Consumer Law - Texas Bar Exam

Front 1

Texas Deceptive Trade Practices Act (DTPA) - 3 Main Issues

Back 1

1. Whether a consumer exists
2. Whether the goods or services purchased form the basis of the complaint
3. Whether the conduct complained of occurred "in connection with" the purchase

Consumer may not maintain a DTPA action against an individual not having a direct involvement in the transaction that forms the basis of the consumer's complaint

Front 2

Consumer - DTPA

Back 2

To maintain a private action under the DTPA, a person must be a customer

Customer = entity who seeks or acquires goods/services by either purchase or lease

If person isn't a consumer, then she has no claims under the DTPA, either directly or through other tie-in statutes

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Seek or Acquire - DTPA

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Any purchase satisfies the DTPA; any good faith attempt to purchase satisfies the DTPA; no requirement that you consummate the act

Test: purchaser acquires as does any intended beneficiary but an incidental beneficiary does not acquire

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Purchase or Lease - DTPA

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Truly free services are not subject to DTPA, but purchase is broadly defined; consumer does ot have to be the one who pays

Test: did person claiming to be a consumer acquire the goods/services through a purchase?

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Goods or Services - DTPA

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Goods = tangible chattels or real property purchased or leased for use (includes real estate, excludes money and intangibles)

Services= work, labor, or service purchased or leased for use, including services furnished in connection with the sale/repair of goods; includes insurance, excludes a pure loan

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Business Consumer - DTPA

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1. Business consumers are included under DTPA
2. Business consumers with assets of $25 million or more are exempted from the DTPA's definition of consumer
3. All non-business consumers are included regardless of assets

Defendant has burden to prove the business consumer exception as an affirmative defense

Front 7

1995 Exemptions

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1. Professional services
2. Personal injury claims (never been tested on TX bar exam)
3. Large transactions - over $100,00 based on written K or other transactions over $500,000 (never been tested on TX bar exam)

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Professional Services - DTPA

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Professional service is exempt if the essence of the service is advice, judgment, opinion, or similar professional skill

Test: what is the essence of the service? Professional service is exempt: it's what you do, not who you are; service specific, not profession specific.

Generally, lawyers, doctors, accountants, architects, and engineers are exempt ... BUT there are exceptions to the exemption if there is:
1. an express misrepresentation of a material fact
2. an unconscionable action or course of action
3. a failure to disclose information
4. breach of an express warranty

Front 9

Basis of Complaint under DTPA

Back 9

consumer must show that goods/services purchased formed the basis of her complaint - no requirement of privity between consumer and defendant under DTPA

consumer may sue anyone who violated DTPA if transaction is the basis of the complaint

Remote party = manufacturer, etc. not part of transaction

Immediate party = part of transaction

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"In Connection With" - DTPA

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Requirement for remote parties (those not part of the transaction)

Test: only remote party; did misrepresentation reach the consumer? If yes, then it is "in connection with"; If no, it is not and can't sue remote party under DTPA

Front 11

Claims under DTPA - Intro

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A consumer may maintain an action under the DTPA whenever a person:
1. violates the "laundry list" by using an act or practice declared false, misleading, or deceptive;
2. acts in an unconscionable manner;
3. breaches an express or implied warranty; and
4. violates the Chapter 541 of the Insurance Code

These are 4 separate but cumulative claims; reliance is required for laundry list claim

Front 12

The Laundry List

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Laundry List = DTPA's list of acts/practices that are prima facie false, deceptive or misleading; there are 27 of them

Laundry List acts that have been on the Bar Exam:
1. misrepresentations regarding characteristics, quality, or grade of the goods (ex. doctor's misrepresentation re: benefits of drug)
2. misrepresentations regarding whether work or services have been performed - includes misrepresentations regarding legal rights (ex. landlord's misrepresentation of right to enter and take equipment)
3. failure to disclose info with the intent to induce the consumer into a transaction she otherwise wouldn't have entered into

Front 13

Failure to Disclose (Laundry List) - 4 Elements

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Consumer must establish 4 elements:
1. defendant knew info re: goods or services
2. info was not disclosed
3. there was an intent to induce the consumer to enter into the transaction
4. consumer would not have entered into transaction on the same terms had the info been disclosed

Front 14

Vague Generalization or Puffing (Laundry List)

Back 14

any misrepresentation is actionable under the DTPA UNLESS it is mere puffing or opinion or a vague generalization (ex. "priced right" or "very good value" aren't actionable)

Front 15

Unconscionability - 2 Elements

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Consumer must establish:
1. there must be a showing of a lack of knowledge, ability, experience, or capacity on the part of the consumer
2. consumer must establish that defendant took advantage of this lack to a grossly unfair degree (there is no need to show any knowledge, intent or ill motive on part of the defendant)

Determined at time of transaction

Determination of unconscionability is very fact-specific - look at consumer's level of sophistication and knowledge (this is an objective standard)

Front 16

Breach of Warranty

Back 16

DTPA doesn't create any warranties; look to non-DTPA law to establish warranty, determine whether it has been been disclaimed or limited, and determine if it has been breached; applicable warranty law comes from Chap 2 of TX Business and Commerce Code; regardless of how warranty is created, a breach is actionable through the DTPA

3 major kinds of warranties that are likely to appear on TX essays:
1. Implied Warranty of Merchantability
2. Implied Warranty of Fitness for a Particular Purpose
3. Express Warranties

Front 17

Implied Warranty of Merchantability

Back 17

In every sale by a merchant who deals in goods of the kind sold, there is an implied warranty that the goods are merchantable

Key question to ask: are the goods fit for the ordinary purpose for which such goods are used?

IWOM can be disclaimed through the use of a conspicuous disclaimer mentioning "merchantability"

Front 18

Implied Warranty of Fitness for a Particular Purpose

Back 18

IWOF for a particular purpose arises when any seller, merchant or not, has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller's skill and judgment to select suitable goods

IWOF can be disclaimed through a conspicuous written disclaimer

Front 19

Express Warranties

Back 19

Any affirmation of fact/promise regarding the goods that form a part of the basis of the bargain gives rise to an express warranty that the goods will confirm to that representation

Express warranties are difficult (but not impossible) to disclaim because language limiting express warranties must be read consistently with the warranty and, to the extent they are inconsistent, the disclaimer isn't effective

Front 20

Chapter 541

Back 20

4th claim that may be brought under DTPA is the use or employment of an act or practice in violation of Chapter 541 of the TX Insurance Code; this claim is similar to a claim for breach of warranty in that it must be established outside of the DTPA

Front 21

Defenses

Back 21

-very few statutory defenses (common law defenses do not apply)

1. negation of producing cause (may eliminate damages by negation causation)
2. mediation/arbitration (DTPA claims are subject to mediation and arbitration clauses)

Front 22

Pre-Suit Notice

Back 22

As a prerequisite to filing suit, DTPA and Insurance Code require a consumer to give written notice at least 60 days prior to filing suit

Notice must include reasonable detail of consumer's specific complaint and must state amount of economic damages, damages for mental anguish, and expenses, including attorney's fees

Front 23

Statute of Limitations

Back 23

Claim under DTPA must be filed within 2 years of when the false, misleading, or deceptive act/practice occurred, or within 2 years of when consumer discovered the false/misleading act

DTPA provides a discovery rule of limitations - limitations run 2 years from either:
-date of act/practice
-date consumer discovered act/practice
-date consumer in the exercise of reasonable diligence should have discovered act/practice

Front 24

Rejection of Settlement Offer

Back 24

Rejection of reasonable settlement offer limits damages and precludes punitive damages; also limits consumer's attorneys' fees

Front 25

Causation

Back 25

Causation standard for recovery of damages under DTPA is "producing cause"

Producing cause = substantial factor which brings about the injury and without which the injury would not have occurred

This is a lower standard than "proximate cause" which incorporates an element of foreseeability

Front 26

Damages - generally

Back 26

DTPA permits consumer to recover economic damages; if knowingly, then can recover mental anguish damages

Consumer may seek injunctive relief, rescission, and restitution

Consumer who prevails may recover reasonable and necessary attorneys' fees

Front 27

Economic damages

Back 27

Includes all pecuniary (financial) loss; excludes soft damages (ex. mental anguish, loss of consortium)

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Mental Anguish

Back 28

Consumer may recover damages for mental anguish if trier of fact finds that D's conduct was "committed knowingly"

Knowingly = knew or should have known

But there is a high standard of proof (ex. more than mere worry, anxiety, embarrassment) even if you meet the legal standard ("knowingly"

Front 29

Additional Damages - Treble Damages

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If D acts knowingly, consumer can recover up to 3 times economic damages

If D acts intentionally, consumer can recover up to 3 times economic damages and mental anguish damages

Front 30

Computing Damages

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If consumer prevails, jury may award economic damages

If jury finds D acted "knowingly," jury may award additional damages, up to twice the economic damages and may also award damages for mental anguish

If jury finds D acted "intentionally," jury may award economic damages, damages for mental anguish and additional damages up to twice the amount of economic damages and damages for mental anguish (ex. on page 23 of TXH)

Front 31

Attorneys' Fees

Back 31

DTPA mandates the award of court costs and reasonable and necessary attorneys' fees to a prevailing consumer (to fully compensate consumer and to encourage attorneys to represent consumers) - award is mandatory; amount is discretionary

DTPA mandates the award of attorneys' fees to D when suit was groundless or brought in bad faith

Front 32

Tie-In Statutes

Back 32

DTPA permits a claim to be brought through it based on other state statutes as long as the person filing the suit is a consumer; these statutes that cross-reference the DTPA are referred to as "tie-in statutes" because they permit their provisions to be tied into the more beneficial remedies available under DTPA

There are 30 tie-in statutes; but for bar exam purposes, only two have been repeatedly tested:
1. Home Solicitation Sales Act
2. Texas Debt Collection Act

Front 33

Actual Damages

Back 33

all damages recoverable at common law (includes all economic and non-economic, tort and K)

if consumer filed her DTPA claim through a tie-in statute, then consumer can recover actual damages and up to 3 times actual damages if conduct was "knowingly"

Front 34

Federal Debt Collection (FDCPA)

Back 34

Federal law that regulates debt collection (there are state and federal laws - know the difference)

Applies to consumer debt (arises out of an consumer transaction primarily for personal, family, or household purposes)

Front 35

Federal Debt Collection (FDCPA) - Definition of Debt Collector

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FDCPA applies only to 3rd party debt collectors collecting consumer debts (in the business of debt collection) and to attorneys (if attorney regularly collects debts)

Front 36

Federal Debt Collection (FDCPA) - Prohibited Communication with Debtor

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1. Time and Place (not before 8 am or after 9 pm; not at any place known to be inconvenient to consumer)
2. Represented by Attorney (debt collector cannot communicate with consumer if debt collector knows an attorney represents consumer)
3. Place of Employment (once debt collector knows that employer prohibits calls, cannot call at work)
4. Communication with 3rd Parties (cannot communicate with any 3rd parties except to obtain location info about consumer)
5. Validation of Debts (in initial communication or within 5 days, must tell consumer he has 30 days to dispute the debt; if debt disputed, must stop all collection efforts until debt is verified)

Front 37

Federal Debt Collection (FDCPA) - Prohibited Conduct

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1. Harassment/Abuse (FDCPA prohibits anything that is harassing or abusive)
2. False or Misleading Representations
3. Unfair or Unconscionable Practices (broad catchall)

Front 38

Federal Debt Collection (FDCPA) - Liability

Back 38

1. Private Enforcement (1 year limitation - short statute of limitations)
2. Liability (debt collector who fails to comply with FDCPA is liable to any person in amount equal to any actual damages sustained by such person)
a. Additional Liability (additional statutory damages of up to $1000)
b. Class Action (you may bring class action but damages are statutorily limited)
c. Attorneys' Fees (same as DTPA for consumer - award mandatory, amount discretionary; D's attorney's fees - must show bad faith or harassment)
3. Relation to State Laws (conduct that violates the FDCPA may also violate the TDCA)

Front 39

State Debt Collection (TDCA)

Back 39

Wrongful debt collection is a TORT in Texas with tort damages

TDCA is a tie-in statute (so always discuss DTPA too)

Front 40

State Debt Collection (TDCA) - Debt Collector

Back 40

Different definition than FDCPA

Here, debt collector = anyone collecting a consumer debt

Front 41

State Debt Collection (TDCA) - Prohibited Conduct (Debt Collectors)

Back 41

1. List is exclusive (state law list is exclusive; federal law list is not - can't harass or be abusive)
2. Threats or Coercion (threat of arrest, to take legal action, to garnish wages, to take exempt property)
3. Harassment and Abuse (using profanity; annoying phone calls)
4. Unfair or Unconscionable Conduct (attempting to collect amounts not authorized)
5. Fraudulent, Deceptive or Misleading Representation (misleading names, deceiving consumer to get info, misrepresenting what can happen, misrepresenting that you are an attorney)

Front 42

State Debt Collection (TDCA) - Enforcement

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1. Criminal Penalty (misdemeanor and fined for violating TDCA)
2. Civil Remedies
a. Actual Damages (and in appropriate case, injunctive relief)
b. Attorney's Fees (same as DTPA; for consumer, award mandatory, amount discretionary; D must prove bad faith/harassment)
c. Minimum Recovery (generally no punitive damages but may get up to $100 in limited cases)
3. Remedies under Other Laws (TDCA is a tie-in statute)

Front 43

Difference between Tie-In Statute and DTPA

Back 43

REMEDIES

If DTPA claim brought through tie-in statute, then you can recover actual damages and up to 3 times actual damages if knowingly

When tie-in statute, 3 claims exist:
1. Pure DTPA claim
2. Pure "TX Law" Act claim
3. Tine-in statute established under "TX Law" Act but brought through DTPA
* Discuss all three where applicable in answer to essay

Front 44

Most Common Tie-In Statutes

Back 44

1. Business Opportunity Act (seller promises to sell buyer goods to start a business)
2. Contest and Giveaway Act (gets consumer to attend sales presentation)
3. Debt Collection Act (MOST POPULARLY TESTED)
4. Home Solicitation ACT (2nd Most Popularly Tested)
5. Health Spa Act (3 days to rescind transaction)
6. Credit Service Organizations
7. Removal of Unauthorized Vehicles from Parking Facility (towing law)
8. Rental-Purchase Agreements
9. Representation as Attorney (notary can't pretend to be lawyer)
10. Manufactured Housing Standards Act (mini-DTPA for motor homes)
11. Unfair Claims Settlement Practices Act
12. Regulation of Telephone Solicitation
* Assume Tie-In Statute If Unsure

Front 45

Home Solicitation Sales Act - 2nd Most Common Tie-In Statute on Bar Exam

Back 45

Applies whenever merchant of consumer goods costing over $25 engages in a personal solicitation at a place other than the merchant's place of business, such as at consumer's home; primary right granted to consumer under this law is the right to cancel the transaction within the 3rd business day after K is signed; to protect this right, law requires that consumer be given a copy of the completed K containing a bold typeface statement indicating that consumer was given a copy of the completed K which indicates a bold typeface statement of the sales presentation

Front 46

Insurance Law

Back 46

Insurance is a special type of K; will be told on exam if insurance K

Front 47

Chapter 541 - Misrepresentation and Discrimination

Back 47

1. Objective: protect against unfair or deceptive acts in business in insurance (DTPA for insurance law)
2. Scope: applies to any person damages as result of violation of Texas Insurance Code
3. Unfair Methods of Competition and Deception: protects insurance companies from unfair competition

Front 48

Chapter 541 - Unfair and Deceptive Acts (defined by Insurance Code)

Back 48

1. Misrepresentation and False Advertising of Policy Contracts (prohibits misrepresentations by agent or company)
2. Defamation (prohibits company from defaming competitor)
3. Unfair Discrimination (no discrimination against people of same insurance risk and class)
4. Deceptive Name, Word, Symbol, Device, Slogan
5. Failing to Conduct a Reasonable Investigation of Claim
6. Failing to Provide Reasonable Explanation of Reasons for Denial of Claim
7. Failing to Act in Good Faith in Effectuating Settlement (after liability is reasonably clear)

Front 49

Chapter 541 - Actual Damages

Back 49

Person (broader than "consumer") may recover all actual damages produced by D's conduct (includes economic damages and mental anguish and pain and suffering)

Front 50

Chapter 541 - Not a DTPA Tie-In But ...

Back 50

Person who is a "consumer" may file a claim under the DTPA based on any violation of Chapter 541

Chap 541 provides that "any person" may maintain a cause of action under Insurance Code for any violation of the DTPA laundry list

Thus, one act may result in 4 causes of action :
1. Pure DTPA
2. Pure Chap 541
3. DTPA violation under Chap 541
4. Chap 541 violation under DTPA

When DTPA involved, remember the possibility of treble damages!

Front 51

Chap 542 - Prompt Payment of Claims

Back 51

Insurer must respond to a claim not later than 15th day after receipt of notice of a claim

Insurer must pay within 5 days or be subject to penalty (delay results + penalty of 18% of claim amount + attorney's fees)

Front 52

Insurer's Common Law Duty of Good Faith

Back 52

Insurer had common law duty to execute good faith and fair dealing with respect to insured (breaching duty = tort)

Front 53

Third-Party Claims - Stowers Doctrine

Back 53

If claimant offers to settle for policy limits when liability is reasonably clear, the insurer has a duty to settle = Stowers Doctrine

Wrongful refusal to settle violates the duty of good faith

Under Stowers Doctrine, wrongful refusal to settle subjects insurer to all damages, even those in excess of policy limits