New California Appellate Guidance on CLRA Omission Claims

In a recent published decision, the California Court of Appeal reiterated several concepts central to CLRA omission claims.

To start with, although the CLRA contains a long laundry list of prohibited practices, none of the practices listed expressly involve non-disclosure or concealment.  Instead, the CLRA bars conduct like “Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have…” and  “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.”

Yet courts nonetheless have typically held that the CLRA may be interpreted to prohibit omissions. In Gutierrez v. Carmax, the California Court of Appeal reaffirmed those holdings.  The court engaged in a comprehensive analysis of the text, the legislative history, prior decisions, and other considerations, and held:

failures to disclose material facts are actionable under the CLRA.  In particular, we conclude paragraphs (5), (7) and (9) of subdivision (a) of Civil Code section 1770 proscribe material omissions in certain situations.

The court also reaffirmed principles concerning a closely related issue: In what circumstances are omissions actionable under the CLRA?  The court signed off on the “four situations” that have been incorporated into CLRA jurisprudence from case law concerning common law fraud.

Those [four] situations arise [1] when the defendant is plaintiff’s fiduciary, [2] when the defendant has exclusive knowledge of material facts not known or reasonably accessible to the plaintiff, and [3] when the defendant actively conceals a material fact. In addition, the duty to disclose exists [4] “when the defendant makes partial representations that are misleading because some other material fact has not been disclosed.”

Finally, the court touched on the ever-controversial subject of the interrelationship between safety and materiality under California law.  Whereas the California Supreme Court has always said materiality is whatever a reasonable person would find important, a number of federal courts have limited materiality in the omissions context to safety concerns.  Some have continued to do so, even after California’s appellate courts have clarified that safety is not necessary to establish materiality.

Gutierrez provides further support for this understanding of California law.  It defined materiality without mentioning safety:

In the context of the CLRA, a fact is “material” if a reasonable consumer would deem it important in determining how to act in the transaction at issue. In other words, a defendant has a duty to disclose when the fact is known to the defendant and the failure to disclose it is misleading in light of other facts that the defendant did disclose.

And in reference to the Bardin and Daugherty appellate decisions, which serve as the provenance for all the safety-is-required for omission claims case law, the court was dismissive: “the references to safety concerns in those opinions appear in dicta.”