Unfair and Deceptive Acts and Practices: 13.6.1.1 Introduction
In all fifty states, the UDAP statute allows government enforcement officials to seek a cease and desist order or injunction to prevent merchants from engaging in deceptive practices.
In all fifty states, the UDAP statute allows government enforcement officials to seek a cease and desist order or injunction to prevent merchants from engaging in deceptive practices.
By the time the state brings a court action against a merchant, the seller often has discontinued the challenged practice. The seller may then oppose injunctive relief by arguing that no injunction is necessary because the unlawful practice has already stopped.
State enforcement officials should always consider seeking a preliminary injunction against a challenged practice as soon as possible, in order to prevent its recurrence.383 The preliminary injunction also has tactical merit. Without a preliminary injunction, the defendant may attempt to prolong the litigation as long as possible, and will be in no rush to settle the case. Once the deceptive scheme is preliminarily enjoined, the burden shifts.
The state does not need to show irreparable injury or that there is no adequate remedy at law before seeking an injunction under a UDAP statute.391 Since the statute sets forth the conditions for issuance of an injunction, the state need only satisfy those conditions, and the usual grounds for injunctive relief need not be established.392 A number of UDAP statutes state explicitly that the action can proceed even if there are other adequate remedies of law.
Courts must determine how broad an injunctive order to approve. While there is little argument that the court can enjoin the specific unfair or deceptive conduct engaged in by the seller, state enforcement officials, like the FTC, will usually request a broader order to “fence in” the seller. Otherwise the merchant could continue its improper conduct by making only slight modifications in its misleading scheme that would result in the conduct falling outside the scope of the injunction.
Supreme Court First Amendment cases hold that a certain degree of First Amendment protection is given even to commercial activities.407 Nonetheless, a remedy that is reasonably necessary to prevent future violations does not impinge upon constitutionally protected free speech.408 In particular, an order requiring that all advertising claims be substantiated does not impinge on First Amendment guarantees.409 A more detailed analysis of First Amendme
Where the seller’s conduct is egregious and its whole manner of business is deceptive, courts have revoked the seller’s license and enjoined the company from doing business in the state.410 Such an order does not violate the defendant’s constitutional rights.411 The United States Supreme Court has ruled that “even a legitimate occupation may be restricted or prohibited in the public interest,”412 and that if a claim cannot be presented in a particu
In a few states, the UDAP statute itself places limits on the injunctive remedy.
State enforcement officials are not limited to requesting orders prohibiting specified practices. Injunctive orders can be innovative, and require affirmative actions that will prevent future deception. An injunctive order that requires a dealer to comply with specific requirements does not amount to illegal rulemaking by the court.424 A court may apply the general standards of a UDAP statute to a specific factual situation by imposing specific requirements on the dealer.425
The traditional wisdom is for state enforcement officials to name as defendants the corporation, individual officers and owners, and any other party involved in the deception. Naming individuals prevents them from avoiding the reach of the injunction by setting up a new corporation. Nevertheless, joining too many parties complicates the litigation, brings in additional attorneys for the defense, and may result in a more vigorous defense with less chance of a consent agreement.
The state may seek an injunction against a party even after that party has filed bankruptcy and the automatic stay is in effect. The U.S. Bankruptcy Code452 states that the automatic stay does not apply to proceedings by a governmental unit to enforce its police or regulatory power.
An agreement between the parties that is not adopted by the court as a consent decree is governed by contract principles, and modification of the agreement will be governed by contract standards.458 Once an agreement is adopted by a court as a consent decree, however, courts hold that it becomes a judgment of the court and can be modified like any other order.459 Modification can be based on a finding of changed circumstances or the defendant’s violation of the original order.
As a general rule, consent agreements are public actions, and the public should have full access to such information. Nevertheless, in special cases, a trial court may have authority to suppress a consent agreement from public disclosure until the defendant violates that order, if such arrangement is part of the agreement.461
Unless a UDAP statute provides otherwise, the state cannot seek civil penalties where a seller violates an assurance of voluntary compliance, even if the court approves the assurance.477 Nonetheless, where a violation of an assurance of voluntary compliance constitutes a separate violation of a UDAP statute, then separate penalties may be sought.
Even when an individual is not named in an injunction, that individual may have to comply with the order.
Where a UDAP statute establishes a specific dollar penalty for violations of cease and desist orders, an important issue is whether the penalty should be assessed for each separate violation, and, if so, what is a separate violation.488 Courts have assessed $5000 penalties for each sales meeting in violation of an order,489 $200 for each of 600 different violations,490 $1000 for each of 500 violations,491
Courts have rejected challenges that multiple civil penalties violate the Eighth Amendment’s excessive fines prohibition.518 In BMW v. Gore,519 the Supreme Court held that punitive damages could be so excessive as to violate due process standards, and it set out a series of factors for courts to consider when evaluating the constitutionality of punitive damages. A California decision holds that BMW v.
A civil penalty is unlikely to be considered punishment that implicates double jeopardy concerns under the standards announced by the United States Supreme Court in Hudson v.
In order to obtain a civil penalty, the state need not show that the defendant acted in bad faith524 or, unless the statute so specifies,525 engaged in intentional wrongdoing.526 Where a statute requires “willful violations,” civil penalties may be awarded where the seller knew or should have known that its actions were a UDAP violation (due diligence could have ascertained that the actions were illegal).527
The state is not limited to seeking only one penalty in each lawsuit.547 There are many examples of appellate courts upholding multiple civil penalty awards, including:
Since civil penalties serve the purposes of punishing the wrongdoer and deterring the wrongdoer from similar acts, a UDAP defendant does not have the right to seek indemnification for civil penalties from other participants.596 Responsibility for payment of civil penalties cannot be shifted to the defendant’s insurer, because insurance coverage of civil penalties is against public policy.597