Fair Is Fair-reshaping Alaska's Unfair Trade Practices and Consumer Protection Act

• Publication year: 2011

§ 28 Alaska L. Rev. 295. FAIR IS FAIR-RESHAPING ALASKA'S UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION ACT

Alaska Law Review
Volume 28, No. 2, December 2011
Cited: 28 Alaska L. Rev. 295

FAIR IS FAIR-RESHAPING ALASKA'S UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION ACT

Ryan P. O'Quinn and Thomas Wattersont ^{[*] [**]}

Abstract

Few fields of law impact as wide a swath of population as consumer protection law. Alaska adopted its consumer protection statute, the Unfair Trade Practices and Consumer Protection Act (UTPCPA), amid a national movement to strengthen consumer protection laws. The UTPCPA uses broad language to encompass a wide range of conduct. However, creative pleading and recent applications of the UTPCPA have expanded the law in ways that threaten Alaska businesses even in the absence of culpable conduct. This Note reviews the history of consumer protection, Alaska's UTPCPA, and the incentives leading to an expanding application of the UTPCPA. The Note concludes by proposing potential legislative solutions to rein in abuse of the Act.

Introduction

Few fields of law impact as wide a swath of population as consumer protection law. After all, modern societies and economies demand that virtually all citizens fulfill their wants and needs in the market. State consumer protection acts became popular in the 1960s and 1970s after the Federal Trade Commission (FTC) proved unable to prevent or punish fraudulent or deceptive practices through national actions. Modeled after and encouraged by the FTC, these acts are often referred to as "Little FTC Acts." Alaska's Unfair Trade Practices and Consumer Protection Act ^[1] (UTPCPA) has noble goals-to shield Alaskans from unfair and deceptive merchants and to promote the flow of trade. Like similar "Little FTC Acts" across the country, the UTPCPA is broadly worded to encompass a wide range of conduct and to evolve with the times. Broad language, however, can also result in inconsistent application of the law. This Note makes the case that decisions by Alaska courts over the past decade have distorted the meaning of the statute and have applied it in ways that harm small businesses and put Alaskan consumers at risk. In Part 1, this Note begins by examining the history of consumer protection law from common law fraud to the FTC to the rise of "Little FTC Acts." Part 11 introduces the features of the Alaska UTPCPA and compares it to other similar state statutes. Part 111 explores where things went wrong with the application of the UTPCPA, and finally, Part IV suggests how changing the Act could better serve the interests of both citizens and businesses.

I. The History of Consumer Protection

Prior to modern state consumer protection laws, consumers could bring actions at common law for fraud or misrepresentation against sellers of goods or services. The Writ of Deceit was one of the earliest actions at common law, dating back to 1201. ^[2] With such a long history, fraud and misrepresentation developed a clear jurisprudence. Early in this country's development, the test for fraud or misrepresentation was described as:

If a man represents as true that which he knows to be false, and makes the representation in such a way or under such circumstances as to induce a reasonable man to believe that it is true, and is meant to be acted on, and the person to whom the representation has been made, believing it to be true, acts upon the faith of it, and by so acting sustains damage, there is fraud to support an action of deceit at law, and to be a ground for the rescission of the transaction in equity. ^[3]

In Alaska today, the test for intentional misrepresentation remains the same. "Alaska law imposes an independent duty to refrain from the tort of intentional misrepresentation. The essential elements of that tort are: (1) a false representation of fact, (2) knowledge of the falsity of the representation, (3) intention to induce reliance, (4) justifiable reliance, and (5) damages." ^[4]

An important element of the common law tort of fraud or intentional misrepresentation is the requirement of scienter. A plaintiff bringing an action for fraud or intentional misrepresentation must demonstrate "proof that the maker knew of the untrue character of his or her representation." ^[5] Further, a plaintiff must show that the defendant made a false representation, knew of the falsehood, and intended to misrepresent the information. ^[6] Often these requirements create a significant hurdle to plaintiffs and limit consumers' protection from fraud and misrepresentation. ^[7]

Up until the early twentieth century, the predominant form of protection that the government provided to consumers was two Latin words of warning: caveat emptor. ^[8] Caveat emptor left the consumer to his own judgment to determine the quality of a good or the accuracy of merchants' sales pitches, and it assumed the consumer could bargain with merchants and choose which merchants to patronize on the basis of their reputations. ^[9] This reliance on individualism and reputation for consumer protection worked in an economy where consumers did most of their dealing face to face with small merchants. But, as industrialization expanded the capabilities to produce and market goods to a large number of people, consumers began calling for an end to the doctrine of caveat emptor. ^[10] While consumer movements began to erode the influence of caveat emptor through the beginning of the twentieth century, it was not until the 1930s and the strengthening of the FTC that the law departed from the doctrine of caveat emptor in any significant fashion. ^[11]

A. Nascent Consumer Protection: The Development of the Federal Trade Commission

In 1914, Congress passed the Federal Trade Commission Act (FTC Act), ^[12] which was the first major step in consumer protection and unfair competition law. At its roots, however, the FTC was designed to prevent unethical business practices from harming the flow of commerce, not to protect consumers. ^[13] It was essentially an extension and evolution of antitrust law. ^[14] An early aim of the FTC was to "discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop." ^[15] Moreover, courts interpreted the FTC's initial powers as covering only anticompetitive practices between businesses, not as providing consumer protection. ^[16] In FTC v. Raladam Co., the Supreme Court emphasized that the power of the FTC under section 5 of the FTC Act ^[17] depended on the prerequisites "(1) that the methods complained of are unfair, [and] (2) that they are methods of competition in commerce." ^[18] Thus, the original FTC Act covered only "unfair method[s] of competition" that injured the business of a competitor, not deceptive or unfair practices that hurt only the consuming public. ^[19] When all or most members of an industry used a deceptive practice that harmed consumers, the courts were unable to provide a remedy, as the practices were not unfair in the sense that they harmed competition. ^[20]

Only in 1938 did the FTC begin to resemble the consumer watchdog it is today. In passing the Wheeler-Lea Act, ^[21] Congress gave the FTC broad powers to regulate business practices that were unfair to the individual citizen-consumer. ^[22] The FTC finally had the power to protect consumers with the declaration that "[u]nfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are . . . unlawful." ^[23] Further, Congress gave the FTC broad discretion regarding when, where, and how the Commission would act. ^[24] Congress trusted the Commission to bring actions only when they were justified and in the interest of the public at large. ^[25]

Given the choice to specifically proscribe defined instances of unfair or deceptive conduct, Congress declined because "it would undertake an endless task" if it tried to provide an exhaustive list of illegal actions. ^[26] Also, Congress decided not to provide specific definitions for "unfair" and "deceptive," choosing instead to allow its decisions and regulations to shape the meanings of the terms as times and practices changed. ^[27] Such indeterminateness allowed for flexibility to evolve according to community standards and market changes. ^[28] Congress has still not explicitly defined what constitutes a "deceptive" act or practice, and it did not do so with "unfair" acts or practices until the 1994 amendments narrowing the FTC Act. ^[29]

Congress specifically chose not to grant individual private rights of action under the FTC Act. In fact, a proposal to allow a private right of action failed during the FTC Act negotiations; the opponents voiced concerns about abusive litigation by some plaintiffs' attorneys. ^[30] Consumers were left with rights of action based in common law fraud or breach of contract. ^[31] As a result, consumers generally found that it was "less expensive to suffer most deceptive trade practices than to remedy them through legal action." ^[32]

B. Development of State Law "Little FTC Acts"

The inadequacies of the FTC came to a head in the late 1960s when two independent incendiary reports were released chastising the FTC for its inefficiency and failure to benefit consumers. ^[33] First, Ralph Nader led a group of law students-later termed Nader's Raiders-who reviewed FTC documents and decisions. ^[34] The Nader Report portrayed an ineffective and...