SB1188 could expand product litigation

 

“California has consistently had one of the worst lawsuit climates in the nation, currently ranked at 47th for lawsuit fairness,” concluded the Institute for Legal Reform’s 2012 Lawsuit Climate Report. “The courts in Los Angeles rank as the country’s second worst for legal fairness, with San Francisco’s courts coming in at fourth worst.”

Unlikely to improve California’s litigious image is Senate Bill 1188, which would make it easier to file lawsuits over defective products with expired warranties. Currently, post-warranty product defect lawsuits must meet the threshold of the defect harming the health or safety of the plaintiff.

SB1188 was approved by the Senate Judiciary Committee on May 6. Committee Chairwoman Sen. Hannah-Beth Jackson, D-Santa Barbara, introduced the bill to the committee, saying it merely codifies the original intent of the state’s Consumer Legal Remedies Act. Jackson said:

“The CLRA is a consumer protection statute designed to prevent unfair and deceptive business practices from taking hold in California’s marketplace. Among other things, the act prohibits sellers from making fraudulent claims about their goods and services, and from fraudulently withholding or omitting material information about a product from California consumers in the course of a transaction.

“Since 1970 this act has allowed Californians to hold merchants accountable when they commit fraud in the course of selling goods and services, and is one of the stronger consumer protection statutes in California law. Unfortunately for California’s consumers, however, the CLRA has been somewhat weakened in recent years through a handful of court decisions that have narrowed the act’s original scope.”

Federal court: Defect must affect health or safety

Federal courts limit product defect litigation to complaints that affect health and safety, she said. Since 2005, class-action lawsuits have to be filed in federal court, taking much of the product defect judicial review out of California’s more liberal interpretation of the CLRA.

“Because of the confusion in the courts, California consumers may not be able to rely on the CLRA to protect them from certain fraudulent practices not directly involving risk to health and safety,” said Jackson. “SB1188 addresses this confusion in the courts by codifying longstanding California law that the CLRA holds merchants accountable whenever they commit fraud by failing to disclose material facts about a product, when they knowingly conceal the existence of a material defect in a product – and regardless of whether the defect presents a safety hazard.”

Jackson said the bill defines a “material defect” as, “If a reasonable person would attach importance to its existence or non-existence in determining a choice of action in the transaction in question.”

She summed up the bill: “Essentially it will sort of revitalize a law that was passed in 1970 and has been sort of mucked up a little bit in recent years.”

Kristen Law Sagafi, representing the Consumer Attorneys of California (formerly called the California Trial Lawyers Association), told the committee that the CLRA has been essential in nearly every lawsuit she’s filed in the last 12 years “involving defective products ranging from roofing shingles to refrigerators to cars and personal electronics.”

Deliberate obsolescence

Sagafi provided a hypothetical example of the need for SB1188:

“Let’s say a consumer buys a product with a one-year warranty. This might be an appliance costing thousands of dollars, say a high-end refrigerator or washing machine. Under the current precedence, the manufacturer can sell that product knowing it will fail the day after the express warranty expires. Indeed, under current law the manufacturer could install some kind of chip that would cause the product to fail on day 366.

“Let’s say the product does fail the day after the warranty runs. As long as the product fails safely in a way that does not create a safety hazard, as the law currently stands, the consumer cannot state a consumer fraud claim under the CLRA. This interpretation of the statute is utterly at odds with the plain language of the statute, which says nothing about a safety requirement. And it also contradicts many years of interpretive case law in California.”

Richard Holober, executive director of the bill’s cosponsor, the Consumer Federation of California, cited thwarted litigation efforts under the current interpretation of the law:

“Consumers who bought certain Sony television sets that started to show spots, stains, haze, garish colors soon after the warranty expires, but not long after the purchase, were not able to bring a case, because, while the television was worthless, the worthless nature of the television did not threaten their life or limb.

“Purchasers of washing machines that were marketed by Sears Roebuck of being the highest quality, that malfunctioned after the warranty period but long before a reasonable person would say that its useful life had expired, were not able to bring a case when the electronic control panel of those washing machines malfunctioned, making the washing machine no longer of value to that consumer.”

Litigation floodgates

Katherine Pettibone, legislative director of the Civil Justice Association of California, is concerned that SB1188 will result in a deluge of frivolous lawsuits. She said:

“We fear that this is going to open the floodgates. As courts have noted, all product failures at some point can be attributed to latent defects. Outside warranty periods, the courts have noted, average consumers would only expect the manufacturer to guarantee against unreasonable safety risk. So, many, many courts have now upheld this idea that if the product performs as warranted, then they have fulfilled their duty.

“We have all purchased products that went awry on us or made us absolutely crazy because we think, ‘Wow, it just broke and should have lasted longer.’ But that’s what the warranty period is. And I can buy an extended warranty to protect against that. At what stage does that thing that the manufacturer failed to identify lose the liability? Our products would have to reflect those costs.”

Pettibone said that if SB1188 passes, then iPhone owners whose expired warranty phones break after being dropped “would be able to sue under the concept, ‘I was not warned that if I dropped it on granite it would fracture.’ That probably is obvious to many of us, but I would be able to sue no matter how late that was after the warranty expired.”

She said that California’s Unfair Competition Act also provides protection for consumers from manufacturers fraudulently concealing defective products. Cases such as the consumer victory in Collins vs. eMachines, in which a manufacturer was successfully sued for concealing a defective computer chip, show that system is working, she said.

“So there are remedies when manufacturers are fraudulently concealing,” said Pettibone. “You cannot make misleading and fraudulent claims and get away with it when they know there is a defect.”

Should products last forever?

Jennifer Barrera, policy advocate for the California Chamber of Commerce, said the issue has already been settled judicially and shouldn’t be changed:

“We don’t believe there is confusion in the courts over whether or not you have a duty to disclose a material fact that is unrelated to safety. The weight of the authority is quite clear that a manufacturer’s failure to admit a material fact is limited to safety. After the warranty period expires, your duty to disclose something is only related to a safety issue.

“If you require a manufacture to forever basically warrant against a product that it will last a lifetime, then what is the point of a warranty? Because there would no longer be a point if you always had to guarantee that that product was going to last forever no matter if the defect was related to health and safety.

“And the court specifically said, ‘Failure of the product to last forever would become a defect. A manufacturer would no longer be able to issue warranties. And product defect litigation would become as widespread as manufacturing itself.’

“So we are concerned with the expansion of litigation. We believe that this bill is trying to get at the expansion of the CLRA that the courts have been unwilling to go to.”

Dropping an iPhone

Jackson disputed the hypothetical iPhone example.

“If Apple told you that it didn’t matter how hard you hit the thing and it would bounce off the floor, it would still work – and they knew that it wouldn’t, and they told you that it would – then you have a potential fraud case,” she said. “But if you have a warranty that says, ‘We will replace in case X, Y and Z happens,’ that’s a different story. It’s the fact that they make the claim or intentionally omit telling you something about the product.”

Sen. Ellen Corbett, D-East Bay, disputed that manufacturers would now have to guarantee their products forever.

“That’s not what this is about at all,” she said. “This is about omitting, forgetting to tell somebody something very important about the good and how it may operate. You’re trying to make sure that if somebody has intentionally left out something very important about a good, then that’s where someone would be able to have their recourse.”

The committee approved SB1188 on a party line 5-2 vote, with Democrats backing it and Republicans opposed. It next goes for consideration by the full Senate.