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July 2nd, 2014

Minnesota Supreme Court Checks Expansion of Consumer Fraud Liability

The Minnesota Supreme Court today held that an action may be maintained under the Minnesota Consumer Fraud Act for omitted material facts only when special circumstances trigger a legal or equitable duty to disclose the omitted material facts and such duty is pled (see Graphic Communications Local 1B Health & Welfare Fund “A” v. CVS Caremark Corp.).

The Court relied on the plain meaning and interpretation of the statutes, reading them consistently with the common law requirements in place at the time the statutes were enacted.  The decision suggests that Minnesota, unlike many states that have reflexively expanded consumer protection liability, may understand the dangers in interpreting such statutes too broadly.

The case arose after a union-sponsored health benefits fund claimed several pharmacies in Minnesota failed to pass on savings from mandatory switching of brand name pharmaceutical prescriptions to bioequivalent generic pharmaceuticals.  Minnesota law requires pharmacies to use the less-expensive generic drugs with customer’s consent, and to pass on the savings. The benefits fund filed its suit under the Minnesota Pharmacy Practice Act and the Consumer Fraud Act (CFA) alleging that the pharmacies failed to pass on the cost-savings and omitted material facts about their brand name drug acquisition costs.

The trial court found that the Pharmacy Practice Act (PPA) does not create a private right of action and the CFA claim requires a duty to disclose that was not established by the pleadings. The trial court dismissed the action with prejudice, and Graphic Communications appealed.  The Court of Appeals found that the PPA did not create a private right of action, but it reinstated the CFA claim, holding that any material omission is sufficient.  The pharmacies appealed that ruling.

The Supreme Court agreed that the PPA does not create a private right of action and, in any CFA claim, the essential elements of a consumer fraud action must be met. The Court, using standard rules of statutory construction, found that nothing in the state CFA abrogated the common law duty-to-disclose, which requires a legal or equitable duty to disclose an omitted material fact to be actionable. In the present case, the Court found that the CFA could be used for statutory violations of the PPA, but the benefits fund failed to plead facts that established a duty to disclose omitted material facts on behalf of the pharmacies, and dismissed the CFA claim.

ATRA, along with the Insurance Federation of Minnesota and Minnesotans for Lawsuit Reform, filed an amici brief in this case arguing that the Court of Appeals improperly interpreted the Minnesota CFA using faulty construction. The state supreme court agreed in reversing the Court of Appeals on the point of statutory construction, and avoided the Court of Appeals overly-broad and liability-expanding interpretation in favor of reasoned constraint, respectful of the Minnesota legislature’s predominance as policymaker.

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