Managing Liability under the Consumer Legal Remedies Act
Our firm has seen an increase in costly California Consumer Legal Remedies Act (“CLRA”) class actions against small businesses. This article provides practical guidance for businesses to decrease the risk of liability from a CLRA suit.
Sellers of goods often use product labels to communicate facts about their products to potential customers. Nowadays, company websites and online product pages serve the same function as labels, and as a result, sellers have ample opportunity to make representations about their products to consumers. When those sellers do so in California, they must ensure that those representations do not mislead consumers; otherwise, the seller will be subject to liability under the CLRA.
Who Can Be Sued?
All businesses involved in providing consumer goods, including manufacturers and retailers, are subject to the requirements and restrictions of the CLRA. The CLRA allows anyone who purchased goods in California to bring suit for a wide variety of unfair practices committed in connection with the sale of the goods.
Consumer protection laws such as the CLRA serve the purpose of commercial speech regulation by encouraging sellers to make greater efforts to verify the truth of their statements. Because the average consumer is not able to verify every statement a seller makes about the goods they are selling, the CLRA treats the goal of protecting consumers from misleading claims about goods as very important.
What is Prohibited?
The CLRA, and in particular California Civil Code section 1770(a), lists twenty-seven prohibited unfair consumer practices. Of these practices, the following prohibitions are the commonly used by plaintiffs alleging that a seller has overstated or incorrectly stated a characteristic of its product or otherwise misled consumers: (i) representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have; (ii) representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another; (iii) advertising goods or services with intent not to sell them as advertised; and (iv) representing that a transaction confers or involves rights, remedies, or obligations that it does not have or involve, or that are prohibited by law.
Taken together, these prohibitions constitute a broad proscription against “mislabeling”—that is, against misrepresenting the standard, quality, content, or grade of goods, whether on the label of the product, on the business’s website, or in any other printed, digital, or audio/visual materials available to consumers. Here are some examples of potential violations of the CLRA:
- overstating the SPF of a sunscreen
- stating that an eye cream has medical benefits that it does not have
- using the words “fruit juice” alongside images of a series of fruits, where the product contains no fruit juice from any of the pictured fruits
- branding pet food as “prescription” pet food, and making the pet food available only by prescription, where the pet food does not possess any special medicinal qualities or FDA evaluations that non-prescription dog food does not possess
- labeling a cleaning agent as “non-toxic” and “earth-friendly” when it in fact causes harm to humans, animals, and the environment
- labeling vitamins “One A Day” where the dosage requires two per day
- labeling the front of a salad dressing as “with olive oil,” and not mentioning any other oils on the front, where the dressing in fact contains 5% olive oil and 20% canola oil
As these examples suggest, the CLRA bans a broad swath of commercial speech that has any tendency to deceive or mislead consumers about the goods they are purchasing. It is important to note that, while the CLRA bans statements that are objectively untrue, it also bans statements that are misleading, even if not objectively untrue. In a recent case, Salazar v. Target,the California Court of Appeal found that the label “white baking chips” on a product not actually made of white chocolate, when placed on a shelf among other chocolate baking chips, was misleading under the CLRA. Even though the challenged baking chips were literally white in color, the court found that the label tended to mislead consumers to believe that the chips were made of white chocolate.
What Can Consumers Recover?
The primary remedy for plaintiffs under the CLRA is “actual damages.” For a typical mislabeling case, an individual consumer’s actual damages is equal to the difference between the amount they paid for the product and the amount the product is actually worth when disregarding the false or misleading statements made by the seller. For example, suppose a consumer pays $5 for a beverage that advertises itself as 100% juice, and suppose the actual juice content of the product is only 50%. As a result, the sunscreen is worth less than the $5 the consumer paid for it. The jury will determine exactly how much; if the jury determines that the 50% juice is worth only $4, then the damages are $1 per consumer.
For most goods, the damages any individual consumer will incur as a result of a CLRA violation will not be too great. In the case of a highly dissatisfied customer, many sellers choose to completely refund the buyer’s purchase price, thus fully compensating the consumer for any damages they may have under the CLRA. That said, the CLRA’s teeth comes from its mechanism allowing consumers to bring a class action. The CLRA allows class action plaintiffs to pursue certification of a class of, and damages on behalf of, all consumers who purchased the challenged product within the past three years. Thus, sellers with significant market penetration can face extremely high liability if they sold many units during the prior three-year period.
In addition to actual damages, CLRA plaintiffs can obtain (i) an injunction, that is, an order directing the seller to cease the unfair act or practice; (ii) restitution; (iii) punitive damages; and (iv) attorneys’ fees. As a result of all the remedies the CLRA makes available, sellers with a large volume of sales face potentially severe exposure under the CLRA.
What can Businesses do to decrease the risk of getting sued?
Sellers can decrease the risk of getting sued under the CLRA by carefully examining all claims made on labels and in marketing materials. Sellers should examine their labels, marketing materials, and product placement from the perspective of a naïve consumer whose understanding of the product is based entirely on the label and marketing materials. First, sellers should consider any claim that a product has a certain quantity of a particular chemical, substance, or compound, whether expressed as a percentage or as an absolute value. Sellers should conduct and document sufficient pre-marking testing to ensure that any numerical claims are accurate, and when in doubt, sellers should state quantities conservatively to decrease the risk of liability.
Beyond that, sellers should consider any information they provide about the content and capabilities of the product. If a seller claims that its product can cure some problem or modify some condition, the seller should ensure that the product actually has that capability and should document it with pre-market testing where feasible. To help ensure that claims about the capabilities of a product are not overstated, sellers should consider providing disclaimers. A disclaimer can be as simple as “Individual results may vary,” or it can go into more detail, specifying that a claim is based on a particular test or clinical trial that yielded a particular set of results. However, the disclaimer must be sufficiently prominent, or else the seller risks a finding that making a claim prominently, and then making a disclaimer less prominently, was misleading.
Sellers should not rely on the back of the product’s label to clear up uncertainty that may arise from the front of the label. Under the CLRA, consumers are not expected to look beyond the front of the label to search for more information on the back of the label, or further down on the webpage, that clears up the uncertainty. If the front of the label, taken on its own, is misleading, that can lead to CLRA liability.
Finally, those naming their brands or their products, including those developing their product trademark portfolios, would be well advised to take into account the potential for liability under consumer protection laws such as the CLRA. Under the CLRA, when the brand name or product name contains an assertion or a suggestion about the product, that assertion is seen as more likely to mislead the consumer. This is because the consumer is less likely to look beyond the brand and product name in understanding the product’s characteristics and determining whether to purchase it. So, for example, a seller that sells toxic pesticides under the brand name “For the Good of the Green Earth” could potentially be liable under the CLRA no matter what else the label says about the product.
What to do if you receive a CLRA notice
Before a plaintiff can go to court and file a CLRA lawsuit for actual damages, the plaintiff must provide a “CLRA notice,” that is, a written notice to the seller asking it to correct, repair, replace, or rectify the goods alleged to violate the CLRA. As discussed above, damages are the main source of liability for defendants and big wins for plaintiffs and their class-action lawyers, so it is very common that a plaintiff will provide a CLRA notice at or around the time of commencing their lawsuit, laying the groundwork for the plaintiff to pursue damages.
If you receive a CLRA notice, it is important to review it thoroughly and act quickly. A proper and thorough response to a CLRA notice can be a powerful way of significantly curtailing your liability at the outset of the suit.
Upon receipt of a valid CLRA notice for an individual consumer (i.e., not a class action), a seller has just thirty days to correct or offer to correct the problem. This is not a long period of time. When the claim of only an individual consumer is at issue, curing usually involves repairing or replacing the product at issue, or providing a full or partial refund. But when the claim is a potential class action, providing cure can be more difficult.
The key statute calls upon sellers faced with a class-action CLRA notice to (1) identify all similarly situated consumers, or make reasonable efforts to do so; (2) notify those consumers that, upon request, the seller will provide the appropriate repair, replacement, or remedy; (3) actually provide the repairs; and (4) cease the challenged act or practice—that is, change the label or other material so it is not misleading.
Once the seller has accomplished all these things, then the consumer is barred from suing for money damages and can only pursue an injunction. If the consumer has already sued for money damages, the request for money damages is subject to dismissal.
Typically, when a seller is served with a class-action CLRA notice, a good basic first step is to offer the plaintiff a complete refund or replacement of the challenged product. Beyond that, the best course of action is a highly individualized inquiry and depends on many considerations.
Note that the Court ultimately decides whether a seller’s attempt to cure was reasonable and sufficient. The goal is not to make Plaintiff and their counsel accept the cure offer; the goal is to make a reasonable attempt to fix the problem in a reasonable amount of time and, if necessary, to convince the Court that those efforts have been reasonable. If the seller is successful, the consumer can no longer pursue money damages on behalf of the class, which can significantly decrease the seller’s exposure.
Conclusion
As you can see, when a seller is served with a CLRA notice or a CLRA lawsuit, there are many nuanced considerations, even from the outset. It is very difficult to limit potential CLRA liability without the assistance of a skilled attorney. If your business has been served with a CLRA notice or lawsuit, or if you seek legal advice regarding minimizing your liability under the CLRA, contact our offices today.