by Zack Crawford
Introduction
The Louisiana legislature equipped private citizens with an effective weapon to combat deceptive and misleading commercial activity when it passed the Louisiana Unfair Trade Practices and Consumer Protection Act (LUTPA).[1] But does LUTPA’s economic protection guard against the State’s own conduct? A recent Louisiana Supreme Court decision seemed to blunt LUTPA’s edge when the Court held that a LUTPA cause of action could not be stated against the State because it did not participate in “trade or commerce,” despite transacting in its private capacity.[2] In Law Industries, LLC v. Department of Education, the State of Louisiana entered into a contract for an elementary school refurbishment but terminated the project just a few months after work began.[3] Although the general contractor was able to pursue a breach of contract claim, a subcontractor on the project could only allege a LUTPA violation because it lacked privity of contract with the State.[4] However, the Supreme Court determined that even though the contractors participated in trade or commerce when they entered into the refurbishment agreement, the State did not engage in such trade or commerce because it was acting in “furtherance of its governmental function.”[5] Because the State almost always pursues its governmental function when it takes action, the Law Industries decision likely creates a de facto LUTPA immunity for governmental entities. As a result, future market participants could be left without a remedy when the State acts unfairly.
I. Background
The purpose of LUTPA is to protect consumers and foster competition by halting unfair business practices and sanctioning the businesses that commit them.[6] It was meant to preserve and promote effective and fair competition and to curb business practices that lead to unfair restraint of trade.[7] The Louisiana legislature modeled LUTPA after the Federal Trade Commission Act, which had a similar objective in protecting interstate and international commerce.[8] In Law Industries, LLC v. Department of Education, the Supreme Court examined both the purpose behind LUTPA and its statutory language before ultimately affirming the dismissal of a LUTPA cause of action.[9] However, as this Case Note will demonstrate, the Supreme Court’s analysis may have been shortsighted.
In this case, the State of Louisiana, acting through the Department of Education (the State), entered into a contract with Law Industries, LLC to refurbish an elementary school building.[10] The contract included an asbestos-abatement aspect, which Law Industries chose to sub-contract to Advanced Environmental Consulting, Inc. (the subcontractor).[11] Shortly after the work began, a Department of Environmental Quality inspection revealed that asbestos was still present on school premises.[12] In the wake of this discovery, the State decided to terminate the contract less than four months after agreeing to its execution.[13]
Law Industries, the general contractor, instituted a breach of contract suit against the State and the subcontractor.[14] The subcontractor answered the suit and later supplemented its answer to bring a claim against the State for LUTPA violations.[15] To support its claim, the subcontractor alleged that the State withheld information regarding the details of the abatement project, relied on unsubstantiated information and unaccredited parties, and failed to provide the subcontractor with a reasonable opportunity to cure any defects in its performance.[16] In response, the State made objections of no cause of action and peremption, which the 19th Judicial District Court denied.[17] On review, the Louisiana Court of Appeal for the First Circuit determined that the subcontractor’s claim was perempted and dismissed its LUTPA claim.[18] After granting the subcontractor’s writ application, the Louisiana Supreme Court began its analysis by evaluating whether the subcontractor stated a cause of action under LUTPA.[19]
The Court began its discussion by explaining that a LUTPA cause of action is based on Louisiana Revised Statutes § 51:1405(A), which that “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”[20] Under Louisiana Revised Statutes § 51:1409(A), LUTPA provides a private right of action to “[a]ny person who suffers any ascertainable loss of money or moveable property, corporeal or incorporeal, as a result of the use or employment by another person of an unfair or deceptive method, act, or practice declared unlawful by R.S. 51:1405.”[21] The Court proceeded to examine the narrow LUTPA unfairness standard, noting that the statute does not prohibit sound business practices, the exercise of acceptable business judgment, or good faith efforts to make money, as long as such methods do not offend public policy.[22] According to the Court, a practice is only unfair when it is unethical, oppressive, unscrupulous, or substantially injurious to consumers or business competitors.[23] LUTPA was not meant to provide an alternative remedy for breach of contract, the Court explained, but was meant to sanction only egregious conduct.[24]
While this aspect of LUTPA is helpful background information, the unfairness standard was not dispositive to the Court’s final decision.[25] Rather, the Court focused on § 51:1405(A)’s phrase “in the conduct of any trade or commerce” to ultimately affirm the First Circuit’s dismissal.[26] The Court considered Louisiana Revised Statutes § 51:1402, which defines trade or commerce as “the advertising, offering for sale, sale, or distribution of any services and any property, corporeal or incorporeal, immovable or movable, and any other article, commodity, or thing of value wherever situated, and includes any trade or commerce directly or indirectly affecting the people of the state.”[27] Thus, the Court reasoned, to be liable for a LUTPA violation, the State must have been in the process of advertising, offering for sale, or distributing services or property when it deployed any unfair tactics.[28] However, because the State’s actions were undertaken “in furtherance of its governmental function of providing safe and appropriate educational facilities for schoolchildren,” the Court insisted that it could not be engaged in trade or commerce.[29]
Interestingly, the Court stated that “[e]ven though [the contractors] were engaged in the conduct of a ‘trade or commerce’ (i.e., offering their construction-related services for sale to the State), . . . the State was merely a customer acting in furtherance of its governmental function of maintaining school buildings in good repair.”[30] Thus, the Court suggested, even though one side of the deal was commercial, the other side was not. The Court concluded that no LUTPA cause of action could be stated against the State under such a factual scenario and affirmed the dismissal of the subcontractor’s claim.[31]
II. Analysis
The Supreme Court’s holding in Law Industries may have created an unintentional, yet practically undeniable, LUTPA exemption for public entities. As explained above, the Court insisted that because the State was acting according to its governmental function, it was not participating in trade or commerce.[32] Public entities could routinely use the Law Industries decision to avoid liability for unfair trade practices because they rarely act at all unless they are pursuing governmental prerogatives. Such a precedent likely contravenes the legislature’s intention.
When drafting LUTPA, the legislature specifically contemplated a series of exemptions but declined to create any sort of immunity for governmental entities.[33] Rather, the legislature provided that “any person” may bring a LUTPA action against “another person” who deploys unfair or deceptive trade practices.[34] LUTPA defines person to include any legal entity, which could certainly include governmental entities.[35] Furthermore, Louisiana courts have routinely permitted LUTPA actions to persist against governmental entities, even if they ultimately dismissed such actions under the high unfairness standard.[36] The Supreme Court likely overlooked the legislature’s considered decision to refrain from extending such an exemption for public agencies when it dismissed the subcontractor’s LUTPA cause of action.
The Supreme Court’s creation of a seemingly unintended governmental immunity stems from a statutory evaluation.[37] The Court focused on certain words and phrases but largely ignored others.[38] As the Supreme Court warned in Cheramie Services, Inc. v. Shell Deepwater Production, Inc., another recent case addressing LUTPA, improper analysis of statutory language could lead to the proliferation of an unfounded limitation.[39] Rather, any limitation to LUTPA must be “clear[ly], unequivocal[ly] and affirmative[ly]” stated.[40]
In Law Industries however, the Supreme Court may have run afoul of the very warning it issued in Cheramie. For instance, the Law Industries Court determined that the State’s provision of “safe and appropriate educational facilities for schoolchildren” did not amount to trade or commerce because it was not “advertising, offering for sale, sale, or distribut[ing] . . . any services [or] property.”[41] In addition to ignoring the seemingly obvious proposition that schooling is a service, the Court largely disregards the part of the trade or commerce definition pertaining to “thing[s] of value wherever situated” and “directly or indirectly affecting the people of the state.”[42] Even if the Court believed that the provision of schooling was not the distribution of a service, it was remiss in its interpretive duties when it failed to address whether schooling was a valuable thing that affected the people of the State.
Furthermore, the Law Industries Court insisted that when the State entered into a school refurbishment contract, it was acting merely as a “customer.”[43] With this statement, the Court likely meant that the State was not participating in trade or commerce because it was procuring a service—construction—rather than providing a service.[44] But by excluding this type of activity from the parameters of trade or commerce, the Court once again superimposed a nonexistent restriction onto LUTPA. In making its ultimate decision, the Court focused its analysis on Louisiana Revised Statutes § 51:1405’s phrase trade or commerce and its accompanying definition in § 51:1402(10)(a).[45] However, the Court ignored a few important words immediately preceding this pivotal phrase.[46] Louisiana Revised Statutes § 51:1405 provides that “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are . . . unlawful.”[47] If, pursuant to the civilian tradition, every word within a statute has meaning, it must be assumed that the phrase in the conduct of any qualifies the phrase trade or commerce.[48]
Under the Civil Code, the words of law must be given their generally accepted meaning.[49] The word any usually suggests a lack of restriction and urges an expansive interpretation of the noun it modifies.[50] Moreover, conduct, in its noun form, generally means “the act, manner, or process of carrying on.”[51] Taken together, Louisiana Revised Statutes § 51:1405’s declaration should be interpreted to address “actions taken in the process of carrying out any sort of trade or commerce.”[52]
The Court’s ultimate holding in Law Industries seems to suggest that the subcontractor did not state a valid cause of action because the State’s act of procuring construction services for its school building was not, in and of itself, some form of “advertising, offering for sale, sale, or distribution of any services [or] property.”[53] However, a literal reading of the statute indicates that the Court’s reading may have been an inappropriate restriction on the class of activity that falls under LUTPA. Given the qualifiers that appear before the phrase trade or commerce, the statute likely contemplates not only activities that specifically involve “advertising, offering for sale, sale, or distribution,” but also those activities that are ancillary to such objectives. Thus, the State’s act of entering into a contract to refurbish its school buildings should still be considered trade or commerce because it supports the State’s ultimate goal of providing schooling services (i.e., schools cannot provide schooling unless they construct school buildings). Courts have implicitly recognized this aspect of the statute for years,[54] and the Supreme Court likely erred when it refused to do so in Law Industries.
Conclusion
The Supreme Court’s reasoning in Law Industries could create a string of precedent that is unfaithful to LUTPA’s original design. By disregarding the full definition of the phrase trade or commerce and ignoring the qualifiers of said phrase, the Supreme Court narrowed the type of actions that fall under LUTPA. As a result, the Supreme Court likely created a de facto LUTPA exemption for governmental entities acting in furtherance of their “governmental function[s].” Although the Court’s ultimate disposition of the case may have been correct, as the subcontractor likely would not have been able to prove the State’s egregious conduct under the unfairness standard, the language of the Court’s decision likely will disrupt the balance of power in the free market and leave future plaintiffs without a remedy when the State acts deceptively.
[1] See La. Rev. Stat. § 51:1401–10 (2024).
[2] See id. § 51:1405; L. Indus., LLC v. Dep’t of Educ., 378 So. 3d 3, 8 (La. 2024).
[3] L. Indus., 378 So. 3d at 5.
[4] See id.
[5] Id. at 8.
[6] Quality Env’t Processes, Inc. v. I.P. Petrol. Co., 144 So. 3d 1011, 1025 (La. 2014).
[7] Id.
[8] Id.
[9] See generally L. Indus., 378 So. 3d 3.
[10] Id. at 5.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id. at 5–6.
[17] Id. at 6.
[18] Id.
[19] Id. at 7.
[20] Id.
[21] Id. at 8.
[22] See id. at 7.
[23] Id.
[24] Id.
[25] See id. at 8–10.
[26] Id. at 8.
[27] Id.
[28] Id.
[29] Id. at 8.
[30] Id. at 10.
[31] Id.
[32] Id. at 8, 10.
[33] See La. Rev. Stat. § 51:1406 (2024). These exemptions apply to certain situations involving federally insured financial institutions, publishers of newspapers, and disseminators of promotional material.
[34] Id. § 51:1409.
[35] Id. § 51:1402(8). While it is true that states retain their sovereign immunity unless they grant a waiver, Louisiana has waived sovereign immunity in lawsuits for breach of contract and personal injury or property damage. La. Const. art. XII, § 10. Although LUTPA actions are distinct from contract and tort actions, the nature of the injuries that LUTPA addresses, as well as the broad scope of person and lack of state exemptions in LUTPA, suggests that the State has consented to such suits.
[36] See Strahan v. State, 645 So. 2d 1162 (La. Ct. App. 1st Cir. 1994) (holding that real estate broker stated cause of action against State Department of Agriculture for conspiring to withhold a real estate commission); Zeigler v. Hous. Auth. of New Orleans, 118 So. 3d 442 (La. Ct. App. 4th Cir. 2013) (holding that housing inspector had standing to bring LUTPA action against city housing authority); Landrum v. Bd. of Comm’rs of Orleans Levee Dist., 758 F. Supp. 387 (E.D. La. 1991) (finding that a policeman successfully alleged a LUTPA claim against the Orleans Levee District for improper dismissal). But see Grigsby & Assoc., Inc. v. City of Shreveport, 294 F. Supp. 3d 529 (W.D. La. 2018) (stating that courts across Louisiana have not found LUTPA to be applicable to a municipality or members of a governing body, although this federal court failed to cite any caselaw).
[37] See generally L. Indus., 378 So. 3d 3.
[38] Id.
[39] Cheramie Servs., Inc. v. Shell Deepwater Prod. Inc., 35 So. 3d 1053, 1057 (La. 2010). In Cheramie, the Supreme Court resolved a circuit split by deciding that persons who are neither business competitors nor consumers could bring LUTPA actions. Id. at 1054. Before reaching this decision, the Court insisted that it must begin with the words of the statute. Id. at 1056. The Court evaluated Louisiana Revised Statutes § 51:1409 (“[a]ny person who suffers any ascertainable loss . . . may bring an action . . . to recover actual damages”) before dissecting the terms in LUTPA’s definition section. Id. The key definition in this case was person, which is defined as “a natural person, corporation, trust, partnership, incorporated or unincorporated association, and any other legal entity.” Id. at 1057. The Court concluded that the legislation contained no language that clearly and expressly barred non-consumer/competitor “persons” from bringing a LUTPA action. Id.
[40] See id. at 1058.
[41] L. Indus., 378 So. 3d at 8.
[42] See id.
[43] Id. at 10.
[44] See id.
[45] See id. at 8.
[46] Id. See Boudreaux v. La. Dep’t of Pub. Safety & Corrs., 101 So. 3d 22, 26 (La. 2012) (claiming that one should not assume that the legislature used unnecessary words or provisions).
[47] La. Rev. Stat. § 51:1405 (2024) (emphasis added).
[48] See Wederstrandt v. Kol, 366 So. 3d 47 (La. 2023) (“every word, sentence, or provision in a law is presumed to be intended to serve some useful purpose, that some effect is given to each such provision, and that no unnecessary words or provisions were employed”).
[49] La. Civ. Code art. 11 (2024).
[50] See Any, Merriam-Webster, https://www.merriam-webster.com/dictionary/any [https://perma.cc/MU4S-CFZZ] (last visited Mar. 8, 2024).
[51] See Conduct, Merriam-Webster, https://www.merriam-webster.com/dictionary/conduct [https://perma.cc/674Q-DE6K] (last visited Mar. 8, 2024).
[52] Such an interpretation would coincide with the Federal Trade Commission Act (FTCA), which the Louisiana legislature modeled LUTPA after. Cheramie Servs., Inc. v. Shell Deepwater Prod., Inc., 35 So. 3d 1053, 1056 n.4 (La. 2010). The FTCA declares “unfair or deceptive acts or practices in or affecting commerce” to be unlawful. 15 U.S.C. § 45 (emphasis added). The phrase in or affecting commerce suggests a broader scope of covered activity beyond just “commerce” itself.
[53] L. Indus., LLC v. Dep’t of Educ., 378 So. 3d 3, 8 (La. 2024).
[54] See A & W Sheet Metal, Inc. v. Berg Mech., Inc., 653 So. 2d 158, 163–64 (La. Ct. App. 2d Cir. 1995). In this case, a contractor informed a sub-contractor that it intended to procure the subcontractor’s services to assist it in constructing a building. Id. at 160. However, the contractor later decided to grant the bid to another subcontractor who bid after the deadline had passed, which prompted a LUTPA action from the scorned subcontractor. Id. at 161. In assessing the sufficiency of the subcontractor’s claim, which included an analysis of the “plain meaning” of LUTPA’s definition section, the court concluded that the “construction bidding process” was indeed trade or commerce. Id. at 164. Thus, even though the contractor’s actions of accepting and withdrawing bids were not part of its primary business of building houses, the court still held that such actions “amount[ed] to” trade or commerce. Id.