On Tuesday, the Court of Appeal (Fifth Appellate District) handed down a new opinion, Gutierrez v. CarMax Auto Superstores California, ___ Cal.App.5th ___ (Jan. 30, 2018), which contains a lengthy and interesting discussion of the CLRA.
The complaint alleged that the defendant sold plaintiff a used car without disclosing that important safety systems in the car were defective and subject to an active recall. Slip op. at 3-5. After considering and rejecting the breach of implied warranty claim (id. at 12-14), the Court turned to the CLRA.
The question presented was whether certain subsections of the CLRA's laundry list of prohibited acts--namely, those prohibiting specified types of "representations"--encompass non-disclosures in addition to affirmative misstatements. Id. at 14 ("whether concealment, omissions or failures to disclose are prohibited").
Following a lengthy analysis, the Court arrived at the following answer (with which the dissenting justice disagreed):
Based on the statutory text, legislative history (which includes the National Consumer Act), the judicial decisions and statutes that existed when the CLRA was enacted, the subsequent case law, and the many amendments to the CLRA from 1975 through 2016, we join Klein, McAdams and the other cases concluding that failures to disclose material facts are actionable under the CLRA. In particular, we conclude paragraphs (5), (7) and (9) of subdivision (a) of Civil Code section 1770 proscribe material omissions in certain situations.
Id. at 26-27 (emphasis added) (citing Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342 (2012); McAdams v. Monier, Inc., 182 Cal.App.4th 174 (2010); Bardin v. DaimlerChrysler Corp., 136 Cal.App.4th 1255 (2006)). (These three cases are discussed in these three blog posts.)
The Court then went on to hold that not all material omissions are actionable--a conservative construction of the CLRA that I think is inconsistent with the Act's purposes (and is supported by only some past opinions):
Not every omission or nondisclosure of fact is actionable. Consequently, we must adopt a test identifying which omissions or nondisclosures fall within the scope of the CLRA. Stating that test in general terms, we conclude an omission is actionable under the CLRA if the omitted fact is (1) “contrary to a [material] representation actually made by the defendant” or (2) is “a fact the defendant was obliged to disclose.” (Daugherty, supra, 144 Cal.App.4th at p. 835; see Rubenstein, supra, 14 Cal.App.5th at p. 881; Collins v. eMachines, Inc. (2011) 202 Cal.App.4th 249, 255 (Collins).)
Id. at 27.
The Court then elaborated on "the second type of omitted fact and the question of whether CarMax had a duty to disclose a fact not made known to the plaintiff." Id.
In Collins, the court identified four situations in which a failure to disclose a fact constitutes a deceptive practice actionable under the CLRA. (Collins, supra, 202 Cal.App.4th at p. 255.) Those situations arise when the defendant is plaintiff’s fiduciary, when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and when the defendant actively conceals a material fact. In addition, the duty to disclose exists “when the defendant makes partial representations that are misleading because some other material fact has not been disclosed.” (Ibid.) In the context of the CLRA, a fact is “material” if a reasonable consumer would deem it important in determining how to act in the transaction at issue. (Collins, supra, at p. 256.) In other words, a defendant has a duty to disclose when the fact is known to the defendant and the failure to disclose it is “‘misleading in light of other facts … that [the defendant] did disclose.’” (Klein, supra, 202 Cal.App.4th at p. 1382; see Civ. Code, § 1710, subd. 3.)
Id. (See this blog post for a discussion of Collins.)
The next section of the opinion addresses safety-related defects, à la Bardin and Daugherty v. American Honda Motor Co., 144 Cal.App.4th 824 (2006) (discussed here). The Court held that a defendant has a duty to disclose a "material" safety-related defect if the defendant had exclusive knowledge of the defect or if the defendant "actively concealed" it. Id. at 29-30. Two other circumstances creating a duty to disclose such a defect would be if a fiduciary relationship exists or if the defendant "makes partial misrepresentations but also suppresses a material fact." Id. at 30 (citation omitted).
The Court then turned to the complaint, holding that it alleged facts sufficient to support the conclusion that the defendant had "made partial representations" about the vehicle's (defective) systems, and that these were "likely to mislead" because the defendant had concealed other information about the systems (namely, that they were defective and the subject of a recall). These facts, in turn, stated an actionable CLRA violation (and a UCL "unlawful" prong violation). Id. at 30-33, 36-37.
However, "causes of action under the CLRA and UCL must be stated with reasonable particularity, which is a more lenient pleading standard than is applied to common law fraud claims." Id. at 31. (I believe this rule would apply only to CLRA and UCL violations sounding in fraud. Many UCL "unlawful" prong claims do not.)
The dissenting justice would have held that in cases involving sales of goods under warranty, the CLRA should not be construed to prohibit non-disclosures (with the exceptions stated in the CLRA's text):
The best way to harmonize the CLRA with implied warranty jurisprudence is to adopt the plain meaning of “representing” in the CLRA. Implied warranty law addresses the situation of goods failing to meet minimum levels of merchantability, regardless of what the seller did or did not say; and the CLRA, with its threat of punitive damages, steps in only when the seller acts deceptively.
By creating expansive omission-based liability under the CLRA, the majority is supplanting implied warranty law and upsetting the delicate balance it achieves.
.... In sum, the CLRA applies only to misrepresentations and specific, inapplicable omissions. Since the operative complaint does not successfully allege any affirmative misrepresentations under CLRA, the sustaining of the demurrer should be upheld.
Id., dissenting opn. of Poochigian, J., slip op. at 7-8 (footnote omitted).
These are all very interesting issues. I could see the Supreme Court becoming involved at some point.
Comments