State High Court Issues Consumer Fraud Act Decision

One of the dangers for defendants of claims based on state consumer fraud acts is the reluctance of some state courts to recognize the reliance and causation elements inherent in most such statutes.  The absence of a reliance element allows plaintiffs to argue that such claims are more amenable to class treatment, removing a significant individual element.  West Virginia's high court recently confirmed, however, that plaintiffs alleging affirmative misrepresentation claims under West Virginia's consumer protection law must show actual reliance on the allegedly misleading statement. White v. Wyeth, No. 35296 (W. Va., 12/17/10).
 

The underlying consumer fraud suit was filed pursuant to the WV Consumer Protection Act by purchasers of prescription hormone replacement therapy (“HRT”) drugs.  Plaintiffs alleged that the defendants used unfair and deceptive practices in promoting HRT prescription drug products to doctors and patients for treatment of serious menopausal disorders by allegedly using misleading statements in advertising, marketing and labeling.  Following completion of class certification discovery, defendant Wyeth filed alternative motions for dismissal or summary judgment, arguing that plaintiffs could not establish that they had standing to sue because they failed to meet their burden of showing a causal connection between their individual claims of injury and any alleged unfair or deceptive conduct attributed to Wyeth.

Defendant Wyeth particularly noted the lack of evidence demonstrating that plaintiffs decided to purchase HRT drugs because of anything they learned from Wyeth, or that their treating physicians considered information from Wyeth when they issued the prescriptions for HRT drugs. Plaintiffs responded that the statutory language only requires that they prove causation by alleging that Wyeth engaged in deceptive practices and that Respondents were harmed. They maintained that reliance on deceptive statements or practices need not be demonstrated.  In essence, plaintiffs read out of the WVCCPA the requirement that they “suffered ascertainable loss”  as a "result of” various unfair and deceptive acts of Wyeth. W. Va. Code § 46A-6-106(a).  Wyeth argued that the “as a result of” language contained in the statute requires plaintiffs to allege that they relied, or their doctors relied, on Wyeth’s allegedly deceptive actions when they made the decision to purchase hormone replacement therapy -- the phrase “as of result of” has to be read to mean that a plaintiff relied on the improper act or practice alleged in order to satisfy standing requirements.  Plaintiffs, in turn, argued that if the plaintiffs received drugs that were different from or inferior to that which they were entitled to receive, they did not receive the benefit of their bargain, and they therefore suffered an ascertainable loss.

The court noted that the private cause of action provisions of twenty-eight states' consumer fraud acts contain the “as a result of” language.  Many of the decisions addressing the issue of reliance in the context of private consumer protection causes of action show courts struggling to arrive at a way to be faithful to the purposes of consumer protection statutes – promoting fair and honest business practices and protecting consumers – without inviting nuisance lawsuits which impede commerce. In determining the meaning of the phrase “as a result of” in the WVCCPA, the court agreed with those decisions requiring proof of a causal nexus between the deceptive conduct giving rise to the private cause of action and the ascertainable loss, and the conclusion that this may require proof of reliance in some but not all instances.  The court found that reliance and causation are twin concepts, "often intertwined, but not identical."

Following this reasoning, when consumers allege that a purchase was made because of an express or affirmative misrepresentation, the causal connection between the deceptive conduct and the loss would necessarily include proof of reliance on those overt representations. Where concealment or omission is alleged, and proving reliance is an impossibility, the causal connection between the deceptive act and the ascertainable loss is established by presentation of facts showing that the deceptive conduct was the proximate cause of the loss. In other words, the facts have to establish that “but for” the deceptive conduct or practice a reasonable consumer would not have purchased the product and incurred the ascertainable loss. 

The court determined that this approach best serves the WVCCPA’s dual purpose of protecting the consumer while promoting “fair and honest competition.” W. Va. Code § 46A-6-101. Thus, a private cause of action under the provisions of West Virginia Code § 46A-6-106(a) of the West Virginia Consumer Credit and Protection Act must allege: (1) unlawful conduct by a seller; (2) an ascertainable loss on the part of the consumer; and (3) proof of a causal connection between the alleged unlawful conduct and the consumer’s ascertainable loss. Where the deceptive conduct or practice alleged involves affirmative misrepresentations, reliance on such misrepresentations must be proven in order to satisfy the requisite causal connection

The court went on to address an important second issue, finding that prescription drug cases are not the type of private causes of action contemplated under the terms and purposes of the WVCCPA.  The consumer cannot and does not decide what product to purchase. The intervention by a physician in the decision-making process necessitated by his or her exercise of judgment whether or not to prescribe a particular medication protects consumers in ways respecting efficacy that are lacking in advertising campaigns for other products. Accordingly, the court found that the private cause of action afforded consumers under West Virginia Code § 46A-6-106(a) does not extend to prescription drug purchases. See also New Jersey Citizen Action v. Schering-Plough Corp., 842 A.2d 174 (N.J. Super. 2003). , in which a New Jersey appeals court emphasized the difference between the pharmaceutical industry and other companies. According to the West Virginia court, the New Jersey court noted that physician intervention in prescribing decisions protects consumers and observed that the high degree of federal regulation of prescription drug products “attenuates the effect product marketing has on a consumer's prescriptive drug purchasing decision.”
The court remanded for dismissal.
 

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