Retailer Liability Under the Florida Unfair and Deceptive Trade Practices Act

By: Michael R. Holt

10.31.17

Retailer Liability Under the Florida Unfair and Deceptive Trade Practices Act

Florida retailers have long been part of products liability litigation based on their position in the chain of distribution. But retailers now also find themselves in a different type of litigation under Florida’s Deceptive and Unfair Trade Practices Act, §501.201, et seq (FDUTPA or “the Act”).  These cases typically focus upon some form of alleged false advertising, failure of the product to meet consumer expectations, or both.  In such filings, Plaintiffs typically allege that the manufacturers and retailers make misleading or false representations about some aspect of a consumer good.[1]

Fortunately for retailers, FDUTPA contains a provision requiring Plaintiffs to provide additional support for such allegations in cases where actual damages are at issue.  More specifically, claimants must allege that the retailer had actual knowledge of the product defect or false claims.  Not only does this create an additional hurdle to liability in all FDUTPA cases, it may have a particular disruptive effect on class actions.  As discussed below, retailers facing FDUPTA lawsuits should pay particular attention to this provision while defending claims.

In the meantime, they can also take additional steps to avoid future liability. The nature and extent of those steps depends in some degree, however, on the size of the retailer and its relationship with the manufacturer.  Another complicating factor is the extent of the involvement necessary; must retailers like supermarkets or department stores demand ad substantiation for every product they sell?  At the end of the day, taking reasonable steps to monitor advertising and consumer complaints can greatly help retailers demonstrate “good faith” and ultimately avoid liability under FDUTPA. 

Retailer Liability Under FDUTPA

FDUTPA claims are common in class action litigation involving allegedly deceptive advertising.[2]  The Act broadly declares unlawful “unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce”[3]  The statute authorizes “actual” damages by an action brought by “a person who has suffered a loss as a result of a violation of this part.”[4]  Persons aggrieved by a violation may also seek declaratory and injunctive relief.[5]  Additionally, parties may recover attorney’s fees by prevailing under either §501.211(1) or (2).[6] 

FDUTPA does, however, provide an exception to retailers.  Specifically, claimants may not recover damages, fees or costs “under this section against a retailer who has, in good faith, engaged in the dissemination of claims of a manufacturer or wholesaler without actual knowledge that it violated this part.”[7]  So, not only must plaintiffs allege some deceptive statement; they must also allege that the retailer had actual knowledge, yet continued to disseminate the manufacturer’s claims.[8]

This language means what it says; plaintiffs failing to sufficiently allege actual knowledge face dismissal.  For example, in Herazo v. Whole Foods Market, Inc.,[9] the Court discussed an FDUTPA claim, noting that the complaint lacked an allegation that the retailer defendant, Whole Foods, actually knew it was violating the act.[10]  As such, the claim was “not properly pled under the statute.”[11]  But assuming a plaintiff does recite a cause of action, what standard of proof will the court ultimately require?

FDUTPA’s Silence Regarding “Good Faith” and “Actual Knowledge”

FDUTPA does not define either “good faith” or “actual knowledge.”  As to the former, however, many courts look to the U.C.C., which defines “good faith” as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”[12]  In another context, the Florida Supreme Court defined “good faith” as ”‘an honest belief.... [h]onesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.... [I]t describe[s] that state of mind denoting honesty of purpose ... and, generally speaking, means being faithful to one's duty or obligation.’”[13] 

The Act is similarly silent as to a definition of “actual knowledge.”  In other contexts, as with “good faith,” courts have looked to Black’s Law Dictionary.  This straightforwardly discusses the concept as “direct and clear knowledge or knowledge of such information as would lead a reasonable person to inquire further.”[14]

 

No Secondary Liability Under FDUTPA Against Retailers

The heightened standard under Section 501.211(2) makes sense from a policy standpoint.  Indeed, as one court noted, “[h]olding retailers liable for all statements made on products that they sell would impose the type of secondary liability that has been rejected by courts.”[15]  In Hydroxycut, the District Court dismissed claims against retailers regarding advertisements in connection with the Hydroxycut product.  There, the plaintiffs did not allege any misrepresentations apart from manufacturer.  Nor did they otherwise allege facts “supporting an inference that the Retailer Defendants knew that representations made by [the manufacturer] regarding the safety and efficacy of the products were false or deceptive”.[16]  Generally, courts reject this this type of secondary liability as a deceptive trade practice because the statute requires direct participation by the defendant.  Thus, simply receiving the benefits of a fraud committed by another may not create liability.[17] 

FDUTPA decisions in other contexts are also instructive.  Florida’s courts hold that only individuals who directly participate in the deceptive conduct—or have control with knowledge of the wrongful acts-- are liable.[18]  For example, in Degirmenci v. Sapphire–Fort Lauderdale, LLP, the District Court found allegations against individual defendants legally insufficient and dismissed claims with prejudice as a shotgun pleading.[19]  There, the allegation that “[e]ach of these Altman Defendants played an important and substantial role in the wrongful acts described herein and their actions amount to a device, scheme, or artifice to defraud” did not include “specific factual allegations as to how each individual Defendant was involved in the purported fraud or deceit.”[20]  Another Southern District order similarly dismissed  an FDUTPA claim against the president of a corporate defendant where there were no allegations of president’s “direct involvement” in the alleged violation.[21] 

Florida’s statutory business judgment rule similarly precludes FDUTPA claims in some circumstances.  Under Florida law, corporate directors cannot be held personally liable based on a no-fault theory of liability.  Moreover, if the evidence establishes as a matter of law that the individual defendants acted in good faith and are protected against personal liability under the business judgment rule.  Generally, “Under the business judgment rule directors are presumed to have acted properly and in good faith, and are called to account for their actions only when they are shown to have engaged in fraud, bad faith or an abuse of discretion.” [22]

Thus, when analyzing a claim against a retailer, the court must examine the complaint to determine whether there are allegations that the retailer participated in creation of the alleged false statements or any marketing campaigns; whether the retailer independently adopted the manufacturer’s representations as their own or whether the retailer made any of their own false representations independently of the manufacturer, or made statements about the products’ safety or efficacy.  Ultimately, proof of a claim requires similar development of this evidence.

Alleging Actual Knowledge First and Proving it Later:  The “actual knowledge” standard presents and additional challenge to claimants lacking specific supporting facts.  In other contexts, claimants cannot simply plead “fraud” at the outset and use the discovery process to support their theories.  Rather, the “clear intent” of Rule 9(b) “is to eliminate fraud actions in which all the facts are learned through discovery after the complaint is filed.”[23]  Rule 11 and 57.105 create risks on the filing attorney and client.[24]  And FDUTPA itself provides the trial court with discretion to award prevailing party attorney’s fees without demonstrating that the lawsuit was frivolous.[25]

What Retailers Can Do:  Even with the application of a higher standard, retailers can take steps to protect themselves from liability under FDUTPA.  The extent depends to some degree on the relationship with the manufacturer and the size of the retailer vis a vis the manufacturer.  Beyond contractual indemnity agreements, retailers can work with manufacturers by passing on consumer complaints about product quality or performance.  They can also work with their customers to demonstrate some sort of a resolution to make the customers whole, such as refunding the purchase price.  Beyond this, retailers of specialty products may request testing reports from manufacturers or other evidence demonstrating compliance with industry standards.[26] 

But just how practical is this for large retailers who may be selling hundreds or thousands of products?  Must a multi-state department store ask manufacturers to substantiate the statements in every single product being sold, or similarly, conduct its own investigation?  Retailers cannot, of course, tell manufacturers what to do or how to run their businesses.  They can, however, ask that manufacturers provide notice to the retailers regarding any lawsuits involving product safety or false advertising. 

A measured and reasonable approach focuses on the type of product and the potential for consumer claims.  For example, retailers can focus on certain types of products which make “claims about health or safety” or statements which “consumers would have trouble evaluating for themselves.”[27]  Another tool involves the use of available data regarding products returned by the customers.  A rash of returns concerning a particular product based on alleged defects might cause a retailer to question the claims made by manufacturers. 

Impact On Class Actions:  The provision requiring proof of knowledge also has the potential to effect class action litigation. Because “state of mind” is at issue, a question arises as to when the retailer knew.  This could be impacted by the timing of knowledge throughout many individual retail locations through the corporate hierarchy.  Thus, not only must the issue of knowledge be explored, but whose knowledge is also key.  Is the awareness of say, a middle manager at a retail location in Minnesota enough to bestow “knowledge” as to that particular business, much less the company as a whole ?     

Conclusion As FDUTPA-based false advertising claims become more prevalent, retailers may find themselves more involved.  Fortunately, the “good faith” and “actual knowledge” standard under FDUTPA can be difficult to satisfy.  And retailers can help protect themselves by working with manufacturers to ensure their claims regarding product performance are substantiated, and take strides to improve customer relations in the event of complaints.  This will assist retailers from becoming tag-along defendants in false advertising claims, particularly class actions. 



[1]         See e.g., Sweeney v. Kimberly-Clark Corp.,8:14-cv-3201-T-17EAJ, 2016 WL 727173 (M.D. Fla. Feb. 22, 2016) (class action under FDUTPA against manufacturers and Wal-Mart Stores, Inc., related to “flushable wipes.”); Waverly Robinson, v. QVC Inc., 0:16-cv-60932-CMA (S.D. Fla. April 27, 2016); Wen By Chaz Dean Inc., CACE16005367, Fla. 17th Cir. Ct. 2016)   (filed March 21, 2016) (class action alleging that defendant Wen’s shampoos had “serious adverse side effects” including “hair loss”, and that Wen and QVC falsely marketed the product as safe, and as part of a “hair care revolution.”). 

[2]         See e.g.  Varnes v. Home Depot USA, No. 3:12-CV-622-J-39JBT, 2015 WL 5190648, at *3 (M.D. Fla. Sept. 4, 2015) (denying motion to certify FDUTPA class claims against Home Depot with respect to “alleged deceptive advertising of professional installation services.”); Randolph v. J.M. Smucker Co., 303 F.R.D. 679, 689 (S.D. Fla. 2014) (denying motions to certify class actions, including alleged FDUPTA violations, based on “all natural” labels on cooking oils); Guerrero v. Target Corp., 889 F.Supp.2d 1348, 1355 (S.D. Fla. 2012) (dismissing FDUPTA claims without prejudice from putative class action based on sale of Target brand honey from which all naturally occurring traces of pollen were removed). 

[3]         Fla. Stat. § 501.204(1).

[4]         Fla. Stat. § 501.211(2) (emphasis added).

[5]         Fla. Stat. § 501.211(1).

[6]         Fla. Stat. § 501.2105(1).

[7]         Fla. Stat. § 501.211(2) (emphasis supplied).    

[8]         This stands in contrast to liability under statutes with no such “actual knowledge” component.  For example, in Porter & Dietsch, Inc., 605 F.2d 294 (7th Cir. 1979), the Seventh Circuit affirmed an FTC false advertising order against a retailer regarding non-prescription weight loss pills. There, it was undisputed that the retailer -Pay’n Save- lacked actual knowledge of any false statements.  But the Commission “concluded that ‘(i)f Pay'n Save had critically examined the advertising in light of the package insert, it should have been obvious that the advertising at least did not coincide with the plan.’"  Id.  In any event, the standard at issue there did not “make mental state an element of violation and creates no exemption from liability for parties not involved in the creation of the false advertising or for unwitting disseminators of false advertising.”  Id.   The result was strict liability as to Pay’n Save.

[9]         Herazo v. Whole Foods Market, Inc., No. 14-61909, 2015 WL 4514510 at * 3, n.2 (S.D. Fla. July 23, 2015).

[10]       Id. at *3, n.2.  A more recent ruling from the Southern District of Florida noted that “a retailer’s good faith may preclude damages under FDUTPA” but declined to read in a requirement of “malice.”  BPI Sports, LLC v. Labdoor, Inc., Case No. 15-62212-CIV-BLOOM, 2016 WL 739652, at *7 (S.D. Fla. Feb. 25, 2016) (dismissing FDUTPA claim on other grounds but, in dicta, rejecting argument that the statute requires a plaintiff to plead malice; the defendant “cites no authority indicating that allegations of bad faith make up a material element of a FDUTPA claim on the Court is unable to locate the same.”). 

[11]       Id.  The result might be different if the plaintiff alleges that the dealer dictated the ingredients of a product or any representations made within the advertising.

[12]       Fla. Stat. § 671.201(20) (2004); See also UCC § 2–103(1)(b). 

[13]       Florida Bar v. Jackson, 494 So.2d 206, 209 (Fla.1986) (quoting Black's Law Dictionary 623–24 (5th ed.1979)).

[14]       Marion Cty. v. Futch, 983 So. 2d 689, 690 (Fla. Dist. Ct. App. 2008).

[15]       In re Hydroxycut Marketing and Sales Practices Litigation, 299 F.R.D. 648, 657 (S.D. Cal. 2014).

[16]       See also Perez v. Monster Inc., 149 F.Supp.3d 1176, 1187 (N.D. Cal. 2016) (dismissing claim against Best Buy Company; plaintiff could not demonstrate liability “simply because it sells Monster’s HDMI cables (i.e., is a retailer for Monster.”)); Dorfman v. Nutramax Lab., Inc., No. 13cv0873 WQH (RBB), 2013 WL 5353043 at *14 (S.D.Cal. Sept. 23, 2013) (denying motions to dismiss class claims brought against retailers Wal-Mart and Rite-Aid under California’s Consumers Legal Remedies Act and Unfair competition Law for marketing and sale of a joint supplement; court noted, however, that “[i]t is well established that the ‘concept of vicarious liability has no application to actions brought under the unfair business practices act.’”). 

[17]       Zekman v. Direct American Marketers, Inc., 695 N.E.2d 853, 859 (Ill. 1998) (Illinois Consumer Fraud and Deceptive Business Practice Act does not “provide for a cause of action against a person who knowingly receives the benefits of another’s fraud” because the claim lies against the person or entity who “committed” the act). 

[18]       See Rollins, Inc. v. Heller, 454 So. 2d 580, 582 (Fla. 3d DCA 1984).

[19]       Degirmenci v. Sapphire–Fort Lauderdale, LLLP, 693 F. Supp. 2d 1325, 1355-56 (S.D. Fla. 2010).

[20]       Degirmenci, 693 F. Supp. 2d at 1355-56. .

[21]       Aboujaoude v. Poinciana Development Co. II, 509 F. Supp. 2d 1266, 1277 (S.D. Fla. 2007); See also KC Leisure, Inc. v. Haber, 972 So. 2d 1069, 1073-1074 (Fla. 5th DCA 2008) (“In addition, to hold a corporate officer liable for monetary restitution, a Plaintiff is also required to establish that the Defendant had or should have had knowledge or awareness of the misrepresentations.”)

[22]       Cottle v. Storer Communication, Inc., 849 F. 2d 570, 574 (11th Cir. 1988) (citation omitted); see also Schein v. Caesar’s World, Inc., 491 F. 2d 17, 18 (5th Cir. 1974) (directors “incur no liability to the corporation for issues of business expediency which they resolve through the mere exercise of their business judgment”). 

[23]       See Friedlander v. Nims, 755 F.2d 810, 813, n.3 (11th Cir. 1985 (citations omitted); Barys ex rel. U.S. v. Vitas Healthcare Corp., No. 04-21431-CIV, 2007 WL 2310862 at *7 (S.D. Fla. July 25, 2007) (general statements regarding fraud “does not provide the plaintiffs with an automatic ticket to discovery.”) (citations omitted). However, Rule 9(b)’s requirements are “applied less stringently” in certain instances, such as where “the alleged fraud occurred over an extended period of time and consisted of numerous acts.”  See U.S. ex rel. Butler v. Magellan Health Services, Inc., 74 F.Supp.2d 1201, 1215 (M.D. Fla. 1999). 

[24]       See BankAtlantic v. Blythe Eastman Paine Webber, Inc., 955 F.2d 1467, 1478 n. 11 (11th Cir.1992) (“Attorney's fees pursuant to Florida Statute § 57.105 may be awarded to the prevailing party in a suit brought in federal court.”). 

[25]       Humane Soc’y of Broward County, Inc. v. Fla. Humane Soc’y, 951 So.2d 966, 971-972 (Fla. 4th DCA 2007). 

[26]       See Federal Trade Commission, Advertising and Marketing on the Internet: Rules of the Road, September, 2000, available at  https://www.ftc.gov/tips-advice/business-center/guidance/advertising-marketing-internet-rules-road (“If the manufacturer doesn't come forward with proof or turns over proof that looks questionable, the catalog marketer should see a yellow "caution light" and proceed appropriately, especially when it comes to extravagant performance claims, health or weight loss promises, or earnings guarantees.”).

[27]       See Federal Trade Commission, Advertising FAQ’s:  A Guide for Small Business.  https://www.ftc.gov/tips-advice/business-center/guidance/advertising-faqs-guide-small-business

 
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