Unfair Acts or Practices Under Cutpa - the Case for Abandoning the Obsolete Cigarette Rule and Following Modern Ftc Unfairness Policy
| Publication year | 2021 |
| Pages | 105 |
77 CBJ 105. UNFAIR ACTS OR PRACTICES UNDER CUTPA - THE CASE FOR ABANDONING THE OBSOLETE CIGARETTE RULE AND FOLLOWING MODERN FTC UNFAIRNESS POLICY
This article explores the development of Connecticut law interpreting the "unfair acts or practices" language in the Connecticut Unfair Trade Practices Act (CUTPA).(fn1) The bedrock of the Connecticut test for unfair acts or practices under CUTPA is the Federal Trade Commission's 1964 Cigarette Rule.(fn2) Beginning in 1983, the Connecticut Supreme Court adopted the Cigarette Rule and other federal principles involving the meaning of "unfair acts or practices" because it purported to have been following current federal interpretation of the Federal Trade Commission Act (the "FTC Act").(fn3 )This article explains why the Cigarette Rule and other principles embraced by the Connecticut Supreme Court were obsolete or incorrectly stated principles of federal law when the Court adopted them as a matter of CUTPA law. The article then proposes that since the Court's stated intention was to adopt valid Federal Trade Commission ("FTC") and federal court principles when interpreting the "unfair acts or practices" language in CUTPA, it should abandon the Cigarette Rule and principles referred to herein as the "Violation of Less Than All Three Principle"(fn4) and the "Non-Consumer Injury Principle"(fn5) and follow modern Federal Trade Commission unfairness policy.
Federal interpretation of the FTC Act is central to CUTPA interpretation because the heart of CUPTA, CONN. GEN. STAT. § 42-110b(a),(fn6) is modeled after Section 5(a)(1) of the FTC
Act,(fn7) and CONN. GEN. STAT. § 42-110b(b) directs Connecticut courts to be guided by FTC and federal court interpretation of the FTC Act when interpreting the "unfair acts or practices" language in section 42-110b(a).(fn8)
CUTPA's section 42-110b(a) and the FTC Act's section 5(a)(1) specify three classes of prohibited conduct: (1) unfair methods of competition; (2) unfair acts or practices; and (3) deceptive acts or practices. The bulk of CUTPA law is directed to the second class - "unfair acts or practices." The law on unfair acts or practices is also known simply as "unfairness" and is what spawned the Cigarette Rule. Heeding the legislature's direction in section 42-110b(b), all of the Connecticut Supreme Court foundational CUTPA case law grounds its CUTPA interpretation in what the Court believed to have been the federal interpretation of the FTC Act at the time.(fn9)
When adopting the FTC's 1964 Cigarette Rule in 1983,(fn10) the Connecticut Supreme Court purported to be adopting then current federal interpretation of the FTC Act. However, the rule was obsolete as a matter of FTC law at the time. Prior to 1983, the FTC had jettisoned the "immoral, unethical, oppressive or unscrupulous conduct" prong of the rule,(fn11) and it diminished the role of public policy considerations in making an unfairness determination.(fn12)
As of the end of 1980, the cornerstone of modern FTC unfairness policy had been announced in the form of the 1980 FTC Unfairness Statement.(fn13) Although Connecticut case law acknowledges the existence of the 1980 FTC Unfairness Statement, the acknowledgment appears to be only of a principle referred to herein as the "Unjustified Injury Test."(fn14)
Furthermore, Connecticut law presumes that this principle is only a sub-test for one prong of the Cigarette Rule % rather than the primary focus of the 1980 FTC Unfairness Policy.
Connecticut case law does not recognize that both the Cigarette Rule and the Violation of Less Than All Three Principle were gutted by the 1980 FTC Unfairness Statement. And it does not appreciate that the Unjustified Injury Test is not a subservient test for a portion of the obsolete Cigarette Rule, but is the primary focus of a new FTC unfairness policy. As a result of Connecticut's apparent failure to realize the full breadth of the 1980 FTC Unfairness Policy, Connecticut case law embraces what it purports to be four valid federal unfairness principles: the Cigarette Rule;(fn15) the Violation of Less Than All Three Principle;(fn16) the Non-Consumer Injury Principle;(fn17) and the Unjustified Injury Test.(fn18) In the opinion of this author, Connecticut law does not explain these principles in a cohesive fashion, and they did not represent FTC and federal court interpretation of the FTC Act at the time they were adopted by Connecticut.
In reviewing CUTPA unfairness law, this article sets out what are believed to be the four main unfairness principles or tests articulated by the Connecticut Supreme Court. It then explains modern FTC unfairness policy and the basis or lack of basis for the principles adopted by Connecticut. Lastly, the article sets out what the CUTPA unfairness test should be if the Court is to be true to its stated intent of following true federal interpretation of the FTC Act.
Many recent CUTPA decisions recapitulate four main principles or tests involved in making an unfairness determination. (fn19) They are:
A. The three-pronged Cigarette Rule.
"The Commission has described the factors it considers in determining whether a practice that is neither in violation of the antitrust laws nor deceptive is nonetheless unfair: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise - whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive or unscrupulous; (3) whether it causes substantial injury to consumers, [or competitors or other businesspersons]."(fn20)
B. The Violation of Less Than All Three Principle.
"All three criteria [prongs of the Cigarette Rule] do not need to be satisfied to support a finding of unfairness. A prac-
tice may be unfair because of the degree to which it meets one of the criteria or because to a lesser degree to which it meets all three."(fn21)
C. The Non-Consumer Injury Principle.
A CUTPA violation may be based on an injury to a business that is not incurred by the business in its role as a consumer. (fn22)
D. The Unjustified Injury Test.
To satisfy the "substantial injury criterion [the third prong of the Cigarette Rule]:
(1) the injury must be substantial;
(2) the injury must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and
(3) it must be an injury that consumers [or businesses] themselves could not reasonably have avoided."(fn23) Connecticut courts often describe CUTPA unfairness law and the above principles as "well settled."(fn24) Although the existence of the principles may be well settled, application of them is anything but.(fn25) The first two principles represent the state of FTC unfairness interpretation as of 1978 and were heavily criticized as vague and unpredictable.(fn26) As will be
discussed below, Connecticut's apparent disjointed citation of one or more of the above principles does not appear to appreciate that (1) the Unjustified Injury Test is just a portion of the policy laid out in the 1980 FTC Unfairness Statement, (2) the Violation of Less Than All Three Principle was the FTC's failed 1978 attempt at clarification of the Cigarette Rule, (3) the Non-Consumer Injury Principle was not compelled by General Statutes section 42-110(g) and was not consistent with the federal interpretation of the FTC Act, and (4) the 1980 FTC Unfairness Statement gutted the 1964 Cigarette Rule and the Violation of Less Than All Three Principle.
The apparent failure to appreciate the full breadth of the 1980 FTC Unfairness Statement during the development of CUTPA unfairness law has led to Connecticut's use of principles that were abandoned by FTC under criticism of it and its unfairness principles as overreaching and lacking focus. Connecticut's adoption of these principles has led to a confusing and unpredictable understanding of what conduct will constitute "unfair acts or practices" under CUPTA.
As above, federal unfairness under the FTC Act is important to CUTPA because CONN. GEN. STAT. section 42-110b(b) directs Connecticut courts to be guided by FTC and federal court interpretation of Section 5(a)(1) of the FTC Act when interpreting unfairness under CUTPA.(fn27)
Analysis of federal interpretation of the FTC Act begins with its adoption in 1914.(fn28) Section 5(a)(1) of the Act originally read: "Unfair methods of competition in commerce are hereby declared unlawful." The "unfair or deceptive acts or practices" language was added via the Wheeler-Lea Amendment in 1938.(fn29) Section 5(a)(1) now reads: Unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful.(fn30)
Prior to 1938, the FTC's enforcement authority under Section 5 of the FTC Act was limited to "unfair methods of competition." Although the FTC could enforce against unfair acts or practices affecting consumers before 1938, its enforcement actions required a showing of some injurious effect on business competition.(fn31) The Wheeler-Lea Amendment allowed for the enforcement against unfair acts or deceptive acts or practices that might be injurious to consumers, regardless of whether they are shown to also be injurious to business competition.(fn32) Another aspect of the Wheeler-Lea language is the distinction...
To continue reading
Request your trial