Wells Fargo returns to news by way of a motion to dismiss a shareholder lawsuit (partially) on the grounds that statements made by the company that it was “working to restore trust” and “trying to be more transparent” aren’t actionable at law because they fall within the legal definition of puffery: statements that are either so vague or so over-the-top that no reasonable investor could rely on them as the basis for making an investment decision. In the linked Los Angeles Times column, journalist Michael Hiltzik lampoons Wells Fargo and expresses his reasons for finding Wells Fargo’s position both absurd and a mark against the integrity of the company’s management.
While making interesting and – in places – entertaining reading, Hiltzik’s column stands inadvertently as a cautionary example of how it’s hard to do applied ethics (of which business ethics is a kind) well without grasping the significance of context and institutional detail. Much of what makes Hiltzik’s column compelling reading depends upon ignoring the procedural posture of the litigation and the corresponding meaning and significance of Wells Fargo’s claims in that context.
For example, a motion to dismiss a lawsuit is a pre-trial motion made by the defendant in a civil lawsuit. It doesn’t argue for the truth or falsity of any particular factual claim. (That’s what trial is for.) Instead, it argues that even if every factual claim the plaintiff makes is true, as a matter of law none of those claims amounts to legally-recognized grounds for recovery. Thus, in claiming that the statements plaintiffs are latching on to meet the legal definition of puffery, Wells Fargo isn’t claiming, as a matter of fact, that no one actually relies on those statements. But that is what Hiltzik seems to imply when he writes:
If it sounds like a strange thing for a bank to say when it’s trying to present itself as a paragon of rectitude — in essence, “We can’t be sued because no one believed us anyway” — just wait. It gets stranger.
Instead, Wells Fargo is claiming that, as a matter of law, no one may rely on those statements and recover damages if after relying on them they suffer losses. One imagines that if plaintiffs’ lawsuit survives the motion to dismiss, and the case gets to trial, Wells Fargo will offer evidence that the complained-of statements are true. Pleading that they are puffery at the pre-trial stage does not preclude claiming that the statements are true at trial.
In a similar vein, Hiltzik takes as evidence that Wells Fargo’s position is wrong that “[m]arketing experts have found increasingly that consumers can be fooled by such blunt statements.” The interesting question raised is whether those who are fooled are victims of those who make the statements or victims of their own irrationality or unreasonableness. There is a distinction to be made between (i) saying something that impairs the ability of the hearer of the statement to make a rational decision, and (ii) saying something that irrational or unreasonable people will take the wrong way. Observing that some people actually make poor decisions on the basis of a statement doesn’t tell us by itself which of the two has occurred. The reasonable-person standard that emerged from the common law is a recognition that both kinds of cases are possible.
Of course, one can believe that our legal institutions ought to be different or that the law ought not to be so indulgent of puffery—and nothing written here is intended to dissuade one who believes those things. However, it is a mistake to evaluate Wells Fargo’s claims about what is true as a matter of law as if they were claims about what is true as a matter of fact and to impugn the company or its officers and directors on that basis. Although that may be good journalistic practice if it garners a readership, it isn’t applied ethics done well. >>>
LINK: Wells Fargo says its promises to restore consumer trust were just ‘puffery.’ But they look more like lies (by MICHAEL HILTZIK for Los Angeles Times)
If you’ve ever wondered how businesses can get away with making transparently false or deceptive claims about themselves or their products — “The Best Tasting Juice in America,” Wrigley’s gum is “for whiter teeth, no matter what,” etc., etc. — the answer is an all-purpose legal dodge known as the “puffery” defense.
Simply put, judges and regulators have ruled that when a business makes a claim that is either vague or so obviously inflated that people simply won’t believe it, that’s “puffery,” and not actionable in court.
Wells Fargo, which is struggling to rebuild its reputation for integrity after a string of scandals involving consumer rip-offs, is testing the limits of the “puffery” defense. In a legal filing last week aimed at getting a shareholder lawsuit dismissed, the company asserted that statements that the bank was working to “restore trust” among its customers and “trying to be more transparent” about its scandals — statements made by its chief executive, Tim Sloan — were, well, just puffery.
Wells Fargo says that even though the statements by its management fall within the legal definition of puffery, that doesn’t mean they’re untrue. “Wells Fargo stands behind the statements it made regarding its commitment to transparency and rebuilding trust with its customers,” the bank told me by email. “These statements were true then and remain so today.” …
What do you think?