978-0078023866 Chapter 15 Internet Exercise and Supplements Part 2

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Chapter 15 – Consumer Protection

c. Students’ answers will vary. When companies realize that the CROA statutes, mentioned

1. Students’ answers will vary. The court held that the italicized language contradicted or confused

a. Students’ answers will vary. Yes, students are at a risk of manipulation by credit card

b. Students’ answers will vary. This answer will require students to draw upon personal

c. Students’ answers will vary. The Federal Government has enacted many acts such as Fair

a. Students’ answers will vary. The labelling on Four Loko Malt Beverage is misleading in every

b. Students’ answers will vary. By complying with the order, the company managed to retain the

a. Students’ answers will vary. When a mortgage is provided, it is done with the belief that the

b. Students’ answers will vary. There may arise a situation, such as the economic slowdown,

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Chapter 15 – Consumer Protection

5. Students’ answers will vary. Critics protest this move, because many unscrupulous elements of

6. Students’ answers will vary. There are many factors that affect bankruptcy. Some of these are as

follows: political instability—constant wars are a drain on the economy; anti-public policies of the

7. Students’ answers will vary. The assertion that the cup is easier to suck from is backed by an

8. Students’ answers will vary. The court found that it did violate the FDCPA because Citicorp was

a. Students’ answers will vary. The main issue here is, whether or not, under the circumstances

b. Students’ answers will vary. The courts clearly stated that “uneducated customers should be

protected from greedy merchants.” It held that it was the duty of the court to establish if the

10. Students’ answers will vary. No. Essentially, the information in the report simply must be accurate.

11. Students’ answers will vary. Given an opportunity, the government should ensure the safety and

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Chapter 15 – Consumer Protection

12.

a. Students’ answers will vary. The basic argument is that the system is unfair to the poor

b. Students’ answers will vary. Civil fines are ok as deterrents, but should be restricted to a

c. Students’ answers will vary. Students may cite various examples such as the credit or

13. Students’ answers will vary. The court found it was not deceptive, rather that it merely expressed

Supplementary Materials

I. Fraud and Innocent Misrepresentation (p. 647)

Must a realtor disclose what she knows about the “psychological history” of a house? Must the dealer

tell potential buyers about suicides, murders or drug deals at the house? What if the house had been

occupied by an AIDS victim? For the most part, the law does not provide definitive answers to these

questions although, at least in the state of Florida, the state legislature has made it clear that AIDS is

not a material fact in property sales. The National Association of Realtors’ model law holds that

psychological factors are not material defects and need not be disclosed.

II. Fraud and Deception (p. 656)

In 1991, the FTC found that Kraft Foods had run misleading ads and ordered it not to do so in the

future. The FTC objected to 1985-86 ads for Kraft Singles cheese slices. Kraft ads touted the cheese

as a source of calcium since each one contained five ounces of milk. However, in fact, each slice did

not contain as much calcium as five ounces of milk. Of course, Kraft never directly made that claim,

but the FTC felt the ads implied as much.

In 1991, the brewer Adolph Coors agreed to discontinue use of its slogan, “it won’t slow you down.”

The Bureau of Alcohol, Tobacco and Firearms charged that the slogan was false and misleading since

as the BATF deputy director said, “We all know alcohol will slow you down.”

In November of 1988, the FTC upheld an administrative law judge’s ruling that Norelco had engaged

in false advertising where the company claimed that its Clean Water Machine purified water, when the

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Chapter 15 – Consumer Protection

effect of passing water through the device’s filter was to add small amounts of a suspected

cancer-causing agent to the water. After learning of the possible problems with the filter, the company

allegedly designed a new filter, but continued to distribute the old filter.

III. The Consumer Product Safety Commission (p. 658)

In 1991 the CPSC issued a “safety alert” warning that infants should not be left on adult water beds.

One study found that 32 infants had died on water beds between 1982 and 1988. Infant water beds

constructed with individual “cells” are generally considered safe.

According to Consumer Product Safety Commission data, 305,281 children aged 1-4 visited

emergency rooms between 1983 and 1987 as a consequence of injuries involving playground

equipment. The CPSC regulates playground equipment, but it does not regulate the placement of that

equipment in the play area, nor does it regulate the playground surfaces. The Centers for Disease

Control argued that construction workers are afforded greater protections than children under four

years of age on the playground. CDC data indicate that 48% of day-care playground equipment is not

installed over surfaces that are designed to cushion children’s falls.

Supplementary Cases

I. Lovejoy v. AT&T, 111 Cal. Rptr. 2d 711 (Cal. 2001) (See Fraud and Innocent

Misrepresentation, p. 647)

Syllabus

Lovejoy operated a business with a state-wide 800 phone number, for which he contracted

with Pac Bell. Without his knowledge or consent, AT&T represented to an intermediary entity

that it had written authorization to switch Lovejoy’s 800 service to AT&T. Thereafter, Pac Bell

released the number to AT&T, which started hiding the 800 number charges on Lovejoy’s long

distance bill around February, 1996. In August, 1996, Lovejoy and AT&T had a payment

dispute over his long distance service and AT&T disconnected both his long distance and 800

service. As Lovejoy had no idea AT&T was providing the 800 service, he also had no idea it

was discontinued. In March, 1997, Lovejoy discovered that his old 800 number had been

reassigned to someone in Michigan, who had been getting 6 to 20 calls per day requesting

services from Lovejoy’s business. As a proximate cause of AT&T’s conduct, Lovejoy lost

considerable business, filed for bankruptcy and suffered emotional distress. The trial judge

granted AT&T’s motion for failure to state a cause of action because Lovejoy did not allege

that AT&T intended to drive him out of business and because Lovejoy could not have relied on

AT&T’s false representation as he was totally unaware of it.

II. East Ford v. James E. Taylor, Jr., 826 So. 2d 709 (Miss. 2002) (See

Unconscionable Contracts, p. 651)

Syllabus

Taylor bought a new truck from East Ford, only to find out later that it was not new, but had

previously been titled to someone else. When he confronted East Ford, they at first denied

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Chapter 15 – Consumer Protection

that it was sold as new and then simply amended the bill of sale to reflect that it was used.

Taylor filed suit and East Ford filed a motion to compel arbitration, based on a clause in the

Offer to Purchase or Lease Vehicle, which Taylor had signed at the time of the purchase.

Taylor had not been advised of the arbitration clause at the time and neither he nor the

salesman knew that an arbitration clause was included in the contract. The salesman had

never discussed the clause with any purchaser and had never been given any information on

the clause by East Ford. The clause was not bolded (although other material terms of the

contract were) and was in very fine print. It required all disputes brought by the purchaser to

be arbitrated and prohibited the arbitrator from awarding punitive damages. The only claims

not subject to arbitration are claims raised by East Ford. The Mississippi Supreme Court held

that the clause was procedurally unconscionable and, therefore, unenforceable and thus

found it unnecessary to rule on whether it was also substantively unconscionable.

III. Brower V. Gateway 2000, Inc., 246 A.D. 2d 246 (N.Y. App. Div. 1998) (See

Unconscionable Contracts, p.651)

Syllabus

Appellants purchased computers and software through the mail directly from Gateway 2000.

The products came packed with a document, “Standard Terms and Conditions Agreement.”

The Agreement provided that purchasers had 30 days to return the items, after which the

terms of the agreement would become binding. One of the terms required all disputes to be

settled by binding arbitration, conducted in Chicago, and in accordance with the rules of the

International Chamber of Commerce (ICC).

Appellants commenced an action for damages, alleging misrepresentation about Gateway’s

around-the-clock free technical support and certain on-site services. Gateway moved to

dismiss based on the arbitration clause, which motion was granted and plaintiffs appealed. On

appeal, the court found that the designation of the ICC as the arbitration body was

unconscionable (but not the requirement of arbitration in Chicago). Appellants demonstrated

that getting copies of ICC’s arbitration rules was quite difficult and that a claim of less than

$50,000 required an advance fee payment of $4000 (only $2000 of which was refundable

even if the consumer prevailed at arbitration). The fee was more than the cost of most

Gateway products. The court found that in general the appellants did have a meaningful

alternative (to return the goods), that the arbitration clause was not hidden and that the

chosen site of Chicago was not alone sufficient to be classified as unconscionable. However, it

did find the designation of a financially prohibitive forum effectively barred consumers from any

forum and, therefore, that provision was unenforceable. The case was remanded for the

parties to seek an appropriate substitute arbitrator.

IV. Williams v. Walker-Thomas Furniture Company, 350 F. 2d 445 (C.A.D.C. 1965)

(See Unconscionable Contracts, p. 651)

Syllabus

Suits by a furniture company to recover on contracts under which the balance due on every

item purchased continued until the balance due on all items, whenever purchased, was

liquidated. The Court of General Sessions granted judgment for the furniture company and

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Chapter 15 – Consumer Protection

appeal was taken. The District of Columbia Court of Appeals affirmed and appeal was taken.

The United States Court of Appeals for the District of Columbia Circuit held that where an

element of unconscionability is present at the time a contract is made, the contract should not

be enforced; and that inasmuch as the trial and appellate courts had not recognized that

contracts could be unenforceable on that basis and the record was not sufficient for the Court

of Appeals to decide the issue as a matter of law, the cases must be remanded for further

proceedings.

V. Dieter v. Chrysler corporation, 610 N.W. 2d 832 (Wis. 2000) (See Lemon Laws,

p. 652)

Syllabus

Buyers of a new Chrysler truck sued under Wisconsin’s lemon law for defects in the paint.

Buyers purchased the truck and ordered some accessories installed before delivery. The

dealer damaged the truck in the process of installing the accessories. When buyers returned

to take delivery, they discovered the damage and announced their intention to cancel the sale.

Seller’s representative said they would forfeit their deposit if they cancelled and “assured them

that the damage to the truck’s finish would be repaired.” Plaintiffs agreed to take the truck,

however satisfactory repairs were never accomplished, although work was done on the truck

at least four times. Plaintiffs brought suit under the lemon law. The trial court granted summary

judgment for Chrysler and the court of appeals affirmed. The state supreme court reversed

and remanded finding both that: (1) the lemon law applied to any defect covered by Chrysler’s

express warranty and (2) the lemon law did not require that the buyer be unaware of the

nonconformity before accepting delivery nor that the defect be hidden. Here the court found

Chrysler’s warranty did apply, as the accessories were Chrysler-approved accessories. Thus,

summary judgment was improper.

VI. FTC v. COLGATE-PALMOLIVE CO., 380 U.S. 374 (1964) (See Fraud and

Deception, p. 656)

Syllabus

The FTC charged respondents, an advertiser and an advertising agency, with using

commercials that were deceptive within the meaning of §5 of the Federal Trade Commission

Act. The commercials purported to give viewers visual proof that the advertiser’s shaving

cream could soften “sandpaper;” but unknown to the viewers, the substance that appeared to

be sandpaper in the commercials was in fact a simulated prop, or “mock-up,” made of

plexiglass to which sand had been applied. After a hearing, the commission issued a

cease-and-desist order against respondents that could be interpreted to forbid all use of

undisclosed simulations in television commercials. The Court of Appeals set aside the order

as too broad. Five months later, the commission issued a revised order prohibiting

respondents from presenting advertisements depicting a test, experiment or demonstration

represented as actual proof of a product claim, but not in fact constituting actual proof

because of the undisclosed use of a prop or mock-up. From the court’s judgment setting aside

that order, the commission petitioned this Court for certiorari.

Held:

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Chapter 15 – Consumer Protection

1. It is a material deceptive practice to convey to television viewers the false impression that they

are seeing an actual test, experiment or demonstration which proves a product claim when they

are not because of the undisclosed use of mockups.

a. The FTC’s judgment as to what constitutes a deceptive practice is to be accorded great

weight by reviewing courts, and this admonition is especially true with respect to allegedly

deceptive advertising since the finding of a §5 violation in this field rests so heavily on

inference and pragmatic judgment.

b. The misrepresentation of any fact, so long as it materially induces a purchaser’s deception to

buy, is a deception prohibited by §5.

VII. Green V. Levis Motors, Inc., 179 F. 3d 286 (5th Cir. 1999) (See Truth in

Lending Act (TILA), p. 662)

Syllabus

The Greens brought suit against their car dealer, claiming that its retail installment contract did

not meet the requirements of TILA because it identified a $40 amount to be “Paid to Public

Officials” for a “License Fee” but did not disclose that, in fact, the license fee was less than

$40 and the dealer kept the difference, known in the trade as an “upcharge.” The district court

granted summary judgment for the dealer, even before it reached the issue of whether to

certify the case as a class action. The Fifth Circuit held that this was a violation of TILA, that

the dealer had a choice of expressly identifying the amount actually paid for the licensing fee

or, at a minimum, identifying that some of the $40 charge might be retained by it. Case

remanded for further proceedings.

VIII. Henson V. CSC Credit Services, 29 F. 3d 280 (7th Cir. 1994) (See Consumer

Credit Reports, p. 667)

Syllabus

Two credit reporting agencies reported that a money judgment had been entered against

plaintiff following an earlier lawsuit. That was not in fact the case, but the agencies had

received the incorrect information directly from the court involved. On discovering the error,

plaintiff contacted one of the reporting agencies and attempted to have them correct the

information; but the agency did not do so. The circuit court held that the agencies were not

liable for their original misreporting; however, the agency that was later notified of the error

had a duty to investigate and correct the error in the light of newly discovered information.

Thus, that agency was liable to plaintiff for the harm caused.

IX. U.S. v. National Financial Services, Inc., 98 F. 3d 131 (4th Cir. 1996) (See Debt

Collection Law, p. 671)

Syllabus

The government sued three debt collectors for civil penalties and injunctive relief for violating

the FDCPA, arguing that the questioned practices were “false, deceptive or misleading”

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Chapter 15 – Consumer Protection

because they threatened an action that was not in fact intended to be taken by the

defendants. Defendants handled collection activities for companies selling magazine

subscriptions, processing over 2 million accounts a year that had an average unpaid balance

of about $20. They sent computerized dunning letters to delinquent accounts. Defendants

argued that the letters never expressly said that debtors would be sued for non-payment. The

circuit court stated: “Defendants ask this court to adopt a hyper-literal approach which ignores

the ordinary connotations and implications of language as it is used in the real world. We

decline to do so[. We] conclude that the defendants’ notices threatened to take legal action

which they had no intention of taking[.] No reasonable juror could conclude that those

statements were not meant to make debtors fear that they would be sued.” Thus, the circuit

court affirmed the district court’s grant of summary judgment against defendants.

X. Cheesman and Cheesman v. Tennessee Student Assistance Corporation, 25

F. 3d 356 (6th Cir. 1994) (See Liquidation, p. 675)

Syllabus

Both husband and wife had college student loans outstanding for several years. Both had

made minimal payments on the loans a couple of times over the years. They had two children;

the husband worked at a mental health center; the wife had been unable to find work after

having taken a maternity leave from an intermittent job as a teacher’s aide. Their minimal

monthly living expenses, without the loans, were about $400 over their monthly income. They

sought protection through a Chapter 7 bankruptcy and sought to have their student loans

discharged, arguing that to pay them would cause “undue hardship.” The circuit court found

that discharge should be granted.

Selected Bibliography

Associated Press, “Alabama Judge Halves Verdict in Case Involving Charges for Satellite Dishes,”

The Wall Street Journal, August 30, 1999, p. B7.

Associated Press, “Children’s TV Advocates get Partial Victory from FTC,” Waterloo Courier, April 10,

1991, p. A3.

Associated Press, “Everyday Things Prove to Be Most Hazardous,” Waterloo Courier, May 30, 1991,

p. B6.

Associated Press, “FTC to Probe Environmental Claims in Ads,” Richmond Times-Dispatch, March 17,

1990, p. A1

Associated Press, “The Mystery of Credit Ratings Unraveled,” Waterloo Courier, May 22, 1989, p. B5.

Sherry Buchanan, “Fledgling Consumer Groups Mobilize to Upgrade Safety Standards,” International

Herald Tribune, 1995

“Couple Gets $142,000 in Haunted House Case,” The San Antonio Express-News, July 4, 1987, p.

11A.

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Chapter 15 – Consumer Protection

Robert Daniels, “Hertz Corp. Pleads Guilty in Fraud Case–Fine and Restitution Total More Than $20

Million in Car-Repair Scheme,” The Wall Street Journal, August 5, 1988, p. 2.

S. J. Diamond, “Buzzwords are Key to Spotting Deceptive Ads,” Los Angeles Times, August 18, 1989,

p. B1.

Aaron Epstein, “Choking Deaths Linked to Toys Haven’t Declined,” Des Moines Register, November

20, 1990, p. 4A.

Alix M. Freedman and Udayan Gupta, “Lawsuits May Pound Diet Sellers,” The Wall Street Journal,

March 23, 1990, p. B1.

Richard Gibson, “Ralston and Alpo Guilty of False Claims in Their Puppy Food Advertisements,” The

Wall Street Journal, August 1, 1989, p. B4.

Greg Hernandez, “Judge Clears Planet Hollywood to Emerge from Bankruptcy,” Los Angeles Times,

January 22, 2000, p. C3.

Bruce Horovitz, “Hot Commodity: Privacy,” USA Today, July 20, 1998, p. 3B.

David Jefferson, “Fighting Titans, Such as Credit Bureaus, Can Be Bruising,” The Wall Street Journal,

April 18, 1990, p. B2.

Cathy Johnson, “New Wine in New Bottles: The Case of the Consumer Product Safety Commission,”

Public Administration Review 50, January-February 1990, p. 74.

Walter Kurth, “Credit Law Works Well to Protect Consumers,” USA Today, June 19, 1990, p. 10A.

Wade Lambert and Amy Dockser Marcus, “Judge Blocks an Excedrin Ad Campaign,” The Wall Street

Journal, December 18, 1990, p. B3.

Anita Manning, “Firm Admits Tobacco Addictive,” USA Today, March 21-23, 1997, p. 1A.

Michael G. Riley, “Sorry, Your Card Is No Good,” Time, April 9, 1990, p. 62.

David Rubenstein, “Ad Campaign Launches Competitor Lawsuit,” Corporate Legal Times, November

2001, p. 58.

Christopher Scanlan, “Warnings about Dangerous Products Often Come Too Late,” Des Moines

John Schwartz, “How Did They Get My Name?,” Newsweek, June 3, 1991, p. 40.

Stuart Silverstein, “Some Shopping Bargains Aren’t Really a Buy,” Waterloo Courier, December 9,

1990, p. C3.

Robert Ellis Smith, “They Know an Awful Lot about Us,” USA Today, June 19, 1990, p. 10A.

Guy Stanley, “The Third World Tackles Consumer Protection,” Business and Society Review, No. 62,

Summer 1987, pp. 31-33.

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Chapter 15 – Consumer Protection

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