Heeding the Transaction Requirement in California’s Consumer Legal Remedies Act

Where a deceptive practice or unfair competition is alleged under the California Consumer Legal Remedies Act (“CLRA”), there must be some underlying context where this behavior manifests: the transaction.

The term “transaction” is used by and defined in the statute, which definition comports with the common sense, plain meaning of the word.

Yet, application sometimes defies the common sense, plain meaning definition when consumers do not direct their claims at the parties who sold them the goods.

Some courts in class actions gloss over the transaction requirement, referring to past cases such as Chamberlan or Keilholtz that also omit reasoned and meaningful analysis on the topic.

In a recent example, the third-hand owner of a car was allowed to litigate a CLRA claim against the original manufacturer, despite the fact the car was purchased out of warranty from a third-party used car dealer. He did not enter into a transaction with the manufacturer. The manufacturer was unaware plaintiff had bought the car. The manufacturer was not given the opportunity to disclose any information to said “consumer” before he purchased the used car, much less the alleged material information at issue. Seifi v. Mercedes-Benz USA, LLC, 2013 BL 138080, N.D. Cal. (“plaintiffs who purchased used cars … have standing to bring CLRA claims against manufacturers, even though they never entered into transactions directly with the manufacturers.” (citing without analysis Chamberlan v. Ford Motor Co., 369 F. Supp. 2d 1138, N.D. Cal.

A competing line of cases requires a more meaningful application of the transaction element. The plain language of the statute, as well as the legislative intent behind the statute, requires there be some distinct relationship between the party suing and the party being sued.

Evolution of a Split in Authorities

The CLRA provides a private right of action for “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.” Cal. Civ. Code §1770(a).

A “transaction” under the CLRA is defined as “an agreement between a consumer and any other person, whether or not the agreement is a contract enforceable by action, and includes the making of, and the performance pursuant to, that agreement.” Cal. Civ. Code §1761(e). “Consumers” is defined as “an individual who seeks or acquires, by purchase or lease, any goods or services for personal, family, or household purposes.” Cal. Civ. Code §1761(d).

While there has been significant litigation about the term “consumers,” there is relatively little directed at the term “transaction.” Sometimes, there is overlap where it appears the court is actually addressing the transaction term. The principal example is Schauer v. Mandarin Gems of Cal, Inc, 125 Cal. App. 4th 949. Plaintiff Schauer’s ex-husband bought an engagement ring significantly overvalued by the jeweler. After a divorce, plaintiff claimed the quality and value of the ring was misrepresented by the retailer and she sued. While Schauer owned the ring, since she did not buy the ring from the jeweler, the court did not find she was a “consumer” within the meaning of the statute. But her CLRA claim was dismissed because “ownership of the ring was not acquired as a result of her own consumer transaction with defendant, and without an assignment of [her ex-husband’s] rights, she does not fall within the parameters of consumer remedies under the Act.” Id. at 960. The court conflates terms, but ultimately Schauer did not enter into a consumer “transaction” and the claim was denied. See also,
Morris II v. Farmers Insurance Exchange, 2006 BL 157944, Cal. (adopting Schauer in affirming demurrer of CLRA claim).

A few years earlier, a court in the Northern District of California interpreted the California statute differently, establishing a split in authority that remains today. Chamberlan v. Ford Motor Co., 2003 WL 25751413, N.D. Cal. (“Chamberlan I”), among other things, considered a challenge to the CLRA for failure of plaintiffs to allege a transaction between the plaintiffs and Ford. The plaintiffs all purchased their vehicles used. The court considered the language of the CLRA, as well as the history of 1970 legislation:

As originally introduced in the legislature, the language of §1770 proscribed `unfair methods of competition and unfair or deceptive practices undertaken by any person in the conduct of any trade or commerce ….’ Assembly Bill 292, Regular Session (Cal. Jan. 21, 1970) (emphasis added). An amended version of the bill replaced `conduct of any trade or commerce’ with `sale or lease of goods to any consumer.’ Amended Assembly Bill 292, Regular Session (Cal. May 22, 1970).

However, before the bill was passed, the legislature also inserted another phrase: `a transaction intended to result or which results in.’ Thus, the legislature expanded the range of illegal acts and practices to include those `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.’ Chamberlan I, at *8.

The court then disregarded the evolution of the bill and the specific insertion of the transaction requirement. It interpreted the statute, as written, to encompass transactions between plaintiffs and used car sellers. The court reasoned that Ford, through its network of authorized dealerships acting as its agents, warranted, advertised, distributed and sold its automobiles throughout California, engaged in transactions that “intended to result or which results in the sale or lease of goods or services to any consumer,” ultimately including resales. Id.

The court did this without explaining how a third party (e.g., a used car buyer years after the first sale) can piggy-back on a claim the first owner may have had—a concept later barred by Schauer. For example, the duty to disclose material information to a consumer, as well as the act of disclosure itself, occurs at the time of the transaction. The court omits discussion regarding how a manufacturer is to meet these requirements to an unknown consumer buying the car on resale from an unknown party in the absence of a transaction involving the manufacturer.

Regardless, it is not Chamberlan I that is cited; rather, the common citation found in orders is the post-Schauer, May 2005 decision in Chamberlan v. Ford Motor Co., on Ford’s summary judgment motion. 369 F. Supp. 2d 1138, N.D. Cal. (“Chamberlan II”). The decision states, without any analysis, that “Defendant has also shown no grounds for the Court to reconsider the conclusions in its previous order, namely that pure omissions are actionable under the CLRA and that plaintiffs who purchased used cars have standing to bring CLRA claims, despite the fact that they never entered into a transaction directly with” the auto manufacturer. Id. at 1144. While the court refers to its previous analysis in Chamberlan I, few cases reference the analysis from Chamberlan I.

Keilholtz v. Superior Fireplace Co., 2009 BL 68924, N.D. Cal., written by the same judge who authored the Chamberlan opinions, involved a claim that fireplaces with single-paned, unguarded glass fronts were dangerous and defective. On a motion to dismiss, defendant raised multiple challenges, including the failure to allege a transaction between plaintiff and defendant since the homebuilder purchased and installed the fireplaces, and subsequently sold the homes to plaintiff and the putative class. The court noted that defendants did not cite any legal support for their position and dismissed the claim finding plaintiffs satisfied the transaction requirement. Id. The case does not provide any analysis, as evidenced by the short one-paragraph discussion, but is frequently cited along with Chamberlan II.

Years after the Schauer and Chamberlan decisions, and months after Keilholz, Judge Feess of the Central District of California specifically considered and rejected the reasoning in Chamberlan I. See Green v. Canidae Corp., 2009 WL 9421226, C.D. Cal.

Green involved a putative class action on behalf of pet owners who purchased certain dog food alleged to have cause pet illnesses. Plaintiff claimed defendants violated the law when they reformulated the dog food without disclosing the change to pet owners. On a motion to dismiss, the court dismissed with prejudice, among other causes of action, the CLRA claim, because the “CLRA does not provide a cause of action for consumers against the supplier of goods and services to a retailer from whom the consumer purchased.” Id. at *4.

The court found the plain meaning of the statutory language trumped the Chamberlan I interpretation of the statute. Specifically, the court held, “the legislation clearly contemplates consumer transactions between a consumer and a retail seller, and does not apply to commercial transactions between a retailer and its vendors to acquire a supply of goods for resale.” Id. “The implication of [Chamberlan] is to apply the CLRA to all vendor transactions as long as they are present somewhere in the chain of sale of a consumer good. The CLRA does not contemplate that result.” Green, 2009 WL 9421226see also Fulford v. Logitech, Inc., 2008 BL 259575, N.D. Cal. (where plaintiff bought the H1000 remote used, the court determined that “[a]lthough the consumer alleged that he suffered damage as a result of the company’s deceptive acts he failed to allege that the company engaged in such acts in the course of a transaction with him.” Id. at *1); Sateriale v. R.J. Reynolds Tobacco Co, 2010 WL 3153548, C.D. Cal. (considering but disregarding Chamberlan II).

In addition to giving deference to the plain meaning of the statute, Green also distinguished Chamberlan, because the court believed the consumer plaintiffs in Chamberlan bought their used cars from authorized Ford dealerships alleged to be acting as agents of Ford. On this point, Green also cited to Fulford, which specifically disregarded Chamberlan I because “the plaintiffs purchased the used products there at issue from ‘authorized dealerships acting as … agents’ of the manufacturer defendants.” Fulford, 2008 BL 259575.

Whether or not the Chamberlan plaintiffs purchased the used cars from Ford’s agents, it is important to note the nexus between the parties reconciled Chamberlan with the analysis from Green and Fulford. Under the Green and Fulford reasoning, even Chamberlan did not contemplate that the CLRA would apply to all resales in the chain of ownership over the full lifetime of the good. The parties had to be tethered by some nexus.

That tether has been lost in the line of cases that cite to the summary language from Chamberlan II that “Plaintiffs who purchased used cars have standing to bring CLRA claims, despite the fact that they never entered into a transaction directly with Defendant.” 369 F. Supp. 2d at 1144; see, e.g., Seifi; Makaeff v. Trump University, LLC, 2011 BL 143402, S.D. Cal. (Court held on a motion to dismiss that “the fact that Plaintiffs entered into a transaction with Trump University rather than Trump himself does not require dismissal of the CLRA claims.” (citing without analysis to Chamberlan II)); In re Sony Vaio Computer Notebook Trackpad Litigation, 2010 WL 4262191, S.D. Cal. (citation without analysis to Chamberlan II); Tietsworth v. Sears, 720 F. Supp. 2d 1123, N.D. Cal. (same).

Retethering the Transaction Element

Looking at the legislative history, and the language of the statute, Schauer, Green, Fulford and their progeny are better reasoned.

Moreover, these decisions provide clarity to this area of the law. It also comports with common sense that absent some opportunity to practice the forbidden acts of Section 1770, a party down the chain of resales has no right to sue the original manufacturer on a claim relating to the consumer/plaintiff’s transaction with a third-party at the time of the resale.

The fundamental basis of a claim under CLRA is some interaction (“transaction”) between the parties in suit, where the seller commits one of the acts enumerated by Section 1770. There is nothing in the statute that allows derivative claims by subsequent purchasers from the original transaction between the manufacturers and their dealers, or the dealers and the original purchasers.