In Law Offices of Mathew Higbee v. Expungement Assistance Services, ___ Cal.App.4th ___ (Mar. 14, 2013), the Court of Appeal (Fourth Appellate District, Division Three) held that Prop. 64 did not eliminate UCL actions brought against a competitor whose unlawful business practices were stealing away the plaintiff's customers, market share and profits.
To me, the issues raised in this case should have been no-brainers. Nothing in Prop. 64 suggested an intention by voters to elimimate UCL competitor actions, and after the Supreme Court's holdings in Clayworth and Kwikset, there should have been no doubt that a competitor who loses customers, market share and profits (that is, suffers monetary "injury in fact") because of the unfair competition of a competing business can bring a UCL action and seek injunctive relief.
Nevertheless, the defendant in Higbee argued that the plaintiff business competitor lacked Prop. 64 standing because it could allege no "direct" business dealings with the defendant. Slip op. at 2. The opinion approaches this argument as though it had some conceivable merit. It does not, as the opinion correctly concludes.
In Hibgee, the plaintiff was a law firm specializing in providing record expungement services. The defendant provided the same services, but did so using employees who were neither licensed to practice law nor registered or bonded as "legal document assistants" under the Business and Professions Code:
Higbee argues the allegation that EAS violated section 6125 et seq. (pertaining to the requirement of an active law license), section 6400 et seq. (pertaining to the registration and bonding of, and permissible activities of, legal document assistants), and Penal Code section 4852.2 (pertaining to the requirement of a law license for the handling of certain criminal matters), constituted an allegation of an unlawful business practice within the meaning of the UCL. He says he is entitled to base a UCL lawsuit on those statutes, citing Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553 (superseded in part by Prop. 64, as recognized in Californians for Disability Rights v. Mervyn’s, LLC, supra, 39 Cal.4th at p. 227).
Slip op. at 9-10 (footnotes omitted).
As a preliminary matter, the Court agreed that the UCL "borrows" violations of other laws and makes them independently actionable, and found "no reason why the alleged violations of statutes concerning the unauthorized practice of law cannot serve as a predicate for Higbee's UCL action." Id. at 9-12.
Next, the Court considered, and rejected, the defendant's argument that the plaintiff lacked post-Prop. 64 standing because it had not suffered the right type of injury. Id. at 12-20.
The operative complaint alleged that "as a result of EAS’s unauthorized practice of law, advertisement of illegal services, and representation that it could perform the same legal services as [plaintiff] did, he had been forced, in order to compete, to lower his prices and to expend more money on advertising, he had lost clients and revenue, and the value of his law firm had diminished." Id. at 13. The defendant argued that "a loss of market share is not the type of economic injury that qualifies as an injury in fact for the purposes of standing under the UCL. Id.
The Court of Appeal disagreed, citing, among other cases, Clayworth, Kwikset, Saunders v. Superior Court, 27 Cal.App.4th 832 (1994), Allergan, Inc. v. Athena Cosmetics, Inc., 640 F.3d 1377 (Fed. Cir. 2011) (discussed in this blog post), Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012) (discussed here), and VP Racing Fuels, Inc. v. General Petroleum Corp., 673 F.Supp.2d 1073 (E.D. Cal. 2009). In Saunders, Allergan, and VP Racing, "the alleged injury was based on reduced market share." Slip op. at 16.
This was sufficient for UCL standing:
As we have observed, the original purpose of the unfair competition laws was to protect against “wrongful conduct in commercial enterprises which resulted in business loss to another, ordinarily by the use of unfair means in drawing away customers from a competitor.” (People ex rel. Mosk v. National Research Co. of Cal., supra, 201 Cal.App.2d at p. 770.) Although the UCL was ultimately expanded to provide equitable relief to consumers in addition to business competitors (ibid.), this does not mean that the UCL no longer protects business competitors (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 320).
As the Supreme Court stated in Kwikset Corp. v. Superior Court, supra, 51 Cal.4th 310, the purpose of the UCL “‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ [Citations.]” (Id. at p. 320; accord, Hall v. Time Inc. (2008) 158 Cal.App.4th 847, 852.) Put another way, the UCL “governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’ [Citations.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180.)
“There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary. [Citation.]” (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at p. 323.) The foregoing list is not exhaustive and the notion of “lost money” under the UCL is not limited. (Ibid.) Moreover, “the quantum of lost money or property necessary to show standing is only so much as would suffice to establish injury in fact” and “it suffices . . . to ‘“allege some specific, ‘identifiable trifle’ of injury.”’ [Citations.]” (Id. at pp. 324-325, fn. omitted.) “‘“The basic idea . . . is that an identifiable trifle is enough for standing to fight out a question of principle; the trifle is the basis for standing and the principle supplies the motivation.”’ [Citations.]” (Id. at p. 325, fn. 7.)In the matter before us, we hold that Higbee, having alleged that he had been forced to pay increased advertising costs and to reduce his prices for services in order to compete, and that he had lost business and the value of his law practice had diminished, succeeded in alleging at least an identifiable trifle of injury as necessary for standing under the UCL.
Slip op. at 19-20 (emphasis added).
Finally, the Court reached the defendant's core argument that the plaintiff "cannot demonstrate standing to bring a UCL claim because he never engaged in any business dealings with EAS." Id. at 21. The defendant relied wholly on Clayworth, where the Supreme Court stated: "While the voters clearly intended to restrict UCL standing, they just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant’s unfair business practices." Id. (quoting Clayworth v. Pfizer, Inc., 49 Cal.4th 758, 788 (2010)).
The Court of Appeal carefully considered Clayworth and determined that the Supreme Court did not "intend to engraft upon section 17204 a requirement that all plaintiffs must, in every event, have engaged in business dealings with a defendant in order to demonstrate UCL standing." Id. at 23. The Court observed that it is possible to "allege facts sufficient to support causation in the absence of direct business dealings" (id.), and concluded:
The language of the UCL does not leave the court hamstrung, unable to even consider an action seeking injunctive relief just because the defendant engages in its purportedly unlawful activity via the Internet and has not had any direct business dealings with the plaintiff.
Id. at 24.
A final interesting aspect of this opinion is that it rejected as irrelevant, in an "unlawful" prong case, decisions involving the UCL's "fraudulent" prong, which interpreted "as a result of" to mean "reliance on":
EAS’s citations to cases pertaining to the requirement to allege reliance in order to show causation in cases based on fraud (see, e.g., In re Tobacco II Cases (2009) 46 Cal.4th 298; Pfizer Inc. v. Superior Court (2010) 182 Cal.App.4th 622) do not convince us otherwise.
Id.; see also Medrazo v. Honda of North Hollywood, 205 Cal.App.4th 1 (2012) (discussing Supreme Court's Tobacco II footnote, which states that "there are doubtless many types of unfair business practices in which the concept of reliance, as discussed here, has no application") (see this blog post for more on Medrazo).
In the last sentence of the opinion, the Court of Appeal directed the clerk to forward a copy of the opinion to the Attorney General, presumably so that her office can take appropriate action against the defendant, perhaps including an action for civil penalties under the UCL. Slip op. at 25.
Congratulations to Mat Higbee, who represented himself in this case.