DTPA Claims: Upstream Liability and Subrogee Standing

Introduction

While the legislative purpose underpinning the Texas Deceptive Trade Practices Act (DTPA) urges flexible interpretation and application, the DTPA was neither intended to impose liability on upstream parties nor provide a separate cause of action for assignees and subrogees seeking to recover from large consumer businesses.  The Texas Supreme Court has mandated a liberal construction of the DTPA[1] to “protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.”[2]  However, the Legislature intended there to be limits on the DTPA, including its scope of liability and standing requirements.[3]

DTPA Overview

A cause of action under the DTPA is comprised of the three following elements:

  1. plaintiff must be a consumer;
  2. defendant must have committed a violation of the DTPA in connection with the consumer transaction; and
  3. the violation must have been the producing cause of the consumer’s damages.[4]
Upstream Liability under the DTPA

It is not uncommon for consumers to blame financially well-positioned corporations for deficient or defective products or services.  However, upstream businesses involved in the early stages of the production process and removed from consumer transactions are not subject to suit under the DTPA.[5]  The Texas Supreme Court limited the liability of upstream manufacturers and suppliers in DTPA causes of action in the seminal case of Amstadt v. U.S. Brass Corp.[6]

In Amstadt, the defendant manufacturers never directly advertised or promoted the faulty plumbing pipes in dispute to the plaintiff homeowners, the consumers.[7]  Further, the plumbing system was solely marketed to the homebuilders, and not to the plaintiffs.[8]  The Court explained the nexus between the defendant manufacturers, plaintiff consumers, and real estate transactions involving the purchase of the homes was insufficient to support the DTPA causes of action.[9]  The Court noted the likely legislative intent behind the DTPA was for consumers to bring actions against entities with which they have directly transacted.[10]  Any misrepresentations regarding the faulty pipes at issue were not made in connection with the purchase of the homes and therefore could not serve as the basis of the DTPA claims.[11]  The Amstadt court clarified the DTPA is not intended to reach upstream manufacturers and suppliers when misrepresentations are not directly communicated to consumers.[12]  Nonetheless, a party against whom a valid DTPA claim has been brought may seek contribution or indemnity against an upstream business that would otherwise be responsible under statutory or common law for the injurious acts giving rise to the DTPA claim.[13]

Assignment of DTPA Claims and Subrogee Standing

A “consumer” under the DTPA is a person who seeks or acquires a good or service by purchase or lease.[14]  Further limiting the scope of the DTPA, the Texas Supreme Court has ruled that an aggrieved consumer generally cannot assign to another party a DTPA claim if that claim could be brought in the absence of the DTPA.[15]  In PPG, the Court held DTPA breach of warranty claims were not assignable to the subsequent purchaser of the property in dispute.[16]  “If DTPA claims can be assigned, a party excluded by the statute… could nevertheless assert DTPA claims by stepping into the shoes of a qualifying assignor.  This would frustrate the clear intent of the Legislature.”[17]  Distinguishing between DTPA and warranty claims, the Court reasoned warranty claims are assignable because they are “property-based,” but the “personal” factor inherent in deceptive conduct proscribes DTPA claims from being passed to subsequent buyers.[18]

Applying the logic of PPG, a subrogee that cannot qualify as a consumer in its own right may not assume the consumer status of its insured for purposes of bringing a DTPA action.[19]  In Dewayne Rogers Logging, the court held the insurer, as a subrogee, could not establish standing to pursue a DTPA claim against a retailer by assuming the insured machine owner’s consumer status.[20]  Where the allegedly breached contract was between the machine owner and the retailer, the breach of express warranty claims brought by the insurer, as a subrogee, for pure economic loss were governed by contract law, not the DTPA.[21]

Thus, the DTPA, a consumer protection statute, provides a private right of action to individual and business consumers, and forbids assignment of DTPA claims to insurers as subrogees.

Conclusion

Liberally construed by courts to protect against and deter deceptive conduct in business transactions, the DTPA is one of the most effective tools for consumers to recover for injuries resulting from unfair business practices.  However, the Texas Supreme Court has narrowed the DTPA’s scope by prohibiting upstream businesses from being brought as defendants in DTPA actions.  The Court has also barred consumer assignment of DTPA claims to insurers seeking recovery under the DTPA as subrogees.  Nevertheless, after paying out benefits under an insured’s policy for losses incurred due to a third-party’s DTPA violation, an insurer may be able to recover by asserting a subrogation claim under an alternative theory of liability against the responsible third-party.


[1] Miller v. Keyser, 90 S.W.3d 712, 715 (Tex. 2002).

[2] Tex. Bus. & Com. Code § 17.44(a)

[3] Great Am. Ins. Co. v. Fed. Ins. Co., 3:04-CV-2267-H, 2006 WL 2263312, at *10 (N.D. Tex. Aug. 8, 2006) (quoting PPG        Indus., Inc. v. JMB/Hous. Ctr. Partners Ltd., 146 S.W.3d 79, 85 (Tex. 2004)).

[4] Amstadt v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996) (citing Doe v. Boys Clubs of Greater Dall., Inc., 907 S.W.2d 472, 478 (Tex. 1995)).

[5] Amstadt, 919 S.W.2d at 644.

[6] Amstadt, 919 S.W.2d 644.

[7] Dagley v. Haag Eng'g Co., 18 S.W.3d 787, 792 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (citing Amstadt, 919 S.W.2d at 650–52).

[8] Id. (citing Amstadt, 919 S.W.2d at 651–52).

[9] Amstadt, 919 S.W.2d at 650–52.

[10] Id. at 652.

[11] Id.

[12] Id.

[13] Id.

[14] Tex. Bus. & Com. Code § 17.45(4)

[15] PPG Indus., 146 S.W.3d at 92.

[16] Id.

[17] Id. at 84.

[18] Id. at 89.

[19] Dewayne Rogers Logging, Inc. v. Propac Indus., Ltd., 299 S.W.3d 374, 387 (Tex. App.—Tyler 2009, pet. denied) (citing Trimble v. Itz, 898 S.W.2d 370, 372 (Tex. App.—San Antonio 1995, writ denied)).

[20] Id.

[21] Id. at 387–88.

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