WILL THE SUPREME COURT INVENT A FEDERAL LAW TO GUT STATE CONSUMER PROTECTION LAWS?

By Paul Bland, Public Justice Senior Attorney

AT&T Mobility (“ATTM”) wants the U.S. Supreme Court to invent a new federal law for it. ATTM has language in its standard form contracts that generally requires its customers to take any legal disputes they have to arbitration and—more importantly in many cases—prohibits them from ever bringing or being part of a class action lawsuit..

ATTM knows that there have been many times over the years where it, and other cell phone and long distance phone companies, have been caught overcharging or otherwise cheating large numbers of consumers in ways that only involve a small amount of money for the individual consumer but which add up to many millions of dollars for the corporation. In lots of cases in the past, consumers have filed class actions against ATTM and other phone companies under state consumer protection acts that stopped the illegal behavior for all of its customers, and won refunds for all of its customers.

Many courts around the U.S. have struck down ATTM’s “class action ban” under a basic rule of contract law that corporations can’t stick terms into their standard form contracts that strip consumers or employees of their rights under consumer and civil rights statutes. But ATTM now is arguing to the Supreme Court that a statute that says that courts should generally enforce arbitration agreements “preempts” (wipes away, overrides) the state laws that dozens of courts have used to strike down class action bans. While the wireless phone giant doesn’t openly admit it, it isn’t difficult to read between the lines that what it wants amounts to this: Imagine ATTM cheats 100,000 customers out of some small sum, say $50 apiece. Imagine too that only 100 of those customers will (a) figure out that they’d been cheated; (b) know what their legal rights are under state consumer protection laws; (c) get angry enough to go out and spend some time trying to get their money back; and (d) if the case is at all complex, find a lawyer to handle the case.

ATTM wants the Supreme Court to say that IF the company refunds the overcharge to those 100 people, then a 1924 statute involving arbitration will prevent enforcement of any state consumer protection statute that would protect the rights of the other 99,900 consumers. Does this sound like a very stupid law to invent? It does to me. But a lot of corporate lawyers are convinced that the Supreme Court will do this for them. Another blog discusses legal arguments about why it would be an activist decision for the Court to invent federal law that would wipe away state law.  This blog will focus on why the rule of law that ATTM wants would undermine the purpose and effectiveness of important state consumer protection statutes.

BACKGROUND THE IMPORTANT ROLE OF PRIVATE ENFORCEMENT OF STATE CONSUMER PROTECTION LAWS

By the late 1960s, it had become clear that unscrupulous corporations could get away with ripping off large numbers of consumers – and get an unfair leg up on their more honest competitors. In the early 1970s, with the support of the Nixon Administration, Congress passed legislation that created the Federal Trade Commission and created the first federal prohibition on unfair and deceptive practices. In passing the FTC Act, though, Congress made one enormous compromise that sharply limited the effectiveness of the new statute – it did not create a private right of action. In other words, if a consumer is cheated by a company, the consumer cannot bring a case under federal law.

The only remedy available to such a consumer under federal law is to write a letter of complaint to the FTC. The FTC is a fantastic agency, particularly under its current leadership. Even with the strongest leadership that the agency has had in a generation, though, the FTC is a very small agency when measured against the amount of fraud, cheating and chiseling that’s going on in America today. The FTC does not have nearly enough people to investigate (much less effectively address) the vast majority of scams going on out there.

To fill these gaps, states began to pass their own “mini-FTC Acts.” They go by various names: “Consumer Protection Acts”; “Deceptive Trade Practice Acts”; or “Unfair and Deceptive Trade Practice Acts.” In light of this last name, most lawyers refer generally to the laws as “UDAPs.”

These state UDAP statutes vary a good deal from state to state. Some states have carve-outs exempting lenders from their coverage, for example, while others do not. Some states provide punitive damages for cheated consumers, while others do not.

But most of these statutes have two main things in common:

-- UDAPs are aimed at preventing deceptive and unfair behavior. If a corporation makes big promises in its advertising and its packaging and solicitations that a good or service has certain qualities and it really does not have those qualities, then the big statements are deceptive even if the truth is buried in the fine print. So UDAPs generally make bait-and-switch practices illegal.

-- UDAPs create a private right of action for consumers who are targeted by deceptive or unfair practices and lose money or are injured as a result of them, in addition to permitting enforcement by state attorney generals. This private right of action enables one harmed consumer to bring a lawsuit on behalf of not just herself, but everyone else who was victimized in the same way.

Like the FTC and other federal agencies, state attorney generals face serious resource constraints. Not long ago, I contacted one state’s attorney general’s office to ask for help on a matter, and was told that the one (seriously, only ONE) lawyer who had constituted the office’s consumer protection “department” had been let go because of budget cuts.

Even in a state with far more robust consumer protection department in its attorney general’s office, the normal situation is that a relative handful of hard-working superb lawyers must prioritize among literally thousands of consumer complaints. Staff limitations make it impossible for state attorney generals’ offices to do much with the vast majority of scams in their states.

The upshot is that direct lawsuits by consumers themselves is central to the enforcement of consumer protection laws. This isn’t Europe, where enormous government agencies enforce the consumer laws on their own. In the U.S., in most cases, consumer-brought lawsuits are the principal means of enforcing consumer protection laws.

There are lots of consumer cases – particularly involving larger amounts of money per person – that can be handled on an individual basis, with a single consumer bringing a case just for her or his own personal claims. But there are many other scams where consumers will never have a remedy, and the illegal behavior will never be stopped, unless consumers can join together and bring a class action.

Put another way, class actions aren’t always necessary for consumer protection, but sometimes they are the only realistic way that consumer protection laws can be enforced. As a result, if ATTM wins a ruling that lets it always ban consumer class actions, that will undermine consumer protection laws in a great many cases.

CONSUMER PROTECTION LAWS ARE AIMED AT STOPPING ILLEGAL BEHAVIOR AND PROTECTING ALL CONSUMERS, NOT JUST GIVING A RECOVERY TO A FEW CONSUMERS.

Let’s go back to the hypothetical. A cell phone company engages in a deceptive practice that lets it overcharge 100,000 of its customers by about $50 each over a couple of years. It’s really not very much money to the individuals – not enough for them to get very excited or angry about. But this could really add up to the company. ATTM, for example, has more than 90 million customers in the United States. Suppose that only a tiny percentage of the customers pour over the fine print listing miscellaneous little charges, and that the innocuous looking charge doesn’t trigger any alarm bells for most of the consumers who even notice it.

Suppose that most of the people who do realize that the charge is illegal will not bother to do anything about it. Out of the 100,000 cheated people, only 100 would actually file a case, whether it is in court, small claims court, or arbitration. (The people who love arbitration say that because it’s supposedly more simple, more people would use it. This isn’t actually true. But for the sake of argument, let’s pretend 200 people would bring claims in arbitration.) ATTM is in the business of making money. In this scenario (which is a sadly common scenario, given the company’s track record),

ATTM cares much more about what happens to the $50 for the 99,800 (or 99,900) customers who would never stand up for themselves than it does about the handful of hyper-vigilant consumers. In other words, the one thing ATTM wants to get rid of is a class action where a court might well enjoin it from ripping anyone off in the future and (worse still, for ATTM) require it to refund the overcharge to ALL 100,000 of the cheated consumers. So from ATTM’s standpoint, the class action ban is the whole game. If ATTM can get the Supreme Court to re-write the Federal Arbitration Act to provide that

IF ATTM greases the handful of squeaky wheels and makes them go away, that then ATTM could KEEP almost all of the money it took from its customers, ATTM would be very happy. This is NOT the way state consumer protection laws work, however. The point of these statutes is two-fold: (a) prevent, deter and stop deceptive practices in general; and (b) get refunds or other compensation for ALL cheated consumers, not just a few squeaky wheels.

Put another way, if ATTM wins the ruling it is going for the Supreme Court, in lots of cases (the cases where it’s either a class action or nothing), the Supreme Court will give corporations the complete power to undermine and gut the consumer protection laws.

The majority of state consumer protection laws were enacted not simply to enable individual consumers to obtain redress in isolation, but rather to protect the consuming public at large. For example, the Washington high court has made clear that consumers bringing actions under the state’s consumer protection laws “do not merely vindicate their own rights; they represent the public interest and may seek injunctive relief even when the injunction would not directly affect their own private interests.”¹ 

Similarly, the Oregon Supreme Court has held that the cause-of-action provided by the Oregon Unlawful Trade Practices Act is “designed to encourage private enforcement of the prescribed standards of trade and commerce in aid of the act’s public policies as much as to provide relief to the injured party.”² 

The Florida District Court of Appeal has emphasized that Florida’s consumer protection law “does not exist solely for the benefit of the individual parties, [but] is instead designed to afford a broader protection to the citizens of Florida.”³

Likewise, the California Supreme Court has made it clear that California’s Unfair Competition Law “focus[es] on the defendant’s conduct, rather than the plaintiff’s damages, in service of the statute’s larger purpose of protecting the general public against unscrupulous business practices.”⁴

ATTM’s position – that corporations can just pay off the squeaky wheels, and to heck with the rest – is the exact opposite of what these laws are supposed to do. Moreover, most states intend for their consumer protection laws to provide an effective means of stopping and deterring practices that harm consumers and legitimate business more broadly. The Colorado Supreme Court recognizes that the state’s consumer protection law “serves more than a merely restitutionary function” for injured customers—instead, by broadening the scope of the act to include nonconsumers, the court emphasized its “primary purpose” of “deter[ring] and punish[ing] deceptive trade practices.”⁵

In the same vein, Ohio courts “safeguard the [Ohio Consumer Sales Practices Act]’s remedial and deterrent functions” by exposing and discouraging deceptive trade practices^.6  A host of other examples could be cited.

The upshot of all this is that one of the building blocks of ATTM’s argument to the Supreme Court in favor of class action bans—that individual redress is the only purpose of state consumer protection laws—is flat-out wrong. Instead, it is clear that a majority of state consumer protection laws are intended to provide restitution for individual consumers while discouraging conduct that is harmful to the public good.

ATTM’s misguided interpretation ignores the will of a majority of state legislatures by stripping these statutes of their intended deterrent effect and narrowing their scope to individual customers alone, thereby creating a paradigm in which companies can continue deceptive and harmful trade practices so long as they compensate a small number of individual complaintants. This is simply not the intent of state consumer protection laws.

CONCLUSION

ATTM wants the U.S. Supreme Court to invent law that would gut state consumer protection statutes for a lot of different types of deceptive and unfair practices. This is not only bad law, but terrible policy. These state laws are often the only thing standing between us as consumers and deceptive, dishonest, predatory scams by businesses. They are too important to let Corporate America write them out of existence. If ATTM were to ask Congress to pass the new law it seeks, and there was any truth-in-labeling requirement, it would be called the “Federal Keep-the-Loot Act.”

Perhaps sensing the unsympathetic nature of that honest description, ATTM’s endlessly inventive lawyers seek this power to wipe away state consumer protection laws under a different label. They call it “implied conflict frustration-of-purpose federal preemption under the Federal Arbitration Act.”

Whatever one calls it, the idea really stinks. Nonetheless, it’s what ATTM is asking for in the case of AT&T Mobility v. Concepcion, which will probably be argued in early November of 2010. The Supreme Court could easily rule for the plaintiffs in Concepcion, and thus preserve the status quo, where literally scores of federal and state appellate courts have agreed that the legality of class action bans in arbitration clauses is an issue of state, not federal law.

Even in the unhappy circumstance that the Supreme Court were to rule for AT&T Mobility, a ruling against the consumers might well be narrow, technical, and lawyerly, based upon some specific circumstances of that case that would not apply to many other cases. Nonetheless, some corporate defense lawyers are boldly predicting that the Supreme Court – which they privately believe is strongly motivated to support positions dear to the Chamber of Commerce – will invent a new rule of federal law that will gut longstanding state consumer protection laws.

Under current law, if a corporation engages in a deceptive practice (luring consumers to buy some good or service with loud and misleading promises, and hiding any accurate description of the true cost and limitations on the product in the fine print), consumers in the vast majority of states can bring a class action to block the deceptive practice.

The whole point of state consumer protection laws is to stop the deceptive practice for ALL consumers. In Concepcion, the corporate defense community is hoping that the Supreme Court will invent a new rule of federal law that will effectively guarantee that corporations can cheat 99% of consumers with impunity (and realistically, immunity towards those consumers). The betting here is that a majority of the Supreme Court will reject this radical idea.

But no one knows, and I don’t know anyone who has gotten rich predicting what the Supreme Court will do in any case. If the corporate world gets its fondest wish, however, consumer law will be devastated.

ENDNOTES:

1. Scott v. Cingular Wireless, 161 P.3d 1000, 1006 (Wash. 2007).

2. Weigel v. Ron Tonkin Chevrolet Co., 690 P. 2d 488, 493 (Or. 1984).

3. America Online, Inc. v. Pasieka, 870 So. 2d 170, 171–72 (Fla. Dist. Ct. App. 2004); see also S.D.S. Autos, Inc. v. Chrzanowski, 976 So. 2d 600, 607 (Fla. Dist. Ct. App. 2007).

4. In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009) (citing Fletcher v. Security Pacific National Bank, 23 Cal. 3d 442, 453 (1979)).

5. Hall v. Walter, 969 P. 2d 224, 231 (Colo. 1998).

6. Eagle v. Fred Martin Motor Company, 809 N.E. 2d 1161, 1170 (Ohio Ct. App. 2004); see also Crye v. Smolak, 674 N.E. 2d 779, 784 (Ohio Ct. App. 1996) (holding that Ohio’s CSPA intended to “protect consumers from suppliers who commit deceptive and unconscionable sales practices and encourag[e] the development of fair consumer sales practices”).

ABOUT THE AUTHOR

F. Paul Bland, Jr., a Senior Attorney at Public Justice since 1997, is responsible for developing, handling, and helping Public Justice’s cooperating attorneys litigate a diverse docket of public interest cases. 

Paul has argued and won more than 20 cases that have led to reported decisions for consumers, employees or whistleblowers in four of the U.S. Courts of Appeals and the high courts of six different states.  He is currently handling or assisting with appeals before the U.S. Court of Appeals for the Eleventh Circuit; the California, Florida, Kentucky and Nevada Supreme Courts; and the Maryland Court of Appeals.