WASHINGTON – The attorneys general of 23 states, led by the State of New York, have sent a letter to the American Law Institute (ALI) opposing a proposed Restatement of Consumer Contract Law, set to be voted on at the ALI’s annual meeting this week.
The letter came from the desk of New York Attorney General Letitia James. The ALI publishes the Restatement of Torts and other projects that aim serve as summaries of certain areas of law that judges can use, though some have accused the group of straying from that goal by pushing its own interpretations of laws.
Its insurance liability law Restatement has been called "litigation fuel." Judges and lawmakers have rejected it, and the group has hired lobbyists to fight Texas legislation that would reject the Restatement.
“While we appreciate ALI’s attempt to provide much-needed clarity to an area of the law that impacts millions of Americans on a daily basis, as discussed below, we believe the Draft Restatement represents an abandonment of important principles of consumer protection in exchange for illusory benefits, and we urge ALI members to reject the Draft Restatement,” James stated.
James added the views held by her and her attorney general colleagues on the Draft Restatement are “informed by…substantial experience dealing with the reality of consumer contracts in the digital age, including consumers’ complete lack of bargaining power over contractual terms, consumers’ relative lack of business sophistication, and the nearly insurmountable barriers most consumers face to seeking redress through litigation.”
The document is officially titled “Restatement of the Law, Consumer Contracts," and has been in the works for six years. The project seeks to address and close a perceived inherent information gap between the business and consumer parties to a contract, through reference to “the Restatement Second of Contracts, the Uniform Commercial Code, and on court opinions in cases involving disputes between businesses and consumers,” according to the organization.
The project is helmed by its Reporters, professors Owen Barr-Gill of Harvard Law School, Omri Ben-Shahar of the University of Chicago Law School and Florencia Marotta-Wurgler of the New York University School of Law. The trio were advised by more than 30 fellow professors, practitioners and judges.
The Restatement has sections on unconscionability, deception and promises not part of standard contract terms. Other sections include discretionary obligations and effects of derogation from mandatory rules, in addition to contract items consumers may encounter in online transactions, such as software licensing terms, privacy policies and potentially costly conditions of sale, such as restocking fees and early-cancellation charges.
Two specific areas of consumer contract law specifically addressed by the Restatement are the doctrine of mutual assent – rules that determine how contractual terms are adopted and the processes a business uses to introduce and to modify terms in the agreement – and the use of mandatory restrictions governing the contract, such as rules that limit business’ discretion in drafting contractual terms and setting boundaries for permissible contracting.
“The mutual assent doctrine is based on the foundational principle of contract law that a party is bound to only those contractual terms to which they assented. The doctrine requires courts to engage in a fact-intensive analysis to determine whether the consumer had actual or inquiry notice of the term, and, if so, whether the consumer manifested any indication of intent to be bound by the term,” James said.
James explained the proposed Restatement would mandate no such examination of contract terms.
“No such analysis would be required under the Draft Restatement, whose three official Reporters – all prominent academics in the field of law and economics – assert that the costs of the doctrine outweigh the benefits, because consumers do not read standard form contracts and, even if they did, could not make informed decisions about the terms given that most form contracts are drafted in unintelligible legalese," she said.
James added the Restatement relied on “questionable empirical analyses that focus on the number of times judicial decisions on issues of consumer contract law are cited,” an opinion supported by an article from the Yale Journal on Regulation, co-authored by Georgetown University Law Center professor Adam J. Levitin.
Levitin is also an ALI member.
The 23 state attorneys general contend the Restatement ignores established precedent and black-letter law, deprives consumers of a meaningful benefit and offers them no real protection.
“We take seriously our responsibilities to protect the interests of consumers, and we welcome efforts to provide clarity to the important area of consumer contract law. Unfortunately, we do not believe the balance struck by the Draft Restatement adequately protects consumers, and we urge you to reject it,” James said.
Other critics have advised the ALI to turn the Restatement into a Principles Project instead, which in their opinion would allow its Reporters and the ALI to take a more aspirational view of the subject matter, especially when it comes to emerging areas of law, such as consumer contracts.
Precedent does exist for such a move, as an initially proposed Restatement later became the “Principles of the Law, Data Privacy” Project.
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com