§ 4.2.3 RELIANCE

• Jurisdiction: Arizona

§ 4.2.3 Reliance

As mentioned, consumer fraud is intended to be more easily proved than common-law fraud.¹⁴⁰⁶ One of the elements of common-law fraud that often makes tortious fraud difficult to prove is reliance.¹⁴⁰⁷ The U.S. Supreme Court, in a decision discussed below, has described this reliance requirement as "a specialized condition that happens to have grown up with common law fraud."¹⁴⁰⁸ Why then should this specialized, common-law condition be read into a remedial, consumer-protection statute like the CFA?¹⁴⁰⁹

The controlling statute, § 44-1522(A),¹⁴¹⁰ does not by its words require reliance. Quite the contrary; § 44-1522(A) prohibits misrepresentations and other deceptive acts "whether or not any person has in fact been misled, deceived, or damaged thereby."¹⁴¹¹ This language could reasonably be read as eliminating a reliance requirement.¹⁴¹²

But that is not the way the law has developed. Instead, the Court of Appeals has read a reliance element into civil-damage actions under the CFA. The plaintiff must actually rely upon the defendant's misrepresentation or other deceptive act.¹⁴¹³ But unlike plaintiffs suing for common-law fraud, the plaintiff's reliance need not be reasonable.¹⁴¹⁴

The rationale for this modified reliance rule is that it is needed to prove damages.¹⁴¹⁵ Reliance is thought necessary to show a causal link between the defendant's conduct and the plaintiff's injury.¹⁴¹⁶ This is the reasoning of Peery v. Hansen, a 1978 Division Two decision, that has guided the thinking of later courts. The majority in Perry expressed the need for reliance this way: "It is clear that before a private party may exert a claim under the statute [for consumer fraud], he must have been damaged by the prohibited practice. A prerequisite to such damages is reliance on the unlawful acts."¹⁴¹⁷ Former Judge Howard, in a special concurring opinion, disagreed: "Under the [consumer fraud] statute 'reliance' is not necessary. I cannot agree with the majority's conclusion that reliance on the unlawful acts is a prerequisite for damages."¹⁴¹⁸

So who is correct?

A 2008 decision by the U.S. Supreme Court, Bridge v. Phoenix Bond & Indemnity Co.,¹⁴¹⁹ suggests that Judge Howard had the better argument. The issues in Bridge concerned the interplay between causation, damages, and reliance under the civil-RICO statutes. The RICO statutes do not by their words require reliance.¹⁴²⁰ But the defendants claimed that the Court should look to the common-law meaning of civil fraud to define the elements of a private action for damages based on mail fraud.¹⁴²¹ The Court found this argument misplaced as a matter of statutory construction.¹⁴²² It noted that reliance was a "specialized condition" that is required for common-law fraud, but it is not a general restriction on civil recovery in tort law.¹⁴²³ The Court found no justification for imposing the special elements of common-law fraud on the remedial scheme enacted for civil-RICO claims:

That "specialized condition," whether characterized as an element of the claim or as a prerequisite to establishing proximate causation, simply has no place in a remedial scheme keyed to the commission of mail fraud, a statutory offense that is distinct from common-law fraud and that does not require proof of reliance.¹⁴²⁴

The Court rejected the idea that reliance is required to prove causation.¹⁴²⁵ According to the Court, any notion that reliance is needed for causation is "contradicted by the long line of cases in which courts have permitted a plaintiff directly injured by a fraudulent misrepresentation to recover even though it was a third party, and not the plaintiff, who relied on the defendant's misrepresentation."¹⁴²⁶ The Court noted that while "[p]roof that the plaintiff relied on the defendant's misrepresentations may in some cases be sufficient to establish proximate cause, . . . there is no sound reason to conclude that such proof is always necessary."¹⁴²⁷ For reliance is only one way to prove causation.¹⁴²⁸

In summary, reading a reliance requirement into the CFA seems wrong for three reasons. First, the statute's text does not require reliance. Instead, the statute says that deceptive acts are prohibited regardless of whether the consumer is misled.¹⁴²⁹ Second, the CFA is remedial legislation that Arizona's courts have said should...