Prepare yourselves, faithful readers. This week’s post from Yours Truly actually offers substantive legal content. Or at least what passes for it under the Buckingham blog standard, which admittedly, is exceptionally low. This post addresses the South Carolina Unfair Trade Practices Act. It seems like almost every law suit I defend these days includes a SCUTPA cause of action. I don’t think it’s because there’s an onslaught of companies out there engaging in unfair or deceptive trade practices. No, I think it’s just because SCUTPA is overused. Extremely overused. To the point where I might be caught off guard if I got a complaint that didn’t assert a SCUTPA claim.
There’s a couple of reasons, I think, why the unfair trade practices act is tossed around so freely. The first two reasons are fairly obvious. Reason No. 1: The statute is one of the few vehicles through which a party can recover attorneys’ fees. Reason No. 2: The statute also authorizes treble damages. For those of you who are fortunate enough to live a life outside the legal profession, “treble” is more than just a musical clef. At law, “treble” means triple. Whatever damages you have, multiply it by three. By themselves, reasons 1 and 2 are incentive enough to bring a SCUTPA action. But wait! There’s more.
Reason No. 3: It’s easy to allege a violation of SCUTPA. All you have to do is claim that the defendant engaged in an unfair or deceptive trade practice (which is not clearly defined), that you were damaged by the practice, and that the practice had an adverse impact on the public interest. To allege that, you only have to claim that the practice was repeated, or that it is merely capable of being repeated. Add a pinch of righteous indignation and voila! You’ve tripled a defendant’s exposure! Whether you can actually prove unfair trade practices at trial, well, that’s a horse of a different color, one that you won’t have to ride for at least 18 months down the long road of litigation.
Theoretically, this is a tremendous advantage for plaintiffs. Settlement negotiations are based on a party’s risk. To the plaintiff, the risk is that trial will result in a defense verdict. To the defendant, the risk is that trial will result in a plaintiff’s verdict for the maximum amount of exposure. Therefore, by increasing a defendant’s amount of exposure, a plaintiff is also increasing the settlement range.
From the defense perspective, a frequently asked question is whether SCUTPA actions can be dismissed at an early stage of litigation. Regrettably, the answer is “maybe, but probably not.” Motions to dismiss are intended to test the legal sufficiency of pleadings. In other words, the court reviews whether the complaint uses the magic words needed to state a valid cause of action. As noted above, for SCUTPA claims, there are only a few magic words needed, and they’re not clearly defined. The statute doesn’t meaningfully define an “unfair or deceptive trade practice.” Furthermore, on a motion to dismiss, the deck is kind of stacked against defendants. The law requires courts to view the complaint in the light most favorable to plaintiffs. Also, plaintiffs needn’t offer proof in support of their allegations at the dismissal stage. Consequently, unless there’s some legal deficiency with the way a plaintiff has brought their SCUTPA action, the action is around to stay for awhile.
Which leads to Reason No. 4 of why SCUTPA actions are so prevalent these days: the long, arduous process of discovery. The scope of discovery is defined by the allegations of the complaint. Just as SCUTPA actions allow plaintiffs to increase the amount of a defendant’s exposure, they also allow plaintiffs to increase the scope of discoverable information. After all, a plaintiff must prove that a defendant engaged in other similar conduct, or that their policies make it likely that the defendant will engage in other similar conduct in the future. This information is critical to a plaintiff’s SCUTPA action, especially if he never previously had that information. And where better to obtain that information than from the defendants themselves? Consequently, SCUTPA is used as a tool for plaintiffs to embark upon fishing expeditions against defendants.
Let’s take this to a practical level. Suppose a person claims to have been injured by a defective product. They sue the manufacturer for negligence, strict liability, and breach of warranty – the holy trinity of products liability. Without a SCUTPA action, the plaintiff is limited ordinarily to discovery against the defendant on design and manufacturing issues. However, with SCUTPA, the plaintiff can arguably obtain discovery – from the defendant – on other similar claims that have been brought against it by other, unrelated individuals. Essentially, the law requires the defendant to become his own hangman. I’ll let you be the judge of how fair – or unfair – that is.
This post is already long enough. But there’s plenty more to talk about. In the coming weeks, I’m discuss why allowing such broad discovery is adverse to the public interest. Thereafter, I’ll suggest how SCUTPA can be fixed. Perhaps it goes without saying, but the opinions expressed in this post are just the thoughts of one simple lawyer. I certainly don’t have all the answers. But I know something’s broken when I see it. And I also know that there’s just not that much unfair and deceptive business going on in South Carolina.