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Unfair and Deceptive Acts and Practices: 13.6.4.11 Restitution’s Relation to Private Suits

Often there will be one or more private suits, or even a private class action, parallel to the state enforcement action. Sometimes private suits and attorney general suits are joined for management purposes. Where the actions are not joined, in general both actions can proceed. The filing of a private suit by an individual does not stop an attorney general enforcement action. The purposes of the two suits are fundamentally different, as the state’s suit is a law enforcement action intended to protect the public.

Unfair and Deceptive Acts and Practices: 13.6.5 Asset Attachment Orders

In egregious cases, state enforcement agencies may seek judicial orders for attachments or freezes on bank accounts or other assets that can be specifically identified. States must be prepared to justify the use of such a drastic remedy, but under the right circumstances, especially if there is evidence that the defendant will conceal or dissipate assets during the pendency of the action, courts will grant such relief.737

Unfair and Deceptive Acts and Practices: 13.6.6 Receivership and Dissolution

A number of state UDAP statutes allow the state attorney general to seek an order appointing a receiver to administer a violator’s assets.745 Once appointed, a receiver has the power, subject to court approval, to collect the defendants’ assets and distribute them for the benefit of both victims of the unlawful practices and the defendants’ general creditors.746 Non-parties who are given notice of the receivership order may be held in contempt if they knowingly aid or abet a violation.

Unfair and Deceptive Acts and Practices: 13.6.7 Settlement and Releases

When a case is settled, the release should be drafted with care to avoid any unintended implication that individual damage claims are released. The Minnesota Supreme Court construed a release that resolved an attorney general suit as barring private suits by consumers.753 The court focused on the broad description of the claims released, which encompassed all claims that the state could have asserted based on past conduct.

Unfair and Deceptive Acts and Practices: 9.1.1 Introduction

A future-service contract is an agreement by which a consumer commits to pay for services to be rendered over a period of time. Differing forms of future-service contracts may appear at first to have little to do with each other, e.g., vocational schools, buying clubs, health spas, and campground resorts. But it is striking how similar the UDAP issues are in each of these contracts.

Unfair and Deceptive Acts and Practices: 9.1.2.1 The Seller’s Contract Provision

Critical to any future-service contract scam is making it difficult for a consumer to obtain a refund after canceling. The investment in expensive selling techniques will not pay off if consumers can rethink the transaction in the quiet of their own homes and then back out of the deal. Consequently, any future-service scheme will have an elaborate system whereby the consumer forfeits all or much of the contract obligation even if the consumer cancels before few, if any, services are provided.

Unfair and Deceptive Acts and Practices: 9.1.2.3 Contract Law Defenses May Provide Additional Protections

The next step is to determine as a matter of state contract law what the consumer’s rights and obligations are if the consumer stops paying the note, effectively breaching the contract. There are several contract law issues as to whether the seller may sue on the note for the full amount (in the case of a non-cancelable contract) or for some lesser amount specified by the contract (in the contract’s refund provision).

Unfair and Deceptive Acts and Practices: 9.1.2.4 UDAP Approaches

Another approach in a future-service contract cancellation case is to argue that UDAP principles allow the consumer to cancel with a full or large refund since the seller should be limited to no more than actual lost profits as damages. There is little case law in this area, but FTC cases find unfair the mere inclusion of forfeiture clauses in adhesion contracts. In particular, it is unfair to utilize a contract provision whereby, upon default, the consumer forfeits all payments made in a land sale, and receives no title to the land.11

Unfair and Deceptive Acts and Practices: 9.1.3.3 When a Health Club Closes Down

A Maryland case found it a UDAP violation for a health club to close without giving refunds to members, and ordered refunds for all members.51 New York courts have also found fraudulent a health club’s closing without notice, not allowing members to recover their possessions, not paying owed refunds, and continuing to solicit business even though it knew it would close.52 Another court has found, however, that a company that bought a health club’s assets, subject to existing memberships, at a bankru

Unfair and Deceptive Acts and Practices: 9.1.4 Dance Studios

Dance studios have been challenged for engaging in unusually abusive sales practices, such as using high-pressure sales, flattery, and sham tests to sign up an older widow for a $18,000 dance lesson contract, then trying to switch her to a $49,000 contract, and, upon failing, discouraging her from attending the remaining lessons.60 Other high-pressure sales have also been found unfair or deceptive.61 Also deceptive are misrepresentations that lessons are free or at reduced prices,

Unfair and Deceptive Acts and Practices: 9.1.5.3 Practice Tips

Some resorts convert their “memberships” into “landshares” by which the purchaser is entitled to receive a quit-claim deed to a minuscule co-tenancy, e.g., a one four-thousandth share, of the actual resort real estate upon completion of the payments.95 Characterizing the transaction as a real estate sale may exclude the transaction in some states from the scope of the UDAP statute and will also complicate the question of the consumer’s cancellation rights.96 However, it can be argued that the sellin

Unfair and Deceptive Acts and Practices: 9.1.7.1 Nature and History of For-Profit School Abuses

Unfair and deceptive practices by for-profit schools (also known as “proprietary schools”) are a tremendous source of financial loss and lost opportunity for consumers, particularly low-income consumers hoping to break out of poverty. The for-profit industry comprises much more than just trade or vocational schools. Many schools offer degrees and compete with “traditional” four-year or two-year higher education institutions.

Unfair and Deceptive Acts and Practices: 9.1.7.2 FTC Guides

The FTC has issued guides concerning unfair and deceptive private vocational school practices.124 A number of states have provisions in their UDAP or other consumer protection laws modeled on the FTC guides.125

Among other things, the FTC guides specify that it is deceptive for a school to misrepresent: