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THE LAW OF UNFAIR TRADE PRACTICES Practical tips for dealing with UTP statutes
Is this unfair? Price of roses on Valentine’s Day: 42% increase (NYC Dep’t of Consumer Affairs) Raleigh area: price increases of $10 - $30 (Informal WRAL survey)
Agenda Key features of the law on unfair trade practices The pivot points in UTP lawsuits Important new North Carolina decisions: Bumpers and Torrence Tips for living with UTP statutes
“Unfair Trade Practices” Statutes Burgeoning source of litigation Risk for businesses Opportunities for plaintiffs Including business plaintiffs in most states (including N.C.)
“Unfair Trade Practices” Statutes Consumer-protection statutes enacted in 1960s and early 1970s Inspired by section 5 of the Federal Trade Commission Act Section 5 has no private right of action FTC encouraged the states to pass UTP statutes
“Unfair Trade Practices” Statutes Every state now has a UTP statute of some type All states allow private parties to sue under some circumstances A majority (including N.C.) allow recovery by non-consumers
A Powerful Weapon Treble damages (25 states, including N.C.) Plaintiffs can recover attorney fees (46 states, including N.C.) Class actions (41 states, including N.C.)
How do you define “unfair” and “deceptive”? 2 basic approaches: Open-ended statutes, modeled on FTC Act “Laundry list” of unfair or deceptive acts
Open-ended: The “Little FTC Acts” Many states have modeled their UTP statutes on section 5 of the FTC Act “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” 15 U.S.C. § 45. “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” N.C. Gen. Stat. § 75-1.1(a).
The “Little FTC Acts” In 32 states, courts look to FTC decisions and federal case law under section 5 as a guide Many UTP statutes have express cross-references In other states (including N.C.), the courts have decided to refer to these sources
Laundry Lists Five states restrict claims to an enumerated list of practices Maryland – detailed, multi-part definition, with examples Oregon – claims restricted to acts listed in statute or rules issued by Attorney General
Laundry Lists Maryland’s UTP statute defines “unfair or deceptive trade practices” as including, among other things: (10) Solicitations of sales or services over the telephone without first clearly, affirmatively, and expressly stating: (i) The solicitor's name and the trade name of a person represented by the solicitor; (ii) The purpose of the telephone conversation; and (iii) The kind of merchandise, real property, intangibles, or service solicited.
Exemptions Many UTP statutes exempt one or more industries Creditors Insurance Utilities Debt collection / repossession Real estate
North Carolina Exemptions Lawyers and other “learned professions” Carriers of advertising Activity not “in or affecting commerce” – e.g., Securities and commodities Actions “within a single business”
Types of UTP Claims Per se violations Deception Aggravated breaches of contract “Direct unfairness” claims Unfair methods of competition
Per Se Violations Sometimes, a violation of a separate statute or regulation automatically supports a UTP claim 45 N.C. statutes have express cross-references to UTP statute Examples: statutes on identity theft, customer records, and confidential information Courts have also found per se liability based on sources without an explicit cross-reference
California’s Section 17200 Created private claim for violations of virtually any statute or regulation – even ones with no private right of action of their own: Disclosures in wrong font size Item with a few foreign-made components advertised as “Made in the USA” Bathroom mirror an inch higher than disability regulations required
California’s Section 17200 N.D. Cal. = “Food Court”: recent wave of class actions alleging technical violations of federal / Cal. food labeling laws “Sugar free,” “sugarless” but fail to disclose trivial amounts “Natural source of antioxidants” but fails to specify which nutrients Private right of action under section 17200 because “unlawful”
Deception Fraud with fuzzier elements Major goal of UTP statutes was to relax the elements of fraud so consumers could recover more often Most states require only that a practice have “the capacity or tendency to deceive” No intent to deceive is required
Deception Connick v. Suzuki Motor Co. (Illinois Supreme Court 1996) Plaintiffs alleged that car manufacturer failed to disclose risk of roll-overs. Plaintiffs sought damages for reduced resale value. Fraud claim failed, but UTP claim survived. “An omission or concealment of a material fact in the conduct of trade or commerce [violates the statute].”
Private attorney general run amok? New Jersey lawyer Harold Hoffman has filed dozens of UTP putative class actions for alleged deceptive advertising, with himself as named plaintiff Dietary supplements – Ginkgo Biloba Male enhancement pills – Erection MD Time Warner Cable (failure to carry channel during negotiations) Sometimes sues before he even receives the product in question Many cases have been removed under CAFA
Patent Infringement ? UTP Class Action? Dang v. Samsung (N.D. Cal. filed 2014): UTP class action alleges that Samsung deceived consumers by concealing its infringement of Apple patents Any consumer harm? Allegation is that infringement finding decreased resale value of mobile phones
Aggravated Breaches of Contracts Breach of contract + something else = treble damages N.C. and Connecticut require “substantial aggravating circumstances” Examples: intentional misrepresentations; multiple breaches over time Federal courts and business courts read this theory more strictly than other courts do
Direct Unfairness Arises from open-ended definitions of “unfair” Courts have struggled to announce rules that would generate predictable results N.C. Supreme Court: padlocking an apartment for unpaid rent is not unfair N.C. Court of Appeals: collecting rent on an unfit dwelling is unfair
Unfair Methods of Competition Fuzzy antitrust Can enable end runs around antitrust case law LaChance v. U.S. Smokeless Tobacco Co. (N.H. 2007): Indirect purchasers lack standing under antitrust law, but do have standing to sue for unfair methods of competition under UTP statute
State Attorney General Enforcement State attorneys general increasingly hire outside counsel to pursue UTP claims for a contingent fee South Carolina recovered $327 million based on off-label marketing of the anti-psychotic drug Risperdal U.S. Supreme Court recently rejected an attempt to remove a state’s parens patriae claim to federal court under Class Action Fairness Act.
Common “Business v. Business” Scenarios Departing-employee cases Cases over competitive tactics IP claims Indirect-purchaser antitrust cases Deception claims
UTP Claims in Personal-Injury Cases UTP claims can provide an alternate route to recovery in tort disputes Howerton v. Arai Helmet (N.C. 2013) – deceptive to apply safety certification sticker to helmet without clarifying which parts of helmet were certified? Klairmont v. Gainsboro Restaurant (Mass. 2013) – maintaining restaurant stairs in unsafe condition was unfair and deceptive conduct
Major Pivot Points Under UTP Statutes Availability of treble / punitive damages Whether non-consumers can bring claims Whether class actions are allowed Whether winning plaintiffs, and winning defendants, can recover attorney fees
Other Major Pivot Points Relationship with FTC rules / federal case law How open-ended are the conduct standards? In deception cases, is reliance required?
Counter-Revolution? Scholars and state supreme courts are increasingly interested in UTP issues Will class action counter-revolution reach state UTP cases? U.S. Supreme Court: Twombly; Wal-Mart; Concepcion North Carolina: Bumpers; Torrence
Bumpers v. Community Bank (N.C. 2013) Plaintiffs paid high fees, including “loan discount” fees and closing fees, on second mortgages Plaintiffs testified: Overall deal was acceptable Paid no attention to the titles of the fees Offensive summary judgment: (1) closing fees were excessive and (2) discounted interest rate was not provided
Key Issues in Bumpers Does UTP allow unfairness claim on the theory that a price was “excessive”? Does a deception claim require reliance? Plaintiffs admitted that they did not pay attention to or rely on names of fees
Bumpers: Key Holdings “In most cases, there is nothing unfair or deceptive about freely entering a transaction on the open market.” Caveat: These fees, under these circumstances, did not allow a UTP claim
Bumpers: Key Holdings A deception claim requires actual and reasonable reliance When the alleged wrong is a statement, it proximately causes harm only if someone relies on it “Section 75-1.1 has long encompassed conduct tantamount to fraud, which requires reliance, and we see no reason for departure from that requirement.”
AT&T Mobility LLC v. Concepcion (2011) AT&T’s customer agreements required arbitration and precluded class action arbitrations California Supreme Court: Arbitration clause and class action ban were unconscionable U.S. Supreme Court: Federal Arbitration Act preempts state unconscionability doctrine
Torrence v. Nationwide Budget Finance (2014) In Tillman (2008), N.C. Supreme Court had held an arbitration clause in a small loan agreement unconscionable Torrence: Concepcion and later Supreme Court decision trump Tillman Federal Arbitration Act preempts unconscionability doctrine N.C. Court of Appeals compelled arbitration of UTP claims
Tips for Business Defendants Be sensitive to acts that seem “unfair” without being deceptive General pro-plaintiff thrust of UTP statutes E.g., Closing fees in Bumpers E.g., Apple App Store password feature: 20-year consent decree + $32.5 million in refunds
Tips for Business Defendants In non-reliance states, beware liability for deceptive acts “in the forest” Review documents for potential collateral misrepresentations Dangerous to rely on disclaimers or fine print
Tips for Business Defendants Consider arbitration clauses in consumer contracts Arbitration in “business vs. business” cases involves much harder tradeoffs No dispositive motions Little discovery Split-the-difference decisions Virtually no appeal
Tips for Business Defendants Potential preemption arguments in heavily regulated industries E.g., federal regulations allowing banks to issue “convenience checks” preempted UTP statute and defeated claims that the bank deceptively failed to disclose the consequences of use of the checks. Rose v. Chase Bank (9th Cir. 2008).
Tips for Business Plaintiffs Adding a UTP claim to a contract claim can add great tactical and substantive benefits Treble damages / attorney fees Can avoid contract-law hurdles like the parol evidence rule and the statute of frauds
Tips for Business Plaintiffs UTP claims are especially common in “departing employee” claims Theft of trade secrets Be aware of “labor” exemption: Elastic scope
Tips for Business Plaintiffs In some states and some cases, a UTP-only strategy could be rational The open-ended standards can be your friend But assess all the case law up front You might also see your briefing again in other cases
Tips for Everyone: Forum is Crucial Removal Fraudulent joinder CAFA Complete preemption Business Courts There is something worse than a series of circuit-riding judges
Thank you!Matt Sawchakmatt.firstname.lastname@example.org