Opinion
California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.)
Bearing in mind that the UCL was originally conceived to protect business competitors (People ex rel. Mosk v. National Research Co. of Cal. (1962)
I
FACTS
Higbee filed a first amended complaint against EAS, asserting causes of action for unfair competition, interference with economic advantage, trade libel, and defamation. EAS filed a motion for judgment on the pleadings with respect to the first cause of action. The court granted the motion, with leave to amend.
The court held that Higbee failed to allege that he had suffered actual injury. In addition, the court stated: “It is not alleged that plaintiff had a transaction with defendant in which it lost money or property or that it was deprived of money or property to which it had a cognizable claim. Plaintiff only alleges that defendant is getting some business that plaintiff might possibly obtain for itself. This is insufficient. One may not sue a competitor under [section] 17200 because that competitor is obtaining some market share.” The court gave Higbee an opportunity to file a second amended complaint.
In his second amended complaint, Higbee reasserted the first four causes of action and added a fifth “cause of action” for injunctive relief. EAS then filed a demurrer, challenging the first and fifth causes of action. With respect to the first cause of action, EAS argued that Higbee lacked standing to assert a claim for violation of section 17200. With respect to the fifth cause of action, EAS argued, inter alia, that injunctive relief is' a remedy, not a cause of action.
The court sustained the demurrer with respect to the first and fifth causes of action, without leave to amend. The parties thereafter informed the court
On appeal, Higbee challenges the order sustaining the demurrer only with respect to the first cause of action for unfair competition. He concedes that injunctive relief is a remedy, not a cause of action, and so does not challenge the order with respect to the fifth “cause of action.”
II
DISCUSSION
A. Procedural Matters
(1) Motion to take documentary evidence on appeal and application to file motion under seal
On November 15, 2012, EAS filed a motion to take documentary evidence on appeal and an application to file that motion under seal. EAS represented that Higbee was arguing on appeal issues that were settled already. However, the settlement agreement was not part of the record on appeal inasmuch as the parties had not provided a copy to the trial court when they notified that court of the settlement. Consequently, EAS contended that the only way for this court to know whether Higbee was arguing about matters that already had been settled was to provide this court with a copy of the settlement agreement.
The settlement agreement contains a confidentiality clause, however. It requires the terms of the settlement agreement, but not the fact of the settlement agreement, to remain confidential. This notwithstanding, the confidentiality clause permits the terms of the settlement agreement to be disclosed “in any action or proceeding where the existence or terms of the [settlement agreement] are at issue . . . .”
EAS requested that the motion to take documentary evidence on appeal, and the copy of the settlement agreement attached thereto, be filed under seal. EAS filed a redacted copy of the motion for public viewing. Higbee did not file any objection, either to the motion itself or to the application to seal the motion.
This court issued an order granting the motion to take documentary evidence on appeal (Cal. Rules of Court, rule 8.252(c)) and granting the
(2) Scope of issues on appeal
Paragraph 4.1 of the settlement agreement provides that Higbee releases EAS from all claims arising in connection with the lawsuit “except that [Higbee] does not release EAS from the First Cause of Action ... of the Second Amended Complaint to the extent that [it relates] to the contention that EAS is engaged in the unauthorized practice of law.” So, this appeal concerns only the sustaining of the demurrer without leave to amend as to the first cause of action, to the extent it is based on the unauthorized practice of law.
B. Analysis
(1) Second amended complaint
In his second amended complaint, Higbee alleged his business was a corporation that was engaged in the practice of law in California and offered legal services for record expungements. In conducting his business, Higbee utilized the services of contract attorneys and a Web site hosting provider. Higbee further alleged that EAS was a Delaware corporation with its principal place of business in Kentucky and was neither a law firm nor an entity authorized to practice law in California or any other state. He also alleged that EAS was engaged in the unauthorized practice of law in California, in contravention of Business and Professions Code sections 6125 et seq. and 6400 et seq. and Penal Code section 4852.2, and was conducting business in California without authorization, in violation of Corporations Code section 2105. In addition, Higbee alleged that the conduct of EAS constituted a violation of the UCL.
More specifically, Higbee asserted that EAS maintained a number of different Web sites, such as www.clearmyrecord.com, on which it purported to inform prospective customers about the legal remedies available to them, describe the rights and privileges afforded by those remedies, tell prospective customers what legal documents were necessary to achieve their goals, and represent that its lawyers would prepare or review a customer’s court filings and offer legal advice. Higbee alleged that the actions of EAS not only had harmed members of the general public, but also had usurped the opportunities of Higbee, who competes directly with EAS for the same customers, and had resulted in lost revenue.
Higbee sought an injunction restraining EAS from (1) “operating the websites known as www.clearmyrecord.com, [w]ww.removeit.org, . . . shred-my [record] .com or any other website that attempts to offer criminal record
In sustaining the demurrer with respect to the first cause of action, the court stated that Higbee still had not alleged the loss of money or property as a result of EAS’s alleged misconduct. It explained that while Higbee alleged he was required to compete for market share, that was not enough to establish standing under the UCL.
(2) Standard of review
“We independently review the ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action. [Citation.] We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken. [Citation.] We construe the pleading in a reasonable manner and read the allegations in context. [Citation.] We affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the trial court’s stated reasons. [Citation.]” (Fremont Indemnity Co. v. Fremont General Corp. (2007)
(3) Unfair competition law
(a) Background
“Historically, the law of unfair competition . . . evolved in the general field of torts. It was concerned primarily with 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. With passage of time and accompanying epochal changes in industrial and economic conditions, the legal concept of unfair competition broadened appreciably.” (People ex rel. Mosk v. National Research Co. of Cal., supra,
When the Legislature codified the unfair competition laws with the amendment of Civil Code section 3369 in 1933, it “broadened the scope of legal protection against wrongful business practices generally, and in so doing extended to the entire consuming public the protection once afforded only to business competitors.” (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d
Now, it is well known that the purpose of the UCL “ ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’ [Citations.] In service of that purpose, the Legislature framed the UCL’s substantive provisions in ‘ “broad sweeping language” ’ [citations] and provided ‘courts with broad equitable powers to remedy violations’ [citation].” (Kwikset Corp. v. Superior Court, supra,
Ultimately, however, the UCL became overextended in its use. So, “ ‘[i]n 2004, the electorate substantially revised the UCL’s standing requirement; where once private suits could be brought by “any person acting for the interests of itself, its members or the general public” (former § 17204, as amended by Stats. 1993, ch. 926, §2, p. 5198), now private standing is limited to any “person who has suffered injury in fact and has lost money or property” as a result of unfair competition (§ 17204, as amended by Prop. 64, as approved by voters, Gen. Elec. (Nov. 2, 2004) § 3; [citation] . . .).’ ” (Kwikset Corp. v. Superior Court, supra, 51 Cal.4th at pp. 320-321.)
“In Proposition 64, as stated in the measure’s preamble, the voters found and declared that the UCL’s broad grant of standing had encouraged ‘[fjrivolous unfair competition lawsuits [that] clog our courts[,] cost taxpayers’ and ‘threaten[] the survival of small businesses . . . .’ [Citation.] The former law, the voters determined, had been ‘misused by some private attorneys who’ ‘[f]ile frivolous lawsuits as a means of generating attorney’s fees without creating a corresponding public benefit,’ ‘[f]ile lawsuits where no client has been injured in fact,’ ‘[fjile lawsuits for clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealing with the defendant,’ and ‘[fjile lawsuits on behalf of the general public without any accountability to the public and without adequate court supervision.’ [Citation.] ‘[T]he intent of California voters in enacting’ Proposition 64 was to limit such abuses by ‘prohibiting] private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact’ [citation] and by providing ‘that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public’ [citation].” (Californians for Disability Rights v. Mervyn’s, LLC, supra,
The questions in this case center around the reach of the UCL in the commercial context following the enactment of Proposition 64. We turn now to the current statutory provisions.
“The UCL does not proscribe specific activities, but in relevant part broadly prohibits ‘any unlawful, unfair or fraudulent business act or practice.’ (§ 17200.) ‘ “ ‘Because . . . section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent. ...’”’ [Citation.]” (Aleksick v. 7-Eleven, Inc. (2012)
“ ‘ “By proscribing ‘any unlawful’ business practice, ‘section 17200 “borrows” violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable.” ’ [Citation.] ‘Virtually any law—federal, state or local—can serve as a predicate for a [UCL] action.’ [Citation.]” (Aleksick v. 7-Eleven, Inc., supra,
Higbee argues the allegation that EAS violated Business and Professions Code sections 6125 et seq. (pertaining to the requirement of an active law license), 6400 et seq.
In that case, the court held that a private, for-profit corporation had standing to maintain a UCL action against a retailer who purportedly violated
The court rejected the argument that the plaintiff “should not be permitted to use the UCL to obtain relief, indirectly, for violation of an underlying statute . . . that [the plaintiff was] not authorized to enforce directly.” (Stop Youth Addiction, Inc. v. Lucky Stores, Inc., supra,
The foregoing authority notwithstanding, EAS argues that Higbee cannot borrow violations of Business and Professions Code sections 6125 et seq. and 6400 et seq. and Penal Code section 4852.2 and treat them as unlawful business practices under the UCL. It contends that Higbee has no standing to pursue a UCL claim based on the unauthorized practice of law, because he has no legally cognizable right or interest to support such a claim—that is, Higbee has no right or interest under the unauthorized practice of law statutes. EAS, citing Gerhard v. Stephens (1968)
As we have noted, “ ‘[b]y “borrowing” violations of other laws, the UCL deems those violations “unfair competition” independently actionable under the UCL. [Citation.] “Virtually any law—federal, state or local—can serve as a predicate for a section 17200 action. [Citation.]” [Citation.]’ [Citation.]” (Troyk v. Farmers Group, Inc. (2009)
Furthermore, the defendant reporters allegedly provided deposition transcripts to the defendant insurance companies at a discount and, without disclosing the pricing arrangement, charged above-market prices to other litigants. (Saunders v. Superior Court, supra,
(c) Actual injury
Proposition 64 amended section 17204 to provide that no private party has standing to prosecute a UCL action unless he or she “has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204; see Californians for Disability Rights v. Mervyn’s, LLC, supra,
In his second amended complaint, Higbee asserted 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 he 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. EAS maintains the trial court was correct in ruling that Higbee had failed to demonstrate standing, inasmuch as 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.
In support of this position, EAS cites Pom Wonderful LLC v. Coca-Cola Co. (C.D.Cal. 2010)
On appeal, the Ninth Circuit in Pom Wonderful LLC v. Coca-Cola Co. (9th Cir. 2012)
In support of his argument that market share injury may indeed suffice to establish standing under the UCL, Higbee cites Allergan, Inc. v. Athena Cosmetics, Inc. (Fed.Cir. 2011)
The defendants in Allergan, Inc. v. Athena Cosmetics, Inc., supra,
The appellate court observed: “The resolution of this appeal turns on the allegations a party asserting a claim under the UCL must state to satisfy the standing requirements of UCL § 17204.” (Allergan, Inc. v. Athena Cosmetics, Inc., supra,
The appellate court reversed, stating: “Here, [the plaintiff] has plainly alleged an economic injury that was the result of an unfair business practice. The unfair competition that [the plaintiff] alleges involves the defendants’ manufacture, marketing and/or sale of hair and eyelash growth products without a prescription, federal or state approval, and proper labeling in violation of federal and California laws. ... As a result of these acts, [the plaintiff] alleges that it has ‘lost sales, revenue, market share, and asset value.’ . . . [The plaintiff’s] complaint sufficiently alleges an injury that was caused by the defendants’ unfair business practices. Under Kwikset, this satisfies the requirements of section 17204, and therefore [the plaintiff] has standing to pursue its claim for relief under the UCL. [Citations.]” (Allergan, Inc. v. Athena Cosmetics, Inc., supra, 640 F.3d at pp. 1382-1383, citations omitted.)
Nevertheless, EAS argues that Allergan, Inc. v. Athena Cosmetics, Inc., supra,
In VP Racing Fuels, Inc. v. General Petroleum Corp. (E.D.Cal. 2009)
In addressing whether the plaintiff had stated its UCL claim with particularity, the court stated: “Plaintiff alleges that Defendant’s conduct ‘has enabled Defendants to price their 100 Octane product below the true market value of bona fide, 100 Octane fuel.’ . . . Plaintiff further alleges that such practice ‘has resulted in competitive harm and has unfairly diverted sales to Defendant[].’ Therefore, the Court concludes that Plaintiff has sufficiently alleged harm such that Defendant should be made to answer. As such, Plaintiff properly states a cause of action under the ‘unfair’ prong of the UCL.” (VP Racing Fuels, Inc. v. General Petroleum Corp., supra, 613 F.Supp.2d at p. 1087, citations omitted.) The court also held that the plaintiff had properly stated a cause of action under the “fraudulent” prong of the UCL. (VP Racing Fuels, Inc. v. General Petroleum Corp., supra, 613 F.Supp.2d at p. 1087.) Although it held that the plaintiff had failed to state a cause of action under the “unlawful activity” prong of the UCL, this was only because the plaintiff had failed to show a violation of an underlying statute, not because it had failed to demonstrate injury as required for UCL standing. (VP Racing Fuels, Inc. v. General Petroleum Corp., supra, 613 F.Supp.2d at p. 1086.) Clearly, the court determined that an alleged loss of market share, even without a claim of patent infringement, was sufficient to demonstrate injury.
Similarly, allegations of lost market share supported a UCL claim in Saunders v. Superior Court, supra,
So, in each of Allergan, Inc. v. Athena Cosmetics, Inc., supra,
Such case law notwithstanding, EAS quotes from Bower v. AT&T Mobility, LLC (2011)
Bower v. AT&T Mobility, LLC, supra,
The Bower court held that this allegation of injury was insufficient to survive a demurrer. (Bower v. AT&T Mobility, LLC, supra, 196 Cal.App.4th at pp. 1552, 1554-1555.) The court stated that the plaintiff had pleaded “at the most a conjectural or hypothetical injury, not an injury in fact.” (Id. at p. 1555.) It explained that she had not alleged “that she could have obtained a bundled transaction for a new cellular telephone—the telephone that she selected—at a lower price from another source. [Citation.]” (Ibid.) In the matter before us, however, Higbee did plead an injury in fact, inasmuch as he alleged that he had lost revenue and asset value and had been forced to spend more money on advertising.
We turn now to Korea Supply Co. v. Lockheed Martin Corp., supra,
EAS says Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th 1134 provides an example of an injury that was particular and concrete. The case is inapposite, however. The plaintiff there was not a competitor. Its client was the competitor. The plaintiff did not allege that it had lost market share. It alleged that it had lost a prospective commission. The issue in the case was not whether the plaintiff had alleged an injury that was concrete and particular. It was whether the monetary relief it sought was available under the UCL. Nothing in Korea Supply casts doubt on the viability of Higbee’s UCL claim in the matter before us.
That leaves Drum v. San Fernando Valley Bar Assn., supra,
On appeal, the plaintiff in Drum v. San Fernando Valley Bar Assn., supra,
In the case before us, in contrast, Higbee alleged that, due to EAS’s unlawful competition, he had lost business, the value of his law firm had diminished, and he had been required to expend money in the form of increased advertising costs. Unlike the plaintiff in Drum v. San Fernando Valley Bar Assn., supra,
As the Supreme Court stated in Kwikset Corp. v. Superior Court, supra,
“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,
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.
EAS reminds us that injury is not the only requirement for standing under the UCL. In order to satisfy the Proposition 64 standing requirements, a party must establish an economic injury and in addition “show that that economic injury was the result of, i.e., caused by, the unfair business practice . . . that is the gravamen of the claim.” (Kwikset Corp. v. Superior Court, supra,
In support of this assertion, EAS cites Clayworth v. Pfizer, Inc., supra,
In Clayworth v. Pfizer, Inc., supra,
Taken in context, we do not view the language of Clayworth v. Pfizer, Inc., supra,
To be sure, the Supreme Court in Clayworth v. Pfizer, Inc., supra,
As the Supreme Court in Clayworth stated, in statutory construction, “[w]e begin with the language of the statute. If the text is sufficiently clear to offer conclusive evidence of the statute’s meaning, we need look no further. [Citation.]” (Clayworth v. Pfizer, Inc., supra,
Although EAS contends that the case law after Proposition 64 makes clear that a plaintiff must have had business dealings with the defendant in order to
If Higbee had engaged in business dealings with EAS, the alleged causation likely would have been plain. But that does not mean that it is impossible to allege facts sufficient to support causation in the absence of direct business dealings. Here, as we have discussed, Higbee alleges that he suffered losses in revenue and asset value and was required to pay increased advertising costs specifically because of the unlawful business practices of EAS. Mindful of the procedural posture of this case, we are unwilling to say that this allegation of causation is insufficient to withstand a demurrer. (See VP Racing Fuels, Inc. v. General Petroleum Corp., supra,
(e) Conclusion
Section 17203 specifically authorizes the use of injunctive relief to prevent unfair competition. This statute “suggests that the Legislature considered deterrence of unfair practices to be an important goal . . . .” (Korea Supply Co. v. Lockheed Martin Corp., supra,
The Legislature worded the UCL so as “ ‘to permit tribunals to enjoin on-going wrongful business conduct in whatever context such activity might occur. Indeed, . . . [it] was intentionally framed in its broad, sweeping language, precisely to enable judicial tribunals to deal with the innumerable “ ‘new schemes which the fertility of man’s invention would contrive.’ ” [Citation.] As [has been] observed: “When a scheme is evolved which on its face violates the fundamental rules of honesty and fair dealing, a court of equity is not impotent to frustrate its consummation because the scheme is an original one. . . .” [Citations.] With respect to “unlawful” or “unfair” business practices, [former Civil Code] section 3369 [(today Bus. & Prof. Code, § 17200)] specifically grants our courts that power.-. . .’ [Citation.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., supra,
We emphasize that our opinion is strictly limited to the context of business competitors. We state only that a business competitor who adequately alleges that he or she has suffered injury in fact and lost money or property as a result of the defendant’s unfair competition is not necessarily precluded from maintaining a UCL lawsuit against the defendant just because he or she has not engaged in direct business dealings with the defendant. Nothing in this opinion is meant to suggest that we approve of the revival of shakedown lawsuits or that a consumer who has never done business with a company has standing to maintain a UCL action against it.
in
DISPOSITION
The judgment is reversed and the matter is remanded to the trial court. Higbee shall recover his costs on appeal. The clerk of this court is directed to send a copy of this opinion to the Attorney General.
O’Leary, P. J., and Fybel, J., concurred.
Notes
All subsequent statutory references are to the Business and Professions Code unless otherwise specifically stated.
The rulings at issue on appeal do not address the settlement agreement. Consequently, the scope of the settlement agreement is not before us. For the purposes of this appeal, we address Higbee’s unauthorized practice of law claim as a claim based on unlawful activity, within the meaning of the UCL. We express no opinion on whether Higbee’s unlawful practice of law claim also could be construed as a claim based on either unfair or fraudulent activity, within the meaning of the UCL.
Section 6402 requires a “legal document assistant,” as defined in section 6400, to be registered by the county clerk. Section 6402.1 describes the eligibility requirements for registration. Section 6404 specifies the amount of the registration fee and section 6405 identifies the amount of the bond that must be posted in connection with each application. An individual must post a $25,000 bond and a corporation or partnership employing legal document assistants must post a bond ranging from $25,000 to $100,000, depending on the number of assistants employed. (§ 6405.)
Saunders v. Superior Court, supra,