Consumer Law & Policy Blog

Puffery, the Magic Dragon

by Steve Gardner

As with pornography, judges seem to believe that they know puffery when they see it.  More precisely, courts sometimes use puffery as a pretext for dismissing deceptive sales practice lawsuits that they don’t think much of. An excellent summary of exemplary opinions can be found in a new article in the National Law Journal for April 9, 2007, The Power of Puffery, by J. Russell Jackson.

The author is with a big old defense firm, so not surprisingly, he likes the variety of ways that courts use to boot a case based on a finding of puffery. Also not surprisingly, the author fudges somewhat in his description of consumer law, the better to meet his argument: “[T]he First Amendment to the U.S. Constitution protects commercial speech about products, so long as it is not false.”  More accurately, the Supreme Court has said that commercial speech can’t be “misleading.” Central Hudson Gas & Electric Co. v. Public Service Comm’n of New York, 447 U.S. 557 (1980).

There is a whale of a difference between outright falsity and misleading claims. For example, the author’s statement about commercial speech is false.  Other points in his article are merely misleading.

Class Action Settlement Scam

by Deepak Gupta

Oklahoma's Attorney General, W.A. Edmondson, is alerting the public to a new scam involving notices of a fictional class action settlement. This type of scam is particularly disturbing because it has the potential to make consumers wary of legitimate settlement notices, thereby decreasing response rates.

The scam, Edmonson said, comes in the form of a letter notifying consumers they have been identified as a victim of fraud in evidence presented in a class action lawsuit.

“The letter informs the consumer they have been selected to receive compensation under the terms of an out-of-court settlement,” Edmondson said. “The letter also contains a check in the amount of $2,975, and it directs the recipient to contact a specified law office within five business days to ‘facilitate the release’ of the full award – in this case $129,000.

“My suspicion is that when the consumer contacts the law firm, they are asked to provide bank account information so that the full award can be deposited. By the time the enclosed check bounces, the scammers will have had ample time to clean out the consumer’s bank account.”

Edmondson said his office has been unable to pinpoint the source of the scam, but there are several red flags within the letter.

“The letter states that all parties involved in the class action lawsuit are sealed, and no specific information is available regarding the type of scam to which the recipient has supposedly fallen victim,” Edmondson said. “The letter also requires the consumer to contact a Michigan law firm in a very short period of time, and because of a ‘gag order’ the consumer risks forfeiting his share of the money if he contacts anyone to check the validity of the settlement. Any one of these things would send up a red flag. Together, they set off lights and sirens.”

Claims by Elderly Long-Term Care Policy Holders Unfairly Denied

by Jeff Sovern

In an article published last year, Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 William & Mary Law Review 1635 (2006), I argued that businesses often make it harder for consumers to obtain things they are entitled to because doing so can be profitable.  The lead story in today's New York Times is a horrible example of a business doing just that.  The story is about long-term care insurers denying claims because of procedures that make it difficult or impossible for elderly policyholders to get paid.  Here's a quote: 

“The bottom line is that insurance companies make money when they don’t pay claims,” said Mary Beth Senkewicz, who resigned last year as a senior executive at the National Association of Insurance Commissioners. “They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.”

Among other things, the article describes how claims are denied because of "requirements" that do not appear in policies,  because policyholders filled out the wrong forms--which had been sent to them by the insurer, or because documents were not submitted--even though those documents were not required by the policy or had no bearing on approving the claim; claims are abandoned without informing policyholders; documents are lost; and calls go unreturned.   The article notes that many regulators have not "conducted meaningful investigations"  but also mentions lawsuits brought by policyholders.   The insurers respond that criticisms are unfair because most claims are paid promptly.

Dee Pridgen's Report on the ABA Antitrust Section Consumer Protection Conference

My co-author, Dee Pridgen, Associate Dean and Professor of Law at Wyoming and author of the treatises Consumer Protection and the Law and Consumer Credit and the Law, attended the recent ABA Antitrust Section Consumer Protection Conference and kindly provided the following illuminating report:

I attended what was called the “inaugural stand-alone consumer protection conference” put on by the ABA Antitrust Section at Georgetown Law Center on January 29-30, 2007.  The focus was on FTC consumer protection enforcement and industry self regulation, with a smattering of state consumer protection enforcement thrown in. There was little or no discussion of private suits.  All five sitting FTC Commissioners, as well as the current and four former Bureau of Consumer Protection directors made appearances.  There was also good representation from the private sector, including firms and in-house counsel.  Two speakers from state attorneys general offices and two academics also spoke.  Thus, this conference was a good complement to the NCLC annual conference and the Teaching Consumer Law conference held biennially in Houston.

What I gleaned from the various speakers was that the FTC appears to be revitalized in the consumer protection area, with an emphasis on consumer privacy (including data security), consumer technology (spyware and adware), health and obesity issues, and international and criminal enforcement.  Several FTC speakers mentioned the recently passed US SAFE WEB Act [which we blogged about earlier here] as a major step forward in assisting the FTC in its overseas law enforcement efforts.

CSPI Sues Coke and Nestle Over Claims That Their Diet Soda Helps Achieve Weight Loss

   

The Center for Science in the Public Interest sued Coca-Cola and Nestlé today in federal court in New Jersey.  CSPI says that the companies are fraudulently claiming that their new, artificially sweetened green tea soft drink, Enviga, helps consumers lose weight.   The companies assert that the drink is a “calorie burner” that “keep[s] those extra calories from building up.”   CSPI counters that its scientists have reviewed studies cited by Coke and Nestlé and have determined that Enviga is "exactly the kind of faddy, phony diet aid it claims not to be."

    CSPI's press release on the case is available here.  The complaint in the lawsuit is available here.

New York AG Settles Adware Charges

by Greg Beck

New York’s Attorney General announced a settlement yesterday with three big companies, Priceline.com, Travelocity.com, and Cingular Wireless, accused of using software called Direct Revenue to deliver unwanted ads to computer users. In a 2006 lawsuit, the Attorney General alleged that Direct Revenue installed its software onto millions of computers without adequate notice or consent. Once installed on a user’s computer, the software monitored Internet usage, collected data typed into web forms, and delivered a steady stream of unwanted advertising. To make matters worse, once installed, the software was difficult to remove.

The settlement marks the first time that advertisers, instead of just the adware maker itself, have been held responsible for this abusive sort of advertising. That seems like a smart strategy. In this case, Priceline, Travelocity, and Cingular had spent hundreds of thousands of dollars advertising their services through Direct Revenue. Targeting the advertisers could help dry up the source of funding that keeps adware companies in business. Although the financial settlement was relatively small, a total of $100,000 between the three companies, the companies also agreed to use only adware programs that provide notice and consent to users and make it easy for users to uninstall. Of course, few computer users, if fully informed, will willingly choose to install adware on their computers.

U.S. Agrees: Tobacco Companies Aren't Federal Officers

by Deepak Gupta

Several months ago, I posted an overview of consumer cases with a reasonable chance of being granted for review by the U.S. Supreme Court.  Among them was Watson v. Philip Morris, a truly remarkable case in which the Eighth Circuit held that a tobacco company was entitled to remove a case to federal court under the federal officer removal statute--a statute designed to protect federal officers and employees.   The Justices will take up the matter at their private conference this Friday.

Watson may be one of those relatively rare cases in which a federal appellate court's decision on an important and recurring issue is so outrageously wrong that the Court concludes it can't be allowed to stand, regardless of how long the issue has percolated in the courts below.  The court's reasoning--that Philip Morris was heavily regulated by the Federal Trade Commission such that it was effectively "acting under" federal officials when it promoted and sold its "light cigarettes"--is simply indefensible.  Indeed, the absurdity of the decision is heightened when you consider that the federal government actually sued Philip Morris for the very same conduct that the Eighth Circuit concluded was carried out "under" federal direction.

Last May, the Supreme Court invited the Solicitor General to present the views of the United States. That's usually a very strong sign that the Court is interested in a case.  And in Watson, it was particularly welcome news becuase it was hard to see how the government could defend the decision.  Well, the SG's recently-filed amicus brief takes the view that the Eighth Circuit's decision was not only wrong, but fell "substantially wide of the mark."  The SG nevertheless recommends denying cert because a sufficient split of authority hasn't developed.

U.S. SAFE WEB Act of 2006

On December 22, the President signed into law the U.S. SAFE WEB Act of 2006, Pub. L. 109-455.  The acronym stands for the "Undertaking Spam, Spyware, And Fraud Enforcement With Enforcers beyond Borders" Act.  The statute, which amends the FTC Act, seems largely intended to facilitate cooperation between the FTC and its international counterparts in addressing global Internet problems like spam and spyware.

Is It Deceptive For Stores to Stock Expired Merchandise?

by Jeff Sovern

A grocery store in Nassau County, New York was found to have displayed 144 products (including vitamins, baby formula, nasal decongestant, and tanning oil) with expired manufacturers' dates.  The Nassau County Department of Consumer Affairs cited the store under the authority of a local law barring deceptive trade practices, in which a deceptive trade practice is defined as:

Any false . . . or misleading oral or written statement, visual description or other representation of any kind, which has the capacity, tendency or effect of deceiving or misleading consumers . . . [D]eceptive trade practices include but are not limited to: (1) representations that: . . . (d) goods or services are of [a] particular standard, quality, grade, style, or model, if they are of another.   

The New York Court of Appeals (the highest court in the state), per Judge Rosenblatt, held that the sale or display of such items is not deceptive or misleading.  Food Parade, Inc. v. Office of Consumer Affairs of County of Nassau, --- N.E.2d ----, 7 N.Y.3d 568, 2006 WL 3007047 (2006). While normally a case interpreting a local law would be of little interest outside the locality involved, because the local law in question uses language resembling that employed by many other jurisdictions, the decision may be of some significance nationally.

Seventh Circuit Allows Slavery-Related UDAP Claims to Go Forward

by Steve Gardner

In an historic opinion issued on December 13, the U.S. Court of Appeals for the Seventh Circuit (Judges Posner, Easterbrook and Manion) allowed claims for violations of state Unfair and Deceptive Acts and Practices (UDAP) laws by descendants of slaves to go forward against companies (or their successors) that provided services, such as transportation, finance, and insurance, to slaveowners, and against at least two of the defendants that were slaveowners themselves. The UDAP claim was based on failures to disclose the connection to slavery, because a descendant of a slave would not knowingly give business to a company that had been a part of the slave trade. 

This appears to be a case of first impression where a claim seeking damages arising out of slavery has made it past a motion to dismiss. It is significant for that alone, but beyond that, it will permit the plaintiffs to find out exactly what these modern companies knew about their involvement in slavery and the degree to which these companies hid that fact from the public.

Not a Political Question

At the district level, U.S. District Judge Charles R. Norgle had dismissed all claims in July 2005. Judge Norgle primarily focused on the issue of whether this was a “political question” and found that it was, precluding review by a court, but went on to find that the plaintiffs did not have standing to bring the claims.

On appeal, the Court of Appeals was careful not to extend political question jurisprudence unnecessarily: The court found that the political question doctrine did not bar this lawsuit. As Judge Posner's opinion explained, the “political-question doctrine bars the federal courts from adjudicating disputes that the Constitution has been interpreted to entrust to other branches of the federal government.” The court concluded that “A case that sought reparations for the wrong of slavery would encounter similar obstacles, but the plaintiffs have been careful to cast the litigation as a quest for conventional legal relief. All they are asking the federal judiciary to do is to apply state law (plus the one federal statute, 42 U.S.C. § 1982) to the defendants’ conduct.” Thus the court firmly and quickly rejected the district court’s holding on political question, and moved on to the issue of standing.

On most claims, which looked back to evils that had occurred over a century ago, the court determined that most of the current plaintiffs did not have standing to seek redress for those wrongs.

The UDAP Claim: Concealment of a Material Fact

However, the court then focused on “a claim, rather buried in the complaint but not forfeited, that in violation of state fraud or consumer protection law members of the plaintiff classes have bought products or services from some of the defendants that they would not have bought had the defendants not concealed their involvement in slavery.”