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New Jersey Citizen Action v. Schering-Plough Corporation

367 N.J. Super. 8, 842 A.2d 174 (App. Div. 2004)

CONSUMER FRAUD—While it is not necessary to prove the element of traditional reliance in order to recover damages pursuant to the Consumer Fraud Act, it is still necessary to prove a causal nexus between the alleged act of consumer fraud and the damages sustained.

A non-profit organization brought consumer fraud claims against a pharmaceutical manufacturer and the companies that assisted the manufacturer in direct-to-consumer (DTC) advertising for certain products. Specifically, the organization contended that it represented a class of customers of these products who had been damaged by false claims about the worth and effectiveness of the products being advertised. It contended that the products were not effective and their prices were driven up to artificially high levels by a marketing strategy claiming that the products were universally effective. Furthermore, the organization contended that because members of the class repeatedly purchased the products at those artificially inflated prices, they had suffered damages of the type described in the Consumer Fraud Act (CFA).

The lower court dismissed the claims, holding that the organization had failed to state a claim because the statements in the DTC advertising materials were not actionable statements of fact but were merely “product puffery.” Additionally, the lower court held that the organization did not demonstrate any causal connection between the advertisements and an ascertainable loss by the class members.

On appeal, the Appellate Division noted that the organization’s central claim was that advertising statements like, “you ... can lead a normal nearly symptom-free life again,” were understood by consumers as a guarantee of total effectiveness of the product. The Court rejected that claim as meritless because such statements are not statements of fact. They are merely expressions “in the nature of puffery” and thus are not actionable. In addition, the Court noted that all pharmaceutical products are subject to the strict regulation by the Food and Drug Administration (FDA). A pharmaceutical manufacturer’s compliance with FDA regulations, including FDA regulations relating to its DTC marketing campaigns may shield it in a “failure to warn” case. Furthermore, the products were only available by way of a physician’s prescription, and the intervention by a physician in the decision-making process provides further protection for consumers. Therefore, the Court held that because the pharmaceutical industry is highly regulated, and the ultimate consumer of a prescription drug is not free to act on claims made in advertising without using a doctor as an intermediary, the relationship between the words used in the advertising and the purchase of the product was an attenuated one.

The Appellate Division also held that the organization failed to plead and prove a causal nexus between the alleged act of consumer fraud and the damages sustained. The organization claimed that advertising caused the products’ prices to rise for both effective and ineffective drugs. Accordingly, it argued that there was a causal relation between the misstatements about these products and the price of even ineffective products. According to its argument, if that were true, consumers must have suffered an ascertainable loss by paying a higher price for the less effective products. Also, the organization contended that it only needed to demonstrate a causal nexus between the advertising statements and the consumers’ loss, and not that the consumers relied on the statements. The Court disagreed, holding that while it is not necessary to prove the element of traditional reliance in order to recover damages pursuant to the CFA, plaintiffs must nonetheless prove a causal nexus between the alleged act of consumer fraud and the damages sustained. The Court therefore rejected the organization’s argument because to do otherwise would fundamentally alter the concept of causation in the CFA context. Thus, the Appellate Division affirmed the lower court’s decision to dismiss the organization’s consumer fraud claims.


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