This article was originally published in the January 2020 edition NAGTRI Center for Consumer Protection Monthly newsletter.
Each state has its own consumer protection laws, which govern transactions occurring in their state. Often, however, conduct spans two or more states. A sale made in one state may be fulfilled from another state, for example. But the legal requirements between the two states may differ. May the state in which the seller is headquartered regulate the conduct? The answer depends on whether a state’s statute demonstrates legislative intent to have extraterritorial effect and whether the conduct occurs wholly in another state.
The Breadth of the Statute
The first step in determining the extraterritorial effect of a state consumer protection statute is, of course, the wording of the statute itself. For example, in Goshen v. Mutual Life Insurance Co. of N.Y., 98 N.Y.2d 314 (N.Y. 2002), the New York Court of Appeals interpreted New York’s General Business Law §349. The statute referenced deceptive practices in “the conduct of any business, trade or commerce or in the furnishing of any service in this state.” The court concluded that, to qualify as a prohibited act under the statute, the deception of the consumer must occur in New York. Id., at 325.
By contrast, the Supreme Court of Washington, based on the language of that state’s Consumer Protection Act, allows claims of out-of-state plaintiffs against all persons who engage in unfair or deceptive acts that directly or indirectly affect the people of Washington. Thornell v. Seattle Service Bureau, Inc., 184 Wash.2d 793, 363 P.3d 587 (2015).
Twenty states have adopted a presumption against extraterritorial application of state statutes. Sixteen states have rejected such a presumption. In the remaining states, the status is unclear. Dodge, William S., Presumptions Against Extraterritoriality in State Law (July 17, 2019). UC Davis Law Review, Vol. 53. Available at SSRN: https://ssrn.com/abstract=3426241
Even if a state statute is intended to have extraterritorial effect, it may not pass Constitutional muster. Under the dormant Commerce Clause, a state statute cannot apply to commerce that takes place wholly outside of the state’s borders, whether or not the commerce has effects within the state. Healy v. Beer Institute, Inc., 491 U.S. 324, 336 (1989).
Two circuits have held that the extraterritoriality prong of the dormant Commerce Clause applies only to price control or price affirmation statutes. See, Association des Eleveurs de Canards et d’oies du Quebec v. Harris, 729 F.3d 937 (9th Cir. 2013) and Energy and Env’t Legal Inst.v. Epel, 793 F.3d 1169 (10th Cir. 2015). The Fourth Circuit has held that the extraterritoriality principle is violated if the state law regulates the price of any out-of-state transaction, either by its express terms or by its inevitable effect. Association for Accessible Medies v. Frosh, 887 F.3d 664, 670 (4th Cir. 2018).
BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) analyzed a punitive damage award arising from a failure to disclose. It invoked principles of comity and state sovereignty; one state does not have the power to punish a company for conduct that was lawful where it occurred and that had no impact on the residents of the regulating state. Id. at 572-3.
The extraterritorial application of a state consumer protection statute is fact specific and specific to the language of the statute. If conduct occurs in the state, the seller may be subject to regulation there, even if some conduct occurs out-of-state. If all the relevant conduct occurred exclusively out of state, a state’s statute cannot have extraterritorial application.