Defending Companies Against CLRA Claims in California
The Consumers Legal Remedies Act (CLRA) is a wide-ranging and powerful state law in California that consumers can use to hold unethical businesses accountable and pressure law-abiding ones with the very real potential for legal liability. The necessity of being able to defend yourself against a CLRA claim has become one of the realities of running a business in California. Nevertheless, facing a potential lawsuit that can cost your company many thousands of dollars is not something that business owners feel prepared to do. Knowing how to defend your company against a CLRA claim is crucial.
What is the CLRA?
The CLRA is a statute in California that gives consumers and members of the public legal rights against businesses who do any of the 24 things that the law identifies as illegal in Section 1770. The general theme of these 24 unlawful business acts in the CLRA is deception – the law was created in the late 1960s and enacted in California in 1970 in response to a problem of businesses taking advantage of unwary consumers. To this end, the CLRA is meant to protect consumers from businesses that use their power to advertise and sell what would colloquially be called lemons.
How CLRA Claims Are Made: The Demand Letter
Consumers who want to use the CLRA have to abide by a specific protocol before they can take legal action against a business that they feel has wronged them in one of these ways.
The first and most important thing that consumers are required to do under the CLRA is to submit a demand letter to the business they are targeting. This demand letter needs to be in writing and sent by certified or registered mail, with return receipt requested, to either your principal place of business in California, or to the place where the transaction at issue actually occurred.
In this demand letter, the consumer has to claim that your business committed one of the 24 unlawful business practices set out in Section 1770, and demand that the situation be corrected.
Importantly, the consumer cannot continue to enforce their rights under the CLRA and initiate a lawsuit for damages before 30 days have passed since you have received the demand letter. This gives your business 30 days to correct the situation, or agree to correct the situation in a reasonable amount of time.
Your Response to the Demand Letter is Important
How you respond to the demand letter is crucial, and can help position your company in a way that will help it defend against a lawsuit, if one ends up happening under the CLRA. However, there are two important questions that need to be asked before you know you will need to take the demand letter seriously:
- Was it sent by a consumer?
- Did the consumer suffer damages?
A consumer is a legal term of art that is defined by the CLRA, at Section 1761(d), as “an individual who seeks or acquires, by purchase or lease, any goods or services for person, family, or household purposes.” Importantly, this means that another business cannot be a consumer because they are not an “individual,” the person using the goods or services cannot be the consumer if they were not the one who actually bought them, and a person cannot be a consumer if they bought something for business purposes.
If the demand letter was not sent by a consumer, then there is nothing that you legally have to do to satisfy their CLRA demands.
If the person behind the demand letter is a consumer, they will only have a case against you if they actually suffered legal damages from the prohibited business practice.
Unlike the question of whether the demand letter is being sent by a consumer, this requirement has an ill-defined standard that makes it easy for the consumer to overcome: The consumer needs only to have paid an increased cost, because of the outlawed conduct.
Timing is Important
Your response to the demand is important, but so is the timing. The CLRA is one of the few laws that forces businesses to pay the reasonable attorney’s fees of a successful consumer suit. Delaying your response and the eventual resolution can let the consumer inflate those attorneys fees, increasing the amount that you have to pay, in the long run.
Curing Conduct Under the CLRA
If you have decided that the demand letter is sent by a consumer and that the consumer has suffered legal damages because of the conduct outlined in the letter, you have 30 days to cure the defect before they can file a lawsuit for damages. This grace period, however, does not apply to cases that only seek injunctive relief.
Unfortunately, the problem with facing even a legitimate CLRA demand letter like this is that there is rarely only one consumer who has been damaged. This raises the very real possibility of a class action, if the conduct is not cured, but also drastically raises the difficulty in curing the conduct.
Curing the conduct that is mentioned in the demand letter depends on the specific facts of the case and the nature of the conduct. However, most CLRA violations can be cured through one of the following:
- Repair, replace, or refund the product,
- Fix the problems caused by the service that was provided, or
- Disclose further details on a good or service to customers.
This is not often easy, especially if the practice that is outlined in the demand letter is something that your business has been doing for a long time, or is a good that gets sold a lot. You might have to identify and notify all of your prior customers that a fix is available, should they want it, and then provide it, if they come forward. You will also have to change your business practices to avoid it from happening, again.
Responding to the Demand Letter
Once the cure has been determined and is being executed, you can respond to the demand letter and state how you are handling the situation. This needs to be done with care and tact, though, so you do not accidentally admit to further wrongdoing.
The 30 day cure period is for general and compensatory damages only. This means that even if you resolve the action for damages, the consumer can still pursue the lawsuit for injunctive relief. This is why businesses need a CLRA-savvy lawyer who knows the tactics used by plaintiff lawyers to rack up their attorney fees under CLRA.
You always want to reach a global resolution that resolve all legal claims (including both damages and injunctive relief). Otherwise, even though the damages may be as low as one dollar, the attorney’s fees the court could find against the business could easily be six figures or more.
The Problem of Attorney’s Fees
One of the reasons why California has a reputation as a consumer-friendly state is that Section 1780(d) of the CLRA explicitly provides attorney’s fees to plaintiffs if they prevail on their claim. Worse, “prevailing” on a claim under the CLRA includes getting a court to issue an injunction against your business, legally requiring it to change its conduct.
Even if you successfully show that the plaintiff has not been hurt, if the court decides to issue an injunction you can still be required to pay the plaintiff’s legal expenses, which can be significant. This incentivizes consumer claims and gives consumer plaintiffs lawyers another reason to take cases.
For business owners, this provision in the CLRA adds two elements to receiving a demand letter: You need to resolve it quickly to reduce the attorney’s fees that you might be forced to pay, in the long run, and you need to resolve it completely—both its liability and its injunction components—to stop the legal fees from accumulating. This makes it even more important to have a skilled business lawyer on your side to determine if the demand letter raises serious issues. If it does, quickly settling the case can reduce the legal fees you are ultimately responsible for paying.
Throughout this process, having a skilled business lawyer like Mohsen Parsa on your side can make it go smoothly, efficiently, and at the least cost to your business. Contact Mohsen Parsa him online.