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No. 09CA0253. State of Colorado v. Mandatory Poster Agency, Inc.

Colorado Consumer Protection Act—"Knowingly" Requirement.

The State of Colorado appealed the trial court‘s pre-trial order dismissing its claim under § 6-1-105(1)(d), C.R.S, of the Colorado Consumer Protection Act (CCPA), as well as the court‘s judgment for

defendants, the Mandatory Poster Agency, Inc. (MPA), Steven Fata (MPA President), Thomas Fata (MPA Vice President), and Joe Fata (MPA Secretary and Treasurer), on its remaining CCPA claims. The judgment was affirmed, the order was reversed, and the case was remanded with directions.

MPA is a Michigan corporation that sells workplace posters to employers using direct mail solicitations. The posters are designed to comply with state and federal posting requirements. In Colorado, MPA conducts business under the names the Colorado Labor Law Poster Service (CLLPS) and Colorado Food Service Compliance Center (CFSCC). Since 2003, MPA has mailed approximately 149,000 CLLPS solicitations to Colorado employers and filled approximately 18,000 orders. In addition, it has mailed approximately 6,000 CFSCC solicitations and sold posters to 170 Colorado employers.

The CLLPS solicitations represented that failing to post certain notices violated certain laws and possibly subjected the violator to criminal and civil penalties. The CLLPS solicitations also included a disclaimer that it was a non-governmental organization, and that certain posters might be available for free from the issuing governmental agencies.

The CFSCC solicitation inaccurately represented that state and federal food codes impose on food service establishments a requirement to post notices regarding hand washing, and that penalties include fines, license suspension or revocation, civil liability, and imprisonment. After learning of the error, defendants sent all customers that had ordered the hand-washing posters a letter informing them of the inaccuracies and offering a full refund.

Following inquiries from employers to the Colorado Department of Health and Environment regarding whether the solicitations were accurate and what the posting requirements and penalties are, the state filed a complaint alleging defendants had violated the CCPA. Following a Bench trial, the trial court issued judgment for defendants, finding they had not violated the CCPA because the inaccurate information in MPA‘s notices resulted from negligence. The state appealed.

The state argued that the trial court erred in granting defendants‘ motion to dismiss its § 6-1-105(1)(d), C.R.S., claim. The Court of Appeals agreed. The trial court granted the motion because the state‘s complaint failed to expressly plead a violation and its prayer for relief was not under subsection (1)(d). The Court held that the complaint contained facts alleging defendants deceived consumers about their goods‘ geographic origin, and that this was sufficiently particular to allege a claim under subsection (1)(d). The trial court was ordered to reinstate the claim.

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The state also argued that the trial court improperly interpreted the "knowingly" requirement in § 6-1- 105(1)(b), (c), and (e), C.R.S. Here, the Court found no error. The record supports the trial court‘s findings that the inaccuracies in defendants‘ posters and solicitations were made negligently, not recklessly, knowingly, or intentionally (a CCPA violation requires that defendants act knowingly). The trial court‘s order dismissing these claims was affirmed.

No. 09CA0252. General Steel Domestic Sales, LLC v. Hogan & Hartson, LLP.

Colorado Consumer Protection Act—Consequential Damages.

Plaintiffs General Steel Domestic Sales (General Steel) and Jeffrey W. Knight appealed from the dismissal of their Colorado Consumer Protection Act (CCPA) claim against Ty Cobb and the law firm of Hogan & Hartson, LLP, and from that part of the judgment precluding plaintiffs from recovering consequential damages in their claim of breach of contract. The judgment was affirmed in part and reversed in part, and the case was remanded with directions.

Plaintiffs retained Ty Cobb and his firm to defend General Steel against an action brought by the Colorado Attorney General (the Colorado AG action). Plaintiffs said they retained Cobb‘s services because of his reputation for being experienced in representing white collar defendants in complex, high-stakes cases. The representation agreement provided Cobb would have primary responsibility for the matter, with assistance as required from other attorneys in the litigation group, and that any dispute over legal fees would be submitted to binding arbitration.

Cobb was actively involved in the Colorado AG action for two months, but then moved his practice to Hogan & Hartson‘s Washington, D.C. office, effectively terminating his involvement in the case. Plaintiffs retained another law firm, though other Hogan & Hartson attorneys continued work on the case. Plaintiffs paid legal fees to both firms and ultimately the case settled.

Plaintiffs then sued Cobb and Hogan & Hartson, alleging fraud, breach of fiduciary duty, breach of contract, and violation of the CCPA. The CCPA claim alleged that defendants had engaged in the "deceptive trade practice" of "‗bait-and-switch‘ advertising." Defendants filed a motion to dismiss the CCPA claim and a motion to compel arbitration of the contract claim. The trial court granted both motions and limited the damages on the contract claim to the legal fees paid.

On appeal, plaintiffs first claimed it was error to dismiss the CCPA claim on the ground that the

allegations were insufficient to show that the allegedly deceptive trade practice significantly impacted the public. The Court of Appeals disagreed, noting that plaintiffs only had to set forth facts that, if proved, could establish public impact under any theory of the law. Plaintiffs alleged defendants baited them and other prospective clients with "a glowing interview of Cobb in The Denver Post." They argued that this constituted mass advertising and, as such, has an inherent public impact. The Court disagreed, because in the context of a CCPA claim, mass advertising does not create a public impact unless it contains misrepresentations or deceptive information. Here, there was no representation that Cobb would act as lead counsel on any case for which his services were sought and thus no misrepresentation.

Plaintiffs also argued it was error for the trial court to determine that even if its original dismissal of the CCPA claim was erroneous, the findings of the arbitrator that defendants did not intend to deceive plaintiffs barred their CCPA claim through issue preclusion. Plaintiffs contended that the bait-and- switch claim does not include an intent element. The Court disagreed, holding that the bait-and-switch provision requires not only a scheme to lure prospective customers with deceptive advertising, but also an intention to not comply with the advertisement‘s terms. The Court also held there was no "switch"

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here, because plaintiffs, if baited by the promise of being represented by Cobb, actually received that bait, at least for a time. At most, this might be breach of contract for failure to perform as promised. Plaintiffs argued that it was error to not allow them to seek consequential damages on their breach of contract claim on the ground that their negligence claim had been dismissed. The Court agreed. The damages available in the time-barred negligence action were separate and distinct from the damages available in the breach of contract action. Plaintiffs should not have been precluded from seeking consequential damages on their breach of contract claim. Accordingly, this part of the decision was reversed and remanded, to be heard by the trial court or referred to arbitration.

No. 09CA1966. Carter v. Brighton Ford, Inc.

Summary Judgment—Implied Warranty of Merchantability—Revocation of Acceptance— § 13- 21-402, C.R.S.

Plaintiff Chad Carter appealed the summary judgment dismissing his claims against defendant Brighton Ford, Inc. for breach of implied warranty of merchantability and revocation of acceptance. The

judgment was reversed.

In April 2007, Brighton Ford sold Carter a 2006 Mustang produced pursuant to a joint manufacturing agreement between Ford Motor Company and Saleen Inc. The car contained numerous s high-

performance components that were manufactured or installed by Saleen. The vehicle experienced numerous mechanical defects from the day of purchase and was inoperable for more than thirty days during the first year of ownership.

In October 2007, Carter brought this action, including claims against Brighton Ford for breach of implied warranty of merchantability and revocation of acceptance under the Colorado Uniform

Commercial Code, as well as claims against Ford and Saleen for violation of the Colorado Lemon Law, revocation, and breach of express and implied warranties. Ford Motor Company was dismissed after discovery revealed the mechanical defects were solely attributable to Saleen. Saleen ceased operations. Brighton Ford moved for summary judgment, arguing Carter‘s claims were product liability claims and therefore barred by the "innocent seller" statute, § 13-21-402, C.R.S. The trial court agreed, and Carter appealed.

The Court of Appeals read the plain language of the innocent seller statute as stating that although product liability actions may not be brought against innocent sellers, "other actions" may be brought. It was undisputed that Brighton Ford was a non-manufacturing seller. Thus, the Court considered whether Carter‘s contract claims constitute product liability claims or whether they should be considered "other actions" that can be maintained. The Court concluded that Carter‘s claims were not based on product liability and may proceed. Essentially, the Court found that contract claims that seek only economic loss for a defective product without collateral damage or risk of harm to others do not constitute product liability actions. Accordingly, the judgment was reversed and the case was remanded with directions.

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