Unfair and Deceptive Acts and Practices: 4.2.12.3.2 Small minority requires reliance
Proof of reliance is required in a small minority of jurisdictions.
Proof of reliance is required in a small minority of jurisdictions.
There is a particularly strong argument that reliance need not be proven where the seller’s deceptive act involves failure to disclose rather than an affirmative misrepresentation.229 For example, in one case an insurer sold life insurance to consumers without disclosing that illustrated dividends not only “may” but “probably will” decrease.
Even where reliance is required for a claim of deception, courts may conclude that it is not required for other prohibitions in the UDAP statute.
Even the courts that require reliance generally do not require a showing that the consumer’s reliance was reasonable or justifiable.
Where reliance is required, it need not be direct, first-party reliance.246 For example, a foreclosure rescue scam victim was able to proceed with a UDAP claim based on a false HUD-1 settlement statement that the rescuer used to obtain mortgage loans that stripped the equity out of the home.
Defendants may attempt to exploit a requirement of reliance by demanding that a consumer who was exposed to multiple deceptive representations identify particular misrepresentations and show specific, individualized reliance on each one. The California Supreme Court has rejected such a requirement as “unrealistic.”255
Even though proof of reliance is not required, courts may require a showing that a misrepresentation or omission is material.256 In Minnesota, materiality—whether the information was of a kind on which consumers would typically rely—is one of the factors in determining whether a causal nexus exists.257
In addition to injury requirements imposed by the UDAP statute, which are discussed in the subsections that follow, suits filed in federal court must meet Article III standing requirements. The Supreme Court has interpreted Article III’s “case or controversy” requirement to give federal courts jurisdiction over a case only if the plaintiff has:
A UDAP claim must meet any requirements that a specific state’s UDAP statute imposes as to ascertainable loss, damage, or injury, as discussed at § 11.4.2, supra. In addition, the lawsuit must meet standing requirements applicable to the court where an action is brought—federal court or the state court of a particular state.
This appendix links to a state-by-state analysis of state court standing requirements found in the digital version of NCLC’s Consumer Class Actions
Issues have been raised as to the application of the FTC Holder Rule where the Truth in Lending Act, the Equal Credit Opportunity Act, and the Magnuson-Moss Warranty Act limit an assignee’s liability for claims under those statutes.
One of Delaware’s two UDAP statutes, the Deceptive Trade Practices Act,44 explicitly provides a private injunctive remedy and treble damages, but the Delaware Supreme Court has held that these remedies are not available to retail consumers, but only to plaintiffs who have a business or trade interest at stake.45 However, it appears that older or disabled consumers may have a private cause of action for violation of this statute.46
In 1999, the Hawaii Supreme Court interpreted its UDAP statute as allowing a private cause of action for consumer claims of unfair and deceptive practices, but not for anti-competitive conduct.50 A 2002 legislative amendment overruled this decision, allowing consumers to bring UDAP claims for violation of both prohibitions.51 A consumer can base a UDAP claim on violation of another statute even if enforcement of that statute is committed to a state official.52
One of California’s UDAP statutes, the Unfair Competition Law,58 does not authorize damages,59 but allows restitution.60 Decisions interpreting the scope of restitution under this statute are discussed in § 12.3.2.4.3, infra.
In 2009, Iowa added a private cause of action to its UDAP statute by adding a new chapter 714H, the Private Right of Action for Consumer Frauds Act.68 The new chapter incorporates some but not all of the existing UDAP prohibitions, substituting a different version of the broad, general prohibition of deception.69 It also excludes a host of actors:
The substantive violations for which Iowa added an explicit private cause of action in 2009 are somewhat narrower than those in the general UDAP statute, and the private cause of action is not available against certain major entities, including banks, many other lenders, insurance companies, and many licensed professionals.83 For claims that fall in these gaps, it is important to analyze whether a private cause of action can be implied or found in other statutes.
Nine states have two UDAP statutes, one with a private damage remedy, and a second one patterned after the Uniform Deceptive Trade Practices Act (UDTPA).94 There is an issue as to whether consumers, or only business competitors, can bring actions under the nine UDAP statutes patterned after the UDTPA.
Statutes modeled after the UDTPA typically do not provide a private damage remedy, but only injunctive relief and attorney fees.97 Some may also allow rescission.98 Nevertheless, they are sometimes useful in that their scope may be broader than the state’s other UDAP statute, or their remedy of attorney fees (typically, attorney fees “may” be awarded in exceptional cases) and injunctive relief may be attractive.
UDAP statutes should be liberally construed to authorize the broadest damage remedy possible.100 Because of UDAP statutes’ remedial purpose, common law principles limiting damages between merchants are often inappropriate.101 Just as courts fashioned different rules of damages for different types of contract, equity and tort actions, they should fashion new remedial rules of damages under UDAP statutes allowing recovery of “actual” damages or “restitution.” UDAP awards should not be limited to c
Normally, loss-of-bargain damages are more than out-of-pocket damages. For example, consider a seller’s claim that a product priced at $100 is really worth $200. If the product is actually worth $50, loss-of-bargain damages are $150 and out-of-pocket damages are $50. Since loss of the bargain is the standard measure of damages for contracts, it would be anomalous to use a lesser standard for an award under a consumer protection statute.120
Often, the consumer’s best option is to receive damages based on the cost to repair the purchased item.134 Such cost-to-repair damages are measured as the cost of making the repairs, not just the diminished value of the property left in an unrepaired state.135 Damages are the amount necessary to repair property to meet the seller’s representations.136 For example, damages for failure to complete a contract are the cost of properly fulfilling the co