Unfair Trade Practices

Unfair trade practices are unlawful business actions that are deceptive, fraudulent, or harmful to consumers. Consumers in Texas and across the country suffer when businesses and corporations engage in unfair trade practices. Unfair trade practices give the offending company an advantage over competitors. They can also harm consumers by making them purchase goods or services that do not meet their expectations or by charging them artificially inflated prices.

Several federal laws protect consumers from unfair trade practices. The Federal Trade Commission (“FTC”) has the authority to investigate and take action against companies that engage in unfair or deceptive trade practices. The Clayton and Sherman Antitrust Acts prohibit anti-competitive behavior that can harm consumers, such as price fixing and market division.

In Texas, there are laws that protect consumers against unfair trade practices such as false advertising, bait-and-switch tactics, and more. These laws include the Deceptive Trade Practices-Consumer Protection Act (“DTPA”), the Texas Unfair Insurance Practices Act, the Texas Antitrust Act, the Texas Health Spa Act, and the Texas Debt Collection Act.

The antitrust laws are complex and a comprehensive explanation of them in a few words is impossible. However, the Sherman Act, codified at 15 U.S.C. sections 1-2, prohibits contracts, combinations, or conspiracies in restraint of trade or commerce, as well as monopolization, attempted monopolization, or conspiracies to monopolize. The Clayton Act, codified at 15 U.S.C. section 12 et seq., prohibits anticompetitive practices, including price discrimination, tying arrangements, exclusive dealings, certain mergers and acquisitions, and interlocking directorates.

The DTPA is the main law in Texas that protects consumers by giving them legal rights to fight against deceptive trade practices, which include false advertising, bait-and-switch tactics, and dishonesty in real estate and lending. A consumer may bring an action under the DTPA if the consumer has suffered economic damages or damages for mental anguish produced by any one of the following four types of actions:

• the use or employment of a false, misleading, or deceptive act or practice that is specifically enumerated in section 17.46(b) of the Texas Business & Commerce Code and relied on by the consumer to the consumer’s detriment;

• the breach of an express or implied warranty;

• an unconscionable action or course of action;

• the use or employment of an act or practice in violation of Insurance Code Chapter 541.

A plaintiff may assert a DTPA cause of action if the defendant committed one of the false, misleading, or deceptive practices listed in section 17.46(b) of the Texas Business & Commerce Code and the plaintiff detrimentally relied on that conduct. The practices listed in section 17.46(b) are sometimes referred to as “laundry list violations” and include the following:

• passing off goods or services as those of another;

• causing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services;

• causing confusion or misunderstanding as to affiliation, connection, or association with, or certification by, another;

• using deceptive representations or designations of geographic origin in connection with goods or services;

• representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have, or that a person has a sponsorship, approval, status, affiliation, or connection that the person does not have;

• representing that deteriorated, reconditioned, reclaimed, used, or secondhand goods are original or new;

• falsely representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model;

• disparaging the goods, services, or business of another by false, or misleading representation of facts;

• advertising goods or services with intent not to sell them as advertised;

• advertising goods or services with intent not to supply a reasonably expected public demand, unless the advertisements disclose a limitation of quantity;

• making false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions;

• representing that an agreement confers or involves rights, remedies, or obligations that it does not have or involve, or that are prohibited by law;

• knowingly making false or misleading statements of fact concerning the need for parts, replacement or repair services;

• misrepresenting the authority of a salesperson, representative, or agent to negotiate the final terms of a consumer transaction;

• basing a charge for the repair of any item in whole or in part on a guaranty or warranty, instead of the value of the actual repairs made or work to be performed, without separately stating the charges for the work and the warranty or guaranty;

• disconnecting, turning back, or resetting the odometer of any motor vehicle so as to reduce the number of miles indicated;

• advertising any sale by fraudulently representing that a person is going out of business;

• advertising, selling, or distributing a card that purports to be a prescription drug identification card properly issued under the Insurance Code, and that offers a discount on the purchase of health care goods or services from a third party provider, and that is not evidence of insurance coverage, unless certain conditions are satisfied;

• using a chain referral sales plan in connection with the sale of or offer to sell goods, merchandise, or anything of value, that uses the sales technique, plan, arrangement, or agreement in which the buyer or prospective buyer is offered the opportunity to purchase merchandise or goods, and in connection with the purchase receives the seller’s promise or representation that the buyer shall have the right to receive compensation or consideration in any form for furnishing the seller with the names of other prospective buyers, if receipt of the compensation or consideration is contingent on the occurrence of an event subsequent to the time the buyer purchases the merchandise or goods;

• representing that a guaranty or warranty confers or involves rights or remedies that it does not have or involve;

• promoting a pyramid promotional scheme;

• falsely representing that work or services have been performed on, or parts replaced in, goods;

• filing suit founded on a written consumer contract in any county other than that in which the defendant resides at the time the suit is commenced or in which the defendant signed the contract, unless the person filing the suit neither knew nor had reason to know that the county was not a proper venue;

• failing to disclose information concerning goods or services that was known at the time of the transaction if the failure to disclose was intended to induce the consumer into a transaction the consumer would not have entered into had the information been disclosed;

• using the term “corporation” or “incorporated” or an abbreviation of either of those terms, in the name of a business entity that is not incorporated;

• selling, offering to sell, or illegally promoting an annuity contract under Tex. Rev. Civ. Stat. Article 6228a-5 with the intent that the annuity contract will be the subject of a salary reduction agreement, as defined by that statute, if the annuity contract is not an eligible qualified investment;

• taking advantage of a disaster declared by the governor, or by the president of the United States by selling or leasing fuel, food, medicine, lodging, building materials, construction tools, or another necessity at an exorbitant or excessive price; or by demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, lodging, building materials, construction tools, or another necessity;

• using a foreign translation of a title or other word, including “attorney,” “lawyer,” “licensed,” “notary,” and “notary public,” in any written or electronic material, including an advertisement, a business card, a letterhead, stationery, a website, or an online video, in reference to a person who is not an attorney to imply that the person is authorized to practice law in the United States;

• delivering or distributing a solicitation in connection with goods or services, which represents that the solicitation is sent on behalf of a governmental entity when it is not or resembles a governmental notice or form that represents or implies that a criminal penalty may be imposed if the recipient does not remit payment for the goods or services;

• delivering or distributing a solicitation in connection with goods or services, which resembles a check or other negotiable instrument or invoice, unless this portion of the solicitation includes the notice “SPECIMEN-NON-NEGOTIABLE” clearly and conspicuously printed in at least 18-point font;

• in the production, sale, distribution, or promotion of a synthetic substance, which produces and is intended to produce an effect when consumed or ingested similar to (or in excess of) the effect of a controlled substance (or a controlled substance analogue), as these terms are defined by Tex. Health & Safety Code § 481.002, making a deceptive representation or designation about the synthetic substance or causing confusion or misunderstanding about the effects the synthetic substance causes when consumed or ingested;

• a licensed public insurance adjuster directly or indirectly soliciting employment, as defined by Tex. Penal Code § 38.01, for an attorney, or a licensed public insurance adjuster entering into a contract with an insured for the primary purpose of referring the insured to an attorney without intending to actually perform the services customarily provided by a licensed public insurance adjuster;

• owning, operating, maintaining, or advertising a massage establishment that is not appropriately licensed under Chapter 455 of the Texas Occupations Code, or is not in compliance with the applicable licensing or other requirements of that chapter, or is not in compliance with an applicable local ordinance relating to the

• licensing or regulation of massage establishments.

Common DTPA violations that run afoul of these laundry list activities include:

• business scams;

• false advertising;

• price gouging after a disaster;

• making false statements about a product or competitor;

• claiming a used product is new;

• hiding the need for repairs;

• lying about endorsements;

• taking advantage of language barriers or a consumer’s lack of knowledge;

• falsely claiming the amount of a product;

• engaging in real estate transactions without disclosing property issues;

• falsely representing used vehicles.

The DTPA also provides a cause of action for breach of an express or implied warranty. This is a separate cause of action from the laundry list of violations. The DTPA does not, however, create any warranties. In order to give rise to a DTPA cause of action, the breached warranty must have been created or established independently of the DTPA. Generally, in order to recover for breach of an express warranty under the DTPA, the plaintiff must prove (a) qualification as a consumer, (b) that a warranty was made, (c) that the warranty was breached, and (5) the breach was a producing cause of damages. A DTPA claim based on an implied warranty arises from the transaction itself, not from an oral or written statement, and the plaintiff is required to show that the breach of warranty was a producing cause of the plaintiff’s damages but need not show that the harm was foreseeable.

The DTPA also provides a cause of action if a consumer is the victim of an unconscionable action or course of action. An “unconscionable action or course of action” is an act or practice that, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree. To prove an unconscionable action or course of action, a plaintiff must show that the defendant took advantage of the plaintiff’s lack of knowledge and that the resulting unfairness was glaringly noticeable, flagrant, complete, and unmitigated. However, the defendant need not have intended to take advantage of the consumer or acted with knowledge or conscious indifference in order to be found to have committed an

unconscionable act. Unconscionability is defined in terms of the objective result of the transaction, not the intent of the defendant. There is no need to show that the defendant engaged in any specific misrepresentation in order to establish unconscionability. There must be a showing, however, of what the consumer could have or would have done if the consumer had known about the information, and there must also be some showing of the consumer’s knowledge, ability, experience, and capacity.

The DTPA enables individuals to take legal action against any business, partnership, corporation, or other individual who engages in false, misleading, or deceptive conduct.

Chapter 541 of the Texas Insurance Code addresses unfair competition and unfair or deceptive acts or practices in the insurance industry. The stated purpose of the law is to “regulate trade practices in the business of insurance” by (a) protecting insurance companies and their agents from unfair methods of competition and (b) protecting the public from unfair or deceptive acts or practices. The law specifies that certain conduct in the insurance business is an unfair competition or an unfair or deceptive act (Tex. Ins. Code §§ 541.051–541.061). The law also specifies particular prohibited conduct deemed “unfair” in relation to the settlement of claims under an insurance policy and prohibits unfair misrepresentations concerning insurance policies. The legislature affords a private cause of action for damages when an insurer commits an unfair act or practice defined as such by Sections 541.051 through 541.061 of the Insurance Code or an unfair act or practice “specifically enumerated” as such by Section 17.46(b) the DTPA. Recovery for the successful prosecution of the cause of action includes the actual damages sustained plus costs, attorney’s fees, and if the insurer knowingly committed the unfair act, an additional sum of not more than three times the amount of actual damages.

The Health Spa Act (Tex. Occupations Code § 702.001)] was enacted to safeguard the public against fraud, deceit, imposition, and financial hardship, and to foster and encourage competition, fair dealing, and prosperity in the field of health spa operations and services by prohibiting or restricting practices by which the public has been injured in connection with contracts for and the marketing of health spa services. For purposes of the Health Spa Act, a “health spa” is a business primarily involved in the sale of memberships that provides the members' instruction in a program of physical exercise or provides the members use of the facilities of the health spa for a program of physical exercise. Under the Health Spa Act, a “health spa” does not include an organization that is tax-exempt under Internal Revenue Code Section 501, a private club owned and operated by its members, an entity operated exclusively for the purpose of teaching dance or aerobic exercise, other types of entities specifically enumerated in the Act, an activity conducted or sanctioned by a school under the Texas Education Code, or a hospital or clinic owned or operated by an agency of the state or federal government or by a political subdivision of the State of Texas.

It is a violation of the Health Spa Act for a registered health spa operator to do any of the following:

• offer a special discount unless the discount is available to all prospective members (although a health spa may offer special group prices or group discounts);

• make a material misrepresentation to a current member, prospective member, or purchaser of a membership contract regarding (a) the qualifications of the staff; (b) the availability, quality, or extent of the facilities or services; (c) the results obtained through exercise, dieting, weight control, or physical fitness conditioning programs; (d) membership rights; or (e) the period that a special offer or discount will be available;

• fail or refuse to: (a) file or update a registration; (b) establish an escrow account; or (c) maintain required security under the Health Spa Act;

• advertise that it is bonded by the state; or

• sell a membership plan not included in the spa’s list required by the Health Spa Act.

A member of a health spa who is injured as a result of an unlawful act or practice of a health spa may bring an action against the person who owns or operates the health spa or who sells the right to use the health spa. The member may be awarded actual damages, equitable relief, and punitive damages. The prevailing party may be awarded reasonable attorney’s fees and costs. Such an action must be brought not later than one year after the termination of an action by the district attorney, county attorney, or attorney general to enjoin violations of the act or within two years after the violation is discovered, whichever is later. In addition to an action under the Health Spa Act, a violation of the Health Spa Act is actionable as a deceptive trade practice under the DTPA. However, a plaintiff may not recover actual damages and penalties under both the DTPA and the Health Spa Act for the very same act or practice.

The Texas Debt Collection Act, as codified in the Texas Finance Code, protects consumers from certain conduct by debt collectors in their efforts to collect “consumer debts”, such as the use of threats or coercion, harassing or abusive conduct, unfair or unconscionable conduct, or the use of certain fraudulent, deceptive or misleading representations.

If you have been a victim of an unfair trade practice, it's important to consult an experienced business disputes attorney, such as Guy Wade, who can evaluate your situation and determine whether you have any potential recourse. Seeking legal recourse against a large corporation or business can be complex and time-consuming but taking such may help protect other consumers from falling victim to the same unfair trade practice and hold companies engaging in unfair practices accountable for their actions.

Actions brought for violations of the DTPA must be filed within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered, or in the exercise of reasonable diligence should have discovered, the occurrence of the false, misleading, or deceptive act or practice. The two-year period may be extended for a period of 180 days if the plaintiff proves that the failure to file the action within the two-year period was caused by the defendant knowingly engaging in conduct solely calculated to induce the plaintiff to refrain from or postpone, the commencement of the action. The statute of limitations begins to run when the consumer first discovers a problem resulting from the false, misleading, or deceptive act or practice, even if the consumer is not yet aware of the full extent of the damage. Although it is not necessary that the plaintiff know the specific nature of each wrongful act that may have caused the injury, the claim accrues when the plaintiff knew or should have known of the wrongfully caused injury. The discovery rule tolls accrual of the cause of action for violation of the DTPA until a claimant discovers that the injury was likely caused by the wrongful acts of another person or entity.

Under the DTPA, a consumer can recover any general and special compensatory damages for monetary loss that may be recovered under the common law. With respect to general damages, the plaintiff is entitled to recover benefit of the bargain damages, or out-of-pocket expenses, whichever is greater. The foreseeability requirement of consequential damages does not apply under the DTPA. To recover special damages, the plaintiff need only prove that the damages are directly traceable to the deceptive practice, not that the defendant foresaw the damages. The consumer does, however, have to prove the amount of special damages claimed with reasonable certainty. The consumer may also recover damages for the total loss sustained as a result of the deceptive act, such as the cost of repair and the reduction in market value of the item purchased.

A consumer may also recover damages for mental anguish under the DTPA if the defendant knowingly committed the wrong. The defendant acts knowingly if the defendant has actual awareness of the falsity, deception, or unfairness of the act or practice giving rise to the claim at the time it arose. To recover mental anguish damages, the plaintiff must present evidence of the nature, duration, and severity of any mental anguish suffered, that the defendant’s conduct was a producing cause of the anguish, and the amount of damages necessary to compensate the plaintiff.

A finding that the defendant acted “knowingly” also entitles the plaintiff to potentially an award of “additional damages” from the fact-finder of up to three times the amount of economic damages the plaintiff recovers. A finding that the violation was committed intentionally entitles the fact-finder to award damages up to three times the amount of economic damages and mental anguish damages combined. A defendant acts “intentionally” if the defendant acts with actual awareness of the falsity, deception, or unfairness of the deceptive act or the condition, defect, or failure that gives rise to the plaintiff’s claim and the specific intent that the consumer relies on the deception.

If the plaintiff’s DTPA claim is based on the violation of another consumer protection statute, the plaintiff can recover actual damages available under the statute. The DTPA’s provisions permitting treble damages will apply where the defendant acted knowingly or intentionally. However, the plaintiff cannot recover damages under both the DTPA and the other consumer protection statutes for the same act.