Colorado Senate Bill 11-68 Proposes Unwarranted Changes to the Colorado Consumer Protection Act

Sen. Morgan Carroll (D-Arapahoe) and Rep. Judy Solano (D-Adams) introduced SB 11-68, titled “Concerning an Increase in Consumer Protection under the ‘Colorado Consumer Protection Act ("CCPA").’” However, enacting SB 11-068 would offer no real additional protections to consumers in legitimate deceptive practice cases, cloud existing law, and make defending against baseless CCPA claims more onerous and costly.

The CCPA is found at C.R.S. § 6-1-101, et seq. C.R.S. §6-1-105 (1)(a) through (ccc) offers over forty examples of what may constitute a deceptive trade practice. The list includes deceptive practices that are very general, for example: “(g) represent[ing] that goods, food, services, or property are of a particular standard, quality, or grade, or that goods are of a particular style or model, if he knows or should know that they are of another;” and those that are more specific, for example: “(vv) violat[ion of] section 12-55-110.3, C.R.S.” (regarding posting legal notices required of a notary). Not all of the violations include a “knowing” or intent element. Subsection (3) further provides: “The deceptive trade practices listed in this section are in addition to and do not limit the types of unfair trade practices actionable at common law or under other statutes of this state.”

The CCPA establishes civil penalties (C.R.S. § 6-1-112 provides a penalty of $2,000 for each violation), and criminal penalties (C.R.S. § 6-1-114 makes first violations a class 1 misdemeanor). Most significantly, in private actions C.R.S. § 6-1-113 provides for treble damages plus attorney fees.

To prove a cause of action under the CCPA, a plaintiff must show: (1) that the defendant engaged in an unfair or deceptive trade practice; (2) that the challenged practice occurred in the course of defendant’s business, vocation, or occupation; (3) that it significantly impacts the public as actual or potential consumers of the defendant’s goods, services, or property; (4) that the plaintiff suffered injury in fact to a legally protected interest; and (5) that the challenged practice caused the plaintiff’s injury. Crowe v. Tull, 126 P.3d 196, 201 (Colo. 2006) (citing Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 146-47 (Colo. 2003)). In Rhino Linings, the Colorado Supreme Court reviewed the following factors to determine whether the challenged practice significantly impacts the public:

(1) the number of consumers directly affected by the challenged practice;

(2) the relative sophistication and bargaining power of the consumers affected by the challenged practice; and

(3) evidence that the challenged practice has previously impacted other consumers or has the significant potential to do so in the future.

The CCPA and its treble damages provision is distinct from other contract causes of actions, as well as misrepresentation and fraud actions, because of the harm of a deceptive trade practice to not just a party to a transaction, but to the public at large. Therefore, the CCPA requires a plaintiff to show that a deceptive trade practice significantly impacts the public.

SB 11-68 has two components: 1) to permit the Attorney General to identify additional acts that constitute deceptive trade practices; and 2) to remove a requirement that plaintiffs show that a challenged practice significantly impacts the public. The first component of SB 11-68 unnecessarily provides authority to the Attorney General to amend the extensive list of what constitutes a deceptive trade practice already provided by statute and case law. The second component of SB 11-68 would add the following provision to the CCPA:

6-1-113.5. Significant public impact. EVIDENCE THAT A PERSON ENGAGED IN A DECEPTIVE OR UNFAIR TRADE PRACTICE CONSTITUTES PRIMA FACIE EVIDENCE THAT THE PRACTICE SIGNIFICANTLY IMPACTED THE PUBLIC.

The bill summary describes the purpose of the new provision as:

Although not required by statute, case law interpreting the act has resulted in a requirement that plaintiffs separately establish that a defendant's challenged practice caused a significant public impact. In order to eliminate this additional burden on consumers, section 2 creates a rebuttable presumption that a significant public impact has occurred when a plaintiff offers evidence that a defendant engaged in a deceptive trade practice.

The long established requirement for a plaintiff to show a significant public impact is not an “additional burden on consumers” as the bill proponents argue, but one of the elements that differentiates a CCPA cause of action from other available causes of action such as misrepresentation or simply breach of contract. In Rhino Linings, the Colorado Supreme Court provided the following brief history behind the CCPA:

The CCPA was enacted to regulate commercial activities and practices which, “because of their nature, may prove injurious, offensive, or dangerous to the public.” . . . The CCPA deters and punishes businesses which commit deceptive practices in their dealings with the public by providing prompt, economical, and readily available remedies against consumer fraud.

Id. at 146 (citations omitted).

 

Several reported cases in Colorado arose from disputes where the plaintiff attempted to improperly broaden the litigation to assert CCPA claims, but where the public was not significantly impacted by the disputed transaction. The two cases cited below provide examples of construction disputes where plaintiffs recovered some damages on other grounds, but not CCPA treble damages due to a lack of public impact.

Where a defendant did not disclose that beneath the land sold to plaintiff existed the remains of a concrete swimming pool, the court found that the deceptive act was limited to a single transaction. Anson v. Trujillo, 56 P.3d 114, 118 (Colo. App. 2002). Though the defendant’s conduct was found to have involved misrepresentations or concealment in the deal, the court dismissed the CCPA claim, stating that the misrepresentation itself “was not advertised or otherwise presented to the public in an effort to induce sales.” Id.

In Wheeler v. T.L. Roofing, Inc., 74 P.3d 499 (Colo. App. 2003), a building owner hired the defendant to install a new roof, and thereafter claimed the roof leaked and sued for deceptive trade practices among other causes of action. The Colorado Court of Appeals upheld the trial court’s dismissal of the CCPA claim, which included an award of attorney fees to the defendant, based upon the plaintiff filing a frivolous and groundless claim, holding the plaintiff “did not allege, nor is there any showing in any factual material submitted by the parties that the alleged conduct of [defendant] significantly impacted the public as an actual or potential consumer.” Id. at 506.

This firm has successfully defended general contractors and developers in cases where plaintiffs have brought dubious CCPA claims where an underlying, disputed transaction had no public impact whatsoever. The potential for treble damages was too much for plaintiffs and their counsel to pass up, adding meritless CCPA claims to broaden their contract disputes into punitive actions. SB 11-068 would only increase the frequency of such unsupported claims. Shifting the burden to defendants to prove that a disputed transaction lacks public impact would not increase any protections for consumers with legitimate CCPA claims.

If you would like more information regarding SB 11-68, or the defense of CCPA claims, please contact Bret Cogdill at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com.

Colorado Court of Appeals clarifies "premises owned" exclusion commonly found in homeowners' insurance policies

A clear and unambiguous “premises owned” exclusion in homeowners insurance policies eliminates the duty to defend for all types of claims at all premises not listed in the policy.  In Sachs v. American Family Mutual Insurance Company, the Sachses requested their homeowners insurance policy defend them for several claims, including a negligent misrepresentation claim for the sale of their former home. 09CA1536, 2010 WL 3259822 (Colo. App. Aug. 19, 2010). The decision rested on whether the claim fell under the “premises owned” exclusion below:

14. Premises Owned, Rented or Controlled.

We will not cover bodily injury or property damage arising out of any act or omission occurring on or in connection with any premises owned, rented or controlled by any insured other than an insured premises.

“Insured premises” was further defined in the policy as “that dwelling, related private structures and ground at that location where you reside.”

The Sachses filed a motion for summary judgment and argued that the claim did not fall under the premises owned exclusion because the exclusion applies 1) only to currently owned premises, and 2) only to premises liability claims. Essentially, the Sachses’ argument was that because they no longer owned the property, their homeowners insurance policy should cover all claims to that property.

American Family filed a cross-motion for summary judgment and argued that the negligent misrepresentation claim against the Sachses fell within the premises owned exclusion. American Family’s argument was that the provision specifically excluded coverage to all premises not listed in the policy. American Family further claimed the exclusion applies 1) to both currently owned and previously owned premises, and 2) to all types of claims at the subject properties.

Both the District Court and the Court of Appeals agreed with American Family. In making its decision, the Court of Appeals held that the plain language of the policy excluded all premises not listed under the policy. The Court also noted if it agreed with the Sachses, an insurance company would not be able to assess the risks associated with premises not listed under the policy. To hold otherwise, “an insured could obtain coverage by simply conveying the premises where the act or omission occurred to someone else.”

The Court further held that the premises owned exclusion applies to all types of claims. The Court again relied on the plain language of the policy and the unexpected result if it held otherwise. However, the Court noted several cases that properly held coverage existed because the specific policy exclusions contained ambiguous language. See Tacker v. American Family Mutual Insurance Co., 530 N.W.2d 674 (Iowa 1995); Hanson v. General Accident Fire and Life Insurance Corp., 450 So.2d 1260 (Fla. Dist. Ct. App. 1984). Yet those same cases held that express and unambiguous language, similar to the exclusion in this case, would effectively limit coverage and properly express the intent of the parties. Therefore, the Court granted summary judgment in favor of American Family.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Colorado Civil Access Pilot Project

The Colorado Supreme Court is enacting a new set of civil procedure rules specific to certain types of cases meant to streamline the litigation process and make civil cases more efficient and less expensive. The proposed rule changes, which have been dubbed the “Civil Access Pilot Project” (CAPP), will be enforced for a finite period before statewide implementation, where data will be collected and analyzed for the purpose of improving the rules based on actual experiences with cases.

CAPP focuses on two primary types of cases: business actions and medical negligence actions. The medical cases covered are those specifically alleging breaches of standard of care and which are covered under the Colorado Health Care Availability Act. On the other hand, a wide range of cases are implicated under the “business actions” umbrella, including: breach of contract; business torts; Uniform Commercial Code transactions; disputes involving commercial real property; owner/investor derivative actions; commercial class actions; business transactions with commercial banks or other financial institutions; internal affairs of business organization; commercial insurance coverage (including directors and officers, errors and omissions, business interruption, and environmental); dissolution of business entities; disputes involving securities laws; disputes involving antitrust laws; and disputes involving intellectual property and state trademark laws.

While CAPP intends, and in many ways establishes, a more efficient litigation process in regards to the specific cases to which it applies, there a few large pitfalls that have appeared. The biggest such pitfall involves Pilot Project Rule (PPR) 10 which concerns expert discovery. PPR 10.1(b) states that the “substance of each expert’s direct testimony shall be fully addressed in the expert’s report.” PPR 10.1(b) takes on significant importance when read with PPR 10.1(d): “There shall be no depositions or other discovery of experts.” Essentially, one report, no discovery, no deposition and we’ll see you in trial.

On top of that, PPR 10.2 limits the number of expert witnesses for parties to one expert witness per area of expertise. Each party may have one expert witness to submit a report and testify with respect to any given issue. Restrictions on expert witnesses go even farther in a medical negligence action, which PPR 10.3 governs. PPR 10.3 requires that expert witness reports shall be produced simultaneously with the allowance of rebuttal reports to be filed within 40 days of such simultaneous production.

Other minor drawbacks exist as well. The new rules have a definite harshness to them that previously did not exist. CAPP seems intent on informing attorneys “mistakes,” intentional or not, will be met with some form of punishment or sanctions. PPR 3.7 (a) – (e) lists out good examples of such punishments, but the essence of the new severity CAPP enforces is shown in the committee comments to PPR 1. The comments say that “motions for extensions are strongly disfavored. The court is encouraged to address these motions immediately . . . and deny them absent extraordinary circumstances. Parties may not stipulate to extensions.” [Emphasis added]. Such denial of party stipulations is an exact 180 degree change in attitude from C.R.C.P. 121, § 1-15(8) which exhorts a duty to confer. Such contradictions and inherent punishments will surely increase as the rules begin to be implemented.

It is important to note at this time that this is a pilot project and knowledge of where these rules will be implemented should they be deemed “successful” is currently unknown. Will they be restricted to the enumerated actions? Or will they be expanded until they govern all actions?

Accordingly, if one has questions or concerns about CAPP they can be voiced when The Proposed Civil Access Pilot Project will be considered at a public hearing on Wednesday, January 19, 2011 at 1:30 p.m. in the Colorado Supreme Court Courtroom, 101 West Colfax Avenue, Denver, Colorado 80202. The deadline for submitting written comments is January 14, 2011 at 5 p.m. An original and eight copies of the written comments concerning the CAPP should be submitted to Susan J. Festag, Clerk of the Supreme Court, 101 West Colfax Avenue, Suite 800, Denver, Colorado, 80202. Persons wishing to participate in the hearing should so notify Ms. Festag no later than Friday, January 14, 2011.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

U.S. District Court holds that CDARA’s “actual damages” provision is a cap on damages, but not the only available measure of damages

In Hubbell v. Carney Bros. Const., the Hubbells sought to build a home on land they had previously purchased. 05-CV-00026-CMA-KLM, 2010 WL 5147567 (D. Colo. Dec. 13, 2010). In order to finance the construction of the home, the Hubbells borrowed from Alpine Bank. Unsatisfied with the builders and design professionals midway through construction, the Hubbells fired the builders and design professionals and sued them for negligent construction and design. However, after filing suit and before the case was decided, Alpine Bank foreclosed on the property. Therefore, the Hubbells did not own or possess the property at the time defendants moved for summary judgment. Subsequently, the Hubbells settled with Alpine Bank and Carney Brothers settled with the Hubbells. The remaining defendants (“Defendants”) were Teamcorp, Inc., T.J. Concrete Construction, Inc., and Kerry Karnan.

The Defendants moved to limit the Hubbells’ damages to the amount the builders’ alleged negligence diminished the property value. At the same time, Defendants moved to cap damages to CDARA actual damages and vacate any claims to loss of use of the property. After the issue was fully briefed, the court identified four issues that it determined needed to be answered:

(1) whether the CDARA permits damages measured by the diminution in value of the property, (2) if so, whether such damages are the proper measurement of damages in this case, (3) whether loss of use damages are appropriate in this case, and (4) whether the Hubbells have already been fully compensated by their settlements with the other parties.

1. CDARA’s “actual damages” are merely a cap on relief

The court relied on the language of C.R.S. § 13-20-806(1) and several pre-CDARA and non-construction cases to hold that CDARA is merely a cap of “actual damages.”[1] The court relied on Bd. of County Com'rs of Weld County v. Slovek 723 P.2d 1309, 1316 (Colo. 1986), to hold that the proper measure of damages in real property torts are at the discretion of the trial court and should be undertaken on a case-by-case basis. Hubbell at *4. The goal of the trial court should be reimbursement for the actual loss suffered, not to inflict punishment on defendants or encourage wasteful expenditures by plaintiffs. Slovek at 1316. (relying on Zwick v. Simspon 572 P.2d at 134 (Colo. 1977)).

2. Diminution in market value damages is the appropriate relief when Plaintiffs no longer own or possess the property

First, relying again on Zwick and Slovek, the court showed why diminution in market value damages (“DMV”) is appropriate. Those cases held that DMV is the default measure of damages with several factors to determine if an exception exists to use another damage method. Without getting too bogged down in these pre-CDARA cases in this blog,[2] the Hubbell court determined that the desire or ability to repair the subject property (i.e., ownership of the property) is necessary to deviate from DMV. Hence, if a plaintiff no longer owns the property, DMV is the appropriate measure of damages.

The court also recognized it would be giving plaintiffs a windfall if it awards repair costs and plaintiffs do not repair the property. As a result, an award of repair costs would impermissibly go further than “reimbursement of the plaintiff for the actual loss suffered” and “inflict punishment on defendant.” Slovek at 1316.

3. Defendants did not dispute loss of use damages

The court held that Defendants did not meet their burden of proof on this issue and that a jury will decide the loss of use damages.

4. Prior settlements are not relevant to show that the Hubbells were fully compensated

Finally, under C.R.S. § 13-21-111.5, the Hubbells’ prior settlements are not relevant to damages in this action. That section only requires that the jury make a special finding of pro-rata liability for each defendant. Settlement amounts are not admissible to prove liability in Colorado. Greenemeier by Redington v. Spencer, 719 P.2d 710, 714-15 (Colo. 1986).

Furthermore, the court also noted that Defendants merely assumed the foreclosure amount was the DMV. However, because the Hubbells purchased the 14-acre land without the loan, and Alpine Bank foreclosed on both the land and the home, the evidence indicated that the foreclosure amount was less than the DMV. Because the defendants did not present evidence to dispute this fact, and the aforementioned settlement evidence discussion, the court denied summary judgment on this issue.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

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[1] Actual damages is defined in C.R.S. § 13-20-802.5(2) as the lesser of: 1) the fair market value of the property without the construction defect, 2) the replacement cost of the property, or 3) the reasonable cost of repair of the construction defect. Also included in actual damages are several incidental costs, including loss of use.

[2] For a more in-depth analysis, the Hubbell Court listed and applied the factors used to determine both Slovek and Zwick at *5-6.