Chapman Law Review
Consumer Law Symposium
CONSUMER LAW, CLASS ACTIONS, AND THE COMMON LAW
Copyright (c) 2004 Chapman Law Review; Michael S. Greve
Even where bodies of law purport to be defined by their subject matter, such as “health care law” or “housing law,” they are often distinguished from legal arrangements covering the same area by their underlying presumptions. “Employment law,” for instance, covers substantially the same economic transactions as the older labor law and still-older common law doctrines. Those fields differ chiefly in their premises, and consequently, their institutional arrangements. Unlike labor law, which is principally the law of labor unions and their rights and relations vis-à-vis management (under the auspices of the National Labor Relations Board), employment law is individualistic. With few exceptions, the right to remain free from discrimination is the individual employee’s, and it can be enforced outside union channels and arbitration regimes. In that respect, employment law resembles the old common law of contract and employment at will, but with a twist. Instead of a fundamental, bilateral freedom not to deal, employment law establishes the employee’s unilateral right to remain free from discriminatory treatment. This antidiscrimination principle permits the employee to press the employer into transactions that they would rather avoid, all things considered. The purported extension of common law rights masks their redistribution.
In a similar way, “consumer law” is parasitic on, and transformative of, common law doctrines grounded in contract and tort. While unknown before the 1970s, modern “consumer law” does not govern a single transaction that is not also covered by traditional common law doctrines. However, where tort law required an actual injury as an essential element of a cause of action; consumer law dispenses with that requirement and others like it, such as inducement and detrimental reliance. Where the common law matched the seller’s duty to steer clear of fraud and misrepresentation with the contractual principle of “buyer beware,” consumer law substitutes a unilateral duty of disclosure on the seller.
My point in highlighting these differences is not to argue for the superiority of common law rules over consumer law constructs. I will stipulate that mandatory disclosure rules may be efficient in some settings. For purposes at hand, I will even concede–although I frankly doubt–that a full-fledged consumer law regime might, at a highly abstract and theoretical level, be shown to be just as efficient as an equally stylized common law regime. Rather, my point is that it makes no sense to have the two regimes operate on top of each other and over the same range of transactions. However, that is the system we now have. Just as employment law was superimposed on the pre-existing regime of contractual employment obligations, so too has consumer law been piggybacked on top of common law doctrines governing the promotion and sale of goods and services. This dual regime is extremely unlikely to enhance social welfare or even consumer interests.
II. Development of Consumer Law
Handbooks and treatises on “consumer law” often define it as a contradistinction to commercial law, meaning the law governing transactions among merchants. The common law, of course, made no such distinction; it rested on a robust, across-the-board presumption in favor of freedom of contract. Even the Uniform Commercial Code (“UCC”) treats consumer transactions under the same rules that apply to comparable business transactions. However, consumer law theorists and advocates insist that the assumptions that underpin freedom of contract simply do not apply in the context of consumer transactions. Using often-colorful language, consumer lawyers conjure up a world of ignorant, impulsive consumers who stumble helplessly through a world of serial monopolies. In soberer moments, they identify the characteristics that supposedly distinguish consumer markets: asymmetric information (or wholesale consumer ignorance), unequal bargaining power, and irrational consumer preferences. Consumer protection laws attempt to redress these problems by imposing affirmative disclosure obligations through outright prohibitions on abusive, extortionate, or unconscionable contract terms and sales practices, or through mandatory cooling-off or revocation periods.
All these rationalizations prove either too much or too little to define the discrete field of “consumer law.” Information is asymmetric in business as well as consumer transactions (the seller almost always knows more than the buyer); still, for good reasons, the general rule remains “buyer beware.” Bargaining power is often unequal in the business sector, but within the general framework of protections against fraud and monopoly, we let the parties deal, or not deal, as they wish. Evidence of pervasive irrationality is far too conjectural at this point to warrant careless paternalism; at most, it may justify circumspect interventions that protect the irrational from costly mistakes without, in the same process, inflicting costs on the rational.
There is no set of criteria or principles that reliably delineates a discrete “consumer law,” and, in truth, the attempt to conjure up such a body of law partook of a broader, explicitly ideological reform movement. Beginning in the 1960s, large numbers of policy advocates and legal scholars argued that common law forms and formalities were an impediment to social reform, the effective management of public problems, and the aspirations and interests of deserving political constituencies. At its zenith, this critique became distilled in an ambitious effort to develop a full-blown theory of “public law,” a term that has since lost currency. The venue for the most serious and thoroughgoing version of this argument was environmental law, whose champions claimed that environmental complexities rendered common law distinctions between “mine and thine” “a menace to an imperiled planet.” In an interconnected world, human activities become per se externalities. Thus, when an endangered woodpecker decides to build its nest where you decide to build your house, the bird wins and you lose. Environmental law’s ambition of managing entire ecosystems in accordance with a coherent political scheme rests on a full-scale repudiation of the common law and its theoretical foundations, including notions of property, harm, and individual injury.
Consumer law advocates could rest their case, at least initially, on a more modest critique of the common law and of a market economy. Affirmative disclosure obligations, they argue, would make for more informed consumers and hence better customers. Such obligations would improve rather than stifle competition. Unlike environmental law, consumer law remains at least superficially tied to production values. Similarly, consumer law advocates need not attack the common law at its roots; they can plausibly rest their case on the enforcement problems and transaction costs that attend common law litigation. Those barriers, the argument runs, may prevent the victims of wrongful conduct from asserting their claims when, as is often the case in consumer transactions, those claims are small. The costs of detecting and proving unlawful conduct–for example, in cases of fraud, which require proof of the defendant’s knowing and intentional misrepresentation–may further exacerbate a tendency towards under-enforcement and under-deterrence. That is especially so when even the full enforcement of the available remedies, such as damages under the out-of-pocket rule, leave a lawbreaking defendant no worse off (net of the costs of defending the claims) than his law-abiding competitor.
This thoroughly familiar argument suggests equally familiar remedies. An obvious choice is to entrust public agencies with the definition and enforcement of prohibitions and injunctions against unfair or fraudulent business practices, without having to prove the common law elements of such violations. Another strategy, albeit a crude one, is to increase the rewards for private enforcers. A third strategy, running roughly concurrent with the invention of consumer law, is the bundling of small claims in class actions. While all three strategies predate the invention of modern consumer law by more than a half-century, their use increased enormously during the 1970s when Congress and state legislatures enacted a rash of consumer protection statutes and damages provisions. As a result, jury awards proliferated. Also, in the wake of the 1966 class action reforms, federal and state courts created a novel and remarkably permissive regime for the prosecution and adjudication of mass claims.
That prompt accommodation to perceived consumer needs failed to create an equilibrium where consumer law has come to rest. It is exceedingly difficult to tailor private rewards to deterrence objectives, and, in any event, their effectiveness still depends on the availability of a sufficiently large plaintiff class. Public consumer protection agencies, even when run by consumer advocates, still operate under budgetary constraints and countervailing political pressures. Modern class actions are fraught with a wide array of problems, including substantial transaction costs and sweetheart settlements or “reverse auctions” that dilute the deterrent value of such actions. Besides, consumer law itself creates a kind of upward demand spiral. Confronted with a prohibition against competition on some margin (for example, interest rates on consumer loans or mortgages), sellers will compete on some other, less transparent margin, thus creating demands for additional interventions. If more laws and affirmative obligations, bigger government agencies with bigger enforcement budgets, and better incentives for injured consumers do not do the job, the natural move is to mimic environmental law after all: divorce lawfulness from individual harm, legal claims from their common law owners, and legal theories from production values. In fact, the law has moved on this trajectory. Its chief propellant has been the consumer class action. A simple example, based loosely on an actual case that eventually settled for a modest $2.1 billion, illustrates the progression.
III. Consumer Law Class Actions
Suppose a company sells a large number of identical computers at a price of $1,000 with an implied or actual promise that the product will function flawlessly. Unfortunately, it turns out that a series of complex operations performed by only a small number of marginal consumers causes the system to crash. What is the sensible assignment of rights?
The common law rule, in a nutshell, is to deter negligent misrepresentation or simple mistake by means of providing redress for those persons, and only those persons, who have suffered an injury and who justifiably relied on the manufacturer’s representations. Under the out-of-pocket rule, redress includes restitution for the full purchase price minus the residual value of the product, if any. It also includes the user’s opportunity costs (the foregone benefits of purchasing a competing, flawless product). It appears that most courts also award quasi-contractual, benefit-of-the-bargain redress for the consumer’s disappointed expectations. Marginal consumers who satisfy the dual requirements of detrimental reliance receive full compensation, and the infra-marginal consumers for whom the product worked as promised receive nothing.
The alternative is to ask what legal regime individuals would choose ex ante–that is, prior to the purchase or use of this or any other product. The answer, some scholars have argued, is a rule that creates adequate deterrence for the manufacturer to optimally investment in precautionary measures. On the additional assumption that individuals are risk-averse, the rule will also provide full insurance coverage for all economic losses. However, the rule will not provide compensation in excess of the insured amounts, for example, compensation for non-pecuniary losses. This is bad news for consumer-plaintiffs from an ex post, wealth-maximizing perspective.
The good news is that from a deterrence-oriented, ex ante perspective, common law considerations of injury, inducement, and justifiable reliance are beside the point and quite probably harmful. Those questions go only to the distribution of the proceeds, which is separate from and secondary to the determination of the correct deterrence level. To be sure, if damages are set at the right level litigation by the marginal consumers may produce a deterrence level that will generate optimal investments in precautions. But why should we rely on those consumers and their uncertain incentives to extract the seller’s windfall? It may make more sense to round up the purchasers all along the demand curve and figure out the difference between the purchase price and the price that consumers would have paid in the aggregate had the true characteristics of the product been known.
Increasing numbers of class actions, including some cases of considerable notoriety, proceed from this premise only to push towards a rather more insidious conclusion. A few examples illustrate the pattern:
Williams v. Purdue Pharma Co. was a class action on behalf of purchasers of OxyContin, a potent opioid. The plaintiffs complained that Purdue conducted a deceptive, misleading, and fraudulent advertising campaign that falsely stated the product would provide “smooth and sustained pain relief,” and posed little risk of addiction when used as prescribed. The class plaintiffs did not claim that the product failed to work as advertised for them or that they became addicted. Instead, they argued that they were deprived of the full benefit of their purchase bargain because the product failed to work as advertised for some other consumers.
In Avery v. State Farm Mutual Automobile Insurance Co., an Illinois jury and judge awarded $1.18 billion to a class of an estimated 4.5 million State Farm customers in forty-eight states. This award was based upon the company’s post-crash repair cost estimates on the basis of cheap and allegedly inferior aftermarket parts. Plaintiffs did not allege that State Farm’s policy, which many states encourage or even require to control automobile insurance rates, caused them physical injury or consequential pecuniary losses such as lost resale value. Instead, they prevailed on the claim that aftermarket parts are inherently inferior and therefore fail to satisfy State Farm’s contractual obligations to restore vehicles to their pre-loss condition.
In Price v. Philip Morris Inc., another Illinois state court approved a $10.1 billion verdict in favor of a class of Illinois purchasers and consumers of Marlboro Lights and Cambridge Lights. The action did not include claims for personal injury. Rather, plaintiffs claimed that the advertisements of the products as “Lights” and “Lowered Tar and Nicotine” were deceptive, unfair, and calculated to create the false consumer impression that the products were safer or less harmful than regular cigarettes. Plaintiffs claimed to have overpaid in reliance on these misrepresentations. They sought and obtained damages for the difference between the purchase price and the value of the product that they actually received. The trial judge credited a consumer survey conducted by a plaintiff’s expert, which estimated the diminution in value at 92.3 percent, and on that basis arrived at “compensatory” class damages of $7.1 billion.
Quite obviously, ordinary notions of detrimental reliance and inducement play a distinctly subordinate role in those cases; otherwise, it is hard to see how a court could possibly certify inchoate classes of consumers who vary greatly in their degree of reliance and injury (if any). From the ex ante perspective, these differences are immaterial. The right rule will skim off the entire surplus of the transaction (both the producer and consumer surplus), which the inframarginal consumers, for whom the products worked as advertised, have already received and will get to keep in any event. The rule will provide full insurance compensation for the consumer class and distribute the remaining funds (if any) to someone else, for some other “public use.”
Like traditional common law plaintiffs, the members of the plaintiff classes just described at least purchased OxyContin, insurance policies, and Marlboro Lights, and did complain about the characteristics of those products and the sellers’ representations. But if we are worried chiefly about deterrence levels, those limitations may be superfluous. Perhaps, anyone–bystander, malcontent, plaintiffs’ lawyer, public prosecutor–should be permitted to sue and recover, so long as we rely on courts to generate optimal deterrence levels.
Modern “entrepreneurial” class actions, which are instigated and controlled entirely by plaintiffs’ lawyers, conform to this pattern. Statutory law has moved in the same direction. Most prominently, California’s Unfair Competition Law (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” “Unlawful” acts are those that are unlawful under any statute; hence, the UCL sweeps across the entire California Code, including the criminal code. Moreover, compliance with the law is not necessarily a defense since business practices that are not “unlawful” may still be “unfair.”
The extraordinary breadth of the UCL is matched by the liberality of its enforcement provisions. The act may be enforced by state and local prosecutors and by literally any private party acting “for the interests of itself, its members or the general public.” Anyone can sue anyone else; the only standing requirement is “that the plaintiff can effectively represent the [broader] group’s interests.” With respect to fraudulent business practices, for example, it is not necessary to show deception, reasonable reliance, or damages to anyone, let alone the plaintiff. Private enforcement may proceed even where the predicate statute manifestly contemplates no such thing. The procedural formalisms and due process safeguards of class actions, which from an ex ante perspective are deadweight at best and an invitation to opportunism at worst, have in fact disappeared under the UCL. Actions on behalf of the public, sometimes called “representative actions” or “quasi-class actions,” may proceed without conforming to federal or state class action requirements. While private litigants may not sue for damages, they may obtain injunctive relief, as well as restitution and disgorgement under equitable principles. The California courts have created multiple vehicles to facilitate generous monetary relief. In short, “[t]he only apparent limitation upon the practical reach of the UCL is the imagination of man (and woman).”
The best-known UCL plaintiff is Marc Kasky, a self-proclaimed activist who sued Nike over the company’s allegedly false statements concerning its corporate practices in Third-World countries. Mr. Kasky himself did not rely on those statements–and certainly not to his detriment. There was no evidence that he had ever purchased a Nike product; in any event, the company’s communications concerned its employment practices, not the attributes of its sneakers. Nonetheless, and despite Nike’s vociferous First Amendment objections, the California Supreme Court permitted the case to go to trial. After an unsuccessful petition to the United States Supreme Court, the case settled for a $1.5 million payment to a corporate watchdog group and Nike promised to mend its ways, both employment-wise and speech-wise.
One can think of Kasky v. Nike as the ultimate consumer class action ex ante. The case conforms to that model in all essential respects except one: proponents of the ex ante model insist on a preclusive, res judicata effect on all possible claimants. (Quasi-class actions under the UCL generally lack such effects.) Alternatively, one can think of Kasky v. Nike as a kind of consumerist public law action for the production of a more “republican” globalization discourse that ought to proceed regardless of what millions of participants below the Sunsteinian margin may actually want to hear or say. At this point of perfect convergence, consumer law has reached its culmination.
IV. Risks of a Dual Regime
It would be silly to deny the deterrence and transaction cost problems that afflict the common law model. It may even be true that those problems are particularly pronounced in the context of consumer transactions. All that granted, a wholesale divestiture of legal claims from their common law owners begets other, potentially more vexing difficulties. For example, an ex ante regime requires ancillary estoppel and preclusion rules that make good on the promise to get the deterrence level right. What then are those rules? Proponents of an ex ante regime, as noted, favor mandatory class actions and wholesale preclusion. That position raises serious due process concerns and numerous practical problems–prominent among them, the specter that corporate defendants will cut themselves cheap, collusive settlements with a plaintiffs’ lawyer of their choice. The problem appears in even sharper relief outside the context of Rule 23 and its formal protections for absent class members. As noted, under California’s UCL, verdicts obtained by private litigants on behalf of the public have no preclusive effect (barring a preclusive judgment in a parallel class action). If they did, the statute would be facially unconstitutional since it would create a roving commission to dispose of the rights of absent, unnotified parties. But now, the due process problem appears at the other end–the lack of preclusion raises the very real threat of multiple prosecutions and verdicts over the same violations by the same parties. This dilemma, which even the California courts have recognized, has no easy solution.
Similarly, the estimation of damages, restitution, or benefit-of-the-bargain losses over a disparate class of consumers (outside the context of particularized injuries) poses considerable risks of judicial error. Proponents of an ex ante model argue that liability awards are always a matter of statistics. Sophisticated survey and sampling techniques will reduce the room for error, and the elimination of confusing questions of causation or reliance will generate judicial economies of scale. But neither the empirical evidence nor practical considerations provide much support for such comforting assurances.
In the Avery litigation, the plaintiffs’ expert estimated consequential losses (principally the cost of replacing the installed aftermarket parts with the original manufacturers’ products) at anywhere between $658 million and $1.2 billion. On cross-examination, he conceded that his high-end estimate might be off by about $1 billion. The benefit-of-the-bargain award in Price was, as noted, based on surveys of consumer averments of what they would have paid had they known the true nature of the product. The award is the difference between that hypothetical price and an allegedly promised “safe” cigarette–by plaintiffs’ own admission, a non-existent product. We are nonetheless asked to believe that it is possible somehow to estimate a demand curve that slopes from here to there.
The sorts of calculations that go into these awards treat the car buff who owns a vintage Chevy on a par with the owner of a run-of-the-mill vehicle with a previously dented fender. The latter may well be better off, both because the “inferior” replacement part is superior to the dented, pre-loss original and because he benefits as a repeat customer from State Farm’s general aftermarket parts policy. Likewise, the class in Price includes everyone from health-conscious nicotine addicts, who believed (however fantastically) that they were consuming a “safe” product, to the merely image-conscious who are under no such illusion and smoke Lights because they are socially more acceptable than in-your-face, filterless Camels. In calculating the awards in Avery and Price, the courts made do with an expert’s wild guess about the margin–and then effectively treated every claimant as a marginal purchaser. The “mistake” is hardly accidental. First, the lack of direct evidence of the location of the margin or the distribution of claimants along the demand curve invites this kind of shortcut. Second, any serious consideration of the distribution–even if only for purposes of assessing aggregate damages–would tend to illustrate that the customers have practically nothing in common but the bare fact that they are customers. A court that has slighted or sidestepped that reality at the class certification stage is unlikely to emphasize it at a later stage.
Put those considerations aside and assume a world without transaction costs and, importantly, without judicial mistakes. Assume that common law or ex ante rules could both yield efficient results: it still does not follow that the conjunction and simultaneous operation of those two regimes also yields efficient results. A system that bars recovery for non-injured consumers must offer full recovery for the marginal consumers who did rely to their detriment on the seller’s representations. Conversely, an ex ante rule must bar additional claims for compensation as a form of ex post opportunism. In real life, however, the regimes work in tandem.
To revert to the case examples, the Williams class consists of all OxyContin purchasers for whom the product worked as intended but who claimed that the product, contrary to the company’s representations, proved addictive for some other consumers. Those others are specifically excluded from the class and remain free to sue over their alleged injuries regardless of the outcome of the Williams litigation. The Avery plaintiffs sued on their contract and under a state consumer-fraud statute. If inferior placement parts caused consequential damages for some class members (for example, by contributing to a second crash) those individuals remain free to bring suit against the manufacturer, installer, and presumably State Farm. The Price plaintiffs sued for misrepresentation, not bodily injury; Marlboro Lights smokers in Illinois remain free to bring product liability lawsuits. Under California’s Unfair Competition Law, verdicts and settlements in cases brought on behalf of the public do not preclude subsequent lawsuits against the same defendants over the same conduct by parties who are actually injured by the unlawful conduct (as well as those who are not).
While one might say that ex ante and ex post lawsuits deter different types of conduct (for example, the sale of a substandard product and fraudulent representations about it), one cannot easily separate the claims in this fashion. In these cases, misrepresentations count for legal purposes only if they induce social losses and only because they produce them. Why else deter them? Conversely, the defendant’s misrepresentations are typically a crucial element in common law cases, for example, to defeat the ordinary defenses in contract and tort. The plain fact is this: so long as the parties actually injured can sue, any additional deterrence is over the top. In allowing both types of suits (without one foreclosing the other), we do in fact have an ex ante rule and a common law rule operating on top of each other, over the same range of transactions.
This dual regime has very nearly become a general norm. For example, voluminous federal and state regulations govern what manufacturers and service providers may and may not say about pharmaceutical drugs, tobacco products, warranties, equity offerings, credit cards, and mortgage loans, among other products. We also have general federal and state prohibitions against “unfair” business practices, which are defined and enforced by the Federal Trade Commission and by state consumer protection agencies. These rules embody rough-and-ready judgments about the socially acceptable (if not exactly optimal) level of activity. They prohibit conduct that would otherwise have to be deterred by means of litigation. In other words, they are ex ante rules in legislative or administrative form. However, only rarely do these rules have preclusive and preemptive effect. For example, Marlboro Lights were sold in meticulous compliance with federal laws and regulations, but that fact failed to impress jurors and judges in Madison County, Illinois. Compliance defenses rarely succeed in liability lawsuits over “unsafe” pharmaceutical drugs or automobiles. The risk is not simply confusion or incoherence: it is massive over-deterrence.
V. Common Law and Consumer Law: Can’t We Have One Without the Other?
Confident assertions about the efficiency of the common law often seem to founder on the manifest inefficiencies of what now passes for common law: would Judge Posner and his followers kindly explain the liability explosion? Without wishing to enter that messy and complicated debate, the preceding casual observation suggests that many of the actual or perceived problems stem, not from common law adjudication per se, but from its conjunction or interaction with legislative rules and interventions.
It seems quite obviously the case that the common law may sua sponte go off the rails. Multi-billion dollar verdicts in some product design defect cases are an example. Common law terms and doctrines, from “nuisance” to “unconscionable” and, for that matter, “injury,” are sufficiently nebulous to sustain varying social and economic arrangements under a nominally unchanged doctrine. That openness creates a potential for efficient adaptation and for ideological flights of fancy.
Still, slides into wholesale nominalism are probably bound to be exceptions to the general practice. At the end of the day, the common law embodies reciprocity relations that are real, not some theoretical construct. Not everything can be a nuisance. My averred right to an unobstructed view is a prohibition on my neighbor’s right to expand his home, and that consideration will be obvious to the judge because the defendant will press it with some force. Characterize anything but the literal truth as a “misrepresentation” and all advertising will cease; that intuition explains the continued viability of the distinction between actionable misrepresentation and permissible “puffery.” Recognize anything as an “injury” and it will soon transpire that nothing may be left to compensate actually injured victims. Characterize as “unconscionable” any sales practice or contract terms that might scandalize a middle-class consumer with secure credit (such as a federal judge) and it turns out that sales to low-income, riskier customers dry up altogether. At some level, a common law judge must care about activity levels as well as harms; about production values as well as consumption; about over- as well as under-deterrence.
So how does one strike a rough balance between these risks? The much-maligned common law requirements that circumscribe classes of plaintiffs and causes of actions, a starting point for the consumer law critique of the common law, can be understood as a kind of functional corollary or corrective to the inescapable vagueness of central substantive doctrines. A negligent misrepresentation lies somewhere on a spectrum between fraud at one end and an innocent effort to package consumer information at the other, which can be done only by omitting some information that is known to the seller. In cases alleging misrepresentation, there are substantial costs to erring on either side.
The common law must find a rough balance. On the one hand, the legal defenses that sound in tort (which are the third and last line of defense against abuse and exploitation, well behind the competitive discipline of the market and contractual defenses) must be given their proper real-world context to avoid the threat of under-deterrence. On the other hand, the threat of over-deterrence created by inflated loss allegations must be avoided by limiting the universe of cases to those where the losses are concretely visible. In these cases, detrimental reliance ensures that the plaintiff before the court is actually the marginal consumer whose losses are far more ascertainable than the infra-marginal class’s estimates of losses to someone else.
Reciprocity-based inhibitions tend to give way when the legislature signals an intention to promote consumer interests and consumption values. Presumably (judges surmise), a legislature that enacts a consumer protection statute wants to do more than to codify pre-existing law. Thus, courts may loosen injury requirements and adopt more relaxed notions of inducement and reliance even where the text of the statute leaves some doubt about the legislature’s intent to prompt that judicial response. Courts, one might say, act on what they take to be the legislature’s signals, rather than following its affirmative commands.
This broad-brush description captures the state judiciaries’ response to the enactment of “little FTC acts” and analogous consumer protection statutes passed by many states in the late 1950s and 1960s. For the most part, those state enactments sought to strengthen the hand of public regulators and prosecutors (foremost, the consumer protection offices of state attorneys general) in enforcing prohibitions against unfair competition, false advertising, and the like. Like the FTC itself, state agencies generally enjoy broad discretion in defining “unfair” or “deceptive” practices. Typically, public agencies are not required to prove all the common law elements of statutory offenses, for example, detrimental reliance by individual consumers. This arrangement makes a good deal of sense: let individual consumers sue over direct harms, and let public prosecutors, whose abuses can be checked by political and budgetary means, direct their attention to “fraud on the market” offenses that are likely to be under-deterred through private litigation.
Over time though, many state courts came to read those statutes as a warrant for more expansive private litigation. The train of thought is not hard to follow: the legislators’ enhanced authorization of public prosecutors looks to all eyes like an endorsement of consumer interests outside the confines and strictures of the common law. When private plaintiffs subsequently sue on those more expansive theories, they are hardly acting contrary to the statutory intent; they are merely assisting resource-strapped public agencies.
In the 1970s (the heyday of the consumer law movement), state legislatures made the next move and provided explicitly for the private enforcement of consumer protection statutes. Most states also provided added incentives for private litigation, typically in the form of attorneys’ fees and treble damages for certain violations. While federal courts sought to limit the reach of expansive state statutes (for example, through broad preemption under the Federal Arbitration Act), judicial responses among the states appear to have varied greatly. In some states, courts limited what they viewed as the scope of private consumer litigation, often by means of reading common law requirements of inducement, reliance, and injury into the statutes. However, in most other cases the state judiciary accepted the legislature’s invitation to give free rein to private enforcers.
California provides a dramatic illustration of judicial creativity in expanding the reach of the Unfair Competition Act. In particular, the creation of universal standing in Barquis v. Merchants Collection Association of Oakland, Inc. was quite plainly neither intended nor anticipated by the legislature. These differences in institutional agenda-setting and legal development would make an interesting study for political scientists. Of greater practical import though, is the near-uniform tendency toward greatly expanded private consumer litigation.
That tendency is readily explained. In the area of consumer law, as in many other venues, legislatures and courts act as competing suppliers of substantially identical goods. Naturally, the demand for consumer law will gravitate towards the more favorable forum. The default outcome is that an expansion of consumer law occurs so long as both or either institution say “yes.” It can be avoided only if both say “no,” or else the nay-saying institution affirmatively refuses to cooperate and then presumes and exercises the authority to rein in the wayward rival.
Such a scenario is barely thinkable. Theoretically, state courts could, within the limits of their state constitution, refuse to apply statutes in derogation of common law requirements. Theoretically, legislatures could repeal private enforcement provisions or judicial decisions to that effect. Neither courts nor legislatures, however, are any good at this sort of thing. Both confront great institutional obstacles even in reversing their own decisions, let alone the decisions of a coordinate branch of government. Litigation under California’s Unfair Competition Law has spawned sufficient abuse and distress to prompt stopgap interventions by the office of the attorney general. It has also prompted reform proposals by a reform commission that included prominent members of the plaintiffs’ bar and a legal scholar with impeccable consumer advocacy credentials. Still, the California Supreme Court has emphatically declined opportunities to curtail the scope of the statute. The Sacramento legislature, for its part, has proven a graveyard for reform proposals.
As legal doctrines change, so do institutional and interest group arrangements. The loosening of common law requirements in the 1970s had the intended result of facilitating consumer litigation by public interest organizations and legal aid groups. In retrospect, the dominance of that form of litigation has proven temporary. Consumer law has long since slipped its constituency-oriented moorings. It now responds to the demands of lone rangers and, far more importantly, the class action bar.
Strikingly, the role of consumer protection statutes has attracted very little attention in the public, political, or academic debate over “tort reform.” Perhaps this is because billion dollar verdicts in “misrepresentation” cases are of somewhat more recent vintage than older, yet equally spectacular, product liability cases. Perhaps the business community prefers a unifying agenda, such as a campaign against punitive damages (which every corporation opposes) to an agenda that would require a partial surrender of tactical opportunities. Like many unfair competition laws, California’s statute permits business firms to sue their competitors, and the state’s leading tort reform group has insisted that these opportunities must be preserved in reforming the statute. Also, state legislators quite probably have an incentive to pretend that the “liability crisis” is altogether the fault of an out-of-control judiciary. Scholars continue to teach Torts and Contracts without much attention to peripheral interferences from consumer protection statutes.
The obvious problem is that the periphery has long begun to overwhelm the common law center. I seriously doubt that one could find many contemporary class action cases of any consequence where a conventional fraud or breach of contract claim is not accompanied by a statutory claim of unfairness, deception, or misrepresentation. The less obvious and more challenging problem is the conjunction and interaction of disparate theories of enforcement and recovery. A theory of misrepresentation without reliance, inducement, and injury may make a certain amount of sense in the context of a public enforcement monopoly. However, wrenched out of that context, it becomes profoundly problematic. Benefit-of-the-bargain redress makes eminent sense in a common law case over a breach of contract, but out of that context, it may turn into a menace. Yet, for perfectly understandable institutional reasons, what we have is a dual, overlapping regime.
I do not profess to know whether it is possible to unscramble this particular omelet. One can think of partial steps in that direction–for example, a sharper distinction between public and private enforcers, or an expansion of affirmative compliance defenses. The former strategy would confine common law and ex ante rules to their respective domains; the latter would force a social choice between the two. It may be too late or too early in the day to contemplate such steps. Too late because the privatization of public law norms, unhinged from requirements of injury, is a fait accompli sustained by a seamless coalition of consumer advocates and plaintiffs’ attorneys. Too early because common law modes of thought continue to exert a powerful pull on our collective imagination.
To their credit, the most articulate proponents of an ex ante regime emphatically proffer their scheme as an alternative to common law modes of thought, not as a supplement. They have been at pains to insist that public regulatory schemes are often superior to, and ought to preclude, private litigation. Their clarion call is efficiency, not some boundless ideological conception of “consumer rights.” Precisely this convergence of efficiency theorems and consumerist nostrums ought to give pause, and, after a deep breath, call attention to the political economy of the beast. One may dismiss notions of plaintiff autonomy and the individual’s right to a day in court as so much sentimental nonsense and ex post opportunism. The fact is that the sentimentalists and opportunists will continue to vote, litigate, and agitate in defiance of elegant blackboard schemes. The siren song of consumer law in its modern, disembodied state is precisely that everyone should have a day in court, injured or not. To show that this bastard regime cannot be efficient from any perspective is the easy part. The hard part is to tie ourselves to one mast or the other.