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Unfair and Deceptive Acts and Practices: 13.5.6 Challenges to Enforcement Agency’s Pre-Trial Publicity

Attorney general press releases announcing the filing of charges have resisted due process challenges.345 The Ninth Circuit rejected a seller’s claim that negative statements made to the press by an investigator in the attorney general’s office caused it injury to a constitutionally protected liberty or property interest. However, after issuing the decision, the Ninth Circuit granted rehearing, and then the matter was settled and the appellant seller withdrew the appeal.346

Unfair and Deceptive Acts and Practices: 13.5.7 The Respondent’s Counter Suit or Calling Attorney General Staff As Witnesses

One unsuccessful attempt to stop an attorney general enforcement action occurred when the respondent claimed it would call the attorney general’s staff as adverse witnesses (because of certain alleged improprieties). The respondent then argued that the state’s Code of Professional Responsibility required that a law office disqualify itself from a case if any attorneys in the office have to testify against the office’s client.

Unfair and Deceptive Acts and Practices: 13.1 Introduction

Every state gives a state agency—usually the attorney general’s office—the authority to enforce the UDAP statute. State agencies have investigatory powers and remedies that go well beyond those available to private litigants. There are also special issues of standing, scope, limitations, and statutory standards when the state, not a private individual, brings a UDAP action. This chapter analyzes these issues.

Unfair and Deceptive Acts and Practices: 13.2.1 Introduction

For the most part, the same standards as to whether a practice is unfair or deceptive apply whether the state or a private individual brings the UDAP claim. These standards are examined in detail in other chapters of this treatise.7 This section considers the few differences that may exist in these standards depending on whether the state or a private individual brings the UDAP action.8

Unfair and Deceptive Acts and Practices: 13.2.3 Special Deception Standards for State Enforcement

State courts follow FTC precedent and hold that actual deception is unnecessary for a UDAP claim; only that a practice has a capacity or is likely to deceive need be shown.31 Most courts find this standard to apply to both private and state actions.32 But even if a court finds that actual deception is necessary to bring a private action,33 the same court is likely to take a different view for a state action.34

Unfair and Deceptive Acts and Practices: 13.2.4 Special Standards for Unfairness, Unconscionability, Unsubstantiated Claims

UDAP decisions do not find that the standard as to whether a practice is unfair or unconscionable differs between private actions and state actions. Consequently, state enforcement agencies are directed to the standards detailed in the appropriate sections of this treatise.42 Nonetheless, a state attorney general’s office may succeed in pursuing a novel unfairness approach that a court would reject if brought by a private litigant.

Unfair and Deceptive Acts and Practices: 13.2.6.1 Overview

State attorneys general have additional UDAP-type enforcement authority because of the Dodd-Frank Wall Street Reform and Consumer Protection Act (hereinafter the Dodd-Frank Act).55 The Act, effective on July 21, 2011,56 creates the Consumer Financial Protection Bureau (CFPB).

Unfair and Deceptive Acts and Practices: 13.5.8 The Respondent’s Claim of a Right to Court-Appointed Counsel

Respondents occasionally claim to have a constitutional right to a court-appointed attorney in a civil UDAP enforcement action brought by the state. But even in a case where an individual was ordered to pay over $4 million in civil UDAP and RICO penalties, courts have found no such right.363 There may be a right to counsel, however, when the state seeks imprisonment of a defendant in a contempt proceeding for violation of an injunction.364

Unfair and Deceptive Acts and Practices: 13.5.9 Special Counsel

Sometimes it is advantageous for the attorney general to arrange for special counsel or special assistant attorneys general to prosecute a civil UDAP case, either because of the need for specialized expertise or because of a lack of staff and other resources.

Unfair and Deceptive Acts and Practices: 13.6.1.2 Mootness

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.

Unfair and Deceptive Acts and Practices: 13.6.1.3 Preliminary Injunctions

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.

Unfair and Deceptive Acts and Practices: 13.6.1.4 Preconditions to an Injunctive Order

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.

Unfair and Deceptive Acts and Practices: 13.6.1.5.1 General considerations

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.

Unfair and Deceptive Acts and Practices: 13.6.1.5.2 First Amendment considerations

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

Unfair and Deceptive Acts and Practices: 13.6.1.5.3 Can an injunction prevent a business from operating?

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

Unfair and Deceptive Acts and Practices: 13.6.1.6 Innovative Orders

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

Unfair and Deceptive Acts and Practices: 13.6.1.7 Who Should Be Named in an Injunctive Order

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.

Unfair and Deceptive Acts and Practices: 13.6.1.9 Judicial Modification of Consent Decrees

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.