Management Chapter 17 Seventeen Consumer Protection Managers Dilemma Putting

Chapter Seventeen

Consumer Protection

A MANAGER’S DILEMMA: PUTTING IT INTO PRACTICE

Downplaying Hazards and Keeping Product Liability Settlements Confidential

Issues Presented: Is it ethical to announce a “recall for repair” rather than a straight recall

when a product is defective? Should a manager do more than the CPSC requires to publicize

the recall? Is it ethical to settle a product liability case on the condition that the plaintiff

keep the settlement confidential?

During a recall investigation most large manufacturers can demonstrate to the CPSC

that their product complies with a voluntary safety standard; however voluntary standards

often require only minimum levels of performance and fail to address all the known hazards.

Sometimes a company that has been sued for an allegedly defective product requires the

plaintiffs to keep the resolution confidential as a condition for settlement. Several state

legislatures and courts have challenged this practice because it lessens the likelihood that

In a letter dated February 13, 2008, Consumers Union, Consumer Federation of America,

Union of Concerned Scientists, and other consumer groups urged the Senate to approve S. 2045,

Manufacturers (NAM), the largest industrial trade association in the United States, lobbied hard

in opposition to this and several other clauses in the Senate bill, including a provision that

would have allowed states to sue for damages suffered by their citizens. Victor Schwartz,

The House passed H.R. 4040 by a vote of 407-0 on December 19, 2007, and the Senate

passed S. 2045 by a vote of 79-13 on March 6, 2008. The compromise bill ultimately passed by

Congress and signed by President Bush, the Consumer Product Safety Improvement Act of 2008

(Pub. L. No. 110-314), resulted in the creation of a searchable public database of product safety

In March 2010, the Consumer Recall Notification Act was proposed in Congress, which

would (1) require stores that track customer purchases through customer loyalty cards or

membership cards to use that information to notify customers when they have purchased a

recalled product and (2) require food distributors subject to a Class I recall to notify stores and

restaurants within twenty-four hours of the public announcement of the recall and, in turn,

Although the CPSC’s database is intended to help spread awareness of defective and

dangerous products, some companies complain that the information that appears on the

database is misleading and sometimes inaccurate. In October 2011 “Company Doe” filed suit in

QUESTIONS AND CASE PROBLEMS

Question 1

Issues Presented: Under what circumstances should a marketing director disclose possible

risks of a product?

Ravlona is legally and ethically required to disclose the potential side effects of its

makeup. Disclosure is also critical to protect the value of the Ravlona brand. Even if the makeup

Question 2

Issue Presented: Is a state ban on the use of false routing information to send an anonymous

e-mail message a valid exercise of state power?

The Virginia Supreme Court struck down the statute as an unconstitutional restraint on

free speech in Jaynes v. Virginia, 666 S.E.2d 303 (Va. 2008). In doing so, the court held that the

Question 3

Issue Presented: What are a credit bureau’s duties under the Fair Credit Reporting Act

(FCRA) once it has received notice of a disputed item?

Consumers have the right to see their credit information and to dispute the accuracy or

completeness of their credit reports. 15 U.S.C. Section§ 1681g & 1681h. When it receives a

complaint, a consumer reporting agency must reinvestigate the disputed information “within a

Question 4

Issue Presented: Does a discretionary penalty rate increase constitute a “change in terms” for

which disclosure is required?

Regulation Z, promulgated by the Board of Governors of the Federal Reserve System

(Board) pursuant to the Truth in Lending Act (TILA), requires issuers of credit cards to provide

cardholders with an “[i]nitial disclosure statement” specifying “each periodic rate” associated

with the account. Regulation Z also requires subsequent rate disclosures whenever the credit

Question 5

Issue Presented: What is the definition of “advertising” under the Lanham Act?

The Lanham Act provides in relevant part that “[a]ny person who . . . in commercial

advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic

Question 6

Issue Presented: On what basis will the court calculate damages?

In Facebook, Inc. v. Fisher, 2011 WL 250395 (N.D. Cal. Jan. 26, 2011), the defendants did not

respond to Facebook’s complaint so were found liable by default for (1) violation of the CAN–

SPAM Act and the Computer Fraud and Abuse Act (CFAA) and (2) breach of contract for

violations of Facebook’s Statement of Rights and Responsibilities (SRR). In default cases, all of

Question 7

Issue Presented: Does a restaurant’s failure to post prices for beer and mixed drinks violate

the New Jersey Consumer Fraud Act?

The New Jersey Consumer Fraud Act (CFA) makes it an unlawful practice for sellers of

merchandise or real estate to engage in “any unconscionable commercial practice, deception,

fraud, false pretense, false promise, misrepresentation, or the knowing, concealment,

suppression, or omission of any material fact with intent that others rely upon such

Recognizing that the CFA is one of the strongest consumer protection laws in the nation,

the court gave the statute broad construction. To give effect to its “remedial purposes in

safeguarding the public,” the court presumed that its rules apply even when there are other

potentially applicable rules. The court held that this presumption can be overcome only when

(1) there is “a direct and unavoidable conflict … between the application of the CFA and

application of other regulatory schemes,” and (2) the other regulatory scheme “deal[s]

specifically, concretely, and pervasively with the particular activity.”

The CFA provides that “[i]t shall be an unlawful practice for any person to sell, attempt

to sell or offer for sale any merchandise at retail unless the total selling price of such

merchandise is plainly marked by a stamp, tag, label or sign either affixed to the merchandise or

located at the point where the merchandise is offered for sale.” Alcoholic beverages are

“merchandise” within the meaning of the statute. TGIF argued that because Uniform Price

The court then turned to the merits of Dugan’s CFA claim. To succeed on a CFA claim, a

plaintiff must satisfy three elements of proof: “(1) unlawful conduct by defendant; (2) an

ascertainable loss by plaintiff; and (3) a causal relationship between the unlawful conduct and

the ascertainable loss.” Dugan successfully alleged unlawful conduct because she contended

The court also rejected TGIF’s argument that Dugan was not a “consumer” within the

meaning of the Truth in Consumer Contract, Warranty, and Notice Act, which prohibits

entering into a contract with a consumer that “violates any clearly established legal right of a

consumer.” Because Dugan alleged sufficient facts to establish that the offer violated the CFA,

those allegations were sufficient to establish a potential violation of the TCCWNA.

Question 8

Issue Presented: Is there a violation of the Fair Debt Collection Practices Act (FDCPA) when

the collector presumes that the debt is valid unless the alleged debtor disputes it in writing?

If so, is ignorance of the law’s requirements an affirmative defense?

Although the issue of whether there was a violation of the FDCPA was not before the

Supreme Court, the U.S. District Court of the Northern District of Ohio found that the

defendant violated the FDCPA when it threatened to presume that the debt was valid unless

In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, 130 S. Ct. 1605 (2010), the Supreme

Court held that the “bona fide error” defense under Section 813(c) does not apply to a violation

resulting from a debt collector’s mistaken interpretation of the requirements of the FDCPA. The

Court relied on the “common maxim, familiar to all minds, that ignorance of the law will not

excuse any person, either civilly or criminally.” Therefore it may be possible that an act may be

“intentional” for the purposes of civil liability, even if the actor lacked actual knowledge that