Combating Unfair Business Practices

Have you or your business suffered from unfair business practices? How businesses and consumers can fight back.


Is your competitor engaging in unfair business practices? Have you been the victim of unfair business practices? While the law promotes the operation of business and free enterprise, there are limits to free competition. To determine if a competitor or company is engaging in unfair competition, the place to start is looking at your state’s statutory framework.

California’s Unfair Competition Statute

While each state has its own statutory unfair competition statute, this article will focus on Unfair Competition in California. In California, the Unfair Competition Law (“UCL”) is codified Business and Professions Code Section 17200 et seq.


Business and Professions Code section 17200 et seq. prohibits unfair competition, including unlawful, unfair, and fraudulent business acts. As stated by the California Supreme Court: “The UCL covers a wide range of conduct. It embraces ‘anything that can properly be called a business practice and that at the same time is forbidden by law…’” Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal. 4th 1134, 1143 citing Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (quotations and citations omitted).


But with such a wide range of conduct, how can you determine if a particular course of conduct by a competitor or company is unlawful, unfair, or fraudulent?

UCL “Borrows” from other Laws

The answer is that Section 17200 “borrows” violations from other laws by making them independently actionable as unfair competitive practices. (Cel-Tech, supra, 20 Cal.4th at p. 180.) In addition, under section 17200, “a practice may be deemed unfair even if not specifically proscribed by some other law.” (Cel-Tech, at p. 180.)

Wide Range of Actions under the UCL

Ultimately, given such a wide range of potential applicability, it is best to consult an attorney to determine if unfair business practice is actionable. One of the most basic actionable unfair business practices is false and misleading representations made to consumers.


False and misleading representations necessarily constitute unfair business practices within the meaning of B & P C § 17200 (unfair competition). Section 17200 is designed to protect consumers against fraud and deceit as well as to protect competitors. It is broadly interpreted to bar all ongoing wrongful business activities in any context in which they appear. People v. Dollar Rent-A-Car Systems, Inc. (1989) 211 Cal App 3d 119.


Really, any type of business practice that is unfair and anticompetitive is potentially actionable under the UCL. It is a case by case analysis, but common types of actions involve untruthful statements made to the public or competitors, unlawful wage practices, unlawful advertising (covered more fully in Business Professions Code Section 17500 et seq.), and competition that is simply unfair to consumers.

Establishing Liability under the UCL

The case of Podolsky v. First Healthcare Corp. (1996) 50 Cal. App. 4th 632, 647-48 is particularly instructive in demonstrating liability under the UCL. That case holds:
It is not necessary to show the defendant intended to injure anyone since a violation of the UCA is a strict liability offense. 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.” (45 Cal. App. 4th at p. 1102.) Virtually any state, federal or local law can serve as the predicate for an action under Business and Professions Code section 17200. (45 Cal. App. 4th at pp. 1102-1103.)


The independent “unfairness” prong of the UCA is “intentionally broad, thus allowing courts maximum discretion to prohibit new schemes to defraud. The test of whether a business practice is unfair ‘involves an examination of [that practice’s] impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim. . . .” (State Farm, supra, 45 Cal. App. 4th at pp. 1103-1104.) An unfair business practice occurs when the practice ” ‘offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’ [Citation.]” (Id. at p. 1104, quoting People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal. App. 3d 509, 530.)


The “fraud” prong of Business and Professions Code section 17200 is unlike common law fraud or deception. A violation can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any damage. Instead, it is only necessary to show that members of the public are likely to be deceived.


(Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 211; State Farm, supra, 45 Cal. App. 4th at p. 1105.)
Podolsky v. First Healthcare Corp. (1996) 50 Cal. App. 4th 632, 647-48 (citations and quotations omitted).

Limitations of Section 17200

Section 17200 does have limitations, however. If the legislature has specifically approved a certain conduct, then the Courts may not override that conduct. For instance, in the gambling context, the State of California passed the Gambling Control Act, establishing a Gambling Control Division and Gambling Control Commission. The Division and Commission have exclusive power over games and gaming establishments. Cal Bus. & Prof. Code §§ 19801, 19810, 19811, 19824, 19826 and 19841. The Legislature also provided that “[j]urisdiction, including jurisdiction over operation and concentration, and supervision over gambling establishments in this state and over all persons or things having to do with the operations of gambling establishments is vested in the Commission.” Cal. Bus. & Prof. Code § 19811(b).


Therefore, § 17200 cannot preempt or override the authority of the Gambling Control Division or Commission when it comes to that industry. “Although the unfair competition law is broadly written to permit courts to restrain dishonest or unfair business dealings, the scope of the law is not unlimited. Courts may not simply impose their own notions of the day as to what is fair or unfair. Specific legislation may limit the judiciary’s power to declare conduct unfair. If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination.”
Scripps Clinic v. Superior Court (2003) 108 Cal. App. 4th 917, 938, quoting Cel-Tech Communications v. Los Angeles Cellular Telephone Company (1999) 20 Cal. 4th 163, 182.


Thus, “Acts that the Legislature has determined to be lawful may not form the basis for an action under the unfair competition law.” Cel-Tech, 20 Cal. 4th at 183.

Remedies for Unfair Competition

So what is the remedy for the consumer or business who successfully brings an action under the UCL? If a Court determines that an unfair business practice is occurring, the Court can enjoin the unfair business practice, or enter an order that the unfair business practice must end.


Depending on the egregiousness of the unfair business practice, this can be accomplished at the outset of filing an action through a mechanism known as a temporary restraining order (“TRO”). The courts will enter a TRO if the business practice is causing irreparable and immediate harm. However, this is a very high standard. Most cases will not justify a TRO.


The next level of potential injunctive relief is a preliminary injunction. This puts an end to the business practice before the trial date on the lawsuit, and provides the parties a full opportunity to brief their positions. While easier to obtain than a TRO, this is still a very difficult remedy to obtain prior to trial, as there must be a showing of irreparable harm should the injunction not issue prior to trial. In most cases, the unfair competition claim will be heard at trial, and an injunction will be issued at that point if the claim is successful.


Injunctive relief and restitution are the remedies provided by the UCA. It is not necessary to show the defendant intended to injure anyone since a violation of the UCA is a strict liability offense. Podolsky v. First Healthcare Corp., 50 Cal. App. 4th 632, 647-48 (1996).


Action based on B & P C § 17200 to redress an unlawful business practice “borrows” violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable and subject to the distinct remedies provided under of B & P C §§ 17200 et seq., the “unfair competition law.” The remedies and penalties are cumulative to those imposed under the other laws. People ex rel. Bill Lockyer v. Fremont Life Ins. Co. (2002) 104 Cal App 4th 508.


The unfair competition law does not provide for attorney’s fees to the prevailing party. Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal App 4th 1158.

Conclusion

Fighting back against unfair competition in in California is accomplished by bringing an action under Section 17200 of the Business and Professions Code. This Section covers a wide range of unlawful conduct, and is a powerful tool to fight unfair business practices. By bringing a lawsuit under Section 17200, consumers and businesses can put a stop to unfair competition by having the Court enjoin or order an end to the unfair business practice.


However, it is often a complicated legal analysis to determine if a violation of Section 17200 has occurred. Therefore, contacting an attorney to analyze whether you or your business has been a victim of unfair competition is imperative. Once a legal analysis is performed, you can be properly advised if the unfair business practice is actionable, and the likelihood that a Court will order that the unfair business practice be put to an end.


Although you cannot get damages or attorney’s fees directly from a Section 17200 claim, there are often companion claims (such as breach of contract, trade secret, or employment related claims) that an attorney can analyze depending on the nature of your relationship, if any, with the person or entity engaging in unfair business practices. If you feel that you are the victim of unfair competition, you should seek the advice of an attorney immediately.


By John L. Holcomb, Jr.

Jack is a litigation attorney with trial and appellate experience. He specializes in business law, with a focus on entertainment and employment litigation.


In addition to his litigation practice, Jack has significant transactional experience and a passion for advising businesses and facilitating their growth. Jack represents a diverse clientele in a range of matters including multi-million dollar business disputes, partnership disputes, intellectual property disputes, and entity dissolutions. His clientele consists of business owners, entrepreneurs, start-ups, producers and production companies.