Opinion ID: 1742716
Heading Depth: 1
Heading Rank: 2

Heading: The Merits of the DTPA Claim

Text: Under the DTPA, an unconscionable action or course of action is one which: (A) takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree; or (B) results in a gross disparity between the value received and consideration paid, in a transaction involving transfer of consideration. TEX.BUS. & COM.CODE § 17.45(5). To obtain summary judgment, a movant must either negate at least one element of the plaintiff's theory of recovery or plead and conclusively establish each element of an affirmative defense. Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex.1995) (citations omitted). In determining whether the plaintiff-intervenors have stated a viable claim under either definition, we must take the allegations of fact alleged in their petition as true. Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 549 (Tex.1985). However, mere conclusory statements do not constitute effective summary judgment proof and need not be given the same presumptive force in this analysis. See Life Ins. Co. v. Gar-Dal, Inc., 570 S.W.2d 378, 382 (Tex.1978). Under the first prong of unconscionability, the plaintiff-intervenors essentially argue that only the defendants and the physicians who they recruited as surrogate salespeople had the knowledge, ability, and experience to fairly evaluate the nutritional value of infant formula. This is true, they claim, even though the defendants' products are sold through grocery stores, supermarkets, drug stores, discount merchandisers and other retail outlets. They allege that by banding together to refrain from direct-to-consumer advertising and using the doctors to create an illusion of uniqueness or nutritional superiority, the defendants took advantage of consumers' lack of knowledge to a grossly unfair degree. This argument fails on two counts. First, the plaintiff-intervenors assume in making these largely conclusory allegations that consumers lack the knowledge, ability, or experience to fairly evaluate the desirability of infant formula marketed by the defendants. But, certainly, consumers cannot be presumed to lack a sufficient level of knowledge to assess many factors relevant to choosing a nutritional program for their infants: the emotional and developmental advantages of breast feeding, the occasional inconveniences of breast feeding, the cost of alternatives such as breast feeding or cow's milk, and the convenience and extended shelf life of powdered infant formula. Furthermore, judicial notice may be taken of the availability of advice on every facet of child-rearing (including this one) from a burgeoning market of magazines, books, consultants, relatives, friends, public service brochures, and health care agencies. Given this general level of readily available information, the plaintiff-intervenors basic assumption that the public lacks basic information with which to evaluate the defendants' marketing techniques is simply a bald, unsupported conclusion. Whatever advantage their cumulative knowledge gave them in this market, the defendant's conduct simply cannot reasonably be construed as meeting the requisite standard of a showing that the resulting unfairness was glaringly noticeable, flagrant, complete and unmitigated. Chastain v. Koonce, 700 S.W.2d 579, 584 (Tex.1985). Second, the plaintiff-intervenors assume that the defendants' advantage is somehow different from that held by any manufacturer. Such comparison between manufacturers is relevant because, as we stated in Chastain, the standard against which a seller's conduct is judged is an objective one. Chastain, 700 S.W.2d at 583. In applying this standard, the court must determine whether the seller's attempts to tout the superiority of its products rose above mere puffing. See Dowling v. NADW Marketing, Inc., 631 S.W.2d 726, 728-29 (Tex.1982); see also Shaw Equip. Co. v. Hoople Jordan Constr. Co., 428 S.W.2d 835, 838-39 (Tex.Civ.App. Dallas 1968, no writ). Without such an objective standard, the trial court is left in the untenable position of assessing the relative value of competing products. As one amicus in this case argued: A courtroom ... is the wrong place to determine whether Pepsi tastes better than Coke, Old Spice smells better than Brut, Colgate whitens teeth better than Crest, Gillette shaves closer than Schick, Bayer works faster than Anacin, MCI is better than AT & T, Nike is better for slam dunking than Converse, Hewlett Packard calculators do more things than Texas Instrument calculators, and so on. Many of these superiority claims involve matters of opinion, taste, and preference rather than matters subject to factual verification. Robust competitionnot lawsuits under the DTPAmust resolve these questions. Amici Curiae Brief of Texas Ass'n of Bus. & Nat'l Fed. of Indep. Bus., at 11. Instead, an unconscionability claim must establish that the seller, armed with superior knowledge, ability, or experience to discern the impropriety of a particular transaction, nonetheless employed high-pressure tactics, preyed upon a consumer's vulnerability, or used misleading inducements to convince the consumer to purchase inappropriate goods. See, e.g., Bennett v. Bailey, 597 S.W.2d 532, 535 (Tex.Civ.App.Eastland 1980, writ ref'd n.r.e.) (holding a dance studio liable for an unconscionable act in its inducement of a vulnerable widow to pay $30,000 for dance lessons). Importantly, these unconscionable acts must be directed at the consumers who lack the knowledge and ability to make an informed decision. Because the plaintiff-intervenors allegations, taken as true, do not establish either a significant absence of knowledge and ability on behalf of consumers in our free-market, information-saturated society or an objectively determinable abusive course of action in the defendants' dealings with consumers, the claims under the first prong of unconscionability must fail. To establish a viable claim under the second prong of unconscionability, the plaintiff-intervenors must establish that there was a gross disparity between the value received and the consideration paid. This gross disparity test has typically been applied when the product received is something other than what the buyer sought or when the product is virtually worthless, at least in comparison to the good sought. See, e.g., Teague v. Bandy, 793 S.W.2d 50, 56 (Tex.App.Austin 1990, writ denied) (finding a gross disparity in value when a cow purchased as an embryo donor proved to be infertile). The disparity in value must be complete and unmitigated. Chastain, 700 S.W.2d at 583. In this case, the plaintiff-intervenors allege that there was a gross disparity in value because the manufacturing costs of the defendants' infant formula were far below the wholesale price. Between 1978 and 1990, the total manufacturing cost of a 13-ounce can of formula ranged from 20 to 32 cents. During the same period, the wholesale price ranged from 54 cents to $1.73. The plaintiff-intervenors argue that this differential between sales price and wholesale cost constitutes a gross disparity in value. I disagree with this argument for two reasons. First, the plaintiff-intervenors have compared the wholesale price to manufacturing costs rather than the value received. While manufacturing costs certainly affect the value of a specific good, the two measures are distinct. Manufacturing costs include only the costs of raw materials and processing costs. This measure does not include the manufacturers' research costs, sales expenses, administrative costs, or profit. When these other factors are added to manufacturing costs, the resulting total, when allocated to the individual units produced, is one measure of the market value. But value is also dependent upon other considerations, such as the supply and demand in the market. Every other reported gross disparity case under the DTPA compares the sales price to the market value. See, e.g., Sun Power, Inc. v. Adams, 751 S.W.2d 689, 694-95 (Tex. App.Ft. Worth 1988, no writ); Poe v. Hutchins, 737 S.W.2d 574, 585 (Tex.App. Dallas 1987, writ ref'd n.r.e.); Bel-Go Assocs. v. Vitale, 723 S.W.2d 182, 189 (Tex.App. Houston [1st Dist.] 1986, no writ); Vick v. George, 671 S.W.2d 541, 550 (Tex.App.San Antonio 1983), rev'd in part on other grounds, 686 S.W.2d 99 (Tex.1984). The plaintiff-intervenors cite no cases, and we can find none, where a disparity in value is determined by reference to manufacturing costs alone. Second, a sales price ranging from two-and-a-half to five-and-a-half times the manufacturing cost is not a gross disparity in value. Were this degree of price differential sufficient to state a claim under the DTPA, every consumer who pays $1.00 for a cup of coffee or $1.50 for french fries would have a claim of unconscionability. To hold otherwise would require courts to determine what constitutes a fair price. As our case law reveals, courts have refrained from making such determinations and have refused to find a gross disparity in value unless the goods received are virtually worthless. See, e.g., Dwight's Discount Vacuum Cleaner City, Inc. v. Scott Fetzer Co., 860 F.2d 646, 650-51 (5th Cir.1988), cert. denied, 490 U.S. 1108, 109 S.Ct. 3161, 104 L.Ed.2d 1024 (1989) ([T]he `gross disparity' test obviously mirrors a fraud-type measure of recovery, in which a consumer receives a product inferior in quality to that which he intended to buy or, alternatively, when the consumer is defrauded out of his money entirely.); Wyatt v. Petrila, 752 S.W.2d 683, 685 (Tex.App. Corpus Christi 1988, writ denied) (In DTPA actions based on unconscionability, we look to gross disparity, not merely arguable unfairness.). Because the plaintiff-intervenors have not claimed that there was a gross disparity between the value received and the consideration paid, and because the disparity between the manufacturing costs and the consideration paid was not a gross disparity, the summary judgment on the claims based on the second prong of unconscionability was proper.