Colorado Legislature Considered Making CCPA Claims Drastically More Damaging to Construction Professionals: Why You Should Still Have Your Guard Up

On June 7, 2023, the Colorado Legislature passed House Bill 23-1192 (“HB 23-1192”), now codified at C.R.S. § 6-1-730.  As it was first drafted, HB 23-1192 purported to create additional protections in the Colorado Consumer Protection Act (“CCPA”), but instead threatened to put construction professionals at an increased risk during litigation.  Under Section One 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, Section One would have removed 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.”

The most concerning proposed amendments to the CCPA were drafted to:

• 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.

Prior to becoming law, the legislature revised HB 23-1192 several times and Section One, along with all the concerning provisions, were omitted from the final act.

Why Builders and Insurers Cared

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 standard 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?

HB 23-1192, as originally introduced, would have stripped the CCPA of an elevated mental state standard while maintaining an elevated remedy, effectively removing intent as the cornerstone of any unfair or deceptive trade practice for purposes of the CCPA.

Had this bill passed with the proposed language in Section One, 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 would be automatically established as a deceptive trade practice.  Thus, any disclaimer of implied warranties in preexisting residential construction contracts would have been automatically established as a deceptive trade practice, or at least evidence thereof.[2]  Therefore, any contract with such a provision would open up any case to a an extra $250,000, maximum, right off the bat.  The would-be ramifications of such language on lower-risk cases are 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.”

Currently, 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 such term or provision 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.  HB 23-1192 simply sought to increase available damages to plaintiffs in construction defect litigation.

It was unclear what functional difference this bill would have made 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 attempted to broaden the CCPA’s scope ultimately and confuse the litigation process and blur the lines between tort and contract law.  Section One of HB 23-1192 would have created 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.

The third proposed change in Section One of HB 23-1192 sought to eliminate the “public impact” element by providing that any evidence that a person has engaged in an unfair or deceptive trade practice automatically constitutes a significant impact to the public.

This expansion of “public impact” law was counter-intuitive and ran afoul of case law precedent.  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.  There is simply no sense in arguing 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 result in immense damages 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  liability coverage offered to construction professionals for claims arising from work done on a construction project.  As described above, the proposed language of Section One would have opened the door to automatic treble damages for otherwise low actual damages cases.  It goes without saying that uncovered treble damages would be significantly damaging to each impacted construction professional on each affected case.

Why You Should Still Remain Vigilant

HB 23-1192 was signed into law on June 7, 2023, after going through several revisions and ultimately removing all the damaging language and provisions in Section One mentioned throughout this article.  For now, the dangers enumerated above have passed, but the intent of the drafters of this bill has not.  To fall asleep after fighting off the lone wolf is to later feed the entire pack.  We strongly urge you to protect yourself from future changes in the law by removing any provisions in your contracts disclaiming implied warranties.  Such disclaimers are already void as against public policy and could subject you to significant punitive damages down the road.  We want you to protect your business and to avoid outrageous penalties in the future.  Be aware of the dangers of keeping implied warranty disclaimers in your contracts and consider removing such clauses for the protection of you and your business.

[1] Crowe v. Tull, 126 P.3d 196, 204 (Colo. 2006).

[2] See, David M. McLain, “The Great Fallacy: If Builders Would Just Build It Right There Would Be No Construction Defect Litigation,” January 19, 2015, https://www.hhmrlaw.com/the-great-fallacy-if-builders-would-just-build-it-right-there-would-be-no-construction-defect-litigation.html