Regulation of Voluntary Disclosure

Question 1

Fraudulent Misrepresentation

Answer 1

1. A representation of fact
2. That is false
3. That is material
   a. In some jurisdictions, materiality is not a separate element but is considered in determining whether the plaintiff justifiably relied on misrepresentation
4. The speaker had knowledge of the representation’s falsity or ignorance of its truth (scienter)
   a. The separate intent to deceive element in some jurisdiction is often analyzed as part of the scienter requirement
5. Plaintiff justifiably relied on statement
   a. Plaintiff cannot justifiably rely on opinion/puffery
6. Plaintiff suffered damages proximately caused by the misrepresentation

Question 2

Fraudulent Concealment

Answer 2

1. A representation created through active concealment
2. That is false
3. That is material
4. The speaker had knowledge of the representation’s falsity or ignorance of its truth (scienter requirement)
5. Plaintiff justifiably relied on representation
6. Plaintiff suffered damages
7. Ex. seller of house covers signs of termite damage by installing drywall; seller of car putties over a crack in the engine block.

Question 3

when is there a duty to disclose

Answer 3

ii. If seller has no duty to disclose -> 1) defect must be open to observation or discoverable upon reasonable inspection, 2) purchaser must have unimpeded opportunity to examine the property, and 3) seller must not engage in fraud.

Question 4

what needs to be present for caveat emptor

Answer 4

i. The defect must be open to observation or discoverable on reasonable inspection
1. Defect was open to observation, P did see the beams, but didn’t exactly know the purpose… but here the only question is whether it was open to observation.
2. The beams were obvious and highly visible, and basement wall was bulging.
ii. The purchaser must have an unimpeded opportunity to examine the property
1. P say the steel beams, yet failed to inspect the wall in detail or ask about the purpose of the beams.
2. Purchasers had a duty to inspect and inquire about the premises in a prudent, diligent manner.

Question 5

Fraudulent Nondisclosure

Answer 5

1. A representation created through failure to disclose
2. That is false
3. That is material
4. The speaker had knowledge of the representation’s falsity or ignorance of its truth (scienter requirement)
5. Plaintiff justifiably relied on representation
6. Plaintiff suffered damages

Question 6

Negligent Misrepresentation

Answer 6

1. A representation
2. That is false
3. That is material
4. The speaker should have known of the representation’s falsity or ignorance of its truth
5. Plaintiff justifiably relied on representation
6. Plaintiff suffered damages

Question 7

what is a latent defect

Answer 7

vii. If defects are not readily observable and are not known to the buyer -> seller has duty to disclose
viii. If seller has no duty to disclose -> defects are observable OR defects are known to the buyer

Question 8

innocent misrepresentation

Answer 8

1. A representation of fact
2. That is false
3. That is material
4. Defendant made representation in order to induce another into a sale, rental, or exchange transaction
5. Plaintiff justifiably relied on representation
6. Plaintiff suffered damages
7. If two parties are involved in a sale, rental, or exchange transaction (in other words, there must be privity between the plaintiff and defendant), and one party makes a material misrepresentation to the other in order to complete the transaction, he or she will be liable even for an innocent misrepresentation.

Question 9

Negligent Failure to Disclose

Answer 9

1. Failure to disclose a material fact
2. Duty to investigate and disclose
3. Plaintiff justifiably relied on failure to disclose
4. Plaintiff suffered damages

Question 10

Pros + Cons of Fraud Claims

Answer 10

1. Pro
   a. Punitive damages possible don’t need privity of contract
   b. SOL doesn’t run till fraud discovered or should have been discovered
   i. Contract of sale comments, breach of contract
   ii. Seller cant use contract terms to avoid liability
2. Merger clauses, parol evidence
3. Con
   a. Scienter hard to prove
   b. Fraud may be subject higher standards of proof
   c. Not all con in handout 2 in all states
   i. Lots of variation
   d. Successful P cannot typically recover attorneys fees

Question 11

Jurisdiction of the FTC

Answer 11

1. Excluding where there is regulation elsewhere: banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign air carriers
2. Unusual to have such broad jurisdiction
   xvi. § 5(b) Public Interest Requirement
3. “To the interest of the public”

Question 12

what are the powers of the FTC

Answer 12

xvii. Powers:
1. Investigative authority
a. Not public, off of consumer complaint
2. Law enforcement (litigation)
3. Rulemaking
a. Ex. Trade reg rules, force of law, like violating FTC act
4. Vote of 5 commissioners can make law

Question 13

what is net impression

Answer 13

1. Allows regulation of half-truths where true words are distorted by the surrounding context
2. Ensures FTC cannot police content of words out of context
3. An advertisement does not need to be literally false in order to fall within the act - each part of the ad can be true but as a whole it can be misleading
   f. A statement is removed from its context and the nondisclosure of its context renders the statement misleading
   g. A second is ambiguity where the statement in context has two or more commonly understood meanings one of the which us more deceptive

Question 14

differences between traditional and modern approach

Answer 14

less protective of consumers,

Question 15

traditional approach

Answer 15

Representation, omission or practice (but not opinion)
tendency or capacity to deceive
Substantial numbers of consumers, including the most credulous/gullible
As to a material fact

Question 16

modern approach

Answer 16

Representation, practice or omission (not opinion)
likely to mislead - Consider if advertiser went after specific target audience

consumers acting reasonably under the circumstances - Likely to deceive substantial segment of the population

As to material fact - Whether the info would have influenced purchase decision, Health claims are always considered material, The FTC also considers it to be material if it concerns the central purpose of the product (safety hazards).

Question 17

when is extrinsic evidence necessary

Answer 17

obvious implied claims (considered)
implied claims (required)

Question 18

two methods of deception

Answer 18

advertisement substantiation

or modern approach

Question 19

what is needed for ad claims

Answer 19

a. Advertisers must have a reasonable basis for advertising claims prior to dissemination of the ad
b. Unsubstantiated advertising is deceptive by implying explicitly or implicitly that you have the evidence to back up the claim made
i. ad claims ARE deceptive (don’t have to go through analysis here and FTC just has to prove that the ad lacked substantiation)