Third Circuit Confirms Reliance Is Required For PA Consumer Fraud Act Claims

In a putative class-action suit alleging deceptive conduct by producers of smokeless tobacco products pursuant to the Pennsylvania Uniform Trade Practices and Consumer Protection Law, the Third Circuit has overruled a district court’s denial of defendants’ motion to dismiss, remanding the case for further proceedings under the rubric that a complaint alleging deceptive conduct must allege that plaintiff justifiably relied on defendant's wrongful conduct or representation.

In Hunt v. U.S. Tobacco Co., 2008 WL 2967249 (3d Cir., August 05, 2008), the Third Circuit considered whether a private plaintiff alleging “deceptive” (rather than fraudulent) conduct under the amended so-called catch-all provision of the Pennsylvania Uniform Trade Practices and Consumer Protection Law must prove that he justifiably relied on the defendant’s alleged deceptive conduct or statements.

Hunt and proposed class members alleged that U.S. Smokeless Tobacco Co. engaged in anti-competitive behavior that artificially inflated the price of the company’s moist smokeless tobacco products. Hunt claimed that consumers “relied on a presumption that they were paying prices set by an efficient market, when in fact they were paying prices artificially inflated by the anti-competitive and deceptive conduct.” The alleged misconduct was framed as consumer deception in violation of Pennsylvania’s Uniform Trade Practices and Consumer Protection Law. Specifically, plaintiff brought suit under the so-called “catch-all provision” of the Consumer Protection Law, which proscribes engaging in any fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.

Defendant moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) on the ground that Hunt failed to allege that he had justifiably relied on the alleged deceptive conduct and suffered harm as a result of that reliance. The district court denied the motion, holding that a plaintiff does not need to establish reliance under the catch-all provision of the Consumer Protection Law. Interlocutory review was granted.

The Third Circuit disagreed, focusing on the causation requirement in the Consumer Protection Law’s standing provision, the part permitting suit by private plaintiffs who suffer loss “as a result of” the defendant’s deception. A private plaintiff pursuing a claim under the statute must prove justifiable reliance, otherwise the loss is not as a result of the conduct. See, e.g., Schwartz v. Rockey, 932 A.2d 885, 897 n.16 (Pa. 2007) (“the justifiable reliance criterion derives from the causation requirement” which is express on the face of the statute’s private-plaintiff standing provision). The Pennsylvania intermediate Superior Court had also applied the Supreme Court’s standing rule to the catch-all provision, see Debbs v. Chrysler Corp., 810 A.2d 137, 156–58 (Pa. Super. Ct. 2002).

Pennsylvania thus rejects the approach of those states which interpret their consumer fraud acts, and the “as a result of” kind of language, to require only a mere and tenuous causal connection, which could be established by, for instance, proof that a misrepresentation supposedly inflated a product’s price, thereby injuring every purchaser because he paid more than he would have paid in the absence of the misrepresentation. [Even then, one wonders about proof that the plaintiff would not have happily paid the other price even knowing the info.] A justifiable reliance requirement, by contrast, requires the plaintiff to go further—he must show that he justifiably bought the product in the first place (or engaged in some other detrimental activity) because of the misrepresentation.

Indeed, the Third Circuit has already interpreted the justifiable reliance/standing requirement to apply to multiple substantive subsections of the Consumer Protection Law.  In Tran v. Metro. Life Ins. Co., 408 F.3d 130, 139–41 (3d Cir. 2005), the court observed that the plaintiff was wise to retreat at oral argument from his contention that, because he alleged only unfair business practices and deceptive conduct, not fraud, he need not allege justifiable reliance.

Such a reading is especially appropriate because the justifiable-reliance requirement emanates not from the catch-all provision that the legislature added to the consumer fraud act in 1996, but rather from the private-plaintiff standing provision. A private-plaintiff standing provision, by its nature, applies to all private plaintiffs, whatever substantive subsection of the act they invoke, for its purpose is to separate private plaintiffs (who may only sue for harm they actually suffered as a result of the defendant’s deception) from the state Attorney General (who typically may sue to protect the public from conduct that is likely to mislead).

The Third Circuit then went on to find that Hunt had not adequately alleged reliance. Hunt’s complaint was that defendant’s alleged “deception, including its affirmative misrepresentations and omissions concerning the price of moist smokeless tobacco products, likely misled all consumers acting reasonably under the circumstances to believe that they were purchasing moist smokeless tobacco products at prices born[e] by a free and fair market.” No real reliance there. And the court rejected Hunt’s suggestion that he enjoys a presumption of reliance, as this suggestion is inconsistent with Pennsylvania case law. Hunt could not enjoy a presumption of what he must prove affirmatively—that is, under the Consumer Protection Law, Hunt must prove justifiable reliance affirmatively.

Case remanded for consideration whether plaintiff should get leave to amend.
 

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