Opinion ID: 2188320
Heading Depth: 1
Heading Rank: 4

Heading: Material Misrepresentation and Deception.

Text: The State urges that Smith made several statements in the program brochures that were materially false and deceptive. The State urges that one need not have an ownership interest in an illegal scheme in order to violate deceptive trade practices laws such as Iowa Code section 714.16. Doherty, Clifford, Steers & Shenfield, Inc. v. FTC, 392 F.2d 921, 928-29 (6th Cir.1968). However, before a person can be found liable for making materially false or deceptive representations, that person must make some sort of representation. Here, Smith did not mail any literature to consumers; he was not active in the promotion or management of any of the programs, and his compensation was in no way tied to the performance of the programs. Smith merely drafted changes and suggested them to Rahmani. Rahmani adopted some of the changes and rejected others. We are not entirely convinced that when an attorney drafts language on behalf of a client, the attorney has made a representation for purposes of section 714.16. Generally, when a lawyer drafts language on behalf of a client, the representations are attributed to the client. We need not decide this issue, however, because we find the statement of which the State complains was neither false nor deceptive. In Hydro Mag, 436 N.W.2d at 622, we listed six factors which we considered in determining whether various claims of a product's performance were material misrepresentations. The district court in this case applied the six factors in determining whether Smith had made any material misrepresentations. As the State points out in its brief, the six factors are most commonly used to determine whether there is a reasonable basis for an express or implied claim in an advertisement. The factors are tailored to a situation in which it is alleged that claims regarding a product's performance are unsubstantiated. However, since the issue in Hydro Mag was whether certain claims of a water treatment device's performance were material misrepresentations, we found the factors to be useful. However, the factors are not necessarily applicable in all cases. For general purposes, under section 714.16, a material misrepresentation is any untruthful statement which is likely to affect a consumer's conduct or decision with regard to a product or service. See D. Prigden, Consumer Protection and the Law § 10.05[2], at 10-18 (1990). This is the test we apply in this case. As a factual matter, we have found that Smith did not authorize the use of his name in the FHE materials; nor did he authorize the mailing of the R & A and Resource Access brochures. We find that Smith made no representations to consumers regarding those programs. The only representations which could conceivably be attributed to Smith are the changes he drafted for inclusion in the second version of the Vacation America brochure. Specifically, the State alleges that the Legalities language was both a material misrepresentation and deceptive. The State urges the statement is false because there was no effort to ensure ... compliance with State and Federal regulations. However, we find that Smith did take steps to bring Vacation America into conformance with various laws. He registered the program in the six states where registration is required. Smith also drafted several changes at the request of the offices of several attorneys general. We agree with the district court's finding that the Legalities language is not a material misrepresentation. The State also urges that the statement, even if not false, was nevertheless deceptive. Deception is an act or practice which has the tendency or capacity to mislead a substantial number of consumers as to a material fact or facts. Iowa Code § 714.16(1)(g). Thus, a statement which is literally true may nonetheless be deceptive. Here, we are not persuaded that the Legalities statement was deceptive. The statement said merely that an effort to comply with the law was being made. Without asserting that the program was legal, this language alerted consumers to the fact that there were potential legal problems involved with the program. The State failed to prove by a preponderance of clear, satisfactory, and convincing evidence that the Legalities language was deceptive.