prevailing plaintiffs to recover an award of attorney’s fees if they win. Conversely, prevailing defendants are not entitled to recover attorney’s fees unless they can satisfy the rigorous burden of proving that the plaintiff’s lawsuit was not brought in good faith. In essence, the CLRA incentivizes plaintiffs’ attorneys to vigorously litigate cases that otherwise appear trivial due to the tremendous upside of recovering substantial attorneys’ fees if they win. Indeed, in cases that go all the way through trial, even though the award of damages to the consumer might be minimal, the attorney’s fees and costs can easily be well into the six figures. From a defense standpoint, it can be risky to litigate a CLRA claim because a defendant who loses will end up paying their own attorney’s fees as well as those of the plaintiff. What Should a Dealer Do After Receiving a CLRA Demand Letter? Dealers that receive a CLRA demand letter should take it seriously because failing to respond in a timely and appropriate manner can lead to a lawsuit against the dealer that might have been avoided by a proper response. Dealers should train employees who receive mail to note the date the CLRA demand letter was received and to ensure that it gets forwarded to defense counsel so that a prompt response can be sent within the 30-day deadline. Upon receiving a CLRA demand letter, a dealer should investigate whether any insurance coverage exists that may cover the claim so that the claim can be tendered to the insurance carrier. Some insurance companies will appoint defense counsel to prepare a response to the CLRA demand letter even though a lawsuit has not yet been filed. Dealers should also preserve all documentation and evidence relating to the transaction in question, including the deal file, any pre-sale photographs of the vehicle, as well as any documentation of communications with the customer such as e-mails or text messages. The letter sent in response to the CLRA demand letter typically indicates whether the dealer disputes the customer’s allegations, whether it is willing to resolve the matter, or whether additional information and documentation is requested to further investigate the customer’s claims. The response letter can include an offer to rectify the alleged violations, such as a monetary settlement offer, which can serve as an affirmative defense later if the customer decides to pursue litigation. The language in the response letter should be carefully crafted to avoid inadvertently admitting to any wrongdoing. It is a good idea to send a response letter even if the dealer decides not to offer a correction because doing so may help prevent a situation such as the customer’s attorney later arguing in the litigation that the dealer did not care enough about the customer’s claim to respond to the letter. Determining the best way to respond to a CLRA letter can be difficult because the CLRA demand letter often provides only sparse details about the customer’s claims. For instance, customers frequently allege that the dealer’s sales representative made a misrepresentation by falsely stating that a vehicle had not been involved in any prior accidents when, in fact, the vehicle did have accident damage that the customer later discovered. In those situations, it can be difficult to evaluate the customer’s claims because by the time the dealer receives the CLRA demand letter, the customer has already driven off with the vehicle, and the dealer no longer has access to it. If litigation ends up going forward, the dealer will have the right to conduct discovery to obtain additional information about the customer’s allegations, including the ability to perform a vehicle inspection. However, engaging in the discovery process prolongs the case and increases the customer’s attorney’s fees and costs, which may increase the amount the customer’s attorney ultimately demands to settle the case. Dealers who are interested in avoiding a costly lawsuit sometimes take an economic approach and endeavor to settle the case for nuisance value soon after receiving a CLRA demand letter, even though at that point, only minimal information may be available to assess the customer’s claims. Other dealers prefer not to pay any money to settle a claim until they obtain solid proof supporting the customer’s claims because they believe doing so would send the wrong message and make them a target for more claims in the future. Ultimately, determining the best approach to respond to a CLRA demand letter requires a detailed analysis of the specific factual circumstances of each case. Given the intricacies involved with responding to a CLRA demand letter, as well as the potentially harmful consequences that can result from not responding in an appropriate manner, it is important for dealers who receive a CLRA demand letter to act promptly and consult with competent counsel. Manning, Leaver, Bruder & Berberich LLP is a Los Angeles law firm that practices throughout California and has been in existence for over 100 years. It has a strong automobile dealer practice covering all areas related to the automobile dealer industry, including dealership buy-sells, real estate transactions, business and consumer litigation, regulatory compliance, dealer association law, new motor vehicle board matters, and franchise law. See www.manningleaver.com for more information and areas of practice. Nothing in this article may be considered as legal advice. Contact legal counsel for legal advice. 19
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