The UCL Practitioner

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 Muranaka Farm, Inc. v. Huacuja (unpublished)

In a recent unpublished opinion, Muranaka Farm, Inc. v. Huacuja, no.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.

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 "unfair" prong decision: Camacho v. Automobile Club of So. Cal.

In Camacho v. Automobile Club of Southern California, ___ Cal.App.4th ___ (May 3, 2006), the Court of Appeal (Second Appellate District, Division Eight) exacerbated the split in authority on what formulation of "unfair" should apply to consumer actions after Cel-Tech. It held that Cel-Tech overruled other formulations, but that the Cel-Tech formulation itself was unsuitable for consumer actions:

[W]e do not think that Cel-Tech’s definition of “unfair” in cases involving anticompetitive practices applies to consumer cases. There are two reasons for this. First, “tethering” a finding of unfairness to “specific constitutional, statutory or regulatory provisions” does not comport with the broad scope of section 17200. “Tethering” the concept of unfairness to existing positive law undercuts the principle that a practice is prohibited as “unfair” or “deceptive,” even if it not “unlawful” or vice versa. (Cel-Tech, supra, 20 Cal.4th at p. 180.) .... Second, anticompetitive conduct is best defined in terms of the policy and spirit of antitrust laws; the same cannot be said of a business practice that is “unfair” or “deceptive” in the terms of section 17200. That is, cases involving anticompetitive conduct move in a far smaller, and more clearly defined, universe than unfair or deceptive business practices. It is therefore possible to “tether” anticompetitive conduct to the antitrust laws, while the universe of laws and/or regulations that bear on unfair practices is so varied that it is not possible to achieve a consensus which of these laws and regulations might apply to define an unfair practice.

(Slip op. at 9-10.) Therefore, the court developed a new, intermediate standard for consumer actions:

Cel-Tech itself holds the key to the definition of “unfair” in consumer cases. Cel-Tech holds that “we may turn for guidance to the jurisprudence” arising under section 5 of the Federal Trade Commission Act. (Cel-Tech, supra, 20 Cal.4th at p. 185.) Since 1980, the factors that define unfairness under section 5 are: (1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. (Orkin Exterminating Co. v. F.T.C. (11th Cir. 1988) 849 F.2d 1354, 1364.) These factors have now been codified in title 15 United State Code section 45(n). This definition of “unfair” is on its face geared to consumers and is for that reason appropriate in consumer cases. It is also suitably broad and is therefore in keeping with the “sweeping” nature of section 17200. We will refer to this as the “section 5 test.”

(Slip op. at 10-11.) The court then held that the plaintiff could not plead facts sufficient to meet its newly-adopted "section 5 test." (Slip op. at 11-13.)

This case harkens back to Bardin v. DaimlerChrysler Corp., ___ Cal.App.4th ___ (2006), in which the Court of Appeal (Fourth Appellate District, Division Three) asked the Supreme Court to tell us what formulation of "unfair" applies to consumer actions. (See my original post on this decision here.) However, no petition for review was apparently filed in that case.

"Courts Get Muddled on What's 'Unfair' in Consumer Actions"

This article by Michael Mallow was in the Daily Journal last Wednesday. (Unfortunately, the Daily Journal's website does not have pass-through links to specific articles.) The article discusses the Court of Appeal's opinion in Bardin v. DaimlerChrysler Corp., ___ Cal.App.4th ___ (Feb. 23, 2006), which asked the Supreme Court and/or the legislature to provide guidance on the meaning of "unfair." According to the online case information site, no petition for review has been filed yet. My original post on Bardin is here.

New UCL "unfair" prong decision: Bardin v. DaimlerChrysler Corp.

In Bardin v. DaimlerChrysler Corp., ___ Cal.App.4th ___ (Feb. 23, 2006), the Court of Appeal (Fourth Appellate District, Division Three) was very concerned about whether the pre- or post-Cel-Tech formulation of "unfair" applied to consumer actions. According to the docket, the Court went out of its way to request supplemental briefs from the parties and amicus briefs from Consumer Attorneys of California on that very question. The opinion discusses both formulations in detail, then lists Cel-Tech's unanswered questions:

Did the Supreme Court limit its holding in Cel-Tech to UCL actions brought by competitors simply because the circumstance of a consumer UCL action was not before it, or because the definition of “unfair” should be different depending on whether the action is brought by a consumer or a competitor? Was the Supreme Court expressing the view that regulation of competitive conduct is contained in existing legislation, but there is no analogous law pertaining to consumers? Should a broader definition of “unfair” apply in consumer actions because consumers require more protection than competitors even though such a distinction between consumers and competitors is not reflected in the language of the statute? Is the Cel-Tech definition of “unfair” too narrow to sufficiently protect consumers? Is the definition of “unfair” applied in Smith [v. State Farm Mut. Auto. Ins. Co.], 93 Cal.App.4th 700 [(2001)] too amorphous in the consumer context, and does it provide “too little guidance to courts and businesses”? (Cel-Tech [Communications, Inc. v. Los Angeles Cellular Tel. Co.], 20 Cal.4th [163,] 184-185 [(1999)].)

(Slip op. at 20 (hyperlinks added).) Finally, the Court asked the Legislature or the Supreme Court to help:

In light of the uncertain state of the law regarding the proper definition of “unfair” in the context of consumer UCL actions, we urge the Legislature and the Supreme Court to clarify the scope of the definition of “unfair” under the UCL.

(Id.) Ultimately, the Court applied both formulations to the facts before it, and determined (in a very fact-specific analysis) that the plaintiff's complaint did not state a claim for relief under either. The opinion also addresses the UCL's "fraudulent" prong and the CLRA.

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.

Recent UCL "unfair" prong decision: RLH Industries v. SBC Communications

RLH Industries, Inc. v. SBC Communications, Inc., ___ Cal.App.4th ___ (Nov. 3, 2005) (Fourth Appellate District, Division Three) is another recent UCL opinion in an action between competitors. Like Eddins v. Sumner Redstone, ___ Cal.App.4th ___ (Nov. 22, 2005), discussed in the post immediately below, it involved a Cartwright Act claim and construed Chavez v. Whirlpool Corp., 93 Cal.App.4th 363 (2001). The Court of Appeal applied the Cel-Tech formulation of "unfair," holding that "nothing suggests [the defendant's challenged] policy 'threatens an incipient violation' of the Cartwright Act, violates its policy or spirit, or otherwise threatens competition. .... Even if some unfair competition causes of action can survive independently of an actual antitrust violation, this one does not." Slip op. at 8-9 (citing Chavez, 93 Cal.App.4th at 375). The Court of Appeal affirmed the trial court's order granting summary judgment to one of the two defendants.

As for the other defendant, summary judgment should not have been granted. The Court of Appeal rejected that defendant's argument that the United States Constitution's dormant commerce clause bars UCL and antitrust claims against an out-of-state defendant for out-of-state anticompetitive conduct that impacts Californians. Slip op. at 14-16.

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 Ninth Circuit UCL decision: Arizona Cartridge Remanufacturers Assn. v. Lexmark Int'l

In Arizona Cartridge Remanufacturers Assn., Inc. v. Lexmark Int'l, Inc., ___ F.3d ___ (9th Cir. Aug. 30, 2005), the Ninth Circuit addressed the UCL's "unfair" and "fraudulent" prongs, and affirmed an order granting summary judgment in the defendant's favor.

New UCL decision: People's Choice Wireless, Inc. v. Verizon Wireless

Last Thursday, the Court of Appeal (Second Appellate District, Division Two) handed down People's Choice Wireless, Inc. v. Verizon Wireless, ___ Cal.App.4th ___ (July 28, 2005), and held that the trial court properly sustained the defendant's demurrer to the plaintiff's UCL claim. Because it was an action between competitors, the Court applied the post-Cel-Tech formulation of "unfair." This case probably represents the most detailed exposition of the post-Cel-Tech formulation in a competitor action since Cel-Tech itself was decided.