"Fool me once, shame
on you; fool me twice, shame on me."
The foregoing old maxim recognizes
that nearly anyone can be tricked a single time, but when it
happens repeatedly, the victim may not be blameless. The Minnesota
consumer fraud laws traditionally have incorporated some of these
themes. But a series of recent rulings by the Minnesota Supreme
Court and Court of Appeals make these statutes more user-friendly
for those who have been deceived by sharp practices.
The recent Supreme Court decision, Group Health Plan v. Phillip
Morris, Inc., 2001 WL 25889 (Minn. Jan. 11, 2001), does not
make Minnesota a paradise for those who are deceived. But the
evolving case law creates an environment in which relief is more
readily available to victims who are fooled.
The Minnesota consumer fraud laws consist of several measures.
The principal ones are the False Advertising Act, Minn. Stat.
¤ 325.67, the Consumer Fraud Act, Minn. Stat. ¤
325 F.69; and the Deceptive Trade Practices Act, Minn. Stat.
¤ 325D.13. While they codify some elements of the tort
of fraud, the statutes are more extensive than the common law
in several respects. For example, they dispense with the need
to prove fraudulent intent under the Deceptive Trade Practices
Act, ¤ 325D.45, subd.1, and make attorney's fees available
to a successful claimant under the complementary "private
attorney general" law, Minn. Stat. ¤ 8.31.
Three of the most formidable barriers to litigation of the consumer
fraud laws by those who claim to have been duped are the requirements
of establishing privity between the parties, proving reliance
upon the misleading practices, and demonstrating damages flowing
from the deception. All three of these elements were relaxed
earlier this year by the Supreme Court in Group Health Plan
v. Phillip Morris, Inc. ("Group Health Plan").
Answering a certified question posed by U.S. District Court Senior
Judge Paul Magnuson, the Court ruled that a claimant under the
statutes need not "be a purchaser of the defendant's product."
In addition to discarding the privity requirement, it also held
that reliance does not have to be proved under the statute. But
the Court stated that recovery of money damages requires establishing
"a causal nexus between the [wrongful] conduct
the damages claimed."
The case consisted of a pair of consolidated federal court lawsuits
by three health maintenance organizations (HMOs) against a number
of cigarette companies and affiliates under the state consumer
fraud statutes. The HMOs sought to recover damages for increased
health care services provided to their members because of tobacco-related
afflictions. Since none of the HMOs had purchased tobacco products
nor relied upon any claimed misrepresentations by the industry
about the safety of the products, Big Tobacco claimed the statutory
claims should be extinguished.
But the Supreme Court refused to snuff out the case, ruling that
a seller-purchaser relationship is not necessary to bring suit.
While the substantive statutes describe the unlawful conduct,
they do not address the issue of standing, i.e., "who
may bring a private action for damages." The Court, thus,
looked to ¤ 8.31, the "private attorney general"
law, which provides standing "in the broadest term"
for "any person injured" by a statutory violation without
restricting "those who may sue to purchasers or consumers."
The statutes were deemed applicable to nonconsumers because of
the "plain and unambiguous" meaning of the terms "any
person" in the "private attorney general" statute,
which the Court deemed "consistent with the overall"
legislative intent "to maximize the tools available"
to stem or penalize fraudulent practices.
The "broad" goal of allowing private parties to "complement"
the "limited" resources of the Attorney General's Office
argues in favor of allowing enforcement of the measures by "nonpurchasers."
Because the legislative will was expressed in "unequivocally
broad terms," statutory claims can be brought by anyone
who "alleges injury" resulting from conduct proscribed
by the statute, regardless of priority. The Court regarded this
expansive view to be consistent with case law in other jurisdictions
under similar statutes, although it pointed out that the scope
of the Minnesota measure is not "without limits" and
some other claims may be "too attenuated to permit recovery."
Another way to curb the reach of the statutes is by showing a
lack of causation. But that cannot be done by attacking the claimant's
lack of reliance on the alleged duplicity. The Court held that
allegations of reliance are not required under a plain reading
of the statutes. The "elimination of reliance," said
the Court, comports with the Legislature's desire to "broaden"
relief to defrauded Minnesotans by making pursuit of their claims
While a direct transaction and reliance are not necessary, "causation
remains an element" for such claims. The causation argument
may provide the backdoor for invoking a form of reliance-based
defense. As the Court noted, when statutory claims are predicated
on deceptive statements or conduct, causation of damages cannot
be established without proof that the wrongful conduct had "some
impact" on the use of tobacco by HMO members. But the causation
element need not be satisfied by proof that "individual
consumers" relied upon claimed tobacco misrepresentation.
Rather, the standard of causation is relaxed under the statutes
and does not "require a strict showing of direct causation,"
as would a common law fraud claim.
Furnishing "some guidance" to the federal courts that
will adjudicate the litigation, the Supreme Court declared that
"proof of individual reliances" is not necessary, and
recovery can be had upon proof "by other direct or circumstantial
is relevant and probative
a broad statement that leaves wide evidentiary discretion to
the tribunals in deciding the requisite linkage between the claimed
deceit and the resulting harm. Shying away from specificity,
the Court pointed to the "variety of approaches" to
the causation nexus in litigation under the federal Lanham Act,
15 U.S.C. ¤ 1125(a), which proscribes false or deceptive
While the HMOs' tobacco cases proceed, the ruling in the case
is likely to fuel additional statutory consumer litigation. Dispensing
with privity makes the statutes amenable to claims by remote
or indirect participants, provided they are not too "attenuated."
This could include parents and other family members suing on
behalf of their kin; employers asserting claims resulting from
fraud on their employees or vice versa; insurers picking up the
cudgel on behalf of deceived insurers, regardless of subrogation
rights; and a number of similar indirect claims.
Claimants still must encounter the causation element and may
falter over it. But the Court has provided a roadmap and a convenient
kit for claimants to overcome the obstacles they may confront
on their journeys to justice.
Eliminating the requirement of proving reliance damages may have
additional significance in bolstering class action lawsuits.
Previously, the reliance element formed a barrier to class actions
under the consumer fraud statutes. In Thompson v. American
Tobacco Company, Inc., 189 F.3d 544 (D. Minn 1999), the federal
court in Minnesota refused to certify a class action brought
by smokers against the tobacco industry on grounds, in part,
of the reliance requirement.
The class sought to require the establishment of antismoking
programs and medical monitoring of their conditions; the court
denied class status because the named plaintiffs were not "adequate"
class representatives since they sought to reserve personal injury
claims for damages. But the court also noted that the request
for a smoke cessation program constitutes a form of damages rather
than injunctive relief. As proof of "actual reliance upon
the fraudulent conduct" is required under the consumer protection
statutes; the case could not be maintained as a class action.
The obligation of each class member to prove "individual
reliance" precluded class certification because "individualized
proof" is not suitable to class litigation. Dispensing with
the reliance requirement in Group Health Plan now would
presumably negate this barrier to class certification.
Abrogation of the reliance requirement also could make rescission
easier to achieve. The reliance hurdle barred a rescission claim
in Garay v. Beers, 2000 WL 16324 (Minn. App. 2000), rev.
denied (Minn. Mar. 28, 2000) (unpublished). The buyers sought
to unravel the purchase of an undeveloped lot where they intended
to build a home, claiming they were misled by the seller that
the lot was suitable for building a residential structure, which
they were unable to accomplish because they could not get approval
from the Department of Natural Resources.
The buyers sued under the Consumer Fraud Act and were granted
summary judgment by the trial court, which ruled that reliance
was unnecessary. The appellate court reversed, requiring that
reliance be proven. (1998 WL 373082 (Minn. App. 1998) (unpublished).)
On remand, a jury found that the buyers did not unreasonably
rely on the seller's misrepresentation. The appellate court affirmed,
holding that reliance was necessary to establish any type of
"pecuniary damages," which extends to rescission as
well as money damages. That reasoning also is suspect in light
of the Supreme Court's new reading of the consumer fraud laws
in Group Health Plan.
Tobacco claimants also suffered a setback under the consumer
fraud statutes in Tuttle v. Lorillard Tobacco Company,
118 F. Supp. 2d 954 (D. Minn. 2000). The court dismissed a statutory
fraud claim brought by the estate of a former professional baseball
player, who had a stint with the Minnesota Twins in the early
1960s. He died from diseases allegedly attributable to nearly
40 years of using chewing tobacco. The court ruled that the "sweeping
allegations of fraudulent conduct" failed to satisfy the
pleading requirement of Rule 9 that fraud be asserted with "particularity."
The court "strongly" rejected the argument that the
heightened pleading requirement applies only to common law fraud
claims, holding that statutory claims also must assert "who,
what, when, where, and how" in order "to facilitate
a defendant's ability to respond and to prepare a defense."
(118 F. Supp. at 963.)
Marshall H. Tanick is an attorney with the law firm of Mansfield,
Tanick & Cohen, P.A., in Minneapolis - St. Paul, Minnesota.
He is certified as a Civil Trial Specialist by the Minnesota
State Bar Association (MSBA) and has written extensively, lectured,
and litigated concerning consumer protection and fraud issues.