Source: https://fhnylaw.com/first-department-upholds-gbl-%C2%A7-349h-claim-finding-the-elements-properly-alleged-and-not-duplicative-of-a-contract-claim/
Timestamp: 2019-04-20 19:19:44+00:00

Document:
In 1970, the New York Legislature enacted General Business Law (“GBL”) § 349, New York’s deceptive trade practices act. As enacted, Section 349 empowered the Attorney General to bring an action to enjoin “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in th[e] state.” In 1980, the Legislature amended the statute to add Section 349(h), which provides a private right action to consumers seeking to recover damages caused by deceptive trade practices.
“The typical violation contemplated by the statute involves an individual consumer who falls victim to misrepresentations made by a seller of consumer goods usually by way of false and misleading advertising.” Genesco Entm’t v. Koch, 593 F. Supp. 743 (S.D.N.Y 1984). The deception, however, must be of a recurring nature and have ramifications for the public at large. Id. at 750-52. Private transactions not of a recurring nature or without public ramifications are not actionable under the statute. Id.
A Plaintiff alleging a violation of GBL § 349 must prove three elements: the challenged act or practice was consumer-oriented; it was misleading in a material way; and the plaintiff suffered injury as a result of the deceptive act. Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25 (1995).
“Whether a representation or an omission, the deceptive practice must be ‘likely to mislead a reasonable consumer acting reasonably under the circumstances.” Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000). Courts consider whether an act is deceptive objectively. Boule v. Hutton, 328 F.3d 84, 94 (2d Cir. 2003).
Notably, the deceptive practice does not have to rise to “the level of common-law fraud to be actionable under section 349.” Id., citing Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 343 (1999). In fact, “[a]lthough General Business Law § 349 claims have been aptly characterized as similar to fraud claims, they are critically different.” Gaidon, 94 N.Y.2d at 343. For example, while reliance is an element of a fraud claim, it is not an element of a GBL § 349 claim. Stuntman, 95 N.Y.2d at 29; Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55-56 (1999).
In addition, a plaintiff must prove “actual” injury to recover under the statute, though not necessarily pecuniary harm. Stuntman, 95 N.Y.2d at 29; Oswego Laborers’, 85 N.Y.2d at 26. And, the plaintiff must prove the deceptive act caused the injury. Id.; Oswego Laborers’, 85 N.Y.2d at 26.
Although a GBL § 349 claim does not rise to the level of a fraud claim, it is nonetheless susceptible, like its fraud companion, to dismissal for being duplicative of a contract claim. Thus, a GBL § 349 loss must be distinct from the loss incurred by reason of a breach of contract. See Spagnola v. Chubb, 574 F.3d 64, 66-73 (2d Cir. 2009) (“[A]lthough a monetary loss is a sufficient injury to satisfy the requirement under § 349, that loss must be independent of the loss caused by the alleged breach of contract.”).
In Hobish v. AXA Equitable Life Insurance Company, 2019 N.Y. Slip Op. 02653 (1st Dept. Apr. 9, 2019) (here), the Appellate Division, First Department, considered these issues in affirming the denial of a motion to dismiss a GBL § 349(h) claim. As discussed below, the Court found that, for pleading purposes, the conduct at issue was deceptive and the losses sustained distinct from those incurred by reason of the alleged breach of contract.
Hobish involved a $2 million universal life insurance policy, known as the Athena Equitable Flexible Premium Universal Life II Policy (the “Policy” or “Athena Policy”), of which Toby Hobish (“Hobish”) was the insured person. The Policy was issued by AXA Equitable Life Insurance Company (“AXA”) to the Hobish Irrevocable Trust (“Trust”) in 2007. Plaintiffs alleged that AXA improperly changed Hobish’s classification as the insured person, resulting in the increase of cost of insurance (“COI”) rates and the premium payments required to maintain the Policy. Plaintiffs alleged that they were forced to surrender the Policy due to the inequitable imposition of increased COI rates.
According to plaintiffs, an AXA agent presented Hobish with life insurance policy options from various insurance carriers in 2007 and misrepresented that the Athena Policy contained more favorable terms than the policy that they previously purchased (the “Lincoln Policy”). Plaintiffs alleged that, in reliance on the agent’s misrepresentations, the Lincoln Policy was surrendered, and the Athena Policy was purchased with the proceeds of the cash surrender. They also asserted that Hobish made additional payments totaling $249,468, for a total amount of $913,804.
The court noted that the Trust and not Hobish owned and surrendered the Lincoln policy in 2007, purchased the Athena Policy with the proceeds, and made the initial premium payment. The court further noted that the payments were made variously by the Trust and its beneficiaries, not by Hobish personally.
AXA notified the Trust by letter dated October 5, 2015, that a COI rate increase would be implemented, effective in March 2016. As a result of that increase, the Trust’s annual premiums would be increased to “more than $164,300” in order to maintain the Policy.
According to Plaintiffs, the Trust surrendered the Policy “under protest” in July 2016 because they determined that “paying the increased annual premiums . . . made no financial sense, as the value of the Policy would be quickly approached by the new premium.” While plaintiffs had paid $913,804 to maintain the Policy through the surrender date in July 2016, the surrender value was only $448,274.50, less charges of $35,586.49; thus, the Trust received $412,688.01.
AXA moved to dismiss the complaint pursuant to CPLR 3211 (a) (1), (a) (3), and (a) (7) on the grounds that, among other things, plaintiffs failed to plead the elements of either a breach of contract claim or a GBL § 349 claim. The motion court granted the motion in part and denied it in part.
As an initial matter, the motion court (Justice Andrea Masley of the Supreme Court, New York County, Commercial Division) determined that Hobish could not assert a contract claim because she did not purchase, own, or surrender the Policy. The court rejected plaintiffs’ argument that Hobish was a third-party beneficiary under the Policy because the Policy facilitated her estate planning. The court noted that there was no case authority supporting the proposition that an insured person who did not purchase, own, or expect a contractual benefit from an insurance policy had standing to sue as a third-party beneficiary.
The motion court denied the motion with respect to the Trust’s claim for breach of contract, finding issues of fact concerning the provision in the Policy permitting AXA to raise COI rates for persons of a “given class”. The court observed, among other things, that the Policy was silent on the meaning of the term “given class” and, therefore, could not be resolved on a motion to dismiss.
Turning to the GBL § 349 claim, the motion court denied the motion to dismiss. In doing so, the court rejected AXA’s argument that plaintiffs did not adequately plead the requisite elements of deception, injury, or consumer-oriented conduct. The court also rejected AXA’s contention that Hobish lacked standing to assert the GBL claim because she suffered no injury arising from the alleged deceptive practices.
[P]laintiffs have adequately pleaded consumer-oriented conduct in that they allege that defendant engaged in a nation-wide scheme which targeted and raised the COI rates and premiums for the policies insuring 1,700 elderly persons, including Ms. Hobish, in contravention of identical form policy agreements.
AXA argued that plaintiffs could not establish that they were deceived by any acts or practices because the possibility that COI rates would be increased was disclosed in the Policy and the sales illustrations signed by Hobish and the then-trustee of the Trust. Plaintiffs did not contest whether AXA disclosed the possibility of rate increases; rather, they contended that AXA failed to disclose that it would reclassify Hobish (and the other insureds over age 70 with policies of $1 million or more), then inequitably increase that new group’s COI rates. The motion court declined to rule on the issue, holding that there were issues of fact not ripe for resolution on the motion.
AXA contended that Hobish could not have been deceived and injured because she did not purchase or own the Policy, or suffer any economic injury from its surrender and, therefore, lacked standing to assert a GBL § 349 claim. The motion rejected the argument.
Citations to the complaint omitted.
Finally, the Court addressed the argument that plaintiffs’ GBL § 349 claim was duplicative of their contract claims. In particular, AXA maintained that the damages alleged for both claims were the same. Plaintiffs responded by claiming that they alleged distinct losses in two ways: they paid increased premiums as a result of the breach of contract, and they surrendered the Policy due to defendant’s “deceptive practices that targeted its elderly insured.” With respect to Hobish, plaintiffs maintained that her ability to plan her estate was harmed by the alleged deceptive practices.
AXA appealed the denial of its motion to dismiss the GBL § 349 claim.
On the issue of standing, the Court agreed with the motion court. The Court held that the injury sustained by Hobish – the impairment of estate planning and the forced surrender of the Policy – was “distinct from injuries sustained by her trust, and thus sufficient to confer standing upon her to assert a General Business Law § 349 claim.” Slip Op. at *1 (citation omitted).
The Court also agreed with the motion court that the “General Business Law claim [was] not duplicative of plaintiffs’ breach of contract claim.” The Court explained that plaintiff adequately alleged “both a monetary loss stemming from defendant’s deceptive practices and an independent loss derived from defendant’s failure to deliver contracted for services.” Such a distinction sufficed to affirm the motion court’s holding.
Id., quoting Oswego Laborers’, 85 N.Y.2d at 26.
GBL § 349 is broad in scope and prohibits deceptive and misleading business practices. To state a cognizable claim under Section 349(h), a plaintiff must identify consumer-oriented misconduct, which is deceptive and materially misleading to a reasonable consumer, and which causes actual damages. In many cases, the plaintiff fails to satisfy one or more of these elements because the conduct is not deceptive or not recurring. In Hobish, however, the claim at issue had all the attributes of a GBL § 349 cause of action: it had deceptive conduct, which was consumer oriented, and which had public implications – much of the facts and circumstances alleged in Hobish were the subject of a federal class action.
Hobish is also notable because of the argument that the GBL § 349 claim duplicated the plaintiffs’ contract claim. As shown by both decisions, the analysis under GBL § 349 is similar to that involving other tort claims, i.e., whether the damages are distinct from those sought by a contract claim. Thus, practitioners should take note that a motion to dismiss on duplication grounds may ensue when a GBL § 349(h) claim is asserted along with a breach of contract claim.

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