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21 September 20224 minute read

When are statutory damages so excessive that they violate due process?

A California federal district court recently ruled that statutory damages under the New York Consumer Protection Statutes can be so grossly excessive that they violate due process.  With the class action plaintiffs’ bar focusing on statutory damages under these statutes, especially where putative class members have suffered little to no actual damages, this decision may provide ammunition to companies facing putative class actions.

Montera v. Premier Nutrition Corporation is a class action brought under New York’s consumer protection statutes, New York General Business Law (GBL) sections 349 and 350. The case, filed by New York plaintiffs in the Northern District of California, where Premier has its headquarters, was assigned to Judge Richard Seeborg.

The plaintiffs claimed that a nutritional supplement formerly made by Premier, Joint Juice, was 0ly and deceptively marketed because it allegedly failed to deliver the joint support benefits the plaintiffs allegedly expected.  After a nine-day trial in May 2022, the jury awarded approximately $1.5 million in actual damages to the New York class, representing the amount of money class members had spent purchasing Joint Juice during the class period.

After trial, the plaintiff brought a motion for entry of judgment. In addition to actual damages, the plaintiff requested an award of statutory damages of $50 per violation under GBL section 349 and $500 per violation under GBL section 350 and prejudgment interest on the total damages amount. In total, the plaintiff sought entry of judgment in excess of $91 million. In response, the defendant moved to decertify the New York class on the ground that the class action device is not superior where it would impose annihilating damages on the defendant.

The court denied the motion to decertify the class, but acknowledged that the requested statutory penalties – which were more than 61 times the actual damages awarded by the jury – were so excessive that they violated the defendant’s due process rights.

The court recognized its discretion under both Supreme Court and Ninth Circuit precedent to reduce statutory damages where imposing them would be “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.” The court reduced the plaintiff’s “grossly excessive” amount to $8.3 million, equal to $50 per violation under GBL section 349 and approximately 5.59 times greater than the actual damages awarded.

The court’s ruling turned in part on its analysis of New York procedural law, Civil Practice and Law Rule section 901(b), which reflects a legislative intent to disallow aggregate statutory damages on a class-wide basis unless the statute expressly allows for class treatment. Because GBL sections 349 and 350 do not provide for class treatment, the Court found it appropriate to reduce the statutory damages amount to avoid “immense punitive consequences” to the defendant.

Finally, the court awarded $4.5 million in prejudgment interest on both the actual and statutory damages, from the date of purchase. New York law provides for prejudgment interest “upon a sum awarded…because of an act or omission” that deprives the plaintiff of title, possession, or enjoyment of property. Because the statutory damages were part of the total “sum awarded” due to the defendant’s allegedly misleading marketing, the Court found it appropriate to award prejudgment interest on the entire damages amount.

If it survives an appeal, the case has potentially far-reaching implications due to the recent increase in claims filed under GBL sections 349 and 350 by plaintiffs seeking to avail themselves of the $50 and $500 statutory damages provisions. The Montera opinion provides helpful authority for combatting class-wide statutory damages claims and settlement demands where the aggregated amounts would be so excessive that they become punitive.

Learn more about the implications of this case by contacting any of the authors.