In recent years, there have been hundreds of often consumer class actions leveled against both food producers and sellers nationwide. One particularly telling example of such litigation was the food-labeling lawsuit brought against Greek yogurt-maker Chobani in California – the generally plaintiff-friendly home to a lot of these lawsuits.
The Chobani plaintiffs alleged they were unlawfully misled by product labeling that proclaimed the yogurt to be “all natural,” even though it contained dehydrated or concentrated fruit and vegetable juices. To her credit, federal District Judge Lucy K. Koh last year dismissed this nonsense lawsuit with prejudice, finding that the plaintiffs provided “no basis whatsoever to support their allegation that fruit and vegetable juice is somehow unnatural, nor explain with any specificity what they contend is ‘unnatural’ about these particular ingredients.”
Even though Chobani seems to have prevailed this time (the plaintiffs are appealing), defending against these types of speculative, no-injury lawsuits is always costly – and those costs are always passed along in the form of higher retail prices. So, ironically enough, the rampant abuse of state consumer protection acts (CPAs) actually hurts consumers, and that’s why some state policymakers are beginning to consider reforms.
Most state CPAs trace their origins to the 1960s and 1970s. But since the 1980s, says a 2014 white paper by Emory University law professor Joanna Shepherd, many of them have undergone a steady “devolution” – from laws enforced primarily by state attorneys general seeking injunctive relief in the public interest to laws that now allow and thus encourage private litigation in pursuit of significant awards for damages and attorney’s fees.
Shepherd’s paper, “Consumer Protection Acts or Consumer Litigation Acts?” begins with the origins of the Federal Trade Commission (FTC) Act a century ago when “Congress first sought to define and deter” a “new class of consumer harms” that arose as “the merchant-consumer relationship” evolved rapidly, along with new products, services, retail models, and credit-based payment systems.
Congress recognized the potential for litigious mischief and purposely limited enforcement of the law to its newly created FTC, prohibiting private lawsuits else “a certain class of lawyers ... will arise to ply the vocation of hunting up and working of such suits,” warned Sen. William J. Stone (D-Mo.) prior to the act’s 1914 passage. This prohibition recognized that consumers could be harmed not only by unfair and deceptive trade practices, but by over-prosecution of marginal or specious claims.
Eventually all 50 states and the District of Columbia adopted their own CPAs modeled largely on the FTC Act, including prohibitions against private lawsuits as a means of enforcement. State attorneys general were authorized to provide enforcement.
By the 1980s, however, just as the FTC’s economics-based analyses of unfairness and deception led to substantial and sensible limits on federal enforcement actions, many state CPAs had begun an expansion, through legislative amendments and judicial interpretations, far beyond their original scope. Private rights of action were embraced. Plaintiffs no longer had to demonstrate an injury, reliance on a merchant’s allegedly deceptive representations or even reasonable behavior in order to prevail in lawsuits.
Whereas CPAs once appropriately limited themselves to regulating real consumers’ direct relationships with merchants, too many today enable frivolous lawsuits by “consumers” with no relationship to a merchant that they allege injured them. (“If I bought yogurt I thought was ‘all natural’ but it wasn’t, I would have ‘overpaid’ for it.”)
When the American Tort Reform Assn. (ATRA) kicked off a multistate, consumer protection reform campaign in Washington last year, FTC Commissioner Joshua Wright reported an analysis of state consumer protection claims that found 78 percent to be “meritless” relative to FTC precedent. He added that the FTC does rigorous cost-benefit analyses of consumer protections and is most willing to share those analyses with state authorities interested in pursuing appropriate reforms.
Where state laws are written so broadly as to invite meritless lawsuits, driven largely by self-interested plaintiffs’ lawyers rather than the genuine interests of consumers, state legislators can and should act. Proper CPAs, similar to the original FTC Act, can lead to a more enlightened and mutually beneficial balance between consumers and merchants. Effective reforms will assure that the law works primarily for consumers instead of “a certain class of lawyers.”