Introduction:
In its efforts to protect consumers as well as honest businesspeople, the State Legislature has passed numerous laws that prohibit various “unfair or fraudulent” actions, with such statutes giving causes of action to alleged victims. This is in addition to various State agencies which, on behalf of the public, may take action against suspected wrongdoers.
The numerous statutes often overlap in terms of the populations they seek to protect and the definitions that apply to what is a prohibited act. Remember, the laws were passed at different times over the decades, often by legislators who are reacting to a new consumer or business environment and often without regard to past rules and regulations.
One particular statute passed involved the attempt to protect businesses from unfair competition that violates the law. The underlying rationale was that an honest business should not be injured by the acts of a dishonest business. Unlike many of the statutes passed to protect the public, this particular law piggybacks on a different violation of the law. This unique aspect of the law is discussed in this article.
The Basic Law:
The UCL
Business and Professions Code section 17200 et seq. (the “UCL”) prohibits “unfair competition,” which is defined as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by” the FAL. (Bus. & Prof. Code, § 17200.) Despite the use of the term "Competition," the Unfair Competition Law is not confined to anti-competitive business practices; it is also directed toward the public's right to protection from fraud, deceit, and unlawful conduct. (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 519.)
The Elements of a UCL Claim
An “unlawful” business act is an act that violates some other law or regulation. (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.) This is vital to understand. Absent a violation of some other law, a UCL violation will not occur. One must consider the UCL claim as an "add-on" to the possible remedies available due to violation of the other law. In a criminal context, this would be akin to adding a firearm allegation to a robbery charge. It is an "add-on" in terms of penalties that may be assessed. It does not require an additional wrongful act. It is simply one more cause of action arising from the same wrongful act.
Thus, the “unlawful” prong of the UCL borrows violations of other laws and makes those unlawful practices actionable under the UCL. Virtually any law or regulation—federal or state, statutory or common law—can serve as the predicate for an “unlawful” business act claim under the UCL.
For example, an “unlawful” business act can include inserting a provision in a contract that a party is prohibited from enforcing. (See People v. McKale (1979) 25 Cal.3d 626, 635 [acknowledging potential claim for “unlawful” business practice where mobile home park required tenants to sign rules that the park was prohibited by law from enforcing].)
As for the “unfair” prong of the UCL, there is a split of authority as to the test for determining whether a business act is “unfair.” (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 907 [describing split of authority].) Some cases hold that a practice is “unfair” if it “offends established public policy, that is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, or that has an impact on the victim that outweighs defendant’s reasons, justifications, and motives for the practice.” Other cases require the public policy that is the predicate to the claim to be tethered to specific constitutional, statutory, or regulatory provisions.
The "fraudulent" prong of the UCL prohibits conduct likely to deceive members of the public. (Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1144.) Thus, the UCL prohibits not only advertising that is false, but also advertising that, while true, is misleading or has a capacity, likelihood, or tendency to deceive or confuse the public. (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 226.) The test is objective and based on a reasonable consumer who is neither the most vigilant nor suspicious of advertising claims nor the most unwary and unsophisticated, but instead is the ordinary consumer within the target population.
Advertising is “likely to deceive” if there is more than a mere possibility that the advertising might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner. (Chapman, supra, 220 Cal.App.4th at p. 226.) It must be probable that a significant portion of the general consuming public or targeted consumers, acting reasonably in the circumstances, could be misled. (Ibid.) The issue of whether consumers are likely to be deceived is a question of fact unless the facts alleged and judicially noticed compel the conclusion as a matter of law that consumers are not likely to be deceived. (Id. at pp. 226-27.)
Reliance:
A plaintiff must show actual reliance on the “fraudulent” business act, which requires a showing that the misrepresentation was a substantial factor in influencing his or her decision. (Chapman, supra, 220 Cal.App.4th at p. 229.) But while the plaintiff must show reliance, reliance can be inferred if the misrepresentation was material. (Id. at p. 229.) A misrepresentation is material if a reasonable person would attach importance to its existence or nonexistence in determining her choice of action in the transaction in question. (Ibid.) Materiality is generally a question of fact unless the fact misrepresented is so obviously unimportant that no jury could reasonably find that a reasonable person would have been influenced by it. (Ibid.) Thus, for pleading purposes, reliance is alleged if a misrepresentation is alleged that is not so obviously unimportant that a reasonable person would not have been influenced by it. (Ibid.)
Tactics and Strategy:
Often in litigation one pleads every possible cause of action that could apply, even if one already has a good cause of action. Thus, if I am suing someone for fraud, I will add breach of contract (if applicable) and intentional interference with a business contract, etc., etc. Most of the time Unlawful Business Acts are pled in that manner, indeed it must be since it requires an additional wrongdoing or breach of statute to be a valid cause of action. It allows the wronged party to have another cause of action that, itself, may allow recovery.
But there is value in addition to just adding on another cause of action. Once one establishes a violation of a law or regulation, however minor, then the Unlawful Business Acts cause of action has a life, and damages, of its own. Assuming one relied on the fraudulent act or misleading advertising, then a judge or jury has the additional cause of action that has its own criteria and damages available.
When it comes to settlement discussions, having yet another cause of action pled can add to the value of your claims and no defendant wants a public verdict indicating that it engaged in unlawful, unfair, or fraudulent business actions.
Conclusion:
The Legislature clearly wanted a very broad definition of wrongdoing to be included in this family of permissible legal actions, recognizing that inventive minds can always find a new way to take money wrongfully. It is noteworthy that in the last three decades, the environment for business actions and malfeasance has greatly altered. Internet sales now account for the majority of retail sales and any business that does not conduct most of its business online in terms of purchasing inventory or sales is missing the most dynamic part of its market.
The breadth of the definitions takes this into account and is designed to cover the various new fields of business endeavors and malfeasance by its broad application.
What the law does not address, however, is the international aspect of the parties involved. A sale may originate from China or India as well as from California, and the local law, which seeks to apply to any party engaging in business in this state, may not be effective in enforcement if the defendant is located in China, Pakistan, Malaysia, etc. Further, what is “wrongful” in China is quite different than what is wrongful here. Indeed, selling alcoholic beverages is wrongful in much of the Middle East, yet we would be outraged if a court there labeled our sales of wine as a wrongful business act.”
That said, this is a powerful and useful claim under the correct circumstances and should normally be pled in any case involving business or commercial wrongdoing.