BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1188|
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THIRD READING
Bill No: SB 1188
Author: Jackson (D)
Amended: 5/20/14
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-2, 5/6/14
AYES: Jackson, Corbett, Lara, Leno, Monning
NOES: Anderson, Vidak
SUBJECT : Consumers Legal Remedies Act: facts
SOURCE : Consumer Attorneys of California
Consumer Federation of California
DIGEST : This bill codifies that, under the Consumer Legal
Remedies Act (CLRA), fraud or deceit may consist of the
suppression or omission of a material fact by one who is bound
to disclose it or who gives information of other facts that are
likely to mislead for want of communication of that fact. This
bill specifies that a fact is material if a reasonable person
attaches importance to its existence or nonexistence in
determining a choice of action in a transaction, and that
materiality is not limited to circumstances in which a product
poses a threat to health or safety.
Senate Floor Amendments of 5/20/14 provide that this bill shall
not expand or restrict warranty rights or obligations.
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ANALYSIS :
Existing law:
1. Prohibits, under the CLRA, unfair methods of competition,
acts or practices by any person which either results in/is
intended to result in the sale or lease of goods or services
to any consumer.
2. Enumerates several methods of unfair competition, acts, or
practices, including:
A. Representing that goods or services have
sponsorship, approval, characteristics, ingredients,
uses, benefits, or quantities which they do not have;
and
B. Representing that goods or services are of a
particular standard, quality, or grade, or that goods
are of a particular style or model, if they are of
another.
3. Provides that any consumer who suffers damage as a result of
a practice declared to be unlawful under the CLRA may bring
an action against that person to recover damages, as
specified. Allows for a class action suit to be filed on
behalf of a class of consumers adversely affected by an
unfair method of competition, act, or practice.
4. Provides that the CLRA shall be liberally construed and
applied to promote its underlying purposes, which are to
protect consumers against unfair and deceptive business
practices and to provide efficient and economical procedures
to secure such protection.
This bill:
1. Specifies that, under the CLRA, fraud or deceit may consist
of the suppression or omission of a material fact by one who
is bound to disclose it or who gives information of other
facts that are likely to mislead for want of communication of
that fact.
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2. Specifies that a fact is material if a reasonable person
attaches importance to its existence or nonexistence in
determining a choice of action in the transaction in
question.
3. Specifies that materiality is not limited to circumstances in
which a product poses a threat to health or safety.
4. Specifies that this bill shall not expand or restrict
warranty rights or obligations.
Background
The CLRA is a consumer protection statute intended "to protect
consumers against unfair and deceptive business practices and to
provide efficient and economical procedures to secure such
protection." Among other things, it prohibits merchants from
representing that goods have "characteristics, ingredients,
uses, benefits, or quantities which they do not have," or
representing those goods "are of a particular standard, quality,
or grade" when they are of another. Consumers who are harmed by
unlawful practices specified in the CLRA have a right of action
under the CLRA to recover damages and other remedies.
Passed by the Legislature in 1970, the CLRA is intended to be
"liberally construed" by the courts and "applied to promote its
underlying purposes." Courts have, until recently, allowed
plaintiffs to bring CLRA claims based on allegations that a
merchant fraudulently omitted to disclose a material fact in the
course of a transaction, such as failing to disclose information
about a product's known defects. However, following the
decision in Daugherty v. American Honda Motor Co., Inc.
(Cal.App.2d Dist. 2006), 144 Cal.App.4th 824, by a California
Appellate Court, both federal and state courts are divided over
whether claims can be brought under the CLRA for fraudulent
omissions not involving threats to health and safety. This
disagreement among the courts creates a situation where a court
might find that the CLRA does not protect consumers from certain
fraudulent business practices except in a narrow range of cases
involving threats to health or safety. Consequently,
manufacturers may potentially escape liability for concealing
known product defects so long as the defect does not pose a
safety risk to consumers.
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Prior Legislation
AB 1108 (Nielsen, 2011) would have revised the CLRA to require a
court to award court costs and attorney's fees to the prevailing
party in an action. The bill died in the Assembly Committee on
Judiciary.
AB 292 (Hayes, Chapter 1550, Statutes of 1970) enacted the CLRA,
which authorized a consumer who suffers damage from the use of
specified unfair methods of competition and unfair or deceptive
acts to bring an action to recover damages or other relief.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 5/20/14)
Consumer Attorneys of California (co-source)
Consumer Federation of California (co-source)
California Advocates for Nursing Home Reform
California Alliance for Retired Americans
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Public Interest Research Group
California Rural Legal Assistance Foundation
California Teamsters Public Affairs Council
Congress of California Seniors
Consumer Watchdog
Consumers for Auto Reliability and Safety
Consumers Union
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
International Longshore and Warehouse Union
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Unite Here, AFL-CIO
Utility Reform Network
Utility Workers Union of America, Local 132
OPPOSITION : (Verified 5/20/14)
American Insurance Association
American International Group
Association of California Insurance Companies
California Automotive Business Coalition
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California Building Industry Association
California Chamber of Commerce
California Citizens Against Lawsuit Abuse
California Grocers Association
California Manufacturers and Technology Association
California Pool and Spa Association
California Retailers Association
Civil Justice Association of California
International Franchise Association
National Federation of Independent Businesses
Personal Insurance Federation of California
Tech America
ARGUMENTS IN SUPPORT : The author writes:
The Legislature passed the Consumer Legal Remedies Act
(CLRA) in 1970. The Act prohibits sellers from making
fraudulent claims about their goods and services, or from
fraudulently withholding (omitting) information about
goods and services from California consumers. From the
consumer standpoint, the CLRA is one of the most important
consumer protection statutes. It was designed to prevent
unfair and deceptive business practices from taking hold
in the marketplace.
Over the past eight years, a disagreement has developed
among courts as to whether CLRA claims alleging fraudulent
omissions are limited to matters involving safety hazards.
As a consequence, consumers may be unable to rely on the
CLRA to protect them from certain fraudulent business
practices not involving safety risks. Without
clarification of the CLRA from the Legislature,
manufacturers can potentially escape liability for
concealing known product defects so long as the defect
does not pose a safety risk to consumers.
This bill would clarify that CLRA fraudulent omission
claims are not limited solely to matters involving health
and safety hazards, but rather include all cases where a
merchant violates the Act by fraudulently failing to
disclose a material fact. This clarification would ensure
that the CLRA continues to broadly protect California
consumers from deceptive business practices.
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ARGUMENTS IN OPPOSITION : Several entities in opposition argue
that this bill unfairly exposes merchants to tort liability
after the expiration of a product's express warranty. According
to the California Chamber of Commerce, "This definition will
significantly expand product defect litigation, especially class
actions, as any alleged product defect will be deemed "material"
once it has occurred, and the buyer will undoubtedly claim
knowledge of this defect would
have impacted the decision to purchase. Such an expansion of
liability would render warranties absolutely meaningless, as all
manufacturers and sellers would have to ensure the everlasting
lifetime of a product."
AL:d 5/21/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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