82 CBJ 389. UNRESOLVED ISSUES UNDER THE UNFAIR TRADE PRACTICES ACT.

Author:By David L. Belt (fn**)
 
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Connecticut Bar Journal

Volume 82.

82 CBJ 389.

UNRESOLVED ISSUES UNDER THE UNFAIR TRADE PRACTICES ACT

Connecticut Bar Journal Volume 82, No. 2, Pg. 389 DECEMBER 2008

UNRESOLVED ISSUES UNDER THE UNFAIR TRADE PRACTICES ACT(fn*)By David L. Belt (fn**)The Connecticut Unfair Trade Practices Act ("CUTPA")(fn1) was enacted 36 years ago and has been the subject of more than 5,000 decisions. Assertion of a CUTPA claim has become commonplace in business litigation in Connecticut. It has been said that Connecticut has the "most litigation-by far-concerning unfairness under the state unfair trade practices laws" than any state in the country.(fn2) Despite this large volume of case law, and extensive literature,(fn3) there remain a number of unresolved issues. This article will discuss a number of the major unresolved issues in interpreting and applying CUTPA.

  1. Prohibited Acts Or Practices

    The Connecticut Unfair Trade Practices Act is modeled on the Federal Trade Commission Act,(fn4) although, unlike the latter,(fn5) it provides for private remedies.(fn6) The section of CUTPA stating the conduct prohibited by the act is short and generally worded. Section 42-110b(a) provides: "No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce."(fn7) Section 42-110b(a) provides three independent bases of liability: (1) unfair methods of competition; (2) unfair acts or practices; and (3) deceptive acts or practices. In order to come within the scope of the prohibition, the method, acts or practices must have been "in the conduct of any trade or commerce." "Trade" and "commerce" are defined in CUTPA to mean: "The advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state."(fn8)

    1. Whether Connecticut Should Change its Unfairness Standard

      The overwhelming majority of decisions discussing the statutory prohibitions have involved alleged unfair acts or practices. The language of this prohibition mirrors language added to the FTC Act by the Wheeler-Lea Act,(fn9) which amended Section 5(a)(1) of the FTC Act in 1938 to add "unfair or deceptive acts or practices" to the conduct prohibited. Neither the FTC Act nor CUTPA further defines what acts or practices should be considered "unfair" under the respective acts. It was not until 1983 that the Connecticut Supreme Court considered the standard applicable to determining whether an act or practice is "unfair." In Ivey, Barnum and O'Mara v. Indian Harbor Properties, Inc., (fn10)and Conaway v. Prestia,(fn11) the court adopted the Cigarette Rule standard. The Cigarette Rule standard was first articulated by the FTC in 1964 in connection with its rule governing the advertising and labeling of cigarettes(fn12) and later quoted by the Supreme Court in FTC v. Sperry and Hutchinson Co.(fn13)

      The standard for determining unfairness currently applied by the Connecticut Supreme Court has three elements: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, competitors or other business persons.(fn14)

      The Connecticut Supreme Court, citing a 1978 statement by the Federal Trade Commission,(fn15) has held that "[a]ll three [of the Cigarette Rule] criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the extent to which it meets one of the criteria or because to a lesser extent it meets all three."(fn16) There are cases in which a finding of a CUTPA violation has been affirmed based on establishing a single criterion.(fn17) The Connecticut Supreme Court has held that when a CUTPA claim is based on negligent conduct, the third criterion as well as the first must be established.(fn18) In Callandro v. Allstate Ins. Co.,(fn19) the Appellate Court held that "[i]t is within the trier's province to weigh the CUTPA factors as it sees fit. The law prescribes no precise formula by which the court should balance the criteria."(fn20) The Appellate Court has also rejected an argument that, if a CUTPA claimant relies on only one criterion, it must establish the degree to which the defendant's conduct is unfair.(fn21)

      Although the Cigarette Rule standard is firmly established in Connecticut Supreme Court holdings, in several 2005 decisions, the court recognized that the Federal Trade Commission no longer applies that standard to determine whether an act or practice is "unfair" in violation of the FTC Act. As the court noted in Glazer v. Dress Barn, Inc. :(fn22) Although we consistently have followed the cigarette rule in CUTPA cases, we also note that, when interpreting "unfairness" under CUTPA, our decisions are to be guided by the interpretations of the Federal Trade Act by the Federal Trade Commission and the federal courts. See General Statutes § 42-110b(c). Review of those authorities indicates that a serious question exists as to whether the cigarette rule remains the guiding rule utilized under federal law. See American Financial Services Assn. v. Federal Trade Commission, 767 F.2d 957, 969-70 (D. C. Cir. 1985), cert. denied, 475 U.S. 1011, 106 S. Ct. 1185, 89 L. Ed. 2d 301 (1986); see also P. Sobel, "Unfair Acts or Practices Under CUTPA," 77 Conn. B.J. 105 (2003). Because, in the present case, neither party has raised or briefed this issue, and both have briefed the issue applying the cigarette rule, we decline to address the issue of the viability of the cigarette rule until it squarely has been presented to us. See American Car Rental v. Commission of Consumer Protection, 273 Conn. 296, 305 n. 6, 869 A.2d 1198 (2005).(fn23)

      However, in subsequent decisions, the Connecticut Supreme Court has continued to refer to the Cigarette Rule standard as "well settled."(fn24)

      In its 1980 Unfairness Policy Statement, the FTC declared unjustified consumer injury to "the primary focus of the FTC Act and the most important of the^ [Cigarette Rule] criteria."(fn25) It further stated that it had never relied on the "immoral, unethical, oppressive or unscrupulous" criterion as an independent basis for finding unfairness and would act in the future only on the basis of the other two criteria.(fn26) Finally, with respect to the public policy criterion, the Commission stated that a public policy would have to be "clear and well-established" before the Commission relied heavily upon it in finding that an act or practice was unfair.(fn27) In 1994, Congress limited the Commission's unfairness jurisdiction by enacting 15 U.S.C. Section 45(n).(fn28) This statute did not amend the definition of "unfair" in Section 45(a)(1), but, rather, denied the Commission the authority to declare an act or practice unlawful on grounds that it is unfair "unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by counterveiling benefits to consumers or to competition."(fn29)

      Whether Connecticut should abandon the Cigarette Rule standard and adopt the rule set forth in the FTC's Unfair Policy Statement or that of 15 U.S.C. Section 45(n) is discussed in recent literature.(fn30) The potential consequences of changing the standard for determining unfairness under CUTPA are enormous. It would cast doubt on the authority of the numerous decisions applying the Cigarette Rule criteria in CUTPA cases over the last quarter of a century. It would strip the unfairness standard of any substantive conduct, thereby making it difficult for parties, courts and juries to determine what conduct violates the act. It may require balancing all relevant costs and benefits of a practice in every case. Finally, it would seem to require the plaintiff or the state to prove in every case that the plaintiffs or consumers could not reasonably have avoided injury.(fn31) Connecticut is not alone in continuing to apply the Cigarette Rule to determine whether an act or practice is unfair under a state analogue to the FTC Act. Fourteen of the 28 states that prohibit unfair acts or practices continue to apply the Cigarette Rule standard while only four states have, by decision or statute, adopted the standard set forth in the FTC's Unfairness Policy Statement or 15 U.S.C. § 45(n).(fn32)

      1. Violations of Public Policy or Other Established Concept of Unfairness

        The Connecticut legislature has enacted over 70 statutes with provisions expressly stating that a violation of the statute will also constitute a violation of CUTPA.(fn33) In such circumstances, it is unnecessary to apply the Cigarette Rule standard. A violation of the other statute is dispositive of whether the conduct also violates CUTPA.(fn34) However, violation of a statute not containing such a provision is not necessarily a violation of CUTPA.(fn35) In Cheshire Mortgage Service, Inc. v. Montes,(fn36) the Connecticut Supreme Court held that "[t]he first criterion of the . . . [Cigarette Rule] requires us to consider...

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