The UCL Practitioner

Recent UCL "unlawful" prong decision: Dell, Inc. v. Superior Court (Mohan)

This case got lost in the blog pile for a few weeks. In Dell, Inc. v. Superior Court (Mohan), ___ Cal.App.4th ___ (Jan. 31, 2008), the Court of Appeal (First Appellate District, Division Four) addressed a UCL "unlawful" prong claim. Plaintiffs alleged that the defendants violated certain Revenue & Taxation Code provisions by collecting sales and use taxes on optional service contracts sold with computers (which, in turn, violated the UCL). The trial court conducted a stipulated bench trial on the discrete issue of whether sales of the service contracts were subject to sales or use tax. The trial court determined that they were not, and the Court of Appeal agreed.

Verdict in rare Unfair Practices Act case

Today's Recorder reports on a $15.6 million jury verdict in a case brought under the Unfair Practices Act (Bus. & Prof. Code §§17000-17101). Matthew Hirsch, "Newspaper Wins $15.6M in Suit Over Ads" (subscription), The Recorder (Mar. 6, 2008). According to the article, the lawsuit was predicated on the defendant newspaper's alleged violation of Business & Professions Code section 17043, which reads:

It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.

The Recorder also posted a copy of the jury verdict. It is unclear from the article whether a UCL claim was also pleaded, but my guess would be yes. That claim would be decided by the judge, not the jury. The jury's finding that the defendant violated the UPA probably compels the judge to also find a violation of the UCL's "unlawful" prong. It is doubtful, however, that any monetary relief that the UCL might afford would exceed the damages that the jury already awarded. If the judgment is appealed, the case is sure to be an interesting one to follow.

The San Francisco Chronicle also reports that "Bay Guardian wins suit with SF Weekly." In that article, a lawyer for SF Weekly is quoted as saying that an appeal is planned.

UPDATE: In an article in which I am quoted, Competition Law 360 reports that "$15.6M Awarded In San Francisco Newspaper Clash" (March 6, 2008) (subscription).

Can a UCL "unlawful" prong claim be predicated on out-of-state law?

I have been asked before whether a UCL "unlawful" prong claim may be predicated on the defendant's violation of the law of another state. California case law is very clear that the UCL prohibits "any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made." See, e.g., South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal.App.4th 861, 880 (1999). However, I could not think of any case that addressed whether another state's laws could form the basis of a UCL claim.

Then, a couple of weeks ago, I was doing research on another subject and I found a case from 2001 holding that the defendant's violation of Delaware law could also constitute a UCL violation:

As a preliminary issue, [defendant] Sematech argues that PSI's claim fails because it cannot rely on an out-of-state law as a predicate for a UCL claim. However, Sematech has not cited any authority, nor is the court aware of any, prohibiting PSI from doing so. Instead, California law on the UCL emphasizes the broad nature of a UCL claim. See Cel-Tech [Communications, Inc. v. Los Angeles Cellular Tel. Co.], 20 Cal.4th [163,] 181 [(1999)]; Hewlett v. Squaw Valley Ski Corp., 54 Cal.App. 4th 499, 531-32 (1997) (the "unlawful" practices prohibited by the UCL are "any practices forbidden by law, be it civil or criminal, federal, state or municipal, statutory, regulatory, or court-made") (quoting Saunders v. Sup.Ct., 27 Cal.App. 4th 832, 838-39 (1994)). Accordingly, the court finds that PSI may bring its UCL claim based on a violation of Delaware law. [FN18]

FN18. Norwest Mortgage, Inc. v. Sup.Ct., 72 Cal.App. 4th 214 (1999), relied on by Sematech, does not require a contrary holding. There, the question presented was whether a UCL action could be granted nationwide class certification when some of the actions complained of were performed out of state and effected out of state plaintiffs with no nexus to California. The court held that with respect to these claims only, the lack of any nexus to California made it inappropriate to apply the UCL. The court did not decide whether an out-of-state law could serve as a predicate for a UCL claim because no out-of-state laws were involved.

Process Specialties, Inc. v. Sematech, Inc., 2001 WL 36105562, *15 (E.D. Cal. Nov. 8, 2001). Does anyone have any other case law on this question?

Federal decision on UCL "unlawful" prong: Gabana Gulf Distribution, Ltd. v. GAP Intern. Sales, Inc.

In Gabana Gulf Distribution, Ltd. v. GAP Intern. Sales, Inc., 2008 WL 111223 (N.D. Cal. Jan. 9, 2008), the Court (Judge Charles R. Breyer) held that a UCL "unlawful" prong claim may be predicated on violation of a common-law rule (specifically, breach of the implied covenant of good faith and fair dealing):

Because the Court has denied summary judgment to Gap on the breach of covenant claim, summary judgment must also be DENIED as to the § 17200 claim because Gabana may use the covenant claim as a predicate for § 17200 liability. Although the state of § 17200 jurisprudence is in rapid flux, California courts have not yet foreclosed common law theories--such as breach of the covenant of good faith--as a basis for actions pursuant to § 17200. See Mercado v. Allstate Ins. Co., 340 F.3d 824, 828 n. 3 (9th Cir.2003); Diaz v. Allstate Ins. Group, 185 F.R.D. 581, 595 (C.D.Cal.1998) ("[A]llegations of fraudulent and unfair business activity are sufficient to state a cause of action for relief under the UCA.").

As I explained in this prior post, such a holding is significant because few decisions have confirmed that an "unlawful" prong claim may be predicated on violation of a common-law rule (although plenty of published opinions say in general terms that violations of "court-made" law are actionable under the "unlawful" prong).

New unpublished UCL/CLRA auto defect opinion: Hunter v. General Motors Corp.

Yesterday, in an opinion worthy of publication, the Court of Appeal (Second Appellate District, Division Five) held that the trial court had improperly sustained without leave to amend the defendant's demurrer to the plaintiffs' UCL and CLRA claims. Hunter v. General Motors, no. B190809.

The putative class action challenged the defendant's "development, design, manufacture, and sale of certain vehicles with a defective rear brake system." Slip op. at 2. The opinion addresses, among other things, the Federal Motor Vehicle Safety Standards promulgated by NHTSA. The Safety Standards are often the central focus of non-injury consumer class actions involving safety-related auto defects. This opinion is the first to interpret them in the context of UCL and CLRA claims. For example:

Plaintiffs allege that defendant violated section 1770, subdivision (a)(3) of the CLRA when it knowingly affixed a certification label or tag to each of the subject vehicles falsely stating, “This Vehicle Conforms to All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture Show[n] above.” Defendant’s defective braking system, plaintiffs allege, violated Federal Motor Vehicle Safety Standards 105 and 135.

....

The trial court ruled that plaintiffs’ Federal Motor Vehicle Safety Standards allegations do not state a basis for a misrepresentation under the CLRA because they fail to allege that “the parking brake systems were not ‘capable’ of holding the subject vehicles stationary for 5 minutes in both a forward and reverse direction on a 30 percent grade, nor is there an allegation that the parking brake system did not hold the vehicle stationary for 5 minutes in both a forward and reverse direction on the grade.” The trial court’s reading of plaintiffs’ allegations is unduly narrow and inconsistent with the mandate to construe the CLRA liberally (§ 1760; Wang v. Massey Chevrolet, supra, 97 Cal.App.4th at p. 869) and to give the complaint a reasonable interpretation (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967). Plaintiffs allege that the label or tag affixed to each of the subject vehicles certifying that the vehicle conformed to all effective Federal Motor Vehicle Safety Standards was false because the parking brake system was defective. Liberally construed, that allegation alleges that the parking brakes could not hold the subject vehicles as required by 49 C.F.R. part 571.105, subpart 5.2.1 and 49 C.F.R. part 571.135, subpart 7.12.3 and, accordingly, is sufficient to establish a misrepresentation under the CLRA.

Also, plaintiffs’ allegations establish a misrepresentation under the CLRA based on 49 C.F.R. part 571.135, subpart 5.6(a) which provides, in pertinent part, “[a]ll mechanical components of the braking system shall be intact and functional.” Plaintiffs allege that defendant knew that “the parking brakes on the Subject Vehicles were defective in that they did not work.” We must accept that allegation as true. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 966-967.) If the parking brakes “did not work,” then they were not “functional” as required by subpart 5.6(a), and a certification that a vehicle equipped with such parking brakes conformed to “All Applicable U.S. Federal Motor Vehicle Safety Standards in Effect on the Date of Manufacture” is an actionable misrepresentation under the CLRA.

Plaintiffs also allege that defendant violated section 1770, subdivisions (a)(5) and (a)(7) of the CLRA when defendant represented that the subject vehicles had characteristics and benefits they did not have and were a particular standard, quality, or grade they were not. In support of their CLRA cause of action, plaintiffs allege that defendant made representations about the quality, safety, and performance of the parking brake system on the subject vehicles while failing to disclose information it knew about the defect in the parking brakes. The list of proscribed practices in section 1770 includes the concealment or suppression of material facts. In the CLRA context, “[f]raud or deceit may consist of the suppression of a fact by one who is bound to disclose it or who gives information of other facts which are likely to mislead for want of communication of that fact.” (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 37; compare with Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255 and Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 835 [“although a claim may be stated under the CLRA in terms constituting fraudulent omissions, to be actionable the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose”].) Plaintiffs’ allegations are sufficient to state a violation of the CLRA based on defendant’s alleged representations about the parking brakes and concealment of the defect. (See Outboard Marine Corp. v. Superior Court, supra, 52 Cal.App.3d at p. 37.)

Slip op. at 12-14 (footnotes omitted). The discussion of the plaintiffs' claims under the UCL's three prongs is equally interesting, including the holding that the plaintiffs "need not wait for a catastrophic event such as brake failure to bring an action under the UCL based on the facts alleged in the fourth amended complaint." Id. at 19. I would not be surprised to see publication requests filed here.

By the way, thanks again to JS, who continues to tirelessly mine the unpublished Court of Appeal opinions and send me the gems like this one.

New UCL "unlawful" prong decision: Sisemore v. Master Financial, Inc.

In Sisemore v. Master Financial, Inc., ___ Cal.App.4th ___ (Jun. 12, 2007), the Court of Appeal (Sixth Appellate District) addressed a UCL "unlawful" prong claim predicated on alleged violations of the Fair Employment and Housing Act (Gov. Code §§12955 et seq.) and the Unruh Act (Civ. Code §§51 et seq.). Notably, this case is an individual UCL action, not a putative class action.

(For a discussion of the appellate practice aspects of the Sisemore decision, see this post at The Appellate Practitioner.)

New UCL/CLRA decision: Belton v. Comcast Cable Holdings, LLC

In Belton v. Comcast Cable Holdings, LLC, ___ Cal.App.4th ___ (June 8, 2007), the Court of Appeal (First Appellate District, Division One) addressed the interplay between the UCL, the CLRA, and the Unruh Act (Civ. Code §51). Among other things, the Court applied the post-Cel-Tech formulation of "unfair" to this consumer action:

[Plaintiffs] rely upon the definition of “unfair” set forth in Cel-Tech, supra, 20 Cal.4th 163. In Cel-Tech, the court, in the context of an unfair competition claim by a competitor, defined “unfair” as “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” (Id. at p. 187.) The Cel-Tech court further required “that any finding of unfairness to competitors under [Business and Professions Code] section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition.” (Id. at pp. 186-187.) The court left open the question whether this definition should also apply in the context of unfair competition claims brought by consumers (id. at p. 187, fn. 12), leading to a split of authority on this question among the courts of appeal. (See Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1273-1274 [noting the split of authority and urging the California Supreme Court to resolve it].) This court, however, has followed the line of authority that also requires the allegedly unfair business practice be “tethered” to a legislatively declared policy or has some actual or threatened impact on competition. (See Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 853-854.)

Slip op. at 14. The Court of Appeal affirmed the judgment in the defendant's favor on all causes of action.

UCL "unlawful" prong hypothetical

A reader writes in with the following question:

Can a California plaintiff assert an action against a California defendant under the UCL based on a violation of another state's laws? According to the 17200 Rutter Group treatise, this is an open question. I believe it would be possible in the proper circumstances. But, I would be interested in seeing if there are any trial court decisions around the state that opine on this issue.

What do you think?

New UCL jury trial decision: Hodge v. Superior Court

On Wednesday, in Hodge v. Superior Court, ___ Cal.App.4th ___ (Nov. 29, 2006), the Court of Appeal (Second Appellate District, Division Eight), confirmed that UCL claims are equitable and carry no right to a jury trial. (Coincidentally, I made this exact point in a post three days ago.) In so holding, it rejected the argument that when a plaintiff pursues a UCL "unlawful" prong claim, the Court should look at whether the "borrowed" law carries a jury trial right. Instead, the focus should be on the UCL claim and its available remedies, which are equitable. (This holding is consistent with my recent post explaining that the UCL's "unlawful" prong only borrows the liability principles, not the remedies.) The Court also held that the assertion of non-equitable affirmative defenses does not alter the analysis of whether a claim carries the right to a jury trial.

As a final interesting point, it appears that in this case the plaintiffs wanted the bench trial, while the defendants asked for a jury:

[P]laintiffs amended the complaint to state only a cause of action for violation of section 17200. Plaintiffs’ stated rationale was strategic: they wanted a bench trial instead of a jury trial.

Slip op. at 3. In my experience, the reverse is usually true. In this case, the fact that a prior attempt to try the case to a jury resulted in a mistrial probably explains it. Thanks to the readers who emailed me about this case.

UCL jury instructions? Muranaka Farm, Inc. v. Huacuja (unpublished)

In a recent unpublished opinion, Muranaka Farm, Inc. v. Huacuja, no. B183656 (Nov. 16, 2006), the Court of Appeal (Second Appellate District, Division Two), approved this UCL "unfair" prong jury instruction:

For purposes of statutory unfair competition law, conduct is unfair if the harm to the victim outweighs the utility of the conduct to the defendant.

Slip op. at 14 n.5. This jury instruction presumably derived from State Farm Fire & Cas. Co. v. Superior Court, 45 Cal.App.4th 1093 (1996), under which a UCL "unfair" prong claim is established if "the gravity of the harm to the alleged victim" outweighs "the utility of the defendant's conduct." Id. at 1103-04 (quoting Motors, Inc. v. Times Mirror Co., 102 Cal.App.3d 735 (1980)).

On appeal, the defendant argued that the narrower Cel-Tech formulation of "unfair" applied and that the instruction should have been different. The Court of Appeal held that (1) the defendant waived the argument by not raising it below, and that (2) any error was harmless because substantial evidence supported the jury's findings of liability for breach of fiduciary duty, conversion, and common law unfair competition, which in turn supported liability under the UCL's "unlawful" prong. Slip op. at 12-15. This part of the opinion is noteworthy because it amounts to explicit acknowledgment by an appellate court that a UCL "unlawful" prong claim may be predicated on a violation of common law (not just statutory law). (See this post for more on that issue.)

You may be wondering, as I did, why the UCL claim went to the jury at all. UCL claims are equitable in nature and are normally tried to the court. The Court of Appeal held that the defendant waived the issue by not raising it below and that any error was harmless:

Appellant further contends that the trial court improperly submitted respondent’s claim of statutory unfair competition under Business & Professions Code section 17200 (hereafter section 17200) to the jury. Respondent asserts that appellant waived this claim because he did not object to the statutory unfair competition claim being decided by the jury or demand, as he does now on appeal, that the trial court prepare a statement of decision for this claim. Appellant has not responded to respondent’s claim of waiver as to the submission of the statutory unfair competition claim to the jury. Thus, we consider this issue to be waived. In any event, there is no reason to believe that the trial court would have ruled differently than the jury on this claim, since it was based on the same facts supporting the jury’s findings of liability on the other causes of action. Therefore, we also find that any error in submitting this equitable claim to the jury was harmless.

Slip op. at 7 n.3. Thanks to the reader who emailed me about this unpublished opinion.

A UCL "unlawful" prong hypothetical

A reader writes in with the following hypothetical:

Are you aware of any California cases addressing basing a UCL claim on federal law when there is a California law that expressly allows conduct? Given that federal law trumps state law I could see an argument that the California law is just invalid. At the same time, I would think that if a specific California law permits a practice, the UCL (as a more general California law) cannot make it invalid.

For what it's worth, I think this is an issue left open by the Olszewski case where conduct violates a federal statute, is expressly allowed by a state statute, but the state statute arguably is preempted by the federal statute. The question is whether the Cel-Tech safe harbor applies, which requires the answer of two questions (1) does the Cel-Tech safe harbor ever apply to "unlawful" prong cases; and (2) if so, does it apply when the state law that creates the safe harbor is preempted by federal law?

What do you think?

New UCL/CLRA decision: Miller v. Bank of America

In Miller v. Bank of America, NT & SA, ___ Cal.App.4th ___ (Nov. 20, 2006), a judgment following a jury trial in a certified class action, with compensatory damages and penalties exceeding $1 billion, was reversed, wholesale. The Court of Appeal held that the defendant's conduct, which involved applying Social Security benefits deposited into its customers' accounts to pay various bank fees, did not violate either the UCL or the CLRA.

This morning's Daily Journal reports that "Billion-Dollar Reversal Lets Banks Tap Social Security Funds" (subscription), and the Recorder that "Billion-Buck BofA Ruling Struck Down" (subscription). In both articles, class counsel is quoted as saying he will seek Supreme Court review.

UPDATE: Here is a non-subscription link to the Recorder article. Also, the San Francisco Chronicle reports today that "Billion-dollar ruling against BofA tossed; Appeals court says deducting money to pay fees is OK." And the Los Angeles Times reports that "Judgment against BofA is overturned."

New UCL "unlawful" prong decision: SC Manufactured Homes, Inc. v. Canyon View Estates, Inc.

This case came down shortly before all the excitement surrounding In re Tobacco and Pfizer. In SC Manufactured Homes, Inc. v. Canyon View Estates, Inc., ___ Cal.App.4th ___ (Oct. 27, 2006), the plaintiff's UCL "unlawful" prong claim was predicated on an alleged violation of the Mobilehome Residency Law ("MRL") (Civ. Code §§ 798 et seq.). After filing suit, the plaintiff voluntarily dismissed some of the defendants from the action. Slip op. at 9. Those defendants moved for attorneys' fees under the MRL, which has an attorneys' fees provision. Id. The trial court denied the motion, and the Court of Appeal (Second Appellate District, Division Three) affirmed. Id. at 10.

The Court of Appeal expended a great deal of energy examining whether the action "arose out of" the MRL. Id. at 10-21. However, the case could have been resolved much more simply. The UCL's "unlawful" prong "borrows" the underlying statute's liability provisions; it does not "borrow" the underlying statute's remedies. UCL remedies are limited to restitution and injunctive relief. Attorneys' fees are unrecoverable in this action because the UCL has no attorneys' fees provision, even if the underlying, "borrowed" statute does. The reasoning is similar to that employed by federal courts when they hold that a UCL "unlawful" prong claim predicated on an alleged violation of federal law does not "arise under" federal law and is therefore not removable to federal court.

New UCL "unlawful" prong decision: California Consumer Health Care Council v. Kaiser Foundation Health Plan, Inc.

In California Consumer Health Care Council v. Kaiser Foundation Health Plan, Inc., ___ Cal.App.4th ___ (Jul. 25, 2006), which was ordered published last Friday, the Court of Appeal (First Appellate District, Division Two) rejected a UCL "unlawful" prong claim predicated on an alleged violation of the Confidentiality of Medical Information Act (Civ. Code §§ 56 et seq.). Slip op. at 4-11.

In the first appellate decision to cite Mervyn's, the court alternatively held that the plaintiff's UCL claim was barred by Proposition 64:

As noted in the introduction to this opinion, appellant claims to be a public interest organization, and in its FAC specifically asserted that it was suing on “behalf of the general public.” Nowhere in the FAC did appellant allege that it was, or was authorized to represent, any Kaiser patient who had been—or even was likely to be—injured by Kaiser’s policies with regard to the transmission of its medical information. Thus, it is indisputable that, if Proposition 64 applies to this case, appellant is not authorized to maintain this UCL action against Kaiser.

Slip op. at 12. In light of its substantive ruling that the alleged conduct was not "unlawful," the court declined to remand the case for the trial court to consider possible substitution of plaintiffs. Id. at 13.

Supreme Court unanimously reverses UCL "unlawful" prong decision: Kearney v. Solomon Smith Barney

Yesterday, the Supreme Court issued its decision in Kearney v. Salomon Smith Barney, Inc. , ___ Cal.4th ___ (July 13, 2006). In that case, the plaintiff's UCL "unlawful" prong claim was predicated on the defendant's alleged violation of a California Penal Code provision prohibiting tape-recording of telephone calls without both parties' consent. The Supreme Court examined choice-of-law principles at length, and concluded that California law prevailed over the less-protective Georgia law (which requires the consent of only one party to the call). However, California law would govern only for purposes of defendant's future conduct. The Supreme Court concluded that it would be unfair to apply California law to the defendant's past conduct, given the doubt over which law governed. Accordingly, monetary relief, including restitution, would be unrecoverable, but the claim for injunctive relief could proceed.

At the end of the opinion, the Court had this to say about the UCL:

Finally, we briefly address a point raised by one of the amicus curiae briefs that have been filed in this court, focusing specifically upon the potential application of California’s unfair competition law (UCL) in this case. The brief of amicus curie Pacific Legal Foundation suggests that because, as compared to other states’ consumer protection laws, the UCL “provides the broadest right of action to the widest number of people,” the reach of the statute should be restrained in the application of California’s choice-of-law principles.

In our view, we have no occasion in the present case to address the concerns advanced by amicus curiae, because this case does not present any of the potentially more controversial aspects of the UCL and the provisions of that law will not affect the potential relief that plaintiffs may obtain in this case. Here, we are not dealing with conduct that assertedly is simply “unfair” (see generally Cel Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180-187), but rather with alleged conduct that is “unlawful” and already subject to an express statutory private right of action. ([Penal Code] § 637.2.) Further, both the named plaintiffs and the members of the proposed class allegedly are direct victims of the unlawful conduct, rather than simply unharmed persons suing on behalf of the general public. (Cf., e.g., Consumers Union of United States, Inc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433, 1437-1444; see also Prop. 64, Gen. Elec. (Nov. 2, 2004), amending Bus. & Prof. Code, § 17204.) In addition, an injunctive remedy is authorized not only by the terms of the UCL (Bus. & Prof. Code, § 17203), but by the terms of section 637.2 itself. Finally, as discussed earlier (ante, at p. 47, fn. 17), to the extent plaintiffs seek reimbursement under the UCL for [the defendant’s] past conduct, we have concluded that such reimbursement is unavailable.

(Slip op. at 48-49.) I don't know what specific arguments the Pacific Legal Foundation made in its amicus brief (if anyone has it, please forward a copy), but it's clear the Supreme Court thought they were irrelevant to this case. Moreover, there's no reason why a choice-of-law analysis should be performed any differently for UCL claims than other types of claims. The statute provides broad-ranging relief because its purpose is to protect California consumers. To water down that purpose just because other states choose to protect their consumers less vigorously than California would eviscerate the whole point of a choice-of-law analysis, which is, “to the extent practicable, to achieve ‘the “maximum attainment of underlying purpose by all governmental entities.” ’ ” (Slip op. at 37 (citation omitted).)

Another Supreme Court argument of interest: Kearney v. Salomon Smith Barney

On June 1, 2006, the day after the Mervyn's/Branick oral argument, the Supreme Court will hear oral argument in Kearney v. Salomon Smith Barney, case no. S124739. This case presents the following question:

Can a claim for violation of the Invasion of Privacy Act (Pen. Code, section 630 et seq.) or the Unfair Competition Law (Bus. & Prof. Code, section 17200 et seq.) be premised on the recording of a telephone call without the consent of all parties to the conversation (see Pen. Code, section 632) where the telephone call in question is between California and a state that requires the consent of only one party to the conversation and the call is recorded in the other state?

The Court of Appeal (First Appellate District, Division Two) approached the case from a conflicts-of-law standpoint, rather than a UCL standpoint. Kearney v. Salomon Smith Barney, Inc., 117 Cal.App.4th 446 (2004). My original posts on this decision are here, here, and here.

Recent UCL "unlawful" prong decision: Pacific Shore Funding v. Lozo

The unpublished portion of Pacific Shore Funding v. Lozo, ___ Cal.App.4th ___ (Apr. 27, 2006) makes three points: (1) "violations of federal law will form the predicate unlawful business practice necessary to bring a claim under the UCL" (emphasis added); (2) the UCL's four-year statute of limitations, not the limitations period that governs the underlying, "borrowed" law, applies to the UCL "unlawful" prong claim; and (3) a plaintiff who paid interest, fees, and penalties to a defendant who violated TILA's loan disclosure requirements has suffered "actual injury" within the meaning of Proposition 64, and may recover the payments as "disgorgement or restitution." (Slip op. at 14-16.)

UCL "unlawful" prong hypothetical

A reader posits a hypothetical case in which the plaintiff's UCL "unlawful" prong claim is predicated on an alleged violation of a criminal statute. In response to the plaintiff's initial round of written discovery, the defendant asserts the Fifth Amendment. What do you think about invoking the Fifth Amendment in a UCL case, and how should the plaintiff respond?

New UCL "unlawful" prong decision: Violante v. Communities Southwest

In an opinion ordered published on Monday, the Court of Appeal rejected a UCL "unlawful" prong claim, holding that the plaintiff had not alleged any violation of the underlying, "borrowed" statute. Violante v. Communities Southwest Devel. & Constr. Co., ___ Cal.App.4th ___ (Mar. 16, 2006) (slip op. at 6-10). The opinion does not address the UCL's "unfair" prong, suggesting that the plaintiff made no attempt to plead an "unfair" prong claim separate and apart from the "unlawful" prong claim. I always like to reiterate how important it is to plead each of the three prongs—"unlawful," "unfair," and "fraudulent"—separately.

More on the UCL and securities class actions

Last week, I reported here on Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. ___ (Mar. 21, 2006), in which the U.S. Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") rather drastically limits state-law securities class actions. Since then, a reader suggested to me that while the new decision might impact fraud-based state law securities class actions, it doesn't seem to impact non-fraud claims. There may be an arguable window for negligent failure to act claims that do not allege or coincide with fraud. Of course, UCL claims don't need to allege either fraud or negligence; they're based on strict liability. Nonetheless, to the extent the securities-based UCL claim can be couched in terms of negligence rather than fraud, it might fit through the very narrow window Dabit may have left open. Dabit also has no impact on individual actions or actions with fewer than 50 plaintiff class members.

The reader also pointed out that a follow-on case, Kircher v. Putnam Funds, no. 05-409, is still pending before the Supreme Court and will be argued on April 24. That case involves the jurisdictional question of whether a SLUSA remand order is appealable. Under 28 U.S.C. section 1447(d), remand orders are usually not appealable, but in Kircher v. Putnam Funds Trust, 373 F.3d 847 (7th Cir. 2004), the Seventh Circuit held that SLUSA remand orders are. The Supreme Court could take the opportunity to provide additional clarification on SLUSA's substantive reach. (SCOTUSblog has more on the cert. grant in Kircher here, and the petitioner's brief is accessible here.)

UPDATE: On June 15, 2006, the Supreme Court issued its opinion in Kircher v. Putnam Funds Trust (no. 05-409). The Court did not expand on its substantive analysis in Dabit, but held that SLUSA remand orders are not appealable.

New unpublished UCL decision: Settle v. Knox Attorney Service

There are two interesting things about the Court of Appeal's unpublished opinion in Settle v. Knox Attorney Service, no. B180137 (Mar. 21, 2006) (Second Appellate District, Division Seven):

First, the Court of Appeal seems to agree with the idea that a UCL "unlawful" prong claim may be predicated on the infringement of a constitutional right (although it found no evidence of such an infringement in the case before it and affirmed summary judgment in the defendant's favor). (Slip op. at 7.)

Second, for some reason the plaintiff chose to concede that Prop. 64 applied retroactively to his case, which was filed before the initiative's effective date. (Slip op. at 8 n.4.) That's a huge concession. I'd think long and hard before I'd make it in any of my cases.

Thanks, as always, to JS for reading through the unpublished opinions to find this one.

The UCL and securities class actions

Yesterday, in a widely-publicized decision, the U.S. Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 preempts "state-law class-action claims brought by plaintiffs who have a private remedy under federal law" as well as "state-law class-action claims for which federal law provides no private remedy." Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 547 U.S. ___ (Mar. 21, 2006) (slip op. at 1).

There is a split in California decisional law on whether the UCL may be invoked to rectify securities violations (regardless of whether federal law provides a parallel remedy). Compare Roskind v. Morgan Stanley Dean Witter & Co., 80 Cal.App.4th 345 (2000) (holding that UCL claim may be predicated on securities law violations) with Bowen v. Ziasun Technologies, 116 Cal.App.4th 777 (2004) (holding that UCL does not apply to securities transactions); see also these blog posts from 2004 (discussing Bowen and UCL securities claims). Assuming that Roskind has the better view on this issue, and securities claims can be rectified via the UCL as a matter of California state law, it could be that this new Supreme Court decision has closed that avenue of relief. On the other hand, the federal statute applies only to a "covered class action," which is defined as "any single lawsuit in which ... damages are sought on behalf of more than 50 persons ...." Merrill Lynch, slip op. at 10 n.8 (quoting 15 U.S.C. §78bb(f)(5)(B)). Because "damages" are not recoverable under the UCL, there could be some wiggle room to argue that the federal statute does not apply. Still, given Prop. 64's class action provisions and the Class Action "Fairness" Act's removal provisions, you'll probably wind up making this argument to a federal judge, very few of whom would likely be receptive to it. And since you'll be in federal court anyway, you may as well plead the securities violation under federal law. Comments, anyone?

UPDATE: The Wall Street Journal Law Blog has this post with links to blogosphere commentary on the Merrill Lynch decision, including this thoughtful analysis at the Conglomerate, which observes: "With one fell swoop, the Supreme Court wipes out the practical value of many state blue sky laws and general consumer fraud laws and such. I understand and agree with the 'occupying the field' argument in principle, but, geesh, today is a very different consumer fraud litigation day than was yesterday!"

New federal UCL order: Bahramipour v. Citigroup Global Markets, Inc.

Thanks to Jessica for handing me a copy of the Order Denying Defendant's Motion for Partial Summary Judgment in Bahramipour v. Citigroup Global Markets, Inc., No. C 04-440 CW (N.D. Cal.). In this case, the plaintiff's UCL "unlawful" prong cause of action is predicated on alleged violation of the federal Fair Labor Standards Act (29 U.S.C. §§200 et seq.). Judge Claudia Wilken held that the FLSA did not preempt either (a) the UCL's four-year statute of limitations or (b) the "opt-out" class certification procedure that would apply under Rule 23 to UCL claims in federal court: "By allowing 'opt-out' class actions and longer statute of limitations for UCL claims, California provides increased protections for its workers, furthering the central purpose of the FLSA. The UCL as invoked in Plaintiff's claim does not stand as an obstacle to the purposes of the FLSA." (Slip op. at 13.)

If the FLSA claim had been brought directly, rather than through the UCL, it would have been subject to a two-year statute of limitations (or three years, if willful misconduct is proven), and special "opt-in" rules would have limited the size of the class. This case illustrates the procedural benefits of UCL claims, even after Proposition 64.

UPDATE: The Westlaw citation is Bahramipour v. Citigroup Global Markets, Inc., 2006 WL 449132 (N.D. Cal. 2006).

New UCL decision: Progressive West Ins. Co. v. Superior Court

Last week, the Court of Appeal (Third Appellate District) handed down Progressive West Ins. Co. v. Superior Court, ___ Cal.App.4th ___ (Dec. 28, 2005). The decision has a lengthy discussion of each of the three prongs of the UCL—"unfair," "fraudulent" and "unlawful." This is a post-Prop. 64 case that was filed after the effective date of the amendments. Accordingly, the fact that the opinion applies the ordinary definition of "fraudulent" conduct—"likely to be deceived"—is significant. (Slip op. at 30-31 & n.4.) Also, the Court held, after careful analysis, that the pre-Cel-Tech formulation of "unfair" governs consumer actions. (Slip op. at 32-35.) The final interesting thing about this opinion is that the Court determined that a violation of a common-law doctrine will support an "unlawful" prong claim (although such a violation was not pleaded in the case before it). (Slip op. at 35-36.) There are plenty of published cases that say, in general terms, that "any law," including "court-made" laws, will support a UCL "unlawful" prong claim, but there are very few cases in which the Court actually analyzed that type of "unlawful" prong claim.

New UCL "unfair" prong decision: Eddins v. Sumner Redstone

In Eddins v. Sumner Redstone, ___ Cal.App.4th ___ (Nov. 22, 2005), the Court of Appeal (Second Appellate District, Division Eight) construed the UCL's "unlawful" prong in the context of an action between business competitors. The Court determined that the trial court properly granted summary adjudication of the plaintiffs' Cartwright Act claim, but erred in also granting summary adjudication of the UCL claim. The trial court relied on Chavez v. Whirlpool Corp., 93 Cal.App.4th 363, 375 (2001), which held that conduct is not "unfair" within the meaning of the UCL if it is "deemed reasonable and condoned under the antitrust laws." Citing Cel-Tech, the Court of Appeal found that Chavez only applies to a UCL "unlawful" prong claim predicated on the Cartwright Act, but not to a UCL "unfair" prong claim. I've always thought that this aspect of Chavez was inconsistent with Cel-Tech, so it's nice to see another panel decline to follow it.

New UCL "unlawful" prong decision: CPF Agency Corp. v. R&S Towing

In CPF Agency Corp. v. R&S Towing Service, ___ Cal.App.4th ___ (Sept. 16, 2005), the plaintiff's UCL claim was predicated on the defendant's alleged violation of Vehicle Code section 22658, subd. (i)(2). The Court of Appeal reversed the trial court's order granting the defendant's motion to strike, holding that the Vehicle Code provision, and therefore the UCL claim, was not preempted by federal law.

New UCL decision: Bell v. Blue Cross of California

Yesterday, the Court of Appeal (Second Appellate District, Division One), decided Bell v. Blue Cross of California, ___ Cal.App.4th ___ (July 21, 2005). In reversing the trial court's order sustaining the defendant's demurrer to the plaintiff's UCL class action complaint, the Court: (a) rejected the defendants' "primary jurisdiction" argument (which was predicated on Samura v. Kaiser Foundation Health Plan, Inc., 17 Cal.App.4th 1284 (1993)) and followed Coast Plaza Doctors Hospital v. UHP Healthcare, 105 Cal.App.4th 693 (2002) instead; (b) applied the ordinary "likely to deceive" formulation of the "deceptive" prong, despite Proposition 64 (slip op. at 13); and (c) found a way to avoid addressing the defendant's contention that "the UCL claim fails because there must be an allegation that an act violated a specific statute" (slip op. at 13 n.9). The latter contention is ridiculous. The Supreme Court's holding in Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (1999) is unequivocal:

The statutory language referring to "any unlawful, unfair or fraudulent" practice (italics added) makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. "Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent. 'In other words, a practice is prohibited as "unfair" or "deceptive" even if not "unlawful" and vice versa.' "

Id. at 180 (citations omitted).