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Commercial Nuisance: a Theory of Consumer Protection

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Commercial Nuisance: a Theory of Consumer Protection Commercial Nuisance: A Theory of Consumer Protection The fraudulent practices of some merchants, since they deprive the poor of much of their income, not only offend law and ethics but also impede efforts to alleviate the poverty upon which those practices depend.1 In part, the solution to this problem will depend on the remedies available in the courts. Regulatory statutes have been passed in increasing numbers, 2 and recent judicial expansion of the uncon- scionability doctrine indicates that judge-made law also may be in- creasingly important in affording relief.8 But because courts cannot act until cases are before them, expansion of substantive doctrine is unlikely to solve the problem, for the fraud which characterizes many retail transactions in poverty areas is largely dependent on the buyers' ignorance of their legal rights and the lack of available counsel. Fur- ther, buyers rarely have the financial resources to bring or defend an action. The sums at stake are low in comparison to the expenses of litigation, and since the fruit of victory is no more than rescission of the contract, success will not provide a lawyer's compensation. As a result, garnishment and attachment are frequently utilized to satisfy the amounts purportedly due.4 Every state has criminal penalties intended to regulate commercial transactions in some measure, but hesitancy to initiate criminal action 1 Such practices include selling reconditioned items as new, substituting low quality goods on delivery for those agreed upon in the store, and levying illegal credit charges. Other more subtle devices are written into the contract. Various provisions are designed to encourage default and retain legally unenforceable rights while many charges later collected are omitted from the contract in violation of disclosure statutes. Some devices are more original. One merchant included undated acknowledgement of debt clauses in his sales contracts so that if a buyer declared personal bankruptcy, the credit manager could fill in a later date and collect the debt. Workshop Discussions, Conference on Con- sumer Credit and the Poor, The University of Chicago Law School, Nov. 12-13, 1965. See generally CAPLovrrz, TIE PooR PAY MoR (1963). 2 See generally CuPsAN, TRENDS IN CONSUMER CREDIT LEGISLATION (1965). 3 See Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) (re- manding action on installment contract for finding on defense of unconsclonability); American Home Improvement, Inc. v. Macver, 105 N.H. 435, 201 A.2d 886 (1964) (con- tract held unenforceable for violation of disclosure statutes and for unconscionable credit charge). 4 See CArLOviTz, op. cit. supra note 1, at 155-75; WALD, LAWv AND POVERTY: 1965, at 22-30, 42-67 (1965); Carlin & Howard, Legal Representation and Class Justice, 12 U.C.L.A.L. REV. 381-82 (1965). 590 Commercial Nuisance and the difficulty of prosecution render such statutes ineffectual. 5 Several states have attempted to provide effective broad-gauged regulation by enacting Consumer Fraud Acts.6 In Illinois, for example, intentional misrepresentation and fraud are declared unlawful, and the attorney general is empowered to seek injunctions to restrain unlawful prac- tices; the Massachusetts statute, on the other hand, is directed only at false advertising. But such legislation has provided meager protection for the defrauded consumer due to the limited scope of administration and enforcement.7 The response of the legal profession has been to provide group legal services8 and to establish neighborhood legal services. 9 Nevertheless, it seems clear that such legal services will not be able to deal with the 5 Every state has a Retail Installment Sales Act with various provisions for form and disclosure. Violation is usually a misdemeanor. For full citations see CURRAN, op. cit. supra note 2, at 91-123, 361-78. Most states also declare intentionally false advertising to be a misdemeanor. See, e.g., ILL. REv. STAT. ch. 121V, § 157.21 (Supp. 1965). But criminal sanctions achieve limited deterrence. First, criminal provisions must be strictly construed and the activity must be clearly within the category proscribed. Tollison v. George, 153 Ga. 612, 112 S.E. 896 (1922); Di Nome v. Personal Fin. Co., 291 N.Y. 250, 52 N.E.2d 117 (1943). See also Comment, Translating Sympathy for Deceived Consumers Into Effective Programs for Protection, 114 U. PA. L. REv. 395, 425 (1966); Comment, Enforcement of Consumer Credit Regulation, 55 Nw. U.L. REv. 403, 411 (1960). Secondly, for many such violations there is the difficulty of proving intent. See Comment, supra, 55 Nw. U.L. REv. at 411; Comment, supra, 114 U. PA. L. REv. at 427 n.249. Finally, public officials almost never prosecute, both because of the above difficulties and because of a general feeling that fraudulent merchants are not criminals. Comment, supra, 114 U. PA. L. REv. at 427, 429. 6 E.g., ILL. Rv. STAT. ch. 121V, §§ 261-71 (1963); MAss. Ga. LAws ANN. ch. 226, § 91 (Supp. 1964). 7 Results in Illinois indicate that the act has little deterrent effect. Upon receiving a complaint, a letter of inquiry is sent to the merchant. Most complaints are disposed of by the merchant's reply that he will release the buyer from the contract. Interview with Member of Consumer Fraud Bureau, Illinois Attorney General's Office, Chicago, Ill., Nov. 4, 1965. Since satisfaction of the complaint halts the process, the merchant can buy his peace cheaply and the statute has little influence on business practice. Because more than ninety per cent of the New York Frauds Bureau's activity is devoted to mediating individual buyer and seller disagreements, its efforts are apparently achieving equally limited deterrent effect. Comment, supra note 5, 114 U. PA. L. Rlv. at 480. The problem will not be solved, however, by more active prosecution by the bureaus since they will not be in a position to respond to an illegal course of dealing by merchants in local neighborhoods without vast expansion of their resources and manpower. Because local consumer problems and the need for injunctive relief are apparent to local legal aid offices, a theory for private locally initiated relief sought through the resources of expanded legal services would be of significant utility. 8 See, e.g., Committee Report on Group Legal Services, 39 S.B.J. CAL.. 639 (1964); The Availability of Counsel and Group Legal Services: A Symposium, 12 U.C.LA.L. REv. 279 (1965); Note, Group Legal Services, 79 HAsv. L. REv. 416 (1965). 9 The Extension of Legal Services to the Poor (Conference Proceedings) 71-181 (1964); WALD, op. cit. supra note 4, at 68-109; Carlin & Howard, supra note 4; Cratsley, Volunteer Neighborhood Clinics, 24 BRmF CAsE 29 (1965). 592 The University of Chicago Law Review [Vol. 33:590 scope of the problem if limited to independent individual actions. Representative actions or other remedies of wider scope are needed.lG This comment proposes an equitable remedy which is responsive to special community needs, which may be initiated within the com- munity, and which will influence future business conduct. Based on the law of nuisance, the suit is designed to permit the victims of illegal business and credit practices to sue to enjoin them on the grounds that, as they are inadequately controlled by existing legal remedies, they constitute what might be termed a commercial nuisance. Although the remedy would be derived not from consumer fraud legislation" but from the common law of nuisance, plaintiffs would in effect be suing as "private attorneys general"'12 to prevent fraudulent practices which are not now deterred by private litigation or the public enforcement of consumer fraud legislation. For example, if a local merchant sells reconditioned television sets as new, a buyer might initiate a suit in his name or on behalf of all those similarly situated, supported by affidavits from others who were affected by this business practice. Upon finding that the activity did constitute a nuisance, the court would enjoin any further fraud by substitution of items for those described in the contract. If the activity is in violation of a statute, an injunction might issue to enjoin its future violation.13 Such a suit would not pre- clude the traditional defenses against enforcement of the contract or a suit to rescind but rather would be an apt supplement to such relief, since damages for past conduct are generally insufficient to protect future customers from injury. 10 Dunham, Research for Uniform Consumer Credit Legislation, 20 Bus. LAw. 997, 1003 (1965). A survey of private and governmental institutions which offer some form of consumer protection observes "that the defrauded consumer [has] ... very little chance of obtaining satisfactory relief." Comment, supra note 5, 114 U. PA. L. REv. at 397. Although bar-supported legal aid facilities have been available to the poor for a number of years, it has been suggested that their deterrent effect is insignificant because merchants will gen- erally settle with legal aid clients on the correct assumption that very few of their other customers will seek free legal advice. Speech by Bruce Terris, formerly of the General Counsel's Office, Office of Economic Opportunity, Washington, D.C., delivered at the Conference on Consumer Credit and -the Poor, The University of Chicago Law School, Nov. 13, 1965. 11 The Massachusetts Consumer Fraud Act, MAss. GEN. LAws ANN. ch. 266, § 91 (Supp. 1964), permits a suit for an injunction by the attorney general or any aggrieved party, but such suits are limited to cases of false advertising. The common law remedy proposed by this comment might also be achieved by amending consumer fraud legislation to permit injunctive relief when an aggrieved party brings suit. 12 See generally Associated Indus.
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