COMMENTARY
Economy Doesn't Need More
Trial Lawyer Solutions
March 2003
By Donald J. Pfundstein*
for New
Hampshire Business Review
Our economy doesn't need any more trial lawyer solutions. We have had enough help. Thank you very much.
New Hampshire's Consumer Protection Act was described in 1994 by highly regarded Attorneys Peter Mosseau and Margaret Nelson as "an important tool in commercial litigation." They noted "the presence of a consumer protection claim in a lawsuit can have a disquieting and costly effect on a defendant" (New Hampshire Bar Journal, March 1994, Page 39). That's putting it mildly!
So what's wrong with consumer protection? Nothing. In fact, one of the primary goals of our executive agencies is just that — the protection of consumers. Actually, we should call it customer protection. That would be a change that makes sense for at least two reasons. It will help emphasize application of the customer service model to government. Secondly, not all "consumers" protected by the Act are individuals… some are businesses!
So what's the big deal about all this?
At least two legislative measures are underway which would open up the floodgates of litigation against some of the most highly- to over-regulated industries in our economy. What is at stake is the potential redefinition of what is known as the Trade and Commerce Exemption from the Consumer Protection Act.
The Consumer Protection Act was enacted on April 30, 1970 by passage of HB 6. The legislation was sponsored by Representatives Kimon Zachos and Dave Nixon, both prominent members of the New Hampshire legal community. An exemption for the highly regulated industries was included. The original language remained in place until changed last session (effective July 17, 2002). The new provision provides as follows:
"The following transactions shall be exempt from the provisions of this chapter:
I. Trade or commerce that is subject to the jurisdiction of the bank commissioner, the director of securities regulation, the insurance commissioner or the public utilities commission…" (RSA 358-A:3, I).
This language was the end product of a long legislative debate. The exemption is focused on "trade or commerce" which has been the case since its original enactment. The final language was chosen by legislators and their staff, not those lawyer-lobbyists, as others now claim. By the way, I'm proud to be one of those lawyer-lobbyists!
Why are lawyers interested in pursuing a consumer's claim under the Consumer Protection Act? Why not simply sue the wrongdoer without regard to the Consumer Protection Act? The answer is simple. The Act provides for an award of attorney's fees, expenses, double and triple damages and includes a class action provision in addition to the private cause of action provided by statute. This is presumably why in their bar journal article Attorneys Mosseau and Nelson noted that the presence of such a claim "can have a disquieting and costly effect on a defendant." In other words, it's quite a weapon, perhaps even a weapon of mass destruction!
Senator Below is the lead sponsor of SB 207. The bill radically changes the exemption analysis. Regulated "Trade or Commerce" would no longer be exempt; only those specific transactions governed by rules and regulations of the various regulatory authorities. In other words, to qualify for the exemption a regulated industry would have to point to "specific permission" in existing rules or regulations for the complained-of act or transaction. This would presumably have to be done on a "case-by-case" basis. Lawyer's stuff!
The result would be to subject banks, insurers and regulated utilities to duplicative regulation. In addition to all of the state and federal authorities regulating the business activities of those industries, the Attorney General and plaintiff's lawyers become "day-to-day" regulators as well. If the primary purpose of the Banking Department, Insurance Department and Public Utilities Commission is to protect the consumer, why do we need those departments if the Attorney General and plaintiff's lawyers are going to do their job?
Our Supreme Court noted the fallacy of focusing on specific transactions for purposes of determining whether the exemption applies when it overruled the Gilmore case. The SB 207 proponents like the case. The Supreme Court noted that the Gilmore case "…produces a troubling result because it is difficult to envision any commercial transaction which is prohibited by the Consumer Protection Act but expressly permitted by a statutorily authorized regulatory body." (Averill v. Cox, 145 NH 328, at p. 332 (2000)).
Legislatively returning to an approach that the Supreme Court recognized makes no sense will not improve the lot of consumers but merely increase regulatory red tape. The result will be more inefficiencies, expense and litigation layered on top of already heavily regulated industries. Who do you think will pay for all of this? You.
Product and service development would also be stifled if SB 207 should be enacted. This would be true, particularly in the financial services industry. If you need "specific permission" under an existing rule or regulation to qualify for protection from the Consumer Protection Act, we're not likely to see any bold new products. Governor Benson has identified the financial services industry as a target of his efforts to attract new employers to New Hampshire. Why come to a state that discourages product development?
Some SB 207 proponents actually concede that the truly regulated industries such as banks, insurers and public utilities are not the targets of their efforts. In fact, many proponents admit it is the non-core, market participants operating on the fringes that are a problem. That being the case, any legislative change should be headed in their direction.
A mere requirement to "register" to do business in New Hampshire should not be good enough for an exemption from the Consumer Protection Act. There should be a scheme of regulation that is intended to provide the type of consumer protection as is provided by the Act. Without such regulation the consumer could be hurt. Focus on the fringe players who are not subject to a scheme of comprehensive regulation.
Representative DiFruscia is the prime sponsor of HB 771. This is a very short bill. It is designed to repeal outright all exemptions from the Consumer Protection Act. If the Legislature should adopt this as sound public policy, we should consider eliminating the Banking Department, Insurance Department and Public Utilities Commission since the Attorney General's Office will be regulating those industries. Does anyone really think that will protect the consumer?
The truth of the matter is that every state regulator is emphasizing consumer protection. Last spring I outlined the reasons for this in describing the new concept of "consumer federalism." In order to secure their relevancy in the information economy, state regulators are working around the clock to protect the consumer. Some are going overboard in this new era of enhanced accountability. The Legislature is likely to be called on to prescribe some restraint and formal protocols for "customer satisfaction examinations" to assure regulatory efforts do not become counterproductive and are truly protective of the consumer.
When addressing HB 6 on April 22, 1970, Senator Gove astutely commented, "I would say that this is another area which I think the state should get into before the federal government does get into it…" (Senate Journal, Special Session, 1970 at Page 224). It seems as though Senator Gove was even more prophetic than his colleagues probably envisioned. You may recall recently reading that the SEC has decided to wake up and reign in state attorneys general in the area of securities regulation. Let's not let well-intentioned but misguided amendments to the Consumer Protection Act be enacted to fill a perceived regulatory vacuum. None exists with respect to the regulated industries in New Hampshire.
If the "Trade and Commerce Exemption" is to be changed, the focus should be on the non-core industry participants at the fringe which are causing problems. We should not make the Attorney General and plaintiff's lawyers "day-to-day" regulators of the traditional regulated industries. The only one who wins in that game is holding a briefcase! Or, is that an oversized personal computing device?
*Donald J. Pfundstein is admitted in New Hampshire.
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