Handling Claims under the CLRA
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passing off goods or services as those of another
If your business has been accused of deceptive advertising by a customer-or by thousands of customers in a class action-you obviously want to find a way to resolve the matter as quickly as possible. Chances are, you'll probably end up litigating under California's Consumers Legal Remedies Act (CLRA), which provides remedies for unfair or deceptive trade practices (Cal. Civ. Code §§ 1750-1784). Code of Civil Procedure section 1770 includes more than 20 separate categories of illegal practices, including:
using deceptive representations or designations of geographic origin in connection with goods or services
representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have, or that a person has a sponsorship, approval, status, affiliation, or connection which he or she does not have
representing as original or new goods that have deteriorated unreasonably or are altered, reconditioned, reclaimed, used, or secondhand
falsely disparaging the goods, services, or business of another
advertising furniture without clearly indicating that it is unassembled, if that is the case
making false or misleading statements about the reasons for, existence of, or amounts of price reductions, and
inserting an unconscionable provision into a contract.
Although the statute allows injured consumers to seek both injunctive relief and damages, there is a catch: Before a damages suit can proceed, the plaintiff must first give the defendant a chance to make things right.
At least 30 days before filing suit under the CLRA, the plaintiff must give the potential defendant notice of the alleged violation and demand that he or she "correct, repair, replace or otherwise rectify" the prohibited practices. The presuit notice must be in writing and sent by certified or registered mail, return receipt requested, to the place where the transaction occurred, or to the potential defendant's principal place of business within California (Cal. Civ. Code § 1782(a)(2)).
A plaintiff must allege in the complaint that proper notice was given (Von Grabe v. Sprint PCS, 312 F. Supp. 2d 1285 (S.D. Cal. 2003)). If a plaintiff files an action without first sending the required notice, the claim can be dismissed. This defect cannot be cured by amendment.
Whether you represent a plaintiff or a defendant, make sure that the presuit notice is sent by the proper method and to the proper party. As noted above, the statute requires prefiling notices to be sent by certified or registered mail, return receipt requested. Messages sent by email, fax, or standard mail will not suffice (Cal. Civ. Code § 1782 (a)(2); Von Grabe at 1304). In addition, the notice must be sent to the place where the transaction occurred, or to the potential defendant's principal place of business within California (Cal. Civ. Code § 1782 (a)(2)).
The notice is intended to give the manufacturer or vendor sufficient notice of alleged defects to permit appropriate corrections or replacements, and to facilitate precomplaint settlements of consumer actions wherever possible (Von Grabe at 1303-04).
Substantial compliance with the notice requirement is not good enough (Von Grabe at 1304 (rejecting plaintiffs' argument that substantial compliance was sufficient, and holding that "strict application of the requirement was necessary in order to achieve this goal")).
Attempting to provide notice after litigation has commenced will not suffice (Von Grabe at 1304). As the court observed in Cattie v. Wal-Mart Stores, Inc. (504 F. Supp. 2d 939, 949-50 (S.D. Cal. 2007)): "The CLRA's notice requirement is not jurisdictional, but compliance with this requirement is necessary to state a claim" and the "failure to give notice before seeking damages necessitates dismissal with prejudice, even if a plaintiff later gives notice and amends."
BENEFITS OF REMEDIATION
Potential defendants often overlook the issue of remediation. They often assume litigation is inevitable and that remediation is not worth the effort. However, remediation in the early stages of a legal dispute can have a number of benefits for all involved.
Defendants may establish good faith by introducing evidence of their attempts to comply with a consumer's remediation demand (Cal. Civ. Code § 1782(3)).
Though the CLRA does not state expressly that good faith is a defense to a claim for damages, section 1784 provides that damages will not be awarded if the defendant proves three conditions: the violation was not intentional; it resulted from a bona fide error; and that the defendant made an appropriate correction, repair, or replacement, or provided another remedy.
Although there are no published cases interpreting section 1784, commentators note that "[u]nlike [California Business and Professions Code] § 17200, proof of good faith and unintentional error is a defense to a damage action brought under the CLRA." (Bus. & Prof. C. § 17200 Practice, by William L. Stern (T.R.G., 2007).
If the good faith defense is available, it can be raised in a "no-merits" motion under the CLRA. Note, however, that a no-merits motion is not a motion for summary judgment. Indeed, the statute prohibits a court from granting a summary judgment motion in a CLRA class action (Bus. & Prof. C. § 17200 Practice, at 1014 (citing Cal. Civ. Code § 1781(c)(3))). "This appears to be the only claim under California law in which courts may not entertain a motion for summary judgment; even § 17200 claims can be summarily adjudicated on a motion brought under CCP § 437c." (Bus. & Prof. C. § 17200 Practice.)
Nonetheless, "[a]lthough a CLRA cause of action cannot be adjudicated on a motion for summary judgment, it can be dismissed before trial on a motion for a determination that it is without merit (i.e., a no-merit determination)" under section 1781(c)(3). "In practice, courts ... have applied the standards applicable to motions for summary judgment and summary adjudication in deciding motions for no-merit determinations." (Smith v. Wells Fargo Bank, N.A., 135 Cal. App. 4th 1463 at 1474 (2005).)
A defendant may bring this type of motion in a putative class action before a class is certified, even though courts normally do not make precertification rulings on the merits of class claims (Olsen v. Breeze, Inc., 48 Cal. App. 4th 608 (1996)).
ELIMINATION CLAIMS FOR DAMAGES
In addition to providing a good faith defense on which a no-merits motion may be based, complying with prefiling demands for remediation also cuts off the plaintiff's right to seek damages. This is because an individual claim for damages under the CLRA has no merit if, within 30 days after notice, the alleged violator agrees to give the complaining consumer an appropriate correction, repair, replacement, or other remedy (Cal. Civ. Code § 1782(b)).
Similarly, Civil Code section 1782(c) provides that a putative class action for damages has no merit if a defendant has (1) identified or made "a reasonable effort to identify" all putative class members, (2) notified the putative class members that he or she will correct the alleged CLRA violations at their request, (3) made the corrections or will do so in a "reasonable time," and (4) ceased from engaging in the alleged CLRA violations.
Note that section 1782(c) allows a defendant to remediate putative class claims after receiving a prefiling notice letter in a "reasonable" time rather than the 30 days allowed in section 1782(b), which applies to individual actions.
A defendant cannot "pick off" putative class representatives by offering to remedy their individual claims while ignoring those of the other putative class members (see Kagan v. Gibraltar Loan Ass'n, 35 Cal. 3d 582 (1984)).
Determining whether a defendant has properly remediated alleged CLRA violations depends on the facts of a given case, as opposed to a bright-line rule. Some courts have granted no-merit motions prior to a ruling on class certification when the defendant provided remediation to all potential class members. In contrast, other courts have denied such relief where defendants provided relief only to selected individuals (Kagan at 592).
LIMITING ATTORNEYS FEES
Correcting alleged CLRA violations before a lawsuit is filed may also have an impact on a plaintiff's claim for attorneys fees. Case law contemplates awarding fees to parties who achieve their objectives in a lawsuit, not to consumers who persuade potential defendants to remediate alleged CLRA violations before suit is filed.
For example, Civil Code section 1780(d) provides that the court "shall award court costs and attorneys' fees to a prevailing plaintiff in litigation filed pursuant to this section." The CLRA does not define the term "prevailing party."
To bridge the statutory gap, the courts have used a commonsense approach, focusing on the real impact of the litigation.
"Accordingly, in deciding prevailing party status under those statutes, the court should adopt a pragmatic approach, determining prevailing party status based on which party succeeded on a practical level." (Graciano v. Robinson Ford Sales, 144 Cal. App. 4th at 150 (2006).) Under the CLRA, a prevailing party is one who achieves objectives in a lawsuit, as opposed to someone who achieves various aims before a lawsuit is filed. The court will exercise its discretion to determine the prevailing party by analyzing which party realized its litigation objectives. "It is settled that plaintiffs may be considered 'prevailing parties' for attorney's fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit." (Graciano at 153.)
30 DAYS NOTICE
Once a lawsuit is filed under the CLRA, a defendant should determine whether the plaintiff provided at least 30 days' notice before filing the complaint. If the plaintiff failed to do so, the claim can be dismissed even if the claim for damages was included prematurely (Laster v. T-Mobile U.S.A., Inc., 407 F. Supp. 2d 1181 (S.D. Cal. 2005)).
As the court noted in Laster: "[Prior] courts held that a claim for damages under the CLRA requires strict compliance with the notice requirements set forth in § 1782. This Court agrees. Strict adherence to the statute's notice provision is required to accomplish the Act's goals of expeditious remediation before litigation. Because Plaintiffs failed to provide notice to defendants pursuant to § 1782(a), their claim for damages under the CLRA must be dismissed with prejudice." (Laster at 1196; see also, Cattie at 950 ("[h]ere, there is no dispute plaintiff first claimed for damages, then gave notice, then amended her complaint, more than thirty days after notice ... Under Laster and Von Grabe, failure to give notice before seeking damages necessitates dismissal with prejudice, even if a plaintiff later gives notice and amends").)
Note, however, that "a consumer may bring an action for injunctive relief without giving notice." (Cattie at 949.)
Often, the plaintiffs counsel serves a CLRA complaint simultaneously or shortly after sending a prefiling notice, and only includes a demand for restitution-rather than damages-in an attempt to hang a complaint over the defendant's head without running afoul of the notice requirements. This technique will not be successful, because restitution of money is but one version of a claim for damages (Dufresne v. Veneman, 114 F. 3d 952 (9th Cir. 1997); California v. United States, 104 F. 3d 1086 (9th Cir. 1997)).
The CLRA's notice provisions that apply to damage claims also apply in cases claiming restitution.
The language of the CLRA supports this approach. Section 1780(a) provides that any consumer who suffers "any damage" as the result of an unfair or deceptive trade practice may sue for damages or restitution of property, among other relief. Section 1782(d) exempts only claims for injunctive relief from the notice requirements. Accordingly, a defendant should carefully examine a complaint filed less than 30 days after a CLRA notice to see if the pleading includes any claims for restitution or damages. If it does, the complaint is subject to attack.
Although the CLRA's prefiling notice provisions present many traps for unwary plaintiffs, there is also potential danger for defendants who may waive rights if they are not careful. For example, in Outboard Marine Corp. v. Superior Court, the plaintiff sent an untimely prefiling notice months after filing a complaint for damages. The court found that the defendants waived the notice provisions in the CLRA by sending a responsive letter in which they stated that they considered the letter to be "a preliminary notice and demand under California Civil Code 1782[(a)]." (52 Cal. App. 3d 30, 41 (1975).) The lesson for defense counsel: If you choose to respond to a prefiling notice-regardless of when it is served-do not acknowledge that the notice complies with the CLRA if there is any doubt on that point. If you respond without raising the defect, you may have waived it.
The CLRA's notice requirements are important, and they can make or break a case. It is incumbent upon both plaintiffs and defense counsel to familiarize themselves with them and protocols the CLRA brings to legal practice.
Gregory A. Nylen is a shareholder at Greenberg Traurig, concentrating on consumer class action defense and intellectual property and entertainment litigation.
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