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Searle Civil Justice Institute STATE CONSUMER PROTECTION ACTS An Empirical Investigation of Private Litigation Preliminary Report December 2009

Searle Center on Law, Regulation, and Economic Growth Northwestern University School of Law Copyright © 2009 Searle Civil Justice Institute

SEARLE CIVIL JUSTICE INSTITUTE

Founded in early 2008 as a division of the Searle Center on Law, Regulation, and Economic Growth, the Searle Civil Justice Institute (SCJI) aims to become the preeminent national source of large scale, empirical studies on public policy issues related to our nation’s civil justice system. An operating premise of the Searle Civil Justice Institute is that hard data is a powerful and necessary tool in public policy debates. SCJI expands and furthers the mission of the Searle Center on Law, Regulation, and Economic Growth. The Searle Center studies the impact of laws and regulation on economic growth and communicates the results of that research to academic, public policy, and judicial leaders. The Searle Center was founded in 2006 as a unit of Northwestern University School of Law with a generous grant from the late Daniel C. Searle, longtime philanthropist and Northwestern University trustee. A Board of Overseers advises and reviews the activities of the Searle Civil Justice Institute. The Board is composed of a balanced group of leading legal, economic, business, and public policy experts. The Board of Overseers has approved the SCJI Research Protocol to ensure the quality, objectivity, and independence of all SCJI work product. In accordance with the SCJI Research Protocol, all research projects are subjected to independent peer review prior to widespread dissemination. SCJI work products do not necessarily reflect the opinions or policies of the research sponsors or the SCJI Board of Overseers.

Northwestern University School of Law 375 East Chicago Avenue Chicago, IL 60611-3069

312-503-3100

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BOARD OF OVERSEERS

Fern O’Brian, Chair, SCJI Board of Overseers and Partner, Arnold & Porter LLP

William B. Lytton, Senior Counsel, Dechert LLP

Henry N. Butler, Executive Director, Searle Center on Law, Regulation, and Economic Growth

Sally B. Narey, General Counsel, Fireman’s Fund Insurance Company

Richard O. Faulk, Gardere Wynne Sewell LLP

Judyth Pendell, Pendell Consulting

Peter Flynn, Judge, Circuit Court of Cook County, Illinois

William Ray Price, Judge, Missouri Supreme Court

Harris L Hartz, Judge, U.S. Court of Appeals for the Tenth Circuit

Victor E. Schwartz, Shook, Hardy & Bacon LLP

Jeffrey W. Jackson, Senior Vice President and General Counsel, State Farm Mutual Automobile Insurance Company

Kelley D. Sears, Senior Vice President & Deputy General Counsel, Wal-Mart Stores, Inc.

Jason S. Johnston, Robert G. Fuller, Jr. Professor of Law, University of Pennsylvania Law School

Marschall I. Smith, Senior Vice President, Legal Affairs and General Counsel, 3M Company

Edith Jones, Chief Judge, U.S. Court of Appeals for the Fifth Circuit

Joseph F. Speelman, Associate General Counsel, LyondellBasell Industries

Allan Kanner, Founder and Senior Member, Kanner & Whiteley, LLC

Gerald Bard Tjoflat, Judge, U.S. Court of Appeals for the Eleventh Circuit

Janet Langford Kelly, Senior Vice President, Legal, General Counsel and Corporate Secretary, ConocoPhillips

Daniel E. Troy, Senior Vice President and General Counsel, GlaxoSmithKline plc

Geoffrey J. Lysaught, Director, Searle Civil Justice Institute

David E. Van Zandt, Dean, Northwestern University School of Law

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STATE CONSUMER PROTECTION ACTS TASK FORCE

Joshua D. Wright, J.D., Ph.D. State Consumer Protection Acts Task Force Chair

Assistant Professor of Law George Mason University School of Law

Henry N. Butler, J.D., Ph.D. Executive Director, Searle Center on Law, Regulation, and Economic Growth

Northwestern University School of Law

Jason S. Johnston, J.D., Ph.D. Senior Economist, Searle Civil Justice Institute

Robert G. Fuller, Jr. Professor of Law University of Pennsylvania Law School

Jeffrey P. Jarosch, M.A., J.D. Searle Law and Public Policy Scholar

Northwestern University School of Law

Samantha Zyontz, M.S. Research Associate

Searle Civil Justice Institute

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Foreword Since the 1960s, all fifty states and the District of Columbia have enacted state consumer protection acts (CPAs). These acts were a response to increased demands for consumer protection and business regulation, criticism of the Federal Trade Commission’s consumer protection efforts, and a sense that common law causes of action available to consumers were ineffective. Originally considered “little FTC Acts,” CPAs were intended to increase the resources available to pursue consumer protection cases. Their proponents see them as a vital complement to the FTC’s limited consumer protection efforts, necessary to allow plaintiffs to overcome the strict limitations on common law causes of action and to provide adequate incentives for individuals to challenge unfair and deceptive business practices.

However, there is increasing concern that these acts do more than simply supplement FTC enforcement and indeed may expand the scope of consumer protection litigation beyond well-established avenues of consumer protection. Critics suggest that by combining private rights of action, generous remedies, and vague definitions of illegal conduct, without including any requirement that CPA litigation serve the public interest, CPAs may encourage frivolous claims and attorney-driven class actions that ultimately hurt, rather than protect consumers.

The Searle Civil Justice Institute (SCJI) seeks to inform policy debates with systematically collected and rigorously analyzed empirical data. Despite clear relevance to the key policy questions, there is an absence of such analysis on state consumer protection acts. Little systematic information is available on magnitude, trends, or nature of litigation under state CPAs.

In this Preliminary Report, the SCJI State Consumer Protection Acts Task Force begins the process of creating a more complete picture of state consumer protection acts. The SCJI has engaged in a massive data collection and analysis effort, collecting information on CPAs in all fifty states, assembling a database of about 17,000 court decisions, and closely examining 500 of these decisions. The SCJI also commissioned a panel of consumer protection experts to serve as a “Shadow Federal Trade Commission.” This Shadow FTC examined a sample of consumer protection decisions and considered how they would fare under relevant FTC standards. The analysis presented in this Preliminary Report was conducted in accordance with the SCJI Research Protocol and has been subjected to independent peer review. The results contained in this Preliminary Report fully and accurately reflect the results of SCJI’s data collection and analysis. This Preliminary Report marks the beginning of rigorous analytical examination of state consumer protection acts. It is denoted as preliminary for two reasons. First, SCJI intends to continue its empirical work on CPAs by developing an analysis of the impact of state CPAs on consumer welfare. Second, SCJI is prepared to refine its work based on future studies, critiques, and ongoing debate. Henry N. Butler, Executive Director Searle Center on Law, Regulation, and Economic Growth Geoffrey J. Lysaught, Director Searle Civil Justice Institute

Contents Foreword…………………………………………………………………………………………vii Executive Summary………………………………………………………………………………xi Acknowledgments………………………………………………………………………………..xv INTRODUCTION……………………………………………………………………………………. 1 I. BACKGROUND AND HISTORY OF CONSUMER PROTECTION ACTS…………………………... ...5

A. Criticism of Existing Methods of Consumer Protection and the Call for CPAs….. .....5 B. Consumer Fraud Acts and Early Model Acts…………………………………….. ......6 C. Comparing Federal and State Consumer Protection ......................................................9 D. Expanding and Amending CPAs .................................................................................11 E. Modern Concerns Emerge ...........................................................................................13

II. DESCRIPTIVE ANALYSIS OF CPA LITIGATION TRENDS……………………………………… 15

A. Research Questions………………………………………… ......................................15 B. Data and Methodology……………………………………... ......................................15 C. Limitations to Reported CPA Decisions…………………………………... ...............16

III. EMPIRICAL RESULTS: A DESCRIPTIVE ANALYSIS OF THE CPA LANDSCAPE………………. ...19

A. Evidence on CPA Claims, Defendants, and Awards……………………………….. .19 B. Time Trends in CPA Litigation Activity…………………………………………... ..20 C. Interstate Variation in Reported CPA Decisions .........................................................21 D. Explaining Interstate Variation in Reported CPA Decisions .......................................26

IV. SEARLE SHADOW FTC………………. ...................................................................................35

A. Searle Shadow FTC Selection……………………………….. ...................................35 B. Case Summaries…………………………………………... ........................................35 C. Round 1 Sample Selection and Questionnaire .............................................................36 D. Round 2 Sample Selection and Questionnaire .............................................................37

V. EMPIRICAL RESULTS………………. ......................................................................................39

A. Round 1 Results and Analysis……………………………….. ...................................39 B. Round 2 Results and Analysis…………………………………………... ..................43 C. Comparison of Round 1 and Round 2 Results: Illegality ............................................44 D. Comparison of Round 1 and Round 2 Results: Enforcement ......................................45 E. Control Results—FTC Cases

CONCLUSIONS…………………………………………………………………………………... 49 Appendices……………………………………………………………………………………... 53

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Executive Summary Issues and Background

During the 1960s there appeared to be increasing demand from the American public and elected officials for consumer protection laws. State legislatures responded by enacting a diverse collection of legislation commonly called Consumer Protection Acts (CPAs). Most CPAs were originally designed to supplement the Federal Trade Commission’s (FTC’s) role in protecting consumers from “unfair or deceptive acts or practices.” Yet there is growing concern that CPA enforcement and litigation are qualitatively different than FTC enforcement and potentially counterproductive for consumers. Critics argue that CPAs generate a set of incentives that encourages plaintiffs and their attorneys to file claims of dubious merit. Proponents counter that CPAs are necessary to supplement FTC enforcement and provide incentives for individuals to bring suit to deter harmful conduct. While both critics and proponents of CPA enforcement make claims about the nature and quality of state consumer protection litigation, the academic and policy debates surrounding CPAs suffer from a remarkable void of empirical data.

Searle Civil Justice Institute Task Force on State Consumer Protection Acts

To shed light on these issues, the Searle Civil Justice Institute (SCJI) undertook a large-scale study of state Consumer Protection Acts. SCJI commissioned a Task Force on State Consumer Protection Acts (the Task Force) to advise and lead this study. The research conducted for this Preliminary Report was directed at two topics:

1. Trends and potential drivers of CPA litigation. In the first of two studies presented in this Preliminary Report, SCJI seeks to identify key trends in CPA litigation and the factors that may contribute to how much CPA litigation will occur in a jurisdiction. In particular, the first study focuses on the number of CPA decisions reported by state, the nature of each state’s consumer protection acts, and how the characteristics of consumer protection acts may contribute to differing levels of CPA litigation.

2. The nature of CPA actions compared to the FTC standard. The second study presented in this Preliminary Report seeks to determine whether there are significant qualitative differences between CPA claims and the FTC enforcement standard. This study examines whether a panel of experts believes that a sample of CPA claims involve conduct that is illegal under the FTC standard, and whether that conduct would in practice be challenged by the FTC.

Data and Methodology

In the first study presented in this Preliminary Report, the SCJI launched a massive data collection effort in order to conduct the first rigorous analysis of CPAs. The Task Force collected and coded information about CPA litigation in three steps: First the relevant CPA statutes from all 50 U.S. states and the District of Columbia were identified and information describing key characteristics of those statutes was collected. Second, the Task Force identified over 17,000 reported CPA decisions in federal district and state appellate courts from 2000 through 2007. Third, the Task Force examined more closely a random sample of 500 reported CPA decisions from the larger database. The data were analyzed using standard statistical methods in order to describe and evaluate CPAs.

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In the second study presented here, the SCJI commissioned an expert review panel (“Searle Shadow FTC”) consisting of five Shadow Commissioners with substantial consumer protection experience at or with the FTC. The Searle Shadow FTC reviewed sets of one page case scenarios of representative CPA cases and answered questions on whether they believed these cases would likely contain illegal conduct and/or be enforced under the FTC standard. The SCJI analyzed the Shadow Commissioners’ responses using standard statistical methods.

Key Findings

Litigation under CPAs has increased dramatically since 2000.

Between 2000 and 2007 the number of CPA decisions reported in federal district and state appellate courts increased by 119%. This large increase in CPA litigation far exceeds increases in tort litigation as well as overall litigation during the same period.

Vague statutory definitions of prohibited conduct are a major driver of CPA litigation.

Whether a CPA statute has vague language prohibiting some general type of conduct rather than a specific list of illegal actions is an important potential contributor to the level of CPA litigation in the state. States with vague definitions of prohibited conduct have more CPA litigation.

CPAs are becoming more favorable and generous to consumer litigants.

Between 1995 and 2007, the expected value of recovery for potential plaintiffs increased dramatically as measured by CPA requirements to bring a cause of action and available remedies. In 2004, the state CPAs that were the most favorable to plaintiffs were New Hampshire, Massachusetts, and Connecticut. The states with CPAs that were the least favorable to plaintiffs were Colorado, Maryland, and Georgia.

States with CPAs that are more favorable to consumers have more CPA litigation.

The expected value of recovery under a given state’s CPA appears to contribute to the amount of litigation that makes use of the act. States that allow more generous remedies and make it easier for consumers to win in court see more CPA litigation.

Most CPA claims would not constitute illegal conduct under FTC consumer protection standards.

The Searle Shadow FTC found that 78% of a sample of CPA claims would not constitute legally unfair or deceptive conduct under FTC policy statements. While relatively few CPA claims would constitute illegal conduct under the FTC standard (22%), even fewer (12%) would result in FTC enforcement.

Almost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC consumer protection standards.

In a sample of CPA claims where the consumer plaintiff prevailed in court, the Searle Shadow FTC found that 38% of these successful claims would not constitute illegal conduct under the FTC standard. Although most of these successful cases would meet the FTC illegality standards, only 23% would likely be enforced by the FTC.

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Potential Policy Implications

The empirical findings in the SCJI Preliminary Report on State Consumer Protection Acts have important implications for those interested in discussing and formulating public policy regarding CPAs:

1. To the extent that CPAs are envisioned as complements to FTC consumer protection, they appear to overshoot the mark. While resource limitations prevent the FTC from pursuing enforcement in every case of unfair or deceptive conduct, this report suggests that CPAs go well beyond filling this gap. Instead, CPAs may allow consumers to pursue different types of claims, including many that do not involve conduct that would be illegal under FTC standards for consumer protection.

2. Vague definitions of illegal conduct in CPAs, while legislatively expeditious, create costly uncertainty and unpredictability in the law. With vague definitions of illegal conduct, businesses must divert resources to interpret the law and to predict how it will be applied. Not only do vague standards impose uncertainty costs on litigants, they require judges to define the conduct that the statute intends to prohibit and to separate meritorious from frivolous claims. Ultimately, these additional costs imposed on litigants and the civil justice system may be paid by consumers in the form of higher prices.

3. The statutory language of CPAs matters. Plaintiffs appear to respond to the incentives established by CPAs. Statutory language that provides broader remedies and lower requirements to bring a cause of action tends to encourage plaintiffs to file suit under CPAs; language that restricts remedies and raises the bar for stating a cause of action tends to result in less CPA litigation. Altering the statutory text of CPAs is likely to be a successful way for legislatures to increase or decrease the amount of CPA litigation in a jurisdiction.

4. Because amendments to CPAs have tended to lower the requirements to bring a cause of action, it may be useful to investigate whether other established causes of action are being usurped. The increase in CPA litigation associated with lower statutory requirements and vague definitions combined with qualitative differences between CPA cases and FTC consumer protection standards might suggest that some CPA litigation does not involve consumer protection claims. To the extent CPA litigation involves claims that should have been brought under other causes of action, CPAs may undermine well-established legal doctrines. If legislatures intend to re-write contracts, torts, or products liability law, they should do so directly, rather than allowing expansive CPAs do so in an indirect fashion.

5. To the extent that the FTC standard meets its goal of an optimal balance between the public interest and protection of individual consumers, it is uncertain that the broader coverage of CPAs benefits consumers. The FTC standard seeks to limit consumer protection enforcement to those actions that will serve the public interest generally. CPAs that reach beyond this optimal enforcement goal may deter businesses from legitimate activity and force them to focus on legal matters unrelated to their business goals. Additionally, any increases in consumer protection that are provided by CPAs must be considered against the burdens that they impose on the civil justice system.

While the empirical results presented in this Preliminary Report may usefully inform policy discussions on CPAs, the report has limitations. First, reported CPA decisions do not allow for observation of complaints that were filed but subsequently settled without a reported decision. Second, the litigation

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selection bias inherent in using reported CPA decisions warrants caution for making strong conclusions about the quality of the underlying CPA claims. Third, the observed increase in reported CPA decisions could be affected by several factors including an increase in CPA litigation, a decrease in settlements, an increase in the number of written decisions due to uncertainty in interpreting CPAs, and an increase in the number of unpublished decisions reported to Lexis over time. However, it is not possible to fully separate the effects given the available data. Finally, for the Searle Shadow FTC, the case fact descriptions forming the basis of the excerpts given to Shadow Commissioners may not have included all of the facts ultimately relevant to the determination of liability. The possible limitations of the data do not prevent the report from contributing to an understanding of the nature of CPA litigation activity over time, between states, and as compared to federal standards, areas where empirical evidence is almost entirely absent. Our data allow us to generate estimates of the magnitude and determinants of CPA litigation activity that begin to address the lack of empirical data needed to inform policy debates regarding the effect of CPAs on the civil justice system.

Acknowledgments Thanks to the Searle Civil Justice Institute at Northwestern University School of Law for financial and other support for this project. Thank you also to the Searle Shadow Commissioners for their time and participation. Without their expertise, the Shadow Federal Trade Commission Study could not have been completed.

I appreciate valuable comments and discussions both prior to drafting and on earlier drafts of the report from the following reviewers: C. Lee Peeler, National Advertising Review Council and Advertising Self-Regulation Council of Better Business Bureaus; Craig Garthwaite, Kellogg School of Management at Northwestern University; Eric Helland, Claremont McKenna College; Max Schanzenbach, Northwestern University School of Law; and a reviewer who wished to remain anonymous. I owe a great debt to these commentators for taking the time to provide detailed suggestions that improved the quality of this report, though the time and energy they dedicated to the project should not be taken as an endorsement of the report or its conclusions.

Ron Allen, Jason Johnston, Jonathan Klick, and Fred McChesney, as well as members of the Searle Civil Justice Institute Board of Overseers and participants in the 2008 and 2009 Searle Center Spring Research Retreats, also provided very helpful comments on the project and on drafts of this report. Micah Hughes, Jonathan Hillel, Matthew Sibery, Hayley Smith, and Judd Stone supplied excellent research assistance and worked diligently on editing prior drafts.

I am especially grateful to Henry Butler for giving me the opportunity to be involved in this project, for providing the intellectual and conceptual foundation for much of this project, and for valuable discussions on consumer protection law and economics. I would also like to thank Geoff Lysaught for his tireless efforts in commenting on previous drafts, for his work in finalizing this report, and for managing the herculean data collection and research efforts required to bring the report to fruition.

Finally, I’d like to recognize Samantha Zyontz and Elise Nelson for their work on this project. The data collection involved in this project alone was a monumental task. Sam and Elise’s efforts in managing that task were simply outstanding. On top of that, both Sam and Elise spent scores of hours reviewing and analyzing that mountain of data, carefully revising sections of this report, and supplying every single empirical analysis, robustness check, data adjustment, graph, table, and appendix that I requested with remarkable grace and efficiency. I am grateful for their many contributions to the report.

Joshua D. Wright, Chair, State Consumer Protection Acts Task Force Assistant Professor of Law George Mason University

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STATE CONSUMER PROTECTION ACTS An Empirical Investigation of Private Litigation

Preliminary Report

INTRODUCTION

During the 1960s there was an increasing demand from the American public and elected officials for consumer protection legislation.1 In post World War II America, there was the perception that the market had become impersonal,2 and the balance of power between consumers and merchants in the marketplace had shifted in favor of merchants.3 Increased legal protection for consumers was viewed as necessary to restore the former balance.4 Common law causes of action—including deceit, misrepresentation, and breach of warranty—had relatively difficult burdens of proof5 and limited remedies. As a consequence, they were thought to be insufficient to protect the consumer. State Attorneys General attempted to respond to the apparent need for greater consumer protection by using existing statutory laws, such as lottery laws and printer’s ink laws, to protect consumer interests. They also advocated broader statutory powers to combat consumer fraud and other deceptive practices.6 The state legislatures’ responses came in the form of a diverse collection of legislation commonly called Consumer Protection Acts (CPAs).

Most CPAs were originally designed to supplement the Federal Trade Commission’s (FTC’s) mission of protecting consumers from “unfair or deceptive acts or practices.”7 A primary means of achieving this goal was the private action that empowered attorneys to act as private attorneys general. However, the FTC and private litigants face different incentives and constraints that affect the nature of

1 For example, President John F. Kennedy promoted the consumer protection movement by defining the consumers’ “bill of

rights” in a message to Congress in 1962. PRESIDENT JOHN F. KENNEDY, H.R. DOC. NO. 364, 87TH Congress, 2d Sess. (March 15, 1962).

2 William A. Lovett, Louisiana Civil Code of 1808: State Deceptive Trade Practice Legislation, 46 TUL. L. REV. 724, 725

(1972); James R. Withrow, Jr., The Inadequacies of Consumer Protection by Administrative Action, 1967 N.Y. STATE BAR ASS’N

ANTITRUST LAW SYMPOSIUMS 58, 64 (“The difficulties being faced by the consumer today are best understood in terms of the new ‘impersonality’ of the market place.”); see also NATIONAL ASSOCIATION OF ATTORNEYS GENERAL COMMITTEE ON THE OFFICE OF

ATTORNEY GENERAL, REPORT ON THE OFFICE OF ATTORNEY GENERAL 395 (1971). 3 H. Peter Norstrand, Treble Damage Actions for Victims of Unfair and Deceptive Trade Practices: A New Approach, 4 NEW

ENG. LAW REV. 171, 175 (1969) (“[T]he consumer has lost the leverage he once had in the marketplace. The disgruntled buyer can no longer hash out differences with his shopkeeper-neighbor; he is now confronted by impersonal bigness where responsibility and liability forever lie just one department away.”).

4 Brian J. Linn & Gretchen Newman, Part III: Implementing the Washington Consumer Protection Act, 10 GONZ. L. REV. 593, 597 (1975) (“[T}he goal is to reestablish equilibrium in the market place by recognizing that traditional remedies for fraud have proved ineffective in providing the aggrieved consumer adequate relief.”).

5 For example, to succeed in a tort action for false misrepresentation or deceit, the plaintiff must prove that there was intent to deceive, which is particularly difficult to do. Victor E. Schwartz & Cary Silverman, Common-Sense Construction of Consumer Protection Acts, 54 KAN. L. REV. 1, 7 (2005). Actions in contract for breach of contract or breach of warranty are seldom more effective than actions in tort as merchants can make false claims without entering into contracts. Id. at 7.

6 NATIONAL ASSOCIATION OF ATTORNEYS GENERAL COMMITTEE ON THE OFFICE OF ATTORNEY GENERAL, supra note 2, at 396. 7 42 U.S.C. § 45(a)(1) (2006).

2 State Consumer Protection Acts

actions pursued.8 For example, the FTC may decline to pursue an enforcement action that would be pursued by an individual consumer, or class of consumers, under a CPA. The FTC faces three primary limitations in selecting enforcement actions that do not constrain the private plaintiff. First, as political appointees, some FTC Commissioners are bound to be subject to political pressure to pursue or not pursue certain types of actions.9 Second, the FTC has limited resources which must be rationed to enforcement actions against only the most serious improprieties.10 Third, the FTC Act itself restricts the FTC to bring proceedings only when it would be in the public interest.11

In contrast to the FTC, private litigants under CPAs are not limited by political pressure, public duty, or even financial constraints as many CPAs mandate the award of multiplied damages and attorneys’ fees to successful plaintiffs.12 As such, there may be support for the theory that CPAs allow private litigants to bring smaller scale cases that approximate FTC enforcement actions but might not warrant allocation of FTC resources or meet the FTC requirement that consumer protection actions be in the public interest.13 The consumer is free, even incentivized, to pursue any case on which they might expect to prevail.

There is growing concern that CPA enforcement and litigation are not only qualitatively different than FTC enforcement, but may be counterproductive for consumers. Critics argue that the combination of private rights of action, generous remedies, expansive and elusive definitions of illegal conduct, lack of administrative expertise, and relaxation of common law limitations have generated a set of incentives that encourages plaintiffs and their attorneys to file claims of dubious merit. Critics suggest that the broader set of enforcement options offered by CPAs are placing significant strains on the civil justice system without offsetting gains in consumer protection.14 Proponents of CPAs counter that private rights of action and meaningful remedies are necessary to supplement FTC enforcement and provide sufficient incentives for individual plaintiffs to bring suit to deter conduct harmful to a larger class of consumers.15 While both critics and proponents of CPA enforcement make claims about the nature and quality of state consumer protection litigation, the academic and policy debates surrounding CPAs suffer from a remarkable void of empirical data.

Empirical questions lie at the heart of the CPA debate. Do CPAs significantly increase the demands on the civil justice system? How much consumer protection do CPAs add to FTC enforcement efforts? How common are CPA actions and are they becoming more common? These questions require empirical answers to shape the growing debate on the proper scope, interpretation, application, and consequences of CPAs. Despite vigorous policy debates over the merits of CPAs, no large scale, systematic study of CPA litigation exists. Policymakers and academics know little about key aspects of CPA actions, including the volume of CPA litigation, CPA variation between states, differences between CPA and FTC enforcement actions, and how CPA actions have changed over time. The Searle Civil

8 Jeff Sovern, Private Actions Under the Deceptive Trade Practices Act: Reconsidering the FTC as Rule Model, 52 OHIO ST.

L.J. 437, 437 (1991). 9 Id. at 441. 10 Id. at 442. 11 Id. at 442. 12 Schwartz & Silverman, supra note 5, at 3. 13 Marshall A. Leaffer & Michael H. Lipson, Consumer Actions Against Unfair or Deceptive Acts or Practices: The Private

Use of Federal Trade Commission Jurisprudence 48 GEO. WASH. L. REV. 521, 554 (1980). 14 See, e.g., Henry N. Butler and Jason S. Johnston, Reforming State Consumer Protection Liability: An Economic

Approach, 2010 COLUM. BUS. L. REV. (forthcoming 2010), available at http://ssrn.com/abstract=1125305; Michael S. Greve, Consumer Law, Class Actions, and the Common Law, 7 CHAP. L. REV. 155 (2004); Schwarz & Silverman, supra note 5.

15 See, e.g., Jean Braucher, Deception, Economic Loss and Mass-Market Customers: Consumer Protection Statues as Persuasive Authority in the Common Law of Fraud, 48 Ariz. L. Rev. 829, 832 (2006).

http://ssrn.com/abstract=1125305

Introduction 3

Justice Institute (SCJI) Task Force on State Consumer Protection Acts (“the SCJI Task Force”) aims to begin filling this void with a large scale examination of state CPA litigation in state and federal courts.

This Preliminary Report offers two related studies of the volume, trends, and nature of CPA litigation. In the first study, the SCJI Task Force generates a database of decisions from litigated CPA claims in state appellate and federal district courts in order to identify key trends in CPA litigation and the factors that may determine how much CPA litigation will occur. SCJI also collects the relevant CPA statues from every state and collects key characteristics on each of those statutes. The second study closely examines a sample of CPA claims and compares them to the FTC standard. It identifies qualitative differences between CPA and FTC claims by commissioning a “Shadow Federal Trade Commission” of experts in consumer protection. These experts evaluate a sample of CPA claims under the FTC standard. These two studies generate data that is critical to informing policy debates on the appropriate role of CPAs in the civil justice system.

Section I of this Report provides the background and history of CPAs. Sections II and III comprise the first study. Section II describes the research questions examined and the data and methodology used. Section III presents the results of the first study. Sections IV and V comprise the second study. Section IV describes the data and research methodology for the “Searle Shadow FTC” study. Section V presents the Shadow FTC results.

I. BACKGROUND AND HISTORY OF CONSUMER PROTECTION ACTS

A. Criticism of Existing Methods of Consumer Protection and the Call for CPAs

The push for states to adopt CPAs came from the confluence of three related forces in the late 1960s: criticism of FTC consumer protection efforts, popular demand for consumer protection and business regulation, and frustration with common law causes of action. These three forces touch on each of the existing institutions of consumer protection: federal regulation; market forces; and state common law.16 It was the perceived inadequacies of each of these institutions that lead states to enact CPAs.

The FTC was the target of criticism of federal consumer protection. By 1969 denouncement of the FTC had reached its zenith with publication of critical reports from “Nader’s Raiders,”17 the American Bar Association,18 and Professor Richard Posner.19 This criticism addressed a range of perceived problems at the FTC,20 including those offered by prior critics:21 poor leadership,22 insufficient and misallocated resources,23 political favoritism and regulatory capture,24 and protection of producers in the name of consumer protection.25

Proponents of stronger regulation argued that federal regulation and market forces no longer adequately protected consumers. The increasingly impersonal nature of transactions in the post-World War II economy had undercut consumers’ power to protect themselves through market-based and

16 See Timothy J. Muris, The Federal Trade Commission and the Future Development of U.S. Consumer Protection Policy

(George Mason University School of Law, Law and Economics Working Paper Series, 2004) available at http://ssrn.com/abstract_id=545182 (describing the institutions of consumer protection).

17 EDWARD R. COX, ROBERT C. FELLMETH & JOHN E. SCHULZ, “THE NADER REPORT” ON THE FEDERAL TRADE COMMISSION (1969).

18 AM. BAR ASS’N COMM’N TO STUDY THE FED. TRADE COMM’N, REPORT OF THE COMMISSION TO STUDY THE FEDERAL TRADE

COMMISSION (1969). 19 Richard A. Posner, The Federal Trade Commission, 37 U. CHI. L. REV. 48, 48 (1969) (listing publications between 1924

and 1969 criticizing the Federal Trade Commission). Posner was also a member of the ABA Commission that authored the 1969 report. See AM. BAR ASS’N COMM’N TO STUDY THE FED. TRADE COMM’N, supra note 18.

20 Posner, supra note 19, at 48 (“The Commission is rudderless; poorly managed and poorly staffed; obsessed with trivia; politicized; all in all, inefficient and incompetent.”); AM. BAR ASS’N COMM’N TO STUDY THE FED. TRADE COMM’N, supra note 18, at 1 (“Through lack of effective direction, the FTC has failed to establish goals and priorities, to provide necessary guidance to its staff, and to manage the flow of its work in an efficient and expeditious manner. . . . Through an inadequate system of recruitment and promotion, it has acquired and elevated to important positions a number of staff members of insufficient competence. The failure of the FTC to establish and adhere to a system of priorities has caused a misallocation of funds and personnel to trivial matters rather than to matters of pressing public concern. . . . The primary responsibility for these failures must rest with the leadership of the Commission.”); COX ET AL., supra note 17, at 39 (“1. The FTC has failed to detect violations systematically. 2. The FTC has failed to establish efficient priorities for its enforcement energy. 3. The FTC has failed to enforce the powers it has with energy and speed. 4. The FTC has failed to seek sufficient statutory authority to make its work effective.”).

21 Posner, supra note 19, at 47 (“What is remarkable about these studies, which span a period of 45 years, is the sameness of their conclusions.”).

22 Id. at 87 (“[T]he Commission today is probably more poorly managed than other federal agencies.”); AM. BAR ASS’N

COMM’N TO STUDY THE FED. TRADE COMM’N, supra note 18, at 35-36; COX ET AL., supra note 17, at 169-171. 23 AM. BAR ASS’N COMM’N TO STUDY THE FED. TRADE COMM’N, supra note 18, at 26-28. 24 COX ET AL., supra note 17, at 130-140. 25 Posner, supra note 19, at 71 (“A perusal of FTC rules and decisions reveals hundreds of cases in which prohibitory orders

have been entered against practices, not involving serious deception, by which sellers have attempted to market a new, often cheaper, substitute for an existing product.”).

http://ssrn.com/abstract_id=545182


reputation-based mechanisms.26 Consumer protection advocates also pointed to the increasing complexity of credit arrangements, marketing schemes,27 and warranty disclaimers as evidence of the breakdown of the traditional, “arm’s-length bargain” approach to consumer transactions.28 The general perception was that the balance of power between consumers and merchants in the marketplace had shifted towards merchants, who now enjoyed disproportionate influence in consumer transactions. There was widespread support for greater legal protection for consumers in order to restore the former balance.29

The final factor leading to the push for states to enact CPAs was the view that common law causes of action were insufficient to protect the consumer—particularly because they imposed impractically high evidentiary burdens in exchange for meager remedies.30 The common law actions for fraudulent misrepresentation and deceit serve as examples of the common law’s impracticality in consumer protection cases. These causes of action require actual injury to mature; this requirement precludes prospective injunctions against merchants engaging in potentially deceptive acts. An additional barrier to consumer protection suits was the requirement that an injured party had the difficult burden of proving that there was intent to deceive.31 Actions for breach of contract or warranty were seldom more effective than actions in tort as merchants could make false claims without entering into contracts.32 Even where there was a contract, contractual defenses such as reliance and privity requirements could impede consumer recovery.33 Further, even if the consumer had a valid claim and could meet the burden of proof, she might still have chosen to forego pursuit of the claim if it involved a pecuniary loss that was small relative to the cost of bringing suit.

In the face of criticism of the FTC, popular demand for increased regulation of business, and frustration with the limits of common law causes of action, many states adopted consumer protection legislation in the late 1960s and early 1970s. By 1981 every state had adopted some consumer protection legislation. Most states have frequently amended their consumer protection legislation resulting in great variation between states even where the same model act was initially adopted.34

B. Consumer Fraud Acts and Early Model Acts By 1962, six states had responded to the call for consumer protection and passed some act aimed

at protecting consumers.35 These early CPAs generally armed state Attorneys General with the power to seek and receive injunctions against specific practices. One early adopter, New Jersey, passed a

26 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., REPORT ON THE OFFICE OF ATTORNEY GENERAL,

supra note 2, at 395; Lovett, supra note 2, at 725); Withrow, supra note 2, at 64 (“The difficulties being faced by the consumer today are best understood in terms of the new ‘impersonality’ of the market place.”).

27 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 395. 28 Lovett, supra note 2, at 725. 29 Linn & Newman, supra note 4, at 597 (“[T]he goal is to reestablish equilibrium in the market place by recognizing that

traditional remedies for fraud have proved ineffective in providing the aggrieved consumer adequate relief.”); Norstrand supra note 3, at 175 (“[T]he consumer has lost the leverage he once had in the marketplace. The disgruntled buyer can no longer hash out differences with his shopkeeper-neighbor; he is now confronted by impersonal bigness where responsibility and liability forever lie just one department away.”).

30 Robert Quinn, Consumer Protection Comes of Age in Massachusetts, 4 NEW ENG. REV. 72 (1969)(“It was, after all, primarily the failure of the legal system to provide adequate remedies which led to the great consumer movement of the past decade with the resultant deluge of new laws.”).

31 Victor E. Schwartz & Cary Silverman, supra note 5, at 7. 32 Id. 33 Sovern, supra note 8, at 439-40. 34 MARY DEE PRIDGEN, CONSUMER PROTECTION AND THE LAW, §2:10 (2008). 35 Id. at App 3A.

Background and History of Consumer Protection Acts 7

“consumer fraud statute” in 1960 which became the model for several states’ initial CPAs.36 The act gave the Attorney General broad powers to investigate alleged unlawful practices, to obtain an injunction against persons engaging or about to engage in the unlawful practices, and to seek restitution for those harmed by the prohibited practices.37 While several states passed similar acts, others, such as Washington, enacted legislation modeled on the FTC Act and the Clayton Act.38

Several uniform and model statutes appeared in the late 1960s.39 Many modern CPA attributes can be traced back to these early model and uniform statutes. The first of the uniform consumer protection statutes to appear was the Uniform Deceptive Trade Practices Act (UDTPA), which was drafted by the National Conference of Commissioners on Uniform State Laws in 196440 and rewritten in 1966.41 The UDTPA lists twelve deceptive trade practices, the first eleven of which can be roughly divided into three categories of prohibited conduct: misleading trade identification, false advertising, and deceptive advertising.42 The final listed practice was a general prohibition of “any other conduct which similarly creates a likelihood of confusion or misunderstanding.”43 The twelve deceptive trade practices prohibited by the UDTPA, including the final, more general prohibition of other unfair conduct, were intended primarily to prevent unfair business competition, not to protect consumers.44

The UDTPA granted a private right of action, but limited the remedy to injunctive relief. The UDTPA did not contain the restrictions of common law causes of action—neither proof of damages nor intent to deceive were required to obtain an injunction. As amended in 1966, the UDTPA authorized reasonable attorneys’ fees to be granted to the plaintiff if the defendant willfully and knowingly engaged in the deceptive practice and to the defendant if the plaintiff knew his complaint was groundless.45 Most of the states that initially adopted the UDTPA in some form later amended their consumer protection law to allow monetary relief to consumers.46

The Model Unfair Trade Practices and Consumer Protection Law (UTPCPL) is the model statute most commonly associated with modern CPA laws. Developed by the FTC and adopted by the Committee on Suggested State Legislation of the Council of State Governments, the UTPCPL was originally published in 1967, only to be amended in 1969 and again in 1970.47 The UTPCPL was less innovative than comprehensive. It brought together many elements of prior pieces of consumer protection legislation and, in doing so, created an attractive private cause of action.

36 1960 NJ. LAWS ch. 39, §§1-12. 37 Id. §5. 38 Consumer Protection-Unfair Competition and Acts, 1961 Wash. Sess. Law, ch. 216. Section 2 of the Washington

legislation paralleled the FTC Act and read: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade of commerce are hereby declared unlawful.”

39 See NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 400. 40 UNIF. DECEPTIVE TRADE PRACTICES ACT (1964). 41 Mark D. Bauer, The Licensed Professional Exemption in Consumer Protection: At Odds with Antitrust History and

Precedent, 73 TENN. L. REV. 131, 145 (2006); NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 400 .

42 COMM’RS ON UNIF. STATE LAWS, HANDBOOK OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE

LAWS AND PROCEEDINGS OF THE ANNUAL CONFERENCE MEETING IN ITS SEVENTY-THIRD YEAR, 253 (1964). 43 Id. at 253. 44 Bauer, supra note 41, at 145; PRIDGEN, supra note 34, §2:10. 45 COMM’RS ON UNIF. STATE LAWS, supra note 42, at 299, 46 PRIDGEN, supra note 34, §2:10. 47 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 399.


The 1970 version of the UTPCPL offered a choice of three forms of unlawful practices.48 The first alternative form of unlawful practices used essentially the same language as Section 5 of the FTC Act: “Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”49 This language has led many commentators to refer to CPAs in this vein as “Little FTC Acts.”50 Twenty states initially adopted such acts.51

The second alternative form of unlawful action prohibited by the UTPCPL resembled the language of the consumer fraud acts adopted in the early and mid-1960s by states such as New Jersey.52 This alternative defined as unlawful “[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce.”53 This definition does not prohibit the broad category of “unfair practices.”54 Although a number of states had adopted similar consumer fraud acts earlier in the 1960s, no state adopted this language based upon the UTPCPL.55

The third alternative offered by the UTPCPL, known as the “laundry list approach,” included the twelve competition-focused prohibitions enumerated in the UDTPA.56 It added an additional thirteenth provision focused more directly on consumers.57 This thirteenth provision prohibited any act or practice that was “unfair or deceptive to the consumer.”58 Twenty-six jurisdictions adopted this language.59 Today, most of the states that had originally adopted the third form no longer rely exclusively on the laundry list approach; however, five jurisdictions still prohibit only specific acts without a “catch-all” provision prohibiting unfair and deceptive practices.60

48 COUNCIL OF STATE GOV’TS, 1970 Suggested State Legislation, 142 (1970). 49 UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW (Council of State Gov’ts 1970). The first version of the

UTPCPL in 1967 used only this language to define the prohibited acts. COUNCIL OF STATE GOV’TS, supra note 48, at 142. 50 PRIDGEN, supra note 34, §2:10. 51 Id. §2:10. 52 COUNCIL OF STATE GOV’TS, supra note 48, at 142. 53 Id. 54 PRIDGEN, supra note 34, §2:10. 55 Id. 56 COUNCIL OF STATE GOV’TS, supra note 48, at 142. 57UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW §2 (Council of State Gov’ts 1970) (“The following unfair

methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared to be unlawful: (1) passing off goods or services as those of another; (2) causing likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services; (3) causing likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another; (4) using deceptive representations or designations of geographic origin in connection with goods or services; (5) representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have or that a person has a sponsorship, approval, status, affiliation, or connection that he does not have; (6) representing that goods are original or new if that are deteriorated, altered, reconditioned, reclaimed, used, or secondhand; (7) representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another; (8) disparaging the goods, services, or business of another by false or misleading representation of fact; (9) advertising goods or services with intent not to sell than as advertised; (10) advertising goods or services with intent not to supply reasonably expectable public demand, unless the advertisement discloses a limitation of quantity; (11) making false or misleading statements of fact concerning the reasons for, existence of, or amounts of price reductions; (12) engaging in any other conduct which similarly creates a likelihood of confusion or of misunderstanding; or (13) engaging in any act or practice which is unfair or deceptive to the consumer.”)

58 Id. 59 PRIDGEN, supra note 34, §2:10 (Alabama, Arkansas, Arizona, California, Georgia, Guam, Hawaii, Idaho, Indiana, Kansas,

Maryland, Michigan, Nebraska, Nevada, New Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Virgin Islands, and West Virginia).

60 Id. (Colorado, District of Columbia, Indiana, Mississippi, and New York have pure laundry lists approaches. The twenty-one other jurisdictions that use a laundry list approach also have some general prohibition of unfair and deceptive acts.).


The UTPCPL gave state Attorneys General the same basic powers as did the UDTPA.61 Section 5 authorized the Attorney General to act to enforce the prohibition of acts and practices defined in § 2:

Whenever the [A]ttorney [G]eneral has reason to believe that any person is using, has used, or is about to use any method, act or practice declared by Section 2 of this Act to be unlawful, and that proceedings would be in the public interest, he may bring an action in the name of the State against such person to restrain by temporary or permanent injunction the use of such method, act or practice. . . .62

The Attorney General was also entitled to seek relief by restitution or disgorgement of money or property acquired as a result of any act declared unlawful by the UTPCPL63 and civil penalties for a knowing violation of the UTPCPL.64

In addition to attorney-general enforcement, the UTPCPL authorized private actions for monetary damages. Section 8 of the UTPCPL authorized private suits and class actions for monetary damages as well as injunctive relief.65 Private individuals could recover the greater of “actual damages or $200,” with punitive damages and equitable relief available at the court’s discretion.66 Section 8(b) authorized “persons similarly situated” to bring a class action. Section 8(d) stated that the court “may award, in addition to the relief provided in this Section, reasonable attorney’s fees and costs.”67

The UTPCPL consciously attempted not to stray too far from relevant FTC enforcement standards. Section 3 stated that “due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to Section 5(a)(1) of the Federal Trade Commission Act.”68 Further, it empowered the Attorney General to “make rules and regulations interpreting” the prohibited actions, but that:

[s]uch rules and regulations shall not be inconsistent with the rules, regulations and decisions of the Federal Trade Commission and the federal courts in interpreting the provisions of Section 5(a)(1) of the Federal Trade Commission Act.69

Twenty-eight states currently reference the FTC in their CPA.70

C. Comparing Federal and State Consumer Protection

Having been enacted in the face of criticism of the FTC, it is not surprising that state and federal consumer protection legislation have noticeable differences. The key differences are that states provide a

61 The UTPCPL gave the Attorney General powers similar to those granted in the earlier consumer fraud acts. Sections 11 through 14 granted the Attorney General broad investigatory powers, the power to issue subpoenas, and the power to enforce the investigatory demands.

62 UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW § 2 (Council of State Gov’ts 1970). 63 Id. § 6. 64 Id. §15. 65 Id. § 8 (Section 8(a) read in part “Any person who purchases or leases goods or services primarily for personal, family or

household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a method, act or practice declared unlawful by Section 2 of this Act, may bring an action. . . .”).

66 Id. 67 Id. 68 Id. § 3. 69 Id. 70 PRIDGEN, supra note 34, app. 3B (Most states’ statutes provide that the courts should be guided by FTC interpretations,

but that such interpretations are not dispositive.).


private right of action, different remedies, and relaxed common law limitations on consumer protection actions when compared to FTC policy standards.

The FTC Act does not include a private enforcement mechanism, yet every CPA grants consumers a private right of action.71 This difference is driven by the “balance of power” argument that in interactions between businesses and consumers, more power must be shifted towards consumers. This argument suggests that a private remedy for wronged consumers is necessary for effective prosecution of consumer complaints.72 These private rights of action were envisioned as a complement to public agency administrative enforcement under the FTC Act. Although public enforcement under the FTC Act requires the Commission to consider the public interest in deciding whether to challenge a practice, only a few states include a public interest requirement for private actions.73

A second difference between CPAs and FTC consumer protection is that they confer different remedies.74 Remedies available under the FTC Act include injunctions, cease and desist orders, consent decrees, and disgorgement of profits. At least a dozen CPAs limit plaintiffs to actual damages, restitution, or equitable relief,75 but the majority of statutes provide additional remedies, including statutory damages, treble damages,76 and punitive damages. Nearly all states authorize the discretionary award of attorney’s fees.77

A third dimension upon which CPAs differ from the FTC Act, and also from one another, is the degree to which state legislation and judicial interpretation have relaxed the common law limitations on consumer protection claims. The common law requirement of reliance is a useful example. The majority of statutes do not require a CPA plaintiff to show that he or she relied on the defendant’s allegedly deceptive act or statement,78 while the FTC requires reasonable reliance in its definitions of both unfair

71 Iowa was the last state without a private right of action, but recently enacted one with the Private Right of action for

Consumer Fraud Act. See Iowa Ann. Code §714H (West 2009). 72 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 408. 73See, e.g., Hall v. Walter, 969 P.2d 224, 234, (Colo. 1998) (the practice challenged by an individual under COLO. REV.

STATE. § 6-1-113 (1998) must significantly impact the public as actual or potential consumers); Zeeman v. Black, 156 Ga. App. 82, 84, 273 S.E.2d 910, 915 (1980) (stating that unless the defendant’s actions had or has potential harm for the consumer public they are not directly regulated by the FBPA, O.C.G.A. § 10-1-3-0 et. seq.); Ly v. Nystrom, 615 N.W.2d 314 (Minn. 2000) (public interest must be demonstrated to state a claim under the private A.G. statute – relating to the CFA, MINN. STAT. § 325F.68 et. seq.); Nelson v. Lusterstone Surfacing Co., 258 Neb. 678, 605 N.W.2d 136 (2000) (to be actionable under the CPA the unfair/deception act must have impact on the public interest); Jefferies v. Phillips, 316 S.C. 523, 451 S.E.2d 21, 1994 S.C. App. Lexis 139 (S.C. Ct. App. 1994) (to be actionable under SCUPTA, S.C. CODE § 39-5-20, unfair or deceptive practices must adversely affect the public interest); Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 719 P.2d 531 (1986) (private litigant must establish a public interest impact to establish a prima facie case under the CPA, REV. CODE

WASH. § 19.86.010 et. seq.). 74 See Butler and Johnston, supra note 14. 75 E.g. ARK. CODE ANN. § 4-88-113 (2001); FLA. STAT. § 501.211(2) (2002); IND. CODE ANN. § 24-5-0.5-4(b) (1996); ME.

REV. STAT. ANN. tit. 10, § 1213 (1997); MD. CODE ANN., COM. LAW § 13-408 2000); MISS. CODE ANN. § 75-24-15(1) (1999); NEB. REV. STAT. ANN. § 59-1609 (2004); S.D. CODIFIED LAWS § 37-24-31 (2004); TEX. BUS. & COM. CODE § 17.50(b)(1) (2002); WIS. STAT. ANN. § 100.18(11)(b)(2) (2004); WYO. STAT. ANN. § 40-12-108(b) (2005).

76 See, Schwartz & Silverman, supra note 5. In some cases, damages are doubled or trebled regardless of the egregiousness of the defendant’s conduct. E.g., ALASKA STAT. § 45.50.531(a) (2004); D.C. CODE ANN. § 28-3905(k) (2001); HAW. REV. STAT. ANN. § 480-13 (2004); N.J. STAT. ANN. § 56:8-19 (2001); N.C. GEN. STAT. § 75-16 (2003); WIS. STAT. § 100.20(5) (2004). Nine states treble damages if the defendant acted intentionally, willfully, knowingly, or in bad faith. See COLO. REV. STAT. § 6-1-113(2)(a)(III); GA. CODE ANN. § 10-1-399(c) (2000); MASS. GEN. LAWS, ch. 93A, § 9(3); N.H. REV. STAT. ANN. § 358-A:10 (1995); N.M. STAT. ANN. § 57-12-10(B); N.Y. GEN. BUS. LAW § 349(h); S.C. CODE ANN. § 39-5-140(a) (1985); TENN. CODE

ANN. § 47-18-109(a)(3) (2001); VA. CODE ANN. § 59.1-204(A); TEX. BUS. & COM. CODE ANN. § 17.50(b)(1) (2002). 77 Schwartz & Silverman, supra note 5, at 25. 78 For detailed analysis and citations, see Schwartz & Silverman, supra note 5.


and deceptive practices.79 Other state courts have held that a misrepresentation, absent evidence of other harm to the consumer or that the plaintiff relied on the misrepresentation, is sufficient to demonstrate consumer injury.80 Some state courts have held that defenses such as the statute of frauds,81 warranty disclaimers,82 the doctrine of substantial performance,83 the parol evidence rule,84 the common law merger doctrine,85 contractual limitations on liability or remedies,86 and privity of contract requirements87 are not available to defendants in consumer protection cases.

The attractive private right of action provided by CPAs, unlike the FTC standard, is often divorced from a public interest requirement and from common-law limitations. These differences have caused some to suggest that CPAs may be subject to abuse by litigants who have suffered no actual harm, and that this abuse will ultimately not protect, but harm consumers.88 D. Expanding and Amending CPAs

Amendments and judicial interpretation of CPAs have tended to expand rather than contract the rights of consumers.89 Massachusetts’ experience is representative of the early expansion of CPAs. Massachusetts’ original CPA gave the Commonwealth’s Attorney General the authority to investigate and subpoena90 and, in the interest of the public, bring an action seeking injunctive relief and civil penalties up to $10,000.91 The law originally did not provide for any type of private action, and aggrieved

79 Letter from James C. Miller III, Chairman, Federal Trade Commission, to John Dingell, Chairman, Committee on Energy

and Commerce (Oct. 14, 1983), available at www.ftc.gov/bcp/policystmt/ad-decpet.htm; Letter from Michael Pertschuk, Chairman, Federal Trade Commission, and Paul Rand Dixon, David A. Clanton, Robert Pitofsky, and Patricia P. Bailey, Commissioners, Federal Trade Commission, to Wendell H. Ford, Chairman, Committee on Commerce, Science, and Transportation, and John C. Danforth, Ranking Minority Member, Committee on Commerce, Science, and Transportation (Dec. 17, 1980), available at www.ftc.gov/bcp/policystmt/ad-unfair.htm.

80 Aspinall v. Philip Morris, 813 N.E.2d 476, 486 (Mass. 2005). 81 See, e.g., McClure v. Duggan, 674 F. Supp. 211, 224 (N.D. Tex. 1987) (holding the statute of frauds was not applicable

under Texas deceptive trade practices act). 82 See, e.g., Attaway v. Tom's Auto Sales, Inc., 144 Ga. App. 813, 242 S.E.2d 740 (1978). 83 See, e.g., Smith v. Baldwin, 611 S.W.2d 611, 614 (Tex. 1980). The court explained that “[a] primary purpose of the

enactment of the DTPA was to provide consumers a cause of action for deceptive trade practices without the burden of proof and numerous defenses encountered in a common law fraud or breach of warranty suit.” Id. at 616.

84 See, e.g., Teague Motor Co. v. Rowton, 84 Or. App. 72, 733 P.2d 93 (1987) (holding that parol evidence may be used in Oregon consumer protection cases); Weitzel v. Barnes, 691 S.W.2d 598, 600 (Tex. 1985) (holding that parol evidence may be used in Texas consumer protection cases); Capp Homes v. Duarto, 617 F.2d 900, 902 n.1 (1st Cir. 1980) (holding that parol evidence may be used in Massachusetts consumer protection cases).

85 See generally Raren S. Guerra, DTPA Precludes Use of Merger Doctrine and Parol Evidence Rule in Breach of Warranty Suit: Alvarado v. Bolton, 41 BAYLOR L. REV. 373 (1989). [Maybe cite directly to the case then have a parenthetical for the see generally to the article]

86 See, e.g., International Nickel Co. v. Trammel Crow Distrib., 803 F.2d 150, 155-56 (5th Cir. 1986) (holding that contractual limitations inapplicable in suit under Texas “Little FTC Act”); Corral v. Rolling Protective Serv. Co., 240 Kan. 678, 732 P.2d 1260 (1987) (holding similarly under Kansas law); Reliance Universal, Inc. v. Sparks Indus., 688 S.W.2d 890 (Tex. Ct. App. 1985) (holding similarly under Texas law).

87 See generally Note, The DTPA and Privity: Let the Buyer Beware Becomes Let the Buyer Recover, 39 BAYLOR L. REV. 787 (1987).

88 See, e.g., Butler and Johnston, supra note 14. 89 However, this is not true for all state statutes. For example the Illinois Supreme Court has contracted the geographic

scope of its CPA. See Avery v. State Farm Mutual Auto. Ins. Co., N.E.2d 801, 881 (Ill. 2005) at 863-64 (limiting class actions brought under the Illinois Consumer Fraud Act to fraudulent transactions that occur within Illinois borders).

90 MASS GEN. LAWS ANN., ch. 93A, §6 (1967). 91 Id. §4.

http://www.ftc.gov/bcp/policystmt/ad-unfair.htm


consumers could seek recourse only through common law alternatives in tort or contract.92 In 1969, the CPA was amended to give a private right of action by adopting language similar to Section 8 of the UTPCPL.93 The amendment allowed consumers to receive the greater of treble damages or $25 upon proof of injury by an unfair or deceptive practice.94

Amendments to CPAs have often sought to provide adequate incentives for consumers to act as private enforcers. Proponents of CPAs argued that if consumers were not willing to litigate and pursue complaints, CPAs could not fulfill their intended purpose of deterring deceptive and unfair trade practices. Suits involving common law actions were often uneconomical for the aggrieved consumer because of high burdens of proof and difficulty of establishing damages. CPAs circumvent these issues by providing causes of action which require less rigorous burdens of proof than their common law counterparts. For example, the UDTPA stated that “[p]roof of monetary damage, loss of profits, or intent to deceive is not required [to receive relief].”95 CPA expansion has also often involved a reduction in the burden of proof required of consumers.96

These reductions in the burden of proof have been controversial. Some commentators argued that the presence of a credible threat in the form of a private right of action with treble damages would be enough to restore the equilibrium between consumers and merchants, and reductions in the burden of proof are not necessary.97 Others recognize that CPAs give rise to the potential for harassment of legitimate business conduct98 and that vague consumer fraud statues invite the possibility of abuse.99

Amendments to CPAs have also tended to include provisions allowing for class actions. States were slower to adopt class action provisions than private rights of action in large part because of concerns of abuse. In 1971, the National Association of Attorneys General recommended that states empower Attorneys General to bring class action suits,100 but warned that allowing private class action suits would “provide too great an opportunity for frivolous suits.”101 Balancing these concerns, some states adopted the provision of private class action suits along with provisions intended to make it harder to bring a frivolous class action suit. For example, Massachusetts attempted to avoid frivolous class actions by requiring a 30 day opportunity for the respondent to the potential class action to make restitution.102 Alaska’s class action provision required approval by the Attorney General and a bond before a class action suit could be certified.103 The Uniform Consumer Sales Practice Act provided fee-shifting in favor of defendants if a class action suit was found to be groundless.104

92 Norstrand, supra note 3, at 173. 93 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 408. 94 Id. 95 UNIF. DECEPTIVE TRADE PRACTICES ACT §3 (1964). 96 David A. Rice, Exemplary Damages in Private Consumer Actions, 55 IOWA L. REV. 307, 307 (1969). 97 Norstrand, supra note 3, at 175 (“Even if rarely invoked, awareness by the consumer that he need not be helpless when

victimized by fraud can only improve the commercial climate. If this means ‘caveat vendor’, then so be it.”). 98 Lovett, supra note 2, at 744. 99 E.g., Rice, supra note 96, at 340. 100 NAT’L ASS’N OF ATT’YS GEN. COMM. ON THE OFFICE OF ATT’Y GEN., supra note 2, at 409. 101 Id. 102 Id. 103 Id. at 409-10. 104 Id. at 409.


E. Modern Concerns Emerge

By the early 1990s, the increasing use of CPAs generated criticism that CPAs were being used in ways that the legislatures never intended, leading to substantial abuse and frivolous lawsuits.105 Commentators and experts began to question whether CPAs were fulfilling their original promise to supplement public enforcement and enhance consumer outcomes, and whether the courts were interpreting the statutes correctly, especially in the private litigation context.106 Others argued that the low threshold for “unfair and deceptive acts” had gone too far in aiding plaintiffs, encouraging claims that ultimately were not in the public interest107 and that the low level of proof required in a CPA claim made it too easy for an unharmed consumer to succeed and receive substantial damages.108 In addition, some commentators have argued that claims were increasingly brought under the auspices of consumer protection that would have traditionally been brought as environmental, product liability, or contract claims.109 Recent commentators have argued that modern CPA liability, characterized by supra-compensatory remedies and minimal injury requirements, may have harmful consequences for consumers by taxing socially desirable business conduct such as communications between merchants and consumers.110 What follows is the first attempt to bring a large-scale, empirical analysis to bear on these modern concerns.

105 Wayne E. Green, Lawyers Give Deceptive-Trade Statutes New Day in Court, Wider Interpretations, Wall St. J., Jan. 2,

1990, at B1.. 106 Perry A. Craft, State Consumer Protection Enforcement: Recent Trends and Developments, 59 ANTITRUST L.J. 991, 997

(1991) (Throughout the 1980s states’ Attorneys General were active in enforcement of their states CPAs, without substantial criticism.).

107 Sovern, supra note 8, at 437. 108 Schwartz & Silverman, supra note 5, at 3; Jon Mize, Fencing Off the Path of Least Resistance: Re-Examining the Role of

Little FTC Act Actions in the Law of False Advertising, 72 TENN. L. REV. 653, 653-54 (2005). 109 Schwartz & Silverman, supra note 5, at 3-4. 110 See Butler and Johnston, supra note 14. Actual and potential defendant merchants may pass the costs of CPA litigation

on to consumers through higher prices. Id.

II. DESCRIPTIVE ANALYSIS OF CPA LITIGATION TRENDS

The primary goal of the SCJI Task Force on State Consumer Protection Acts is to conduct an empirical investigation of CPAs and their role in the civil justice system. While critics and defenders of CPAs have made various assertions about the nature and quality of CPA litigation, systematically derived facts have not yet informed the policy debate. The SCJI Task Force has conducted the first large scale study of CPAs in an attempt to move the debate forward on the basis of empirical evidence rather than theory, anecdotes, and assertions.

A. Research Questions

In this Preliminary Report, the SCJI Task Force focuses on a series of research questions designed to provide important, policy relevant empirical evidence to decision makers interested in CPAs and their role in the civil justice system. The empirical questions focused on in this report are:

• What are the trends in CPA litigation over time and between states?

• What are the key determinants of CPA litigation? For example, do CPAs with vague and imprecise definitions of illegal conduct or more generous remedies generate greater CPA litigation activity?

• Are CPA claims qualitatively different than consumer protection claims brought under the FTC’s Section 5 authority?

The Descriptive Analysis presented in Section III focuses on the volume of CPA litigation and trends in CPA litigation over time and between states. Differences between consumer protection claims brought under the FTC Act and CPAs is addressed in the analysis presented in Section V.

B. Data and Methodology

The SCJI Task Force aims to increase the basic understanding of CPA litigation and litigation trends in state appellate and federal courts. As an initial step in addressing the lack of empirical evidence concerning CPA litigation, the SCJI is engaged in a massive data collection effort. SCJI has identified over 17,000 reported CPA decisions in federal district courts and state appellate courts, including state supreme courts. This Section describes the data collection process, methodology, and limitations of the analysis before turning to results. SCJI collected and coded information about CPA litigation and decisions in three steps: (1) CPA statute identification and coding, (2) reported CPA decision collection and screening, and (3) reported CPA decision random sample coding.

1. CPA Statute Identification and Coding

The first step was to identify each state’s statutes related to consumer protection in order to create a CPA Statute Database. The Task Force began with a list of CPA statutes identified by Brown and Hepler111 and the Product Liability Advisory Council.112 In a few instances, additional relevant statutes were identified and added to the database, resulting in a total of 68 CPA statutes from all fifty states and the District of Columbia. The Task Force then coded these statutes for several attributes as of June 2008.113 These attributes fall into five general categories: (1) basic statute identification,114 (2) content

111 Alan S. Brown & Larry E. Hepler, Comparison of Consumer Fraud Statutes Across the 50 States, 55 FDCC QUARTERLY 263 (2005).

112 PRODUCT LIAB. ADVISORY COUNCIL, CONSUMER FRAUD STATUTES: A GUIDE TO LAW IN THE 50 STATES, (2005). 113 The CPA Statute Database was compiled at the SCJI using a list of CPA Statutes (Appendix A, infra) and the Coding

Instructions listed in Appendix B, infra.


and scope of the statute,115 (3) available remedies, (4) statute of limitations and choice of law provisions, and (5) any amendments or extensions to the CPA statute from 1995 forward.116

2. Reported CPA Decision Collection and Screening

A search strategy was developed to identify the universe of decisions reported to Lexis (both published and unpublished) mentioning a CPA claim brought by a party in the suit at issue (“reported CPA decisions”). The search was limited to state appellate and federal district courts from 2000 through 2007 in the fifty states and the District of Columbia.117 This resulted in a population database of approximately 17,000 reported CPA decisions.

3. Reported CPA Decision Random Sample Coding

To better understand the decisions and types of cases which involve CPAs, the Task Force generated a random sample of 500 reported CPA decisions from the database of approximately 17,000. The Task Force collected additional information about these 500 decisions in the form of almost 90 variables falling into nine categories. During this process, 63 reported CPA decisions that did not belong in the population database were identified and removed. 118 Thus, the Task Force coded a total of 437 reported CPA decisions. To minimize potential inter-coder reliability concerns, each of the nine categories was assigned to a separate coder responsible for recording information for each variable in the category.119 Appendix D provides details on the data collected at this stage.

C. Limitations to Reported CPA decisions

The unit of analysis in the Preliminary Report is a reported CPA decision, defined as a decision reported to Lexis (either published or unpublished) mentioning a CPA claim brought by a party in the suit at issue. Using reported CPA decisions allowed the Task Force to collect data from a single source, gain insights into the use and prevalence of CPA claims, and get a better understanding of litigation activity caused by uncertainties in interpreting CPAs. However, reported CPA decisions have some disadvantages, including that they cannot be used to observe filings and settlements. Despite possible limitations, reported CPA decisions allowed the Task Force to accomplish its primary goals of providing empirical evidence on the magnitude and trends of CPA litigation activity and the nature of its impact on the civil justice system. In the rest of this Section, potential limits to the analysis contained in the Preliminary Report are discussed.

114 Basic statute identification includes variables such as the common title of the statute, citation information, and date of

adoption. 115 This category includes information such as the definition of illegal acts under the statute, if the CPA explicitly purports to

follow the FTC’s interpretation of unfair and/or deceptive practices, if the CPA allows private causes of action and class actions, and whether the CPA explicitly requires a demonstration of injury, reliance, or that enforcement is in the public interest.

116 All amendments or extensions were found by performing in Westlaw an historical search of legislation passed on each of the statutes from 1995 through 2007.

117 The relevant databases used in Lexis were the “State Court Cases, Combined” and the “U.S. District Court Cases, Combined.” In order to avoid inadvertently eliminating relevant decisions, an over-inclusive search string based on common titles of CPA statutes and words or phrases relating to typical CPA actions was used and identified decisions were submitted to additional screening explained in greater detail in Appendix C.

118 These 63 decisions were distributed over a large number of states, over both court types, and over time so it is unlikely that the overall observed trends will change, should more non-reported CPA decisions need to be removed from the population of approximately 17,000.

119 See infra Appendix D.

Descriptive Analysis of CPA Litigation Trends 17

First, reported CPA decisions do not allow for observation of complaints that were filed120 but subsequently settled without a substantive decision. To the extent that the CPA claim settlement rate changes over time, it is not possible to identify whether an increase in the number of reported decisions implies a similar increase in total filings, or merely a decreasing settlement rate.

Second, the fact that reported CPA decisions are litigated cases results in the sample having a selection bias towards “close calls.”121 The litigation selection bias renders inferences about the distribution of underlying claims unreliable since close calls are more likely to be litigated. This type of selection effect warrants caution for making strong conclusions about the quality of the underlying CPA claims.

Finally, the number of reported CPA decisions could be affected by the number of unpublished decisions reported to Lexis over time. Although Lexis has collected unpublished decisions since 2000, the availability of these decisions varies by court and over time. It is possible that any observed increase in reported CPA decisions could, in part, be due to a greater number of unpublished decisions reported by different courts over time as electronic filing was adopted. This would have an effect of increasing the number of reported CPA decisions over time through better reporting and not necessarily more litigation.122

To evaluate this possibility, the Task Force compared the number of CPA decisions reported with the number of tort decisions and the overall number of decisions reported during the same period. In state appellate courts and federal district courts, reported CPA decisions increased 118.9% between 2000 and 2007 with a CAGR of 11.8%. In contrast, overall decisions in state appellate and federal district courts increased by only 50.1% between 2000 and 2007 with a CAGR of 6.0% and tort decisions increased by 48.7% with a CAGR of 5.8%. Therefore, reported CPA decisions increased at a greater rate than overall reported decisions, a finding that suggests a true increase in CPA litigation rather than a simple reporting effect.

Possible limitations of the data presented here do not prevent this Preliminary Report from contributing to an understanding of CPA litigation over time and between states, an area where empirical evidence is almost entirely absent.

120 Due to time limitations, it was not possible to collect data on all CPA filings from 2000 through 2007. 121 See George L. Priest & Benjamin Klein, The Selection of Disputes for Litigation, 13 J. LEGAL STUD. 1 (1984). 122 According to Kirc Breissinger (Director of Product Planning at Lexis), the E-Government Act of 2002 (Pub.L. 107-347,

116 Stat. 2899, 44 U.S.C. § 101, H.R. 2458/S. 803) applied to the federal judiciary and mandated public access to all court case opinions. The Act requires federal courts to make opinions publicly available for an unlimited time and for compliance to occur at each court. Court websites post these decisions; however, many courts slowly implemented the requirement and Lexis saw an influx of cases beginning in 2005 and continuing forward.

III. EMPIRICAL RESULTS: A DESCRIPTIVE ANALYSIS OF THE CPA LANDSCAPE

A. Evidence on CPA Claims, Defendants, and Awards

Utilizing the sample of 437 CPA decisions, the Task Force examined whether cases involving CPA claims have certain common characteristics. This examination revealed that CPA cases often involve multiple claims against defendants from a relatively small number of industries and successful claims result in non-trivial damage awards. First, as Chart 1 shows, CPA claims are often used in conjunction with at least one other claim. The majority of reported CPA decisions in the sample include between two and six total plaintiff claims.

CHART 1

In addition, defendants in reported CPA decisions come from a multitude of industries, but they

are most frequently firms in industries involving services, manufacturing, insurance, and financial institutions. Service providers, which include law firms, repair shops, consulting firms, distributors, and landlords, are defendants in 20.8% of the reported CPA decisions (91 out of 437 decisions); manufacturers are defendants in 15.6% (68 out of 437 decisions); insurance and warranty companies are defendants in 14.6% (64 out of 437 decisions); and financial institutions (excluding insurance companies) are defendants in 13.0% (57 out of 437 decisions).

0

10

20

30

40

50

60

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 25

Num

ber o

f Rep

orted CP

A Decisions

Number of Plaintiff Claims

Number of Plaintiff Claims in Reported CPA DecisionsNumber of Reported CPA Decisions by Court

(N = 437)

Federal State Appellate

Review of these 437 decisions also revealed 43 victories for CPA claimants out of 60 cases that went to trial and that monetary awards for prevailing plaintiffs are not trivial. Data on CPA monetary awards is only available in 23 of these 43 victories. Excluding an outlier award of $151 million in which the award was attributable to a common law fraud claim, the average total award is $638,582 and the


median total award is $144,197.123 It is possible that some of the remaining CPA decisions result in a monetary settlement, but our dataset does not include terms of these settlements.

B. Time Trends in CPA Litigation Activity

Chart 2 documents the total number of reported CPA decisions from 2000 through 2007. During this period, the number of reported decisions increased by 119% with a CAGR of 11.8%.

CHART 2

0

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1000

1500

2000

2500

3000

3500

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orted CP

A Decisions

Year

Reported CPA Decisions by Year(N = 17,061)

Chart 3 documents the total number of reported CPA decisions in federal district courts and state

appellate courts from 2000 through 2007.

123 Standard deviation = $1,260,401.

Empirical Results: A Descriptive Analysis of the CPA Landscape 21

CHART 3

0

500

1000

1500

2000

2500

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orted CP

A Decisions

Year

Reported CPA Decisions by Court by Year(N = 17,061)

Federal State Appellate

Time series data reveal several important pieces of information. First, the total volume by year of reported CPA decisions ranged from 744 decisions to 2,150 decisions in federal district courts and from 693 to 1,098 decisions in state appellate courts. Second, reported CPA decisions increased from 2000 to 2007 in both state appellate and federal district courts. In state appellate courts, reported CPA decisions had a CAGR of 5.3% over the eight year period (693 decisions in 2000 to 996 decisions in 2007). In federal district courts, reported CPA decisions had a CAGR of 16.4% (744 decisions in 2000 to 2,150 decisions in 2007). These growth rates are larger than for all reported tort decisions reported in Lexis for t he same period.124 The larger increase in federal CPA decisions compared to state decisions may be in part a reporting effect. For the same period there was a general increase in the number of federal decisions reported in Lexis with a CAGR of 23.5%.

C. Interstate Variation in Reported CPA Decisions

The aggregate trends highlight a significant increase in reported CPA decisions over the eight year period. State level trends demonstrate substantial interstate variation. Chart 4 displays reported CPA decisions in federal district courts by state. While the general trend in most states has been upward, reported CPA decisions in California federal courts has increased the most noticeably from 96 decisions in 2000 to 455 in 2007 (CAGR of 24.9%). Although California contributes a large portion of the overall

124 For tort decisions during the same period, state appellate courts had a CAGR of 0.7%, and federal district courts had

CAGR of 15.7%.


increase in litigation activity, the increase is still present after removing California reported CPA decisions.125

CHART 4

0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orted CP

A Decisions

Year

Federal District Court:Reported CPA Decisions by State by Year

(N = 9,743)

CA

Chart 5 presents the same information as Chart 4 for state appellate courts. Reported CPA decisions in state appellate courts increased less substantially than in federal district courts. California, again, experienced the most noticeable increase from 35 decisions in 2000 to 254 decisions in 2007 (CAGR of 32.7%). Texas, like California has a high volume of state appellate CPA decisions, but shows a slight decrease from 214 to 184 decisions (CAGR of -2.1%).

125 For further examples of the effects of removing California on our results, see Section III E.4, infra.


CHART 5

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50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orted CP

A Decisions

Year

State Appellate Court:Reported CPA Decisions by State by Year

(N = 7,318)

CA

TX

Chart 6 removes California and Texas from Chart 5 to observe the general trends for the remaining 48 states and the District of Columbia in state appellate courts.


CHART 6

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40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007

Num

ber o

f Rep

orted CP

A Decisions

Year

State Appellate Court:Reported CPA Decisions by State by Year

Without California or Texas(N = 4,226)

Table 1 lists all 50 states and the District of Columbia ranked by CAGR for the number of reported CPA decisions in both federal district courts and state appellate courts; the numbers below represent 2007 decisions and the CAGR from 2000 through 2007.


TABLE 1 Reported CPA Decisions in the Fifty States and the District of Columbia

Federal District Courts No. of Decisions (2007) CAGR (2000‐2007) State Appellate Courts No. of Decisions (2007) CAGR (2000‐2007)

Idaho** 17 103.1% California 254 32.7%

Arizona 32 64.1% Colorado 18 24.0%

Wisconsin 21 54.5% Mississippi+ 8 26.0%

Utah 18 51.1% Hawaii 8 21.9%

Washington 110 48.2% District of Columbia 3 17.0%

Hawaii 13 44.3% New Hampshire 8 15.0%

Arkansas 24 42.6% New Mexico 7 12.9%

South Carolina 23 41.8% Louisiana 13 11.7%

Missouri 31 39.6% Wisconsin 16 10.4%

Kentucky 30 38.9% Arkansas 2 10.4%

Florida 87 38.3% Kansas 12 10.4%

Nevada 16 34.6% New Jersey 27 9.8%

Colorado 56 29.8% North Carolina 65 8.4%

Tennessee 49 29.6% Nebraska 3 6.0%

California 455 24.9% Vermont 6 6.0%

Georgia 18 24.0% Tennessee 28 5.7%

Kansas 30 23.1% Michigan 28 4.9%

West Virginia 28 21.9% South Carolina 8 4.2%

Ohio 62 21.3% Georgia 8 4.2%

New Jersey 100 19.3% Indiana 4 4.2%

Nebraska 12 17.0% Washington 41 4.1%

Michigan 70 15.8% Pennsylvania 13 3.8%

Delaware 11 15.5% Connecticut 32 3.6%

Oklahoma 10 14.0% Missouri 7 2.2%

Minnesota 47 13.8% Florida 22 1.4%

Texas 68 12.9% Ill inois 29 1.0%

New York 148 12.5% New York 18 0.8%

Pennsylvania 126 10.9% Utah 1 0.0%

Indiana 8 10.4% Ohio 53 0.0%

New Mexico 6 10.4% Oregon 1 0.0%

North Carolina 66 9.0% North Dakota 0 0.0%

Mississippi 12 8.0% Rhode Island+ 2 0.0%

District of Columbia 18 7.3% Maryland 14 0.0%

Massachusetts 44 7.2% Iowa+ 1 0.0%

Oregon 16 6.9% South Dakota 1 0.0%

Connecticut 55 6.2% Wyoming 0 0.0%

Alabama 3 6.0% Texas 184 ‐2.1%

Ill inois 97 3.5% Arizona 3 ‐4.0%

Louisiana 46 1.7% Massachusetts 26 ‐4.2%

New Hampshire 12 1.3% Alabama 2 ‐5.6%

Maine 15 1.0% Kentucky 3 ‐7.0%

Montana 1 0.0% West Virginia 1 ‐9.4%

North Dakota 0 0.0% Maine 1 ‐9.4%

Rhode Island 1 0.0% Virginia 1 ‐9.4%

Maryland 10 ‐1.4% Minnesota 10 ‐10.7%

Virginia 19 ‐2.1% Oklahoma 2 ‐14.5%

Iowa 5 ‐2.6% Alaska 1 ‐14.5%

South Dakota 1 ‐18.0% Idaho 1 ‐18.0%

Alaska* 1 ‐50.0% Nevada 0 ‐100.0%

Vermont 0 ‐100.0% Delaware 0 ‐100.0%

Wyoming*** 2 NA Montana 0 ‐100.0%

*Earl ies t decis ion i s in 2006 +Earl ies t decis ion i s in 2001

**Earl ies t decis ion i s in 2003

***Earl ies t decis ion i s in 2007


D. Explaining Interstate Variation in Reported CPA Decisions

CPA statutes and reported decisions exhibit noticeable variation. One important question is whether it is the text of CPA statutes or other factors that explain the time trends and interstate variation observed in reported CPA decisions. For example, one might hypothesize that certain changes in CPA legislation that serve to increase the expected value of filing a CPA lawsuit will result in greater litigation activity.

In this Section, possible determinants of changes in reported CPA decisions are explored by employing a number of empirical strategies. First, the relationship between the number of reported CPA decisions and two dimensions of CPA statutes is examined: (1) whether the plaintiff can recover without proof of actual loss and (2) whether the CPA specifies illegal acts. Second, the Task Force constructed an index designed to measure the content of CPA statutes and examine the relationship between this index and litigation activity. Third, the impact of several key regulatory changes and case decisions involving CPA claims on reported CPA decisions over time is examined. Finally, the analysis was re-run with different variations on the dependent variable and index construction to test the robustness of our results.

1. Impact of Injury Requirements and Specification of Illegal Acts

Two key characteristics of CPA statutes are whether plaintiffs can recover any remedy without proof of actual loss and whether the CPA specifies illegal acts or adopts the vague language of the FTC Act. Using the log of total reported CPA decisions (both federal district and state appellate) as the dependent variable,126 the relationship between these individual CPA characteristics and litigation activity is examined. Specifically, the Task Force generated two binary variables: INJURY which takes the value of 1 if the CPA requires proof of actual injury and 0 otherwise; and VAGUE which takes the value of 1 if the statute contains vague “false and deceptive” language rather than a specified list of illegal conduct and 0 otherwise.127

Table 2 reports regression results of INJURY and VAGUE on the log of total reported CPA decisions. The analysis finds that both INJURY and VAGUE are positive and significant at conventional levels for certain specifications. However, the absence of a specific list of illegal conduct is associated with a much larger positive impact on the log of total reported CPA decisions, especially when controls for state population, state wealth, and time are included. Thus, CPAs requiring a showing of injury or containing a vague definition of unfair and deceptive behavior may contribute to the high levels of reported CPA decisions in the state.128

126 The log of total reported CPA decisions was utilized to account for the skewed distribution of total reported CPA

decisions. In order to retain observations with 0 values, we added 1 to each observation and then applied a log transformation. The interpretations of percent changes are generally maintained with this log transformation, except where the observation is zero and the percentage change is not defined. As the dataset has very few zeros, this is an acceptable transformation. See JEFFREY

M. WOOLDRIDGE, INTRODUCTORY ECONOMETRICS, 199 (3d ed. 2006). 127 VAGUE was coded according to an open definition or list of illegal acts as listed in the statutes in Brown & Hepler, supra

note 111, and the PRODUCT LIAB. ADVISORY COUNCIL, supra note 112. 128 INJURY only changes in California as a result of Proposition 64 at the end of 2004, which is applied to 2005. As such,

there are 37 states with an Injury requirement from 2000 through 2004 and 38 from 2005 through 2007. VAGUE has no within state changes from 2000 through 2007.


TABLE 2129

Dependent Variable = log(decisions)

Pooled OLS (1)

Pooled OLS No CA (2)

Robust OLS(3)

Fixed Effects (4)

Pooled OLS (5)

vague 0.542 0.443 0.515 dropped 0.302(0.125) ** (0.123) ** (0.138) ** (0.072) **

injury 0.298 0.358 0.274 0.871 ‐0.128(0.152) + (0.146) * (0.154) + (0.240) ** (0.087)

log_st_pop ‐0.425(0.120) **

log_gdp 1.429(0.120) **

2001 ‐0.015(0.142)

2002 0.073(0.141)

2003 0.100(0.143)

2004 0.049(0.139)

2005 0.235(0.138) +

2006 0.551(0.131) **

2007 0.503(0.135) **

constant 2.372 2.329 2.422 2.270 ‐7.671(0.130) ** (0.128) ** (0.153) ** (0.179) ** (0.571) **

Fixed Effects

Std. Errors

R‐sq overall# of observations

** ‐ significant at 1%, *‐ significant at 5%, + ‐ significant at 10%Standard Errors in parentheses

0.052 0.047 0.880408 400 408 408

N/A

Robust

0.716408

N/A N/A N/A state

Robust Robust RobustRobust and clustered on

state

129 If we allow for standard errors to be clustered at the state level in Model 5 to control for autocorrelation, VAGUE is no

longer statistically significant. However, if we use Newey-West heteroskedastic and autocorrelation consistent errors, another reasonable approach to mitigate serial correlation problems, VAGUE is statistically significant at the 5% level.


2. CPA Statute Characteristics and the Expected Value Index

While the analysis of these two individual CPA statute characteristics demonstrates that they are likely an important part of the explanation of changes in CPA litigation activity, CPA statutes vary on many other dimensions. Based on the logic that the level of litigation activity under a CPA will be influenced by the expected value to a potential plaintiff of filing a CPA claim, the Task Force generated the Expected Value Index (EVI) from data in the CPA Statute Database.

For each 2008 statute, 27 variables were coded as either “benefits” or “restrictions.” The “benefits” for the EVI are those characteristics of the statute that are beneficial to the plaintiff and would increase the expected value of filing a CPA lawsuit by increasing the probability of success or by increasing the award to a successful plaintiff. Conversely, the “restrictions” are those statute characteristics that reduce the expected value of filing a CPA lawsuit by reducing the probability of success or the potential award. Appendix E and F contain details on which variables were classified as benefits and restrictions. To construct the EVI, benefit variables coded as 1 and restriction variables coded as 0 were considered to increase the plaintiff’s expected value of filing a suit. Likewise, benefit variables coded as 0 and restriction variables coded as 1 were considered to decrease the plaintiff’s expected value of filing a suit. The base Expected Value Score for each statute is the count of all the benefit variables coded as 1 and restriction variables coded as 0 over the 27 characteristics.

Although the 27 specific variables vary across states, there are very few amendments that change these variables over time from 1995 through 2007. Therefore, we attempted to capture the more general variation in CPA statutes. Specifically, using the 2008 CPA statute coding as a base, amendments to the statutes from 1995 through 2007 were coded for five new variables that capture general increases in plaintiffs’ expected value, decreases in plaintiffs’ expected value, and neutral effects in the statute changes with a 1/-1/0 coding structure.130 On the whole, there are 230 positive and 23 negative total changes to the EVI from 1995 through 2007. We then constructed the index by applying the yearly changes backwards to the 2008 base Expected Value Score to capture the changes to the CPA statutes over time. Finally, to apply the EVI by state, we determined a representative statute for those states with multiple statutes.131 So that no EVI score was less than zero, we then added four to each statute’s base Expected Value Score. To address concerns over the potentially subjective elements of the EVI’s construction, we tested each of the five variables separately in Appendix G. The tests suggest that no one variable is primarily responsible for the positive relationship between the EVI and reported CPA decisions observed below. Table 3 presents summary statistics for the EVI.

130 For further description on these five variables, see Appendix G, infra. 131 For the 14 states with multiple CPA statutes, we chose the representative statute by either: (1) comparing the statistical

significance at the five-year lag of the EVI on the log of total reported CPA decisions, using the four-year and three-year lag variables when there was no difference at the five-year lag; (2) choosing a statute where there was change over one where there was no change; (3) if no changes occurred to any statute during from 1995 - 2007, then the statute with the lower index score was chosen.


TABLE 3

EVI Description Obs Mean Std. Dev. Min MaxAll years 663 19.299 3.804 0 27

Lagged 5 years 408 18.385 4.056 0 261995 51 17.314 4.611 0 261996 51 17.490 4.645 0 261997 51 17.627 4.467 1 261998 51 18.020 4.082 3 261999 51 18.510 3.870 6 262000 51 18.922 3.554 8 262001 51 19.451 3.343 9 262002 51 19.745 3.104 11 262003 51 20.078 3.161 11 272004 51 20.569 2.995 13 272005 51 20.686 2.717 15 262006 51 21.098 2.571 16 262007 51 21.373 2.449 17 26

Table 3 shows that the EVI has a steadily increasing mean over time from 17.3 in 1995 to 21.4 in 2007. As the mean increased, the standard deviation decreased from 4.6 in 1995 to 2.4 in 2007. The increase in the mean signifies that over time the CPAs have become more generous towards plaintiffs. Chart 7 provides a snapshot of the EVI values for all fifty states and the District of Columbia in 2004.


CHART 7

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NH

MA CT DE NJ RI

AZ

CA FL HI

NE

VT

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DC ID

MN

MO

OR IL AR KS KY MI

NM NY

ND PA TX WV

MT

NV NC

OK

UT

VA

WA SC SD ME

AK IA LA OH TN WY AL IN MS

GA

MD CO

Expe

cted

Value

Inde

x Score

State

Expected Value Index 2004(N = 51)

Mean = 20.569

While Chart 7 displays the variation in CPA litigation environments between states, CPAs also vary within states over time. Chart 8 depicts changes in EVI values over time. We coded the EVI from 1995 through 2007 because one might expect CPA changes to impact litigation activity with a time lag as changes in the statute are litigated in courts and incorporated into the decision making processes of potential plaintiffs. Note that several states experience noticeable changes in the content of their CPA statutes over the relevant time period. This variation in the EVI provides an opportunity to test the relationship between CPA characteristics and decisions and, specifically, to test the hypothesis that CPA statutes with higher EVI values are associated with greater CPA litigation activity.


CHART 8

0

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30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Expe

cted

Value

Inde

x Score

Year

Expected Value Index Score by State 1995‐2007(N = 663)

We begin our preliminary analysis with pooled ordinary least squares (OLS) estimates of the impact of the EVI lagged by 5 years on the log of total reported CPA decisions.132 Chart 9 shows that the EVI is positively correlated with the log of total reported CPA decisions. A one point change in the EVI in year t is associated with a 7.2% change in total reported CPA decisions in year t+5.133

132 Although lags of 2, 3 and 4 years are all significant when regressed on the log of total reported CPA decisions and generate similar results, five year lags generate the most precise estimates and are presented here.

133 The EVI lagged by 5 years has a total of 136 positive changes and 12 negative changes.


CHART 9

y = 0.072x + 1.591R² = 0.048

0

1

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7

0 5 10 15 20 25 30

Log of Total Rep

orted CPA Decisions

Expected Value Index Score (t‐5)

Log of Total Reported CPA Decisions by Expected Value Index Score with 5‐Year‐Lag by State by Year

(N = 408)

While the pooled OLS estimates suggest a significant and positive relationship between the EVI and CPA litigation activity in the form of reported CPA decisions, a more rigorous empirical approach would exploit the panel structure of our data and the variance in EVI values both within and between states. The panel approach, modeled by state fixed effects regressions, allows us to control for unobserved heterogeneity between states that is constant over time. In addition to state fixed effects, we also include state population, state wealth as measured by state Gross Domestic Product (GDP), and time dummies to explore whether the significance level of the EVI changes in response to the inclusion of other potential explanatory variables.134

Table 4 presents the results of both the pooled OLS estimates and the state fixed effects models. In all specifications, the EVI exhibits a statistically significant and positive relationship with the log of total reported CPA decisions.135

134 We gathered data on a wide array of state level variables. We included but do not report state budget, state Attorney

General budget, and median income, among others. The inclusion of these variables does not affect the results on the EVI. State Population is from the U.S. Census Bureau. U.S, Census Bureau, American Factfinder, http://factfinder.census.gov/home/saff/main.html?_lang=en (last visited Nov. 20, 2009). State GDP is from the U.S. Bureau of Economic Analysis. Bureau of Economic Analysis, News Release Archive, http://bea.gov/newsreleases/release_archive.htm (last visited Nov. 20, 2009) (select topic “Gross Domestic Product by Year”).

135 The EVI is positive at the 1% level in all specifications except for Table 4, Model 2 in which the EVI is significant at the 5% level. Standard errors in fixed effects models are robust and clustered at the state level for all but Model 1. The result is not robust to the simultaneous inclusion of both state and year fixed effects. The result is also not robust with year fixed effects only.

http://factfinder.census.gov/home/saff/main.html?_lang=en

http://bea.gov/newsreleases/release_archive.htm


TABLE 4136

Dependent Variable = log (decisions)

Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects(4)

index_lag_5 0.072 0.046 0.151 0.065(0.013) ** (0.021) * (0.023) ** (0.020) **

log_st_pop ‐0.290 6.542(0.231) (1.340) **

log_gdp 1.298 0.680(0.239) ** (0.743)

2001 ‐0.023(0.076)

2002 0.060(0.071)

2003 0.071(0.069)

2004 ‐0.002(0.086)

2005 0.169(0.094) +

2006 0.462(0.089) **

2007 0.402(0.118) **

constant 1.591 ‐8.891 0.134 ‐104.740(0.245) ** (1.251) ** (0.419) (16.010) **

Fixed Effects

Std. Errors

R‐sq withinR‐sq betweenR‐sq overall# of observations


408 408 408 4080.048 0.720 0.048 0.619

0.037 0.6940.178 0.332

RobustRobust and clustered on

state

Robust and clustered on

state


state

N/A N/A state state

These results present preliminary evidence that CPA statutes with characteristics that increase the expected value of filing a claim for plaintiffs are positively related to reported CPA decisions.137

4. Additional Analyses

We ran several additional analyses to test whether our results were sensitive to the construction of the EVI, the inclusion of particular states, or the inclusion of both federal and state court cases. Generally, the significant, positive relationship between the EVI and reported CPA decisions is robust to

136 The EVI results are not robust to a combination of both state and year fixed effects. 137 We caution that interpretation of the coefficients in specifications (2) and (4) above is complicated by the high

correlation between the EVI and the logs of state GDP and state population.


analyzing discrete subgroups of decisions as well as changes in the construction of the EVI.138 We started with Table 2, by considering the log of federal district and the log of state appellate reported CPA decisions as the dependent variable respectively. For all specifications in the models for log of federal district reported CPA decisions, the variables VAGUE and INJURY are still significant at the 1% and 5% levels, with the exception of Table 2, Model 5. In this Model VAGUE is still significant at the 10% level, but INJURY is no longer statistically significant. Using log of state appellate reported CPA decisions results in the same significance at the 1% level for the variable VAGUE and INJURY is significant at conventional levels for all specifications.

We also ran a number of additional analyses on the models reported in Table 4. First, we considered the log of federal district and the log of state appellate reported CPA decisions as the dependent variables respectively. Using the log of federal district reported CPA decisions as the dependent variable, the EVI remains significant at the 1% to 10% levels for Models 1 through 4. Additionally, using the log of state appellate reported CPA decisions the EVI also has similar statistical significance.

To test whether the results in Table 4 are driven by the inclusion of specific states, we dropped the observations from the largest states and re-ran the regressions using the log of total reported CPA decisions as the dependent variable. After removing observations from California, the EVI remains significant at the 1% and 5% levels for all models. If we also remove Texas, Illinois, New York, North Carolina, Washington, Ohio, Connecticut, Pennsylvania, and Massachusetts the EVI always remains significant at the 1% and 5% levels. However, grouping states into Census regions139 and using the log of total reported CPA decisions as the dependent variable does not always produce the same results as in Table 4. Based on this additional analysis, it is likely that different regions have EVIs that explain more of the variation in the total number of reported CPA decisions.

For the models in Table 4 we also considered whether the relationship between the EVI and reported CPA decisions might be driven primarily due to changes in the remedial provisions of CPAs rather than the broader changes captured in the EVI. To examine whether the relationship between total reported CPA decisions and the EVI is only due to changes in the various remedies provisions, we reconstructed the EVI without the remedies variables and changes. Using the same models in Table 4, the revised EVI without remedies generates similar results. Therefore, it is unlikely that variance in CPA remedies was the only characteristic driving the original results. This modified EVI was significant between the 1% and 5% levels for all models.

138 Complete results of all robustness checks are on file with the authors. 139 U.S. DEP’T OF COMMERCE, ECONOMICS AND STATISTICS ADMIN., U.S. CENSUS BUREAU, CENSUS REGIONS AND DIVISIONS

OF THE UNITED STATES (2008), available at http://www.census.gov/geo/www/us_regdiv.pdf.

IV. SEARLE SHADOW FTC

While the descriptive analysis presented above highlights some important facts about CPA litigation, identifying its growth over time and key determinants of variation between states, many of the key policy questions involving CPAs require some comparison of CPA claims to other possible standards for consumer protection. This section focuses on whether there are important qualitative differences in claims between those brought in courts and enforcement actions brought under FTC Section 5 standards by creating an expert panel to review and apply the FTC standard to a sample of cases litigated under CPAs. We compare CPA claims to the benchmark established by the FTC consumer protection standard. Recognizing the differences in claims brought under federal and state consumer protection authority is an important first step to understanding the consumer protection litigation landscape. These possible differences, read in conjunction with the evidence that litigation activity is highly correlated with CPA statutes that make lawsuits more attractive to plaintiffs, raise the possibility that claims brought under CPAs are of a different nature than those enforced by the FTC—this is an important area for future study.

In order to test whether qualitative differences exist between CPA cases and those falling under the FTC’s standards for unfair and deceptive practices, the SCJI commissioned an expert review panel (“Searle Shadow FTC”) consisting of five Shadow Commissioners with substantial consumer protection experience at or with the FTC. The Searle Shadow FTC reviewed sets of one page case scenarios of representative CPA cases and answered questions on whether they believed these cases would likely contain illegal conduct and/or be enforced under the FTC standard given the information available. The Searle Shadow FTC’s responses allow identification of important differences between the actual outcomes of the CPA cases used in the review and likely outcomes under the FTC standard.

A. Searle Shadow FTC Selection We invited five individuals with substantial experience at or with the FTC Bureau of Consumer Protection to serve as Shadow Commissioners. The Shadow Commissioners include four former Directors or Deputy Directors of the Bureau of Consumer Protection who are practitioners and academics with significant expertise on consumer protection issues. The fifth Shadow Commissioner did not serve at the FTC but had substantial experience as a practitioner. We selected the Searle Shadow FTC to ensure a balance in political orientation with two Shadow Commissioners who had served in the FTC during Democratic administrations and two who had served in the FTC during Republican administrations. The fifth Shadow Commissioner, who had not served at the FTC under an administration of either party, was not a political appointee and, therefore, is considered to be unaffiliated.

B. Case Summaries

The Shadow Commissioners reviewed 110 one-page case scenarios excerpted from actual CPA case decisions in two rounds. After reading the scenarios, each Shadow Commissioner determined whether he or she believed the practice was deceptive or unfair according to FTC standards and whether he or she believed the FTC would initiate an enforcement action. The Shadow Commissioners were asked to base their answers only on the information presented in the scenario, their understanding of current federal consumer protection law, their expertise, and the assumptions that (1) the FTC has jurisdiction over the entity or entities and (2) the practice is in or affects interstate or foreign commerce.

Shadow Commissioners were not told that the case scenarios were derived from litigated consumer protection cases until after completing all questions. Further, the Shadow Commissioners did not know the identity of the other Shadow Commissioners, did not collaborate in answering the questions, and could not consult any outside sources. The Shadow Commissioners were also not allowed to return to previous scenarios once they had answered a question. Shadow Commissioners were compensated for their participation. See Appendix H and I for examples from the two rounds of scenarios.


C. Round 1 Sample Selection and Questionnaire

A key feature of the Searle Shadow FTC study is the inclusion of actual litigated cases that generated substantive decisions under CPAs. In order to obtain the cases used for both questionnaires we used the population database of approximately 17,000 decisions. To construct the scenarios for the first round, 500 reported CPA decisions were randomly selected from the original population database. From these, 86 contained sufficient case facts to develop one-page scenarios, and 50 of these 86 were randomly chosen. These decisions included cases that settled, went to trial, and are ongoing. We removed actual party names and identifying case characteristics so that Shadow Commissioners could not directly identify the cases. To provide a control group of cases, we randomly drew 8 decisions each representing a case the FTC brought in court containing sufficient case facts.140 We separately chose two cases which the FTC investigated but ultimately dismissed the complaint.141

After selecting the cases and developing the case scenarios, but before distributing the questionnaires to the Shadow Commissioners, an additional expert in FTC consumer protection actions who is not included on the Searle Shadow FTC reviewed the questions and case scenarios. Based on the reviewer’s feedback, we made adjustments to the questions and scenarios to ensure that the Shadow Commissioners could complete the review of all 60 scenarios in three hours or less. After testing the questionnaire, we used the questions in Figure 1 below for each scenario.142

140 The set of FTC cases from which we drew the 8 was a set of FTC cases captured by the original over-inclusive search

string used to identify cases for the population database. These cases had been removed from the final population database because they did not include CPA claims brought by either party in the suit at issue.

141 These two cases were not included in the population database nor randomly chosen as we had only limited available information on FTC investigations where the Commission ultimately withdrew the complaint.

142 To limit ordering effects, we changed the order of the scenarios three times with different versions issued randomly to the Shadow Commissioners. We randomized the ordering by drawing the 60 numbers three separate times. After the Shadow Commissioners completed the questionnaires, we collected the responses and informed the Shadow Commissioners of the origin of the scenarios. We then coded the results of the questionnaire, identifying the Shadow Commissioners only by a study code number.

Searle Shadow FTC 37

FIGURE 1 Q1a. Based on the case facts, do you believe the alleged practice is legally deceptive under the FTC’s deception policy statement? □ Yes □ No

Q1b. If no, please identify the legal prerequisite or prerequisites for deception that are not satisfied. □ A misrepresentation, omission or practice that is likely to mislead the consumer □ The consumer's interpretation or reaction to the misrepresentation, omission or practice is reasonable under the circumstances □ The representation, omission or practice must be material Q2a. Based on the case facts, do you believe the alleged practice is legally unfair under the FTC’s unfairness policy statement? □ Yes □ No Q2b. If no, please identify the legal prerequisite or prerequisites for unfairness that are not satisfied. □ Cause substantial injury □ Consumer injury not outweighed by offsetting consumer or competitive benefits □ Injury could not have been reasonably avoided Q3a. Based on the facts presented above, do you believe the FTC would initiate a consumer protection enforcement action? □ Yes □ No Q3b. Briefly explain __________________________________________________________________________

D. Round 2 Sample Selection and Questionnaire

Round 1 examines a randomly generated set of actual CPA cases to assess how those cases would fare under the FTC standard. The random sample allows inferences to be drawn concerning the nature of CPA claims distributed throughout the civil justice system. Round 2 is more focused. Rather than testing a random selection of actual CPA cases, Round 2 uses 50 CPA cases that contained a successful CPA claim that was either never challenged or never overturned on appeal (and met the basic requirement of a decision with sufficient case facts to develop a one-page scenario).

Round 2 examines how a sample of successful CPA claims would fare under the FTC standard. Round 2 scenarios were drawn from reported CPA decisions in state appellate and supreme courts but not federal district courts because the former were more likely to have reached final disposition and less likely to have remaining appeals. For each state, we created a specific search string that contained that state’s CPA title, abbreviation, or citation as well as variations on the term “damage award.”143 These search strings were then applied to each state’s “State Cases, Combined” database in Lexis from 2000 through 2007. This search resulted in 3,637 reported CPA decisions. SCJI researchers removed CPA claimant losses, wins that were subsequently overturned on appeal, and false positives generated by the search string. We then randomly selected and created the 50 Round 2 case scenarios in an identical manner to those generated in Round 1. The 50 Round 2 scenarios represent situations where the CPA claimant won on the CPA claim at the state trial level court (either in trial, or in two cases on summary judgment) and the judgment on the CPA claim was either never appealed or appealed and not overturned in the state appellate or supreme courts.144 Each decision in the population database of reported CPA decisions represents a unique case and was not previously presented to the Shadow Commissioners in Round 1. The Shadow Commissioners answered the same questions in three hours or less under the same

143 The search string used for the term “damage awards” was “damage! w/s award!”. 144 We note that in a few cases the court overturned punitive damages or attorney’s fee awards but upheld the violation of

the CPA.


parameters as Round 1, with the exception that the Shadow Commissioners were aware that the case scenarios were derived from litigated consumer protection actions but they did not know the cases all represented CPA claimant wins.145

145 To limit ordering effects, we changed the order of the scenarios three times with different versions issued randomly to the

Shadow Commissioners. We randomized the ordering by drawing the 50 numbers three separate times. We then coded the results with the Shadow Commissioners identified only by a new study code number.

V. EMPIRICAL RESULTS

The Searle Shadow FTC review of litigated cases provides the opportunity to evaluate the distribution of CPA claims currently moving through the civil justice system. While we do not observe all litigated cases, this study presents an important first step in collecting and analyzing data relevant to resolving important policy debates surrounding CPAs and civil justice reform more generally. Questions 1a and 2a in Figure 1 focus on whether the Shadow Commissioner believes the available excerpted facts constitute illegal conduct under the FTC Policy Statements for deception or unfairness.146 Question 3a goes a step further to ask Shadow Commissioners whether, relying on their own expertise and experience with FTC consumer protection enforcement, they believe the FTC would initiate an enforcement action in the particular case.

Since the goal of the Searle Shadow FTC was to simulate the hypothetical actions of the FTC, only aggregate results appear below rather than individual Shadow Commissioner votes. The results focus on the answers given by the majority (3 or more) of the Shadow Commissioners. 2-3 split votes were a minority occurrence. In Round 1, out of the 50 non-FTC cases, the Shadow Commissioners were split in 30 times in 17 case scenarios: 8 times over deceptive conduct, 13 times over unfair conduct, and 9 times over the likelihood of enforcement. Similarly in the 50 Round 2 scenarios, out of 50 non-FTC cases, the Shadow Commissioners were split 30 times in 19 case scenarios: 16 times over deceptive conduct, 9 times over unfair conduct, and 5 times over the likelihood of enforcement. We then examined instances of split voting to identify a possible bias by political affiliation. It is unlikely that political affiliation drove split decisions—in Round 1 the Shadow Commissioners split across party lines 6 times, in Round 2, 11 times. Unanimous votes were much more common, making up between 24.0% and 62.0% of responses depending on question and round.

A. Round 1 Results and Analysis

The Shadow Commission found that most cases did not meet FTC illegality standards, and that even fewer cases would likely be enforced by the FTC. A majority of Shadow Commissioners believed that the alleged practice was illegal, either deceptive or unfair under the relevant FTC Policy Statement in 11 out of 50 (22.0%) of case scenarios. Further, a majority of the Shadow Commissioners believed that the FTC would have initiated a consumer protection enforcement action based on the case facts in 6 out of 50 cases (12.0%). Thus, about half of the cases for which the Shadow Commissioners determined that the case facts described illegal conduct under the FTC standards were also cases where the Shadow Commission thought the FTC might initiate an enforcement action. These results change only slightly if we analyze federal district and state appellate court cases separately. Out of 29 federal district cases, a majority of Shadow Commissioners indicated that the scenarios showed some form of illegal conduct under the FTC standards in 6 cases (20.7%) and thought the FTC might initiate an enforcement action in 3 cases (10.3%). In the 21 state appellate cases, a majority of the Shadow Commission determined that the case facts showed illegal conduct under the FTC standards in 5 cases (23.8%) and believed the FTC would initiate an enforcement action in 3 cases (14.3%). The differences between the federal district cases and the state appellate cases are not statistically significant.147

146 Letter from James C. Miller III, supra note 79; Letter from Michael Pertschuk, supra note 79. 147 A two-group test of proportions does not allow us to reject the null hypothesis that the proportion of cases where the

majority of Shadow Commissioners believed the available case facts showed some illegal conduct under the FTC standards is the same between federal district and state appellate cases (z = -0.263, p = 0.793). Likewise, a two-group test of proportions also does not allow us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts is the same between federal district and state appellate cases (z = -0.423, p = 0.672). We get similar results for the non-parametric Spearman rank correlation.


Because some of the claims litigated under CPAs from 2000 through 2007 remain pending, data on the ultimate resolution of those claims are unavailable. Accordingly, we present our results for a large subsample (n = 44) of “resolved” general CPA claims. When considering resolved cases, Shadow Commissioners determined that similar proportions of the case scenarios presented illegal and enforceable activity. A majority of Shadow Commissioners identified illegal conduct in 7 out of 44 cases (15.9%) and supported an enforcement action in 3 out of 44 cases (6.8%). Again, the percentages differ if we consider federal district cases separately from state appellate cases. In the federal district cases, a majority of Shadow Commissioners believed the case facts showed illegal conduct under the FTC standards in 3 out of 25 cases (12.0%) and concluded the FTC would likely initiate an enforcement action in these scenarios in 1 out of 25 cases (4.0%). In contrast, for the state appellate cases, a majority of the Shadow Commission believed the case facts showed illegal conduct under the FTC standards in 4 out of 19 cases (21.1%) and believed the FTC would initiate an enforcement action in these scenarios in 2 out of 19 cases (10.5%). Again, none of these differences are statistically significant.148

Since the case excerpts arise from actual CPA claims from 2000 through 2007, the outcomes of these cases provide valuable information about the likely merits of these claims. Many of these claims are evaluated by a judge through motions testing the sufficiency of the pleadings. One might hypothesize, for example, that the Shadow Commission would be more likely to identify illegal conduct in case scenarios derived from CPA claims which had progressed further procedurally—a CPA claim surviving summary judgment might be more likely to involve illegal conduct under the FTC standard than one that had been dismissed at that stage, and a case that went to trial might be more likely to involve illegal conduct than one dismissed at an earlier stage.

To test this hypothesis, we report the Shadow Commission's responses by dividing the subsample of cases in two ways: (1) cases that were dismissed or settled on the pleadings alone versus those that survived beyond the motion to dismiss stage, and (2) cases that went to trial versus those that were dismissed or settled prior to trial. Charts 10 and 11 combine the results of questions 1a and 2a, identifying whether a majority of Shadow Commissioners found that any illegal conduct had occurred under the FTC consumer protection standards based on the available facts. The charts also report the results on whether the Shadow Commission believed the FTC would initiate an enforcement action. We begin with Chart 10, which divides the subsample of resolved cases on the basis of whether the underlying claim survived beyond the motion to dismiss on the pleadings phase, or was dismissed or settled on the pleadings alone.

148 A two-group test of proportions does not allow us to reject the null hypothesis that the proportion of cases where the

majority of Shadow Commissioners believed the available case facts showed some illegal conduct under the FTC standards is the same between federal district and state appellate cases (z = -0.813, p = 0.416). Likewise, a two-group test of proportions also does not allow us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts is the same between federal district and state appellate cases (z = -0.851, p = 0.395). We get similar results for the non-parametric Spearman rank correlation.

Empirical Results 41

CHART 10

0.0%

19.4%

0.0%

8.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

CPA Claims Dismissed or Settled on the Pleadings Alone (N=8) CPA Claims that Survived Beyond the Motion to Dismiss on the Pleadings Phase (N=36)

Percen

tage

of Tim

e Majority Ch

ecked "Yes"

Percentage of Time the Majority of Shadow Commissioners Checked "Yes" for Any Illegal Act or Enforcement Action for

Claims Resolved Before and After Motions on the Pleadings (Without Ongoing Cases = 44)

Any Illegal Act (Deceptive or Unfair) Enforcement Action

The Searle Shadow FTC indicated that all of the CPA cases that had been dismissed or settled on the pleadings alone do not involve illegal conduct under the FTC standard. Focusing on the subset of cases that survived beyond the pleading stage, the Shadow Commission identified just under 20 percent of the scenarios that presented involved illegal conduct under the FTC standard. The differences in Chart 10 are not statistically significant.149

In Chart 11, the subsample is divided on the basis of whether the CPA claim went to trial. The Shadow Commission did not appear to find actions in CPA claims that were resolved on the pleadings to be illegal under FTC standards. For cases that did go to trial the Shadow Commission identified illegal conduct in 30.0% of the CPA claims. In all claims resolved prior to trial, the Shadow Commission identified illegal activity in only 11.8% of cases. Similarly, cases resolved early on are less likely to be of the type enforced by the FTC than those that are resolved at trial. The difference in the proportion of cases where the majority of Shadow Commissioners found some illegal conduct under the FTC standards is not statistically significant, but the difference in the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts is


majority of Shadow Commissioners believed the available case facts showed some illegal conduct under the FTC standards is the same between cases that survived a motion to dismiss and those that did not (z = -1.360, p = 0.174). Likewise, a two-group test of proportions also does not allow us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts is the same between those that survived a motion to dismiss and those that did not (z = -0.846, p = 0.398). We get similar results for the non-parametric Spearman rank correlations.


statistically significant at the 10% level.150 Between Charts 10 and 11, the overall picture is that cases dismissed very early in the judicial process may be less likely to involve an illegal action under FTC standards or be enforced than those that are resolved at trial.

CHART 11

30.0%

11.8%

20.0%

2.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

CPA Claims Resolved at Trial (N=10) CPA Claims Dismissed or Settled Prior to Trial (N=34)

Percen

tage

of Tim

e Majority Ch

ecked "Yes"

Percentage of Time the Majority of Shadow Commissioners Checked "Yes" for Any Illegal Act or Enforcement Actionfor Claims Resoved Before and After Trial

(Without Ongoing Cases = 44)

Any Illegal Act (Deceptive or Unfair) Enforcement Action

An important finding in Round 1 is the relatively low frequency with which the Searle Shadow FTC believed the conduct in CPA cases would constitute deceptive or unfair conduct under the FTC standards. In the unadjusted sample, a majority of Shadow Commissioners found illegal conduct in 22.0% of the CPA scenarios which include both settlements and cases that went to trial. The results in the various subsample divisions are consistent with this finding. These outcomes suggest at the very least that the CPA claims litigated in state and federal courts differ from those involving illegal conduct under the FTC standard. The Round 1 results indicate, in other words, that a substantial fraction of CPA litigation involves claims consistent with behavior that is likely legal under the FTC standard. This result is consistent with the concern that CPAs apply more lenient and plaintiff friendly standards which lower the quality of claim required to justify filing on an expected value basis.


majority of Shadow Commissioners believed the available case facts showed some illegal conduct under the FTC standards is the same between cases that survived to trial and those that did not (z = -1.386, p = 0.166). However, a two-group test of proportions does allow us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts is the same between those that survived to trial and those that did not at the 10% level (z = -1.881, p = 0.060). We get similar results for the non-parametric Spearman rank correlations.


Our results should nonetheless be interpreted with caution. Other possible explanations exist for the Searle Shadow FTC's determination that the CPA claims in our random sample of case scenarios do not violate federal consumer protection law under FTC standards. One possible explanation is that the case fact descriptions forming the basis of the excerpts given to Shadow Commissioners may not have included all of the facts ultimately relevant to the determination of liability. A second reason could be that in Round 1, while the Shadow Commission found that 3 cases presented illegal actions that the FTC would likely enforce, only 2 cases had a clear CPA claimant win at trial.151

B. Round 2 Results and Analysis

A critical empirical challenge in the CPA policy debate is to identify the quality of CPA claims currently working through the civil justice system. Round 1 takes a random sample of cases and uses the Shadow Commission's evaluation of those claims under the FTC standard as a benchmark. While randomization in Round 1 allows the Shadow Commission to evaluate an unbiased slice of actual CPA cases and gives some valuable information about the likely merits of CPA claims, Round 2 compares some of the strongest litigated CPA claims to FTC legality and enforcement standards.

In Round 2, the sample of case scenarios involves "clear wins" for CPA claimants at the state trial court level on the CPA claim where the result was either unchallenged or upheld on appeal. Our key finding from Round 2 (50 clear CPA wins) is that the Shadow Commission believed that there was either unfair or deceptive conduct under the FTC standards in 31 cases (or 62.0% of the time). Although all Shadow Commissioners answered the questions on illegal acts for every scenario, in seven cases the Shadow Commission had tied answers to the question on enforcement due to non-responses. Removing those cases, a majority of Shadow Commissioners believed that there was an unfair or deceptive act pursuant to the FTC standards in 24 out of 43 cases (55.8%).

Regarding the Shadow Commission's belief that the FTC would bring an enforcement action, the number of cases where the majority of Shadow Commissioners believed the FTC would bring an enforcement action depends on how we choose to treat the seven cases where there is no majority. For our purposes, the most reasonable approach may be to drop the seven cases from the dataset as incomplete or non-responsive answers. Taking this approach, the Shadow Commission suggested enforcement rate was 10 of 43 cases (or 23.3%).152

Thus, focusing exclusively on the clear CPA wins, the Shadow Commission identified deceptive or unfair conduct under the FTC standards in over half of the cases. However, even in these cases, the Shadow Commission believed that the FTC would only bring enforcement actions less than a quarter of the time. While for every scenario in which the Shadow Commission believed the FTC would initiate an enforcement action the Shadow Commission also believed that either deceptive or unfair conduct occurred, the reverse is not true. Of the 24 cases where the Shadow Commission thought the scenario indicated some illegal conduct under the FTC standards, in 10 of these cases the Shadow Commission also thought that the FTC would initiate an enforcement action. Specifically, the difference in proportions between scenarios believed to have illegal conduct and those believed would be enforced by

151 The 2 cases do not include the ongoing cases of Round 1, and make up only 4.5% of the 44 closed cases. 152 Alternatively, if we treat ties as decisions that the FTC would likely pursue enforcement, the Shadow Commission would

vote that the FTC would bring an enforcement action in 17 out of 50 cases (34.0%). If we treat the ties as Shadow Commission decisions that the FTC would not likely pursue enforcement, then the Shadow Commission would initiate enforcement in 10 of 50 cases (20.0%). If we treat the seven cases as though the Shadow Commission favored enforcement in half of the cases, where all ties are a decision that the FTC would likely pursue enforcement, the Shadow Commission would initiate enforcement in 13 or 14 out of 50 cases (26.0%/28.0%).


the FTC based on the available case facts is significant at the 1% level.153 These findings could suggest that clear CPA wins may have been brought under similar standards to the FTC’s but are less likely to be the type of case enforced by the FTC. As such, there is some support for the theory that CPAs allow private litigants to bring smaller scale cases that approximate FTC enforcement actions but might not warrant allocation of FTC resources.

C. Comparison of Round 1 and Round 2 Results: Illegality The Round 1 and 2 questionnaires were constructed in the same manner and taken by the same set

of Shadow Commissioners at different times. The differences between the Shadow Commission determinations in Round 1 and Round 2, when evaluating a random sample of CPA cases and clear CPA wins respectively, are striking.154 Not surprisingly, the Shadow FTC was more likely to believe that the scenarios for clear CPA wins (Round 2) involved illegal conduct than the general CPA cases (Round 1) as can be seen in Table 5. The difference is significant at the 1% level.155

TABLE 5 Cases where the Shadow FTC Believed the Scenario Contained Illegal Conduct

(All Cases)

Round 1 Round 2

Cases with Possible Illegal Conduct 11 31

Total Cases 50 50

Percent of Total 22.0% 62.0%

As mentioned above, in both rounds certain cases had to be dropped either because the case had not yet been completed (Round 1) or because incomplete answers led to a Shadow Commission tie (Round 2). Table 6 shows that even after dropping these cases, the significant difference between the two rounds remains at the 1% level.156

153 For the 43 cases that did not have a tied Shadow Commission, a two-sample test of proportions allowed us to reject the

null hypothesis that the proportions of cases where the majority of Shadow Commissioners believe there was illegal conduct and where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action were equal at the 1% level (z = 3.088, p = 0.002).

154 We note that the underlying population of cases in Round 2 is a complete subset of the underlying population of cases in Round 1. As such, there is some overlap that the z-statistics in this section do not take into account. However, given the positive relationship between CPA cases that survive to trial and the likelihood that the Shadow Commission believes the conduct was illegal under the FTC standards and/or that the FTC would initiate an enforcement action, it is likely that this overlap functionally understates the true difference between clear CPA wins and all other CPA cases.

155 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the scenario contained some illegal conduct under the FTC standards is the same between the two rounds at the 1% level (z = -4.052, p = 0.000). We get similar results for the non-parametric Spearman rank correlation.

156 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the scenario contained some illegal conduct under the FTC standards is the same between the two rounds at the 1% level (z = -3.886, p = 0.000). We get similar results for the non-parametric Spearman rank correlation.


TABLE 6

Cases where the Shadow FTC Believed the Scenario Contained Illegal Conduct (Ongoing Cases and Incomplete Responses Not Included)

Round 1 Round 2


Total Cases 44 43


One possible concern is that the composition of cases across the rounds differed on some dimension other than the disposition of the claim. For example, Round 2 cases did not include federal district court cases whereas Round 1 included both federal and state court decisions. However, if we analyze only the state appellate court cases in both rounds, we continue to get a statistically significant difference at the 5% level.157 Table 7 shows the results.

TABLE 7 Cases where the Shadow Commissioners Believed the Scenario Contained Illegal Conduct

(State Appellate Cases Only)

Round 1 Round 2


Total Cases 19 43


D. Comparison of Round 1 and Round 2 Results: Enforcement

Turning to the Searle Shadow FTC’s aggregate responses to the question on FTC enforcement, the Shadow FTC was less likely to believe the FTC would initiate an enforcement action than they were to believe the scenarios showed some illegal act based on the facts given. Dropping the seven cases with the tied Shadow FTC from the Round 2, but including all non-FTC cases from Round 1, leads to the Shadow FTC believing t hat the FTC would initiate an enforcement action in 6 of the 50 general CPA cases (or 12.0%) and in 10 of the 43 clear CPA wins (or 23.3%), which can be seen in Table 8. This difference is statistically significant only at slightly above the 15% level.158

157 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of

Shadow Commissioners believed the scenario contained some illegal conduct under the FTC standards is the same between the two rounds at the 5% level (z = -2.536, p = 0.011). We get similar results for the non-parametric Spearman rank correlation.

158 A two-group test of proportions only allows us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts between the two rounds at above the 15% level (z = -1.434, p = 0.152). We get similar results for the non-parametric Spearman rank correlation.


TABLE 8

Cases Where the Shadow FTC Believed the FTC Would Initiate an Enforcement Action (All Round 1 Cases)

Round 1 Round 2

Belief in FTC Enforcement Action 6 10

Total Cases 50 43


If we also drop all the cases from Round 1 that are ongoing, a majority of Shadow Commissioners believed based on the given scenarios that the FTC would initiate an enforcement action in 3 of the 44 Round 1 cases (or 6.8%) and in 10 of the 43 Round 2 cases (or 23.3%). Table 9 shows the results. This difference is statistically significant at the 5% level.159

TABLE 9 Cases where the Shadow FTC Believed the FTC Would Initiate an Enforcement Action

(Ongoing Cases and Incomplete Responses Not Included)

Round 1 Round 2

Belief in FTC Enforcement Action 3 10

Total Cases 44 43


The Shadow Commission was more likely to support an enforcement action in the clear CPA wins in Round 2 than the general CPA cases in Round 1, but in both rounds the Shadow Commission support enforcement in less than a quarter of the total scenarios.

E. Control Results—FTC Cases

As discussed, 10 FTC cases were included in Round 1 but were not otherwise designated as FTC cases in any way. The FTC litigated 8 of these cases and issued complaints for the remaining two that it ultimately dismissed. The Shadow Commission agreed in each of the 10 cases that the scenario described unfair or deceptive conduct. This result suggests that the Searle Shadow FTC was able to reach the same conclusion as the FTC in practice. In contrast to these FTC control cases, the Shadow Commission believed there was possible illegal conduct in only 15.9% or 22.0% of the general CPA cases depending on whether ongoing cases are included. The differences are statistically significant regardless of whether we count ongoing cases.160 Likewise, in all 10 of the FTC cases a majority of Shadow Commissioners thought the FTC might initiate an enforcement action in contrast to the 6.8% or 12.0% of Round 1 general

159 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the FTC would initiate an enforcement action based on the available case facts between the two rounds at the 5% level (z = -2.150, p = 0.032). We get similar results for the non-parametric Spearman rank correlation.

160 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of Shadow Commissioners believed the scenarios contained some illegal conduct is the same between FTC cases and general CPA cases in Round 1 at the 1% level (z = -4.721, p = 0.000 for all cases and z = -5.168, p = 0.000 for completed cases only). We get similar results for the non-parametric Spearman rank correlation.


CPA cases the Shadow Commissioners agreed might have been enforced (depending on whether the ongoing cases are dropped). Again, these differences are statistically significant.161

The Shadow Commission identified similar characteristics in the FTC and state-court scenarios, and reached accurate conclusions regarding FTC action. This gives credence to the Shadow Commission's findings in non-FTC case scenarios. Further, the results may suggest that while the clear CPA wins are more similar to FTC cases than general CPA claims, even winning CPA cases are at least somewhat unlike FTC cases. In other words, the clear CPA wins may have a higher probability of involving illegal conduct under the FTC standards in the majority of instances, but nonetheless may not necessarily be cases the FTC is likely to enforce.

161 A two-group test of proportions allows us to reject the null hypothesis that the proportion of cases where the majority of

Shadow Commissioners believed the FTC would initiate an enforcement action based on available case facts is the same between FTC cases and general CPA cases in Round 1 at the 1% level (z = -5.745, p = 0.000 for all cases and z = -6.221, p = 0.000 for completed cases only). We get similar results for the non-parametric Spearman rank correlation.

CONCLUSIONS

This SCJI Preliminary Report on State Consumer Protection Acts set out to execute the first large scale data collection effort and empirical study of CPAs in order to answer key research questions concerning trends in CPA litigation activity over time and between states, and whether CPA claims were likely to be successful under the FTC standard. This Preliminary Report has produced a number of findings that will inform policy debates on CPAs:

Litigation under CPAs has increased dramatically since 2000. Between 2000 and 2007 the number of CPA decisions reported in federal district and state appellate courts increased by 119%. This large increase in CPA litigation far exceeds both the increases in reported tort litigation and overall litigation during the same period. These increases occur in predictable ways—vague statutory definitions of prohibited conduct are a major driver of CPA litigation. Whether a CPA statute has vague language prohibiting some general type of conduct rather than a specific list of illegal actions is an important potential contributor to the level of CPA litigation in the state. States with vague definitions of prohibited conduct have more CPA litigation.

The examination of the content of CPAs demonstrates that they are becoming more favorable and generous to consumer litigants. Between 1995 and 2007, the expected value of recovery for potential plaintiffs increased dramatically as measured by CPA requirements to bring a cause of action and available remedies. In 2004, the state CPAs that were the most favorable to plaintiffs are New Hampshire, Massachusetts, and Connecticut. The states with CPAs that are the least favorable to plaintiffs are Colorado, Maryland, and Georgia.

Not surprisingly how favorable a CPA is to litigants appears to influence the number of CPA decisions reported. States with CPAs that are more favorable to consumers have more CPA litigation. The expected value of recovery under a given state’s CPA appears to contribute to the amount of litigation that makes use of the act. States that allow more generous remedies and make it easier for consumers to win in court see more CPA litigation.

The Shadow Commission study demonstrates that there are qualitative differences between CPAs decisions and actions that would likely be found to be illegal and enforced under relevant FTC standards. Most CPA claims would not constitute illegal conduct under FTC consumer protection standards. The Searle Shadow FTC found that 78% of a sample of CPA claims would not constitute legally unfair or deceptive conduct under FTC policy statements. While relatively few CPA claims would constitute illegal conduct under the FTC standard (22%), even fewer (12%) would result in FTC enforcement action. Almost 40% of CPA claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under FTC consumer protection standards. In a sample of CPA claims where the consumer plaintiff prevailed in court, the Searle Shadow FTC found that 38% of these successful claims would not constitute illegal conduct under the FTC standard. Although most of these successful cases would meet the FTC illegality standards, only 23% would likely be enforced by the FTC.

The empirical findings in the SCJI Preliminary Report on State Consumer Protection Acts have important implications for those interested in discussing and formulating public policy regarding CPAs:

1. To the extent that CPAs are envisioned as complements to FTC consumer protection, they appear to overshoot the mark. While resource limitations prevent the FTC from pursuing enforcement in every case of unfair or deceptive conduct, this report suggests that CPAs go well beyond filling this gap. Instead, CPAs may allow consumers to pursue different types of claims, including many that do not involve conduct that would be illegal under FTC standards for consumer protection.


2. Vague definitions of illegal conduct in CPAs, while legislatively expeditious, create costly uncertainty and unpredictability in the law. With vague definitions of illegal conduct, businesses must divert resources to interpret the law and to predict how it will be applied. Not only do vague standards impose uncertainty costs on litigants, they require judges to define the conduct that the statute intends to prohibit and to separate meritorious from frivolous claims. Ultimately, these additional costs imposed on litigants and the civil justice system may be paid by consumers in the form of higher prices.

3. The statutory language of CPAs matters. Plaintiffs appear to respond to the incentives established by CPAs. Statutory language that provides broader remedies and lower requirements to bring a cause of action tends to encourage plaintiffs to file suit under CPAs; language that restricts remedies and raises the bar for stating a cause of action tends to result in less CPA litigation. Altering the statutory text of CPAs is likely to be a successful way for legislatures to increase or decrease the amount of CPA litigation in a jurisdiction.

4. Because amendments to CPAs have tended to lower the requirements to bring a cause of action, it may be useful to investigate whether other established causes of action are being usurped. The increase in CPA litigation associated with lower statutory requirements and vague definitions combined with qualitative differences between CPA cases and FTC consumer protection standards might suggest that some CPA litigation does not involve consumer protection claims. To the extent CPA litigation involves claims that should have been brought under other causes of action, CPAs may undermine well-established legal doctrines. If legislatures intend to re-write contracts, torts, or products liability law, they should do so directly, rather than allowing expansive CPAs do so in an indirect fashion.

5. To the extent that the FTC standard meets its goal of an optimal balance between the public interest and protection of individual consumers, it is uncertain that the broader coverage of CPAs benefits consumers. The FTC standard seeks to limit consumer protection enforcement to those actions that will serve the public interest generally. CPAs that reach beyond this optimal enforcement goal may deter businesses from legitimate activity and force them to focus on legal matters unrelated to their business goals. Additionally, any increases in consumer protection that are provided by CPAs must be considered against the burdens that they impose on the civil justice system.

While the empirical results presented in this Preliminary Report may usefully inform policy discussions on CPAs, the report has limitations. First, reported CPA decisions do not allow for observation of complaints that were filed but subsequently settled without a reported decision. Second, the litigation selection bias inherent in using reported CPA decisions warrants caution for making strong conclusions about the quality of the underlying CPA claims. Third, the observed increase in reported CPA decisions could be affected by several factors including an increase in CPA litigation, a decrease in settlements, an increase in the number of written decisions due to uncertainty in interpreting CPAs, and an increase in the number of unpublished decisions reported to Lexis over time. However, it is not possible to fully separate the effects given the available data. Finally, for the Searle Shadow FTC, the case fact descriptions forming the basis of the excerpts given to Shadow Commissioners may not have included all of the facts ultimately relevant to the determination of liability. The possible limitations of the data do not prevent the report from contributing to an understanding of the nature of CPA litigation activity over time, between states, and as compared to federal standards, areas where empirical evidence is almost entirely absent. Our data allow us to generate estimates of the magnitude and determinants of CPA litigation activity that begin to address the lack of empirical data needed to inform policy debates regarding the effect of CPAs on the civil justice system.

This Preliminary Report completes the first, large scale empirical study of CPAs. There is much room for additional research. In particular, it may be useful to examine the role that key legislation and

Conclusions 51

decisions have had on the amount of litigation activity. Do material decisions in state supreme courts or new legislation increase or decrease litigation depending on the characteristics of the law? It could also be useful to examine how other changes in the legal landscape influence trends in CPA litigation. For example, did the Class Action Fairness Act reduce the number of CPA class actions seen in state courts?

APPENDIX A: CPA STATUTES

Statute ID State Common Title CPA Statute

1 AlabamaThe Alabama Deceptive Trade Practices Act

Ala. Code §§ 8‐19‐1 to 8‐19‐15

2 AlaskaThe Alaska Unfair Trade Practices and Consumer Protection Act

AS §§ 45.50.471 to 45.50.561

3 Arizona Arizona's Consumer Fraud Act Ariz. Rev. Stat. Ann. §§ 44‐1521 to 44‐1534

4 Arkansas The Deceptive Trade Practices ActArk. Code Ann. §§ 4‐88‐101 to 4‐88‐115 (general provisions); Ark. Code Ann. §§ 4‐88‐101 to 4‐88‐706 (entire act)

5 CaliforniaCalifornia's Unfair Competition Law (UCL)

Ca. Bus. & Prof. Code §§ 17200 to 17210 (previously, Ca. Civil Code § 3369)

6 California Consumers Legal Remedies Act Cal. Civ. Code § 1750 to 17847 California Unfair Practices Act Ca. Bus. & Prof. Code §§ 17000 to 17101

8 ColoradoThe Colorado Consumer Protection Act (CCPA)

C.R.S. §§ 6‐1‐101 to 6‐1‐115 (general provisions); C.R.S. §§ 6‐1‐101 to 6‐1‐1120 (entire act)

9 ConnecticutConnecticut Unfair Trade Practices Act (CUTPA)

Conn. Gen. Stat. §§ 42‐110a to 42‐110q

10 Delaware Consumer Fraud Act Del. Code Ann. tit. 6, §§ 2511 to 252711 Delaware Deceptive Trade Practices Act Del. Code Ann. tit. 6, §§ 2531 to 2536

12District of Columbia

District of Columbia Consumer Protection Procedures Act (DCCPPA)

DC Code §§ 28‐3901 to 28‐3913

13 FloridaFlorida Deceptive and Unfair Trade Practices Act (FDUTPA)

Fla. Stat. §§ 501.201 to 501.213

14 Georgia Uniform Deceptive Trade Practices Act OCGA §§ 10‐1‐370 to 10‐1‐375

15 GeorgiaGeorgia Fair Business Practices Act (FBPA)

OCGA §§ 10‐1‐390 to 10‐1‐407

16 Hawaii Hawaii’s consumer protection lawHaw. Rev. Stat. §§ 480‐1, 480‐2, and 480‐13 (general provisions); Haw. Rev. Stat. §§ 480‐1 to 480‐24 (entire law)

17 Hawaii Uniform Deceptive Trade Practices Act Haw. Rev. Stat. §§ 481A‐1 to 481A‐5

18 Idaho Idaho Consumer Protection Act (ICPA) Idaho Code §§ 48‐601 to 48‐619

19 IllinoisIllinois Consumer Fraud and Deceptive Business Practices Act (ICFA)

815 ILCS 505/1 to 505/12

20 Illinois Uniform Deceptive Trade Practices Act 815 ILCS 510/1 to 510/7

21 IndianaThe Indiana Deceptive Consumer Sales Act

Indiana Code §§ 24‐5‐0.5‐1 to 24‐5‐0.5‐12

22 Iowa The Iowa Consumer Fraud Act Iowa Code § 714.16

23 KansasThe Kansas Consumer Protection Act (KCPA)

K.S.A. §§ 50‐623 to 50‐643 (general previsions); K.S.A. §§ 50‐623 to 50‐6113 (entire act)

24 Kentucky The Kentucky Consumer Protection Act KRS §§ 367.110 to 367.300

Sources: Product Liability Advisory CouncilAlan S. Brown and Larry E. Hepler, Comparison of Consumer Fraud Statutes Across the 50 States, 55 FDCC QUARTERLY 263 (2005).


APPENDIX A: CPA STATUTES (CONT.)

Statute ID State Common Title CPA Statute

25 LouisianaThe Louisiana Unfair Trade Practices and Consumer Protection Act (LUTPA)

La. R.S. §§ 51:1401 to 51:1425

26 MaineThe Maine Unfair Trade Practices Act (UTPA)

5 M.R.S.A. §§ 205‐A to 214

27 Maine Uniform Deceptive Trade Practices Act 10 M.R.S.A. §§ 1211 to 1216

28 Maryland Maryland Consumer Protection Act Md. Com. Law Code Ann. §§ 13‐101 to 13‐501

29 MassachusettsThe Massachusetts Regulation of Business Practice and Consumer Protection Act (Chapter 93A)

Mass. Gen. L. ch. 93A §§ 1 to 11

30 MichiganThe Michigan Consumer Protection Act (MCPA)

Mich Comp. Laws §§ 445.901 to 445.922

31 Minnesota Deceptive Trade Practices Act Minn. Stat. §§ 325D.43 to 325D.4832 Minnesota Minnesota Consumer Fraud Act Minn. Stat. §§ 325F.68 to 325F.70

33 Mississippi

The Mississippi Consumer Protection Act (MCPA); also cited as the Mississippi Unfair and Deceptive Practices Act or the Mississippi Unfair Trade Practices Act

MISS. CODE ANN. §§ 75‐24‐1 to 75‐24‐27 (general provisions); MISS. CODE ANN. §§ 75‐24‐1 to 75‐24‐217 (entire act)

34 Missouri Merchandising Practices ActMO. REV. STAT. §§ 407.010 to 407.309 (general provisions);MO. REV. STAT. §§ 407.010 to 407.1370 (entire act)

35 MontanaMontana Unfair Trade Practices and Consumer Protection Act (MCPA)

Montana Code §§ 30‐14‐101 to 30‐14‐143

36 Nebraska Uniform Deceptive Trade Practices Act R.R.S. Neb. §§ 87‐301 to 87‐306

37 Nebraska Consumer Protection Act R.R.S. Neb. §§ 59‐1601 to 59‐1623

38 Nevada Nevada Consumer Fraud Statute

NRS § 41.600 (previously 1973 Nev. Stat. 1483)NRS § 119.330 NRS § 205.2747 NRS § 482.36655 to 482.36667NRS § 482.351NRS §§ 598.0903 to 598.0999

39 Nevada Nevada Unfair Trade Practices Act NRS § 598A.010 to 598A.280

40 New HampshireNew Hampshire’s Consumer Protection Act (or Regulation of Business Practices for Consumer Protection Act)

N.H. RSA §§ 358‐A:1 to 358‐A:13

41 New Jersey Consumer Fraud ActN.J.S.A. §§ 56:8‐1 to 56:8‐20 (general provisions);N.J.S.A. §§ 56:8‐1 to 56:8‐181 (entire act)

42 New MexicoNew Mexico’s Unfair Practices Act (UPA)

N.M. Stat. Ann. §§ 57‐12‐1 to 57‐12‐26

43 New YorkNew York’s Deceptive Business Acts and Practices statute (or Consumer Protection Act)

N.Y. GEN. BUS. §§ 349 to 350‐f‐1

44 North CarolinaNorth Carolina unfair trade practices law (or Unfair and Deceptive Trade Practices Act)

N.C.G.S. §§ 75‐1 to 75‐42

45 North DakotaConsumer Fraud and Unlawful Credit Practices

N.D. Cent. Code §§ 51‐15‐01 to 51‐15‐11

46 OhioOhio's Consumer Sales Practices Act (CSPA)

O.R.C. §§ 1345.01 to 1345.13 (general provisions)O.R.C. §§ 1345.01 to 1345.99 (entire act)


Appendices 55

APPENDIX A: CPA STATUTES (CONT.)

Statute ID State Common Title CPA Statute47 Ohio Deceptive Trade Practices Act O.R.C. §§ 4165.01 to 4165.04

48 Oklahoma Oklahoma Consumer Protection Act15 Okla. Stat. §§ 751 to 763 (general provisions); 15 Okla. Stat. §§ 751 to 1024 (entire act)

49 Oklahoma Deceptive Trade Practices Act 78 Okla. Stat. §§ 51 to 5550 Oregon Unlawful Trade Practices Act (UTPA) ORS §§ 646.605 to 646.656

51 PennsylvaniaUnfair Trade Practices and Consumer Protection Law (UTPCPL)

73 Pa. C.S.A. §§ 201‐1 to 201‐9.3

52 Rhode IslandRhode Island’s Unfair Trade Practice and Consumer Protection Act (UPTA)

R.I. Gen. Laws §§ 6.13.1‐1 to 6.13.1‐28

53 South CarolinaSouth Carolina Consumer Protection Code (SCCPC)

S.C. Code Ann. §§ 37‐1‐101 to 37‐1‐303 (general provisions); S.C. Code Ann. §§ 37‐1‐101 to 37‐25‐80 (entire act)

54 South Carolina Unfair Trade Practices ActS.C. Code Ann. §§ 39‐5‐10 to 39‐5‐170 (general provisions); S.C. Code Ann. §§ 39‐5‐10 to 39‐5‐560 (entire act)

55 South DakotaDeceptive Trade Practices and Consumer Protection Act

S.D. Codified Laws §§ 37‐24‐1 to 37‐24‐35 (general provisions);S.D. Codified Laws §§ 37‐24‐1 to 37‐24‐48 (entire act)

56 TennesseeThe Tennessee Consumer Protection Act of 1977 (TCPA)

Tenn. Code Ann. §§ 47‐18‐101 to 47‐18‐128

57 TexasTexas Deceptive Trade Practices‐Consumer Protection Act

Tex. Bus. & Com. Code §§ 17.41 to 17.63

58 UtahUtah's Consumer Sales Practices Act (UCSPA)

Utah Code Ann. §§ 13‐11‐1 to 13‐11‐23

59 Vermont Vermont Consumer Fraud Act (VCFA)9 V.S.A. §§ 2451 to 2466a (general provisions); 9 V.S.A. §§ 2451 to 2480n (entire act)

60 Virginia Consumer Protection Law Va. Code Ann. §§ 59.1‐196 to 59.1‐207

61 Virginia no titleVa. Code Ann. §§ 18.2‐214 and 18.2‐216 and 18.2‐240 and 18.2‐245

62 Virginia no title Va. Code Ann. § 59.1‐68.3

63 WashingtonThe Washington Consumer Protection Act

RCW §§ 19.86.010 to 19.86.920

64 West VirginiaThe West Virginia Consumer Credit and Protection Act

West Virginia Code §§ 46A‐1‐101 to 46A‐1‐108 and 46A‐6‐101 to 46A‐6‐110 (general provisions); West Virginia Code §§ 46A‐1‐101 to 46A‐8‐102 (entire act)

65 Wisconsin"Fraudulent Representations" Statute (Deceptive Trade Practices Act)

Wis. Stat. §§ 100.18(1) to 100.18(12)(b)

66 Wisconsin"Methods of Competition and Trade Practices" (Unfair Trade Practices Statues)

Wis. Stat. §§ 100.20(1) to 100.20(6)

67 Wisconsin Wisconsin Consumer Act Wis. Stat. §§ 421 to 42768 Wyoming Wyoming Consumer Protection Act Wyo. Stat. Ann. §§ 40‐12‐101 to 40‐12‐114


APPENDIX B: CPA STATUTE CODING INSTRUCTIONS Variable Name Variable Description Coding Instructions

TAB_NUMBinder location for each state Consumer Protection Act ("CPA").

= 1‐67 (pre‐assigned).

STATUTE_ID The pre‐assigned ID for each CPA. = 1‐68 (pre‐assigned).

STATE The state associated with the CPA. Insert the full name of the state associated with the CPA.

COMMON_TITLE The common title given to the CPA, if any.Insert the common title of the CPA as defined in the Product Liability Advisory Counsel Conference or the 2005 Brown and Helper Article.

CPA_STATUTE Full statute citation.Insert full statute citation as defined in the Product Liability Advisory Counsel Conference or the 2005 Brown and Helper Article along with all current relevant code sections

SOURCESource from which COMMON_TITLE and/or CPA_STATUTE was pulled.

Insert "Product Liability Advisory Counsel" and/or "Article: Brown and Helper, 2005."

YR_ADOPTED When Was the CPA Adopted? Year CPA was adopted in YYYY format.

CPA_BASEOn which statute is the CPA based (as indicated in Brown and Hepler, 2005)?

= 0 if None; 1 if Uniform Deceptive Trade or Consumer Sales Practices Acts; 2 if Consumer Fraud Acts; 3 if Federal Trade Commission Act; 4 if Other.

ILLEGAL_ACTS Definition of illegal acts under the CPA.Insert statutory definition and cite associated statute; "N/A" if not available.

STATUTE_GENDoes the CPA statute include one section for unlawful practices or are unlawful practices defined in multiple sections?

= 1 if one section describes unlawful practices; 0 Otherwise.

VAGUEDoes the statute have a general clause for unfair/deceptive acts or does it have a specific, enumerated list of unfair deceptive acts?

= 1 if general clause; 0 if enumerated list.

FTCDoes the CPA purport to follow FTC interpretation of unfair and/or deceptive practices? (not necessarily identical to the FTC act).

= 1 if Yes; 0 Otherwise.

FTC_CITE Cite for FTC.Insert statute citation associated with FTC; "N/A" if not available.

PRIVATE_ACTION Does the CPA allow private rights of action? = 1 if Yes; 0 Otherwise.

PRIVATE_ACTION_CITE Cite for PRIVATE_ACTION.Insert statute citation associated with PRIVATE_ACTION; "N/A" if not available.

CPA_PERSONAL_ONLYDoes the CPA limit private causes of action to consumers who buy goods or services for personal, family or household use?


CPA_PERSONAL_ONLY_DES Description of the definition of consumer.Insert statutory language and cite associated statute; "N/A" if not available.

CLASS_ACTION_CPADoes the CPA allow for class actions in a private cause of action?


CLASS_ACTION_CPA_CITE Cite for CLASS_ACTION_CPA.Insert statute citation associated with CLASS_ACTION_CPA; "N/A" if not available.

CPA_VIOLATIONDescription of how a violation of the CPA may be established.

Insert statutory language and cite associated statute; "N/A" if not available.

PUBLIC_INTERESTDoes the CPA purport to require a "public interest impact" analysis for a private cause of action?


PUBLIC_INTEREST_CITE Cite for PUBLIC_INTEREST.Insert statute citation associated with PUBLIC_INTEREST; "N/A" if not available.

INJURY_CONSUMERDoes the CPA require the showing of injury for a private cause of action ? (Caused harm).


INJURY_CONSUMER_CITE Cite for INJURY_CPA.Insert statute citation associated with INJURY_CPA; "N/A" if not available.

HARM_OTH_CONSUMERDoes the CPA require the showing of other consumer harm in a private cause of action?


HARM_OTH_CONSUMER_DES Description of the other harm Plaintiff must show.Insert statutory language and cite associated statute; "N/A" if not available.

Note: No field should be left blank.

Category 1

Category 2

Appendices 57

APPENDIX B: CPA STATUTE CODING INSTRUCTIONS (CONT.)

Category 2

(cont)

Category 3

Variable Name Variable Description Coding Instructions

HARM_ATTY_GENDoes the CPA require the showing of actual harm for an action brought by the attorney general?


HARM_ATTY_GEN_DES Description of the harm attorney general must show.Insert statutory language and cite associated statute; "N/A" if not available.

INTENTDoes the CPA require a showing of any intent/scienter?

= 1 if Intent is required; 2 if Knowledge only is required; 0 Otherwise.

INTENT_CITE Cite for INTENT.Insert statute citation associated with INTENT; "N/A" if not available.

INTENT_WILLFULDoes the CPA require a showing of willful intent to bring suit for a private cause of action?


INTENT_WILLFUL_CITE Cite for INTENT_WILLFULInsert statute citation associated with INTENT_WILLFUL; "N/A" if not available.

RELIANCE_CPADoes the CPA require the element of reliance in a private cause of action?


RELIANCE_CPA_CITE Cite for RELIANCE_CPA.Insert statute citation associated with RELIANCE_CPA; "N/A" if not available.

RESTITUTION Does the CPA allow for any recovery of restitution? = 1 if Yes; 0 Otherwise.

RESTITUTION_CITE Cite for RESTITUTION.Insert statute citation associated with RESTITUTION; "N/A" if not available.

E_RELIEF_CONSUMERDoes the CPA allow for recovery of equitable relief in a private cause of action?


E_RELIEF_CONSUMER_DES Description of equitable relief allowed.Insert statutory language and cite associated statute; "N/A" if not available.

E_RELIEF_ATTY_GENDoes the CPA allow for recovery of equitable relief by the attorney general?


E_RELIEF_ATTY_GEN_DES Description of equitable relief allowed.Insert statutory language and cite associated statute; "N/A" if not available.

ACTUAL_DMG Does the CPA allow for recovery of actual damages? = 1 if Yes; 0 Otherwise.

ACTUAL_DMG_CITE Cite for ACTUAL_DMG.Insert statute citation associated with ACTUAL_DMG; "N/A" if not available.

STAT_DMG Does the CPA allow for statutory damages? = 1 if Yes; 0 Otherwise.

STAT_DMG_AMT What is the amount of the statutory damages? Insert amount or range of statutory damages.

STAT_DMG_CITE Cite for STAT_DMG.Insert statute citation associated with STAT_DMG; "N/A" if not available.

PUNITIVE_DMG_DENIED Does the CPA explicitly deny punitive damages? = 1 if Yes; 0 Otherwise.

PUNITIVE_DMG_DENIED_CITE Cite for PUNITIVE_DMG_DENIED.Insert statute citation associated with PUNITIVE_DMG_DENIED; "N/A" if not available.

ENHANCED_DMG Does the CPA automatically award enhanced damages? = 1 if Yes; 0 Otherwise.

ENHANCED_DMG_CITE Cite for ENHANCED_DMG.Insert statute citation associated with ENHANCED_DMG; "N/A" if not available.

MAX_MULTWhat is the maximum multiplier allowed for enhanced damages, if available?

Insert maximum multiplier allowed for enhanced damages; "N/A" if not available.

MAX_MULT_DES Cite for MAX_MULT.Insert statutory language and cite associated statute; "N/A" if not available.

PUNITIVE_DMG_EXPLICITDoes the CPA explicitly provide punitive damages, not including enhanced damages?


PUNITIVE_DMG_EXPLICIT_CITE Cite for PUNITIVE_DMG_EXPLICIT_CITE.Insert statute citation associated with PUNITIVE_DMG_EXPLICIT; "N/A" if not available.

PUNITIVE_DMG_CAPDoes the CPA place a cap on punitive and/or enhanced damages?


PUNITIVE_DMG_CAP_DESWhat is the cap on punitive and/or enhanced damages?


DMG_MULT_WILLFULDoes the CPA allow for a damages multiplier only when Defendant conduct is "wrongful", "in bad faith," or "willful"?



APPENDIX B: CPA STATUTE CODING INSTRUCTIONS (CONT.)

Category 3

(cont)

Category 4

Category 5


ATTY_FEES_CONSUMERDoes the CPA allow recovery of attorney's fees in a private cause of action?


ATTY_FEES_CONSUMER_CITE Cite for ATTY_FEES_CONSUMER.Insert statutory language and cite associated statute; "N/A" if not available.

ATTY_FEES_AUTOMATICIn a private cause of action, is the prevailing party automatically awarded attorney's fees?

= 1 if Automatic; 2 if Discretionary; 0 Otherwise.

ATTY_FEES_AUTOMATIC_CITE Cite for ATTY_FEES_AUTOMATIC.Insert statutory language and cite associated statute; "N/A" if not available.

ATTY_FEES_DEFENDANTIn a private cause of action, is a prevailing defendant awarded attorney's fees?


ATTY_FEES_DEFENDANT_DES Cite for ATTY_FEES_DEFENDANT.Insert statutory language and cite associated statute; "N/A" if not available.

ATTY_FEES_FRIVOLOUSIn a private cause of action, does the CPA explicitly award attorney's fees to the defendant if the plaintiff brought a frivolous suit?


ATTY_FEES_FRIVOLOUS_CITE Cite for ATTY_FEES_FRIVOLOUS.Insert statutory language and cite associated statute; "N/A" if not available.

ATTY_FEES_ATTY_GENDoes the CPA allow recovery of attorney's fees by the attorney general?


ATTY_FEES_ATTY_GEN_CITE Cite for ATTY_FEES_ATTY_GEN.Insert statute citation associated with ATTY_FEES_ATTY_GEN; "N/A" if not available.

REMEDY_EXCLUSIVEAre the CPA remedies exclusive so that a plaintiff cannot pursue other remedies available at common law?


REMEDY_EXCLUSIVE_CITE Cite for REMEDY_EXCLUSIVE.Insert statute citation associated with REMEDY_EXCLUSIVE; "N/A" if not available.

CHOICE_OF_LAWWhat is the applicable choice of law? (include description of extra‐territorial application if available; otherwise, include venue description, if available)


STATUTE_LIMITATIONSWhat is the maximum statute of limitations for actions brought under the CPA, if available?

Insert numbers of years; "N/A" if not available.

STATUTE_LIMITATIONS_DES Cite for STATUTE_LIMITATIONS.Insert statutory language and cite associated statute; "N/A" if not available.

AMENDS Description of the CPA's amendment history.Insert a brief description of the CPA's amendment history from inception.

AMEND_SIGWould any amendment cause a preceding variable to change?


AMEND_SIG_YEARIf an amendment would cause a preceding variable to change, what year was the amendment?

Insert year of amendment; "N/A" if not available.

AMEND_SIG_SECTIONIf an amendment would cause a preceding variable to change, what CPA statute section did the amendment change?

Insert statute section; "N/A" if not available.

STATUTE_NOTES General notes not captured in other fields.

Insert any comments or any unusual, unique, particularly relaxed, or particularly burdensome sections not captured in the previous fields (source with statute citations); "N/A" if no comments.

Note: No field should be left blank.

APPENDIX C: ADDITIONAL SCREENING FOR REPORTED CPA DECISION COLLECTION PROCESS

We began by using the following over-inclusive search string: [(consumer w/3 decept! or protection or practice! or uniform or “false pretense” or “false promise” or unconscionable) or (misrep! w/p consumer and fraud!) or (deceptive w/3 consumer! or trade or practices or act) or “consumer fraud” or “fraud and unlawful credit practice!” or (unfair w/3 competition or practice!) or “consumer protection” or “little FTC act” or “deceptive business practice!” or “unlawful trade practices act” or (“legal remedies act” w/s California) or (“fair business practices act” w/s Georgia) or “merchandising practices act” or “Wisconsin consumer act” and date aft 1999 and bef 2008].

In order to minimize false positives, i.e. any decisions that survived the search but did not actually mention a claim brought by either party under a CPA, a SCJI researcher was assigned to each state to screen cases. Each researcher reviewed the decisions from his or her state to determine whether they belonged in our database of reported CPA decisions by applying three criteria. First, the researchers included all decisions mentioning one or more CPA statute citations directly relating to a CPA claim in the case at issue and not merely mentioning the CPA in an unrelated case. Second, they included any decision that contained one or more CPA or common titles listed in Appendix A directly relating to a CPA claim in the case at issue. Lastly, they included in the database any remaining decisions that mentioned claims directly related to consumer protection but did not mention a specific CPA citation or title. For example, we included claims on “unfair competition,” “deceptive trade practices,” and “consumer fraud,” that are directly related to consumer protection. Approximately 7,300 U.S. state appellate courts’ decisions and approximately 9,700 U.S. federal district courts’ decisions remained in the database after the screening process.

We then combined both the U.S. state appellate court and federal district court decisions to create a database (“population database”) of approximately 17,000 reported CPA decisions from 2000 through 2007162 in the fifty states and District of Columbia.163

162 We ran the searches for reported CPA decisions to Lexis in May 2008. Due to a lagged reporting effect of decisions to

Lexis, it is possible that running a current search in both the “State Court Cases, Combined” and “US District Court Cases, Combined” database from 2000 through 2007 (especially for the years 2006 and 2007) could generate additional reported CPA decisions that have been added to the Lexis database since our initial search.

163 Diagnostic reliability tests of the screening process indicated a 90 percent agreement rate between two coders. A Research Associate and Research Coordinator monitored and reviewed the screening process and made necessary corrections.

APPENDIX D: CPA CASE CODING INSTRUCTIONS


COURT_STATE Full name of the state or territory of the court. Insert the full state name as listed in the Lexis header.

LEXIS_YEAR Year listed in the full Lexis Citation. Insert the year from the full Lexis citation.

LEXIS_CITE Full Lexis Citation. Insert the Lexis reference number used to screen the decision into the database.

NAME_SHORT The short‐hand name of the case used by Lexis.Insert the short hand name of the case used by Lexis at the very top of the "full cite" page.

DATABASEThe database from which the decision was screened.

Insert "State Appeals" or "Federal" based on which database the decision was screened from.

CASE_CITE Full Case Citation.Insert full case citation, e.g. Smith v. Jones, 209 F. 3d 101 (SDNY 2001) ‐ Use the cite generated by clicking "Copy w/Cite" in Lexis.

P_NAMES All Plaintiffs' Names.Insert the full names of the Plaintiffs (in the original lawsuit if on appeal). If there are multiple entries, please separate them using semicolons (;).

D_NAMES All Defendants' Names.Insert the full names of the Defendants (in the original lawsuit if on appeal). If there are multiple entries, please separate them using semicolons (;).

COURT_NAME Full name of the court. Insert the full name of the court as listed in the Lexis header.

COURT_TYPE Type of court listed in the Lexis header.

= 1 if "State Intermediate Court of Appeals"; 2 if "State Highest Court of Appeals"; 3 if "Federal District Court"; or 0 if "Other." Note that not all states call their highest court of appeal "Supreme Court." Please use the "Other" variable if it is not clear.

DATE_DECISION Date of Decision. Insert date decision issued in MM/DD/YYYY format .

DATE_COMPLAINTDate Complaint was Filed, as referenced in the decision.

Insert date complaint filed in MM/DD/YYYY format; "N/A" if not available in the decision.

JUDGE Name of Presiding Judge(s). Insert full name of presiding judge(s) .

DECISION_LENGTH Total number of words that appear in the decision.Enter the total number of words in the decision as determined by an electronic word count (the count should only include the text of the judge's opinion starting with the word "Opinion").

COUNSELAll names and law firms representing Plaintiff(s) and Defendant(s).

Insert the full names of the attorneys and law firms representing the Plaintiffs and Defendants (in the original lawsuit if on appeal). If there are multiple entries, please separate them using semicolons (;).

CASE_DES Brief summary of the original case facts.Insert language from the decision that briefly describes the facts of the original case.

PRODUCT What was the product at issue? List the product(s) at issue in the original case.

ST_AG Did the State Attorney General bring the CPA claim? = 1 if Yes; 0 Otherwise. For appellate decisions, refer to the original lawsuit.

ST_AG_MULTIDid the State Attorney Generals from multiple states bring the CPA claim?

= 1 if Yes; 0 Otherwise. For appellate decisions, refer to the original lawsuit.

PRIVATE Was the CPA claim brought as a private action? = 1 if Yes; 0 Otherwise. For appellate decisions, refer to the original lawsuit.

CLASS_ACTION Was the case a class action? = 1 if Yes; 0 Otherwise.

ORIG_DECISION Brief summary of the original court's decision.Insert language from the decision that briefly describes the original court's ruling, including damages awarded.

P_CAUSE_OF_ACTIONNumber of causes of action or claims brought by the Plaintiffs discussed in the decision.

Insert the total number of causes of action or claims brought by the Plaintiffs discussed in the decision ‐ in the original case if on appeal; "N/A" if not available in the decision.

D_CAUSE_OF_ACTIONNumber of causes of action or claims brought by the Defendants on a counterclaim discussed in the decision.

Insert the total number of causes of action or claims brought by the Defendants on a counterclaim discussed in the decision ‐ in the original case if on appeal; "N/A" if not available in the decision.

CPA_DESCRIPTIONList of the CPA causes of action or claims brought by either party.

Insert language from the decision that lists the causes of action or claims that refer to CPA violations ‐ in the original case if on appeal. Identify which were brought by the Plaintiffs and which were brought by the Defendants.

NON_CPA_DESList of the non‐CPA causes of action or claims brought by either party.

Insert language from the decision that lists all other causes of action or claims ‐ in the original case if on appeal. Identify which were brought by the Plaintiffs and which were brought by the Defendants.

CPA_INCLUDE Why was the decision included in the database?= 1 if CPA citation only; 2 if CPA title only; 3 if both CPA citation and title; and 0 if there was a general claim for "unfair competition," "deceptive trade practices," "unfair trade practices," "consumer fraud," etc. not clearly brought.

Note: The information for all variables listed above should only come directly from the decisions. No field should be left blank.

Category 1

Category 2

Category 3

Appendices 61

APPENDIX D: CPA CASE CODING INSTRUCTIONS (CONT.)

Category 4


CPA_CITESpecific Statute Citation for Consumer Protection Act ("CPA") Claim(s)

Insert the specific citation(s) for all the state Consumer Protection Act(s) being litigated/interpreted in the decision (both in the original case and on appeal); "N/A" if not available. If there are multiple citations, please separate them using semicolon.

STATUTE_IDThe Associated Statute ID(s) from the "CPA Statutes" Tab

= The Statute ID(s) 1‐68 associated with CPA_CITE from the "CPA Statutes" Tab. If there are multiple entries, please separate them using semicolons (;).

CPA_CLAIM Which party brought the CPA claim?= 1 if Plaintiff; 2 if Defendant; 0 if Otherwise. For appellate decisions, "Plaintiff" and "Defendant" refer to the parties in the original lawsuit.

CPA_DISMISSEDWere any of the CPA claims dismissed or removed from the case for any reason?

= 1 if Yes; 0 if Otherwise.

CPA_DISMISSED_DESWhich CPA claims were dismissed or removed, if any?

Enter the claim and who it belonged to (Plaintiff or Defendant – in original case for appeals). If all of the CPA claims were dismissed or removed, then enter “All”.

CONSUMER_HARMDoes the decision reference or discuss an allegation of consumer harm?

= 1 if Yes or consumer harm is implied; 0 if NoThis variable should capture the concept of consumer harm, not just the term of art, so concepts such as consumer confusion may be included.

RELIANCEDoes the decision reference or discuss an allegation of reliance?

= 1 if Yes; 0 if No. Please look for either the word "reliance," a variation of the word reliance, or a description of people taking action based on information on which they relied upon.

FRAUDDoes the decision reference or discuss an allegation of fraud?

= 1 if Yes; 0 if No. Please look for the word "fraud" or a variation of the word fraud in relation to the facts of the case.

ANTITRUSTDoes the decision reference or discuss a separate state or federal antitrust allegation?

= 1 if Yes; 0 if No.

TORTDoes the decision reference or discuss a separate tort action?

= 1 if Yes; 0 if No; Please note that this may include a fraud claim, but not every mention of fraud in a decision will be a tort action.

PRIOR_FINAL_JUDGMTDid the case have a final judgment issued prior to appeal?

= 1 if Yes; 0 if Otherwise.

D_DISMISSDid Defendant win motion to dismiss on the pleadings?

= 1 if Yes; 2 if No; 0 if Not Mentioned in the Decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

P_PRETRIAL_WIN Did Plaintiff win summary adjudication pre‐trial?= 1 if Yes; 2 if No; 0 if Not Mentioned in the Decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

D_SJ Did Defendant win at the summary judgment stage?= 1 if Yes; 2 if No; 0 if Not Mentioned in the Decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

TRIAL Did the case go to trial? = 1 if Yes; 0 Otherwise .

DATE_TRIAL What was the first date of trial? Insert first date of trial in MM/DD/YYYY format; "N/A" if not available in the decision.

CPA_WIN Who won on the claim(s) involving the CPA?= 1 if Plaintiff; 2 if Defendant; 0 Otherwise. For appellate decisions, "Plaintiff" and "Defendant" refer to the Plaintiff and Defendant in the original lawsuit.

BENCH_JURY Was the trial bench or jury?= 1 if bench; 2 if jury; 0 if Not Mentioned in the Decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.


Category 5



Category 6


P_MONEY Was Plaintiff awarded monetary relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_DAMAGE_AMTWhat were the total monetary damages awarded to the Plaintiff, if any?

Insert the total amount of monetary damages awarded to the Plaintiff (this should equal the sum of all the monetary awards); "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_ACTUAL_DMG Were actual damages awarded to the Plaintiff?= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_ACTUAL_DMG_AMTWhat was the amount of actual damages awarded to the Plaintiff, if any?

Insert the amount of actual damages awarded to the Plaintiff; "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_ATTY_FEES Were attorney’s fees awarded to the Plaintiff?= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_ATTY_AMTWhat was the amount of attorney's fees awarded to the Plaintiff, if any?

Insert the amount of attorney's fees awarded to the Plaintiff; "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_PUNITIVEWere punitive and/or enhanced damages awarded to the Plaintiff?

= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_PUNITIVE_AMTWhat was the amount of punitive and/or enhanced damages awarded to the Plaintiff, if any?

Insert the amount of punitive and/or enhanced damages awarded to the Plaintiff; "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_ENHANCED_MULTWhat was the multiplier on enhanced damages awarded to the Plaintiff?

Insert the multiple of enhanced damages awarded to the Plaintiff (e.g. "treble actual damages"); "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_OTH_DMGWere other monetary damages awarded to the Plaintiff?

= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_OTH_DMG_AMTWhat was the amount of other damages awarded to the Plaintiff, if any?

Insert the amount of other monetary damages awarded to the Plaintiff; "N/A" if not available in the decision. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_OTH_DMG_DES Description of other monetary damages. Insert a description of P_OTHER_DMG.

P_INJUNCTIVE Was Plaintiff awarded injunctive relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_OTH_RELIEF Was Plaintiff awarded other relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Plaintiff" refers to the Plaintiff in the original lawsuit.

P_OTH_RELIEF_DES Description of other relief. Insert a description of P_OTHER_RELIEF.


Appendices 63


Category 7


D_MONEY Was Defendant awarded monetary relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_DAMAGE_AMTWhat were the total monetary damages awarded to the Defendant, if any?

Insert the total amount of monetary damages awarded to the Defendant (this should equal the sum of all the monetary awards); "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_ACTUAL_DMG Were actual damages awarded to the Defendant?= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_ACTUAL_DMG_AMTWhat was the amount of actual damages awarded to the Defendant, if any?

Insert the amount of actual damages awarded to the Defendant; "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_ATTY_FEES Were attorney’s fees awarded to the Defendant?= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_ATTY_AMTWhat was the amount of attorney's fees awarded to the Defendant, if any?

Insert the amount of attorney's fees awarded to the Defendant; "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_PUNITIVEWere punitive and/or enhanced damages awarded to the Defendant?

= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_PUNITIVE_AMTWhat was the amount of punitive and/or enhanced damages awarded to the Defendant, if any?

Insert the amount of punitive and/or enhanced damages awarded to the Defendant; "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_ENHANCED_MULTWhat was the multiplier on enhanced damages awarded to the Defendant?

Insert the multiple of enhanced damages awarded to the Defendant (e.g. "treble actual damages"); "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_OTH_DMGWere other monetary damages awarded to the Defendant?

= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_OTH_DMG_AMTWhat was the amount of other damages awarded to the Defendant, if any?

Insert the amount of other monetary damages awarded to the Defendant; "N/A" if not available in the decision. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_OTH_DMG_DES Description of other monetary damages. Insert a description of D_OTHER_DMG.

D_INJUNCTIVE Was Defendant awarded injunctive relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_OTH_RELIEF Was Defendant awarded other relief?= 1 if Yes; 0 Otherwise. For appellate decisions, "Defendant" refers to the Defendant in the original lawsuit.

D_OTH_RELIEF_DES Description of other relief. Insert a description of P_OTHER_RELIEF.



APPENDIX D: CPA CASE CODING INSTRUCTIONS (CONT.) APPENDIX D: CPA CASE CODING INSTRUCTIONS (CONT.)

Category 9

Category 8


APPEAL Is this an appellate decision? = 1 if Yes; 0 Otherwise.

APPEAL_DESBrief summary of why the original judgment was appealed.

Insert language from the decision that briefly describes the facts of the appeal.

APPEAL_WHO Which party brought the appeal?= 1 if Plaintiff; 2 if Defendant; 0 Otherwise. For appellate decisions, "Plaintiff" and "Defendant" refer to the Plaintiff and Defendant in the original lawsuit.

APPEAL_CPA Was a decision on a CPA appealed? = 1 if Yes; 0 Otherwise.

APPEAL_CPA_WIN Who won on appeal on the claim involving the CPA?= 1 if Plaintiff; 2 if Defendant; 0 Otherwise. For appellate decisions, "Plaintiff" and "Defendant" refer to the Plaintiff and Defendant in the original lawsuit.

APPEAL_DECISION Brief summary of the appellate court's decision.Insert language from the decision that briefly describes the appellate court's ruling.

C_PUB_INTERESTCount of how many times the phrase "public interest" is mentioned in the opinion.

Insert the number of times "public interest" is mentioned in the opinion.

C_MAT_MISREPCount of how many times the phrase "material misrepresentation" is mentioned in the opinion.

Insert the number of times "materical misrepresentation" is mentioned in the opinion. This should include the plural of the phrase as well.

C_CONS_INJURYCount of how many times the phrase "consumer injury" is mentioned in the opinion.

Insert the number of times "consumer injury" is mentioned in the opinion.

C_UNFAIR_ACTSCount of how many times the phrases "unfair act" or "unfair practice" are mentioned in the opinion.

Insert the number of times "deceptive act" or "deceptive practice" is mentioned in the opinion. This should include the plural of the phrases as well.

C_DECEP_ACTSCount of how many times the pharses "deceptive act" or "deceptive practice" are mentioned in the opinion.

Insert the number of times "unfair act" or "unfair practice" is mentioned in the opinion. This should include the plural of the phrases as well.

C_MISLEAD_REPCount of how many times the phrase "misleading representation" is metioned in the opinion.

Insert the number of times "misleading representation" is mentioned in the opinion.

C_FTCCount of how many times "FTC" or "Federal Trade Commission" is mentioned in the opinion.

Insert the number of times "FTC" or "Federal Trade Commission" is mentioned in the opinion.

NOTES General Notes Not Captured In Other Fields.Insert any comments or unusual or unique outcomes not captured in the previous fields; "N/A" if no comments.


APPENDIX E: BENEFIT VARIABLES CODEBOOK


PRIVATE_ACTION Does the CPA allow private rights of action? = 1 if Yes; 0 Otherwise.

CLASS_ACTION_CPADoes the CPA allow for class actions in a private cause of action?


RESTITUTION Does the CPA allow for any recovery of restitution? = 1 if Yes; 0 Otherwise.

E_RELIEF_CONSUMERDoes the CPA allow for recovery of equitable relief in a private cause of action?


E_RELIEF_ATTY_GENDoes the CPA allow for recovery of equitable relief by the attorney general?


ACTUAL_DMG Does the CPA allow for recovery of actual damages? = 1 if Yes; 0 Otherwise.

STAT_DMG Does the CPA allow for statutory damages? = 1 if Yes; 0 Otherwise.

ENHANCED_DMG Does the CPA automatically award enhanced damages? = 1 if Yes; 0 Otherwise.

PUNITIVE_DMG_EXPLICITDoes the CPA explicitly provide punitive damages, not including enhanced damages?


DMG_MULT_WILLFULDoes the CPA allow for a damages multiplier only when Defendant conduct is "wrongful", "in bad faith," or "willful"?


ATTY_FEES_CONSUMERDoes the CPA allow recovery of attorney's fees in a private cause of action?


ATTY_FEES_ATTY_GENDoes the CPA allow recovery of attorney's fees by the attorney general?


VAGUEDoes the statute have a general clause for unfair/deceptive acts or does it have a specific, enumerated list of unfair deceptive acts?

= 1 if general clause; 0 if enumerated list.

APPENDIX F: RESTRICTION VARIABLES CODEBOOK


CPA_PERSONAL_ONLYDoes the CPA limit private causes of action to consumers who buy goods or services for personal, family or household use?


PUBLIC_INTERESTDoes the CPA purport to require a "public interest impact" analysis for a private cause of action?


INJURY_CONSUMERDoes the CPA require the showing of injury for a private cause of action? (Caused harm)


HARM_OTH_CONSUMERDoes the CPA require the showing of other consumer harm in a private cause of action?


HARM_ATTY_GENDoes the CPA require the showing of actual harm for an action brought by the attorney general?


INTENT Does the CPA require a showing of any intent/scienter?= 1 if Intent is required; 2 if Knowledge only is required; 0 Otherwise.

INTENT_WILLFULDoes the CPA require a showing of willful intent to bring suit for a private cause of action?


RELIANCE_CPADoes the CPA require the element of reliance in a private cause of action?


PUNITIVE_DMG_DENIED Does the CPA explicitly deny punitive damages? = 1 if Yes; 0 Otherwise.

PUNITIVE_DMG_CAPDoes the CPA place a cap on punitive and/or enhanced damages?


ATTY_FEES_AUTOMATICIn a private cause of action, is the prevailing party automatically awarded attorney's fees?


ATTY_FEES_DEFENDANTIn a private cause of action, is a prevailing defendant awarded attorney's fees?


ATTY_FEES_FRIVOLOUSIn a private cause of action, does the CPA explicitly award attorney's fees to the defendant if the plaintiff brought a frivolous suit?


REMEDY_EXCLUSIVEAre the CPA remedies exclusive so that a plaintiff cannot pursue other remedies available at common law?


APPENDIX G: DECOMPOSITION OF THE EVI

It is possible that only very specific features of CPAs contribute to changes in litigation activity. In order to determine which characteristics drove changes in the overall EVI, we decomposed the EVI into its five main sources of variation from the amendment coding. Each of the five “Mini-EVIs” is constructed in the same manner as the original EVI, except that each one accounts for a different set of changes rather than all five sets of changes at once. The Mini-EVIs are as follows:

1. CIVIL_PENALTY: whether there was a change in plaintiff expected value due to a change in civil penalties;

2. STANDING_CHG_1: whether there was a change in plaintiff expected value due to changes in definitions of consumers;

3. STANDING_CHG_2: whether there were changes in the definitions of unfair acts or practices;

4. STAT_LIMITATIONS: whether there was a change to statute limitations; and

5. REMEDIES: whether there were additions or subtractions to available remedies.

We then ran the original specifications in Table 4 with robust errors for both pooled OLS and state fixed effects replacing the EVI with each Mini-EVI respectively. We lagged each Mini-EVI based on which appeared most significant in individual pooled OLS and fixed effects regressions. All Mini-Indices were lagged by five years except for the STAT_LIMITATIONS Index, which we lagged by two years.

Generally in the pooled OLS regressions, the results for the Mini-EVIs are similar to the results in Table 4 with Models 1 and 2 retaining statistical significance between the 1% and 5% levels, although Model 2 for STANDING_CHG_2 (Table G3) is not robust to standard errors clustered on state. In the state fixed effects regressions, all five indices maintained statistical significance between the 1% and 5% levels for Model 3. For Model 4, only REMEDIES (Table G5) is statistically significant at the 1% level. The other four decompositions of the EVI are not statistically significant in Model 4 fixed effects. These results could be due to the fact that the individual Mini-EVIs do not change much over time, or that the combination of all changes in the EVI may be most influential on changes in the log of total decisions. Tables G1 through G5 replicate the analyses appearing in Table 4 for each of the Mini-EVIs.


TABLE G1


Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects (4)

civil_penalty 0.082 0.079 0.366 0.154(0.022) ** (0.038) * (0.111) ** (0.111)

log_st_pop (0.059) 7.098(0.279) (1.377) **

log_gdp 1.085 1.024(0.286) ** (0.765)

2001 ‐0.018(0.076)

2002 0.074(0.071)

2003 0.106(0.069)

2004 0.052(0.083)

2005 0.085(0.085) **

2006 0.557(0.072) **

2007 0.511(0.096) **

constant 1.484 ‐10.452 ‐3.455 ‐118.632(0.390) ** (1.623) ** (1.939) + (15.817) **

Fixed Effects

Std. Errors



408 408 408 4080.023 0.719 0.023 0.626

0.023 0.7040.046 0.317


state


state


state

N/A N/A state state

Appendices 69

TABLE G2


Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects (4)

standing_chg_1 0.100 0.094 0.218 0.107(0.020) ** (0.036) * (0.095) * (0.073)

log_st_pop 0.060 7.156(0.301) (1.418) **

log_gdp 0.966 1.069(0.307) ** (0.771)

2001 ‐0.017(0.076)

2002 0.071(0.070)

2003 0.095(0.067)

2004 0.048(0.082)

2005 0.244(0.084) **

2006 0.564(0.072) **

2007 0.519(0.096) **

constant 1.157 ‐11.145 ‐0.906 ‐119.229(0.361) ** (1.681) ** (1.662) (16.248) **

Fixed Effects

Std. Errors



0.036 0.728 0.036 0.624408 408 408 408

0.026 0.3150.039 0.701

N/A N/A state state


state


state


state


TABLE G3164


Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects (4)

standing_chg_2 0.039 0.044 0.246 0.057(0.013) ** (0.011) ** (0.044) ** (0.043)

log_st_pop ‐0.242 6.564(0.115) * (1.376) **

log_gdp 1.269 0.992(0.116) ** (0.763)

2001 ‐0.020(0.144)

2002 0.066(0.141)

2003 0.086(0.145)

2004 0.024(0.141)

2005 0.203(0.138)

2006 0.507(0.133) **

2007 0.452(0.135) **

constant 2.297 ‐9.143 ‐0.946 ‐108.427(0.215) ** (0.646) ** (0.687) (16.418) **

Fixed Effects

Std. Errors



0.011 0.715 0.011 0.620408 408 408 408

0.156 0.3140.007 0.695

N/A N/A state state

Robust RobustRobust and clustered on

state


state

164 Table G3, Model 2 is not robust to standard errors clustered on state.

Appendices 71

TABLE G4


Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects (4)

stat_limitations 0.058 0.075 0.680 0.186(0.023) * (0.037) * (0.057) ** (0.113)

log_st_pop ‐0.036 6.938(0.289) (1.420) **

log_gdp 1.070 1.227(0.295) ** (0.762)

2001 ‐0.017(0.075)

2002 0.074(0.071)

2003 0.107(0.069)

2004 0.060(0.083)

2005 0.257(0.085) **

2006 0.575(0.072) **

2007 0.531(0.094) **

constant 1.882 ‐10.575 ‐9.140 ‐119.201(0.413) ** (1.690) ** (1.005) ** (15.439) **

Fixed Effects

Std. Errors



0.012 0.717 0.012 0.631408 408 408 408

0.012 0.3100.013 0.709

N/A N/A state state


state


state


state


TABLE G5


Pooled OLS (1)

Pooled OLS (2)

Fixed Effects (3)

Fixed Effects (4)

remedies 0.095 0.076 0.498 0.264(0.021) ** (0.034) * (0.074) ** (0.083) **

log_st_pop ‐0.091 7.067(0.275) (1.407) **

log_gdp 1.110 0.678(0.284) ** (0.719)

2001 ‐0.018(0.076)

2002 0.070(0.071)

2003 0.098(0.068)

2004 0.041(0.083)

2005 0.234(0.085) **

2006 0.546(0.073) **

2007 0.497(0.097) **

constant 1.281 ‐10.185 ‐5.634 ‐115.959(0.361) ** (1.528) ** (1.273) ** (16.593) **

Fixed Effects

Std. Errors



0.033 0.720 0.033 0.634408 408 408 408

0.126 0.3390.032 0.711

N/A N/A state state


state


state


state

As a check, we tested whether the results from the Mini-EVIs in Tables G1 through G5 were robust to changes in the dependant variable. The results on the Mini-EVIs are generally the same, maintaining significance between 1% and 10% for the pooled OLS models if we change the dependant variable to the log of federal district reported CPA decisions and to the log of state appellate reported CPA decisions respectively. The only exceptions for the pooled OLS specifications are in Model 2 when the dependent variable is log of federal district reported CPA decisions: (1) STANDING_CHG_2 (Table G3) is no longer statistically significant and (2) STAT_LIMITATIONS (Table G4) is significant at 15%. For the fixed effects specifications, in Model 3, the Mini-EVIs are robust to changes in the dependent variable but for STANDING_CHG_1 (Table G2) which is no longer statistically significant when log of state appellate reported CPA decisions is used as the dependent variable. In Model 4 fixed effects the results are not generally robust. Only REMEDIES (Table G5) maintains any statistical significance when log of federal district reported CPA decisions is the dependent variable, with significance at the 5% level. For state appellate reported CPA decisions, all of the Mini–EVIs except STANDING_CHG_1 (Table G2) and CIVIL_PENALTY (Table G1) are statistically significant at conventional levels.

APPENDIX H: SEARLE SHADOW FTC SCENARIO EXAMPLE—ROUND 1

Scenario 1: Real Estate Agent (REA) buys and resells houses for a profit and he became interested in purchasing a house being offered for sale by the U.S. Department of Housing and Urban Development (HUD). REA personally inspected the house and decided to make an offer to purchase it. His initial offer was rejected by HUD in favor of another offer but was placed as a back-up in the event the contract for sale with the winning bidder did not close. The winning bidder hired a licensed inspector to examine the house and found evidence of active termites inside the home, including noticeable holes in the bathroom ceiling and active termites in the baseboards. The winning bidder terminated the contract, and HUD then asked REA if he was still interested in purchasing the property. REA personally examined the house again and purchased it stating he did not see any evidence of termites in the house before he bought it. Shortly after purchasing the property, REA hired several contractors to make repairs and improvements, intending to place the house back on the market for sale once the repairs were completed. Contractor had done remodeling work for REA in the past on a number of different houses, and was hired to perform general repair work including repainting the interior and exterior walls. During the course of making repairs, Contractor noticed evidence of active termites. Contractor may have informed REA about the termites, and may have been told him to continue his work making cosmetic repairs. Contractor has also apparently covered over termite damage in other homes for REA. Contractor went ahead with the repairs as asked by REA. Buyers became aware of the house being sold by REA through their real estate agent. Buyers toured the house with his agent and it had been newly painted and carpeted. Buyers made an offer to purchase the house and, following a series of negotiations, signed an earnest money contract. On the same day he entered into the earnest money contract, Buyers received a "Seller's Disclosure of Property Condition" form signed by REA. REA indicated on the form that he had no knowledge of any active termites, termite damage, or previous termite treatment. Buyers hired an inspector to examine the house, and an inspection was performed one month later. This inspection uncovered active termites on the house's exterior, as well as evidence of previous termite treatment along the front porch. REA paid to have a "spot" treatment done for the termites on the exterior. The sale of the house to the Buyers closed in the following month. A few months later, the Buyers discovered a swarm of termites inside their home. They telephoned REA who referred them to the pest control company that performed the spot treatment before closing. The company returned to the home and performed another spot treatment. This appeared to resolve the problem until the following year when termites again swarmed inside the house. This time the Buyers paid for a full treatment by a different pest control company. The Buyers also hired a general contractor to examine the house and estimate the cost of repairing the damage caused by the termites. Q1a. Based on the case facts, do you believe the alleged practice is legally deceptive under the FTC’s deception policy statement? □ Yes □ No Q1b. If no, please identify the legal prerequisite or prerequisites for deception that are not satisfied. □ A misrepresentation, omission or practice that is likely to mislead the consumer □ The consumer's interpretation or reaction to the misrepresentation, omission or practice is reasonable under the circumstances □ The representation, omission or practice must be material Q2a. Based on the case facts, do you believe the alleged practice is legally unfair under the FTC’s unfairness policy statement? □ Yes □ No Q2b. If no, please identify the legal prerequisite or prerequisites for unfairness that are not satisfied. □ Cause substantial injury □ Consumer injury not outweighed by offsetting consumer or competitive benefits □ Injury could not have been reasonably avoided Q3a. Based on the facts presented above, do you believe the FTC would initiate a consumer protection enforcement action? □ Yes □ No Q3b. Briefly explain__________________________________________________________________

APPENDIX I: SEARLE SHADOW FTC SCENARIO EXAMPLE—ROUND 2

Scenario 1: David D. is a developmentally disabled young man who has been under the legal guardianship of his parents since he turned eighteen. At the age of 21, David D. was living in his own apartment, but his parents strictly controlled his finances. They spoke with David D. nearly every day. David D. wanted to buy a car but neither of his parents would allow him to do so. They assumed their word would be final because they did not realize that David D. could obtain any appreciable amount of money with his debit card. David D. went to Car Dealership, used his debit card to buy a new car, and received credit for a trade-in on his old car. Days after David D. bought the car, his mother came to Car Dealership and explained that David D. was under the legal guardianship of his parents and had no legal authority to enter into a contract to buy the car. She showed Car Dealership David D.'s guardianship papers and asked to return the car. Car Dealership would not take back the car saying that the company sold cars to "a lot of people who aren't very smart" and that the contract was valid. David D.’s mother insisted that the contract was void, but Car Dealership handed the keys to David D. who drove off in the new car. A few days later, David D. damaged the car in a one-car accident. His parents then managed to get the car away from David D. and return it to Car Dealership. However, when David D. called Car Dealership to ask for his trade-in back, someone at Car Dealership told him that he could not have it but could pick up his new car any time. David D. got a ride to Car Dealership and picked up the new car. The next day his parents were able to convince David D. to return the car to Car Dealership yet again, and this time he left the car there. Several people called Car Dealership on behalf of David D.’s parents including the investigator for David D.'s guardianship case. Car Dealership was advised that the guardianship did indeed make the contract legally void but it apparently did not listen to that advice. Car Dealership did not seek legal advice on the validity of the contract until a month after the sale. Car Dealership assigned David D.'s loan to a collection agency but never informed it of David D.'s incapacity. It also demanded storage fees from David D. for keeping the new car on its lot. It sold David D.'s trade-in on the same day the new car was brought back for the second time, even though the sale was still being contested. Q1a. Based on the case facts, do you believe the alleged practice is legally deceptive under the FTC’s deception policy statement? □ Yes □ No Q1b. If no, please identify the legal prerequisite or prerequisites for deception that are not satisfied. □ A misrepresentation, omission or practice that is likely to mislead the consumer □ The consumer's interpretation or reaction to the misrepresentation, omission or practice is reasonable under the circumstances □ The representation, omission or practice must be material Q2a. Based on the case facts, do you believe the alleged practice is legally unfair under the FTC’s unfairness policy statement? □ Yes □ No Q2b. If no, please identify the legal prerequisite or prerequisites for unfairness that are not satisfied. □ Cause substantial injury □ Consumer injury not outweighed by offsetting consumer or competitive benefits □ Injury could not have been reasonably avoided Q3a. Based on the facts presented above, do you believe the FTC would initiate a consumer protection enforcement action? □ Yes □ No Q3b. Briefly explain__________________________________________________________________

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