Opinion ID: 2624588
Heading Depth: 3
Heading Rank: 1

Heading: Does the CLRA Require a Showing of Damages in Order to Demonstrate Standing

Text: (2) The CLRA makes unlawful, in Civil Code section 1770, subdivision (a) (all undesignated statutory cites are to the Civil Code), various unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer. These include, most pertinently to the present case, [r]epresenting that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law ( id., subd. (a)(14)) and [i]nserting an unconscionable provision in the contract ( id., subd. (a)(19)). Plaintiffs contend that with various unconscionable provisions in the arbitration agreement and various other unlawful restrictions on remedies and penalties, Sprint violated the CLRA and may be enjoined from including such provisions in its customer service agreements. Plaintiffs do not allege that there was any dispute between them and Sprint that necessitated resort to arbitration or to the other remedial provisions. Rather, theirs can be characterized as a preemptive lawsuit to strike these terms should any dispute arise. The question is whether the CLRA gives standing to permit such preemptive suits. (3) This question is one of statutory interpretation. When a court attempts to discern the meaning of a statute, it is well settled that we must look first to the words of the statute, `because they generally provide the most reliable indicator of legislative intent.' [Citation.] If the statutory language is clear and unambiguous our inquiry ends. `If there is no ambiguity in the language, we presume the Legislature meant what it said and the plain meaning of the statute governs.' [Citations.] In reading statutes, we are mindful that words are to be given their plain and commonsense meaning. ( Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1103 [56 Cal.Rptr.3d 880, 155 P.3d 284].) Sprint contends that plaintiffs do not have standing, relying on the plain language of section 1780, subdivision (a) (hereafter section 1780(a)), which states: Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following: [¶] (1) Actual damages, but in no case shall the total award of damages in a class action be less than one thousand dollars ($1,000). [¶] (2) An order enjoining the methods, acts, or practices. [¶] (3) Restitution of property. [¶] (4) Punitive damages. [¶] (5) Any other relief that the court deems proper. Sprint contends plaintiffs have not suffer[ed] any damage as a result of the allegedly unlawful practices. Plaintiffs make essentially two counterarguments. First, they contend that they have experienced some damage within the meaning of that statute. Second, they contend that section 1780(a) is in fact not a statute about standing and that there is no damage requirement for bringing a CLRA suit. As to the first argument, plaintiffs contend that the phrase any damage is not synonymous with actual damages, which generally refers to pecuniary damages. The language of section 1780(a) indicates that plaintiffs are correct. If any damage and actual damages were synonymous, then it seems likely only the latter phrase would have been used in the first part of subdivision (a). The juxtaposition of the two phrases so close together indicates that the phrases have different meanings. Moreover, the breadth of the phrase any damage indicates a category that includes, but is greater than, actual damages, i.e., those who are eligible for the remedy of actual damages are a subset of those who have suffered any damage. Sprint does not dispute this point. It concedes that any damage may encompass harms other than pecuniary damages, such as certain types of transaction costs and opportunity costs. [1] Plaintiffs then argue that the very presence of unconscionable terms within a consumer contract, in violation of section 1770, subdivision (a)(14) and (19), constitutes a form of damage within the meaning of section 1780(a). Sprint disagrees, arguing that in addition to the fact that an agreement contains allegedly unconscionable terms, [2] a consumer must experience some damage, some type of increased costs, as a result of the unconscionable terms in order to have standing pursuant to section 1780(a). (4) We conclude based on the language of the statute that Sprint has the better position. Section 1780(a) provides that: Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action under the CLRA (italics added). The statute speaks plainly about the use of an unlawful practice causing or resulting in some sort of damage. Thus, the statute provides that in order to bring a CLRA action, not only must a consumer be exposed to an unlawful practice, but some kind of damage must result. If the Legislature had intended to equate any damage with being subject to an unlawful practice by itself, it presumably would have omitted the causal link between any damage and the unlawful practice, and instead would have provided something like any consumer who is subject to a method, act, or practice declared to be unlawful by Section 1770 may bring an action under the CLRA. Plaintiffs cite in support Kagan v. Gibraltar Sav. & Loan Assn. (1984) 35 Cal.3d 582 [200 Cal.Rptr. 38, 676 P.2d 1060] ( Kagan ). In Kagan, the plaintiff chose a financial institution, Gibraltar Savings and Loan Association (Gibraltar), that had represented it would charge no management fees for an individual retirement account (IRA). After opening the account, Gibraltar informed the plaintiff that it would be charging a $7.50 fee for administering the account. Initial letters of protest against the fee were unavailing. The plaintiff hired counsel, who advised Gibraltar that it had violated the CLRA, and demanded that Gibraltar not deduct the fee, that it cease its misleading advertising practices, and that it rectify the charging of this fee to other similarly situated bank customers. Gibraltar responded by complying with some of the plaintiff's demands, but did not attempt to identify and reimburse all customers who had been charged the fee. The plaintiff filed a class action lawsuit on behalf of herself and those similarly situated who had been charged fees by Gibraltar. (35 Cal.3d at pp. 587-589.) Gibraltar, in opposing the class action lawsuit, contended that because the administrative fee was not actually deducted from the plaintiff's account, the plaintiff had not suffered any damage within the meaning of section 1780(a) and therefore had no standing to sue. The court acknowledged that, had the plaintiff's demand letter been made solely on her own behalf alone, Gibraltar's actions in rectifying its deceptive practice would have meant that no CLRA action would lie, because section 1782, subdivision (b) provides that no CLRA action for damages can be maintained when the unlawful practice has been timely corrected. ( Kagan, supra, 35 Cal.3d at p. 591.) But the court construed the plaintiff's demand letter as being made on behalf of a class of similarly situated consumers, and therefore falling under the rubric of section 1782, subdivision (c). That section requires that in order to defeat a class action lawsuit against a class injured by a practice proscribed under the CLRA, the party alleged to have committed the unlawful practice must adequately notify the members of the class and provide an opportunity for an appropriate remedy for the defective goods or services. Because Gibraltar did not comply with these strictures, the court found the individual remedy offered the plaintiff inadequate to preclude a class action. ( Kagan, supra, 35 Cal.3d at p. 592.) In so holding, the Kagan court made clear that the CLRA was specifically designed to preclude such `picking off' of prospective class action plaintiffs: `The most important point in connection with the settlement of class actions is that settlement with the named plaintiffs will not preclude them from further prosecuting the action on behalf of the remaining members of the class. Note that section 1782(c) precludes the further maintenance of the action only if all the described conditions are shown to exist. Those conditions require settlement with all reasonably identifiable members of the class.' ( Kagan, supra, 35 Cal.3d at p. 593.) Having so concluded, the court went further, stating: We thus reject Gibraltar's effort to equate pecuniary loss with the standing requirement that a consumer `suffer[] any damage.' As it is unlawful to engage in any of the deceptive business practices enumerated in section 1770, consumers have a corresponding legal right not to be subjected thereto. Accordingly, we interpret broadly the requirement of section 1780 that a consumer `suffer[] any damage' to include the infringement of any legal right as defined by section 1770. ( Kagan, supra, 35 Cal.3d at pp. 592-593.) Although the Kagan court equated the infringement of any legal right under section 1770 with suffering any damage pursuant to section 1780(a), its holding was ultimately based not on an analysis of that language, but on the provisions of section 1782, subdivision (c), that once a person has been the victim of a proscribed practice under the CLRA and makes a demand on behalf of a class, remedying the plaintiff's individual complaint does not disqualify her as class representative. Moreover, in Kagan it was indisputable that the defendant made clear its intent to deduct an allegedly fraudulent administrative fee from her account, and that the plaintiff was able to avoid the fee only by expending time and money threatening Gibraltar with a lawsuit. As discussed, the expenditure of such transaction costs to avoid the consequences of a deceptive practice falls within the broad meaning of suffering any damage as a result of the use or employment of an unlawful practice, whether or not those transaction costs are cognizable as actual damages. The plaintiff in Kagan may have also incurred opportunity costs, because Gibraltar's alleged misrepresentations may have diverted the plaintiff from finding a financial institution that did not charge administrative fees. (5) In the present case, however, because Sprint had not sought to enforce any unconscionable term against plaintiffs, Sprint has not actually imposed additional transaction costs on plaintiffs. Although the allegedly unconscionable terms may at some future time require plaintiffs to expend greater costs and legal fees should a dispute arise that requires arbitration or resort to other remedial provisions, it would contort the statutory language to conclude that the preemptive expenditure of fees for this litigation means that Sprint's alleged unlawful practices had caused damage at the time the lawsuit was filed. If we were to so conclude, then the mere employment of an unlawful practice would be sufficient to authorize a CLRA suit, a meaning which, as discussed above, the language of the statute does not support. We decline to extend Kagan to situations in which an allegedly unlawful practice under the CLRA has not resulted in some kind of tangible increased cost or burden to the consumer. [3] Plaintiffs' second argument is that section 1780(a) is not a standing statute at all, and that even though a consumer who suffers any damage may obtain various remedies, the statute does not provide explicitly or implicitly that one who does not suffer any damage is precluded from obtaining injunctive relief. Plaintiffs point to section 1782 in support of their position. Subdivision (a) provides: Thirty days or more prior to the commencement of an action for damages pursuant to this title, the consumer shall do the following: [¶] (1) Notify the person alleged to have employed or committed methods, acts, or practices declared unlawful by Section 1770 of the particular alleged violations of Section 1770. [¶] (2) Demand that the person correct, repair, replace, or otherwise rectify the goods or services alleged to be in violation of Section 1770. Subdivision (b), as noted provides no CLRA action for damages may be maintained if there is appropriate correction within 30 days after receipt of notice. Subdivision (d), provides in pertinent part: An action for injunctive relief brought under the specific provisions of Section 1770 may be commenced without compliance with subdivision (a). Not less than 30 days after the commencement of an action for injunctive relief, and after compliance with subdivision (a), the consumer may amend his or her complaint without leave of court to include a request for damages. (6) Thus, section 1782, subdivision (d) contemplates the filing of a CLRA action for injunctive relief alone, and such actions are not subject to the requirements of subdivisions (a) and (b) of notice and allowance for voluntary correction. But subdivision (d) does not alter the basic requirements of section 1780(a) that the consumer bringing the action has suffered damage as the result of unlawful practices. Although subdivision (d) does speak in terms of [a]n action for injunctive relief brought under the specific provisions of section 1770, section 1770 does not by itself authorize injunctive relief. Section 1780 is the only section of the CLRA that sets forth the available remedies, including injunctive relief. (7) An additional problem with locating the authority to file injunctive relief under the CLRA outside of section 1780 has to do with the availability of attorney fees for prevailing plaintiffs. As we have stated, the availability of costs and attorneys fees to prevailing plaintiffs is integral to making the CLRA an effective piece of consumer legislation, increasing the financial feasibility of bringing suits under the statute. ( Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1086 [90 Cal.Rptr.2d 334, 988 P.2d 67] ( Broughton ).) The attorney fee provision is to be found in section 1780, subdivision (e), which states that the court shall award court costs and attorney's fees to a prevailing plaintiff in litigation filed pursuant to this section.  (Italics added.) Thus, by its terms, attorney fees are not available under the CLRA for actions that do not meet the requirements of section 1780, including the requirement that the consumer suffers some damage as the result of specified unlawful practices. We do not believe the Legislature intended to authorize a CLRA action in which the critical attorney fee remedy would be lacking. (8) Plaintiffs also point to the CLRA statute of limitations, section 1783, which states: Any action brought under the specific provisions of Section 1770 shall be commenced not more than three years from the date of the commission of such method, act, or practice. Plaintiffs contend that this statute demonstrates that a CLRA claim is pegged to the specific provisions of section 1770 and that therefore the prerequisite to bringing a CLRA action is exposure to an act . . . declared unlawful in section 1770. We do not read the statute of limitations as altering the damage requirement of section 1780(a). Moreover, the statute of limitations set forth in section 1783 has been interpreted to run `from the time a reasonable person would have discovered the basis for a claim.' ( Chamberlan v. Ford Motor Co. (N.D.Cal. 2005) 369 F.Supp.2d 1138, 1148.) Plaintiffs' interpretation of section 1783 would have the perverse effect of requiring consumers whose contracts harbor unconscionable remedies to sue within three years after entering such a contract, regardless of whether these remedies have been used against them. It is doubtful this anticonsumer result is what the Legislature intended in section 1783. [4] (9) Plaintiffs also cite to section 1760, which states 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. A mandate to construe a statute liberally in light of its underlying remedial purpose does not mean that courts can impose on the statute a construction not reasonably supported by the statutory language. (See Williams v. MacFrugal's Bargains  Close-outs, Inc. (1998) 67 Cal.App.4th 479, 482 [79 Cal.Rptr.2d 98].) Here, as discussed, plaintiffs do not advance a reasonable construction of the CLRA that would permit a lawsuit based on that statute when a plaintiff has not suffered damage as a result of the practices proscribed by section 1770. Plaintiffs contend that requiring even a low damage threshold would allow corporations that deal with consumers to load their contracts with unconscionable remedial terms that would chill the efforts of consumers seeking to enforce their legal rights. Those concerns, while not unfounded, are overstated. The CLRA, in its injunctive relief provisions, allows plaintiffs to enjoin a corporation's deceptive or unlawful business practices throughout the state on behalf of the general public. ( Broughton, supra, 21 Cal.4th at pp. 1080-1081.) Thus, when, for example, an arbitration clause unconscionable on its face is asserted against a consumer, that consumer would not only be able to resist its enforcement in defending against a motion to compel arbitration, but would be able to enjoin the enforcement of that clause statewide. Nor, as the damages threshold was interpreted in Kagan and in the present case, would a corporation initially intent on engaging in an unlawful practice against a consumer, such as enforcing an unconscionable term, be able to avoid an injunction by remedying that consumer's individual grievance, thereby picking off troublesome plaintiffs. First, as discussed above, a consumer who has had to expend transaction costs in order to avoid the unconscionable term has suffered damage within the meaning of section 1780(a) and therefore has standing to sue. Second, section 1782, subdivision (d) makes clear that remedying an individual consumer grievance, while precluding CLRA individual damage lawsuits under certain circumstances, does not prevent consumers from suing to enjoin unlawful practices on the public's behalf. Third, as discussed above and in Kagan, if the action is filed as a class action lawsuit, section 1782, subdivision (c) makes clear that individual settlement will not undermine a plaintiff's status as a legitimate class representative. It is evident that any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits. (See Californians for Disability Rights v. Mervyn's LLC (2006) 39 Cal.4th 223, 228 [46 Cal.Rptr.3d 57, 138 P.3d 207] [discussing ballot arguments in favor of passage of Prop. 64 which cite litigation abuses due to liberal standing rules under the UCL].) It is also apparent that the Legislature, in weighing these costs and benefits in drafting the CLRA, set a low but nonetheless palpable threshold of damage, and did not want the costs of a lawsuit to be incurred when no damage could yet be demonstrated. We therefore conclude that the Court of Appeal was correct in holding that plaintiffs' complaint does not sufficiently allege a cause of action for injunctive relief under the CLRA.