Consumer Transactions – Steiner – Spring 2012
1. Before the DTPA
a. The only available remedies for consumers were:
1. Rigorous elements and proof:
a. A material representation was made
b. That was false
i. That when the speaker made it, he knew it was false or made it recklessly without any knowledge of its truth and as a positive assertion
d. That he made it with the intention that it should be acted upon by the party
e. The party acted in reasonable reliance on the representation
f. The party thereby suffered injury
iii. Breach of contract
1. Difficult for consumers to maintain a cause of action under breach of K
a. K clauses limit buyer's remedies
b. Privity of K may be necessary
c. Unconscionability was only available as a defense, and not an affirmative cause of action.
2. DTPA: Generally
a. The Act is over-inclusive and should not be interpreted as being restrictive
b. It applies to “consumers”, which is defined in 17.45(4):
i. “Consumer” means any individual, partnership, corporation, this state…who acquires by purchase or lease, any goods or services, except that the term does not include a business consumer that has assets of $25 million or more, or that is owned or controlled by a corporation/entity with assets of $25 million or more.”
c. Causes of action available under the DTPA:
i. Laundry list violations
iii. Breach of warranty
1. Does not create warranties. It simply allows for recovery for breaches of statutory or common law warranties
d. Statutory construction
i. 17.44: Construction and Application
1. (a) This subchapter shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.
3. A successful DTPA claim will prove that:
a. The plaintiff is a consumer as defined in 17.45(4)
b. The defendant committed one of the actions specified in 17.50(a)(1), (2), (3), or (4)
c. The defendant's actions were the producing cause of the consumer's damages
i. Note: Consumer standing is distinct from the merits of a case.
4. Two pronged test:
i. 17.45(4): “Consumer” means an individual, partnership, corporation, this state, or a subdivision or agency of this state who seeks or acquires by purchase or lease, any goods or services, except that the term does not include a business consumer that has assets of $25 million or more, or that is owned or controlled by a corporation or entity with assets of $25 million or more.
ii. The goods/services purchased or leased must form the basis of the complaint
i. The purported consumer's individual relationship to the transaction, and the personal benefit anticipated or received.
5. “Seek or acquire”:
i. Key factors:
i. The party's intent or objective to purchase or lease
1. The prospective purchaser must have at least approached the seller with the advertised good or service
ii. Good faith initiation of the purchasing process
1. Initiation of the purchasing process occurs when the party:
a. Presents himself to the seller as a willing buyer with the subjective intent/specific objective of purchasing
b. Possesses at least some credible indicia of the ability to consummate the transaction
2. Good faith
a. Honesty in fact in the conduct or transaction concerned
i. Actual belief of the party and not the reasonableness of that belief
c. Good faith need not be affirmatively pled, although practically, it is sound strategy
ii. Seeking goods/services without consummating a purchase
i. Valuable consideration is not a prerequisite for consumer status
1. Rationale: Any rule to the contrary would force the consumer to actually purchase a good/service that they do not want, and would run contrary to the liberal construction of the act.
1. If the seller offers proof that the buyer entered into the transaction without a true intention to purchase or without the capacity to consummate the transaction, the issue of consumer standing is question of fact for the jury.
iii. Goods/services may be acquired without seeking them
i. They may be sought on behalf of the consumer, so long as the consumer acquires the good/service
a. An insurance policy negotiated by an employer, even though the consumer did not have any input into the negotiations
ii. Third party beneficiaries:
1. In very limited situations, a third party beneficiary may qualify as a consumer of goods or services, as long as the transaction was specifically required by or intended to benefit the third party and the good or service was rendered to benefit the third party.
iii. Acquisition by an employer
1. In order for an employee to “acquire” goods or services purchased or leased by his employer, the employee must establish that the employer’s primary purpose for purchasing or leasing the goods or services was to benefit the employee. If the employer's purchase or lease of the goods or services is primarily for the benefit of the employer's business and benefits the employee only incidentally, the employee does not acquire those goods or services to qualify as a consumer.
iv. They may be acquired involuntarily
1. i.e., towing a parked car
6. “Purchase or lease”:
i. There is no definition of “purchase” under the DTPA, but it should be defined liberally
1. Any transfer of goods/services in exchange for consideration
i. Any bargained for exchange, not limited to transactions where goods/services are exchanged for money.
2. “Purchase” defined in Art. 2 of the UCC
a. Taking by sale, discount, negotiation, mortgage, pledge, lien, issue or reissue, gift, or any other voluntary transaction creating an interest in property
3. Generally, “purchase” does not apply to gifts, except where the gift is part of a bargained for exchange
ii. Consumer standing is established in terms of the individual's relationship to the transaction, not by a contractual relationship with the defendant.
i. One may acquire goods or services that have been purchased by another for the plaintiff's benefit.
ii. Privity between the plaintiff and defendant is not a consideration in deciding the plaintiff's status as a consumer
1. An individual's relationship to a transaction is especially important in bait and switch schemes
i. A simple borrower is not a DTPA consumer
ii. A simple passenger is not a consumer unless they had some connection to the transaction
iii. Focus on what was purchased or leased. The item must be a good or service, as explained below.
7. “Goods or services”:
i. 17.45(1): Tangible chattels or real property purchased or leased for use.
NOTE: Always analyze the central objective of the transaction.
i. Tangible chattel
i. Can apply to purchases of partnership shares where the partnership agreement grants the purchaser an interest in a tangible chattel
1. i.e., purchase of a share in a herd of cattle is a tangible chattel, even though the nature of the transaction
ii. “For use”
i. Whatever use was intended to be the made of the goods
ii. Includes purchases purely for resale.
iii. There is no “extinction” or “exhaustion” requirement.
iii. “Goods” does not apply to intangibles:
i. Pure loans are neither a good nor a service
ii. Lotto tickets are not goods. They are simply a right to participate in the lotto drawing
iii. Financing, securities, stocks, bonds, etc.
1. But, there is often an element of service to any such sales. Take care to analyze whether the transaction involved the exchange of goods only, or if there was a combination of goods and services exchanged in the transaction.
i. 17.45(2): Work, labor, or service purchased or leased for use, including services furnished in connection with that sale or r
The professional services exemption does not apply to:
1. An express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;
2. A failure to disclose information in violation of Section 17.46(b)(24)(failure to disclose in attempt to induce consumer to enter into transaction);
3. An unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion;
4. Breach of an express warranty that cannot be characterized as advice, judgment, or opinion
5. These provisions may be asserted as a claim for vicarious liability
ii. Lawyers and the Professional Exemption:
i. A bad result isn't unconscionable conduct, and there is a difference between negligence and deceptive conduct
ii. Lying to clients about whether you are actively pursuing a claim is an unconscionable course of conduct
3. Bodily injury and Mental Anguish Exemption:
i. Except as specifically provided by Subsections (b) and (h), Section 17.50, nothing in this subchapter shall apply to a cause of action for bodily injury or death or for the infliction of mental anguish.
4. Contract Exemption:
i. He contract exemption only applies to a written contract if:
i. It involves total consideration by the consumer of more than $100,000;
ii. The consumer is represented by legal counsel who is not directly or indirectly identified, suggested, or selected by the defendant or an agent of the defendant; and
iii. The contract does not involve the consumer’s residence.
iv. Note: Consideration
1. Common law definition
a. A present exchange bargained for in return for a promise.
b. Consists of either a benefit to the promisor or a detriment to the promisee
2. Black's Law Dictionary
a. Some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other.
5. $500,000 limitation on DTPA claims
i. Nothing in this subchapter shall apply to a cause of action arising from a transaction, a project, or a set of transactions relating to the same project, involving total consideration by the consumer of more than $500,000, other than a cause of action involving a consumer’s residence.
Whom May You Sue?
1. Consumers may seek recourse against those with whom they have engaged in a consumer transaction
i. The DTPA does not require that the employee acted knowingly or intentionally
i. There is no privity requirement between the consumer and the defendant
i. The DTPA can extend beyond parties that provided the goods upon which a claim is based
4. In connection:
i. Misrepresentations must be in connection with the transaction in question
ii. A misrepresentation is in connection with the transaction if:
i. The defendant intended to or actually made misrepresentations to the consumer
ii. The misrepresentation reaches the consumer either actually or as a benefit to the from the second transaction to the initial seller
1. Upstream suppliers:
a. Upstream suppliers with no connection to the representations made to the consumer may not be reached by a DTPA suit.
i. Merely enjoying the benefit of selling raw material to a downstream manufacturer is not a sufficient connection to a misrepresentation
ii. To the extent that a seller's DTPA liability is caused or contributed by the otherwise actionable misconduct of upstream suppliers, the seller may seek contribution or indemnity against them.