Posted July 2nd, 2014 in Top Stories

MN Supreme Court Issues Significant Decision Regarding State Consumer Fraud Act

The Minnesota Supreme Court issued an significant decision regarding the scope of the Minnesota Consumer Fraud Act (“MCFA”) on July 2.  In Graphic Communications Local 1B Health and Welfare Fund “A” vs. CVS Caremark Corp. et al., No. A12-1555, the plaintiffs claimed that several Minnesota pharmacies had overcharged for generic pharmaceuticals, allegedly in violation of Minnesota pharmacy pricing statutes and the MCFA.  With respect to the MCFA, the plaintiffs claimed that the pharmacies violated the MCFA by failing to disclose to consumers (1) their acquisition costs of the generic pharmaceuticals and (2) their alleged overcharges at retail.  The Minnesota Supreme Court reversed the Minnesota Court of Appeals, which had held that a plaintiff need only allege that the omitted information was “material” to the purchaser in order to state a cause of action under the MCFA.  The Supreme Court held, however, that to plead an “omission-based” violation of the MCFA, a plaintiff must also plead “special circumstances” that allegedly triggered a legal or equitable duty by the defendant to disclose the omitted facts.”  Slip opinion at 23.  The Supreme Court went on to hold that the plaintiffs’ complaint in Graphic Communications failed to allege “special circumstances” and thus the plaintiffs failed to state a claim under the MFCA.

The Supreme Court’s decision carries important implications for sellers of goods and services because it reiterates that in an MCFA case involving an omission or failure to disclose, to recover plaintiffs must allege and prove both that the omission was material and  that special circumstances existed such that the failure to disclose was fraudulent.   For example, alleging that the defendant “merely stat[ed] the purchase price,” without more, according to the Court “is not deceptive and does not trigger a duty to disclose.”  Slip opinion at 27.  The Court noted that the MCFA requirements are consistent with the limitations imposed on such claims at common law and described the well-established law under which a “special circumstance” will give rise to a claim based on omission or failure to disclose.  The Court thus rejected the sweeping interpretation advocated by the plaintiffs and the Attorney General, who read the MFCA as permitting a cause of action merely in the fact of an allegation that an omission was material to the buyer.

Tracy Van Steenburgh (tvan@nilanjohnson.com) of NJL represented one of the defendants in the Graphic Communications case and would be happy to address any questions or comments you may have regarding the Supreme Court’s opinion and its impact upon sellers of goods and services in Minnesota.