The Law of Unfair Trade Practices: Practical tips for deadling with unfair trade practices statutes

THE LAW OF UNFAIRTHE LAW OF UNFAIR
TRADE PRACTICESTRADE PRACTICES
Practical tips for dealingPractical tips for dealing
with UTP statuteswith UTP statutes

Is this unfair?Is this unfair?
• Price of roses onPrice of roses on
Valentine’s Day:Valentine’s Day:
• 42% increase (NYC Dep’t42% increase (NYC Dep’t
of Consumer Affairs)of Consumer Affairs)
• Raleigh area: priceRaleigh area: price
increases of $10 - $30increases of $10 - $30
(Informal WRAL survey)(Informal WRAL survey)

AgendaAgenda
• Key features of the law on unfair trade practicesKey features of the law on unfair trade practices
• The pivot points in UTP lawsuitsThe pivot points in UTP lawsuits
• Important new North Carolina decisions:Important new North Carolina decisions: BumpersBumpers andand
TorrenceTorrence
• Tips for living with UTP statutesTips for living with UTP statutes

““Unfair Trade Practices” StatutesUnfair Trade Practices” Statutes
• Burgeoning source of litigationBurgeoning source of litigation
• Risk for businessesRisk for businesses
• Opportunities for plaintiffsOpportunities for plaintiffs
• Including business plaintiffs in most states (including N.C.)Including business plaintiffs in most states (including N.C.)

• Consumer-protectionConsumer-protection
statutes enacted in 1960sstatutes enacted in 1960s
and early 1970sand early 1970s
• Inspired by section 5 of theInspired by section 5 of the
Federal Trade CommissionFederal Trade Commission
ActAct
• Section 5 has no privateSection 5 has no private
right of actionright of action
• FTC encouraged the statesFTC encouraged the states
to pass UTP statutesto pass UTP statutes

• Every state now has a UTP statute of some typeEvery state now has a UTP statute of some type
• All states allow private parties to sue under someAll states allow private parties to sue under some
circumstancescircumstances
• A majority (including N.C.) allow recovery by non-A majority (including N.C.) allow recovery by non-
consumersconsumers

A Powerful WeaponA Powerful Weapon
• Treble damages (25 states, including N.C.)Treble damages (25 states, including N.C.)
• Plaintiffs can recover attorney fees (46 states, including N.C.)Plaintiffs can recover attorney fees (46 states, including N.C.)
• Class actions (41 states, including N.C.)Class actions (41 states, including N.C.)

How do you define “unfair” and “deceptive”?How do you define “unfair” and “deceptive”?
• 2 basic approaches:2 basic approaches:
• Open-ended statutes, modeled on FTC ActOpen-ended statutes, modeled on FTC Act
• ““Laundry list” of unfair or deceptive actsLaundry list” of unfair or deceptive acts

Open-ended: The “Little FTC Acts”Open-ended: The “Little FTC Acts”
• Many states have modeled their UTP statutes on section 5 of theMany states have modeled their UTP statutes on section 5 of the
FTC ActFTC Act
• ““Unfair methods of competition in or affecting commerce, andUnfair methods of competition in or affecting commerce, and
unfair or deceptive acts or practices in or affecting commerce,unfair or deceptive acts or practices in or affecting commerce,
are hereby declared unlawful.” 15 U.S.C. § 45.are hereby declared unlawful.” 15 U.S.C. § 45.
• ““Unfair methods of competition in or affecting commerce, andUnfair methods of competition in or affecting commerce, and
unfair or deceptive acts or practices in or affecting commerce,unfair or deceptive acts or practices in or affecting commerce,
are declared unlawful.” N.C. Gen. Stat. § 75-1.1(a).are declared unlawful.” N.C. Gen. Stat. § 75-1.1(a).

The “Little FTC Acts”The “Little FTC Acts”
• In 32 states, courts look to FTC decisions and federal case lawIn 32 states, courts look to FTC decisions and federal case law
under section 5 as a guideunder section 5 as a guide
• Many UTP statutes have express cross-referencesMany UTP statutes have express cross-references
• In other states (including N.C.), the courts have decided toIn other states (including N.C.), the courts have decided to
refer to these sourcesrefer to these sources

Laundry ListsLaundry Lists
• Five statesFive states restrictrestrict claims to an enumerated list of practicesclaims to an enumerated list of practices
• Maryland – detailed, multi-part definition, with examplesMaryland – detailed, multi-part definition, with examples
• Oregon – claims restricted to acts listed in statute or rulesOregon – claims restricted to acts listed in statute or rules
issued by Attorney Generalissued by Attorney General

Laundry ListsLaundry Lists
• Maryland’s UTP statute defines “unfair or deceptive tradeMaryland’s UTP statute defines “unfair or deceptive trade
practices” as including, among other things:practices” as including, among other things:
(10) Solicitations of sales or services over the telephone without first(10) Solicitations of sales or services over the telephone without first
clearly, affirmatively, and expressly stating:clearly, affirmatively, and expressly stating:
(i) The solicitor's name and the trade name of a person represented(i) The solicitor's name and the trade name of a person represented
by the solicitor;by the solicitor;
(ii) The purpose of the telephone conversation; and(ii) The purpose of the telephone conversation; and
(iii) The kind of merchandise, real property, intangibles, or service(iii) The kind of merchandise, real property, intangibles, or service
solicited.solicited.

ExemptionsExemptions
• Many UTP statutes exemptMany UTP statutes exempt
one or more industriesone or more industries
• CreditorsCreditors
• InsuranceInsurance
• UtilitiesUtilities
• Debt collection /Debt collection /
repossessionrepossession
• Real estateReal estate

North Carolina ExemptionsNorth Carolina Exemptions
• Lawyers and other “learned professions”Lawyers and other “learned professions”
• Carriers of advertisingCarriers of advertising
• Activity not “in or affecting commerce” – e.g.,Activity not “in or affecting commerce” – e.g.,
• Securities and commoditiesSecurities and commodities
• Actions “within a single business”Actions “within a single business”

Types of UTP ClaimsTypes of UTP Claims
• Per se violationsPer se violations
• DeceptionDeception
• Aggravated breaches of contractAggravated breaches of contract
• ““Direct unfairness” claimsDirect unfairness” claims
• Unfair methods of competitionUnfair methods of competition
•

Per SePer Se ViolationsViolations
• Sometimes, a violation of a separate statute or regulationSometimes, a violation of a separate statute or regulation
automatically supports a UTP claimautomatically supports a UTP claim
• 45 N.C. statutes have express cross-references to UTP statute45 N.C. statutes have express cross-references to UTP statute
• Examples: statutes on identity theft, customer records,Examples: statutes on identity theft, customer records,
and confidential informationand confidential information
• Courts have also found per se liability based on sourcesCourts have also found per se liability based on sources withoutwithout
an explicit cross-referencean explicit cross-reference

California’s Section 17200California’s Section 17200
• Created private claim for violations of virtually any statute orCreated private claim for violations of virtually any statute or
regulation – even ones with no private right of action of their own:regulation – even ones with no private right of action of their own:
• Disclosures in wrong font sizeDisclosures in wrong font size
• Item with a few foreign-made components advertised as “MadeItem with a few foreign-made components advertised as “Made
in the USA”in the USA”
• Bathroom mirror an inch higher than disability regulationsBathroom mirror an inch higher than disability regulations
requiredrequired

California’s Section 17200California’s Section 17200
• N.D. Cal. = “Food Court”: recent wave of class actions allegingN.D. Cal. = “Food Court”: recent wave of class actions alleging
technical violations of federal / Cal. food labeling lawstechnical violations of federal / Cal. food labeling laws
• ““Sugar free,” “sugarless” but fail to disclose trivial amountsSugar free,” “sugarless” but fail to disclose trivial amounts
• ““Natural source of antioxidants” but fails to specify whichNatural source of antioxidants” but fails to specify which
nutrientsnutrients
• Private right of action under section 17200 becausePrivate right of action under section 17200 because
“unlawful”“unlawful”

DeceptionDeception
• Fraud with fuzzier elementsFraud with fuzzier elements
• Major goal of UTP statutes was to relax the elements of fraudMajor goal of UTP statutes was to relax the elements of fraud
so consumers could recover more oftenso consumers could recover more often
• Most states require only that a practice have “the capacityMost states require only that a practice have “the capacity
or tendency to deceive”or tendency to deceive”
• No intent to deceive is requiredNo intent to deceive is required

DeceptionDeception
• Connick v. Suzuki Motor Co.Connick v. Suzuki Motor Co. (Illinois Supreme Court 1996)(Illinois Supreme Court 1996)
•Plaintiffs alleged that car manufacturer failed to disclose riskPlaintiffs alleged that car manufacturer failed to disclose risk
of roll-overs. Plaintiffs sought damages for reduced resaleof roll-overs. Plaintiffs sought damages for reduced resale
value.value.
•Fraud claim failed, but UTP claim survived.Fraud claim failed, but UTP claim survived.
•““An omission or concealment of a material fact in theAn omission or concealment of a material fact in the
conduct of trade or commerce [violates the statute].”conduct of trade or commerce [violates the statute].”

Private attorney general run amok?Private attorney general run amok?
• New Jersey lawyer Harold Hoffman has filed dozens of UTPNew Jersey lawyer Harold Hoffman has filed dozens of UTP
putative class actions for alleged deceptive advertising, withputative class actions for alleged deceptive advertising, with
himself as named plaintiffhimself as named plaintiff
• Dietary supplements – Ginkgo BilobaDietary supplements – Ginkgo Biloba
• Male enhancement pills – Erection MDMale enhancement pills – Erection MD
• Time Warner Cable (failure to carry channel duringTime Warner Cable (failure to carry channel during
negotiations)negotiations)
• Sometimes sues before he even receives the product inSometimes sues before he even receives the product in
questionquestion
• Many cases have been removed under CAFAMany cases have been removed under CAFA

Patent InfringementPatent Infringement  UTP Class Action?UTP Class Action?
Dang v. SamsungDang v. Samsung (N.D. Cal. filed 2014):(N.D. Cal. filed 2014):
•UTP class action alleges that Samsung deceived consumers byUTP class action alleges that Samsung deceived consumers by
concealing its infringement of Apple patentsconcealing its infringement of Apple patents
•Any consumer harm? Allegation is that infringement findingAny consumer harm? Allegation is that infringement finding
decreased resale value of mobile phonesdecreased resale value of mobile phones

Aggravated Breaches of ContractsAggravated Breaches of Contracts
• Breach of contract + something else = treble damagesBreach of contract + something else = treble damages
• N.C. and Connecticut require “substantial aggravatingN.C. and Connecticut require “substantial aggravating
circumstances”circumstances”
• Examples: intentional misrepresentations; multipleExamples: intentional misrepresentations; multiple
breaches over timebreaches over time
• Federal courts and business courts read this theory moreFederal courts and business courts read this theory more
strictly than other courts dostrictly than other courts do

Direct UnfairnessDirect Unfairness
• Arises from open-ended definitions of “unfair”Arises from open-ended definitions of “unfair”
• Courts have struggled to announce rulesCourts have struggled to announce rules
that would generate predictable resultsthat would generate predictable results
• N.C. Supreme Court: padlocking an apartment forN.C. Supreme Court: padlocking an apartment for
unpaid rent is not unfairunpaid rent is not unfair
• N.C. Court of Appeals: collecting rent on an unfitN.C. Court of Appeals: collecting rent on an unfit
dwelling is unfairdwelling is unfair

Unfair Methods of CompetitionUnfair Methods of Competition
• Fuzzy antitrustFuzzy antitrust
• Can enable end runs around antitrust case lawCan enable end runs around antitrust case law
• LaChance v. U.S. Smokeless Tobacco Co.LaChance v. U.S. Smokeless Tobacco Co. (N.H. 2007):(N.H. 2007):
Indirect purchasers lack standing under antitrust law, butIndirect purchasers lack standing under antitrust law, but
do have standing to sue for unfair methods of competitiondo have standing to sue for unfair methods of competition
under UTP statuteunder UTP statute

State Attorney General EnforcementState Attorney General Enforcement
• State attorneys general increasingly hire outside counsel toState attorneys general increasingly hire outside counsel to
pursue UTP claims for a contingent feepursue UTP claims for a contingent fee
• South Carolina recovered $327 million based on off-labelSouth Carolina recovered $327 million based on off-label
marketing of the anti-psychotic drug Risperdalmarketing of the anti-psychotic drug Risperdal
• U.S. Supreme Court recently rejected an attempt toU.S. Supreme Court recently rejected an attempt to
remove a state’sremove a state’s parens patriaeparens patriae claim to federal courtclaim to federal court
under Class Action Fairness Act.under Class Action Fairness Act.

Common “Business v. Business” ScenariosCommon “Business v. Business” Scenarios
• Departing-employee casesDeparting-employee cases
• Cases over competitive tacticsCases over competitive tactics
• IP claimsIP claims
• Indirect-purchaser antitrust casesIndirect-purchaser antitrust cases
• Deception claimsDeception claims

UTP Claims in Personal-Injury CasesUTP Claims in Personal-Injury Cases
UTP claims can provide an alternate route to recovery in tortUTP claims can provide an alternate route to recovery in tort
disputesdisputes
•Howerton v. Arai HelmetHowerton v. Arai Helmet (N.C. 2013)(N.C. 2013) –– deceptive to apply safetydeceptive to apply safety
certification sticker to helmet without clarifying which parts ofcertification sticker to helmet without clarifying which parts of
helmet were certified?helmet were certified?
•Klairmont v. Gainsboro RestaurantKlairmont v. Gainsboro Restaurant (Mass. 2013) – maintaining(Mass. 2013) – maintaining
restaurant stairs in unsafe condition was unfair and deceptiverestaurant stairs in unsafe condition was unfair and deceptive
conductconduct

Major Pivot Points Under UTP StatutesMajor Pivot Points Under UTP Statutes
• Availability of treble / punitive damagesAvailability of treble / punitive damages
• Whether non-consumers can bring claimsWhether non-consumers can bring claims
• Whether class actions are allowedWhether class actions are allowed
• Whether winning plaintiffs, and winning defendants, canWhether winning plaintiffs, and winning defendants, can
recover attorney feesrecover attorney fees

Other Major Pivot PointsOther Major Pivot Points
• Relationship with FTC rules / federal case lawRelationship with FTC rules / federal case law
• How open-ended are the conduct standards?How open-ended are the conduct standards?
• In deception cases, is reliance required?In deception cases, is reliance required?

Counter-Revolution?Counter-Revolution?
• Scholars and state supreme courts are increasingly interestedScholars and state supreme courts are increasingly interested
in UTP issuesin UTP issues
• Will class action counter-revolution reach state UTP cases?Will class action counter-revolution reach state UTP cases?
• U.S. Supreme Court:U.S. Supreme Court: TwomblyTwombly;; Wal-MartWal-Mart;; ConcepcionConcepcion
• North Carolina:North Carolina: BumpersBumpers;; TorrenceTorrence

Bumpers v. Community BankBumpers v. Community Bank (N.C. 2013)(N.C. 2013)
• Plaintiffs paid high fees, including “loan discount” fees and closingPlaintiffs paid high fees, including “loan discount” fees and closing
fees, on second mortgagesfees, on second mortgages
• Plaintiffs testified:Plaintiffs testified:
• Overall deal was acceptableOverall deal was acceptable
• Paid no attention to the titles of the feesPaid no attention to the titles of the fees
• Offensive summary judgment: (1) closing fees were excessive andOffensive summary judgment: (1) closing fees were excessive and
(2) discounted interest rate was not provided(2) discounted interest rate was not provided

Key Issues inKey Issues in BumpersBumpers
1.1. Does UTP allow unfairness claim on the theory that a priceDoes UTP allow unfairness claim on the theory that a price
was “excessive”?was “excessive”?
2.2. Does a deception claim require reliance?Does a deception claim require reliance?
• Plaintiffs admitted that they did not pay attention to orPlaintiffs admitted that they did not pay attention to or
rely on names of feesrely on names of fees

BumpersBumpers: Key Holdings: Key Holdings
1.1. ““In most cases, there is nothing unfair or deceptive aboutIn most cases, there is nothing unfair or deceptive about
freely entering a transaction on the open market.”freely entering a transaction on the open market.”
• Caveat:Caveat: TheseThese fees, underfees, under
these circumstances, didthese circumstances, did
not allow a UTP claimnot allow a UTP claim

BumpersBumpers: Key Holdings: Key Holdings
2.2. A deception claim requires actual and reasonable relianceA deception claim requires actual and reasonable reliance
• When the alleged wrong is a statement, it proximatelyWhen the alleged wrong is a statement, it proximately
causes harm only if someone relies on itcauses harm only if someone relies on it
• ““Section 75-1.1 has long encompassed conductSection 75-1.1 has long encompassed conduct
tantamount to fraud, which requires reliance, and we seetantamount to fraud, which requires reliance, and we see
no reason for departure from that requirement.”no reason for departure from that requirement.”

AT&T Mobility LLC v. Concepcion (2011)AT&T Mobility LLC v. Concepcion (2011)
• AT&T’s customer agreements required arbitration andAT&T’s customer agreements required arbitration and
precluded class action arbitrationsprecluded class action arbitrations
• California Supreme Court: Arbitration clause and class actionCalifornia Supreme Court: Arbitration clause and class action
ban were unconscionableban were unconscionable
• U.S. Supreme Court: Federal Arbitration Act preempts stateU.S. Supreme Court: Federal Arbitration Act preempts state
unconscionability doctrineunconscionability doctrine

Torrence v. Nationwide Budget FinanceTorrence v. Nationwide Budget Finance (2014)(2014)
• InIn TillmanTillman (2008), N.C. Supreme Court had held an arbitration(2008), N.C. Supreme Court had held an arbitration
clause in a small loan agreement unconscionableclause in a small loan agreement unconscionable
• TorrenceTorrence:: ConcepcionConcepcion and later Supreme Court decisionand later Supreme Court decision
trumptrump TillmanTillman
• Federal Arbitration Act preempts unconscionability doctrineFederal Arbitration Act preempts unconscionability doctrine
• N.C. Court of Appeals compelled arbitration of UTP claimsN.C. Court of Appeals compelled arbitration of UTP claims

Tips for Business DefendantsTips for Business Defendants
• Be sensitive to acts that seem “unfair” without beingBe sensitive to acts that seem “unfair” without being
deceptivedeceptive
• General pro-plaintiff thrust of UTP statutesGeneral pro-plaintiff thrust of UTP statutes
• E.g., Closing fees inE.g., Closing fees in BumpersBumpers
• E.g., Apple App Store password feature: 20-year consentE.g., Apple App Store password feature: 20-year consent
decree + $32.5 million in refundsdecree + $32.5 million in refunds

• In non-reliance states, beware liability for deceptive acts “inIn non-reliance states, beware liability for deceptive acts “in
the forest”the forest”
• Review documents for potentialReview documents for potential
collateral misrepresentationscollateral misrepresentations
• Dangerous to rely on disclaimersDangerous to rely on disclaimers
or fine printor fine print

• Consider arbitration clauses in consumer contractsConsider arbitration clauses in consumer contracts
• Arbitration in “business vs. business” cases involves muchArbitration in “business vs. business” cases involves much
harder tradeoffsharder tradeoffs
• No dispositive motionsNo dispositive motions
• Little discoveryLittle discovery
• Split-the-difference decisionsSplit-the-difference decisions
• Virtually no appealVirtually no appeal

• Potential preemption arguments in heavily regulatedPotential preemption arguments in heavily regulated
industriesindustries
• E.g., federal regulations allowing banks to issueE.g., federal regulations allowing banks to issue
“convenience checks” preempted UTP statute and“convenience checks” preempted UTP statute and
defeated claims that the bank deceptively failed todefeated claims that the bank deceptively failed to
disclose the consequences of use of the checks.disclose the consequences of use of the checks. Rose v.Rose v.
Chase BankChase Bank (9th Cir. 2008).(9th Cir. 2008).

Tips for Business PlaintiffsTips for Business Plaintiffs
• Adding a UTP claim to a contract claim can add great tacticalAdding a UTP claim to a contract claim can add great tactical
and substantive benefitsand substantive benefits
• Treble damages / attorney feesTreble damages / attorney fees
• Can avoid contract-law hurdles like the parol evidenceCan avoid contract-law hurdles like the parol evidence
rule and the statute of fraudsrule and the statute of frauds

• UTP claims are especially common in “departing employee”UTP claims are especially common in “departing employee”
claimsclaims
• Theft of trade secretsTheft of trade secrets
• Be aware of “labor” exemption: Elastic scopeBe aware of “labor” exemption: Elastic scope

• In some states and some cases, a UTP-only strategy could beIn some states and some cases, a UTP-only strategy could be
rationalrational
• The open-ended standards can be your friendThe open-ended standards can be your friend
• But assess all the case law up frontBut assess all the case law up front
• You might also see your briefing again in other casesYou might also see your briefing again in other cases

Tips for Everyone: Forum is CrucialTips for Everyone: Forum is Crucial
• RemovalRemoval
• Fraudulent joinderFraudulent joinder
• CAFACAFA
• Complete preemptionComplete preemption
• Business CourtsBusiness Courts
• There is something worse than a series of circuit-riding judgesThere is something worse than a series of circuit-riding judges

Thank you!Thank you!
Matt SawchakMatt Sawchak
matt.sawchak@elliswinters.commatt.sawchak@elliswinters.com
919.865.7004919.865.7004

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