HB24-1014: A Warning Bell for Colorado Businesses Amid Potential Consumer Protection Changes

HB24-1014 stands to eliminate the longstanding public impact requirement found within C.R.S. § 6-1-105(2) of the Colorado Consumer Protection Act (“CCPA”).  While this proposed change professes the noblest intentions of “public peace, health or safety,” its effect portends a large detriment to Colorado business and an astronomical payday for Colorado plaintiffs’ attorneys.

Brief History

For over 100 years, Colorado recognized the need to protect its citizens from deceptive trade practices through a mechanism akin to the Federal Trade Commission Act that preceded it.  In 1915, Colorado passed legislation prohibiting “untrue, deceptive, or misleading” advertising.  C.L. 1921 § 6942 evolved into the broader protections afforded in the more recent consumer protection law from 1969 that prohibited “deceptive trade practices, and included protections from unfair, unconscionable, and deceptive acts or practices.”

For the next 30 years, Colorado courts thoughtfully analyzed and applied the CCPA with an eye to affording protection to the class the CCPA aimed to protect, the public.  Years of significant judicial scrutiny and analysis concluded in the public impact requirement we know today.

HB24-1014 attempts to portray the public impact requirement as a mere judicial novelty fashioned by the Colorado Supreme Court.  But the Colorado Supreme Court had a longstanding judicial basis when it issued its decision in 1998 and its decision should not be taken out of such context.  The Colorado Supreme Court limited the Colorado Consumer Protection Act, and required plaintiffs to demonstrate significant public impact as a basis for any remedy in Hall v. Walter.  Hall v. Walter, 969 P.2d 224 (Colo. 1998).

However, the Hall v. Walter decision descended from a long line of case law recognizing that the function of the CCPA was to protect the public.  Historically, the Court recognized the CCPA’s function to “control various deceptive trade practices in dealing with the public.”  People ex rel. Dunbar v. Gym of America, Inc., 177 Colo. 97, 107, 493 P.2d 660, 665 (1972) (emphasis added).  The CCPA regulates practices which “because of their nature, may prove injurious, offensive, or dangerous to the public.” Id.; see also People ex rel. MacFarlane v. Alpert Corp., 660 P.2d 1295, 1297 (Colo.App.1982) (noting the substantial public protection emphasis of the CCPA).  The Hall v. Walter decision cemented public impact as a component of the CCPA after decades of discussion in prior case law.

Finally, with Hall v. Walter, the Court made clear that:

while the public interest component is longstanding, we now recognize that a more precise reading of the statute’s function requires an impact on the public as consumers of the defendant’s ‘goods, services, or property.’ § 6–1–105(a).  This understanding is consistent with the statute’s title.  See People v. Zapotocky, 869 P.2d 1234, 1239 (Colo.1994) (considering legislation’s title in determining legislative intent).  It also comports with our consistent characterization of the CCPA as addressing consumer concerns.  See Western Food Plan, Inc. v. District Court, 198 Colo. 251, 256, 598 P.2d 1038, 1041 (1979) (noting legislative purpose to prevent or remedy consumer fraud); Dunbar, 177 Colo. at 113, 493 P.2d at 668 (finding that state may enjoin deceptive practices “that have a tendency or capacity to attract customers” as a valid exercise of police power). Therefore, the challenged practice must significantly impact the public as actual or potential consumers of the defendant’s goods, services, or property.

Culminating years of case law examining the class the CCPA sought to protect, The Colorado Supreme Court clearly defined CCPA class protections.  The Hall v. Walter court outlined a five-part standard for the determination of CCPA claims.  Those five elements included:

1. Evidence of conduct that constitutes a deceptive trade practice.
2. The deceptive trade practice occurred in the course of business.
3. That the deceptive trade practice occurred in dealing with the public, significantly impacting the public as actual or potential consumers.
4. Injury in fact to a legally protected interest.
5. Causation of the injury due to the challenged deceptive trade practice.

For over 25 years, the Hall v. Walter holding protected businesses from the threat of costly treble damage provisions in their private transactions with individual consumers.

The CCPA serves to deter and punish through the use of treble damages as an extreme damage measure.  The availability of treble damages and attorney fees serves the CCPA’s punitive and deterrent purposes to afford widespread protection.  See Duncan v. Norton, 974 F.Supp. 1328, 1336 (D. Colo.1997) (finding CCPA civil penalties serve both a punitive and remedial purpose); Lexton–Ancira Real Estate Fund, 1972 v. Heller, 826 P.2d 819, 822 (Colo.1992).   The threat of extreme damage liability fits extreme damage scenarios.  Suddenly, the Colorado state legislature seeks to extend extreme, treble damage award potential to any plaintiff who shows up at the local courthouse.  A situation that went from protecting a widespread group to now, a windfall for the litigious and the counsel who enable them.

House Bill 24-1014

Now, with its recent House passage, House Bill 24-1014 threatens to undermine the public impact provision of the CCPA.  Citing scary statistics that Colorado ranks above the national average for reports of consumer fraud per capita, with the fourteenth highest reporting numbers, yet citing no authority for these figures, the Colorado General Assembly seeks to sidestep the public impact requirement with circular reasoning that evidence of an unfair or deceptive trade practice, is in and of itself, evidence of a significant public impact, so that, in turn, is evidence of an unfair or deceptive trace practice.  The General Assembly seeks to amend C.R.S. § 6-1-105 (2) to provide:

Evidence that a person has engaged in an unfair or a deceptive trade practice:

• Is prima facie evidence of intent to injure competitors and to destroy or substantially lessen competition; and
• Is sufficient to establish a significant impact to the public.

Or in other words, the legislature adopts an “it is because it is” mentality.

Incredibly, the proposed bill claims that this will “better promote honest competition among businesses, discourage unfair competition, and protect consumers.”  This is not a pro-open economy bill, has nothing to do with business competition, and poses every threat to chill Colorado business.  Consumers are already protected under the current Colorado Consumer Protection Act framework, and ample legal processes exist to recover for any negligence, breach of contract, or fraud on the part of a business as an individual.  Yet, the Colorado legislature now stands poised to open the floodgates of litigation by any consumer against any business involved in a private transaction whether it involved the public or not, exposing Colorado business to an unmitigated onslaught of treble damage claims.

Conclusion

The Colorado Supreme Court in Hall v. Walter struck a balance between protecting Colorado consumers and its businesses, recognizing the catastrophic impact that treble damage claims have on free business, while recognizing that the public as a whole should be protected from fraud.  The five-part test in Hall v. Walter already protected consumers who were either actual or potential consumers.  Inexplicably, the Colorado State legislature proposes expansion of the CCPA to now define public impact to include any evidence that the person engaged in an unfair or deceptive trade practice.  In practice, this expansion negates the public impact requirement.  Under the proposal, the legislature has declared open season on Colorado business owners through the threat of unfair or deceptive trade practice treble damage claims arising out of what was once a simple private business transaction.

If you are concerned about the potential effects of House Bill 23-1014, please reach out to your state Representative and Senator and ask them to oppose the bill.