California Court Tosses New York Claims

Advertising Law

New York’s consumer protection law does not protect out-of-state consumers, a California judge has ruled when dismissing claims from the Empire State in a multidistrict litigation (MDL) against Lenovo Inc.

According to the California federal court complaint, Lenovo preinstalled Superfish Inc.’s software on its laptops, which created performance, privacy and security issues. The plaintiffs asserted claims under California and New York state law, as well as the federal Wiretap Act.

After the litigation was consolidated as an MDL and the plaintiffs filed an amended complaint, the defendants moved to dismiss the claims under New York law, pointing out that the suit no longer included a named plaintiff who resided in New York. As the four named plaintiffs were residents of Arizona, California, Illinois and Missouri, they were without standing to bring a claim under New York’s Deceptive Acts and Practices law Section 349, the defendants told the court.

U.S. District Judge Haywood S. Gilliam Jr. agreed. “Section 349 does not protect consumers from out-of-state deceptive business practices,” he said, as the statute prohibits “[d]eceptive acts or practices … in this state.”

New York’s highest court has held that the “transaction in which the consumer is deceived must occur in New York,” the court said, while the U.S. Court of Appeals, Second Circuit has clarified that “the analysis under Section 349 is based on ‘the location of the transaction, and in particular the strength of New York’s connection to the allegedly deceptive transaction, rather than on the residency of the parties.’”

The plaintiffs did not allege that they were New York residents, nor did they allege that any conduct or deceptive transaction occurred within New York. Instead, they tried to convince the court that because the defendants agreed that New York substantive law applied to the case, they waived any argument to the contrary.

“Plaintiffs’ argument improperly conflates choice-of-law with statutory standing,” the court wrote. “Even if the parties agree that New York law should apply to this litigation, Plaintiffs still must adequately allege a claim under that law.”

The parties’ stipulation to proceed initially under federal, New York and California law did not resolve the plaintiffs’ standing deficiency, Judge Gilliam said.

Even if the plaintiffs had statutory standing, the court additionally found they failed to plead sufficient facts to sustain their Section 349 claim, which requires a showing of “actual, though not necessarily pecuniary, harm.” The plaintiffs alleged that the software “significantly degraded the performance” of the laptops on which it was installed. As a result, they overpaid for their laptops and did not receive the full value of their purchase.

Although New York law does not categorically prohibit such a “price premium” theory, the plaintiffs neglected to allege that they personally experienced any performance or security issues with their computers, the court said.

“Nor do they allege what their expectations were about the computers’ performance or specifications before they purchased them,” the court wrote. “Consequently, Plaintiffs have failed to allege sufficient facts to establish that they received less than what they paid for when they purchased Lenovo computers preloaded with [the] software.”

Judge Gilliam granted the defendants’ motion to dismiss the Section 349 claim, albeit without prejudice.

To read the order in In re: Lenovo Adware Litigation, click here.

Why it matters: The court was clear: New York’s Deceptive Acts and Practices Statute requires a connection to the state, whether a resident is a plaintiff or an allegation that the deceptive conduct or transaction occurred within New York. For class action defendants in California federal court, the order provides a potential road map to dismissal of New York claims.



pursuant to New York DR 2-101(f)

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