New York's Highest Court Bars Class Action Recovery of Treble Damages Under Donnelly Act

On Thursday, February 27, 2007, New York's Court of Appeals ruled in Sperry v. Crompton Corp. that the treble damages provision in New York's Donnelly Act constituted a "penalty" under section 901(b) of New York's Civil Practice Law & Rules, and that therefore, such damages would not be recoverable in class action suits. The Court's ruling will likely result in fewer private enforcement actions being brought under New York's antitrust laws.

Under CPLR 901(b), class action suits may not be maintained to recover a "penalty" or a "minimum measure of recovery created or imposed by statute," unless such recovery is otherwise specifically authorized by statute. In Sperry, the plaintiff, Paul Sperry, brought suit against several manufacturers and sellers of rubber-processing chemicals that are used on tires, belts, hoses and footwear, on behalf of a class consisting of consumers "who purchased tires, other than for resale, that were manufactured using rubber-processing chemicals sold by defendants since 1995." Sperry alleged that the defendants, including Crompton, Uniroyal, Flexsys, and Bayer, entered into a price-fixing agreement that overcharged tire manufacturers for the chemicals, and that the overcharges were eventually passed on to consumers like Sperry. Sperry alleged a cause of action under the indirect purchaser provision of New York's Donnelly Act (General Business Law § 340(6)), seeking treble damages under Section 340(5).

The Court held that because the Donnelly Act's treble damages provision does not state that such damages are compensatory, nor does it expressly authorize recovery by means of a class action suit, the antitrust law's treble damages "should be regarded as a penalty insofar as class actions are concerned." The Court's ruling was in part based on the legislative history of the Donnelly Act, which was amended to include the threefold damages provision only weeks after the class action statute's enactment but nevertheless failed to include an express authorization for class action recovery. The Court declined to reach the issue of whether Sperry may maintain a class action under the Donnelly Act by forgoing treble damages in favor of actual damages because Sperry had consistently sought treble damages throughout the litigation.

The Court also affirmed the dismissal of Sperry's unjust enrichment cause of action because it held that under the facts of the case, "the connection between the purchaser of tires and the producers of chemicals used in the rubber-making process is simply to attenuated to support such a claim."

For the Court's full opinion in Sperry, see http://www.courts.state.ny.us/ctapps/decisions/feb07/4opn07.pdf.