A guy walks into a bar . . .
No, seriously, a guy walks into a bar. He orders a couple of beers and a couple of drinks. His bill comes. He pays his bill. He leaves.
Sounds like something that happens everyday, thousands of times a day, right? Let's try it again.
A guy walks into a bar. He orders a couple of beers and a couple of drinks. He doesn't ask what the drinks will cost. The person who waits on him does not tell him. His bill comes. He pays his bill. He leaves. He sues.
If you're wondering what he's suing about, you're not alone.
Learn what happened after the jump.
The bar is the Houlihan's in Brick, New Jersey and the case is Pauly v. Houlihan's Restaurants, Inc. As far as can be told from the court's decision, Mr. Pauly's complaint is that the prices charged were unreasonable. Since the prices of drinks were not on the menu, he claims, Section 2-305 of the Uniform Commercial Code declares that the price should be "a reasonable price."
The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if: (a) nothing is said as to price . . .
This is a basic principle of Article 2 of the UCC: so long as the parties intended to create a contract, they can leave certain terms of the contract--price, certain aspects of quantity, delivery time and place, whether there is to be a warranty--open, and still have created an enforceable contract. The UCC will fill in those terms they have left open with so-called "gap filler" provisions, such as 2-305, and such a contract is enforceable. On a 12(b)(6) motion to dismiss, the judge is required to take all the facts in the complaint as true. If it is true that "nothing was said as to price", then the UCC says the price should be a reasonable price.
That does not mean that the plaintiff will win his case. He paid his bill, which he claimed he did under legal compulsion because New Jersey law makes it a crime to leave a bar or restaurant without paying your bill. On the motion to dismiss, the court agreed, saying,
It would be unreasonable and inequitable to hold that a person must risk criminal exposure in order to challenge a restaurant's policy of omitting prices from their menus and ultimately charging unreasonable and discriminatory rates for their food and beverages.
I can sort of see this on a motion to dismiss, but seriously? The complaint makes noise about "'menu engineering' - the deliberate and strategic construction of menus to exploit consumer psychology and manipulate customer perceptions." Or, in other words, the restaurant would like to sell you stuff you may not have come in for. This doesn't sound like a cause of action to me.
The defendant’s mistake, it seems to me, was to bring the motion to dismiss. In deciding a motion to dismiss, the court is required to accept all facts pled in the complaint as true. In the complaint, the plaintiff asserted, “Plaintiff’s order for beverages offered for sale on a menu that failed to disclose prices for those beverages manifested assent on behalf of Plaintiff to pay Defendant a good faith reasonable price for the beverages.” If this were true (and remember, the court had to assume it was true), then the plaintiff’s theory, that 2-305(1)(a) applies, would be generally correct.
I asked Professor Scott Burnham of Gonzaga Law School for his thoughts on the case. This is what he said,
This is not a situation where the price is not agreed upon and defaults to a reasonable price. The price has been established by the seller and the customer knows that. The seller did not disclose the price and the buyer did not request it, but I don't think that is at all an unusual situation. Often parties, not just at bars and restaurants, think they know enough and treat their limited knowledge as sufficient. Unless the seller has not acted in good faith, I think the buyer bears the risk of being mistaken in its assumption about the price. If I go into a bar and order a beer, I don't ask the price because I have a reasonable expectation of what it will be. If it is a dive bar, I might expect to pay $2, and if it is the Plaza, I might expect to pay $10. If I get a bill for $25, then I think I have a claim that this was not within my reasonable expectations and the seller had a duty to point the price out to me when I ordered it.
To elaborate on Professor Burnham’s comment, the law that most likely will be found to apply to this situation after the dust settles is not 2-305(1), but 2-305(2): “A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.” Official Comment 3 to this section of the UCC elaborates on the principle:
Subsection (2), dealing with the situation where the price is to be fixed by one party rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith. Good faith includes the observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. But in the normal case, a “posted price” or a future seller’s or buyer’s “given price,” “price in effect,” “market price” or the like satisfies the good faith requirement.
There are allegations in the complaint that the bar actually charged different prices to different customers for the same drink. If true, there is a real issue of good faith. But in the more usual circumstance, where there is a “stated price” listed in the computer that totals up the bill, and the wait staff simply presses the button for “Bud Light" or "Samuel Adams Utopia" (which sells for $190 a bottle) and it comes up on the bill at that fixed price, that is all 'good faith" requires.
Professor Burnham pointed me to an article in the New York Times about a similar dispute, but one that was handled in a far different way. Three people dined at a restaurant where the price of their meal, which included a special whose price was "market price" (just like the comment to 2-305 suggests), shocked them. Their bill was $400, $275 of which was this one pasta dish. They complained to the manager, who knocked 25% off the tab, and then wrote to the New York Times "Haggler", and got another 25% knocked off. No legal system was harmed in the handling of this complaint.
The reason I contacted Professor Burnham in the first place is that in the back of my mind the fact that the plaintiff had paid the bill without complaint--despite the judge's position that he did so under some form of compulsion, although such a compulsion would never stop him from asking to see the manager to register a complaint--was material. Professor Burnham, who is a world expert on the doctrine of accord and satisfaction, disagrees:
UCC 1-308 [which is 1-207 in New Jersey, which has not adopted the latest amendments to Article 1] provides a mechanism for accepting with reservation of rights. If the buyer disputed the bill, it would have been a good idea for him to make clear that he was preserving his defenses by writing something like "paid under protest" on the bill. But the fact that one accepts performance without a reservation of rights does not mean that he has waived those rights. If in fact he was overcharged (i.e. charged more than the price on the menu or an amount beyond reasonable expectations), he would still have a claim absent something like accord and satisfaction. I don't see anything here that would constitute an accord. There was payment of the price demanded, not an agreement to pay less to resolve a dispute.
How, then, did someone get a lawyer for this case, and how did it end up in federal court (where there is a minimum "amount in controversy" of $75,000 for diversity suits)? Apparently by making this into a class action, they allowed the defendants to remove it. We've blogged about class actions involving food in the past. Under the Class Action Fairness Act, you can get into federal court if the total claims of the class would be $5 million or more. But, as one of my colleagues, when discussing this case, remarked, how would they find the class members? If you paid for your meal with cash, Houlihan's has no record of you (or at least I hope they don't). And the class is of people who were charged an unreasonable price for their drinks. If no one ever complained (or any complaints were resolved in the time-honored way of talking to the manager), the plaintiff here may be a class of one. And it's hard to get to $75,000, let alone $5 million, if that's the case.
Professor Burnham's final advice is:
The fact that this has come up a couple of times indicates that restaurants might do more to practice a bit of preventive law. They might make sure the customer is given a menu, or that one is placed on the table, or that a nearby wall displays the prices. When the waiter rattles of the non-menu specials, they should include the price. That kind of practice would be an inexpensive way to keep these problems from arising.
This is where he, as a law professor, and I, as a practitioner, must part ways. Houlhan's, or any other restaurant, must balance legal issues like this against the restaurant experience they impart to their customers. So long as the wait staff would give true information about the prices of drinks that are not listed on a menu (as, in a bar, they often are not), and complaints like this are rare, it is perfectly reasonable, when you order a beer, that the response remains, "I'll be right back with your Bud Light" rather than "that will be $2.75, are you sure you want it?"
So, a guy walks into a bar and a lawsuit ensues. Makes you long for a rabbi, a minister or a priest on whose shoulder to cry.
A few months ago, I wrote about a $1.2 billion defamation lawsuit filed by Beef Products, Inc. (BPI), a South Dakota-based meat processor, against ABC News Inc. found here. The most recent development in the case occurred on October 31 when lawyers for ABC filed a motion to dismiss.
In September, BPI, along with Technology, Inc. and Freezing Machines, Inc., collectively filed suit against American Broadcasting Companies Inc., ABC News Inc., ABC news anchor Diane Sawyer and ABC correspondents Jim Avila and David Kerley in Circuit Court in Union County, South Dakota claiming that ABC’s news coverage of lean finely textured beef (LFTB), or what became infamously known by the nickname “pink slime,” was defamatory and ultimately devastating for the company’s reputation and business. Since being filed, the case has been removed (PDF) to the U.S. District Court for the District of South Dakota. The complaint also named as defendants Gerald Zirnstein, the U.S. Department of Agriculture (USDA) microbiologist who called the product “pink slime,” Carl Custer, former federal food scientist, and Kit Foshee, a former BPI quality assurance manager who was interviewed by ABC.
Earlier this year, on March 7, 2012, ABC began reporting during its World News program that much of the ground beef we buy at the supermarket contains the product that the industry calls LFTB and others call “pink slime.” Over the next month, ABC continued to report on the story, both online and on its television news programs.
In its later complaint, BPI alleged that the news agency, in reporting on LFTB, had knowingly and intentionally published false and disparaging statements regarding BPI and its product and improperly interfered with BPI’s business relationships. BPI argued that the statements made by ABC were not only inconsistent with information provided to them by BPI but were also contradictory to the findings of the USDA’s Food Safety and Inspection Service (FSIS), the Food and Drug Administration (FDA), food safety organizations, and many beef industry experts. BPI claimed that ABC’s news reports constituted common law defamation, product disparagement, and tortious interference. In addition, BPI alleged a cause of action under South Dakota’s statutory Agricultural Food Products Disparagement Act (AFPDA).
Most recently, on October 31, 2012, lawyers for ABC News submitted a motion to dismiss BPI’s lawsuit (PDF). In its memorandum in support of the motion to dismiss, ABC asserts that none of BPI’s claims are viable. Specifically, ABC argues that BPI cannot state a claim under South Dakota’s AFPDA, because that law only authorizes an action for statements that question the safety of a product. ABC claims that it did not question the safety of the product as BPI claims, but instead stated that LFTB is safe to eat.
Secondly, ABC maintains that BPI cannot state a claim for product disparagement because “any such claim is preempted by AFPDA, and because the ABC News reports would not be actionable under traditional common law standards in any event.” For instance, ABC explains:
[R]eporting that critics call LFTB pink slime is not actionable: that term, while unflattering, does not convey false facts about the color or texture of LFTB and is precisely the kind of “imaginative expression” and “rhetorical hyperbole” that is constitutionally protected. And the ABC News reports cannot reasonably be understood to imply that LFTB is “not safe for public consumption” or “not nutritious.” The reports repeatedly state that LFTB is “safe to eat,” though “not as nutritious as ground beef” a viewpoint BPI does not challenge. BPI’s other claims are based on quibbles with specific language that do not affect the “substance” or “gist” of the reports.
Lastly, ABC states that BPI’s claims of libel and of tortious interference with business relationships both fail. A decision on the motion is currently pending.
As we've discussed previously in this blog, the Supreme Court's plausibility pleading standard, as articulated in the Iqbal and Twombly cases often provides a rapid (and relatively inexpensive) pathway to defeat consumer fraud claims.
At the ACI food regulatory conference last week, we discussed a strategy to take advantage of the plausibility pleading standard in jurisdictions that have liberal class certification standards.
In states where individualized reliance or causation is required to make out consumer fraud or unfair trade practices claims, defendants’ first line of attack may be class certification. But where individualized reliance and/or causation is not required, courts will often deny class certification under Rule 23(b) because common issues of law or fact do not predominate over individual issues.
So here's a strategy in jurisdictions where a defeat of class certification may not work:
- In states where plaintiffs need not show individualized reliance/causation, they may still have to demonstrate that an objectively reasonable consumer would have been damaged by the marketing/advertising campaign.
- The Supreme Court in Iqbal/Twombly said that a court must disregard conclusory allegations and scrutinize the complaint's factual allegations to determine whether it nudges the alleged wrong-doing "across the line from conceivable to plausible." The complaint must have meat on its bones. In the case of a consumer fraud class complaint, plaintiffs’ counsel, to survive a motion to dismiss, should need to include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding.
- Without a strong factual basis as to how an "objectively reasonable consumer" might behave, consumer fraud/unfair trade practices putative class claims concerning the marketing of a food product may be in jeopardy. Defendants should take advantage and seek dismissal at the outset of the case.