Understanding California’s Unfair Competition Law

by Rushing McCarl Nov. 17, 2020

California’s Unfair Competition Law (UCL) gives consumers robust protection against unscrupulous business owners. In this Rushing McCarl update, we will cover the general structure of the UCL and highlight some issues for business owners to consider.

The UCL creates a cause of action for “unfair business acts or practices.”

The California UCL defines unfair business acts or practices as any of the following:

  • an “unlawful” business act or practice;
  • an “unfair” business act or practice;
  • a “fraudulent” business act or practice;
  • “unfair, deceptive, untrue or misleading advertising”; and
  • any act prohibited by California’s false advertising laws (Civ. Code §§ 17500–17577.5).

 

The UCL is broadly construed.

Courts have routinely applied the UCL to business practices that, although not unlawful, are deemed “unfair.”[1] As a result, aggressive advertising or sales tactics that are not illegal per se may nevertheless be actionable under the UCL.[2] As the California Supreme Court has said, “[t]he Legislature apparently intended to permit courts to enjoin ongoing wrongful business conduct in whatever context such activity might occur.”[3]

 

Most business practices will fall within the UCL’s ambit.

Courts interpret the statutory phrase “business act or practice” broadly to include most business practices. In fact, a “business act or practice” can include a one-time act, even if it does not reflect an ongoing policy or practice.[4] For example, a single contract is enough to support potential UCL liability.[5]

Another aspect of the UCL’s breadth is that it applies to all persons and entities conducting business, regardless of industry. A notable exception is that governmental entities do not qualify as persons under the act.[6]

There is currently a question about whether UCL liability can be maintained in cases of indirect liability.

In Emery v. Visa Int’l Serv. Ass’n, the California Court of Appeals held that vicarious liability does not apply to UCL actions. Rather, a “defendant’s liability must be based on his personal participation in the unlawful practices and unbridled control over [those] practices.”[7]

One court, however, allowed an UCL claim to stand based on a theory of aiding and abetting liability where the defendants had directly contracted with the unlawful actor (who was running an illegal lottery), and the defendants benefited directly from that unlawful activity.[8] Several cases have also recognized that an agency relationship may give rise to UCL liability when the agent makes a misrepresentation.[9]

 

The UCL allows claims to be brought by any “person.”

The UCL allows claims to be brought by any “person” and defines “person” broadly to include both natural persons and other entities.[10] UCL claims are alive and well in the corporate context, and courts have affirmed the UCL’s use in actions against competitors.[11]

 

Proposition 64 heightened the standing requirements for UCL claims.

As the above makes clear, the scope and power of the UCL is significant. In its original statutory form, it was even more robust, as it created a “private attorney general” action for plaintiffs to bring unfair business practices claims even if the plaintiffs themselves suffered no harm from the practices.

Not surprisingly, a cottage industry developed around “shakedown” suits by individuals who had not been personally injured by the unfair business practices of defendants, but who nevertheless sought to stop them.

In response to what was seen as an abuse of the UCL, California voters passed Proposition 64 (“Prop 64”). Prop 64 amended the UCL in two ways.

First, Prop 64 eliminated private attorney general actions under the UCL by requiring that plaintiffs have personally lost money or property as a result of the alleged unfair act or practice.

Second, Prop 64 required that private actions in which claims are aggregated comply with California class-action standards. This means that plaintiffs in such cases must demonstrate the traditional class-action requirements of commonality, typicality, adequacy of representation, and superiority.[12]

 

Conclusion

Despite the limiting effect of Proposition 64, the UCL is a robust statute that provides important protections against unfair, misleading, and fraudulent business practices.

California courts are given wide scope in determining what business practices violate the UCL, and a good rule of thumb for consumers and business owners is that if a business practice or act is misleading, then it may provide basis for a UCL claim.

Business owners should take proactive steps to protect against UCL liability. These steps include clear communication training for employees who interact with the public, careful review of all marketing activities by counsel, and close consultation with counsel regarding the company’s business model.

 

Notes

[1] State Farm Fire & Cas. Co. v. Super. Ct., 45 Cal. App. 4th 1093, 1102 (1996).

[2] See Comm. On Children’s Television, Inc. v. Gen. Foods Corp., 35 Cal. 3d 197, 210 (1983).

[3] Id.

[4] In Allied Grape Growers v. Bronco Wine Co., 203 Cal. App. 3d 432, 452 (1988) the court found that a one-time contract was enough to trigger an UCL action.

[5] Id.

[6] People for the Ethical Treatment of Animals, Inc. v. Cal. Milk Producers Advisory Bd., 125 Cal. App. 4th 871, 875 (2005).

[7] 95 Cal. App. 4th 952, 960 (2002) (internal quotation marks omitted).

[8] Schulz v. Neovi Data Corp., 152 Cal. App. 4th 86, 93–96 (2007).

[9] See People v. JTH Tax Inc., 212 Cal. App. 4th 1219, 1242, 1247 (2013); Daniels v. Select Portfolio Servicing, Inc. 246 Cal. App. 4th 1150, 1188 (2016); People ex rel. Harris v. Sarpas, 225 Cal. App. 4th 1539, 1562 (2014) (upholding UCL liability where a company and its owners were found to operate as a single enterprise).

[10] Cal. Bus. & Prof. Code §§ 17201, 17204.

[11] See Law Offices of Mathew Higbee v. Expungement Assistance Services, 214 Cal. App. 4th 552, 565 (2013) (recognizing a claim by an attorney for damages against an expungement service even though they had no direct business dealings on the theory that he lost revenue and asset value because of defendant’s business practices). The court noted that “a business competitor who adequately alleges that he or she has suffered injury in fact and lost money or property as a result of the defendant’s unfair competition is not necessarily precluded from maintaining a UCL lawsuit against defendant just because he or she has not engaged in direct business dealings with defendant.” Id.

[12] Brinker Rest. Corp. v. Super. Ct. 53 Cal. 4th 1004, 1021 (2012); see also In re Tobacco II Cases, 46 Cal. 4th 298, 318 (2009).