Price v. Philip Morris, Inc.

JUSTICE KILBRIDE, also dissenting:

I fully agree with all aspects of Justice Freeman’s dissent and I join in it. I write separately to express additional concerns with the majority opinion.

The majority notes that neither party has offered argument regarding the meaning of the phrase “by laws administered by” in section 10b(l) of the Consumer Fraud Act. 219 Ill. 2d at 244. The majority then concludes that the phrase reflects legislative intent requiring deference to agency policy and practice in its performance of duties delegated by Congress or the General Assembly. 219 Ill. 2d at 244. As support for this conclusion, the majority asserts the legislature would have referred to state or federal statutes, rather than laws, if it intended to require that specific authorization be contained in the law itself. 219 Ill. 2d at 244. The majority fails to explain or describe any conceptual difference between “laws” and “statutes.” The majority’s conclusion therefore does not logically follow from the premise. Further, although the majority acknowledges that the term “specifically authorized” in the statute “indicates a legislative intent to require a certain degree of specificity or particularity in the authorization” (219 Ill. 2d at 244), it points to no specificity or particularity in the claimed authorization here. Indeed, “agency policy and practice” and the consent orders relied on by the majority as authorization are neither specific nor particular.

Nowhere in section 10b(l) is there any reference to “agency policy and practice.” Yet the majority concludes that agency policy and practice have the force of law. Statutes and published rules made in accordance with statutory authority are clearly “laws administered by a regulatory body.” To the extent statutes and published rules authorize certain conduct, that conduct cannot serve as a predicate for an action under the Consumer Fraud Act. That was the import of this court’s holding in Lanier.

Lanier did not, however, hold that agency policy and practice allowed use of the unexplained “Rule of 78s” term in loan documents. Instead, we held that Regulation Z permitted use of the term without further elaboration. Regulation Z is a set of comprehensive rules, enacted and published by the Federal Reserve Board, pursuant to authority granted by Congress implementing the principles of the Truth in Lending Act. Lanier, 114 Ill. 2d at 11. In holding the conduct complained of was specifically authorized by law, we relied on a formal, published Federal Reserve Board staff interpretation of a section of Regulation Z. That regulation required identification of the method of computing any unearned portion of the finance charge in the event of prepayment. The published staff interpretation concluded that a simple reference by name to the “Rule of 78s” without describing its operation satisfied the identification requirement. Lanier, 114 Ill. 2d at 12.

We held that the Federal Reserve Board’s formal, published interpretation of its own rules is entitled to great deference, absent any obvious repugnance to the Truth in Lending Act. Lanier, 114 Ill. 2d at 13. We observed that the Truth in Lending Act absolved creditors from liability “for ‘any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations.’ [Citation.]” (Emphasis added.) Lanier, 114 Ill. 2d at 14.

We concluded that the foregoing provision evinced a congressional determination to treat the Board’s administrative determinations under the Truth in Lending Act as authoritative. Lanier, 114 Ill. 2d at 14. Thus, we held section 10b(l) of the Consumer Fraud Act exempted from liability conduct authorized by federal statutes and regulations, including those administered by the Federal Reserve Board, and that “defendant’s compliance with the disclosure requirements of the Truth in Lending Act is a defense to liability under the Illinois Consumer Fraud Act in the present case.” (Emphasis added.) Lanier, 114 Ill. 2d at 18.

It is apparent, therefore, that Lanier upheld the creditor’s section 10b(l) defense because the disclosure was specifically authorized by the federal Truth in Lending Act. We found defendant complied with the requirements of the Act because a formal, published agency interpretation of a regulation authorized by Congress, specifically authorized the disputed conduct.

Conversely, the record in this case does not present a basis for application of Lanier. Congress has empowered and directed the Federal Trade Commission to prevent the use of unfair or deceptive acts or practices in or affecting commerce. 15 U.S.C. § 45 . It has also delegated rulemaking authority to the Commission. 16 C.F.R. § 1.22 . As the defendant’s expert, Dr. Peterman, conceded, the Commission has never promulgated any rule authorizing the use of the specific descriptors at issue in this case. The Commission is primarily an enforcement agency charged with protecting consumers from unfair and deceptive trade practices. Unlike the Truth in Lending Act, the Federal Trade Commission Act contains no provision absolving from liability persons who in good faith comply with official interpretations of its regulations. Further, as the Commission has not published any functional equivalent to Regulation Z, there is no comparable Commission regulation governing the conduct at issue here.

Hence, Lanier offers no support for the conclusion that use of the descriptors claimed to be deceptive in this case is specifically authorized by federal law. Lanier teaches only that section 10b (1) can bar a Consumer Fraud Act remedy if the conduct is specifically authorized by a federal law. It neither holds nor suggests that informal agency policy or policy enforcement techniques short of formal, published rulemaking could invoke the section 10b(l) exemption from liability. The majority concludes, however, that “the FTC’s informal regulatory activity, including the use of consent orders, comes within the scope of section 10b(l)’s requirement that the specific authorization be made ‘by laws administered by’ a state or federal regulatory body,” contending that this assertion “is consistent with our holding in Lanier.” 219 Ill. 2d at 258. Again, Lanier simply offers no support for this conclusion.

Additionally, the majority acknowledges, as noted in my special concurrence in Jackson, that mere compliance with applicable law does not necessarily bar Consumer Fraud Act liability and that, rather, the conduct at issue must be specifically authorized. 219 Ill. 2d at 249. Yet, the majority effectually ignores that principle in its analysis.

The majority can take no comfort in the reasoning of the Seventh Circuit in Bober. The alleged deceptive statement in that case was held to be specifically authorized by a rule formally adopted by the FDA and codified in the Code of Federal Regulations. Bober, 246 F.3d at 941. Bober is remarkably similar to this court’s holding in Lanier, finding a formal published interpretation of a regulation of the Federal Reserve Board to authorize specifically the disclosures in question.

In this case, the federal law in question forbids unfair or deceptive acts or practices affecting commerce. The FTC has issued no formal rule or regulation authorizing the descriptors in question, as in Bober, and it has issued no formal interpretations of any regulations, as in Lanier.

The majority asserts that Lanier is authority for the proposition that an agency staff interpretation may be a sufficient basis for a finding of specific authorization and that formal rulemaking is therefore not a prerequisite for specific authorization. 219 Ill. 2d at 252. It must be remembered that the staff interpretation in Lanier was both formal and published and that Congress expressly provided that reliance on staff interpretations would excuse liability. Opening the door to informal policy advice could lead to absurd results. For instance, advice given casually between an FTC commissioner and a PMUSA executive could not and should not serve as the specific authorization required by section 10b(l). Common sense indicates that no specific authorization by law can derive from informal policymaking or agency practices. Thus, there is no basis for the majority to conclude that either informal agency policy and practice or the use of consent orders involving other parties are within the ambit of our holding in Lanier.

Nevertheless, the majority relies on 1971 and 1995 FTC consent orders entered in resolution of claims asserting that American Brands, Inc., and American Tobacco Company, respectively, violated the Act’s prohibition of unfair methods of competition and unfair and deceptive acts and practices in commerce. In the case of the 1971 order, the FTC filed a complaint in 1969 detailing advertising claims related to American Brands products it found deceptive. American Brands then agreed, in a consent order, without admitting it violated the law as alleged in the complaint, to refrain from advertising that its cigarettes were low or lower in tar by use of the words “low,” “lower” or “reduced,” or like qualifying terms, unless the statement is accompanied by a clear and conspicuous disclosure of the tar and nicotine content in milligrams in the smoke produced by the advertised cigarette. In re American Brands, Inc., 79 F.T.C. 255 (1971).

It is apparent that the complaint against American Brands was directed at particular advertising used only by that company. The order forbade only American Brands from making the reduced tar claims, and authorized only American Brands to use “low tar” descriptors only if accompanied by conspicuous disclosures of tar and nicotine content. The order cannot reasonably be viewed as directing the use of the descriptors. Indeed, it prohibited their use unless certain conditions were met. No reference whatever is made to the descriptors “light” or “lights,” as used by PMUSA. The plain facts, therefore, demonstrate no basis to conclude that “lights” is a like qualifying term to “low in tar.” Thus, even if other cigarette marketers read the published consent order, they could not reasonably conclude it specifically authorized any descriptors other than “low tar” or “lower in tar.” Nor could they conclude that the agreed resolution of the Commission’s claim against American Brands was anything other than the compromise of a disputed claim. It was not, and did not purport to be, a rule or regulation permitting the entire cigarette industry to use these or any other descriptors.

Similarly, the 1995 consent order was entered after the FTC filed a complaint alleging that American Tobacco Company committed unfair and deceptive acts or practices in advertising its Carlton brand of cigarettes. The complaint alleged the advertisements claimed that 10 packs of Carltons contained less tar than one pack of five competing brands. The Commission alleged that, in truth, consumers would not get less tar by smoking 10 packs of Carltons because of the behavior of compensatory smoking. As in the 1971 consent order, American Tobacco entered into an agreement for settlement purposes, without admitting it had violated the law. American Tobacco consented to entry of an order forbidding the disputed representations unless the representations were true as confirmed by competent and reliable scientific evidence. The 1995 order further provided that comparison of the tar and nicotine ratings of American Tobacco’s cigarette brands and the ratings of competing brands, with or without representation that respondent’s brand is “low,” “lower,” or “lowest” in either tar or nicotine, would not be deemed violations of the consent order under certain conditions. Specifically, use of the descriptors was not forbidden if American Tobacco did not visually depict more than a single cigarette or pack of its and the comparative brands. In re American Tobacco Co., 119 F.T.C. 3 (1995).

Like the 1971 consent order, the 1995 consent order made no reference whatever to the terms “light” or “lights.” The reference to “low tár” in the 1995 order is clearly not a Commission authorization to use that term or similar terms. It only refers to comparisons of brands with or without use of such descriptors. The 1995 consent order merely resolved a disputed claim against American Tobacco Company arising from alleged false advertising of one particular brand of cigarettes. Competitors of American Tobacco Company might look to the order for guidance concerning what advertising practices the Commission may deem unfair or deceptive, but could not reasonably conclude that the use of any descriptors were specifically authorized by the order. The 1995 complaint did not even question American Tobacco’s use of particular descriptors. Instead, it contended that American Tobacco’s comparative claim was untrue. Thus, that consent order forbade conduct not at issue in this case, and only conditioned use of “low tar” descriptors on American Tobacco’s forbearance of using more than a depiction of a single cigarette or pack of its brand versus a single cigarette or pack of any other brand.

Both the 1971 and 1995 consent orders dealt with conduct deemed by the Commission to violate the FTC Act. The orders have the force of law only as to the parties entering into the settlement agreements—American Brands and American Tobacco Company. At most, the orders may be predictive of Commission attitudes toward advertising practices in future cases. Simply stated, those consent orders cannot reasonably be deemed to be an industrywide specific authorization for the use of particular advertising descriptors.

Equally important, the FTC has certainly not closed the book on the issue of deceptive cigarette advertising. In 1997, it sought public comment on whether its policies regarding testing methods and the use of descriptors should be revised. At the agency’s request, the National Cancer Institute (NCI) studied the issues and, in November 2001, published Monograph 13. The NCI concluded there was no convincing evidence that cigarettes lower in tar and nicotine yield reduced the disease burden on a population basis. Monograph 13 was critical of industry testing practices and its use of comparative descriptors. According to Dr. Peterman, the FTC, at the time of trial, was evaluating whether to change its policies in light of the NCI’s conclusions. The ongoing FTC review should indicate to industry competitors that agency policy on the use of cigarette comparative descriptors was, and remains, in a state of flux.

The foregoing illustrates why policies, as opposed to formal published regulations and statutes, cannot be deemed to have the force of law within the meaning of section 10b(l). The legislative purpose of the exemption in section 10b(l) is to shield defendants from liability for conduct specifically authorized by law. That purpose is not served if discernment of what is forbidden and what is authorized rests on the shifting sands of ever-changing and evolving agency policy. A statute or published regulation, on the other hand, remains in effect unless formally repealed. Policy change can be effected simply by an agency decision to commence an enforcement proceeding. Thus, consent orders enforceable only against parties to an enforcement proceeding are not laws administered by a federal agency within the meaning of section 10b(l). Accordingly, I agree with the trial court that defendant did not establish its section 10b(l) affirmative defense.

On a different issue, I am compelled to respond to Justice Karmeier’s argument that plaintiffs did not prove damages. Justice Karmeier observes that plaintiffs cited no authority permitting opinions of Internet survey respondents to establish actual damages under the Consumer Fraud Act because the representative plaintiffs have not been harmed in the way the survey respondents claimed they would be in answering the survey hypotheticals. 219 Ill. 2d at 278-79 (Karmeier, J., specially concurring, joined by Fitzgerald, J.). The Internet survey was admitted in evidence during the testimony of Dr. Cohen, a credentialed survey expert, who validated the survey. Dr. Cohen testified that the Knowledge Networks survey was “proper” and represented “appropriate ways of gathering information from smokers via survey method.” Dr. Dennis, who conducted the survey, is highly credentialed in survey research practices and was recognized by the trial court as a qualified and experienced expert in survey research.

On appeal, defendant has not challenged the trial court’s qualification of Dr. Dennis as an expert, nor could it legitimately question his qualifications. At the time of the trial, defendant’s own damage expert, Dr. Viscusi, was working with Dr. Dennis on a government-sponsored survey research project utilizing the Knowledge Networks survey methodology. Similarly, defendant’s survey expert, Dr. Mathiowetz, had coauthored a learned treatise with Dr. Dennis concerning survey techniques.

Admittedly, Dr. Dennis was subjected to extensive cross-examination, and his conclusions were challenged by defendant’s expert witness, Dr. Mathiowetz. Nonetheless, the record reveals no pretrial request for a Frye hearing on the issue of general acceptance of the Knowledge Networks survey methodology. See Frye v. United States, 293 F. 1013 (D.C. Cir. 1923). Although defendant moved to strike Dr. Dennis’ testimony regarding the survey on foundation and Donaldson grounds, no challenge to the general acceptance of his survey methods was enunciated for the record. Thus, no coherent requisite challenge to the general acceptance of the survey method appears either in the trial record or in defendant’s briefs. Frye issues are reviewed under an abuse of discretion standard. Donaldson v. Central Illinois Public Service Co., 199 Ill. 2d 63, 76 (2002). Accordingly, there is no basis in the record to conclude the trial court abused its discretion in admitting the Knowledge Networks survey because of its authentication by credentialed witnesses and defendant’s failure to lodge a sufficient challenge to the general acceptance of the survey method.

Thus, in addition to the points asserted by Justice Freeman, I conclude that neither section 10b(l), nor the admission of the Knowledge Network survey, provides a basis for reversing the trial court’s judgment. Therefore, I respectfully dissent.

JUSTICE FREEMAN joins in this dissent.

Dissent Upon Denial of Rehearing