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Refunds and Ascertainable Loss

By James M. Beck and Mark Herrmann

There's an interesting new decision from the appellate division of the NJ Superior Court, Hoffman v. Hampshire Labs, link here. It's not a prescription drug case - rather it's about one of those products typically advertised in those emails that that (we hope) go off to die unread in our spam filters. Hoffman was brought under the New Jersey Consumer Fraud Act. That interests us because a lot of our New-Jersey-based clients get sued under that act, or at least did until the New Jersey Supreme Court put significant restrictions on CFA suits in product liability cases.

Hoffman is basically a pleading case, but one part of it we found especially useful because the product came with a money back guarantee: "The advertisement also stated that, if the purchaser was not satisfied with the product, the purchaser would not have to 'pay a single penny.'" Hoffman, slip op. at 6.

Was the guarantee bogus? We'll never know because plaintiff never demanded his money back. The Superior Court (Appellate Division) held that where there's a money-back guarantee, to plead "ascertainable loss" (damages under the CFA statute) where there's such a guarantee, the plaintiff first has to invoke the guarantee unsuccessfully:

Plaintiff has not alleged that he used the product and it failed. Nor did plaintiff allege that he was dissatisfied with the product, demanded his money back, and defendants had refused to provide a refund. Thus, plaintiff's claimed monetary loss is purely hypothetical. Therefore, the facts as alleged in thecomplaint do not constitute an "ascertainable loss" under [the CFA].

Slip op. at 11-12.

We think that's right. This product might well be every bit the fraud the plaintiff makes it out to be, we don't know. But in the absence of tangible injury to consumers, enforcing the act is the job of the Attorney General - not a pro se lawyer-plaintiff who only bought the product to start a lawsuit. See slip op. at 5-6 (describing how lawsuit was commenced).

That's the big takeaway from Hoffmann - if the product comes with a money-back guarantee, there are no damages under the CFA (at least in New Jersey) unless and until the guarantee is dishonored.

Full post as published by Drug and Device Law on February 03, 2009 (boomark / email).