Colorado Legislature Considering Making it Easier to Prevail on CCPA Claims

House Bill 23-1192 (“HB 23-1192”) is one of the proposed bills making its way through the Colorado legislative session this year.  It purports to create additional protections in the Colorado Consumer Protection Act (“CCPA”), but instead threatens to put construction professionals at an increased risk during litigation.  Under the scope of the proposed bill, many construction contracts, as drafted, could automatically add up to $250,000 to any claim by lowering the standard for what constitutes an “unfair or deceptive trade practice.”  Further, it would remove elements of a CCPA claim currently required by law to prove that an unfair or deceptive trade practice “constitutes a significant impact to the public.”  This bill still has a way to go before becoming law, but given its progress thus far, we believe it is highly probable that it will be enacted unless there is substantial pushback.  For the reasons discussed below, we urge all construction professionals to take necessary action to obstruct this bill, and particularly Section 1 of the bill, from becoming enacted.

The most concerning proposed amendments to the CCPA, through Section 1 of the bill, do the following:

• Remove the knowingly or recklessly mental state from the general unfair or deceptive trade practice provision concerning an unfair, unconscionable, deceptive, knowingly false, or fraudulent act or practice;
• Establish as a deceptive trade practice the act of including in a contract offered to or entered into with a consumer a term that is substantively unconscionable or void as against public policy as of the time of the contract’s execution;
• Establish that evidence that a person has engaged in an unfair or deceptive trade practice constitutes a significant impact to the public.

Why Should Builders or Insurers Care?

In a construction defect action, the remedy available to a plaintiff for proving that a defendant has violated the CCPA is three times the amount of actual damages (or “treble damages”) plus attorneys’ fees, not to exceed $250,000 (adjusted for inflation).  Under the CCPA, treble damages have been reserved for cases in which the evidence showed that the defendant engaged in “bad faith” conduct.  The Colorado Supreme Court has indicated that a CCPA violation requires proof that the defendant knowingly engaged in a deceptive trade practice.[1] Colorado Court of Appeals panels have subsequently interpreted “bad faith” conduct to require an intent to deceive, or a finding that defendant knew or should have known its actions were deceiving.  In other words, there has always been a higher standard of proof for the defendant’s mental state.  One case in particular, Gen. Steel Domestic Sales, LLC v. Hogan & Hartson, LLP, 230 P.3d 1275, 1282 (Colo. App. 2010) explained: “it simply is inconsistent for the General Assembly to have included a practice with no subjective intent element under the category of deceptive trade practices” (holding that the General Assembly intended the CCPA deceptive trade practice of “bait and switch” advertising to include the element of intent to deceive, even though the subsection’s language did not expressly contain the word “intent”).  These cases have continuously held that the CCPA was always meant to require proof of intent, and that negligence or honest mistakes are insufficient to rise to the level of a CCPA violation and resulting treble damages.  This makes sense—if what is at stake is the higher punishment of treble damages, what is wrong with having a higher standard of proof for the required mental state?  This proposed bill, however, attempts to strip the CCPA of an elevated mental state standard while maintaining an elevated remedy.  It is critical that construction professionals and insurers push back on this change and reinforce the pragmatic principle that intent is the cornerstone of any unfair or deceptive trade practice for purposes of the CCPA.

The proposed bill, if passed, will allow for any provision of a contract entered into by, or even so much as offered to, a consumer, which contains a term that is substantially unconscionable or void as against public policy to be automatically established as a deceptive trade practice.  This alone will have widespread ramifications.  As one of many possible examples, this could even include any disclaimer of implied warranties in current residential construction contracts.  Though currently unenforceable in a court of law pursuant to the Homeowner Protection Act, the bill would go a step further and make inclusion of disclaimers of implied warranties in a residential setting automatic evidence of a deceptive trade practice, as it has already been determined to be void as against public policy.[2] Therefore, any contract with such a provision would open up any case to a maximum of an extra $250,000 right off the bat.  The potential effect on what typically may have been perceived as lower-risk cases is staggering.  Any case in litigation would present an opportunity for plaintiffs to be awarded three times the amount of actual damages that a case is worth, plus attorneys’ fees, if able to prove that any term in a contract (which can often be lengthy) is “substantially unconscionable or void as against public policy.”  

To the extent that a contract contains a term or provision that is against public policy, there is already a remedy for the plaintiff in that it is unenforceable.  To the extent that the construction professional has misrepresented or failed to disclose a material fact, there is already a remedy for the plaintiff through the various Colorado statutes and case law addressing matters of negligent misrepresentation or nondisclosure.  To that end, it is also unclear what functional difference this bill would make between bringing a claim for a CCPA violation and bringing a misrepresentation or a failure to disclose claim.  Courts have held that “where the statement alleged to constitute a misrepresentation properly may be characterized as a contractual promise as opposed to tortious misrepresentation, the distinction between tort and contract law will be observed, and no claim will lie under the CCPA (Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 148 (Colo. 2003) (where promisor fails to perform mutually bargained-for and agreed-upon promise, remedy is action for breach)).  Although the CCPA was not intended to supersede contract law, this bill improperly attempts to broaden the CCPA’s scope which ultimately will just confuse the litigation process and blur the lines between tort and contract law.

We encourage construction professionals to fight against this proposed bill, especially Section 1, as it creates an unreasonable burden for construction professionals in attempting to draft contracts that simultaneously allow for fair and free enterprise and the ability to protect itself from unreasonable and frivolous lawsuits.

This third proposed change is counter-intuitive and runs afoul of “public impact” case law.  While it is certainly possible that some single transactions may have the potential for broader public impact, it would be antithetical to assert that all of a given category of single transactions necessarily constitute a significant impact to the public.  Numerous Colorado courts, including the Colorado Supreme Court, have scrutinized cases alleging CCPA violations involving single transactions in order to separate those that have already injured other consumers or have the “potential for repetition” to do so in the future, from those that are just “run-of-the-mill fraud claims” and affect only those involved in the transaction at issue.  Yet this bill seeks to broaden the scope of “public impact” to provide that any evidence that a person has engaged in an unfair or deceptive trade practice automatically constitutes a significant impact to the public.  Though supporters of this bill may argue that courts in other states have found a single transaction sufficient in this regard in order to, essentially, stop fraud before it has the opportunity to affect the public, it simply makes no sense that in order to prevail on a “public impact” claim, a plaintiff would not then need to prove actual or potential public impact.  The snowball effect of allowing what would typically be a single, private transaction to the otherwise uninvolved public could be immensely damaging in the long run for construction professionals.

Additional Considerations

Insurance carriers often do not include CCPA violations as part of their coverage in litigation matters.  Remedies for CCPA violations have been punitive damages for evidence of intentional wrongdoing, and therefore have fallen outside the scope of professional liability coverage offered to construction professionals for claims arising from work done on a construction project.  As described above, a relatively low actual damages case could open the door to treble damages automatically, and not having coverage for the vast majority of the awarded damages would be significantly damaging to each impacted construction professional on each affected case.

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