New England Biz Law Update
State consumer protection statutes are typically used by state attorneys general and other litigants to protect consumers from fraudulent or deceptive business practices.
But businesses are increasingly facing class actions based on these laws filed by consumers, because it is often impossible to litigate based on evidence of actual injury to each of potentially thousands of class members.
However, critics say plaintiffs’ attorneys use these “no-injury” complaints to get around procedural rules designed to weed out frivolous personal injury class actions.
But plaintiffs’ attorneys say consumer protection statutes help to combat harmful business practices that can harm large numbers of people.
“Each member of a class may have different reasons for being injured,” said class action attorney Jerome Noll, of counsel at Meiselman, Denlea, Packman, Carton & Ebert in White Plains, N.Y.
Unlike in a personal injury class action, a consumer protection complaint does not involve “pursuing any damages based on the physical injury suffered. Rather, we are seeking damages based on a specific deceptive act or practice,” Noll said.
An example is a class action in which Noll represents customers of a business that offers tanning services. The plaintiffs claim the company, while touting the “benefits of tanning” on its website and in advertisements, inadequately disclosed the risks involved in using tanning beds, including the increased risk of skin cancer.
That failure to disclose, Noll claims, robbed customers of their ability to make an informed decision about whether the benefits of the product outweigh the risks. The suit does not seek damages for any injuries, but rather asks that the customers get their money back.
The number of plaintiffs using consumer protection laws to bring class actions has ballooned in recent years. An April 2007 report to the Judicial Conference Advisory Committee on Civil Rules by the Federal Judicial Center, which monitors class actions, said the number of such suits based on state consumer fraud statutes tripled in the first six months of 2006, compared to the same time period in 2001.
Conversely, the number of tort-based class action suits remained about the same.
Massive shakedowns?
Critics say consumer law class actions are problematic, from forum shopping to sidestepping normal class certification requirements. And even worse – the practice could be a boon to predatory litigators.
James R. Copeland is director of the Center for Legal Policy at the Manhattan Institute for Policy Research, which has issued reports critical of class actions and helped to pass the Class Action Fairness Act of 2005.
“You can have a massive shakedown [with a verdict] based on something that may not have hurt anyone – assuming the fraud even happened,” Copeland said.
The problem, he said, is the consumer protection statutes were not drafted with class actions in mind. Elements essential to ensuring a valid class action may be absent, making it easier for plaintiffs to clear procedural and substantive legal hurdles.
“A lot of these statutes do end runs around the reliance and causation and injury requirements that you have with a product liability tort class action claim,” Copeland said. “You don’t really have to establish that you have been injured by the alleged fraud. You just have to convince a jury that there was fraud.”
The result, Copeland said, is an increase in opportunism on the part of some plaintiffs’ attorneys.
“This dredges up some of the worst predatory lawyering that we can talk about,” he said. “If someone is injured, the tort system is supposed to provide relief to them retroactively. These suits try to be prospective, and the system is not set up for that.”
He adds that the practice “has a severely chilling effect on commercial speech.”
But plaintiffs’ attorneys said acting prospectively is a way to protect consumers. “There is a social question,” said Paul Bland, staff attorney for the public interest law firm Public Justice (formerly Trial Lawyers for Public Justice) in Washington, D.C. “Class actions play an important role apart from compensation.”
Bland said state consumer protection statutes are designed to give private rights of action to those directly harmed by unfair business practices, and class actions are an important tool for stopping unfair practices as well as deterring future misconduct.
“A lot of cases that I’ve worked on [were] principally about injunctive relief,” he said. “It was to stop predatory practices.”
Even in cases where recovery is as small as $10 per class member, he said, “the company learns that if it sold 1.5 million products using predatory practices, that’s $15 million. If they are going to have to pay it back, it discourages predatory behavior.”
Noll also dismisses the criticisms, saying that forum shopping is a non issue, particularly after the passage of the Class Action Fairness Act, which allows defendants to remove claims that affect consumers in more than one state to federal court.
Suited to minimal damages
According to Andrew N. Friedman, class actions are the best way to proceed where the recovery per class member may be small.
“Many of these clients could never litigate on an individual basis [because] the recovery is [so] small,” said Friedman, a partner at the Washington, D.C. office of Cohen, Milstein, Hausfeld & Toll.
Noll said there is a built-in system to prevent predatory lawyering: “Consumer protection class actions are no different than any other class action. The fees are based on whatever recovery the plaintiffs’ attorney gets for the class. The fees have to be approved by the court, and recovery per-person is usually based on what the person paid.”
A 2002 report by Public Citizen, a consumer advocacy group that strongly opposed the class action act, found that plaintiffs’ attorneys don’t get a windfall from consumer class action litigation. According to the report, the median attorney fee award in class actions in general was 21.9 percent of the recovery – which is less than the 33-35 percent median contingency fee in most personal injury matters.
As for the argument that consumer protection statutes make life easier for plaintiffs’ attorneys, Noll said the cases are often tougher.
“It’s a very difficult arena,” he said. “Unlike in personal injury cases where you are representing one or two persons, in the consumer fraud context you are representing a class of thousands or tens of thousands consumers. And many times you need to [file suit] under each state’s consumer protection statute.”
