California Supremes Hold That Damages Are a Prerequisite to Bringing a CLRA Claim
Until a few years ago, a plaintiff suing under California's Unfair Competition Law was not required to have suffered an economic loss in order to have standing to bring a UCL claim. Any Californian -- no matter how removed from the allegedly wrongful conduct -- was deputized to use the UCL to enforce California law. Then, Californians passed Proposition 64, making actual economic loss a prerequisite to bringing a UCL claim.
The much-publicized debate over Proposition 64 and its impact on an uninjured plaintiffs' standing to bring UCL claims has obscured somewhat the controversy over the UCL's less-popular, but ubiquitous, sibling: the Consumer Legal Remedies Act. The CLRA (Cal. Civ. Code sec. 1750 et seq.) is often pled in tandem with the UCL. The CLRA delineates a series of actions deemed to be unfair or deceptive when undertaken in the sale or lease of goods or services to a consumer. Unlike the UCL, the CLRA requires a plaintiff to provide the defendant with notice of the allegedly unlawful conduct and an opportunity to cure it prior to filing suit.
Yesterday, the California Supreme Court was faced with the question whether a plaintiff who has suffered no economic harm nevertheless may bring a CLRA claim for injunctive relief and/or damages. Carefully analyzing the text of the CLRA, the court concluded that some form of damages -- pecuniary loss, opportunity costs, or transaction costs -- is necessary in order to bring a CLRA claim. See Meyer v. Sprint Spectrum L.P., 2009 WL 197560 (Cal. Jan. 29, 2009).
Plaintiffs had alleged that their cellular provider breached the CLRA by including in their contracts unconscionable provisions, such as a binding arbitration provision, a class action waiver, a waiver of the right to a jury trial, a fee-splitting provision, a disclaimer of warranties, and a $150 early termination fee. But the plaintiffs had made no claim against Sprint, and thus Sprint had not attempted to enforce any of these provisions in the service agreement against them. The court characterized the suit as a "preemptive lawsuit to strike these terms should any dispute arise. The question is whether the CLRA gives standing to permit such preemptive suits."
Section 1780(a) of the CLRA provides that: "Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following: (1) Actual damages . . . (2) An order enjoining the methods, acts, or practices. (3) Restitution of property. (4) Punitive damages. (5) Any other relief that the court deems proper."
The court began its analysis by noting that plaintiffs were correct that "actual damages" and "any damage" mean different things. "Actual damages," the court observed, clearly refers to pecuniary harm, which is plainly recoverable under the CLRA. The question, however, is what does "any damage as a result of" an unlawful act mean? Plaintiffs asserted that it means merely being subjected to the unlawful conduct itself.
The court disagreed, holding that it means that the plaintiff must have suffered some type of increased costs (whether costs of suit, or opportunity costs) as a result of the unlawful conduct:
The statute speaks plainly about the use of an unlawful practice resulting in some sort of damage. Thus, the statute provides that in order to bring a CLRA action, not only must a consumer be exposed to an unlawful practice, but some kind of damage must result. If the Legislature had intended to equate "any damage" with being subject to an unlawful practice itself, it presumably would have omitted the causal link between "any damage" and the unlawful practice, and instead would have provided something like "any consumer who is subject to a method, act, or practice declared to be unlawful by Section 1770 may bring an action" under the CLRA.
To reach this sensible construction of the CLRA -- which also is in line with current UCL law -- the California Supreme Court had to backtrack on the broad dicta from a mid-1980s opinion that addressed a different, but related, issue. In Kagan v. Gibraltar Savings & Loan Association, 35 Cal.3d 582 (1984), the defendant had represented that it would not charge management fees for an individual retirement account ("IRA"). After the plaintiff opened the IRA, the defendant informed plaintiff that there would be a $7.50 fee for administering it. Plaintiff hired a lawyer, who made demands on behalf of the plaintiff and a class of those similarly situated. The defendant decided not to charge the fee to the plaintiff, but refused to identify and reimburse other customers who had been charged the fee.
The defendant argued that the plaintiff in Kagan had no standing because he had not suffered any damage, since the defendant had not charged him the fee. The California Supreme Court disagreed, holding that a defendant could not pick off prospective class action plaintiffs and thereby avoid CLRA class actions. It then went on to say:
We thus reject Gibraltar's effort to equate pecuniary loss with the standing requirement that a consumer "suffer any damage." As it is unlawful to engage in any of the deceptive business practices enumerated in section 1770, consumers have a corresponding legal right not to be subjected thereto. Accordingly, we interpret broadly the requirement of section 1780 that a consumer "suffer[] any damage" to include the infringement of any legal right as defined by section 1770.
Kagan, 35 Cal.3d at 592-93.
In Meyer, the California Supreme Court distinguished Kagan and disapproved of its broadest dicta:
Although the Kagan court equated the infringement of any legal right under section 1770 with "suffering any damage" pursuant to section 1780(a), its holding ultimately was not based on an analysis of that language, but on the provisions of section 1782, subdivision (c), that once a person has been the victim of a proscribed practice under the CLRA and makes a demand on behalf of a class, remedying the plaintiff's individual complaint does not disqualify her as a class representative. Moreover, . . . the plaintiff [in Kagan] was able to avoid the fee only by expending time and money threatening Gibraltar with a lawsuit. As discussed, the expenditure of such transaction costs to avoid the consequences of a deceptive practice falls within the broad meaning of suffering "any damage as a result of the use or employment" of an unlawful practice, whether or not those transaction costs are cognizable as "actual damages." The plaintiff in Kagan may have also incurred opportunity costs, because Gibraltar's alleged misrepresentations may have diverted the plaintiff from finding a financial institution that did not charge administrative fees.
Thus, the Meyer court "decline[d] to extend Kagan to situations in which an allegedly unlawful practice under the CLRA has not resulted in some kind of tangible increased cost or burden to the consumer," and it expressly disapproved of Kagan's dictum that "'we interpret broadly the requirement of section 1780 that a consumer "suffer[] any damage" to include the infringement of any legal right as defined by section 1770.'" Meyer, 2009 WL 197560 at n.3.
The Meyer court also placed into perspective the wide array of precedents holding that the CLRA must be interpreted liberally:
It is evident that any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits. It is also apparent that the Legislature, in weighing these costs and benefits in drafting the CLRA, set a low but nonetheless palpable threshold of damage, and did not want the costs of a lawsuit to be incurred when no damage could yet be demonstrated.
Finally, the court in Meyer also faced a challenge to the trial court's refusal to exercise its jurisdiction under the Declaratory Judgments Act ("DJA") to declare what provisions of the service agreement were invalid. The court recognized that the DJA allows a court to refuse declaratory relief where it "is not necessary or proper at the time under all the circumstances." Cal. Code Civ. Proc. sec. 1061. Because there was no live dispute between the parties that required interpretation of the contract, the court held that the trial court had not abused its discretion in sustaining a demurrer to plaintiff's declaratory judgment count. The court explained: "But when resolution of the controversy over future remedies would have little practical effect in terms of altering parties' behavior, courts have considerable discretion . . . to deny declaratory relief because it 'is not necessary or proper at the time under all the circumstances.'"
Meyer is an extremely important opinion that brings the CLRA in line with the UCL in refusing to deputize people to prosecute class actions over alleged statutory violations with which they have no real connection.
