Winston & Strawn LLP © 2009 CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C. Best Practices For Defending Claims Under the Consumer Legal Remedies Act ACCA–SoCal DoubleHeader®: Preparing For The Rebound November 17, 2009 Presented by: Steven D. Atlee

Winston & Strawn LLP © 2009 Consumer Legal Remedies Act (“CLRA”) The CLRA is a California statute intended to protect consumers against unfair and deceptive business practices Identifies 24 practices that are unlawful in connection with “a transaction intended to result in the sale or lease of goods or services to any consumer” 1 Allows a consumer to bring a lawsuit to obtain actual damages, injunctive relief, restitution, attorney’s fees and punitive damages, typically in the form of a class action 2 1 Cal. Civ. Code § 1770(a); 2 Cal. Civ. Code § 1780

Winston & Strawn LLP © 2009 CLRA Demand Letter CLRA requires a consumer who seeks to recover damages to send a written demand letter and wait 30 days before initiating an action for damages The letter must provide notice of the alleged wrongdoing and demand that the company correct, repair, replace or rectify the alleged violation The letter must meet other statutory requirements 3 3 Cal. Civ. Code § 1782(a)

Winston & Strawn LLP © Day Demand Period Once you receive the letter, you have 30 days to respond Your actions in these 30 days can help fend off a lawsuit or at least improve your company’s position if a lawsuit is inevitable

Winston & Strawn LLP © 2009 Proactive Steps to Avoid Litigation Was the demand letter sent by a consumer? Was the consumer damaged? Can your company cure the alleged violation effectively?

Winston & Strawn LLP © 2009 Was the Demand Letter Sent by a Consumer? The claimant must be a consumer in order to bring an individual action or maintain a class action under CLRA A consumer is “an individual who seeks or acquires, by purchase or lease, any goods or services for person, family, or household purposes” 4 Example: a wife who received an engagement ring is not a consumer, but her husband who purchased the ring is a consumer 5 Example: a trade group of grocers were not consumers of services for personal, family, or household purposes when they wanted to challenge a bank’s unconscionable contract provisions 6 4 Cal. Civ. Code § 1761(d); 5 Shauer v. Mandarin Gems of Cal., Inc., 125 Cal. App. 4th 205 (1994); 6 Cal. Grocers Assn. v. Bank of Am., 22 Cal. App. 4th 205 (1994)

Winston & Strawn LLP © 2009 Did the Consumer Suffer Any Damage? The claimant must have suffered damage within the meaning of the CLRA The alleged unlawful practice must have “resulted in some kind of tangible increased cost or burden to the consumer” Example: the expenditure of a transaction cost to avoid the consequences of a deceptive practice or the opportunity costs incurred from being deceived by the practice are sufficient damage The claimant’s expenditure of time and money in bringing the lawsuit may count as sufficient damage 7 7 Meyer v. Sprint Spectrum, L.P., 45 Cal.4th 634, 641, 643 (2009).

Winston & Strawn LLP © 2009 Consider Whether Your Company Can Cure Effectively If your company is able to cure the alleged violation within the 30 days or within a reasonable time, the claimant cannot maintain an action for damages 8 Identify consumers that are similarly situated to the claimant Notify all consumers that they will be provided relief upon request Provide the remedy Cease all prohibited practices as soon as possible 8 Cal. Civ. Code § 1782 (b), (c)

Winston & Strawn LLP © 2009 Examples of Possible Cures Repair or replace the product Extend the product warranty Provide additional disclosures to consumers Depend upon facts and circumstances

Winston & Strawn LLP © 2009 Efforts to Cure Cannot Be Used Against You Attempts to cure the wrongful behavior alleged in the demand letter cannot be considered an admission of engaging in an act or practice declared unlawful by the CLRA 9 Evidence of your company’s attempts to cure may even be introduced as evidence of good faith 10 9 Cal. Civ. Code § 1782 (c); 10 Cal. Civ. Code § 1782 (e)

Winston & Strawn LLP © 2009 Was the Alleged Violation An Unintentional Error? No award of damages may be given if the violation was not intentional and resulted from a bona fide error You must be able to demonstrate that reasonable procedures were in place to avoid the error Cal. Civ. Code § 1784

Winston & Strawn LLP © 2009 Preparing For A Potential Class Action A CLRA suit can proceed as a class action if: (1)it is impracticable to bring all members of the class before the court (2)the common questions of law or fact are similar for all individuals of the class (3)the claims of the claimant represent those of the class (4)the claimant protects the interests of the class Cal. Civ. Code § 1782

Winston & Strawn LLP © 2009 Preparing For A Potential Class Action Determine whether the number of individuals in the proposed class is manageable Identify ways that the claimant’s situation is unique Develop differences among class members in the existence of damages or in the manner damages were incurred Determine if the claimant’s attorney is qualified to conduct the litigation or if the claimant’s interests are antagonistic to the interests of the class

Winston & Strawn LLP © 2009 Preparing For A Potential Class Action If the claims relate to an alleged misrepresentation, the claimant must demonstrate the misrepresentation was “material” 13 Example: when an insurance company failed to disclose its own concerns about the premiums it was paying, plaintiffs were required to prove that those concerns would have been material to any reasonable person contemplating the purchase of that premium payment plan 14 Attempt to develop facts that show the alleged misrepresentation did not “induce the [claimant] to alter his position to his detriment” Mass. Mutual Life Ins. Co. v. Superior Court of San Diego, 97 Cal. App. 4th 1282, 1292 (2002); 14 Id. ; 15 Id.

Winston & Strawn LLP © 2009 Preparing Your Response Letter You must draft a response letter to the consumer before your 30 days has elapsed Describe cures or fixes your company has undertaken and offer a remedy if possible Avoid misstating or overstating any facts State the facts learned in your investigation that would help you fend off class certification

Winston & Strawn LLP © 2009 Conclusion If you receive a CLRA demand letter, remember that these suggestions can help successfully guide your company through the important first 30 days and beyond