Overview of the CLRA and Available Remedies

In 1970, the Legislature enacted the Consumers Legal Remedies Act (CLRA) in an effort to protect consumers from deceptive and unlawful business practices in transactions involving the sale or lease of goods or services. The CLRA prohibits about two dozen unfair or deceptive acts and practices, including falsely claiming a product has benefits or characteristics it does not have, misrepresenting the source or quality of goods or services, selling used goods as new, and making false advertising claims. In order to sue under the CLRA, a person must be a “consumer,” which is defined as one who “seeks or acquires, by purchase or lease, any goods or services for personal, family or household purposes.” Consequently, the CLRA does not apply to individuals who purchase or lease goods or services for business purposes. A plaintiff suing under the CLRA can seek actual damages for any monetary losses, an injunction prohibiting unlawful acts and practices, restitution of property and punitive damages. Consumers who purchase or lease vehicles frequently seek rescission (i.e. cancellation) of the contract which involves returning the vehicle and receiving a refund of their downpayment, monthly payments and a payoff of any outstanding loan on the vehicle. The CLRA allows for an additional award of up to $5,000 to senior citizens or disabled persons where certain conditions can be satisfied, including that they suffered substantial physical, emotional or economic damage. Notably, the CLRA explicitly provides attorneys’ fees to plaintiffs if they prevail on their claim. A plaintiff is considered the prevailing party on a CLRA claim when a “net monetary recovery” is obtained. 

Notice Requirements and Defenses Under the CLRA

The CLRA has a preliminary notice requirement which obligates a consumer seeking damages to send the dealer a CLRA demand letter by certified mail, return receipt requested, at least 30 days before filing a lawsuit, in order to notify the dealer of the alleged violations and request that the issues be rectified. The purpose of the notice requirement is to give the dealer sufficient notice of the alleged violations so that the dealer has a reasonable opportunity to offer appropriate corrective action and to facilitate the settlement of claims out of court before legal proceedings begin. The CLRA demand letter is typically sent by the consumer’s attorney and must be delivered to the place where the transaction occurred or to the dealer’s principal place of business in California. Instead of sending a CLRA demand letter, some plaintiffs’ attorneys rely on a statutory exception and file a lawsuit seeking only injunctive relief and then 30 days later they file an amendment in the lawsuit to seek damages for the CLRA claim. A consumer’s failure to comply with the preliminary notice provision can be fatal to their CLRA claim. In addition, the CLRA contains an affirmative defense which allows the dealer that is sued to avoid damages by proving the alleged violation was not intentional, resulted from a bona fide error, and that a reasonable correction was offered to the consumer within 30 days of receiving the CLRA demand letter. 

Why Is the CLRA So Popular With Plaintiffs’ Attorneys?

The CLRA has gained considerable favor with plaintiffs’ attorneys for two reasons. First of all, proving liability for a CLRA claim is easier than it is for other misrepresentation claims, such as fraud. That is because a fraud claim requires the plaintiff to prove that the false statement was knowingly made by the business. A CLRA claim, however, has a relaxed standard of proof and does not require proof that the business knew the statement was false at the time it was made. Secondly, and perhaps the most significant aspect of the CLRA that has made it attractive for plaintiffs’ attorneys, is that it is one of the few laws that allows prevailing plaintiffs to recover an award of attorney’s fees if they win. Conversely, prevailing defendants are not entitled to recover attorney’s fees unless they can satisfy the rigorous burden of proving that the plaintiff’s lawsuit was not brought in good faith. In essence, the CLRA incentivizes plaintiffs’ attorneys to vigorously litigate cases that otherwise appear trivial due to the tremendous upside of recovering substantial attorneys’ fees if they win. Indeed, in cases that go all the way through trial, even though the award of damages to the consumer might be minimal, the attorney’s fees and costs can easily be well into the six figures. From a defense standpoint, it can be risky to litigate a CLRA claim because a defendant who loses will end up paying their own attorney’s fees as well as those of the plaintiff.

What Should a Dealer Do After Receiving a CLRA Demand Letter?

Dealers that receive a CLRA demand letter should take it seriously because failing to respond in a timely and appropriate manner can lead to a lawsuit against the dealer that might have been avoided by a proper response. Dealers should train employees who receive mail to note the date the CLRA demand letter was received and to ensure that it gets forwarded to defense counsel so that a prompt response can be sent within the 30-day deadline. Upon receiving a CLRA demand letter, a dealer should investigate whether any insurance coverage exists that may cover the claim so that the claim can be tendered to the insurance carrier. Some insurance companies will appoint defense counsel to prepare a response to the CLRA demand letter even though a lawsuit has not yet been filed. Dealers should also preserve all documentation and evidence relating to the transaction in question, including the deal file, any pre-sale photographs of the vehicle, as well as any documentation of communications with the customer such as emails or text messages. The letter sent in response to the CLRA demand letter typically indicates whether the dealer disputes the customer’s allegations, whether it is willing to resolve the matter, or whether additional information and documentation is requested to further investigate the customer’s claims. The response letter can include an offer to rectify the alleged violations, such as a monetary settlement offer, which can serve as an affirmative defense later if the customer decides to pursue litigation. The language in the response letter should be carefully crafted to avoid inadvertently admitting to any wrongdoing. It is a good idea to send a response letter even if the dealer decides not to offer a correction because doing so may help prevent a situation such as the customer’s attorney later arguing in the litigation that the dealer did not care enough about the customer’s claim to respond to the letter. 

Determining the best way to respond to a CLRA letter can be difficult because the CLRA demand letter often provides only sparse details about the customer’s claims. For instance, customers frequently allege that the dealer’s sales representative made a misrepresentation by falsely stating that a vehicle had not been involved in any prior accidents when, in fact, the vehicle did have accident damage that the customer later discovered. In those situations, it can be difficult to evaluate the customer’s claims because by the time the dealer receives the CLRA demand letter, the customer has already driven off with the vehicle, and the dealer no longer has access to it. If litigation ends up going forward, the dealer will have the right to conduct discovery to obtain additional information about the customer’s allegations, including the ability to perform a vehicle inspection. However, engaging in the discovery process prolongs the case and increases the customer’s attorney’s fees and costs, which may increase the amount the customer’s attorney ultimately demands to settle the case. Dealers who are interested in avoiding a costly lawsuit sometimes take an economic approach and endeavor to settle the case for nuisance value soon after receiving a CLRA demand letter, even though at that point, only minimal information may be available to assess the customer’s claims. Other dealers prefer not to pay any money to settle a claim until they obtain solid proof supporting the customer’s claims because they believe doing so would send the wrong message and make them a target for more claims in the future. Ultimately, determining the best approach to respond to a CLRA demand letter requires a detailed analysis of the specific factual circumstances of each case. Given the intricacies involved with responding to a CLRA demand letter, as well as the potentially harmful consequences that can result from not responding in an appropriate manner, it is important for dealers who receive a CLRA demand letter to act promptly and consult with competent counsel.