New York consumers prosecuting class actions in federal court often assert claims under New York's General Business Law sections 349 and 350 (“GBL”), in part because those sections allow statutory damages of $50 and $500, respectively. While New York law generally precludes statutory damages in class actions filed in New York state courts (see CPLR section 901(b)), counterintuitively, plaintiffs can seek aggregated GBL statutory damages in federal diversity suits pursuant to Shady Grove Orthopedic Associates, P.A. v. Allstate Assurance Co., 559 U.S. 393, 398 (2010) (holding 901(b) is procedural, not substantive). But constitutional limits on potentially astronomical aggregated damages awards under the GBL remain uncertain. Nor have federal courts established clear standards on whether statutory damages under the GBL should be awarded on a per-person or a per-violation basis, such as in cases involving repeat purchases of an accused product – a question with heightened significance in a class action setting.
On August 6, 2024, the Ninth Circuit grappled with these and other issues in a rare false advertising class action where GBL statutory damages claims made it all the way to trial and judgment. In Montera v. Premier Nutrition, a certified class of New York consumers alleged that the defendant falsely advertised its “Joint Juice” product as being able to relieve joint pain. At trial, the jury found that the defendant's advertising was deceptive under both sections 349 and 350 and calculated actual damages of $1,488,078.49 based on 166,249 units sold in New York during the class period and the product's average purchase price. However, because the GBL requires courts to award the greater of actual or statutory damages, the plaintiff instead sought $550 per unit (the combined amounts under sections 349 and 350), totaling $91,436,950, or about 60 times actual damages.
In what appeared to be a compromise ruling, the district court agreed that statutory damages should be calculated on a per-unit basis, but accepted the defendant's argument that the plaintiff's requested damages were excessive and violated its due process rights. Applying Supreme Court precedent for assessing the reasonableness of punitive damages awards, the district court reduced the statutory damages award from $550 to $50 per unit, for a total award of $8,312,450, and tacked on $4,583,004.90 in prejudgment interest. Both sides appealed.
The Ninth Circuit affirmed in part, reversed in part, and vacated and remanded in part. After affirming various certification and trial rulings, the court turned to damages, finding that neither the GBL's statutory text nor the caselaw provided clear guidance on whether damages should be calculated on a per-plaintiff or per-violation (per-unit) basis. However, the court ultimately agreed with the district court's per-unit approach, citing the GBL's text creating a private right of action and associated remedies for persons “injured by any violation,” as well as the Legislature's intent to provide statutory damages to encourage private enforcement and deter deceptive practices. Ironically, the court further reasoned that because class actions for statutory damages are not allowed under New York law, the Legislature would not have considered the per-plaintiff approach sufficient to achieve the GBL's deterrence goals, particularly for low-cost products, given that initial filings fees in New York state court exceed $400 (i.e., a plaintiff would not spend $400 to potentially recover $550).
Regarding whether an aggregated award of $50 per violation abridged the defendant's due process rights, the Ninth Circuit remanded the issue to the district court for consideration under the factors set forth in its intervening opinion in Wakefield v. ViSalus, Inc., 51 F.4th 1109 (9th Cir. 2022). Wakefield, which remanded a statutory damages award under the Telephone Consumer Protection Act, declined to endorse the factors for assessing punitive damages awards and instead instructed the district court to decide whether the award was wholly disproportionate to the statute's goals and obviously unreasonable, applying the factors set forth in Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1309 (9th Cir. 1990). While the Montera court expressed “no opinion on whether the award in this case was substantively unreasonable” under Wakefield, it noted that in reducing the requested damages award, the district court had considered the New York Legislature's goals in barring the aggregation of statutory penalties pursuant to CPLR section 901(b). The court stated that under Wakefield, the “relevant statutory goals” for the district court to consider on remand in deciding the proportionality of the award include the Legislature's “compensation and deterrence goals” in enacting GBL sections 349 and 350 – the statutes authorizing the damages at issue.
Lastly, in a partial win for the defense, the Ninth Circuit ruled that the district court erred by awarding prejudgment interest. The court reasoned that, under New York law, the sole function of prejudgment interest is to compensate and make whole the aggrieved party, whereas statutory damages serve additional purposes, including penalizing the defendant and deterrence. Here, the statutory award was not compensatory in nature because it exceeded the jury's finding of $1,488,078.49 in actual damages. Therefore, awarding prejudgment interest on top of the non-compensatory statutory award would constitute an impermissible windfall.
Although the Ninth Circuit ultimately kicked the can on the constitutionality of the district court's $8.3 million statutory damages award, Wakefield sets a significant bar for due process challenges, limiting them to “extreme situations” based on factors including the size of the individual and total awards, the nature and persistence of the violations, and the defendant's culpability. Indeed, Montera's failure to reject aggregated GBL statutory damages outright, its adoption of a per-violation standard, and its emphasis on the GBL's “compensation and deterrence goals” are concerning, particularly in light of the New York Legislature's general intent to bar aggregated statutory damages under CPLR section 901(b).
In any event, given Montera's lack of clear benchmarks, federal class action defendants facing aggregated statutory damage claims under the GBL should closely monitor this case on remand and explore their options for resisting such claims on due process grounds, including reflexive claims based on the full statutory amounts and claims that arguably exceed legislative goals regarding compensation, deterrence, and other factors.
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