TBE--T/G & C.R (Consumer Rights) Flashcards
02/14 #12:
On November 1, Pablo contacted Alex, an insurance agent who represented Insco, an insurance company. Pablo requested that his newly licensed minor son, Sam, be added to the automobile insurance policy Pablo maintained with Insco. Alex quoted the amount of the additional premium, and Pablo sent a check in that amount to Alex.
On November 10, when Pablo received his regular annual bill and renewal notice from Insco, he noticed that Sam was not listed as an insured driver. He immediately called Alex, who reassured Pablo that the paperwork had been submitted to Insco, that Sam had been added to the policy, and that an updated policy would arrive in a few days.
Unbeknownst to Pablo, on October 15, Alex had received word from Insco that his agency was being terminated effective November 15. Also unbeknownst to Pablo, on November 10, Insco had returned to Alex the paperwork that he had submitted to Insco adding Sam to Pablo’s policy because the paperwork was so
deficient that it required “further detail.”
After Pablo’s November 10 telephone call with Alex, Pablo told Sam he could drive.
On November 11, while driving to school, Sam failed to stop at a red light and collided with another vehicle. Sam was not hurt, but his car was a total loss, and the driver in the other vehicle sustained injuries that required hospitalization. On the same day, as soon as Pablo heard about the accident, he contacted Insco to report the accident and the property damage to Sam’s car. Insco, without investigating the circumstances, told Pablo that it had no record of Sam being added as a covered driver and, therefore, there was no coverage for the property damage or any other claim arising out of the accident. Insco also told Pablo that Alex was no longer an agent for Insco, and Insco could not be held liable for any of Alex’s actions.
On November 14, Pablo was served with a personal injury lawsuit filed by the driver of the other vehicle involved in the accident with Sam. Pablo promptly forwarded the lawsuit to Insco, but Insco denied coverage
for the lawsuit without further explanation. Quite distressed by Insco’s denial of coverage, Pablo engaged the services of an attorney to handle the lawsuit.
What rights and remedies, if any, does Pablo have against Insco under Texas consumer
protection laws? Explain fully.
Under chapter 541 of the Texas Insurance Act, a person may bring a claim against an insurance company for
- false, deceptive, misleading, or fraudulent representations;
- a violation of express or implied warranties,
- unconscionability.
A claim under the Texas Insurance Act automatically triggers a claim under the Deceptive Trade Practices Act. However, a person must be classified as a consumer to bring a cause of action under the DTPA. A consumer is someone who seeks or purchases goods or services.
Under chapter 541 of the Texas Insurance Act and the DTPA, a consumer affected by the adverse actions of an insurance company may bring a claim against the company under the laundry list of items of the DTPA. The laundry list includes fraudulent, deceptive, and misleading statements and actions that the consumer relied on.
Chapter 541 also allows an insurance consumer to file a DTPA claim against an insurance company if the insurance company or its representative acted with unconscionability in its dealings with the consumer. “Unconscionability” is defined as dealing with someone in a “grossly unfair manner” in a way that takes advantage of the consumer’s lack of knowledge.
Chapter 541 of the insurance code allows someone to bring a claim against an insurance company for breach of an express warranty. An express warranty is a warranty that the representative of the insurance company communicates to the consumer and that the consumer relies on
Under Texas Insurance Law, an insurance company has an obligation to investigate an accident before denying coverage of the accident.
Under Chapter 541 of the Texas Insurance Code, an insurance company also has a duty to promptly deny liability coverage of a claim. An insurance company must provide a policy owner with a written denial of the claim within 15 days of when the policy owner submits a claim.
DAMAGES
Under Chapter 541 of the Insurance Code and the DTPA, Pablo has remedies in the form of actual damages, reasonable attorney fees. Actual damages under Chapter 541 and the DTPA include any economic damages as well as damages for mental anguish. Actual damages and economic damages are pecuniary damages. Mental anguish damages are damages available for severe mental distress which is described as substantially interfering with the daily routine of the person filing the claim. “Knowingly” means that the insurance agency and company knew that the statements they made to a consumer were false. Additionally, Pablo might be able to receive three times both his actual damages and any mental anguish damages if he can show that Insco or Alex as Insco’s agent acted intentionally made misrepresentations to him regarding his policy. “Intentionally” means making misrepresentations with the knowledge that the person to whom they are made will rely on them.
07/13 #8:
Peter purchased a disability income insurance policy from lnsureco, an insurance company doing business in Texas. The policy provided that, in the event Peter was disabled and unable to work, he would
receive a monthly benefit equal to his regular salary for the length of his disability.
About a year after he obtained the policy, Peter was involved in an automobile accident that left him with a serious back injury. After a thorough medical examination, Peter’s doctor determined that Peter’s medical condition would require on-going treatment, and that Peter was totally disabled and would be unable to return work for at least 12 months.
Peter submitted a proper notice of claim with all other required medical documentation to lnsureco and requested payment of the monthly benefits under the policy.
After a month passed without hearing anything from Insureco, Peter called to check on the status of his claim. Peter spoke with Albert, an agent oflnsureco, who told him that he was in charge of reviewing Peter’s
claim and that:
- -Insureco was aware of his “debilitating injury,” but had not gotten around to reviewing the claim or the information Peter had provided;
- -As a matter of company practice, Insureco always took at least six months to complete its review of a “total disability” claim, regardless of the information provided in support of the claim; and
- -Insureco wouldn’t pay on the claim if Peter had other insurance that applied, even though this condition was not set forth in the policy.
Peter explained to Albert that, in addition to daily living expenses, he had a monthly home mortgage payment, as well as a car loan payment to make and that, without the disability benefits, he was at risk for foreclosure and repossession. Albert told Peter those were his problems and that he would get back to him when he “got around to it.”
Over the next several months, Peter began receiving foreclosure and repossession notices on his house and car, and he made numerous frantic telephone calls to Albert, who never returned the calls.
Six months after Peter submitted his claim, he finally received a one-sentence letter from Insureco saying that his claim was being denied, but providing no further explanation. Peter immediately called Albert, who said that he never finished reviewing Peter’s claim or conducted any investigation. He explained that, once he recognized Peter’s doctor as the same doctor who had been involved in a prior “total disability” claim filed with lnsureco, denial of the claim was automatic, due to “suspicious circumstances.”
Peter was forced to file for bankruptcy in order to prevent foreclosure on his house and repossession of his car and his credit rating was negatively impacted. In addition, Peter was so deeply upset and stressed by the handling and denial of his claim that he had to be placed under the care of a psychiatrist.
What violations, if any, of applicable Texas consumer protection laws were committed by
Insureco and Albert, and what recovery might Peter obtain as a result thereof? Explain fully.
The DTPA is designed to protect consumers from deceptive business practices and misrepresentations.
A person is a consumer if he sought or acquired goods or services for lease or purchase. A service includes insurance coverage. A consumer has a cause of action under the DPTA for
(1) violation of the DTPA laundry list, a list of prohibited misrepresentations and practices,
(2) breach of warranty,
(3) unconscionable acts or course of conduct,
(4) violations of the Insurance Code, and
(5) violations of other tie-in statutes.
Laundry list
A defendant may not represent that an agreement confers rights or remedies when the agreement does not. The misrepresentation need not be intentional or knowing. However, the plaintiff must show that he relied to his detriment on the misrepresentation.
Unconscionability
A defendant is liable for unconscionable conduct when the defendant takes advantage of the consumer’s lack of knowledge or expertise to an unfairly gross degree. The behavior must be flagrant, glaring, and unmitigated. Generally, a claim for unconscionability arises out of a consumer’s technical lack of knowledge with regard to a machine or device.
Insurance Code violations
Under the Insurance Code, any person seeking or obtaining insurance coverage or policy may recover against any other person involved in selling insurance. Generally, if a plaintiff is a consumer under the DTPA, the plaintiff is also a person under the Insurance Code. Under the Insurance Code, an insurance is prohibiting from misrepresenting the terms of a policy as well as the extent of its coverage or benefits. It may not circulate false information as well. Additionally, an insurance company violates the Insurance Code if it
(1) does not approve or deny a claim within a reasonable amount of time,
(2) denies a claim without conducting a reasonable investigation,
(3) does not respond to an insured’s inquiries in a reasonable amount of time,
(4) if it fails to provide a reasonable explanation of a denial of a claim the Insurance Code, or
(5) if it fails to pay out a claim after liability has become reasonably clear.
02/13 #11:
Carolina works as a computer programmer in a small three-person company in Austin. As a result of a sudden illness, Carolina required an extensive stay in the hospital and incurred significant medical bills. Carolina was unable to work for several months and not able to immediately pay the medical bills from her
hospitalization.
After returning to work, Carolina began receiving statements in the mail at her home from City Hospital (“Hospital”), requesting immediate payment of the unpaid medical bills. Unable to make any payments, Carolina ignored the statements. Then, she began to receive messages on her home voicemail from Dan, who was employed in Hospital’s accounting department. Dan’s messages stated he was calling from the “Credit Bureau” regarding collection of the unpaid medical bills. The calls became more frequent and would occur early in the morning, before 6 a.m., and late at night, after I I p.m.
Carolina finally called Dan back and explained that she was not able to pay the bills at this time. Dan told her that unless the bills were immediately paid in full , the Credit Bureau was going to sue her for the unpaid bills in court, file criminal charges against her, and have her arrested and ·’thrown in jail for a very long time.’’ Dan also told Carolina that she was the “type of deadbeat” that was the cause of the high cost of healthcare and that. if payment was not received in full within a week, she could expect a police officer to
come to her home. After Carolina hung up the phone, she received an email from Dan stating that she would end up in “debtor’s prison” if she didn’t take care of the unpaid bills immediately.
The telephone conversation and email with Dan upset Carolina so much that she developed a debilitating migraine headache and did not go into work the next day. Instead, Carolina went in to see her doctor, who diagnosed her with a severe migraine headache caused by stress, prescribed her pain medication and ordered her to remain out of work for three days.
The next day, Dan called Carolina’s office and asked to speak to her “supervisor.” Ellen, who was Carolina’s supervisor and the sole proprietor of the small company where Carolina worked, took the call. Dan told Ellen that Carolina o·wed Hospital a lot of money, was in ‘·serious legal trouble” and would “likely go to jail for a long time’’ if the outstanding bills were not paid immediately. Dan also threatened that Hospital could sue Ellen and her company directly over the unpaid bills, since Carolina was working there at the time the charges were incurred.
Distraught over the telephone call, Ellen immediately called Carolina at home and told her that the company was too small to take the risk of expensive legal action and that Carolina’s employment was therefore terminated.
As a direct consequence of Carolina’s termination and the loss of her services, the company was unable to complete a major contract for its main customer and lost the contract.
Did Dan’s acts expose Hospital to liability for violation of the Texas Debt Collection Act
(“Act”), and, if so, what were the violations? Explain fully.
The TDCA applies to debt collectors of all kinds, including creditor debt collectors, collecting any kind of debt.
The TDCA provides an exclusive list of potential violations for which an action may be brought under the Act, including:
(1) Threats or coercion,
(2) harassment or abuse,
(3) Unconscionable acts or conduct, and
(4) false or misleading statements.
Although as to threats or coercion, the ability to threaten a debtor with legal action is specifically protected (a collector may do so), a debt collector is never able to threaten any actions that are illegal or not within the scope of the law, such as jail time (there is no prison time for debts or criminal liability), arrest, or other unlawful remedies to which the debtor is not entitled.
Harassment or abuse specifically includes harassing phone calls (phone calls made before 7 am or after 9 pm) or phone calls in excessive quantities, and also includes phone calls made to a debtor’s workplace when the debt collector is aware that such calls are prohibited.
As to unconscionable acts or conduct, such conduct includes harassing words or verbal abuse, with significant overlap with the other categories under the exclusive list.
The final category, false or misleading statements, includes representations that an individual is calling from a fake company, is an attorney when the individual is in fact not an attorney, or any other false statements made in the course of attempting to collect the debt. A debt collector may not communicate with a third party regarding a debtor’s debt; he may only do so in order to obtain information regarding the debtor’s whereabouts.
07/12 #3:
Peter searched online for a wedding gift for his son, George, and found a website for a local business called Discount Appliances (“Discount”). The website contained photos of washers and dryers for sale and included the following statements on the homepage: “All merchandise in LIKE NEW condition’’ and “customer Satisfaction Guaranteed!” The prices of the washers and dryers were listed next to the photos and were substantially less than the prices of new washers and dryers.
Peter called the telephone number listed on the website and spoke with Roger, a Discount representative. Roger explained that the washers and dryers were “ practically brand new,” had “never been used,” and had “only minor cosmetic scratches and dents.” Roger also told Peter not to worry about
purchasing online because the washers and dryers were subject to an “absolute 30-day Money Back Guarantee.”
After speaking with Roger, Peter went back online to the Discount website and selected a washer and dryer to buy for George. Peter filled out the online order form by typing in his name and address as the purchaser, and indicated that the appliances were to be delivered directly to George’s address.
At the bottom of the online order form, in small type, was the following statement: “Merchandise sold AS IS–No warranties. Purchaser waives all claims and assumes all risks and liabilities.’’
Discount delivered the washer and dryer to George’s home. The first time George used the washer, it leaked water and caused serious damage to George’s wood floor.
George immediately called an appliance repair shop and a service specialist was sent to look at the washer. After inspecting the appliances, the service specialist informed George that both the washer and dryer
showed signs of heavy use. In particular, the washer had worn hoses and a rusted and cracked tub that was the clear cause of the water leak.
George called Peter and told him what happened. Peter called Roger and explained the situation. Roger told Peter that there was nothing Discount could do because of the written statement at the bottom of the online order form. When Peter reminded Roger about their prior telephone conversation, Roger said that he was just expressing his opinion. When Peter asked about the “30-Day Money Back Guarantee,” Roger admitted that, “Yeah, we always say that, but we don’ t really have a guarantee since our prices are so low.” Peter followed up by sending a letter to Discount demanding a refund.
As a result of the damage caused by the leak, George had to completely replace the floor in his house and missed two weeks of work overseeing the repairs.
What claims under the Texas Deceptive Trade Practices Act (“DTPA”), if any, can Peter
make against Discount and Roger? Explain fully.
(a) Peter may assert claims against Discount and Roger under the DTPA for a violation of the
laundry list,
unconscionability, and
breach of express warranty.
Whether Peter’s claims may be successfully asserted depends upon his status as a consumer under the DTPA, and whether he can establish a legal and factual basis for the claims.
To be a consumer, the entity asserting consumer status must seek or acquire goods or services by purchase or lease. There is no requirement that the entity that acquires the goods must also pay for the goods.
To establish a laundry list claim, the consumer must show that a misrepresentation was made or there was a failure to disclose information, and that it was relied on.
To establish a claim for unconscionability, the consumer must show that the seller took advantage of him to a grossly unfair degree.
To establish a breach of warranty claim under the DTPA, the consumer must show that a warranty was formed outside of the DTPA, that it was not disclaimed, and that the consumer is a proper entity to assert a claim for breach of that warranty.
A consumer may assert a claim under the DTPA against any entity that violated the Act in connection with his transaction.
In this case, Peter sought to purchase a washer and dryer. Therefore, he is a consumer. Peter spoke with Roger and was told the appliances were “practically brand new,” had “never been used,” and had “only minor cosmetic scratches and dents.” Roger also told Peter not to worry about purchasing online because the washers and dryers were subject to an “Absolute 30-Day Money Back Guarantee.” These statements were made directly in connection with Peter’s transaction as statements of fact, and were not mere opinion or puffing. In reliance on these statements, Peter decided to purchase the products from Discount’s website. The defendants may try to argue that the “as is” clause negated any reliance; however, that is not the effect of a simple “as is” clause that does not mention reliance. As discussed below in connection with warranty, such clauses merely operate to negate implied warranties. Because the products were not as represented and there was not a money back guarantee, the statements are actionable under the DTPA.
Because Roger individually made these statements directly to Peter, Peter may maintain a claim under the DTPA against Roger individually.
Additionally, because Roger made these statements as an agent of Discount, Peter has a claim against Discount under the laundry list for misrepresentation based on Roger’s representations.
The Discount website also stated, “All merchandise in LIKE NEW condition” and “Customer Satisfaction Guaranteed!” These statements appear to have been made as statements of fact and were false. Although “like new” could be considered puffing, and thus not actionable, “satisfaction guaranteed” would lead a consumer to believe that the product could be returned if it was not acceptable, which, in fact, was false. This statement could give rise to an additional claim against Discount under the laundry list.
Peter also may have a claim against Roger based on unconscionability.
Roger appears to know he has superior knowledge and experience, and took advantage of Peter’s inability to verify what he was told. If Peter could show that he was taken advantage of to a grossly unfair degree, he could prevail on an unconscionability claim. It also may be argued that the unconscionable action of an agent can be imputed to the principal. If that is the case, Peter may assert his unconscionability claims against Discount, as well as Roger.
Peter also may have a claim based on breach of warranty.
Although there generally are no implied warranties in the sale of used goods, Roger’s statement, “Absolute 30-Day Money Back Guarantee,” made on behalf of the seller, Discount, appears to be a factual promise regarding the goods. Because this statement was relied on by Peter and became a basis of the bargain, under the DTPA it could constitute an express warranty of the seller. As noted above, any breach of warranty is actionable by a consumer under the DTPA, and may be asserted against the seller, Discount.
Finally, Discount’s website stated, “Merchandise sold AS IS—No warranties. Purchaser waives all claims and assumes all risks and liabilities.” Discount may argue that this language disclaimed all warranties and waived DTPA liability.
Warranties asserted under the DTPA are subject to limitations and disclaimers generally applicable outside of the DTPA. Under the UCC, an “as is” clause such as this one may waive implied warranties if it is conspicuous, but does not disclaim conflicting express warranties.
Because the warranty at issue is an express warranty, the “as is” clause has no effect. Additionally, although the clause states that the purchaser “waives” all claims, waivers under the DTPA are generally unenforceable and void.
For a DTPA waiver to be enforceable, the waiver language must comply with the DTPA, be signed by the consumer, and the consumer must be represented by an attorney. In this case, the attempted waiver is unenforceable.
02/12 #7:
Albert retained Brenda, a licensed, professional real estate agent, to list his house in Bexar County, Texas, for sale. As part of her initial inspection of the property, Brenda measured the house’s square footage. She inadvertently calculated the square footage of the house as 3,000 sq. ft. when, in fact, the square footage was 2,500 sq. ft. Albert noticed the error in Brenda’s calculation but did not correct it. With Albert’s
approval, Brenda listed the house for sale as having 3,000 square feet and with a sales price of $250,000.
Cedric was shopping for a house and hired Brenda as his agent. Brenda arranged for Cedric to view Albert’s house. During the viewing, Cedric told Brenda that the listing had interested him because of the house’s location and size. While there, Cedric noticed that the floors appeared to be slightly warped and also saw cracks around some of the doors and windows. He asked Brenda if she thought the house had any foundation damage. Brenda told him that, in her opinion, the cracks appeared to be cosmetic and would likely have no effect on the house’s value. Based on Brenda’s statements, as well as the information he read in Brenda’s listing, Cedric purchased the house for $250,000.
Six months later, Cedric’s employer required him to move to Atlanta. Cedric contacted Edward, a real estate agent, to list the house for sale. Before listing the house, Edward reviewed Brenda’s listing from the previous year. After inspecting the house, Edward advised Cedric that the square footage in Brenda’s listing was wrong and that the house was actually only 2,500 sq. ft. Edward hired a licensed inspector to inspect the
house, and the inspector discovered the house’s foundation was significantly damaged, and the damage would negatively affect the house’s value.
Edward advised Cedric that, due to the size of the house and the damage to the foundation, the house’s value was only $190,000. Cedric was very upset at this news and became so stressed about the house’s decreased value that he developed a painful ulcer, which required him to undergo treatment by a physician.
What claims, if any, may Cedric assert against Albert and Brenda under Texas consumer laws? Explain fully.
(a) Cedric may assert claims for misrepresentation against Brenda and failure to disclose against Albert under the Texas Deceptive Trade Practices Act (“DTPA”).
The viability of his claims depends on whether the statements were factual or opinion, Albert’s intent, and whether Brenda was performing a professional service that is exempt from the DTPA.
Under the DTPA, a person who makes a misrepresentation that a consumer relies on or who fails to disclose material information with the intent to induce the consumer into the transaction may be liable for any damages produced by that misrepresentation. To be actionable, the consumer must rely on the representation or failure to disclose.
Under the DTPA, Cedric may sue any entity whose false, deceptive, or misleading conduct occurred in connection with the transaction. Because both Brenda and Albert dealt directly with Cedric, they are proper parties and may be sued under the DTPA. Even though Brenda was acting as an agent for Albert, she still may be individually responsible under the DTPA for her misrepresentations. There is no requirement of privity. An issue arises, however, regarding whether Brenda’s conduct constitutes a professional service exempt from the DTPA.
Section 17.49(c) of the DTPA provides that it does not apply to a claim for damages based on the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion, or similar professional skill. It may be argued that the service of a professional real estate agent is in fact an exempt “professional service” under the DTPA, the essence of which is advice, judgment, opinion, or similar professional skill. The inquiry, however, does not end there. Section 17.49(c) also provides that its exemption does not apply to an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion. In the instant case, the statement that forms the basis of Cedric’s misrepresentation claim is Brenda’s statement that the house contains 3,000 square feet. This is not a matter of opinion, but rather a representation of fact, for which Brenda may be responsible under the DTPA. On the other hand, Brenda’s statement regarding the foundation cracks may be exempt from the DTPA. Brenda told Cedric that, “in her opinion,” the cracks appeared to be cosmetic and likely would have no effect on the house’s value. These statements were not made as material representations, and may be characterized as advice, judgment, or opinion. If Brenda’s services were found to be professional within the definition of section 17.49(c), the statements regarding the foundation would not be actionable.
To establish a violation of the laundry list, Cedric must show that there was either an actionable misrepresentation or failure to disclose, and that he relied upon it to his detriment. The most common way of establishing a violation of the DTPA is to show a misrepresentation of the characteristics, ingredients, uses, benefits, or quantities of a good or service.
Goods are defined by the DTPA to mean tangible chattels or real property purchased or leased for use.
Brenda’s statement regarding the square footage of the house is a misrepresentation of the good Cedric was purchasing and was relied upon by Cedric when deciding to make the purchase at the price of $250,000. On the other hand, even assuming that Brenda’s statement regarding the foundation is not exempt under the professional service exemption, it probably is not actionable. Brenda’s statement probably is nothing more than mere opinion or puffing, and not actionable under the laundry list.
Cedric also may have a claim against Albert under the failure to disclose provision of the laundry list.
Under the DTPA, a seller who fails to disclose information with an intent to induce a consumer into a transaction that the consumer otherwise would not enter into violates the laundry list.
In this case, Albert knew about the error in the square footage designation and took no steps to correct it or disclose the true facts to Cedric. It can be assumed that Albert knew that this information would make a difference to Cedric, and Albert’s failure to make the disclosure was intended to induce Cedric into the transaction. Albert, as principal, also may be responsible for the misrepresentations of his agent, Brenda, under general principles of agency law.
07/10 #10:
Sharon went to Dean’s Marine intending to purchase a boat to use at her lake house in the Texas Hill Country. Dean, the sole proprietor of Dean’s Marine, told Sharon that he had a previously owned 2007 WaveSlasher that had just been placed on the lot. He told Sharon that, although it was used, the WaveSlasher was in great condition and ran “like new.” He also told her that the purchase price was $3,000.
Sharon told Dean that she knew nothing about mechanical matters, and that she needed a boat that was in good condition because she didn’t want to get stranded on the lake. Dean assured her that the WaveSlasher was ready for use and showed her the Dean’s Marine “30-point Quality Inspection Checklist,” which indicated that all parts of the WaveS lasher had been inspected by his mechanic and were in good working order. Sharon, reassured by the inspection report, agreed to buy the WaveSlasher. The contract of sale included a statement in conspicuous, large print that the WaveS lasher was being sold “As is. No warranties.”
In fact, the mechanic employed by Dean’s Marine had quit the day before Dean’s Marine acquired the WaveSlasher. Dean, who is not a mechanic, had filled out the “30-point Quality Inspection Checklist” himself, never having started the engine and after having done only a cursory, visual inspection of the exterior of the WaveSlasher.
The day after she purchased the WaveSlasher, Sharon went to the lake to try it out. After running it for about an hour, she heard a grinding noise and smelled smoke. A few minutes later, the WaveSlasher’s engine
stopped running. Sharon was stranded on the lake for several hours and had to flag down a passing boater to tow her to shore. Her wait in the sun caused her to suffer a severe and painful sunburn, which had to be
treated by her physician. She was so upset about being stranded on the lake that she experienced nightmares about the incident for weeks afterwards.
Sharon took the WaveSlasher to a mechanic the following day and paid him to inspect it. The mechanic told her that any competent inspection would have revealed that there were obvious signs that the WaveSlasher’s engine had been poorly maintained for a long period of time.
What claims, if any, might Sharon assert against Dean’s Marine under the Texas Deceptive Trade Practices Act? Explain fully.
(a) Sharon has several claims under the Texas Deceptive Trade Practices Act (“DTPA”), based on
misrepresentation,
unconscionability, and
breach of warranty.
At issue is whether Dean violated the DTPA when he made several false statements while selling Sharon the WaveSlasher.
Under the DTPA, a “consumer” may maintain a cause of action based on a violation of the “laundry list” (section 17.46(b)), breach of an express or implied warranty, or an unconscionable action or course of action, provided that the goods or services purchased form the basis of the complaint and that defendant committed the misconduct in connection with the transaction. A consumer is an entity who seeks or acquires, by purchase or lease, goods or services.
In the instant case, Sharon is clearly a consumer because she bought a boat, or in DTPA terms, acquired by purchase a good. She may assert claims under the Act because the purchase of the boat forms the basis of her DTPA claim. Moreover, because Sharon at all times dealt directly with Dean, and Dean’s Marine is a sole proprietorship, the “in connection” with requirement is also satisfied.
Sharon’s misrepresentation claims will be based on the DTPA’s laundry list, a list of 27 acts or practices that are prima facie false, deceptive, and misleading. One practice specifically prohibited under the laundry list is misrepresenting the characteristics, benefits, standard, quality, or grade of goods.
Misrepresentations may be oral or written; however, the statements must be of fact and not merely opinion. Statements that constitute mere opinion, or puffing, are not actionable under the DTPA. Furthermore, the DTPA requires that, in addition to establishing the prohibited act or practice, the consumer must show that she relied on the act to her detriment.
In this case, Dean represented that the boat was “in great condition,”“ran like new,” was in “good working order,” and had been inspected by a mechanic using Dean’s Marine “30-point Quality Inspection Checklist.” These statements appear to be statements of fact, not merely opinions. Because the boat in fact had serious mechanical problems and had not been inspected by a mechanic, and Sharon specifically purchased the boat in reliance on the inspection report, Sharon has a valid laundry list claim under the DTPA.
Regarding the “as is” clause, the laundry list is a statutory cause of action established by the DTPA, and the DTPA generally may not be waived or disclaimed. Therefore, the “as is” clause in the contract will not affect Sharon’s claim for violations of the laundry list.
Sharon may also have a claim that Dean’s conduct was unconscionable under the DTPA.
Unconscionability is defined as “an act or practice which, to the consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity to a grossly unfair degree.” Gross is defined as glaringly noticeable, flagrant, and unmitigated.
According to the facts, Sharon specifically told Dean that she knew nothing about mechanical matters. Therefore, Dean’s conduct of selling her a boat with serious mechanical defects took advantage of this lack of knowledge, arguably to a grossly unfair degree. Based on the price paid, the condition of the boat, and the resulting problems, it appears that Dean acted unconscionably.
The final claim Sharon may assert under the DTPA is a claim for breach of warranty.
The DTPA gives consumers a cause of action under the Act for breach of any express or implied warranty. The DTPA, however, does not create any warranties. Any warranty must be established independent of the Act. Implied warranties arise as a matter of law and are not based on the words or conduct of the business. Express warranties arise based on representations of the seller.
Because this contract involves a good, the transaction is governed by Chapter 2 of the Texas Business and Commerce Code.
Under Chapter 2, there is an implied warranty of merchantability whenever a merchant sells a good. The Texas courts, however, have repeatedly held that no implied warranty arises in the sale of used goods.
Even assuming an implied warranty did exist, the boat in this case was sold with a conspicuous “As is. No warranties” clause.
Under the DTPA, disclaimers or limitations of warranties are valid and enforceable provided they are valid and enforceable outside the Act. Under Chapter 2, implied warranties may be waived by a conspicuous statement that the goods are sold “as is.”
Therefore, the disclaimer in the instant case appears to be effective to waive any implied warranty under Chapter 2. Accordingly, Sharon may not assert an implied warranty of merchantability claim against Dean.
Sharon might also argue that Dean made an implied warranty of fitness for a particular purpose.
Under Chapter 2, this warranty applies to any seller and would apply to new or used goods. This warranty, however, requires that the buyer have a “particular” purpose, and Sharon’s purpose is the “ordinary” purpose of the boat. Additionally, as discussed above, even assuming the existence of this implied warranty, it would be disclaimed by the “as is” clause.
On the other hand, Dean breached his express warranty regarding the condition of the boat.
Under Chapter 2 of the Texas Business and Commerce Code, an express warranty is any affirmation of fact or promise made by a seller that relates to the goods and becomes a part of the basis of the bargain.
In this case, Dean made several statements of fact that could give rise to a warranty; specifically, he stated that the boat was in “good condition,”“like new,” and had been inspected by a mechanic. These statements constitute warranties, and the breach of any of those warranties is actionable through the DTPA. Unlike implied warranties, express warranties may not be waived and are not affected by an inconsistent “as is” clause.
02/10 #5:
Patty purchased a big screen TV on a monthly payment credit plan from Big Box Electronics (“Big Box”) in San Antonio. Patty made monthly payments until she lost her job. Big Box hired Dubious Debt Collections, Inc. (“Dubious”) to collect the money owed by Patty. Dubious’ agent, Rocky, made numerous phone calls to Patty’s home phone, including calls early in the morning and late at night, but could not reach
Patty. Rocky left several threatening messages on Patty’s answering machine.
Frustrated with his inability to contact Patty directly, Rocky contacted Patty’s mother, Marge, by phone, and told her that Patty owed his company a great deal of money and was shirking her financial obligations. He told Marge that if she refused to help him contact Patty, he would take immediate action to have Patty arrested for failing to pay her debts. Upon hearing this, Marge became so upset that she fainted, hitting her head on the coffee table. Her injuries required medical attention in the emergency room.
Larry, Big Box’s in-house collector, became impatient when Dubious’ debt collecting methods proved unsuccessful and promptly fired Dubious. Larry located Patty and told her during a phone call that Big Box would file a lawsuit against her if she failed to pay the amount owed. Additionally, although Larry knew that Patty’s monthly payment agreement did not provide for collection of any amounts over and above the consumer debt, Larry told Patty that she would have to reimburse Big Box for the fees the company had incurred in hiring Dubious to collect on the debt. Patty felt so intimidated by the call from Larry that she suffered anxiety attacks.
Patty and Marge retained Ann, an attorney, to advise them on their legal options.
What consumer law violations, if any, did Dubious and Rocky commit in their efforts to
collect from Patty? Explain fully.
(a) Dubious and Rocky likely violated the Fair Debt Collection Practices Act (“FDCPA”), the Texas Debt Collection Act (“TDCA”), and the Texas Deceptive Trade Practices Act (“DTPA”).
At issue is whether Dubious and Rocky violated the FDCPA, TDCPA, and DTPA when Rocky contacted Patty and Marge to collect money Patty owed Big Box.
The FDCPA is a federal law that seeks to eliminate abusive debt collection practices by “debt collectors.”
The Act defines “debt” to include only consumer debts. It defines the term “debt collector” to mean anyone in the business of debt collection or anyone who regularly collects debts owed another. In other words, the federal law applies only to third-party debt collectors.
Here, Big Box hired third party Dubious to collect money owed by Patty. Dubious’s agent, Rocky, subsequently made several allegedly harassing phone calls. Therefore, Rocky, as agent, and Dubious, as principal, are both debt collectors for purposes of the FDCPA because they attempted to collect a debt owed to another party, Big Box.
The FDCPA has a broad range of prohibitions, covering any conduct that is harassing, abusive, false, misleading, or unfair. It also includes provisions prohibiting specific types of conduct, or requiring certain disclosures at the time of the communication. In the instant case, Rocky, as agent for Dubious, appears to have violated several provisions of the FDCPA.
First, Rocky may have called Patty at an inconvenient time. Under the FDCPA, a debt collector may not communicate with a consumer at any “inconvenient” time. Calls made before 8 a.m. or after 9 p.m. are assumed inconvenient. Here, Rocky made numerous phone calls to Patty’s home phone, including calls early in the morning and late at night. Although the facts do not state the specific time of the calls, if these early morning or late night phone calls occurred before 8 a.m. or after 9 p.m., then both Rocky and Dubious violated the FDCPA.
Second, neither Rocky nor Dubious sent Patty the required validation notice. Under the FDCPA, within five days after the initial communication with the consumer, the debt collector must send the consumer written notice containing the name of the creditor, the amount of the debt, and a statement that the consumer has 30 days to dispute the debt. If the consumer disputes the debt, the debt collector must obtain verification of the debt and mail it to the consumer. The debt collector also must cease collection until such time as the debt is verified. Here, the facts do not indicate that Patty received the required validation notice. The failure to send such notice is a violation of the FDCPA.
Third, Rocky improperly communicated with third parties. Under the FDCPA, a debt collector may not communicate with third parties except to acquire location information. Furthermore, any debt collector communicating with a third person for purposes of acquiring location information about the consumer must do so in a way that does not embarrass the consumer or indicate to the other person that the consumer is in debt. Here, both Rocky and Dubious violated the Act in two different ways.
First, Rocky improperly contacted Patty’s mother Marge. Although Rocky asked about “contacting” Patty during this phone call, he still communicated with Marge for purposes other than to acquire location information. Specifically, Rocky told Marge that Patty owed his company a great deal of money and was shirking her financial obligations. Because Rocky disclosed a consumer’s debt to a third party, Rocky violated the FDCPA.
Second, Rocky and Dubious may have violated the Act with respect to the messages left on Patty’s answering machine. Here, Rocky left several threatening messages on Patty’s answering machine. If a third party happened to overhear these messages, then both Rocky and Dubious violated the Act.
Finally, Rocky and Dubious violated the FDCPA in several respects when Rocky told Marge that he would take immediate steps to have Patty arrested.
First, the FDCPA prohibits the use of debt collection practices that violate state law. Since Texas law prohibits threatening arrest for failing to pay debts, Rocky violated the FDCPA when he made this threat.
Second, a debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. This prohibition is not limited to conduct that affects the consumer but rather applies to conduct against any person. Rocky’s threats to Marge constitute unlawful harassment and abuse.
Third, a debt collector may not use any false, deceptive, or misleading representations or means in connection with the collection of any debt that specifically includes threatening to take any action that cannot legally be taken. This prohibition is also not limited to representations made to the consumer. Because Rocky could not legally have Patty arrested, his threat constitutes a false and deceptive misrepresentation.
Finally, the FDCPA also prohibits unfair or unconscionable acts or practices. Again, this prohibition is not limited to conduct that affects the consumer. Although the FDCPA provides a list of conduct that is prima facie unfair or unconscionable, this list is nonexclusive. Therefore, although Rocky’s statement does not fall within the enumerated list, it may still be considered unfair and unconscionable if a trier of fact so determines.
In addition to violating the FDCPA, Rocky and Dubious have violated the TDCA.
Like the FDCPA, the TDCA is designed to protect consumers from the effects of wrongful debt collection activities. Also similar to the FDCPA, the Texas Act applies to any “debt collector,” and provides a cause of action for any “person.” Also like the FDCPA, the TDCA uses the word “consumer” to describe the type of obligations covered by the Act.
For purposes of the Act, a consumer is an individual who owes a consumer debt. A consumer debt is an obligation or alleged obligation, primarily for personal, family, or household purposes, arising from a transaction.
Under the facts, Patty is a “consumer” under state law. Consequently, her debt is a consumer debt and Rocky and Dubious are subject to the state debt collection law.
Rocky and Dubious violated several provisions of the TDCA.
First, Rocky’s threat to Marge constitutes coercive conduct prohibited by the TDCA. The TDCA contains several provisions prohibiting certain abusive debt collection methods, including threats or coercion, harassment, unconscionable and unfair acts, and misrepresentations. Unlike the FDCPA, however, the practices listed in the provisions of the Texas Act are exclusive. Conduct not within the list of prohibited practices is not actionable, even if it is found to be false, deceptive, misleading, or threatening. Threats or coercive conduct prohibited by the Texas Act include:
(i) using or threatening to use violence or other criminal means to cause harm to a person or property of a person;
(ii) accusing falsely or threatening to accuse falsely a person of fraud or any other crime;
(iii) threatening that the debtor will be arrested for nonpayment of a consumer debt without proper court proceedings;
(iv) threatening to file a charge, complaint, or criminal action against a debtor when the debtor has not violated a criminal statute; and
(v) threatening to take an action prohibited by law. Here, the facts do not provide any basis for concluding that Rocky had the legal right to have Patty immediately arrested.
Thus, Rocky and Dubious violated all of the above provisions when Rocky contacted Marge.
Second, Rocky’s phone calls to Patty constitute abusive conduct prohibited by the TDCA. Abusive conduct under the Texas Act includes:
(i) placing telephone calls without disclosing the name of the individual making the call and with the intent to annoy, harass, or threaten a person at the called number; or
(ii) causing a telephone to ring repeatedly or continuously, or making repeated or continuous telephone calls, with the intent to harass a person at the called number.
Here, the facts state that Rocky made numerous phone calls to Patty’s home phone and left several threatening messages on the answering machine. Rocky’s repeated phone calls with the intent to threaten and harass Patty to collect Big Box’s debt constitutes abusive conduct in violation of the Texas Act.
Finally, Dubious’s and Rocky’s conduct will be actionable under the DTPA.
To have a private cause of action under the DTPA, a person must first establish that she is a consumer.
A consumer is someone who seeks or acquires, by purchase or lease, any goods or services.
In this case, Patty purchased the TV and is, therefore, a consumer. Marge, however, is not a consumer under the DTPA because she did not make the purchase.
Under the DTPA, claims may be brought based on other statutes that “tie in” to the DTPA, one of which is the TDCA.
Any violation of that statute’s debt collection provisions is automatically actionable through the “tie-in” provisions of the DTPA.
Here, Dubious and Rocky’s violation of the debt collection statute also constitutes a violation of the DTPA. Therefore, Patty may maintain a claim under the DTPA.
