Even the most successful retailers receive written complaints from their customers. Before responding, you should determine whether you have received a demand letter pursuant to California’s Consumer Legal Remedies Act (CLRA) or a similar consumer protection statute. If so, this article will help you minimize your exposure and expenses while possibly avoiding a lawsuit.What is the Consumer Legal Remedies Act?
CLRA is a California statute intended to protect consumers against unfair and deceptive business practices. It lists numerous practices that are unlawful in connection with a transaction intended to result in the sale or lease of goods or services to any consumer.
For example, it prohibits misrepresenting the source, certification, origin, or quality of goods and services. It also prohibits advertising goods or services with intent not to sell them as advertised, among many other things. Under CLRA, a consumer can seek actual damages, injunctive relief, restitution, attorneys’ fees, and/or punitive damages. In addition, claims under CLRA typically are brought as class actions.
Is it a demand letter?
To recover monetary damages under CLRA, the consumer must first send a written demand and wait 30 days before initiating an action for damages. By contrast, a plaintiff who seeks only injunctive relief does not have to comply with these demand letter requirements. To avoid waiting 30 days to sue, some plaintiffs file immediately for injunctive relief and later amend to add a claim for damages.
During the 30-day demand period, your company can prepare to fend off a claim for damages by either correcting the alleged wrong or planning to correct it within a reasonable period. While the 30-day clock is running, you can put your company in a good position to defend the case, if you are proactive.
Your first steps should be to contact counsel, calendar your response date, and chart out your strategy. As preliminary matters, you need to consider two crucial issues: whether the claimant is a customer and whether they suffered any damages.
Was it sent by a consumer who suffered damage?
CLRA defines a consumer as “an individual who seeks or acquires, by purchase or lease, any goods or services for personal, family, or household purposes.” In one case, a divorced wife was not entitled to sue a jeweler under CLRA, based on allegations that the jeweler sold an inferior engagement ring to her husband, because she was not a consumer in the transaction (only her husband was).
If your claimant is not a consumer, she cannot bring an individual action, nor can she maintain a class action under CLRA. However, it should be noted that a trial court may (at its discretion) permit intervention in an existing suit by one or more consumer plaintiffs “in the interests of judicial economy and to preserve the rights of absent class members.”
The second issue is whether the consumer has suffered any damage. CLRA requires a showing of exposure to an unlawful practice and that harm or damage resulted. The allegedly unlawful practice must have “resulted in some kind of tangible increased cost or burden to the consumer.”
Put up your defenses
CLRA is not meant to be a trap for the unwary, but rather to correct potentially harmful business practices. Consequently, there are ways for a proactive company to defend itself against a lawsuit.
1. Consider whether you can cure effectively
The claimant will not be able to maintain an action for damages under CLRA if you can make a showing that you have cured the violation or will cure it within a reasonable time. If you are facing a class-action suit, there are four things you need to do to cure:
• Identify all consumers that are similarly situated to the claimant
• Notify them that they will be provided relief upon request
• Provide an appropriate correction, repair, replacement, or other remedy within 30 days or a reasonable time
• Stop the prohibited practice as soon as possible
Although the appropriate cure will depend on your individual business and the particular practice that has been challenged, your response might include contacting customers with a corrective disclosure, extending a warranty, modifying terms of service, sending a check to consumers, offering some other benefit or remedy to your customers, or changing the way you advertise.
You should not be worried that your efforts to cure might be misconstrued as an admission of liability. In fact, CLRA allows you to use evidence of your attempts to cure to assist in showing “good faith,” even if the cure does not provide a complete defense.
2. Was it merely a mistake?
Even if you cannot fashion an effective cure, you may still be able to defend on the basis that the alleged violation was an unintentional, bona fide error. For example, Cal. Civ. Code 1784 provides that “no award of damages may be given in any action based on a method, act, or practice declared to be unlawful by Section 1770 if the person . . . (a) proves that such violation was not intentional and resulted from a bona fide error notwithstanding the use of reasonable procedures adopted to avoid any such error and (b) makes an appropriate correction, repair, or replacement or other remedy of the goods and services . . .”
Investigate the claimant’s particular facts
Although your primary focus during the first 30 days will be on taking steps to avoid a lawsuit, it is not too early to start preparing your potential defenses. There are things you can do right away to investigate the claim and identify unique facts that could help your case down the line.
If the claimant intends to pursue a class action, s/he will need to convince the court (among other things) that it is impracticable to bring all members of the class before the court, that there are common questions of law or fact similar for all individuals in the class, that the claimant’s claims represent those of the class, and that the claimant protects the interests of the class.
One way to prevent class certification is to demonstrate that it is possible to bring individual members of the proposed class before the court. If you can establish that the number of persons likely to be in the proposed class is a manageable number, you may be able to defeat class certification.
Another way to defeat a class action is to show the claimant’s situation is somehow unique, so that the key questions of law and fact are not common or substantially similar. Similarly, consider whether the claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class and whether they fairly and adequately protect the interests of the class. If you can demonstrate that the plaintiff’s claim is not typical of the class, a court will find that the plaintiff cannot adequately represent the class.
Finally, you should consider whether the claim relates to an alleged misrepresentation. If so, it is worth analyzing whether you can attack the materiality of the misrepresentation.
In class actions involving alleged misrepresentations, plaintiffs often are not required to present individual proof that each class member relied on particular misrepresentations and instead can satisfy their burden of causation by showing that the misrepresentations were material. To rebut this presumption of common reliance, you should develop facts that show the plaintiff would have acted the way s/he did regardless of the alleged misrepresentation.
Prepare your response
Within 30 days, you need to send your response letter, in which you describe any cures or and offer a remedy, if at all possible. Double-check your factual assertions, and be careful to avoid misstating or overstating any facts.
If you have learned any facts that would help you fend off class certification (e.g., that the claimant’s situation is not typical), you should include them in your letter so that you can start staking out your position.
Consider carefully who should sign the response (e.g., whether that person would be a good witness and whether privilege issues would arise if he/she was called as a witness). You should ask your litigation counsel to review your response before sending it, not only to evaluate its legal sufficiency but also to ensure that if the letter ends up as Exhibit A in a lawsuit, it projects the most positive statement of your company’s position.
If you have received a demand letter, don’t panic. Experienced counsel can help you defend the company by attending promptly and proactively to the issues raised in the letter.
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Steve Atlee is a partner in the Los Angeles office of Winston & Strawn LLP. His practice concentrates on litigating class action, intellectual property, and other complex commercial matters. He has represented clients in bench and jury trials, arbitrations, and mediations.
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