The unexplored territory of unfairness in Florida's Deceptive and Unfair Trade Practices Act.

• Author: Federbush, David J.

In 1973 Florida's Deceptive and Unfair Trade Practices Act (FDUTPA) (F.S. [sections] 501.201 et seq.) was enacted to give consumers stronger legal protection against commercial wrongdoing.[1] It is patterned after the Federal Trade Commission Act (FTC act) (15 U.S.C. [subsections] 45 et seq.), which provides a right of action only to the FTC.[2] Like its federal counterpart, Florida's "little FTC act" prohibited unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.[3] FDUTPA further provided that in construing those provisions, due consideration and great weight shall be given to the interpretations of the FTC and the federal courts relating to the FTC act.[4] It enables consumers to recover actual damages, permits recovery of reasonable attorneys' fees and costs by the prevailing party, and also provides for declaratory judgments and injunctive relief.[5] It gives many additional equitable remedies to state enforcement authorities, who may bring suit "on behalf of one or more consumers."[6]

FTC administrative and federal appellate decisions have for some time confirmed that a practice may be "unfair" without being "deceptive."[7] The clarifying and strengthening amendments[8] to FDUTPA made by the legislature in 1993 tied it even more closely to such FTC precedents and rules. However, practices held by Florida courts to be "unfair or deceptive" (or "unfair and deceptive"), and complaint allegations held to state causes of action for such violations, have generally sounded in deception or at least involved a major deceptive component.[9] In only a few cases have courts found FDUTPA violations, or sustained FDUTPA causes of action, based on nondeceptive practices.[10] Even then, the courts have not explained in a comprehensive way how or why such practices are unfair.

Unfairness has thus been an available yet neglected and misunderstood basis for state, individual, and commercial litigation under FDUTPA. This article will explore the elements of proof and remarkably broad scope of the seemingly amorphous "unfair acts or practices" proscription. It also will set out relevant authority to be consulted in evaluating and dealing with unfairness claims. FDUTPA's current prohibitions on unconscionable, as well as deceptive, acts or practices will be treated in subsequent articles.

FDUTPA Violations

Until 1993, a FDUTPA violation had been a violation of any provision of the act or any rule promulgated by the Department of Legal Affairs (DLA) pursuant to its authority to specify unfair or deceptive acts or practices thereunder.[11] The 1993 amendments expanded the definition to make it current with developing FTC jurisprudence,[12] so as to provide that a violation may be based on of any of the following:[13]

1) Any rules promulgated pursuant to the FTC act or FDUTPA;

2) The standards of unfairness or deception set forth and interpreted by the FTC or the federal courts; or

3) Any law, statute, rule, regulation, or ordinance which proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices.

This expansion was highly significant and timely. Since 1973 the FTC has set forth coherent standards of both unfairness and deception, and promulgated numerous rules proscribing unfair practices on an industry-wide basis. Those FTC rules have effectively become Florida law.

The 1993 amendments marked a substantial change in approach to defining FDUTPA's substantive scope. Originally, the legislature and courts apparently contemplated that the DLA would specifically identify most unfair or deceptive business practices through administrative rulemaking.[14] The amendments' incorporation of the FTC's standards and rules, however, combined with the DLA's subsequent repeal of most of the rules it had previously promulgated under FDUTPA,[15] have made such FTC precedent the preeminent determinant of what constitutes "unfair or deceptive acts or practices."

In 1996,1997, and 1998 FDUTPA was amended further to make minor language and other modifications not germane to this article.[16] The definition of violation was not changed.

FTC Background

Before proceeding further, a brief explanation of the sources of FTC precedent may be useful. FTC adjudicative actions, instituted by a majority vote of the five-member Commission on a standard based upon a "reason to believe" that a violation has been committed and public interest considerations, initially are decided by an administrative law judge. Those decisions can be appealed to the Commission, whose decisions are published in F.T.C. Reports. Decisions of the Commission may be appealed by any respondent to a U.S. circuit court of appeals. The FTC also may bring certain actions for injunctive and other equitable relief in U.S. district court. The FTC since 1975 has had the authority to promulgate trade regulation rules (TRRs) of industry-wide application prohibiting specified unfair or deceptive acts or practices. The procedures for such rulemaking include the right to present and cross-examine witnesses. The validity of a TRR may be appealed to any U.S. circuit court of appeals, within 60 days of issuance, on the grounds that it is not supported by substantial evidence in the rulemaking record as a whole, or that it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. The FTC enforces those TRRs in federal district court. The FTC also issues policy statements, guidelines, and other public pronouncements, and promulgates additional rules as authorized by other federal laws.[17]

FTC's 1980 Unfairness Policy Statement and 1994 FTC Act Amendment

In examining the three statutory bases for unfair acts or practices, for ease of discussion the second will be treated first. On December 17, 1980, the FTC issued a new policy statement on the scope of its unfairness jurisdiction in the form of a letter to the chair and minority leader of the Senate Committee on Commerce, Science, and Transportation,[18] which has oversight responsibility for the FTC. The statement "under[took] a review of the decided cases and rules and ... synthesized from them the most important principles of general applicability.... "It noted that, as the Supreme Court had observed as early as 1931, the meaning and application of unfairness is arrived at by "the gradual process of judicial inclusion and exclusion," and is "the result of an evolutionary process." The statement recounted that in 1964, in the context of a rulemaking proceeding concerning advertising and labeling of cigarettes and smoking health hazards, the FTC had set forth three criteria to be evaluated: 1) whether the practice offends established public policy; 2) whether the practice is immoral, unethical, oppressive, or unscrupulous; and 3) whether the practice causes substantial injury to consumers (or competitors or other business people).

It is in fact this now obsolete formulation of unfairness, quoted in the Seventh Circuit's 1976 opinion in Spiegel, Inc. v. FTC, 540 F. 2d 287,293 n.8 (7th Cir. 1976), which is the one cited most often by the Florida courts.[19] Spiegel held that an Illinois catalogue mail order firm's practice of bringing collection suits under the state long-arm statute for small amounts, which were economically impractical for the out-of-state purchasers to defend against, was unfair on a due process type of analysis. It is not even clear that Spiegel was ever good precedent under FDUTPA, which has always exempted practices specifically permitted by federal or state law.[20]

The 1980 statement made clear that"[s]ince [1964], the Commission has continued to refine the standard of unfairness in its cases and rules, and it has now reached a more detailed sense of both the definition and the limits of these criteria." The statement explained the revised criteria essentially as follows.

Unjustified consumer injury is the most important, and can warrant a finding of unfairness in itself. Such unjustified injury must satisfy three tests. First, it must be substantial. While trivial or speculative harm is insufficient, injury may be substantial if it does a small harm to a large number of people. Substantial injury in most cases involves monetary harm. Emotional or other subjective impact ordinarily will not suffice, although in extreme cases it might. Second, the consumer injury must not be outweighed by offsetting benefits to consumers or competition that the practice produces. Third, the injury must be one that consumers themselves could not reasonably have avoided.

The statement explained that whether the conduct violates public policy was (now) to be considered primarily as providing additional evidence on the degree of consumer injury caused, but that it still could independently support an FTC action in cases in which the policy is thoroughly clear. The statement cited as examples the Spiegel decision, FTC decisions applying the policies of the U.C.C. to require auto manufacturers and distributors to refund to customers surpluses generated by repossessions and sales, and an FTC decision on advertising for a weight loss program using a drug whose advertisement was prohibited by FDA regulations. The statement also explained that public policy sources which affirmatively allow a practice may be evidence that a practice is not injurious in its net effects. Finally, the statement explained that the immoral, unethical, oppressive, or unscrupulous test had proven duplicative, and that it would no longer be a criterion for FTC action.

In 1994 the 1980 statement's criteria were codified as an amendment to the FTC act,[21] with a modification that public policy considerations may not serve as a primary basis for unfairness determinations. That modification is effective for FDUTPA purposes,[22] since FDUTPA later was amended with no change to the definition of violation. Also, the statement had noted...