HOW A SIMPLE DISCLOSURE MIGHT PREVENT YOUR BUSINESS FROM BEING SUED FOR “UNFAIR” AND “DECEPTIVE” TRADE PRACTICES

Two lawyers in New York recently had the bright idea of suing the Metropolitan Museum of Art. That’s right, they sued the Met, that sprawling bastion of culture that dominates the landscape of Manhattan’s upper east side. Their claim — the Met had engaged in “unfair and deceptive trade practices” because it failed to adequately inform its patrons, in a printed sign, that the twenty-five dollar ($25) admission price was a “suggested donation” rather than an actual fee. These lawyers have sought class action status on behalf of two tourists who paid the fee because the tourists thought the fee was mandatory when, in fact, the fee was merely a suggested donation.

This raises several important legal and moral questions. What does it mean to be unfair and deceptive and under what circumstances should litigation be commenced. Many states have specific statutes which prohibit businesses from engaging in unfair and deceptive trade practices. As a matter of illustration, the statute has often been applied to automobile dealerships which charge extra fees to consumer contracts without really explaining what the fees are designed to cover or, worse, misleading the public into believing that the fees are designed to compensate the dealership for an out of pocket cost when, in fact, there is no such cost.   Nonetheless, there are several things that businesses can do to avoid being sued for the violation of the unfair and deceptive trade practices act.

1. Tell the Truth

For some businesses or individuals, this can be hard. Salesmanship, many business owners will tell you, involves some element of puffery — the art of inflating the value of a particular good or service during the sales process.  Let the business owner beware – there is a difference between salesmanship and fraud and both lawyers and judges sometimes have difficulty drawing it. If the Courts are having difficulty adequately defining it, isn’t this something that will likely be hard for business owners to define ? You bet. The remedy- just tell the truth.

2. Disclose Otherwise Hidden Profit Centers

American business owners are entitled to make a profit. This is the American way. Nonetheless, there a host of things which may not be readily apparent to a consumer that such a thing could actually be a profit center. When consumers discover that a business is profiting in an unexpected and undisclosed way, this tends to make the average person feel taken advantage of. This feeling often leads to a call to the lawyer who often files suit sometimes seeking class action status. Lawyers seeks class action status because it gives them the potential to sue on behalf of many people, not just one and, as a result they can make more money.

What are hidden profit centers ? You own a furniture store. You charge for delivery of the product to the consumer. However, in order to deliver the product, you hire a third party vendor. The third party vendor charges you $500 but you charge $1,000 to the consumer. Do you have to disclose this to the consumer ? You bet you do. Otherwise, when you place on to the consumer’s invoice the phrase: “delivery charge, $1,000” the average person has the right to believe that this is what it costs you. Thus, a phrase such as the following in your invoice to the consumer will, potentially, help to forestall a deceptive and unfair trade practices act claim: “the store reserves its right to make a profit on the delivery charge of goods.”  Not to be condescending here, but most consumers don’t read their invoices anyway and even for those who do, it is not unreasonable to believe that certain people might agree that it is perfectly acceptable for a store to take a profit on a delivery charge, provided that it is disclosed.

3. Avoid the Bait and Switch

The bait and switch is simply a variant of item #2 above. It stems from the same adage – tell the truth. In this instance, however,  what a business owner might consider is to advertise a product at one price but when the consumer appears at the business to purchase it, based upon the advertisement, the product is suddenly “unavailable.” Instead, there is often a new product there to replace it, most often at a higher price. This is called a “bait and switch” and is generally considered unfair and deceptive under most state law. Advertising disclosures might help prevent this problem such as: “limited quantities available” or “the store reserves its right to substitute products which may cost more than the advertised price.” This tells the consumer – hey, you may not get the product you are coming in to the store for but at least we are telling you in advance. Disclosure,  plain and simple.

In sum, telling the truth and disclosing as much as possible in advance will help eliminate a time consuming and expensive lawsuit  and, even worse, a potential class action. As for the lawyers in the Metropolitan Museum case – do they have a case ? The answer is probably yes. The problem with their case is, however, that suing a charitable organization because it allegedly misled the public into making a donation lacks cache, mostly because the average person is likely to believe that art patrons should donate to the museum, regardless of whether they were deceived into doing so.

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