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Media Alerts - Orlander v. Staples, Inc. - Second Circuit
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September 16, 2015
  Orlander v. Staples, Inc. - Second Circuit
Headline: Second Circuit Finds Staples, Inc. Two-Year "Carry-In" Protection Plan Ambiguous and Potentially Misleading to Customers

Area of Law: Contracts and Business

Issue(s) Presented: Whether the district court erred in granting defendant Staples, Inc.'s motion to dismiss contract and deceptive business practice claims, based upon a finding that Staples' Protection Plan was unambiguous, any breach of the terms was immaterial, and plaintiff failed to adequately allege damages and injury under New York law.

Brief Summary: In March 2012, Andrew Orlander purchased a computer and Staple, Inc.'s ("Staples") two-year "Carry-in" Protection Plan at a Staples store. At that time, Orlander was given a Protection Plan Brochure (the "contract") and verbal assurance from a sales representative that the Protection Plan would offer better coverage than the manufacturer's warranty and that, under the Plan, Orlander would "never need to contact the manufacturer." In November 2012, Orlander brought the computer back to the Staples store with internet-connectivity issues and asked to exchange it for another computer. An employee told Orlander to contact the manufacturer directly and explained that the Protection Plan did not offer coverage until the manufacturer's warranty expired. Orlander brought a class action suit for breach of contract and violations of the consumer deception and false advertising provisions in New York's General Business Law ("NY GBL"), among other claims.

The United States District Court for the Southern District of New York granted Staples motion to dismiss the breach of contract and NY GBL claims, holding that the contract was unambiguous, that any breach of the contract by Staples was immaterial, and that Orlander failed to adequately allege damages or an actual injury under the NY GBL. The United States Court of Appeals for the Second Circuit vacated the judgment granting the motion to dismiss and remanded the case, holding that the contract was ambiguous as a matter of law, the materiality of any breach by Staples was not a basis on which to dismiss the contract claim, and that Orlander adequately alleged deceptive practices and false advertising claims and injury.

To read the full opinion, please visit: ">http://www.ca2.uscourt.../de.....4/3/hilite/

Extended Summary: Under New York law, a successful claim for breach of contract must include allegations that the parties formed a contract, the plaintiff performed his/her part of the contract, the defendant failed to perform, and the plaintiff suffered damages. If the court concludes an applicable contract term is ambiguous as applied to the allegations in a complaint, the court lacks a sufficient basis to dismiss the complaint for failure to state a claim.

It was undisputed that the parties formed a contract and that Orlander performed by purchasing the two-year "Carry-in" Protection Plan for $99.99. The second page of the Protection Plan Brochure provided to Orlander at the time of his purchase listed the terms of the plan contract. In small type after just one of the provisions, the contract stated, "Some restrictions apply. For complete details...see Terms and Conditions. The plan term is inclusive of manufacturer's warranty...and does not replace the manufacturer's warranty." The United States District Court for the Southern District of New York granted Staples motion to dismiss the breach of contract claim, holding that the contract was unambiguous in providing that the Staples Protection Plan did not offer services to a purchaser during the one-year manufacturer's warranty term, and that any breach of the contract by Staples was immaterial.

The Second Circuit disagreed, holding that Orlander's complaint adequately alleged a material breach by Staples that lead to injury and damages to Orlander. The court reasoned that the contract was ambiguous because only one provision of the contract included the note stating that restrictions applied, a reasonable person could conclude that the caveat only applied to one specific provision of the contract. The court stated further that language in the note, itself, was unclear, offering several potential interpretations, and "certainly [did] not communicate that Staples' plan gives no protection" during the warranty term. Noting that even the district court, in finding that Staples breached the contract by not referring Orlander to "the nearest service provider" for repair, interpreted the contract differently from Staples, it also went on to conclude that the district court's conclusion that any breach was immaterial should not be considered in the motion to dismiss for the failure to state a claim. Finally, on the contract claim, the Second Circuit concluded that because Orlander could potentially show Staples breached several provisions of the contract, he could be entitled to a variety of losses, in addition to his adequately plead "restitution" damages.

The Second Circuit also disagreed with the district court and held that Orlander adequately stated claims and injury under New York's General Business Law (NY GBL). NY GBL sections 349 and 350 prohibit deception of customers and false advertising by a business engaged in "trade, commerce or in furnishing any service" in New York State. A successful claim must allege that the defendant engaged in materially misleading consumer-oriented conduct and that the plaintiff suffered an injury as a result of that conduct. Finding it undisputed that Staples' sale of a Protection Plan was consumer-oriented conduct, the court held that Orlander also adequately alleged conduct that was materially misleading based upon his allegations that he was reasonably misled by the contract promise to refer purchasers to "the nearest authorized service center" and by Staples employees' representations that the contract provided complete coverage and he would never have to contact the manufacturer. The court reasoned that these representations, and the contract ambiguity as to whether coverage provided by the manufacturer's warranty might also be provided by Staples, could lead a reasonable customer to believe that Staples would provide more services, such as referral for free repair and replacement, that the company did not intend to provide.

Based upon its findings, the Second Circuit vacated the judgment by the District Court granting Staples' motion to dismiss and remanded.

To read the full opinion, please visit: ">http://www.ca2.uscourt.../de.....4/3/hilite/

Panel: Circuit Judges Leval and Pooler; District Judge Murtha, sitting by designation

Argument Date: 01/22/2015

Argument Location: New York, NY

Date of Issued Opinion: 09/16/2015

Docket Number: No. 14-2677-cv

Decided: Vacated and Remanded

Case Alert Author: Ryan Koleda

Counsel: Megan A. Farmer, Gardy & Notis, LLP, New York, N.Y., for Plaintiff-Appellant; Barry M. Kazan, Thompson Hine LLP, New York, N.Y., for Defendant-Appellee

Author of Opinion: Judge Leval

Circuit: 2nd Circuit

Case Alert Circuit Supervisor: Elyse Diamond Moskowitz

Edited: 09/17/2015 at 07:24 AM by Elyse Diamond

    Posted By: Elyse Diamond @ 09/16/2015 08:31 PM     2nd Circuit  

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