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From Claims to Attorney’s Fees: What Business Owners Must Know About the California Unfair Competition Law

A few years ago, a new term surfaced in California: food court. Used as a synonym for the Northern District, it spoke to the fact that courts in the health and nutrition conscious Bay Area were finding themselves inundated in class actions where plaintiffs alleged that healthy sounding food labels mislead consumers. The plaintiffs filed these claims, which often focused on phrases like “100 percent natural” and “no sugar added,” under federal regulations and under California’s Unfair Competition Law (UCL.) The long list of defendants included large and small corporations. Their products ran the gamut from chocolate to yoghurt and juice.

While the number of food related filings may have gone down since then, claims under UCL still constitute a good portion of business litigation in California. Most recently, the Unfair Competition Law has been invoked in connection with corporate data and privacy breaches.

Even though a voter referendum that passed in 2004 somewhat reined in the scope of the law, California’s UCL is a very broad statute. Laid out in the Business and Professions Code, it defines unfair competition to mean and include “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.” To be considered, a claim need only meet one of the three prongs of the law — unlawful, unfair or unjust.

The 2004 voter referendum, Proposition 64, followed on the heels of revelations that a few attorneys had misused the Unfair Competition Law to file unscrupulous class actions. Largely funded by the aggrieved automotive industry, it limited standing to the Attorney General, local public prosecutors and individuals who have actually incurred harm, and it stipulated that claims on behalf of others must comply with a statute in the California Civil Code that lists prerequisites for class action cases.

The Unfair Competition Law does not provide for actual damages. The only possible remedies are an injunction to stop the unlawful, unfair or fraudulent business practice and restitution of money or property that was lost because of the unfair conduct. Different from defendants, plaintiffs who prevail in an unfair competition lawsuit may also seek attorney’s fees. This has made the UCL popular with some lawyers but not with business owners.

What’s the take-away for business owners? They should be aware that a wide range of conduct, some of it seemingly minor or even trivial, can become the subject of litigation under the UCL. If they receive a complaint that threatens a lawsuit for the alleged unfair treatment of consumers they should not dismiss it as a nuisance but contact an experienced business attorney. He or she will advise them on responding to the complaint strategically. This is especially important for businesses that have large numbers of members of the public as customers.

By Kevin J. Moore