Under the Consumer Legal Remedies Act (“CLRA”), consumers can bring suit against manufacturers for making fraudulent claims about their goods or services, or for failing to inform consumers of a known product defect. However, in recent years, some courts have rejected fraudulent non-disclosure claims if the product or service did not pose a risk to the health or safety of the consumer.
To illustrate, following the decision in Daugherty v. American Honda Motor Co., Inc. (Cal.App.2d Dist. 2006), 144 Cal.App.4th 824, by a California Appellate Court, both federal and state courts have been divided over whether claims can be brought under the CLRA for fraudulent omissions not involving threats to health and safety. This disagreement among the courts created a situation where a court might find that the CLRA does not protect consumers from certain fraudulent business practices except in a narrow range of cases involving threats to health or safety. As a result, the plaintiff’s bar and consumer groups have complained that manufacturers may potentially escape liability for concealing known product defects so long as the defect does not pose a safety risk to consumers. California Senate Bill 1188 seeks to eliminate this situation.
Senate Bill 1188 sponsored by Senator Hannah-Beth Jackson provides liability against a manufacturer who commits fraud by failing to disclose a known defect, whether or not there is a safety risk to the consumer. In pertinent part, the bill states:
"This bill, for the purposes of the Consumers Legal Remedies Act, would provide that fraud or deceit may consist of the suppression or omission of a material fact by one who is bound to disclose it or who gives information of other facts that are likely to mislead for want of communication of that fact, and would provide that a fact is material if a reasonable person would attach importance to its existence or nonexistence in determining a choice of action in the transaction in question. This bill would also provide, for the purposes of the act, that materiality is not limited to circumstances in which a product poses a threat to health or safety."
Opponents argue that this bill unfairly exposes merchants to tort liability after the expiration of a product’s express warranty. According to the California Chamber of Commerce, “This definition will significantly expand product defect litigation, especially class actions, as any alleged product defect will be deemed “material” once it has occurred, and the buyer will undoubtedly claim knowledge of this defect would have impacted the decision to purchase. Such an expansion of liability would render warranties absolutely meaningless, as all manufacturers and sellers would have to ensure the everlasting lifetime of a product.”
On May 6, 2014, Senate Bill 1188 was approved by the Senate Judiciary Committee. The bill has now moved to the Senate floor.