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Source link: http://archive.mises.org/8270/consumer-protection-or-legal-extortion/

Consumer Protection or Legal Extortion?

July 10, 2008 by

On April Fool’s Day of this year, New Mexico resident Mark Hershiser received a letter from Erika Wodinsky, a San Francisco attorney, demanding Hershiser turn over all revenue from Native Essence Herb Company, a small business co-owned by Hershiser and his wife Marianne. The letter was not a joke or a mistake. It was a premeditated act of extortion by Ms. Wodinsky. She had never met or spoken with Hershiser; her staff discovered Native Essence through its modest website. FULL ARTICLE


Nat July 10, 2008 at 9:23 am

“The Hershisers took the opposite approach — they filed a preemptive lawsuit against the FTC in US District Court in Albuquerque. They have asked the court to enjoin the FTC from proceeding against them, primarily on the grounds that the First Amendment protects their website from government censorship.”

Unfortunately for them and for us, that is a losing strategy. The courts have outrageously determined that “commercial speech” is not protected under the First Ammendment.

Curt Howland July 10, 2008 at 9:39 am

Why would anyone be surprised that people might lose such a suit. After all, they are complaining about a government agency in a government court.

It’s in the court’s interest to ensure the continued operation of that same government.

Michael A. Clem July 10, 2008 at 9:53 am

they are complaining about a government agency in a government court.
True, Curt, which is why articles like this are important, so that it can be presented to the “court of public opinion”.

Pizza Anarchist July 10, 2008 at 10:46 am

I’m not so sure I agree with this point of view. While I do of course object that this legal action is being brought by a monopoly law enforcement agency in front of a government monopoly court, I don’t think that consumer fraud would or should be legal and non-actionable in a free society. I have no idea whether this product works or not, (although I have some serious doubts), and I have no problem with voluntary transactions for any product (even a lousy one) in any case. But if the sale of any product is based upon false pretenses and knowingly false representations, I can think of no reason why a fraud action should not or would not lie in a legal system based upon liberty instead of government coercion. In fact, actions for consumer fraud are well recognized by the common law, which has been established freely over thousands of years largely by the market order, and not by government fiat. As Bruno Leoni and Hayek recognized, the enforcement of such laws is entirely consistent with a free society, and helps — not hinders — people to transact freely and voluntarily.

I don’t think that we help the cause of a free society by defending the act of consumer fraud, even if we argue against the mechanism used to fight it.

Michael A. Clem July 10, 2008 at 10:52 am

P-A, I agree that fraud is actionable, but there seems to be no indication that fraud is occurring in this case. If the FTC thinks fraud is occurring, isn’t it incumbent upon them to prove their case, instead of the heavy-handed actions it is taking? The rule of law is ever more important in the actual enforcement of those laws, to prove that said laws are consistent and non-arbitrary.

Pizza Anarchist July 10, 2008 at 11:11 am

Whether or not fraud is occurring in this particular case is really beyond my point. I have no familiarity with the product, or the representations made in connection with its sale, and therefore express no point of view on the fraudulence of these transactions. To the extent that they were fraudulent however, I see no principle grounded in liberty which would allow the seller to keep the proceeds of the sales. Moreover, I find the enforement of proscriptions against consumer fraud to be entirely consistent with a voluntary society and a free market.

The subject reminds me of a conversation I had with Murray Rothbard regarding fractional reserve banking. Murray considered this practice to be illegal, not by virtue of any government Act, but rather because to him it was a simple consumer fraud to represent that a note was worth a stated amount if there were not actual value behind it. He did grant that it would be proper and legal if the lack of reserves were properly disclosed, but felt that such notes would find no market and be crowded out by fully backed notes.

Skip Oliva July 10, 2008 at 11:24 am

P.A. —

Your points are well-taken but irrelevant. The FTC is uninterested in fraud. The FTC’s position is that it may prevent consumers from receiving information that the FTC believes will lead to ill-advised purchases. This is a censorship case, pure and simple. And please note, there is no evidence of any consumer complaints against the Hershisers, nor even anything to suggest the FTC spoke with actual customers. Indeed, it is the FTC that is committing fraud by proposing to seize all of the Hershisers’ earnings — including proceeds of any sales where consumers were not misled or the victims of fraud.

While I realize libertarians are often tempted to rationalize state abuse by appeals to “perfect” models of libertarian society, please do not cloud the issue here. There was no fraud alleged.

Pizza Anarchist July 10, 2008 at 11:43 am

I have tried to make clear that I don’t know anything about this particular case or its specific allegations, and don’t usually make it a practice of defending government agencies. To be sure, I would be much more comfortable if this — and all — consumer fraud action were brought by private class action attorneys rather than by a government agency. The market provides a proper incentive for such private attorneys to vindicate the rights of their clients, as well as disincentives to file baseless suits, and would be far preferable to enforcement by a government agency in government courts.

Tim Kern July 10, 2008 at 12:01 pm

If there is fraud, there needs to be an injured party for a civil case. The FTC is alleging criminal fraud. The onus of proof is on the FTC. Fraud could presumably be proven only if the FTC can find, induce, or manufacture an injured party, and that the injured party followed any directions given with the product and investigated any caveats. Then the FTC needs to prove that it was the deliberate deception (and not the product’s use, misuse, overuse, or use in combination) that caused the injury.

Of course, as several writers have pointed out, it’s not about that. It’s about government control, and the court will recognize that, and do whatever it takes to maintain the hegemony of the bureaucracy.

When the Hershisers lose their suit and subsequent appeals (assuming they can afford to stay in the game), the FTC’s extortion scheme will be precedented and ironclad. That’s OK with the FTC, too! I applaud the Hershisers and agree with their cause, but I’m also glad I’m not a younger man, still full of belief in justice and the Constitution…

JMT July 10, 2008 at 12:06 pm

It is unfortunate when an irrelevance (fraud in this instance) becomes a “red herring” confusing the primary issue i.e. an individual’s right to choose – decide what he wants to buy – or sell.

Michael A. Clem July 10, 2008 at 12:29 pm

Whether or not fraud is occurring in this particular case is really beyond my point.
Perhaps it’s beyond your point, but it seems very relevant to the article. If government has any legitimate purpose, it’s to protect people from force and fraud. If neither is happening in this case, then exactly what is the FTC doing, except interfering in voluntary exchanges between the business and its customers, and thus violating their rights? This goes way beyond any “reasonable” regulation.

Eric July 10, 2008 at 3:15 pm

Here’s where Charles Murray in his “What It Means to Be a Libertarian ” has a brilliantly simple solution.

Let anyone who wishes to opt out of the FTC’s protection racket, can do so. Then all that would be required of any seller would be to prominently display a notice, such as,

“These products are not approved by the FDA, FTC, or any other XXX federal bureaucracy.”

Then all customers would be required to agree to the terms of the seller (or buy somewhere else, even from sellers who remain in the federal system, if they so chose).

Naturally, the FTC would cry that THIS is extortion, because it forces buyers to make a choice, and Lord knows that’s the last thing the FTC (FDA, etc.) would ever want. OMG! competition to the feds.

But in this way, those who want the feds protection, can have it by looking for sellers that don’t opt out. And we libertarians can make our own choices.

Then the prices will reflect the costs of doing business in an atmosphere both with and without the threats of actions and lawsuits. The market would then ultimately decide which system is preferred (one or the other or both or something even better) by voting with your wallet.

Florida Economist July 10, 2008 at 3:41 pm

Any process that gives complete authority to any entity to impose sanctions, penalties or fines against a business, without due diligence and due process of law and the right to self defense, is a process that is so clearly geared towards control and revenue generation that it infringes on freedom and liberty.

Brian Dekoekkoek July 10, 2008 at 4:44 pm

“The FTC will fight this case tooth and nail…”; and they will do it with taxpayer money. The injustice is exponential.

Don Duncan July 10, 2008 at 6:49 pm

Even if the Hershisers win, the FTC will bankrupt them. My advise would be to get liquid and get out of the country. This place is not safe anymore. We have way too much government, and as libertarians know: government breeds chaos.

TLP July 11, 2008 at 6:27 am

Stopping crackpots and quack health products in their tracks is some of the few things the state actually does good on.

And it doesn’t even happen as often as it should, in fact this was quite rare.

It is a FACT, that those people are modern day witchdoctors selling plants and sugar as medicine and claiming false benefits to their products.

Keith July 11, 2008 at 9:39 am

Quote from TLP: “It is a FACT, that those people are modern day witchdoctors selling plants and sugar as medicine and claiming false benefits to their products.”

You’ve proven this? Then sue them in court, or better yet, don’t buy their products.

Where did aspirin originally come from? Where does penicillin come from? Insulin? Would you consider anybody claiming medicinal effects from tree bark or mold or pig organs a “crackpot”?

Larry N. Martin July 11, 2008 at 12:39 pm

It is a FACT, that those people are modern day witchdoctors selling plants and sugar as medicine and claiming false benefits to their products.
So, you got a peek at their Witchdoctor Certificate?? ;-)

Francisco Torres July 11, 2008 at 7:32 pm

Stopping crackpots and quack health products in their tracks is some of the few things the state actually does good on.

The State is not meant to emulate James Randi, and I am willing to bet the venerable skeptic is much more efficient at unmasking frauds and cranks than a government bureaucrat.

If a person is skeptical about a product, he or she may not choose to buy it. The fact, however, that someone I do not know (nor care to know) does this for me, without my consent (which is what the FTC is arguing), becomes insulting to me, my right to know about that product and a violation of my freedom to choose to buy or not to buy.

Henry Miller July 14, 2008 at 11:59 am

Don Duncan, where do you suggest they go? Every country I have heard of is just as bad as the US, or worse. Now oftentimes the problems are different, but never overlook that you are leaving one bad situation one an different set of problems.

creditcardassist March 22, 2011 at 4:11 am

This story of Mark Hershiser give us point that every one need consumer protection and if its a fraud then it needs some legal action.When you are checking for illegal activity, you should be aware that not all fraudulent charges will be in the hundreds or thousands of dollars

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