller’s unlawful conduct, suffice under the CFA’s causal nexus requirement. As to the fraudulent concealment claim, the Court determined that the elements of fraudulent concealment must also be specifically pled under the heightened standards of Rule 9(b). Here, it found that the buyers did not explain why it was reasonable to rely on the printers “empty” notification when the user manual clearly indicated that the cartridge only provided the use a predetermined number of pages. Moreover, for many of the same reasons as to why the buyers did not suffer an ascertainable loss under the CFA, the Court found that the buyers did not allege that they sustained resultant damages flowing from the seller’s purported fraudulent conduct. Since an allegation of actual damage is essential to a claim of fraud or deceit, and the alleged facts did not permit the Court to find that the buyers suffered even a modicum of damages as a result of the shutdown mechanism, it dismissed the fraudulent concealment claim.

The Court also agreed with the seller that the buyers’ trespass to chattels and conversion claims were barred by the economic loss doctrine. Generally, the economic loss doctrine prohibits plaintiffs from recovering, in tort, economic losses to which they are entitled only by contract. Here, the allegations in the complaint calculated only economic damages, i.e. the loss in value between the cartridges purchased and the ones they received. The Court noted that the buyers limited their complaint to statutory and common law fraud claims and to the tort claims, unaccompanied by any UCC or product liability claims which prevented the Court from awarding the economic damages sought by the buyers.

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