Fraud's Final Frontier: Iowa's Battle over Becoming the Final State to Allow Private Consumer Fraud Actions

Article excerpt

I. Introduction
II. Background
   A. Prior Iowa Consumer Fraud Law
   B. Prior Legislative Attempts
   C. The 2008 Legislative Session
   D. The 2009 Legislative Session

III. Analysis

   A. Assessing Iowa's Need for a Private Consumer Fraud Action
      1. National Fraud Climate: Incidence and Enforcement
      2. Consumer Fraud in Iowa
   B. The History of Private Actions for Consumer Fraud
   C. Learning from 49 Examples--Characteristics of Private Consumer
      Fraud Actions
      1. Ensuring Economic Feasibility: Attorney Fees Provisions
        a. Provisions Regarding Plaintiff's Fees
        b. Provisions Regarding Defendant's Fees
      2. Measuring Causation: Reliance and Injury-in-Fact Provisions
      3. Measuring Blame: Culpability Provisions
      4. Exemptions
   D. Building the Best Bill--Amending Iowa's New Law
IV. Recommendations
   A. Attorney Fee Provisions
   B. Causation Combination: Tendency to Mislead & Injury-in-Fact
   C. Ensuring Culpability
   D. Other Provisions
      1. Eliminating Attorney General Supervision
      2. Encouraging Out-of-Court Settlement
      3. Professional & Industry Exemptions
V. Conclusion

I. INTRODUCTION

June 2008 is a month most Iowans would prefer wash away. Persistent heavy rains brought the state's worst flooding in recorded history. The Cedar River rose 20 feet above flood stage, putting 1300 city blocks underwater and damaging or destroying more than 6000 homes and businesses in Cedar Rapids. (1) The University of Iowa, located in Iowa City, had twenty buildings flooded and estimated damages of $230 million. (2) Forty-five days after the waters receded, the Iowa Governor's Office estimated the floods had caused $12 billion in damages. (3) The damages from the Iowa floods are likely within the United States' top five costliest natural disasters since 1900. (4)

As Iowans take part in the rebuilding process, many will depend upon help from out-of-town and out-of-state contractors. (5) Among well-intentioned and legitimate contractors (both from Iowa and elsewhere) helping victims are criminals and con artists who come to disaster areas to prey on desperate individuals. (6) For example, the Hurricane Katrina Fraud Task Force charged over nine hundred individuals with disaster-related fraud in the three years after Hurricane Katrina--nearly one every day, excluding Sundays, for three years. (7) Non-profits, attorneys general, and well-known insurance companies advise individuals on how to avoid disaster fraud via their websites. (8) To compound the injuries from the 2008 floods, Iowa was the only state that did not give its citizens the right to sue for consumer fraud, leaving its citizens in a uniquely vulnerable position. (9) Many states adopted such a right in the 1960s and 1970s.10 After a decade of strong pushing, Iowa finally created a private action for consumer fraud in the legislative session after the 2008 floods.

Part II of this Note opens by providing a history of Iowa's recent attempts to create a private right of action for consumer fraud, with a more in-depth discussion of the 2008 and 2009 efforts. Part III analyzes other states' consumer fraud actions, Iowa's need for a private action for consumer fraud, and the provisions of the 2009 bill, which became law. Finally, Part IV takes lessons from 49 other states to judge the new law's provisions, and offer revisions that balance the needs of all stakeholders. Specifically, the legislature should make the attorney fees awards to prevailing plaintiffs mandatory, clarify that defendants can only win attorney fees for frivolous claims, and eliminate Attorney General oversight to prevent politicization and inconsistent enforcement.

II. Background

A. Prior Iowa Consumer Fraud Law

For nearly ten years, Iowa stood alone without a private right of action for consumer fraud. (11) This meant that defrauded consumers had to file complaints with the Attorney General's Consumer Protection Division instead of filing a private suit. …