wrecking ball disguised as reform--alec's model act on private enforcement of consumer...

Electronic copy available at: http://ssrn.com/abstract=2426381

WRECKING BALL DISGUISED AS REFORM: ALEC’S

MODEL ACT ON PRIVATE ENFORCEMENT OF

CONSUMER PROTECTION STATUTES

By Dee Pridgen *

Introduction

State consumer protection statutes, known as state Unfair

and Deceptive Acts and Practices (UDAP) laws or state “little

FTC acts,” are under attack.1 Influential conservative think tanks

like the American Legislative Exchange Council (ALEC) and

several like-minded authors have begun a campaign to

effectively abolish the private right of action to enforce these

state consumer protection statutes under the guise of state law

reform. They have done so by proposing a model law that is so

undermining of the viability of the private right of action that if

enacted as a whole in any state, it would in essence eliminate the

private right of action for the state UDAP law. In addition, by

publishing methodologically-flawed research reports that purport

to provide a basis for the proposed “reforms,” the Searle

Institute furnishes state lawmakers with comforting yet

unreliable data to back the model law. This article will show that

the proposed “law reforms” are in fact aimed at gutting a

particularly useful and long-standing type of consumer

protection, and protecting businesses from liability for unfair or

deceptive trade practices. While some legitimate issues can be,

and have been, raised by these critics, the proposed solutions * Dee Pridgen is the Carl M. Williams Professor of Law and Social

Responsibility at the University of Wyoming College of Law. She was

elected as a member of the American Law Institute in 2003. The author

would like to thank Carolyn Carter, Prentiss Cox and Jeff Sovern for their

excellent and helpful comments on an earlier draft of this article. 1 These statutes are also referred to in this article as “state consumer

protection laws” or “state consumer protection acts.”

Ron-2

Sticky Note

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426381

Electronic copy available at: http://ssrn.com/abstract=2426381

2 Wrecking Ball: ALEC’s Model Act [17-Apr-14

would turn back the clock to the days of “caveat emptor” when

individual consumers had no viable legal remedies to protect

themselves from unfair or deceptive marketplace practices. In

short, the ALEC Model law aims a wrecking ball at consumer

protection statutes in the guise of proposing a few modest

repairs.

Part One will address the history and origins of the state

UDAP laws, with a particular emphasis on their provisions for

private enforcement.2 Part Two of the article will discuss the

goals of the state consumer protection laws, including the goals

of providing access to the courts for small consumer claims and

the establishment of a cadre of “private attorneys’ general” to

supplement government enforcement of consumer protection

laws.3 Part Three contains a detailed analysis and critique of the

provisions of the ALEC Model Act on Private Enforcement of

Consumer Protection Statutes.4 Part Four discusses the

arguments and studies put forward in support of the ALEC

model, and concludes that they are seriously flawed.5

I. Origins of State UDAP Laws with Private

Enforcement

State consumer protection statutes banning unfair and

deceptive trade practices originated in the late 1960’s and early

1970’s as a way to help consumers with relatively small claims

gain access to justice through the court system.6 While

individuals could in theory sue merchants who defrauded them

under common law tort theory, the standard elements of false

representation of fact (not opinion), intent to deceive, and

justifiable reliance, had proven to be quite burdensome to

2 See text accompanying notes ___, infra.

3 See text accompanying notes ___, infra



6 See William A. Lovett, State Deceptive Trade Practice Legislation, 46

TUL. L. REV. 724 (1972).

17-Apr-14] Wrecking Ball: ALEC’s Model Act 3

consumers.7 The element of justifiable reliance, as applied by

courts who believed that buyers and sellers were on the same

footing with regard to information and that the buyer had a duty

to question and seek independent verification for any important

statements or opinions of the seller, was especially difficult for

the average consumer to overcome.8 Consumers also had the

option under the common law of contracts to try to persuade

judges to refuse to enforce contracts based on

misrepresentations,9 or unconscionability.

10 However, the

common law contract approach was rarely successful in

consumer cases and only provided a way to avoid contract

enforcement, but did not provide damages to the defrauded or

unfairly treated consumer.

In addition to the high burden of proof for individual fraud

claims, consumers were also stymied by the high costs to

damages ratio involved in litigating relatively small claims.

Most consumer goods are not so expensive that the injury to the

consumer of having been misled as to its value (purely

economic loss) would justify the expense of hiring an attorney

and going to court. While the availability of consumer class

actions blossomed since the period when the state UDAP laws

were originally passed11

, it is still true that for individual 7 The elements of the cause of action for common law fraud (also called

“deceit”) have been stated by Prosser and Keeton as including: false

representation (not omission) of fact (not opinion) made by the defendant;

knowledge or belief on the part of the defendant that the representation is

false; intention to induce the plaintiff to act; justifiable reliance upon the

representation on the part of the plaintiff; and resulting damage to the

plaintiff from such reliance. Prosser & Keeton on the Law of Torts, § 728

(5th

ed. 1984). 8 See, e.g., Parker v. Arthur Murray, Inc., 295 N.E.2d 487 (Ill. Ct. App.

1973) (false representations of plaintiff’s supposedly exceptional dancing

ability were not actionable because “mere expression of opinion will not

support an action for fraud”). 9 Restatement 2d Contracts § § 162-164.

10 Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir.

1965). 11

Consumer class actions have also been under attack in recent years,


consumer claims that are not necessarily amenable to class

action treatment (such as one-to-one fraudulent transactions or

claims subject to arbitration clauses barring class actions), the

common law approach is financially infeasible.

In contrast to the burden individuals faced in trying to

prove common law fraud, the Federal Trade Commission (FTC)

could pursue consumer fraud without these same strictures. The

FTC had been on the scene since 1914, with a specific mandate

to protect consumers against “unfair and deceptive acts or

practices” since 1938.12

The FTC could go after merchants for

deceptive practices that had a “tendency or capacity to deceive”

“the ignorant, the unthinking and the credulous.”13

The FTC

also had the authority to prohibit “unfair” trade practices.14

However, the FTC is constrained by a duty to take action only if

it is in the public interest and affects interstate commerce.15

In

addition, the FTC Act has never featured a private right of

action to enforce this prohibition and the courts have been

unwilling to infer one.16

Thus, the individual consumer could

not take advantage of the more expansive substantive standards

of the FTC Act in cases that the FTC itself chose not to pursue

for budgetary reasons or because the case was not deemed to be

a national priority.

however, and may have already peaked. Indeed, private class actions appear

to be on the decline in the United States. See Deborah R. Hensler,

Goldilocks and the Class Action, 126 HARV. L. REV. F. 56 (2012). 12

Federal Trade Commission Act, 45 U.S.C. § 45(a)(1). 13

Federal Trade Commission v. Sterling Drug, Inc., 317 F.3d 669 (2d

Cir. 1963). In 1983, the FTC issued a policy statement that changed the

definition of “deceptive trade practices” to “material representations,

omissions, or practices that are likely to mislead the consumer acting

reasonably under the circumstances.” FTC Policy Statement on Deception,

October 14, 1983, available at www.ftc.gov. 14

This prong of the FTC’s jurisdiction was rarely used until the 1970’s

and 1980’s, however. See In re International Harvester Co., 104 F.T.C. 949

(1984), applying the FTC Unfairness Policy Statement, later codified at 15

U.S.C. § 45(n). 15

15 U.S.C. § 45(a) & (b). 16

Holloway v. Bristol-Myers Corp., 485 F.2d 986 (D.C. Cir. 1973).

http://www.ftc.gov/


Thus, it became apparent to federal agencies, such as the

FTC, and to individual state legislatures that consumers needed

a mechanism to have access to justice for their relatively small,

but individually costly, claims against merchants and other

marketplace participants. The FTC originally encouraged the

enactment of state “little FTC Acts” that incorporated the

“unfair and deceptive trade practices” language of the federal

law while providing a private right of action for individuals to

enforce. The impetus from the FTC’s point of view was that

there was far more consumer fraud and more deceptive trade

practices on the state and local level than the FTC’s limited

resources could handle. Thus, the federal agency sought to

enlist the assistance of state law enforcement agencies, typically

state attorneys general, as well as private litigants, sometimes

referred to as “private attorneys general.”17

Several model laws were developed. First, the Uniform

Deceptive Trade Practices Act was issued by the National

Conference of Commissioners on Uniform State Laws

(NCCUSL) in 1966.18

It listed 11 specific deceptive practices,

but this model law proved to be not well suited to consumer

cases. A second model was the Uniform Consumer Sales

Practices Act adopted in 1971 by NCCUSL and the American

Law Institute. This model law has been adopted in a handful of

states, including Kansas, Ohio and Utah.19

The prevalent model

was developed by the FTC in collaboration with the Council of

State Governments. This was the Uniform Trade Practices and

Consumer Protection Law, issued initially in 1967, and

amended in 1970. Most state consumer protection laws are

based on this model law in one of its three variations. The first

17

See Marshall A. Leaffer & Michael H. Lipson, Consumer Actions

Against Unfair or Deceptive Acts or Practices: The Private Uses of

Federal Trade Commission Jurisprudence, 48 GEO. WASH. L. REV. 521,

553-556 (1980). 18

Available at http://www.inventions.org/wp-content/uploads/2012/10/Revised-

Uniform-Deceptive-Trade-Practices-Act.pdf. 19

See generally Dee Pridgen & Richard M. Alderman, CONSUMER

PROTECTION AND THE LAW § 2:10 (West 2013-2014 ed.).

http://www.inventions.org/wp-content/uploads/2012/10/Revised-Uniform-Deceptive-Trade-Practices-Act.pdf

http://www.inventions.org/wp-content/uploads/2012/10/Revised-Uniform-Deceptive-Trade-Practices-Act.pdf


variation is truly a “little FTC Act” in that it incorporates the

FTC Act’s broad prohibition on “unfair methods of competition

and unfair or deceptive acts or practices.” A second variation

leaves out the prohibition against unfair practices. The third

alternative, known as the “laundry list,” enumerates 13

prohibited practices and then has a “catch-all” prohibition

against “any other practice that is unfair or deceptive.” 20

Some

states enacted Consumer Fraud Acts, which prohibit deceptive

or unconscionable acts or practices and fraud. Using these

various model laws for guidance, within a few years every state

had passed such a state consumer protection statute, and almost

all of them featured a private right of action.

II. Goals of Existing State Consumer Protection Laws

The state consumer protection laws have two major goals.

The first is to make it economically and substantively feasible for

consumers to sue for legal redress when they have a small but

meritorious claim for an unfair or deceptive practice, usually

against a merchant. Second, these laws, with their private

enforcement feature particularly, were meant to provide a

supplemental cadre of “private attorneys general” who could by

litigating their individual claims, also help protect the public

interest by deterring future unfair or deceptive practices. Each

of these goals will be discussed below.

One of the main goals of the state consumer protection

laws was to provide access to the courts for consumers to obtain

legal redress for deceptive or unfair trade practices. By

incorporating the elements of the FTC Act, these laws changed

the legal landscape for these consumer suits, putting them on a

par with cases brought by the FTC itself in terms of the

necessary elements for proving a cause of action.21

Changing the

elements of the cause of action was not sufficient, however, to

get consumer cases through the courtroom door. In addition,

most state statutes that included a private right of action also

20

Id. 21

See, e.g., Marshall v. Miller, 276 S.E.2d 397 (N.C. 1981).


provided attorney’s fees paid by the defendant to the prevailing

consumer plaintiff. This provision, called statutory fee-shifting,

replaces the normal “American rule” that each party in a lawsuit

must bear its own costs, including attorney’s fees.22

The

rationale for the fee-shifting provisions of the consumer

protection statutes is that the damages in most consumer cases --

e.g., the loss in value on the used car purchased from a dealer

where the car did not live up to the claims made about it -- would

not be enough to cover the average cost of an attorney to

represent the consumer in court. Thus, if the default “American

rule” applied, consumers would not bring even meritorious cases

to court because the recovery would not cover their costs. There

is some variation in the provisions for attorney’s fees under the

state statutes, with some states leaving the award to the

discretion of the court, and others making it mandatory for

prevailing consumer plaintiffs. Some states also provide for fee

awards to prevailing defendants, usually only in cases where the

suit was frivolous, brought in bad faith or harassing.23

Statutory minimum or multiple damages are also a

common feature of state UDAP statutes. Statutory minimum

damages are meant to provide some type of recovery even in

cases where the injury to the consumer is more difficult to prove,

such as the damage from purchasing an item that is not as

valuable as represented in some unquantifiable way. Statutory

minimum damages range from $50 to $2000.24

Multiple

damages, either double or triple, are modeled on the treble

damage provisions of the federal Antitrust laws, specifically the

Sherman and Clayton Acts.25

This type of provision is another 22

See John F. Vargo, The American Rule on Attorney Fee Allocation:

The Injured Person’s Access to Justice, 42 AM. U. L. REV. 1567 (1993). 23 See Dee Pridgen & Richard M. Alderman, CONSUMER PROTECTION

AND THE LAW Appendix 6A (West 2013-2014 ed.). 24

Id. 25

Section 4 of the Clayton Act reads as follows: “[A]ny person who

shall be injured in his business or property by reason of anything forbidden

in the antitrust laws may sue therefor in any district court of the United

States … and shall recover threefold the damages by him sustained, and the


way to make an individual consumer action more economically

feasible even if the amount of actual damages is relatively small.

It also provides a deterrent to equivalent unfair or deceptive

practices if the damages are larger.

Another major goal of the state “little FTC Acts” was to

supplement the enforcement activities of the FTC by enlisting

the help of a potentially large cohort of consumer victims or

“private attorneys general” who would be empowered to bring

their own cases by virtue of the private right of action under the

state laws.26

Indeed, the use of private enforcement mechanisms

as an extension of administrative agency regulation is a hallmark

of the American regulatory system that is by no means unique to

the FTC and its complementary state consumer protection acts.27

The FTC was and is a federal agency with a limited budget,

whereas the potential for consumer fraud may reach into the

hinterlands and spring up in individual one-to-one transactions.

The FTC cannot and should not attempt to address all such small

and localized consumer injuries, and yet it seemed unjust to

leave such victims without a viable legal remedy. In addition, it

was theorized at the time that when an individual consumer

attains relief in the court, that this will serve as a deterrent

against future consumer fraud not only to that defendant but also

as to others who might be tempted to engage in consumer fraud.

Hence the “little FTC Acts” use the wording of the federal FTC

Act, and include it in their state laws with a private right of

action. This supplemental “private attorney general” function of

the state consumer protection laws is bolstered by the fact that

most of the state statutes have specific or judicially implied

cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15. 26

The term “private attorney general” has a continuum of meanings, but

as used here, it is the concept that private lawsuits can supplement the

enforcement activities of a federal agency, such as the FTC. See William B.

Rubenstein, On What a “Private Attorney General” Is—And Why It

Matters, 57 VAND. L. REV. 2129, 2146-2154 (2004). 27

See J. Maria Glover, The Structural Role of Private Enforcement

Mechanisms in Public Law, 53 WM. & MARY L. REV. 1137 (2012).


provisions that the state courts applying the state consumer

protection statutes will be “guided by” Federal Trade

Commission jurisprudence.28

Thus, their function as an arm of

the FTC has been well established.

The state consumer protection statutes, with their lower

burdens of proof, and added remedies, such as statutory fee-

shifting and multiple damages, are often limited to consumer

plaintiffs in the context of consumer transactions.29

The theory

was that consumers need this additional legal boost because they

are not on the same footing as the businesses with which they

deal. Businesses dealing with other businesses were presumed to

have equal resources to hire attorneys and negotiate at arm’s

length for favorable contract terms. While some states have

extended coverage under their state UDAP statutes to business

plaintiffs, especially small business plaintiffs,30

the general rule

remains that these special laws are for the benefit of consumers.

The state consumer protection laws, now on the books for

some 40-50 years, have proven to be a fertile source of legal

redress for wronged consumers. And yet, they were a bit slow to

reach their full potential. In 1980, one commentator noted that

“the value of UDAP statutes in private consumer protection

litigation has been severely underestimated.”31

In 1989, another

scholar noted that state UDAP statutes potentially affected some

core contracts doctrines, but had gone largely unnoticed,

28

See Dee Pridgen & Richard M. Alderman, CONSUMER PROTECTION

AND THE LAW Appendix 3B (West 2013-1014 ed.). 29

Id, Appendix 4A (West 2013-2014 ed.). 30

See, e.g., Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000) (Minnesota

Supreme Court viewed individual purchaser of a small business as a

“consumer” for purposes of applying the state Consumer Fraud Act,

although they did not conclude that he was entitled to attorney’s fees under

the state’s “Private Attorney General” statute because it was an isolated

transaction). 31

See Marshall A. Leaffer & Michael H. Lipson, Consumer Actions

Against Unfair or Deceptive Acts or Practices: The Private Uses of

Federal Trade Commission Jurisprudence, 48 GEO. WASH. L. REV. 521,

522 (1980).


especially by contracts scholars.32

It has only been since around

the year 2000 that the volume of litigation under these state laws

has really surged.33

And with the rise in litigation has come the

call for cutting back on the impact of these previously unknown

but very valuable pieces of legislation.

III. The ALEC Model Act on Private Enforcement of

Consumer Protection Statutes

As discussed above, the state UDAP statutes originated in

model legislation promulgated by either the NCCUSL and ALI

or the FTC in partnership with the Council of State

Governments. NCCUSL (now known as the Uniform Law

Commission) was established in 1892 to provide states with

“non-partisan, well-conceived and well-drafted legislation that

brings clarity and stability to critical areas of state statutory law.” 34

It is state-supported and consists of commissioners appointed

from each state. All are members of the bar and are either

practitioners, judges, or law professors. They receive no salaries

or fees for their work. NCCUSL has promulgated many model

and/or uniform laws that have been published and made

available to state legislatures for recommended adoption. The

American Law Institute was founded in 1923 by a group of

prominent American judges, lawyers and teachers with a goal to

“promote the clarification and simplification of the law and its

better adaptation to social needs, to secure the better

administration of justice, and to encourage and carry on scholarly

and scientific legal work.”35

The ALI is best known for its work

32

Stewart Macaulay, Bambi Meets Godzilla: Reflections on Contracts

Scholarship and Teaching vs. State Unfair and Deceptive Trade Practices

and Consumer Protection Statutes, 26 HOUSTON L. REV. 575 (1989). 33

Henry N. Butler & Jason S. Johnston, Reforming State Consumer

Protection Liability: An Economic Approach, 2010 COLUM. BUS. L. REV.

1, 6 (2010). 34

Uniform Law Commission website, “About Us” and “Organization,”

www.uniformlaws.org.

35

American Law Institute website, “ALI Overview”, at www.ali.org.


on the Restatements of the Law. Both these groups, while

private non-profit entities, conduct their work in a relatively open

manner and attempt to maintain a non-partisan and balanced

approach to their work.36

The NCCUSL has worked with the

American Law Institute on certain projects, such as the Uniform

Commercial Code, perhaps the most successful model or

uniform law in the United States.

In the mid-2000’s, a very different kind of organization,

the American Legislative Exchange Council (ALEC), proposed a

new model law for state consumer protection, titled the “Model

Act on Private Enforcement of Consumer Protection Statutes.” 37

As will be discussed in more detail below, the ALEC model law

is seriously flawed and if enacted, would constitute a major

setback for state consumer protection law. ALEC, formed in the

mid-1970’s, is an “association for conservative state lawmakers

who share a common belief in limited government, free markets,

federalism, and individual liberty.”38

ALEC has a more political

bent than either the Uniform Law Commission or the American

Law Institute. The membership of ALEC is composed of

interested state legislators (who join for free) and “private

sector” members who must pay from $7,000 to $25,000 to join.

There is apparently no provision for consumer advocates to be

represented, only corporate sponsors and legislators are

members, and the resulting legislation is, unsurprisingly, rather

skewed toward business interests. ALEC was relatively

unknown until 2011 when the Center for Media and Democracy

obtained copies of 800 of ALEC’s model bills (now published on

36

The process for amending UCC Article Two on Sales, however, was

marred by accusations that consumer advocates were not given adequate

representation. See Gail Hillebrand, The Uniform Commercial Code

Drafting Process: Will Articles 2, 2B and 9 Be Fair to Consumers?, 75

WASH. U. L. Q. 69 (1997). 37

See Victor E. Schwartz & Cary Silverman, Common-Sense

Construction of Consumer Protection Acts, 54 KAN. L. REV. 1, Appendix

(2005). 38

ALEC website, “About Us,” www.alec.org.


the ALEC website). 39

Bill Moyers, a well-known broadcast

journalist, described ALEC as “an organization hiding in plain

sight, yet one of the most influential and powerful in American

politics.” 40

ALEC has formed various “task forces” that publish

reports on public policy issues, and also issue “model laws” on a

wide variety of issues, hundreds of which appear on their public

website.41

ALEC supplies this model legislation to receptive state

legislators without much, if any, public input, but with a great

deal of corporate input. The legislators are then encouraged to

introduce the model bills in their individual states. The “Model

Act on Private Enforcement of Consumer Protection Statutes”

(hereafter referred to as “The ALEC Model Act” or “the Model

Act”) has apparently been in circulation for over five years, but

has not yet gained a lot of traction. At least one indication of the

growing influence of the general thrust of the Model Act,

however, was the amendment by the Tennessee State Legislature

in 2011 of the state Consumer Protection Act to eliminate the

private right of action for all “unfair or deceptive acts or

practices” other than those specifically enumerated in the

statute.42

This will greatly circumscribe the breadth of activities

that will be subject to private suit under the Tennessee law.

The ALEC Model Act is relatively short and is specifically

focused on the private enforcement provisions of the existing

state consumer protection statutes.43

It does not overtly seek to

39

Ellen Dannin, Privatizing Government Services in the Era of ALEC

and the Great Recession, 43 TOL. L. REV. 503, 506-508 (2012). 40

http://billmoyers.com/episode/full-show-united-states-of-alec, aired

September 29, 2012. 41

ALEC website, “About Us,” www.alec.org. 42

James M. Davis, Less Protection: Revisions Narrow Scope of

Tennessee Consumer Protection Act, 49-FEB TENN. B.J. 12 (Feb. 2013),

discussing amendments to Tenn. Code Ann. § 47-18-104. 43

ALEC Model Act on Private Enforcement of Consumer Protection

Statutes, ” available at http://www.alec.org/model-legislation/model-act-on-

private-enforcement-of-consumer-protection-statutes. It does not address

government enforcement by state attorneys general.

http://billmoyers.com/episode/full-show-united-states-of-alec

http://www.alec.org/model-legislation/model-act-on-private-enforcement-of-consumer-protection-statutes



eliminate the private right of action to enforce state “little FTC

Acts.” However, the collection of various requirements and

limitations, if enacted, would have the effect of significantly

reducing the level of private enforcement of the existing

statutes.44

The Model Act also undermines the original goals of

the statutes as outlined above. Indeed, one might even argue that

the Model Act is intended to cripple the state consumer

protection statutes under the guise of “reforming” them or

correcting abuses. An analysis of the potential adverse effects on

consumer litigants for each of the various provisions of the

Model Act is set forth below.

Section 1(A) limits the private right of action to a person

who “reasonably relies upon an act or practice declared unlawful

by [another section of the state UDAP statute].”45

This language

of reasonable reliance appears to harken back to the common law

requirement that a plaintiff show “justifiable reliance” on the

seller’s misstatement. No state consumer protection statute

currently contains such a requirement, although there have been

a few state court cases requiring this or something like it.46

This

provision may be defended as simply a reference to the FTC

Deception Policy, which defines a deceptive act or practice as

one which is “likely to mislead” a consumer “acting reasonably

under the circumstances.”47

However, there is a major difference

between a statutory requirement of proof of individual

reasonable reliance as a prerequisite to private suit and the FTC

44

See Victor E. Schwartz & Cary Silverman, Common Sense

Construction of Consumer Protection Acts, 54 KAN. L. REV. 1 (2005),

advocating the adoption of the ALEC Model Act because it would limit

private actions. 45

“ALEC Model Act on Private Enforcement of Consumer Protection

Statutes, ” available at http://www.alec.org/model-legislation/model-act-on-

private-enforcement-of-consumer-protection-statutes. 46

See, e.g., Toy v. Metro. Life Ins., Co., 928 A.2d 186 (Pa. 2007);

Zeeman v. Black, 273 S.E.2d 910 (Ga. Ct. App. 1980). 47

FTC Policy Statement on Deception, October 14, 1983, available at

www.ftc.gov.



http://www.ftc.gov/


policy which defines a deceptive practice. Neither the FTC Act

itself nor the Deception Policy requires that an individual

consumer must have reasonably relied on a particular deceptive

practice, but rather the standard is couched in terms of whether a

practice is “likely to mislead” consumers “acting reasonably

under the circumstances,” which can include irrational actions by

particularly vulnerable consumers.48

Also, if a standard form

contract contains a clause either contradicting the falsehoods that

had been made orally or contains a statement that the consumer

agrees that he/she is not relying on any prior assertion made by a

salesperson, the consumer may lose their opportunity to get

redress for even a deliberately false statement because it may be

deemed “unreasonable” to rely on such an oral statement that is

contradicted or denied by the written contract.49

This approach is

tantamount to resurrecting the common law view that a contrary

contract statement makes reliance on prior sales representations

unreasonable, thus creating immunity for deliberate fraud

through the use of contract language.50

A prerequisite of “reasonable reliance” opens up the very

real possibility of factual quagmires and debates about whether

or not a consumer plaintiff was “reasonable” to rely on a

particular statement or practice. It also increases the consumer’s

litigation costs because the consumer has to prove additional

48

Id., Text accompanying n. ______. 49

Consumer behavioral studies find that average consumers routinely

disregard contract statements that contradict oral assurances made by a

trusted figure, such as a salesperson. See Debra Pogrund Stark & Jessica

M. Choplin, A License to Deceive: Enforcing Contractual Myths Despite

Consumer Psychological Realities, 5 N.Y.U. J. L. & BUS. 617 (2009); and

Jessica M. Choplin, Debra Pogrund Stark and Jasmine N. Ahmad, A

Psychological Investigation of Consumer Vulnerability to Fraud: Legal

and Policy Implications, 35 LAW& PSYCHOLOGY REV. 61 (2011). 50

See Wiegand v. Walser Automotive Groups, Inc., 683 N.W.2d 807

(Minn. 2004) (in applying the Minnesota consumer protection act, the

Minnesota Supreme Court rejected the argument that reliance on oral

statements was unreasonable because of a contradiction in the written

contract).


facts. Consumers who are vulnerable to exploitation or are

fooled by a seller’s exaggerations or opinions could be precluded

from bringing suit under the guise of not being “reasonable”

consumers.51

The approach advocated in the ALEC Model Act

might even lead to the imposition of a duty to investigate seller’s

statements by consumers, a throwback to the days of “caveat

emptor.”52

The ALEC Model Act, including the section quoted

above, is designed to be incorporated into and to cross-reference

the state’s existing statute. Thus, in the provision providing for a

private right of action to a person who “reasonably relies upon an

act or practice declared unlawful by [another section of the

UDAP statute],” it is possible that this could be referring back to

a general prohibition on “unfair or deceptive acts or practices,”

or it could be referring to an enumerated list of practices, as was

the case in the Tennessee amendment described above.53

If the

cross-reference provides a private right of action only for

enumerated practices, this would be a significant reduction in the

scope of the private right of action in most states.54

Also, a

“reasonable reliance” requirement would be problematic in the

case of “unfair” practices, as opposed to deceptive practices. An

unfair practice does not necessarily involve a misrepresentation

that can be relied on. For example, state consumer protection

laws have been applied to abusive debt collection, systematic

breach of contract or price gouging55

but such cases could be

51

See examples cited in Dee Pridgen & Richard M. Alderman,

CONSUMER PROTECTION AND THE LAW § 3:5 (West 2013-2014 ed.). 52

See National Consumer Law Center, UNFAIR AND DECEPTIVE ACTS

AND PRACTICES § 4.2.20 (8th Ed. 2012). 53

See supra note ___. 54

See Rebecca Eschler Russell, Unlawful Versus Unfair: A

Comparative Analysis of Oregon’s and Connecticut’s Statutes Encouraging

Private Attorneys General to Protect Consumers, 47 WILLAMETTE L. REV.

673, 681-682 (2011). 55

See, e.g., Kett v. Community Credit Plan, Inc., 228 Wis. 2d 1, 596

N.W.2d 786 (1999) (abusive debt collection); Schuchmann v. Air Services

Heating & Air Conditioning, Inc., 199 S.W.3d 228 (Mo. Ct. App. 2006)


precluded by a “reasonable reliance” requirement.

Section 1(B) provides for a ten-day prior notice

requirement to “give the prospective defendant an opportunity to

confer,” and presumably to attempt to settle the case. Currently,

only eleven states have such an advance notice requirement.56

Advance notice requirements may sound reasonable, but

constitute a special burden on consumer suits that is not present

for other lawsuits. Failure to provide the notice within the

specified time period may result in dismissal of an otherwise

meritorious lawsuit. Also, such prior notice allows businesses

who are engaged in unlawful practices to “pick off” the plaintiffs

by providing restitution to consumers only in those instances

when they are caught.57

Query whether a special advance notice

is even necessary given that most parties to lawsuits are willing

to negotiate a settlement once a complaint is served, and that

most lawsuits are indeed settled prior to going to trial.

Section 1(A) of the Model Act also specifies that a person

seeking to pursue a private right of action must have suffered an

“ascertainable loss of money or property” as a result of their

reasonable reliance on an unlawful act or practice. This

requirement is more common than the advance notice

requirement, being present in the state consumer protection

statutes of 34 states.58

As a practical matter, most plaintiffs bring

a lawsuit to collect damages, and thus proof of ascertainable loss

is not necessarily an unreasonable requirement for suit. It is

basically a “standing” issue, and need not be interpreted harshly

against the consumer who suffers a small loss, as long as it is

(systematic contract breach); Perry Homes v. Alwattari, 33 S.W.3d 376

(Tex. App. 2000) (price gouging). 56

Dee Pridgen & Richard M. Alderman, CONSUMER PROTECTION AND

THE LAW Appendix 5A (West 2013-2014 ed.). 57

Carolyn L. Carter, Consumer Protection in the States: A 50-State

Report on Unfair and Deceptive Acts and Practices Statutes, National

Consumer Law Center, Feb. 2009, available at www.consumerlaw.org. 58


THE LAW Appendix 5A (West 2013-2014 ed.).

http://www.consumerlaw.org/


“ascertainable.” Even hard-to-quantify injuries have been

sufficient to meet this provision, as applied by state courts under

existing law. For example, a Utah customer who alleged that a

health club had caused unsubstantiated negative information to

be placed in his credit report suffered an ascertainable loss

because it could result in the consumer paying higher interest on

credit cards or other credit transactions.59

The ALEC version of

ascertainable loss, however, limits it to losses of money or

property, and might not recognize losses suffered by consumers

from invasion of privacy, security breaches, or harassment. The

ascertainable loss requirement, at least in its more common form

that is not limited to loss of money or property, may be

warranted in individual actions but it would be a major obstacle

if applied to class actions.

The ALEC Model Act Section 1(A) would limit consumer

damages to the “out-of-pocket loss the person sustained as a

result of such act or practice,” thus precluding statutory,

punitive, or other types of damages, such as mental anguish.60

“Out-of-pocket loss” is defined as “no more than the difference

between what the person paid for the product or service and what

the product or service was actually worth in the absence of the

unlawful act or practice.”61

This provision eliminates the

availability of punitive damages, even in cases of wilful fraud

against the public. It also appears to eliminate the possibility of

consequential damages, which could be quite important in

consumer cases where the actual loss in value of the product or

service is far less than the damage caused by the unfair or

deceptive practice. For instance, if exterior siding is sold and

installed pursuant to a misrepresentation that it is waterproof, but

in fact is leaky, then under the ALEC formulation of damages,

59

Andreason v. Felsted, 137 P.3d 1 (Utah Ct. App. 2006). 60

Section 1(A), “ALEC Model Act on Private Enforcement of

Consumer Protection Statutes, ” available at http://www.alec.org/model-

legislation/model-act-on-private-enforcement-of-consumer-protection-

statutes. 61

Id.





the consumer would get only the loss in value of the price of the

siding, and would not be compensated for having to remove and

replace the siding and repair the damage caused by the leaks.62

An alternative section in the ALEC model act provides an

option for treble damages, but is limited to cases where the

unlawful act or practice was “willful with the purpose of

deceiving the public,” and would have a ceiling of $500 per

person.63

These provisions, which have the effect of eliminating

or severely limiting statutory damages, will undermine the

original statutory goal of providing an incentive to consumers to

bring meritorious suits for small claims where actual damages do

not cover the cost of going to court. This approach to damages

also eliminates the possibility of compensation for mental

anguish, or pain and suffering, as well as consequential damages.

If enacted, this provision would cause the law to revert to the

situation prior to the original passage of the state UDAPs, where

the potential payout was so low that any attempt by consumers to

obtain legal redress for unfair or deceptive trade practices would

have been futile and/or financially irrational.

It is true that, like the ALEC Model Act, existing

provisions for certain types of statutory damages under state

consumer protection statutes are sometimes tied to a showing of

a willful violation, or a particularly vulnerable class of victims.64

However, they are not capped at such a low level as the ALEC

provision. Indeed, in addition to compensating consumers for

62

See, e.g., Robinson Machinery Co. v. Davis, 689 S.W.2d 286 (Tex.

App. 1985) (faulty car repair caused continuing damage, consumer received

consequential damages). See also examples cited in National Consumer

Law Center, UNFAIR AND DECEPTIVE ACTS AND PRACTICES § 12.3.3 (8th

Ed. 2012). 63

Section 1(C), “ALEC Model Act on Private Enforcement of



statutes. 64

Cal. Civ. Code § 1780(b) provides a $5,000 minimum damage remedy

to elderly or handicapped consumers.





the cost of bringing their cases, the statutory damage provisions

(and punitive damages in some states) can also be used for

punishment or deterrence of wrongdoers.65

A limit to actual

damages and/or a cap of $500 would mean that there would be

little or no possibility of fulfilling the goal of making it possible

for consumers to bring meritorious cases to court. Indeed, in the

unlikely event that a wrongdoer were even sued under a statute

based on the ALEC Model Act, the limitations on damages are

such that any damage award would be only a “slap on the wrist”

that would not be effective at all to deter future unfair or

deceptive practices.

Section 1(F) provides for class actions under the state

consumer protection act, but limits such actions to persons who

show both reasonable reliance on the challenged act or practices,

as well as ascertainable loss.66

Also, statutory damages are

eliminated, with damages limited to actual out-of-pocket loss.

As discussed above, a major reason for the passage of state

UDAP statutes with their favorable provisions for consumer

plaintiffs was to provide access to justice for consumers who had

only small claims to litigate, which made court cases too costly

for most. Class actions for consumers provide another avenue

for consumers with small claims to be heard, because the

aggregation of numerous small claims can make it worthwhile

for attorneys to take such cases.67

Class actions, however, have

65

Nine consumer protection statutes specifically authorize the award of

punitive damages, including California, Connecticut, District of Columbia,

Georgia, Idaho, Kentucky, Missouri, Oregon and Rhode Island. See Dee

Pridgen & Richard M. Alderman, CONSUMER PROTECTION AND THE LAW

Section 6:16 (West 2013-2014 ed.). 66

The reasonable reliance and ascertainable loss requirements are

incorporated into the class action by language stating that persons bringing

a class action have to be entitled to bring an action under Subsection A,

which requires those elements. Section 1(F), ALEC Model Act on Private

Enforcement of Consumer Protection Statutes, ” available at

http://www.alec.org/model-legislation/model-act-on-private-enforcement-

of-consumer-protection-statutes. 67

Amchem Prods., Inc. v. Windson, 521 U.S. 591, 617 (1997).




to comply with basic rules of civil procedure, such as presenting

common questions of law and fact. 68

By requiring a showing of

individual reasonable reliance and ascertainable loss for class

actions under the ALEC model law, the law virtually guarantees

that no class actions will be viable because these elements will

vary from individual to individual and the class may not be able

to satisfy the requirement of the predominance of common

questions of law and fact. This aspect of the model law, as well

as the larger constellation of anti-consumer plaintiff restrictions

discussed in this article, raises the question of whether the real

agenda of the model law is not law reform, but rather the

effective elimination of private enforcement of consumer

protection laws.

Critics of class actions, especially those filed under the

state UDAP laws, have argued that requiring a showing of

individualized reliance is necessary to curb abuses, such as

overcompensation of uninjured plaintiffs.69

By definition, it may

appear, compensating a consumer who cannot prove reliance on

a false claim or cannot prove they have suffered direct harm

from an unfair practice, is a case of “over” compensation. Also,

if advertisers can be answerable for misrepresentations that were

not actually relied on by all consumers in the plaintiff class, it is

feared that commercial speech may be chilled.70

It is also argued

that deterrence of deceptive or unfair trade practices can be best

achieved by relying on government agencies, such as the FTC

and the state attorneys general, such that the private attorney

general function of consumer class actions is no longer

68

Federal Rules of Civil Procedure, Rule 23(b)(3). 69 Sheila B. Scheuerman, The Consumer Fraud Class Action: Reining in

Abuse by Requiring Plaintiffs to Allege Reliance As an Essential Element,

43 HARV. J. ON LEGIS. 1 (2006). But see Samuel Issacharoff, The Vexing

Problem of Reliance in Consumer Class Actions, 74 TUL. L. REV. 1633

(2000) (arguing that in some situations reliance can be inferred in consumer

class actions rather than having to be proved for each individual plaintiff). 70

Henry N. Butler & Jason S. Johnston, Reforming State Consumer

Protection Liability: An Economic Approach, 2010 COLUMBIA BUS. L.

REV. 1 (2010).


warranted.71

Yet the original philosophical underpinning of the

movement toward consumer class actions was not only to

provide a more efficient and less burdensome gateway to the

court system for injured consumers, but also to harness the

resources of “private attorneys general” to represent not only

themselves but also the public in general and to deter

corporations from engaging in unfair and deceptive trade

practices.72

The move toward putting more restrictions on

private class actions to enforce consumer laws is basically an

attempt to restrict class actions solely to address individual

injury. These “reforms” are a rejection of the view that class

actions, especially in the consumer protection area, can be a

vehicle for the public good in deterring and punishing bad

actions and requiring the disgorgement of ill-gotten gains.73

Under FTC jurisprudence, on which state UDAP statutes were

based, there is no requirement for showing individual reasonable

reliance on deceptive practices, but rather the standard is a

showing of “tendency or capacity to deceive” or “likely to

mislead consumers acting reasonably under the circumstances.”74

Actual consumer injury is not required for FTC actions and thus

proof of actual injury, reliance and ascertainable loss for

consumer class actions under “little FTC Acts” should also not

be required. Using an objective standard such as “likely to

71

Scheuerman, supra n. ___. 72

Mark E. Budnitz, The Federalization and Privatization of Public

Consumer Protection Law in the United States: Their Effect on Litigation

and Enforcement, 24 GA. ST. U. L. REV. 663 (2008). 73

Myriam Gilles, Class Dismissed: Contemporary Judicial Hostility to

Small-Claims Consumer Class Actions, 59 DEPAUL L. REV. 305 (2010). 74

See Dee Pridgen & Richard M. Alderman, CONSUMER PROTECTION

AND THE LAW § 10:3 and Appendix 10A, FTC Policy Statement on

Deception (West 2013-2014 ed.).Twenty-two states use the “tendency or

capacity to deceive” standard in their state UDAP statues. Dee Pridgen &

Richard M. Alderman, CONSUMER PROTECTION AND THE LAW Appendix 3B

(West 2013-2014 ed.).


mislead consumers acting reasonably,” the courts in consumer

class actions under state law can determine whether a practice is

indeed subject to remediation, without the need to burden class

actions unnecessarily.

Statutory minimum or multiple damages in most state

UDAP laws, as previously discussed, provide some minimum

quantity of relief for smaller or less tangible consumer injuries.

Such provisions make it economically feasible for consumers to

attain redress for relatively small injuries. In the ALEC model

provision on class actions, statutory damages are eliminated for

both individual and class actions. While it is true that the

combination of statutory damages and a very large consumer

plaintiff class can in some situations result in huge recoveries

that may be financially disastrous for the defendant, there are

other ways to deal with this than simply prohibiting the award of

statutory damages in all class actions under the state consumer

statute. For instance, the federal Truth in Lending Act (TILA)

provides for statutory damages, but also limits liability in TILA

class actions to the lesser of $1,000,000 or 1% of the

creditor/defendant’s net worth.75

If the possibility of excessive

awards based on the multiplication of statutory damages is a

concern with regard to class actions under state consumer

protection acts, a similar type of cap on statutory damages would

be a reasonable compromise to allow the class litigation of small

claims while not being overly burdensome to the defendants.

Section 2(A) of the ALEC Model Act allows for

attorney’s fees to a prevailing consumer plaintiff, but only if

there is a finding by the court or “trier of fact” [e.g., arbitrator]

that the defendant’s use or employment of the unlawful act or

practice was “willful with the purpose of deceiving the public.”76

This provision alone is likely to greatly reduce the utility of the

75

15 U.S.C. § 1640(a)(2)(B). 76

Section 2(A), “ALEC Model Act on Private Enforcement of Consumer

Protection Statutes, ” available at http://www.alec.org/model-


statutes.





state consumer protection laws to consumer plaintiffs, especially

individual plaintiffs. Presently, forty-five state consumer

protection statutes provide for attorney’s fees to the prevailing

consumer plaintiff.77

Twenty-one of these statutes actually

mandate that the court award attorney’s fees to a prevailing

plaintiff, while twenty-three provide that the court award

attorney’s fees to the prevailing plaintiff in the court’s

discretion.78

A 2008 study asked groups of both consumers and

attorneys whether they would be discouraged from bringing what

they viewed as strong meritorious claims if the attorney fee

award was discretionary rather than mandatory. The results

showed that both groups would be less willing to bring such

claims if the attorney’s fee provision was discretionary rather

than mandatory.79

The requirement of showing a willful act

intended to deceive the public as a prerequisite for recovering

attorney’s fees will likely place an even higher barrier to the

filing of meritorious suits than merely having the fee award at

the discretion of the court.

Private consumer UDAP suits are not likely to be filed at

all without a provision for an attorney fee award.80

A fee award

that is contingent on a showing of willfulness and intent to

deceive the public may be tantamount to no fee at all. The

requirement of a willful act increases the burden of proof. 81

It 77

Carolyn L. Carter, Consumer Protection in the States: A 50-State

Report on Unfair and Deceptive Acts and Practices Statutes, National

Consumer Law Center, Feb. 2009, available at www.consumerlaw.org. 78

Debra Pogrund Stark & Jessica M. Choplin, Does Fraud Pay? An

Empirical Analysis of Attorney’s Fees Provisions in Consumer Fraud

Statutes, 56 CLEV. ST. L. REV. 483 (2008). 79

Id. at 514-515. 80

For instance, the Wyoming state UDAP statute provides for attorney’s

fees to the prevailing plaintiff only in class actions, not for individual suits.

Wyo Stat. Ann. § 40-12-108. Although the statute has been on the books

since 1973, there has not been a single reported case of a private suit under

this statute. 81

North Carolina is the only state that has deemed it necessary to limit

consumer plaintiff attorney fee provisions to cases of willful unlawful acts.

http://www.consumerlaw.org/


would be very difficult to prove a “willful” act because the

consumer would have no access to a merchant’s intent without

costly discovery. This requirement also increases the risk to the

attorney who takes on a consumer plaintiff’s case. Such

attorneys will have to weigh the possibility that they could win

the suit and yet still not get paid if they cannot prove the

requisite willfulness with intent to deceive the public. Also this

element is like the old “scienter” or “intent to deceive”

requirement for common law fraud, a requirement that most of

the state UDAP statutes intended to eliminate. It also appears to

be a back door method of incorporating a “public interest”

requirement into the statute, since a plaintiff who wants

attorney’s fees would have to show a “purpose of deceiving the

public” and not just an individual. 82

Such a requirement,

imposed by the court in some states, has been shown to reduce

the number of individual cases.83

The requirement of a finding

of intent to “deceive” the public may also eliminate attorney’s

fees for cases that involve unfair, but not necessarily deceptive

practices.

The ALEC Model Act also provides for attorney’s fees to

be paid by the consumer to the prevailing defendant upon a

finding by the court that the action was “groundless in fact or law

or brought in bad faith, or brought for the purpose of

harassment.”84

Some type of provision for awarding attorney’s

N.C. Gen. Stat. 75-16.1, as discussed in Marshall v. Miller, 276 S.E.2d 397

(N.C. 1981). 82

See Prentiss Cox, Goliath Has the Slingshot: Public Benefit and

Private Enforcement of Minnesota Consumer Protection Laws, 33 WM.

MITCHELL L. REV. 163, 210-211 (2006). See also Prentiss Cox, CONSUMER

FRAUD AND DECEPTIVE TRADE REGULATION IN MINNESOTA § 4.1C2(a)

M.S.B.A. (2009). 83

See Prentiss Cox, CONSUMER FRAUD AND DECEPTIVE TRADE

REGULATION IN MINNESOTA § 4.1C2(a) M.S.B.A. (2009). 84

Section 2(B), “ALEC Model Act on Private Enforcement of Consumer



statutes.





fees to a prevailing defendant is present in many states.85

The

limitation of defendant’s attorney’s fees to groundless, bad faith

or harassment suits is probably a necessary safeguard against the

abuse of these statutes and should not prove to be a major

obstacle to meritorious suits.

The ALEC Model Act has a limitation of actions (statute

of limitations) of one year from the date of discovery by the

person bringing the action.86

The existing state consumer

protection statutes have statutes of limitation ranging from one

year (6 states) to two years (10 states) to 3 or 4 years (15

states).87

While using a “discovery” rule rather than a time limit

that starts with the violation is somewhat favorable to consumers,

the one year from discovery limit is on the harsh end of the

spectrum and does not reflect the purpose of these laws to open

the courthouse doors to victims of unfair or deceptive trade

practices, rather than shutting them unnecessarily. The ALEC

statute of limitations section contains an additional restriction,

however, that states “in no event may any action be brought

under this chapter more than four years after the first instance of

the act or practice giving rise to the cause of action.”88

This

seems to be saying that the statute of limitations does not start to

run from the last action that is the subject of the suit, but from

the first instance of a similar act, when the seller first instituted

85


THE LAW §§ 6:21-22(West 2013-2014 ed.). 86

Section 3, “ALEC Model Act on Private Enforcement of Consumer



statutes. 87


THE LAW §§ Appendix 6A (West 2013-2014 ed.). 88

Section 3, “ALEC Model Act on Private Enforcement of Consumer



statutes.








the practice, even though it may not have affected the individual

bringing suit until much later, possibly later than four years.

This unusual way of applying a statute of limitations could be

applied to immunize potentially illegal actions simply because

they have been going on without being subject to suit for more

than four years.

Finally, The ALEC model law provides for some

exemptions to the scope of the act, as do most existing state

consumer protection laws. While these may appear to be

innocuous, the exemption for regulated practices is so sweeping

that it comes close to providing immunity for almost any

business practice. Many state laws currently exempt acts or

practices “specifically required or permitted” by state or federal

law.89

The ALEC model law, however, would exempt “[a]cts or

practices required or permitted by or in accord with state or

federal law, rule or regulation, judicial or administrative

decision, or formal or informal agency action.”90

This could be

interpreted to exempt any activity that is not addressed by current

law, since by definition, such a practice would be permitted. The

reference to judicial or administrative decisions would also

provide legal cover for any practice that has been permitted, even

indirectly, by some court or agency decision involving similar

practices by different entities. Finally, the exemption based on

“informal agency action” opens the door to claims that unfair or

deceptive actions were blessed by a statement of low-level

agency staff, and are thus exempt.

In sum, while there may be room for some reforms or

limitations on private UDAP suits, such as the ascertainable loss

89

See, e.g., N.M. Stat. Ann. § 57-12-7, as applied in Quynh Truong v.

Allstate Ins. Co., 227 P.3d 73 (N.M. 2010). See generally Dee Pridgen &

Richard M. Alderman, CONSUMER PROTECTION AND THE LAW §§ 4:32-33

and Appendix 4A (West 2013-2014 ed.). 90

Section 4(A)(1), “ALEC Model Act on Private Enforcement of



statutes.





requirement in individual suits, the thrust of the ALEC Model

Act is to advocate a wide array of every plausible limitation to

private suits, and to always advocate the most anti-consumer

plaintiff version of any limitation. Thus, if adopted in its

entirety, the ALEC Model Act would effectively eliminate

private UDAP suits. The ascertainable loss/reasonable reliance

requirement would in effect wipe out class actions, and the limits

on attorney’s fees and damages will greatly diminish the

feasibility of bringing individual cases. Putting all these

provisions together, the private right of action under state

consumer protection laws will be eliminated. This

sledgehammer approach is both uncalled for and unnecessary.

Indeed, as will be shown in the next section, the reports and

studies purporting to show the need for restrictions on private

UDAP suits are flawed and should not be viewed by state

policymakers as conclusive evidence of the need for statutory

reform.

IV. Studies Provide Fig Leaf for Move to Abolish

Private Right of Action

The criticism of state UDAP private enforcement began to

mount in the past decade or so, at a time when private UDAP

litigation began to increase. Whether the upsurge in cases is a

sign that the statutes are finally being used to consumers’ benefit,

or whether it is a sign that the statutes are in need of reform is a

matter of debate. In this section, the arguments raised against the

private enforcement of state UDAP statutes will be examined.

First, critics of these consumer protection actions argue that

decisions by state courts in private consumer cases are

unpredictable and go beyond what the FTC would do. Second, it

has been asserted that increasing consumer protection litigation

will increase the prices of unrelated products, such as automobile

insurance. The calls for legislative reform based on these studies

amount to an attempt to use flawed “empirical” studies to


support an agenda aimed at slashing the continued viability of

the state consumer protection statues as they currently exist.

They give an aura of a scientific or empirical basis for policy

changes while hiding the actual effect of eliminating important

consumer rights. Each of these arguments will be discussed

below.

In 2009, the Searle Civil Justice Institute, a conservative

think tank based at Northwestern University School of Law,

published a report entitled “State Consumer Protection Acts, An

Empirical Investigation of Private Litigation.”91

This report

assembled a random sample of state appellate court consumer

protection decisions from a database encompassing thousands of

such decisions from all fifty states and the District of Columbia

decided between 2000 and 2007.92

These decisions were then

summarized and presented to a “Shadow FTC” composed of five

still unnamed individuals said to include persons with substantial

experience at or with the FTC Bureau of Consumer Protection.93

None of these materials have been released, however. The case

summaries were presented to the “shadow FTC” who concluded

that 78% of the sample state UDAP claims would not be

considered unfair or deceptive under FTC policy statements, and

that 38% of the successful claims at trial would not constitute

illegal conduct under the FTC standards.94

From this data, the

authors concluded that the state consumer protection decisions

go beyond “filling the gap” of cases that the FTC would have

enforced had they had the resources to do so. They also

concluded that the statutory standards for defining unfair and

deceptive practices under the state laws are too vague, and that 91

Joshua D. Wright, State Consumer Protection Acts: An Empirical

Investigation of Private Litigation, http://www.ssrn.com/abstract=1708175

(2010), based on Searle Civil Justice Institute Preliminary Report (2009).

[Hereafter “Searle Shadow FTC Report”]. The study is also summarized

and analyzed in Henry N. Butler and Joshua D. Wright, Are State Consumer

Protection Act Really Little-FTC Acts?, 63 FLA. L. REV. 163 (2011). 92

Id. 93

Id. 94

Id.

http://www.ssrn.com/abstract=1708175


the litigation provisions are too consumer-friendly, leading to an

increase in private consumer protection litigation over the study

period of 2000-2007.95

The use of empirical research to support calls for public

policy reform is usually helpful and should be welcomed by

policy-makers.96

In this case, however, some questions can be

raised about the research methods and the resulting report. For

instance, the “shadow FTC” members, whose decisions form the

basis for the claim that most of the cases brought in state courts

under state UDAP statutes would not have been brought by the

FTC, are never identified and no reason is given for this secrecy.

Thus, it is impossible for scholars to determine whether or not

those individuals were qualified and/or were perhaps biased in

their decisions. Also, the opinions of the “shadow FTC”

members are just that, opinions. This is at best subjective

evidence, and not objective fact, since the FTC did not actually

review or decide any of the cases that were involved in the study.

Second, the data base of cases, i.e., the random sample of cases

chosen and the summaries used were also never released. Only

two examples were given and even these are not specifically

identified as to the specific cases on which they were based.

Thus, it is impossible for others to try to replicate or critique the

results. It is a basic tenet of scientific research that the

researchers should make their data available to others to confirm

their analysis and results.97

Thus, the assertion that state UDAP

decisions go beyond what the FTC would do is questionable, or

at least cannot be tested by others using the same data. It is also

a disservice to policy makers to put forward research based on a

subjective opinion survey, and present it as empirical findings.

95

Id. 96

At least one author, however, has questioned the ability of judges and

lawyers to use empirical research to inform policy judgments due to their

lack of training in or knowledge of scientific methods. See David L.

Faigman, Judges as “Amateur Scientists”, 86 B.U. L. REV. 1207 (2006). 97

Publication Manual of the American Psychological Association,

Section 1.08 (Data Retention and Sharing) (2010).


What can be objectively verified is that most state laws

already refer to FTC jurisprudence for guidance, and that the

state courts applying these laws have adhered to this statutory

directive as best they can.98

Because this principle of reference

to FTC jurisprudence is embedded in most state laws, the

defendants in state UDAP cases could (and have) used FTC

precedent in their own defense.99

Also, while these statutes were

indeed modeled on and sanctioned by the FTC when they were

originally passed, they are state laws and concern legal doctrines

such as fraud and contract that are inherently state law matters.

The fact that some states may choose to be guided by but not

bound by FTC precedent is not necessarily a fault, but may be a

virtue in allowing the states to address consumer issues that are

unique to their state.100

Thus, it is not clear that there is a need to

cut back on consumers’ access to the courts under the state

UDAP laws based on an alleged straying from FTC

jurisprudence, since adherence to FTC law is already

incorporated into most state laws and is enforced by the state

judiciary applying those laws.

Another study by the Searle Civil Justice Institute, released in

2012, purports to show that the proliferation of private

enforcement under state consumer protection acts has led to an

increase in automobile insurance premiums.101

This is another

98


THE LAW §§ Appendix 3B (West 2013-2014 ed.). 99

See, e.g., State v. American TV and Appliance of Madison, Inc., 430

N.W.2d 709 (1988) (Wisconsin Supreme Court majority used FTC “bait

and switch” guidelines to buttress its conclusion that the practices cited in

the state’s complaint did not violate Wisconsin law). 100

See, e.g., ASRC Energy Services Power and Communications, LLC

v. Golden Valley Elec. Ass’n, Inc., 267 P.3d 1151, 1161 (2009) (Alaska

Supreme Court chose to apply traditional FTC standard for unfairness,

rather than an updated one, to avoid overturning state court precedents and

because they did not want to use a standard that might result in “less

protection for Alaska consumers and business people”). 101

Searle Civil Justice Institute, George Mason University School of

Law, Law & Economics Center, State Consumer Protection Acts and Costs


example of a flawed empirical study that is being used to

influence public policy. First, the study looks only at the costs of

litigation under state consumer protection acts. It does not even

purport to look at the benefits to the consumers who brought the

cases, and other consumers who may benefit from the deterrent

effect on unfair and deceptive practices. Also, the study is said

to measure the impact of state consumer protection liability on

the costs of automobile insurance. This is rather striking in that

many state consumer protection statutes specifically exempt

insurance matters from their coverage on the basis that insurance

is already a state-regulated industry.102

In some states, insurance

has been exempted not specifically in the state consumer

protection act, but by state court interpretation under a general

statutory exemption for regulated industries.103

Also, litigation

involving automobile insurance providers is just one small part

of the overall litigation under consumer protection statutes, and

litigation costs may represent only a small part of the costs of

providing insurance.

The Searle automobile insurance cost study was done by

analyzing the provisions of the state laws, identifying statutory

amendments promulgated over a period of time that would

encourage or discourage potential plaintiffs from filing suit, and

then constructing an index (the Consumer Protection Acts or

CPA Index) that would supposedly track a plaintiff’s willingness

or ability to file suit over time.104

Changes in the “CPA Index”

to Consumers: The Impact of State Consumer Acts on Automobile

Insurance Premiums (2011), available at http://www.masonlec.org.

[Hereafter Searle Auto Insurance Study] 102


THE LAW §§ 4:28 & 4:29 (West 2013-2014 ed.).

103

See, e.g., Wilder v. Aetna Life & Cas. Ins. Co., 433 A.2d 309 (Vt.

1981); Taylor v. Southern Farm Bureau Cas. Co., 954 So. 2d 1045 (Miss.

Ct. App. 2007); Ferguson v. United Ins. Co. of America, 293 S.E.2d 736

(Ga. Ct. App. 1982); Britton v. Farmers Ins. Group, 721 P.2d 303 (Mont.

1986). 104

Searle Auto Insurance Study, supra n. __.

http://www.masonlec.org/


for each state were then correlated to changes in automobile

insurance premiums in the state to determine the impact of

different CPA provisions on automobile insurance premiums by

state over time.105

While the state statutes themselves are public

information, the study’s analysis and scoring of the various

provisions of each state law was presented in summary form,

making it difficult to evaluate the soundness of the analysis. For

instance, one of the attributes that made up the index was

whether or not the statute required a “public interest impact” for

a private cause of action.106

Yet this aspect or something like it

may be read into the law by court decision, and might not be

apparent on the face of the statute.107

It appears from the

description of the Searle Auto Insurance Study that the Index

was compiled by looking only at the language of the statutes, and

did not examine state court interpretations.

The expressed concern that state consumer protection acts are

being unreasonably expanded is unwarranted, at least as this is

evidenced by the studies done by the Searle Institute. As

discussed above, the methodology used in these studies was

flawed, and the studies have been used to make policy

recommendations, such as the proposed ALEC Model Act, that

are not necessarily supported by the research. Meanwhile, state

court judges can and do interpret and apply their own state laws

in such a way as to avoid expansions if the courts conclude that

such expansion was not authorized by the state legislature. As

mentioned above, courts have inferred a “public interest”

requirement to rein in overzealous litigation.108

Some courts

have also read a “reasonable reliance” standard into the

applicable state consumer protection act even if it is not actually

105

Id. 106

Id. 107

See, e.g., Oswego Laborers’ Local 214 Pension Fund v. Marine

Midland Bank, 647 N.E.2d 741 (N.Y. 1995) (requiring that cases be

“consumer oriented,” i.e., affecting consumers at large) and Hall v. Walter,

969 P.2d 224 (Colo. 1998). 108

See supra n. ___.


written into the statute.109

Thus there is no need for explicit

legislation that would expand the limits already being imposed

by the judges.

It is undisputed that private litigation has increased (and

possibly peaked) over the past decade under the state consumer

protection laws.110

However, this is not in itself a negative trend.

It may be that more consumers were realizing the potential of

these state laws to fight deceptive or unfair practices for which

there would otherwise be no legal remedy. What the ALEC

Model Act seeks to do is to put the squeeze on the private right

of action under state UDAP statues by a proposed “reform”

statute that in fact eviscerates the use of these laws by “private

attorneys’ general.” This approach goes hand in hand with the

move to eliminate or greatly restrict the use of class actions for

consumer cases, as well as the unprecedented rise in the use of

arbitration clauses in consumer contracts.

In tandem with the move to limit private enforcement of

consumer protection statutes, as exemplified in the ALEC model

statute, there has also been a movement, fueled by recent United

States Supreme Court decisions, to force most consumer disputes

out of the court system altogether and into private arbitration.111

This has been done through the strict enforcement of arbitration

clauses that have become prevalent in all types of standard

consumer contracts. What this means is that many consumer

disputes that formerly might have been litigated in state courts

under the state UDAP statutes are now either forced into

arbitration or are not resolved in any forum.112

Even class

109

See, e.g., Zeeman v. Black, 273 S.E. 2d 910 (1980). 110

See Henry N. Butler & Jason S. Johnston, Reforming State Consumer

Protection Liability: An Economic Approach, 2010 COLUM. BUS. L. REV.

1, 6 (2010). 111

Mark E. Budnitz, The Federalization and Privatization of Public

Consumer Protection Law in the United States: Their Effect on Litigation

and Enforcement, 24 GA. ST. U. L. REV. 663 (2008). 112

See David S. Schwartz, Claim-Suppressing Arbitration: The New

Rules, 87 Ind. L.J. 239 (2012).


arbitrations can be eliminated by the inclusion of class arbitration

or class action waivers in standard form contracts that are then

enforced against any and all objections, including

unconscionability.113

While the issue of arbitration of consumer

claims is not addressed by the ALEC model statute, and is

beyond the scope of this article, it is clear that the proposals for

severe limits on private enforcement of consumer protection laws

should be viewed as part of an overall slide away from idea of

improving consumer access to justice that was at the heart of the

original state consumer protection laws. Thus, the need for a

viable private enforcement vehicle to protect both individual

consumers and the public at large is ever more important.

V. Conclusion

This article has argued that the Model Act on Private

Enforcement of Consumer Protection Statutes put forth by the

conservative, industry-funded think tank, the American

Legislative Exchange Council, is both unnecessary to correct

perceived abuses, and in fact would undermine over forty years

of consumer protection embodied in the state unfair and

deceptive trade practices acts. The state UDAP statutes

originated in the late 1960’s and were passed by most states in

the early 1970’s as a vehicle to provide consumers who had

relatively small claims with access to the courts for redress

against unfair and deceptive trade practices. The key features of

these statutes, such as private enforcement, special damages,

lower burdens of proof and attorney’s fees for prevailing

consumer plaintiffs, would be seriously limited by the ALEC

Model Act. In addition, there is no credible evidence to date

proving that the rise in consumer lawsuits under the existing laws

is contrary to public policy. Thus, state legislators should take a

moment to contemplate whether sweeping changes in their

113

AT&T Mobility LLC v. Concepcion, 563 U.S. ___, 131 S. Ct. 1740,

179 L. Ed. 2d 742 (2011). See Jean R. Sternlight, Tsunami: AT&T Mobility

LLC v. Concepcion Impedes Access to Justice, 90 OR. L. REV. 703 (2012).


existing consumer protection statutes are in the public interest

before taking any drastic actions. They should not be fooled into

thinking the ALEC Model Act is merely a law reform measure,

when it is in fact a wrecking ball that will demolish a critical

aspect of consumer protection in the United States.

wrecking ball disguised as reform--alec's model act on private enforcement of consumer...

Documents