This Wednesday morning in Los Angeles, the California Supreme Court heard oral argument in Meyer v. Sprint Spectrum. This case presents the following issues:
(1) Has a person suffered "damage" within the meaning of the CLRA, such as to allow that person to bring an action under the CLRA if that person is a party to an agreement containing an unconscionable term, even though no effort has been made to enforce the unconscionable term?
(2) Did plaintiffs have standing to seek declaratory relief?
I missed the first half of Mr. Franklin’s argument (my apologies).
When I walked into the moot court, Justice Kennard seemed to be grilling Mr. Franklin about specifically what “damages” his clients suffered, and Justice Baxter suggested that plaintiffs are asking this court to issue what’s close to an advisory opinion.
At this time, Chief Justice George asked Mr. Franklin about the practical consequences if plaintiffs were to get declarative relief. Mr. Franklin responded that the practical consequences would be for plaintiffs to seek class actions to have these unconscionable provisions removed from these sorts of contracts. Mr. Franklin added: “Do we have to remove the class action waiver every time we have an unconscionable waiver involved in a class action?”
Justice Kennard then interjected: “How do you respond to the idea that declarative reliefs generally resolve controversies…In this case, there seems to be no controversy.” [I missed Mr. Franklin’s long response to this…]
Justice Werdegar then referred to the code section, which states: “the court may refuse to grant declarative relief…[in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.]” (I think this is from CCP § 1061.) Mr. Franklin’s response seems to focus on the word “may” in the statute; he argued that the problem is that the lower court did not exercise its discretion at all.
Justice Moreno jumped in and asked a hypothetical from the context of an insurance contract: “In an insurance contract, for example, even in the absence of a controversy over coverage, can an insured seek declarative relief simply because he wants to remove a provision from the contract?” Mr. Franklin answered this hypo by referring to the purposes of declarative relief, one of which, he said, is to prevent future violations. He pointed to the arbitration clause in this type of commercial contract (and the line of cases brought against big corporations that continue to insert arbitration clauses in commercial and employment contracts). He further pointed out how these contracts (like the Spirit contracts) ask consumers to waive jury, suggesting that declarative relief is necessary to stop this type of practice.
Baxter then asked: “how do you deal with a provision that is unfair to regular consumers but not to companies [in a business to business contract]...?” In other words, Justice Baxter was asking Mr. Franklin about the definition of unconscionability and how broad it should be (I think). (Interestingly, during his questioning, Baxter again states that plaintiffs are seeking an advisory opinion from this court.) Mr. Franklin responded by saying that unconscionability is determined by the circumstances at the time of contract formation.
Ms. Olivier, counsel for amicus curiae National Consumer Law Center, also argued on behalf of the Plaintiffs/Appellants.
Ms. Olivier started by addressing the earlier question from Justice Kennard about what exactly are plaintiffs’ damages in this case. Ms. Olivier pointed out that §1770(a)(19) of the CLRA specifically prohibits the insertion of unconscionable contract provisions, and that §1780 speaks of one who suffers any damages, not just pecuniary damages.
At this time, Chief Justice George jumped in and asked: “So you are saying that the actual damage is the insertion of unconscionable provision? If plaintiffs never suffer any ‘practical damage,’ they still have standing to file a claim? ” Ms. Olivier responded that there has to be a nexus between the violation cited in section 1770 and the lawsuit (i.e., a causal connection).
After the discussion about the causal connection, Justice Kennard interjected: “Is that ‘damage’ in your view?” She then continued: “No matter how you define [damage], the customer just isn’t damaged when a provision is inserted in to a contract.” Ms. Olivier responded: “I would disagree, Your Honor. CLRA prohibits this…” She then discussed how the word “inserting” was actually used in the language of section 1770. Thus, CLRA does not just simply prevent unconscionability at the time of contract enforcement, it also prevents the insertion of unconscionablity at the time of contract formation.
At this time, Justice Moreno voiced about a “chilling effect to consumers.” Ms. Olivier agreed: “This is absolutely the case, as we are dealing with consumers who may not be so sophisticated.” She then went on and discussed the violations prohibited by section 1770 of CLRA and how several of them don’t require “damage.”
Justice Chin interjected: “Section 1780 talks about 5 remedies….all of which are available for a consumer who suffers ‘any damages.’ He asked how plaintiffs can get around with the term “any damage?” Ms. Olivier responded, “I don’t think we need to get around that, Your Honor.” She then stressed how the CLRA prohibits unconscionable provisions not just at “enforcement” of the contract, but also at the “formation” of the contract, as its goal is to stop unlawful business practices.
Justice Werdegar then asked the last question about whether what plaintiffs are seeking serves as “a deterrent effect of unlawful terms.” Ms. Olivier said yes, and when she tried to explain more, Justice Werdegar stopped her with a smile and said: “that’s it.”
Mr. Cardozo argued on behalf of the defendant/respondent.
He first discussed the statutory language in section 1780 which says “any consumer who suffers any damages ‘as a result of’ the use or employment by any person of…an [unlawful act]….” He said the inclusion of the phrase “as a result of…” requires something more than just the violation itself. Rather, there must be some kind of “consequential loss.”
Justice Werdegar then interjected: “Why wouldn’t a deterrent effect be the damage?” I don’t have notes on Cardozo’s response, but I recall he discussed the potential exposure to Sprint and the implication that anyone can bring a lawsuit.
Before I had a chance to write any notes on Cardozo’s response, Justice Kennard jumped in: “You started your argument by focusing on section 1789 … in trying to figure out what the word ‘damage’ means …. Black's Law Dictionary says it means ‘harm suffers from victim … to person or property.” Isn’t your view, given this definition, that plaintiff has suffered no harm, and consequentially no damage?” Mr. Cardozo affirmed and, again, reiterated his position that loss or damage must be a consequence of a violation.
Justice Moreno then asked a follow-up question: “What about being subject to it and the chilling effect on consumers?” Mr. Cardozo argued that simply being subject to the unconscionable provision is not enough.
Mr. Cardozo then proceeded to differentiate Kagan v. Gibraltar Sav. & Loan Assn., 35 Cal.3d 582 (1984), which the plaintiffs/appellants relied on heavily in their briefs, from the facts of this case. He pointed out how in Kagan the fees were actually deducted from an account; thus, there was a monetary loss. Also, he respectfully suggested to the court that: “what matters is not what Kagan said in 1984, but it’s what this court says today going forward.”
Justice Kennard then asked if it was Mr. Cardozo’s view that the opposing side (i.e., plaintiffs) misstated Kagan. She asked: “Your position is that Kagan is not on point?” Mr. Cardozo affirmed this position.
At this time, Mr. Cardozo moved to the issue of declarative relief. He pointed to P. 36 of his brief and pointed to how the authority to grant declarative relief is permissive one because of the word “may.”
Justice Werdegar asked: “What do you say to plaintiffs’ argument that no discretion was exercised?” Mr. Cardozo responded that he was surprised by that argument. He then talked about the history of the amended complaints in this case and referred to the language employed by the trial court in response to each amended complaint.
Justice Baxter then asked: “So when would declarative judgment be proper? Does plaintiff have to wait until plaintiff wants to sue?” Mr. Cardozo responded by pointing out to the court that the critical issue is whether there is an actual controversy. He then explained that, in order to have actual controversy, there must be a lawsuit, a dispute, or something imminent (e.g., a letter from counsel, a demand letter, etc.).
Before Mr. Cardozo had an opportunity to finish his argument, Justice Kennard cut him off and said: “I thought … you said the trial court would be first court to go to, blah blah blah … what then do you made by this decision by the federal court in Ting v. AT&T …. I realize we are not bound by federal decisions, but the court there granted declarative relief … so it has been done before.”
Mr. Cardozo questioned whether Ting v. AT&T is a replication of this case. Just right before his time was up, he said: “I’m left puzzled by that decision.”
Mr. Falk, counsel for the U.S. Chamber of Commerce as amicus curiae, also argued on behalf of Sprint.
He began his argument by pointing to the possible consequence of adopting an abstract definition of “damage” -- one consequence, he said, would be to “open the court doors to triviality.” His argument focused on “opening the backdoor to injury-less lawsuits.” “There are plenty of consumers who are [actually] injured,” he said. He then suggested that after Prop. 64 passed, courts started to see “uninjured” plaintiffs bringing lawsuits under CLRA. “The problem with CLRA is that it is so broad,” he argued. He worried that such broad language under CLRA might led to a situation where a consumer “thinking about” buying a TV can come to court and talk about what “might have happened.”
Justice Moreno asked Mr. Falk to respond to the argument that consumers are damaged when they signed the contract with the unconscionable provision. In response, Mr. Falk stressed that there must be some “tangible” loss -- it might not be pecuniary loss, but there must be some kind of loss which isn’t present in this case. (But he didn’t give an example).
Mr. Falk then proceeded to talk about how the CLRA is not an “advisory act.” He said CLRA outlaws misrepresentation, for example, but only those who are “damaged” by misrepresentation may come into the court.
Plaintiffs’ rebuttal was presented by Ms. Olivier. First, she suggested that Sprint is asking the court to allow it to retain these unconscionable provisions in these contracts. “This is the action that the CLRA prevents,” she argued.
Justice Baxter asked if this means a consumer may seek declarative relief to have such unconscionable provisions removed from a contract, so that he/she can enter into a contract without such a provision. In response, Ms. Olivier said that because consumers will be bound by the unconscionable provision, consumers should be able to get injunctive and declarative relief with respect to these provisions under CLRA.
With respect to the opposition’s position on Kagan, Ms. Olivier pointed out that the Kagan court noted two things. First, she said, the Kagan noted the specific acts/prohibitions enumerated in Section 1770. Second, Kagan noted the importance of injunctive relief which is to prevent further violations. She indicated that plaintiff did not allege specific economic harm.
Finally, with regard to Mr. Falk’s mentioning of Proposition 64, Ms. Olivier beautifully argued that the CLRA is not Proposition 64. She pointed to the specific language in Proposition 64 (i.e., "loss of money or property.” She said the language in CLRA does not say that. She ended her rebuttal by suggesting that defendant is asking this court to rewrite CLRA (or something to that affect).
ISSUE 1: Werdegar and Moreno: for the plaintiffs. Kennard and Baxter: for defendants. George, Chin, Corrigan: not sure.
ISSUE 2: Werdegar and Moreno, George: for the plaintiffs. Kennard and Baxter: for defendants. Chin, Corrigan: not sure.
Thank you, Kelly, for providing an extremely interesting report on the argument. Now, what do you think?
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