Presented by
Douglas B. Brown
Jacey Kaps
Consumer Class Actions
Under State Little FTC Acts
Why should you care?
Why should you care?
• Juries are deciding what conduct is unfair, not the court applying defined
standards.
• Indiscriminate incorporation of other rules and statutes are part of the
standard of “unfair” or “deceptive:”
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FTC Trade Regulation Rules
FTC Policy Standards
FTC Guides
Other federal consumer acts.
State consumer acts.
State regulatory acts.
Why should you care?
• Tie the reference to other standards to statutes or rules that
define conduct as “deceptive” or “unfair” acts.
• Little FTC Acts trumping contract terms and avoiding
economic loss doctrine and reaching “performance of the
contract” issues.
• Fee driven cases –difficult to moot out because the plaintiff
seeks injunctive or declaratory relief.
Why should you care?
• In some states injury-in-fact requirement is being
circumvented by claims of price inflation (a “fraud on
the market” theory).
• More aggressive FTC will lead to more private cases.
• POM Wonderful ALJ Order.
• “Up to” performance claims.
• Privacy cases.
Standards for Unfair & Deceptive
Acts or Practices
Federal Trade Commission Act
15 U.S.C.A. § 45 (a)(1):
Unfair methods of competition in or affecting
commerce, and unfair or deceptive acts or
practices in or affecting commerce, are hereby
declared unlawful.
FTC’s Deception Statement
Under the FTC deception statement, the plaintiff must prove:
• a representation, omission, or practice that is likely to mislead
consumers;
• the practice is examined from the perspective of a customer
acting reasonably under the circumstances; and
• the representation, practice, or omission must be material.
FTC Policy Statement on Deception, October 14, 1983
Unfairness -S&H Standard
• To determine if an unfair practice, look to: (1)
whether the practice injures consumer; (2) whether
it violates established public policy; (3) whether it is
unethical or unscrupulous. F.T.C. v. Sperry &
Hutchinson Co., 405 U.S. 233, 244 (1972).
• Often cited, despite the FTC’s abrogation in its 1980
Policy Statement on Unfairness.
FTC’s Unfairness Statement
The FTC unfairness doctrine requires allegations that:
• The injury must be substantial;
• The injury must not be outweighed by any off-setting
consumer or competitive benefits; and
• The sales practice also produces the injury and must be one
which consumers could not reasonably have avoided.
FTC Policy Statement on Unfairness, December 17, 1980
FTC Policy on Advertising Substantiation
• The issue is not the truth or falsity of the claim
– it is the failure to have and rely upon the
substantiation which is actionable.
• The advertiser must have at least the degree
of substantiation that it claims.
• Key is matching claims to evidence.
The Consumer’s Use of Prior Substantiation
• Generally, courts have held that the consumer cannot bring a
claim under a state consumer act under a theory of prior
substantiation.
• Plaintiff has the burden in proving that the representation was
false or misleading.
• Franulovic v. Coca Cola Cola Co., 390 F. App’x 125, 2010 WL
3155012 (3d Cir. 2010); Stanley v. Bayer Healthcare LLC, 2012
WL 1132920 (S.D. Cal. 2012); Scheuerman v. Nestle Healthcare
Nutrition, Inc. 2012 WL 2916827 (D. N.J. 2012)
Florida’s Little FTC Act
Florida Statutes Section 501.204
(1) Unfair methods of competition, unconscionable acts or practices, and
unfair or deceptive acts or practices in the conduct of any trade or
commerce are hereby declared unlawful.
(2) It is the intent of the Legislature that, in construing subsection (1), due
consideration and great weight shall be given to the interpretations of the
Federal Trade Commission and the federal courts relating to s. 5(a)(1) of
the Federal Trade Commission Act, 15 U.S.C. s. 45(a)(1) as of July 1, 2006.
States With Similar Provisions
Regarding the FTC
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Alabama
Alaska
Arizona
Connecticut
Georgia
Hawaii
Idaho
Illinois
Louisiana
Maine
Maryland
Massachusetts
Mississippi
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Montana
New Hampshire
New Mexico
Ohio
Rhode Island
South Carolina
Tennessee
Texas
Utah
Vermont
Washington
West Virginia
Florida’s Little FTC Act: Problems of Incorporation
Florida Statutes Section 501.204
(3)“Violation of this part” means any violation of this act or the rules adopted under
this act and may be based upon any of the following as of July 1, 2006:
(a) Any rules promulgated pursuant to the Federal Trade Commission Act, 15 U.S.C.
ss. 41 et seq.;
(b) The standards of unfairness and deception set forth and interpreted by the
Federal Trade Commission or the federal courts;
(c) Any law, statute, rule, regulation, or ordinance which proscribes unfair methods
of competition, or unfair, deceptive, or unconscionable acts or practices.
Problems with Little FTC Act Claims
• Jury decides what conduct is unfair or deceptive
• Inconsistent standards – each jury becomes its own
FTC
• Courts fail to screen cases
• No distinction between deceptive statements and
omissions in FTC Policy Statements.
Class Actions
States That Prohibit Little FTC Act Class Actions
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Alabama
Georgia
Iowa
Louisiana
Mississippi
Montana
South Carolina
Tennessee
Virginia
• But remember Shady Grove
Orthopedic Assoc. v. Allstate Ins.
Co., 130 S. Ct. 1431 (2010) (holding
that state law against class actions
could not be followed in federal
court)
Application to Consumer Cases
• Emphasis that Rule 23 does not change the
substantive standard, if a fact is relevant in an
individual case it is relevant in a class action.
• Even when presumption applies, the defendant has
the right to present evidence.
• Injunctive relief is not a backdoor for damages 23(b)(3) must be followed.
• Class representative cannot assert claims he does not
have on behalf of the class.
Due Process - Pattern of Practice
“However, if the Appellees are permitted to establish the
putative class members' claims by proof of common schemes or
patterns of behavior, the Appellants will be unable to defend
against individual claims where there may be no liability. By any
standard, this would amount to a violation of substantive due
process of law.”
Rollins, Inc. v. Butland, 951 So. 2d 860, 874 (Fla. 2d DCA 2006).
Arbitration Provisions with Class Action Waivers
• AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740
(2011) (
• Cruz v. Cingular Wireless, LLC, 648 F.3d 1205 (11th Cir.
2011); Pendergast v. Sprint Nextel Corp., 691 F.3d
1224 (11th Cir. 2012).
• Potential uses:
– Store credit cards
– Club membership plans
FTC Actions That May Lead to
Copycat Cases
POM Wonderful
• Challenged claims included reduction of risk of heart
disease, prostrate cancer, erectile dysfunction. The
ALJ found insufficient substantiation.
• POM appeal to full commission centered on the
following issues:
– Sellers of food products should be able to make implied
health claims with a lower standard of substantiation than
extraordinary expensive controlled human studies.
POM Wonderful Cont.
– First amendment right to present its views on the proper
interpretation of its research;
– Current ads do no more than truthfully reference potential
benefits.
• ALJ did not require POM to meet FDA approval for
health claims
• POM characterized result as a victory in press
release.
New FTC Policy:
Maximum Performance Ads
Examples:
• Price advertising:
– Save up to 50% off of regular price – save up to 47% on heating and
cooling bill.
– Up to 1% savings by use of credit card.
• FTC traditional test – an appreciable number of consumers will experience
near maximum results if used as directed. In the Matter of GSC
Electronics, Inc., 108 F.T.C. 158 (1986).
Maximum Performance Ads Cont.
• FTC study showed that consumers treated “up to”
claims as meaning all or almost all consumers would
obtain those results.
• New FTC enforcement policy is that if you use a
percentage or specific representation, you need to
disclose the percentage of consumers who will reach
those results.
• NAD has used a 10% minimum compliance test.
Privacy
Federal Trade Commission v. Neovi, Inc., 604
F.3d 1150 (9th Cir. 2010)
• Third-party vendor sued by FTC under
unfairness theory for failing to protect private
consumer information.
Current Hot Issues
Price Inflation Damages
• Consumer may not be required to prove reliance to
prove a substantive violation.
• However, Defendants have been successful in
arguing that plaintiffs must prove causation-in-fact
• But, increasing use of claims for price inflation
damages. Fitzpatrick v. General Mills, Inc., 635 F.3d
1279 (11th Cir. 2011).
Mootness Defense Limited in
Actions for Declaratory and Injunctive Relief
Zinni v. ER Solutions, Inc., 2012 WL 3641911
(11th Cir. 2012).
Representative Class Actions
Against Retailers
Pricing Cases
• Retailer represents that the original / retail
price of a product is substantially higher than
its true value in order to advertise a special
deal
• Retailer promises to “price match”
Food Labeling
• Coloring of food to make it appear like “wild salmon”
• Labeling product “all natural”
New Filings:
• Private label salad dressing, cereal is 100% natural was
misleading because they contain genetically modified
organics. (N.D. Calif. 10/5/12)
• “Kobe Beef” designation (Cal. State. Ct. 10/3/12)
• Bottled water 100% natural (N.D. Ill. 10/10/12)
Privacy
• Failing to comply with own privacy policy
• Requesting confidential consumer information
in violation of state law.
• Wyndham Hotels – FTC sued under § 5
asserting that the defendants failed to protect
stored credit card information from hackers.
Warranties
• Having an ambiguous warranty that does not
disclose all terms.
• Having a warranty with unconscionable short
duration.
Product Representations
• Promoting a store brand product in the same manner
as the nationwide manufacturer’s product (K-cups)
• Representations about the characteristics of a
product.
• New Filings:
– Lip balm with false bottom “misrepresenting” the amount
of the product (CD. Cal. 10/3/12).
Unfairness
• Continuing to advertise and sell a product --, i.e.
vitamins, after its expiration date.
• FTC cases regarding protecting customer information
from hackers – failure to follow contractual terms
effecting many consumers.
• These cases could be viewed as unfair even if not
deceptive.
Taxes and Pass-on Fees
• Computing taxes on pre-discount purchase
price.
• Charging sales tax on shipping & handling
charges
• Characterizing charges such as “environmental
fees” which are simply add-ons.
Origin of Product
• Representing the product is “Made in the
USA” when in fact some parts were not.
Solutions
1. Restrict Statutes to consumer transactions and preclude
claims by parties not in privity.
2. Limit scope of declaratory and injunctive relief.
3. Require causation in fact for class members.
4. Require prior demand for fee recovery.
Solutions Cont.
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Eliminate or define “unfairness” doctrine to FTC standard,
rather than S & H standard.
Require scientier for omission theory.
Limit damage cases to deception claims.
Retailer exemption from supplier based on ads.
Abrogation of statutory minimum damages.
Procedural changes will not help much in -- and almost all
class action cases will be removable to federal court.
Thank You