Alaska Supreme Court Broadens Scope of Unfair Trade Practices Liability for Businesses’ Representations Concerning Their Goods

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[authors: Jon S. Dawson and Garrett Parks]

On March 30, 2012, the Alaska Supreme Court significantly expanded the scope of Alaska’s Unfair Trade Practices Act (“UTPA”) in a manner that will increase the risk of liability for businesses that make representations about goods they advertise or sell in Alaska. The Court held that unknowing, innocent misrepresentations of material facts will give rise to liability under the UPTA, even if the representation is made in perfect good faith. In other words, a business’s intent, knowledge, or good faith at the time of a misrepresentation is not a defense to UTPA liability, and businesses will risk liability for any misrepresentation they make, even if they believed the representation was true at the time it was made.

In Borgen v. A&M Motors, Inc.,1 a dealer of used motorhomes sold a motorhome as a model year 2003 that was in fact a 2002. The purchaser sued the dealer for violation of the UTPA, arguing that the dealer misrepresented a material fact in connection with the marketing and selling of the motorhome. The dealer defended on the basis that the representation was made under a “good faith, mistaken belief” about the truth of the motorhome’s model year, which the dealer contended precluded UTPA liability under the 2007 Alaska Supreme Court of Kenai Chrysler Ctr., Inc. v. Denison.2

The dealer introduced evidence at trial that it marketed and sold the motorhome as a model year 2003 based on the title report it received from the State of Alaska. It was only after the sale and subsequent inquiry based on the motorhome’s vehicle identification number and manufacturer’s statement of origin that the dealer realized the motorhome was actually a 2002. The dealer presented an expert at trial who testified that it was generally reasonable to rely on a vehicle’s title to determine the model year. Thus, the dealer argued that this was a prime example of a “good faith, mistaken belief” about a material fact believed to be true at the time and, therefore, UTPA liability should be precluded under Denison.

The Court rejected the dealer’s good faith, mistaken belief defense, stating that “permitting a defense of good faith would generally excuse unknowing affirmative misrepresentation, and thus would conflict with the evident legislative intent to impose liability for them."3 The Court relied on the language of the UTPA, which provides:

Using . . . misrepresentation, or knowingly concealing, suppressing, or omitting a material fact with intent that others rely upon the concealment, suppression, or omission in connection with the sale . . . of goods . . . whether or not a person has in fact been misled, deceived or damaged is unlawful under the UTPA.4

The Court concluded that the legislature’s use of the disjunctive “or” meant that the legislature did not intend to include intent or knowledge as a requirement to establish misrepresentation. As support, the Court cited a series of cases from other jurisdictions that addressed misrepresentation under their consumer protection statutes. The Court distinguished the Denison case on the grounds that the issue addressed there was whether a contract was valid because it was “unfair” under a different provision of the UTPA—a provision the Court found is subject to a good faith defense.5

After A&M Motors, a plaintiff need only demonstrate that a business made a misrepresentation of material fact to establish UTPA liability. This is critical to businesses that do business in this state, because a plaintiff who prevails on a UTPA claim is entitled to treble damages and full attorney’s fees. (Prevailing parties in Alaska are generally entitled to only a percentage of their attorney’s fees under Alaska R. Civ. P. 82.)

The A&M Motors decision will almost certainly result in more cases being filed that plead UTPA claims for misrepresentation. First, the threshold for establishing a UTPA claim will be easier to meet, and the likelihood of prevailing on a UTPA misrepresentation claim will be greater. Second, Alaska businesses cannot rely on a good faith, mistaken belief about the representations they make as a defense to UTPA liability. Third, because prevailing on a UTPA claim entitles plaintiffs to treble damages and full attorney’s fees, plaintiff’s attorneys will be more likely to plead this claim in the hope of obtaining larger recoveries.

Businesses that advertise and sell goods in Alaska should take note of the A&M Motors decision. They should exercise care in making representations about their goods in advertisements, marketing materials, or otherwise. Good advice reviewing materials is this: “When in doubt, take it out.” More than ever, it is in the business’s interest to expend the resources necessary to confirm the accuracy of representations, and to take out or replace any potentially inaccurate or misleading advertising or promotional information.

DWT regularly advises businesses that manufacture, advertise and sell goods in Alaska. Please contact any of our Alaska corporate or litigation attorneys for more information about this and other services we provide our business clients.

FOOTNOTES
1 273 P.3d 575 (Alaska 2012).
2 167 P.3d 1240 (Alaska 2007).
3 A&M Motors, 273 P.3d at 587.
4 Id. (citing AS 45.50.471(b)(12)) (internal quotations omitted) (emphasis added).
5 See AS 45.50.471(a) (“Unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce are declared to be unlawful”).