Prop. 64 Guts Unfair Business Practice Laws
Is this the End of Litigation Extortion, Or a Rebirth For Unfair Competition If you are a business owner, you probably breathed a sigh of relief last November, but after the dust has settled from the election, few can really say whether Proposition 64 improved California law, or crippled it.
In November 2004, the California voters approved Proposition 64 by a margin of 59% to 41%. Prop. 64 significantly changed California's primary unfair business statutes, often referred to as "17200" (for its initial code section number) or the "UCL" (unfair competition law). This change in the law has a big impact on businesses and consumers alike. This article will briefly discuss what 17200 is, where it came from, and what does it look like now.
What is 17200? 17200 has been interpreted over the years to cast an extremely wide net of liability. This derives from the broad statutory language which creates liability for any "unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." 17200 is (was) also special because it allowed for suits by private (i.e., not the Attorney General) litigants on behalf of the "general public" without requiring actual injury to the plaintiff. The combination of a vast basis for liability, coupled with a relaxed standard for who could sue, created an extremely powerful tool for aggressive litigants.
The bases for liability under 17200 breakdown into 4 categories: unlawful acts, unfair acts, fraudulent acts, and deceptive advertising, two of which are discussed here.
Unlawful Business Act Significantly, 17200 has been interpreted to allow plaintiffs to borrow from any statute to establish that conduct is "unlawful." This means that virtually any Federal or State law, regulation, or common law can serve as the basis for a 17200 claim. If a business practice violates any law, it also violates 17200.
Unfair Business Practices Even broader than unlawful acts, however, is 17200's prohibition of "unfair" acts. Thus, even if an act is not unlawful, or even deceptive, it can still be attacked under 17200 as unfair. As one could imagine, this places a tremendous amount of discretion in the courts as to what constitutes "unfair." Examples of court recognized "unfair acts" include high pressure sales tactics, using unenforceable contracts and retaining surplus sums following the sale of repossessed cars.
The Good . . . 17200 has been used for indisputably admirable purposes such as stopping cigarette companies from targeting minors, shutting down the systematic breach of boiler plate contracts with consumers, and halting the practice of hiding contract charges in car rental contracts. Many of these cases relied on the broad "unfair" clause of 17200.
The Bad . . . Although designed to protect consumers and businesses from unfair practices, in recent times, 17200 has been used itself as an unfair practice against businesses.
The Ugly . . . In fact, some law firms have created an entire business model around creating and prosecuting 17200 claims. There have been some notorious cases of law firms pursuing thousands of auto body shops for small technical violations of regulatory law, or nail salons for using the same bottle of nail polish.
17200 Now Not surprisingly, the relatively small (but well publicized) number of questionable lawsuits fueled the backlash that led to Prop. 64. So, what does 17200 look like now? Prop. 64 did not alter the broad grounds for liability under 17200. Rather, Prop. 64 focused on who could use 17200, and under what circumstances.
Applies to All Cases . . . Now Not only did Prop 64 severely limit who could sue under 17200, the Courts are (mostly) applying 64 retroactively. That means that even cases filed before Prop 64, but still in the litigation process, are subject to the new, more stringent requirements.
What Does It All Mean? If you are a consumer who feels you have been wronged by a business's unfair practices, you can only sue under 17200 if you have actually suffered injury (e.g., loss of property) and there are others just like you.
If you are a business, you can probably sleep better at night knowing you are less likely to be the target of an unscrupulous plaintiff looking for a quick settlement pay-off. However, be careful what you wish for. Legitimate businesses will always suffer when dishonest competitors are less restricted, and therefore more able to conduct truly unfair business practice.
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