PEOPLE SPITZER v. GENERAL ELECTRIC COMPANY INC

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Supreme Court, Appellate Division, First Department, New York.

The PEOPLE of the State of New York by Eliot SPITZER, Attorney General of the State of New York, Petitioner-Respondent, v. GENERAL ELECTRIC COMPANY, INC., Respondent-Appellant.

-- February 27, 2003

SAXE, J.P., ELLERIN, LERNER and MARLOW, JJ. Joy Feigenbaum, for Petitioner-Respondent. Peter N. Wang, for Respondent-Appellant.

Order, Supreme Court, New York County (Louise Gruner Gans, J.), entered on or about July 30, 2001, which, upon findings that respondent General Electric Company (GE) had engaged in deceptive practices violative of Executive Law § 63(12) and General Business Law § 349, set forth procedures pursuant to which GE would compensate certain consumers who had purchased replacements for GE's defective dishwashers, unanimously affirmed, without costs.   Order, same court and Justice, entered April 8, 2002, which denied GE's motion to renew and granted its motion to reargue but, upon reargument, adhered to its prior orders, except that it allowed GE, under certain circumstances, to move for a hearing as to the eligibility of an individual consumer for restitution, and order, same court and Justice, entered April 16, 2002, which, inter alia, granted petitioner's motion to enjoin GE from representing that the defective dishwashers could not be repaired, directed GE to contact consumers who had previously requested a repair but had not received one, and directed GE to publish advertisements in newspapers announcing the availability of repairs, unanimously affirmed, without costs.

 Petitioner Attorney General brings this proceeding under Executive Law § 63(12) and General Business Law § 349 to obtain injunctive relief and restitution on behalf of consumers allegedly damaged by representations made by respondent GE to the effect that certain defective dishwashers it manufactured were not repairable.   Under § 63(12), the test for fraud is whether the targeted act has the capacity or tendency to deceive, or creates an atmosphere conducive to fraud (see e.g. State of New York v. Gen. Motors Corp., 120 Misc.2d 371, 374, 466 N.Y.S.2d 124;  People v. Life Science Church, 113 Misc.2d 952, 963, 450 N.Y.S.2d 664, appeal dismissed 93 A.D.2d 774, 461 N.Y.S.2d 803, lv. denied 61 N.Y.2d 604, 473 N.Y.S.2d 1025, 462 N.E.2d 155, cert. denied 469 U.S. 822, 105 S.Ct. 97, 83 L.Ed.2d 42;  Matter of State of New York v. Colorado State Christian Coll. of Church of Inner Power, Inc., 76 Misc.2d 50, 56, 346 N.Y.S.2d 482).  Executive Law § 63(12) was meant to protect not only the average consumer, but also “the ignorant, the unthinking and the credulous” (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 273, 401 N.Y.S.2d 182, 372 N.E.2d 17).

 In contrast, under General Business Law § 349, the plaintiff must prove that the challenged act or practice “was misleading in a material way” (Stutman v. Chemical Bank, 95 N.Y.2d 24, 29, 709 N.Y.S.2d 892, 731 N.E.2d 608), and “the deceptive practice must be ‘likely to mislead a reasonable consumer acting reasonably under the circumstances' ” (id., quoting Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26, 623 N.Y.S.2d 529, 647 N.E.2d 741).

 The statements made by GE satisfy both standards.   The distinction that GE seeks to draw between “repair” on the one hand and “rewire” on the other is artificial, and is belied by GE's own past usage of these terms (e.g., in the Amendment to the Settlement Agreement between GE and the Consumer Product Safety Commission [CPSC] and in GE's Answer to the Verified Petition).   Even if, according to some dictionary definition of “repair,” GE's statement that repairs were not an option were literally true, literal truth is not an availing defense in light of the evident capacity of the representations at issue to mislead even reasonable consumers acting reasonably under the circumstances (see Matter of Lefkowitz v. E.F.G. Baby Prods. Co., 40 A.D.2d 364, 368, 340 N.Y.S.2d 39).   Nor did GE's statement “comport substantively with” the statements approved by the CPSC (see Cytyc Corp. v. Neuromedical Sys., Inc., 12 F Supp 2d 296, 301).

 GE's actions with respect to the supplemental recall satisfy the standards for consumer fraud because, even after GE and the CPSC agreed that GE would offer consumers free repairs, GE or its representatives told some consumers that free rewiring was not available.   Although GE argues that it conducted its supplemental recall in good faith, neither bad faith nor scienter is required under Executive Law § 63(12) (see e.g. People v. Apple Health & Sports Clubs, Ltd., 206 A.D.2d 266, 267, 613 N.Y.S.2d 868, lv. dismissed in part, lv. denied in part 84 N.Y.2d 1004, 622 N.Y.S.2d 908, 647 N.E.2d 114;  Matter of State of New York v. Ford Motor Co., 136 A.D.2d 154, 158, 526 N.Y.S.2d 637, affd. 74 N.Y.2d 495, 549 N.Y.S.2d 368, 548 N.E.2d 906).   Similarly, intent to defraud or mislead is not required under General Business Law § 349 (Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d at 26, 623 N.Y.S.2d 529, 647 N.E.2d 741).

 Because the letters the IAS court found deceptive were not approved by the CPSC, General Business Law § 349(d) does not bar this proceeding (see e.g. Marcus v. AT & T Corp., 938 F.Supp. 1158, 1173, affd. 138 F.3d 46).   Furthermore, making deceptive statements cannot be considered compliance with federal rules, regulations, and statutes, as required by General Business Law § 349(d) (cf.  Matter of the State of New York v. Interstate Tractor Trailer Training, Inc., 66 Misc.2d 678, 681, 321 N.Y.S.2d 147).

 GE's argument that § 349(d) bars claims based on the supplemental recall is also unavailing.   The Attorney General's office sent the CPSC its proposed injunction order, which relates to the supplemental recall program;  the CPSC said it had no objections.

 The affidavits GE submitted do not raise a triable issue of fact.   They do not deny that the conversations, related in the consumer complaints and affidavits, occurred.   Instead, GE's affidavits say that it instructed the company, which it chose to staff the recall telephone line (West Telemarketing Corp.), not to deviate from the CPSC-approved script, and that various GE and West quality assurance supervisors listened to selected conversations, not all of them.

Even though GE voluntarily ceased its deceptive practices, the IAS court in the context of this consumer protection proceeding nonetheless retained the power to grant injunctive relief (see State of New York v. Midland Equities of New York, Inc., 117 Misc.2d 203, 206-207, 458 N.Y.S.2d 126;  Matter of State of New York v. Hotel Waldorf-Astoria Corp., 67 Misc.2d 90, 91-92, 323 N.Y.S.2d 917).   Since GE is presently complying voluntarily with the entire April 16, 2002 injunction, except the publication requirement, the bulk of the injunction will not cause it prejudice (see Interstate Tractor Trailer, 66 Misc.2d at 683, 321 N.Y.S.2d 147;  Matter of State of New York v. Bevis Indus., Inc., 63 Misc.2d 1088, 1092, 314 N.Y.S.2d 60).

The publication which the injunction directs will not harm GE, since it is, as a practical matter, the same as the one previously approved by the CPSC. It is needed because GE is unlikely to have contact information for those people who called for a free repair but were disconnected (see State of New York v. Ford Motor Co., 136 A.D.2d at 158-159, 526 N.Y.S.2d 637).   The risk of fire renders it especially important to reach any remaining consumers who have not yet repaired or replaced their defective dishwashers.

The authority to direct restitution includes the authority to order respondents to notify consumers of the right to seek restitution (State of New York v. Princess Prestige, 42 N.Y.2d 104, 108, 397 N.Y.S.2d 360, 366 N.E.2d 61).

GE's proposed formula for restitution rests on its contention that the recalled dishwashers were at the end of their useful lives.   However, this is contradicted, inter alia, by the fact that GE was urging consumers to renew service contracts on old dishwashers while contemporaneously trying to induce consumers to buy new dishwashers.   The IAS court's restitution formula forces consumers to absorb some costs, such as the cost of installing their new machines and disposing of the old ones.   The remedy that the IAS court fashioned is reasonable and within the court's sound discretion.   GE, whose deceptive practices caused damages to so many consumers, can now hardly complain that petitioner has not quantified actual damages with exactitude (see generally id.;  Matter of Nasdaq Mkt.-Makers Antitrust Litig., 169 F.R.D. 493, 527).

 Finally, since the recall provided for indirect notice, GE can be held liable for the statements of third parties, such as its retailers and distributors, who had actual or apparent authority to make statements about the recall (see Fed. Trade Commn. v. Five-Star Auto Club, Inc., 97 F.Supp.2d 502, 527, 530).

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