Chapter 1 - Introduction

BUSPROF GEN. MATLS PageBus. & Prof.C. § 17200 Gen. Matls

Bus. & Prof. C. § 17200 PracticeWilliam L. Stern

2012 Highlights

2012 UPDATE HIGHLIGHTS

CHAPTER 2

HISTORICAL ORIGINS

Choice-of-Law Issue and Extraterritorial Reach of § 17200

[2:40.1] Application of UCL to out-of-state employees: The UCL applies to a California employer's failure to pay overtime for work performed in California by nonresident employees. However, the UCL does not apply to work for a California employer that is performed outside California. [Sullivan v. Oracle Corp. (2011) 51 C4th 1191, 1206, 1209, 127 CR3d 185, 198, 200]

CHAPTER 5

DEFENDING CLAIMS

UCL Applies to Conduct Occurring on Tribal Lands

[5:64.1] In People v. Black Hawk Tobacco, Inc. (2011) 197 CA4th 1561, 1572, 133 CR3d 99, 107, the appellate court rejected the argument that the Attorney General could not bring a UCL claim against a seller of tobacco products on tribal lands on the ground that exclusive jurisdiction to regulate tobacco sales on the Agua Caliente reservation was vested in the Band.

Preemption

[5:74] Cases finding UCL claims preempted by the National Bank Act or the Home Owners Loan Act

• UCL and CLRA claims challenging bank's practice of posting debit card transactions in order from highest to lowest dollar preempted by NBA. [Larin v. Bank of America, N.A. (SD CA 2010) 725 F.Supp.2d 1212, 1217– 1218; but see Gutierrez v. Wells Fargo Bank, N.A. (ND CA 2010) 730 F.Supp.2d 1080, 1129–1132 —same facts but distinguishing Martinez v. Wells Fargo Home Mortg. and finding no preemption]

• Plaintiff could not “borrow” a violation of the federal Truth in Savings Act (TISA) to state a UCL “unlawful” or “unfair” claim against a bank where Congress amended TISA to remove a private right of action. [Rose v. Bank of America, N.A. (2011) 200 CA4th 1441, , 133 CR3d 615, 621–624]

[5:75] Cases finding no preemption of UCL claims

• UCL and other state law claims challenging bank's practice of posting debit card transactions in order from highest to lowest dollar not preempted by NBA. [Gutierrez v. Wells Fargo Bank, N.A. (ND CA 2010) 730 F.Supp.2d 1080, 1129–1132—distinguishing Martinez v. Wells Fargo Home Mortg., Inc . (9th Cir. 2010) 598 F3d 549, on the ground that “plaintiffs in the instant case are neither challenging Wells Fargo's right to establish overdraft fees nor

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claiming that the amount of each individual overdraft fee is somehow excessive”; but see Larin v. Bank of America, N.A. (SD CA 2010) 725 F.Supp.2d 1212, 1217–1218 —same facts but distinguishing Gutierrez and finding UCL and CLRA claims preempted under NBA]

• UCL claim alleging that teaser rate disclosure on a mortgage loan, which resulted in “negative amortization,” was not preempted by the federal Truth in Lending Act (15 USC § 1610 et seq.). [Peel v. BrooksAmerica Mortg. Corp. (CD CA 2011) 788 F.Supp.2d 1149, 1159]

[5:80] Miscellaneous preemption cases

• State law claims brought under California's Confidentiality of Medical Information Act (CC § 56 et seq.) are not preempted by the Federal Fair Credit Reporting Act (15 USC § 1681 et seq.). [Brown v. Mortensen (2011) 51 C4th 1052, 1072, 126 CR3d 428, 442–443 (case did not involve UCL claim)]

• Claims brought by buyers of contact lens solution against seller, alleging that seller violated the UCL and false advertising law by marketing solution as a product that cleaned and disinfected lenses, were preempted by the Medical Device Amendments to the Food, Drug, and Cosmetic Act (21 USC § 360k(a)). [Degelmann v. Advanced Medical Optics Inc. (9th Cir. 2011) 659 F3d 835, 842]

• UCL and CLRA claims alleging that retail gasoline companies improperly used fuel dispensers that overcharged drivers who purchased premium grade fuel because two to three-tenths of a gallon of lower grade “residual fuel” would be left in the hose from a previous customer, were preempted by the Petroleum Marketing Practices Act (15 USC § 2824(a)) and the FTC's “Posting Rule” (16 CFR § 306.2). [Alvarez v. Chevron Corp . (9th Cir. 2011) 656 F3d 925, 934]

• UCL claim against Internet service provider alleging it intercepted data packets was not preempted by the Federal Wiretap Act (18 USC § 2511). [In re Google Inc. Street View Elec. Communications Litig. (ND CA 2011) 794 F.Supp.2d 1067, 1086]

“Absolute Barrier” Defense

[5:135.5] Cases finding “absolute barrier” defense

• UCL class action alleging that retail gasoline companies improperly used fuel dispensers that overcharged drivers who purchased premium grade fuel because two to three-tenths of a gallon of lower grade “residual fuel” would be left in the hose from a previous customer was barred by Bus. & Prof.C. § 12505 et seq., which permits such fuel dispensers. [Alvarez v. Chevron Corp . (9th Cir. 2011) 656 F3d 925, 933]

• UCL class action challenging car manufacturer's allegedly inaccurate odometers was precluded by the “safe harbor” or Bus. & Prof.C. § 12500, which allows any commercial measuring instrument that is accurate within a relevant federal government tolerance level. [Lopez v. Nissan North America, Inc. (2011) 201 CA4th 572, , CR3d , ]

CHAPTER 7

PROCEDURE UNDER THE UNFAIR COMPETITION LAW

Standing Rule for Law–Abiding Competitors



[7:27.1] Competitor standing after Proposition 64: A drug manufacturer having exclusive FDA authority to sell a drug approved for the stimulation of hair growth sued a competitor under the UCL over advertising the same compound as an off-label treatment for that same purpose. Citing Clayworth and Kwikset, the Ninth Circuit held that a claimant's inability to allege a claim for restitution is not a barrier to standing. Quite the contrary, the competitor had standing to sue for an injunction and to seek recovery in the form of lost sales, market share and asset value. [Allergan, Inc. v. Athena Cosmetics, Inc. (9th Cir. 2011) 640 F3d 1377, 1382–1383]

What Do The New “Loss of Money or Property,” “Injury In Fact,” and “As A Result of” Requirements Mean?

[7:72.5] Cases construing loss of money or property

• Mortgage borrowers who alleged their lender misled them by selling them an “Option ARM” loan without clearly disclosing the certainty that plaintiffs would suffer negative amortization properly pled UCL standing. [Boschma v. Home Loan Ctr., Inc. (2011) 198 CA4th 230, 254, 129 CR3d 874, 894 —“[a]t the pleading stage, a UCL plaintiff satisfies its burden of demonstrating standing by alleging an economic injury”]

• Internet service provider's practice of intercepting data packets that plaintiff sent over a wireless network is not “lost property for purposes of determining Proposition 64 standing.” [In re Google Inc. Street View Elec. Communications Litig. (ND CA 2011) 794 F.Supp.2d 1067, 1086 —likewise, “merely incurring legal attorney fees and expenses as a result of bringing a Section 17200 claim [is] equally inapposite” (brackets added)]

• Allegation that plaintiffs would not have bought their vehicles but for defendant's failure to disclose that vehicles have a propensity to suddenly accelerate is sufficient for Proposition 64 standing purposes. [ In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Products Liab. Litig. (CD CA 2011) 790 F.Supp.2d 1152, 1168]

• Consumer who purchased defendant's “YoPlus” yogurt product had UCL standing because he alleged he bought in reliance on defendant's allegedly deceptive representations concerning the digestive health benefits and asserted that he suffered economic injury because he did not receive the promised benefits. [Johnson v. General Mills, Inc. (CD CA 2011) 275 FRD 282, 286]

• UCL plaintiff who alleged a violation by defendant-retailer of CC § 1747 et seq. concerning its practice of requesting that customers who pay by credit card reveal their zip code failed to show loss of money or property sufficient to establish economic injury under Kwikset. Plaintiff did not allege that “he made a purchase or otherwise parted with money on account of Lamp Plus's allegedly unfair practice”; plaintiff's loss of “intellectual property”—“fair compensation for the sale of his personal information” to a third-party marketing company—is not sufficient. [Folgelstrom v. Lamps Plus, Inc. (2011) 195 CA4th 986, 993–994, 125 CR3d 260, 266; accord Archer v. United Rentals, Inc. (2011) 195 CA4th 807, 816, 126 CR3d 118, 124 —unlawful collection and recordation of retail customers' personal identification information (i.e., asking for customer's zip code at point of sale), even if it amounts to privacy violation, is not loss of money or property]

• UCL plaintiffs who sued manufacturer of Nutella over health claims on label and on Web site lacked standing to sue over Web site claims where they failed to allege that they actually viewed the Web site before making their purchase decision. [In re Ferrero Litig. (SD CA 2011) 794 F.Supp.2d 1107, 1112]

• Allegation that plaintiffs saw advertisements about vehicles' safety and reliability and would not have bought their vehicles but for defendant's failure to disclose that vehicles have a propensity to suddenly accelerate is sufficient to satisfy reliance. [In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Products Liab. Litig. (CD CA 2011) 790 F.Supp.2d 1152, 1169]



• No “economic injury” resulted from employer's failure to provide employee with wage statements that comply with the Labor Code. [McKenzie v. Federal Express Corp. (CD CA 2011) 765 F.Supp.2d 1222, 1237]

Cases Finding “Injury in Fact” Requirement Satisfied

[7:72.9] Class representatives adequately alleged Article III “injury in fact” as well as UCL standing where they averred that they bought the product (a contact lens solution) relying on the representation that it would disinfect their lenses, and would not have bought it had they known how poorly it actually worked. [Degelmann v. Advanced Medical Optics Inc. (9th Cir. 2011) 659 F3d 835, 839]

Bank depositors who were assessed excessive overdraft charges due to bank's practice of posting debit-card transactions in order from highest to lowest dollar amount suffered “injury in fact.” [Gutierrez v. Wells Fargo Bank, N.A. (ND CA 2010) 730 F.Supp.2d 1080, 1133–1134]

Cases Finding “Injury in Fact” Requirement Not Satisfied

[7:72.10] Customer of cell phone provider challenging company's alleged misrepresentation that it was required by law to pass on the cost of sales tax on the device as part of the promotional price failed to establish “injury in fact” where she did not allege she could have obtained a bundled transaction for a new cellular telephone—the telephone that she selected—at a lower price from another source. [Bower v. AT & T Mobility, LLC (2011) 196 CA4th 1545, 1555, 127 CR3d 569, 578; accord, Xavier v. Philip Morris USA Inc. (ND CA 2011) 787 F.Supp.2d 1075, 1086—to satisfy reliance, plaintiff must allege “the feasibility of a potential alternative product”]

Decisions since Tobacco II Cases

[7:73.13] Cases in which class certification issue turns on commonality or predominance: “[A] class action cannot proceed for a fraudulent business practice under the UCL when it cannot be established that the defendant engaged in uniform conduct likely to mislead the entire class.“ [Fairbanks v. Farmers New World Life Ins. Co . (2011) 197 CA4th 544, 562, 128 CR3d 888, 904; accord, Knapp v. AT & T Wireless Services, Inc . (2011) 195 CA4th 932, 942–943, 124 CR3d 565, 572–573—common issues do not predominate in a false advertising case challenging wireless telephone service provider's billing practice of rounding up partially unused minutes to next full minute where contract disclosed this practice and there was no uniform sales script deviating from that disclosure]

Arbitration of UCL Claims

[7:266.1] In AT & T Mobility LLC v. Concepcion (2011) US , 131 S.Ct 1740, the U.S. Supreme Court held that the Federal Arbitration Act (9 USC § 1 et seq.) preempts California's common law of unconscionability, and the rule of Discover Bank in particular thus, allowing class action waivers to be enforced. [But see Sanchez v. Valencia Holding Co., LLC (2011) 201 CA4th 74, , CR3d ,—finding car dealer's arbitration clause to be procedurally and substantively unconscionable notwithstanding AT & T Mobility, and declining to order UCL and CLRA claims to arbitration]

CHAPTER 9

LAW ENFORCEMENT CASES

Relationship Between Public and Private Suits



[9:107] See People ex rel. Brown v. Villalobos (D NV 2011) 453 BR 404, 415–416 —governmental enforcement action brought under UCL to recover restitution/civil penalties is an exercise of a sovereign's police and regulatory powers within meaning of 11 USC § 362 (b)(4) and, hence, is exempt from automatic stay resulting from defendant's Chapter 11 bankruptcy filing.

CHAPTER 10

CONSUMERS LEGAL REMEDIES ACT

Proof of Loss Causation Required

[10:41.1] CLRA complaint adequately alleged injury “as a result of” wrongful conduct where plaintiffs averred that defendant internet service provider publicly disclosed confidential member information such as names, social security numbers, phone numbers, passwords, account information etc. [Doe 1 v. AOL LLC (ND CA 2010) 719 F.Supp.2d 1102, 1111–1112]

“As a Result of” Requires Actual Injury

[10:41.3] CC § 1780(a) (the damages provision of the CLRA) provides that “[a]ny consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action” under the CLRA. The Ninth Circuit held that this provision “requires each class member to have an actual injury caused by the unlawful practice.” It also noted, however, that in certain circumstances “[c]ausation, on a classwide basis, may be established by materiality,” and that “[i]f the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the entire class,” [Stearns v. Ticketmaster Corp. (9th Cir. 2011) 655 F3d 1013, 1022, (emphasis in original)]

Special Defenses

[10:87.1] Safe harbor defense: CLRA class action alleging that retail gasoline companies improperly used fuel dispensers that overcharged drivers who purchased premium grade fuel because two to three-tenths of a gallon of lower grade “residual fuel” would be left in the hose from a previous customer was barred by Bus. & Prof.C. § 12505 et seq., which permits such fuel dispensers. [Alvarez v. Chevron Corp . (9th Cir. 2011) 656 F3d 925, 934; see also Lopez v. Nissan North America, Inc. (2011) 201 CA4th 572, , CR3d , (2011 WL 6016184, *3–4 )—CLRA class action challenging car manufacturer's allegedly inaccurate odometers precluded by the “safe harbor” or Bus. & Prof.C. § 12500, which allows any commercial measuring instrument that is accurate within a relevant federal government tolerance level]

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BUSPROF CH. 1-INTRODUCTION OUT PageBus. & Prof.C. § 17200 Ch. 1-INTRODUCTION Outline

Bus. & Prof.C. § 17200 PracticeWilliam L. Stern

Chapter 1. Introduction

Outline Introduction

INTRODUCTION


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BUSPROF CH. 1-INTRODUCTION PageBus. & Prof.C. § 17200 Ch. 1-INTRODUCTION


Bus. & Prof.C. § 17200 PracticeWilliam L. Stern

Chapter 1. Introduction

Introduction

[1:1] Scope: Any discussion of the remedies for wrongs to consumers is necessarily a broad topic and covers a broad range of sins. And if you think about it, you cannot even limit the discussion of the principles involved purely to “investors” and “consumers” in the traditional sense. Business customers and, indeed, other business competitors of the wrongdoer can often apply these same remedies and principles in commercial litigation.

But bringing some degree order to this broad topic requires that one start somewhere, and for the purpose of these materials we start with the notion that all of these matters fall into a category of conduct one might think of as “unfair business practices” and “unfair competition.”

Those terms cover a lot of ground. As one commentator has said:

“Unfair competition is a commercial tort. Can the tort of unfair competition be defined? The simple and honest answer to the question is no—not in the abstract ...

H H H H H

We do know that American law sets a minimum level of 'fairness' in competition. In other words, it is illegal to compete 'too hard'.... When asked by his professor to define 'unfair competition' a law student answered, 'Well, it seems to me that the courts try to stop people from playing dirty tricks.' The professor's comment was, 'One might spend weeks reading cases and find many definitions less satisfactory than this.'“ [1 McCarthy, Trademarks and Unfair Competition (3d ed. 1994) § 1.03 at pp. 1.16—1.17]

[1:2] California's unfair competition laws: However difficult it is to define unfair competition generally, it is even more confusing in California. Today, the term refers not only to a wide variety of claims that one business might bring against a competitor—the traditional and historical enclave of unfair competition—but also claims that investors and consumers might bring.

Today, the toughest pro-consumer law in California (and perhaps the nation) is the Unfair Competition Law (Bus. & Prof.C. § 17200) and the Deceptive, False, and Misleading Advertising Statute (Bus. & Prof.C. § 17500). Claims under §§ 17200 and 17500 also figure prominently in a great deal of civil cases brought by the Attorney General and by consumer fraud units of district attorneys' offices. These claims are also being aggressively used in business litigation.

In the consumer area especially, §§ 17200 and 17500 have had a tremendous impact. These claims appear as part of virtually all consumer class actions in California. According to one commentator, court decisions under § 17200 (and its predecessor, CC § 3369) have succeeded in “changing the maxim ‘caveat emptor’ into ‘caveat vendor’.” [Howard, Former Civil Code § 3369, A Study in Judicial Interpretation (1979) 30 Hast. L.J. 703, 721] On the consumer side, no discussion of consumer remedies would be complete without considering the Consumers Legal Remedies Act, CC § 1750 et seq., which is of sufficient importance that it makes up its own chapter, Chapter 10.

Sections 17200 and 17500 have a unique and, in some ways, even a counterintuitive jurisprudence. There are broad definitions of what business practices are forbidden, new ideas about who is to benefit from pro-competition legislation, and unconventional rules on standing and “classwide” relief. Bus. & Prof.C. § 17200 et seq. (former CC § 3369) began as a Depression-era enactment that for 30 years did little more than reinforce common law proscriptions against trade name infringement. Now, along with its companion statute (Bus. & Prof.C. § 17500), §


17200 has become California's most sweeping consumer protection statute with broad application to civil cases of all sorts, including but not limited to cases involving wronged consumers, investors, and business customers and competitors.

STRATEGIES AND TACTICS

[1:3] Advantages: Suits under Bus. & Prof.C. § 17200 offer plaintiffs and public law enforcement officials these advantages:

• Subject to certain limitations, section 17200's prohibition of “unlawful” business acts and practices allows redress for statutory violations even if a private cause of action is not otherwise provided.

• Public prosecutors may use § 17200 to attack business practices they could not otherwise reach because enforcement is committed to other agencies.

• Subject to important limitations, section 17200's prohibition of “unfair” and “deceptive” acts allows plaintiffs to attack business practices that are not expressly proscribed by any established law.

• By virtue of a key amendment in 1992, these claims now reach conduct that has been discontinued, and even conduct that amounts to nothing more than a one-time act.

• In the antitrust area, § 17200 may be used to attack practices that might be otherwise unassailable under traditional antitrust doctrine.

• Businesses suing competitors for trade or product infringement-type claims will find that bringing a § 17200 cause of action has advantages over certain Lanham Act or other classic unfair competition claims.

• Much of the law is still unsettled, so suits under § 17200 allow wide latitude to creative lawyering.

[1:4] Disadvantages: On the other hand, § 17200 suits have these disadvantages:

• Private plaintiffs cannot recover compensatory or punitive damages on a § 17200 or § 17500 claim.

• There is no right to a jury in a § 17200 case.

• There is no automatic right to attorneys' fees.

• Judges are sometimes wary of § 17200 claims and may be reluctant to allow some of the more expansive theories.


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Chapter 1 - Introduction

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