California Court of Appeal takes up a threshold issue of causation under the new Unfair Competition Law ("UCL")
January, 2008
In 2004, California voters passed Proposition 64, limiting an individual's use of California's Unfair Competition Law ("UCL"). Recently, a California Court of Appeal took up a threshold issue of causation under the new UCL. The Court found that the phrase "as a result of" in the text of the law requires causation, that is, the alleged unfair competition must have caused the claimant bringing the action to lose property or money.
Before Proposition 64, any person could sue under the UCL so long as the individual acted for the interests of the general public. Cases flowered under the UCL, at least in part, because of the UCL's liberal provisions regarding recovery of attorneys' fees. In 2003, the California Attorney General attempted to stem abuse of the UCL by suing a law firm, the Trevor Law Group, for abusing the UCL by bringing claims against thousands of small automotive repair shops through a sham plaintiff. The voters reacted by enacting Proposition 64 in November 2004. A 2006 California Supreme Court case, Californians for Disability Rights v. Mervyn's, LLC. (2006) 39 Cal.4th 223, decided that Proposition 64 applied retroactively to matters pending in the courts before the passage of Proposition 64.
In Hall v. Time, Inc., -- Cal.App.4th -- 2008 WL 68631 (4th Dist. 2008), the plaintiff sued Time, Inc. for unfair, unlawful, and/or fraudulent business practices under the UCL. Time, Inc. offered its customers a 21-day "free preview period" in which the customer could receive a book of interest, review it, and return it to the defendant with no obligation to pay. The plaintiff alleged that after he agreed to the free trial period, the defendant sent him his requested book with an Invoice displaying a partial payment obligation. When the plaintiff did not pay the obligation stated in the Invoice, he received a second bill informing him that his free preview has ended and that the full price of the book was due. After receiving several subsequent bills, the plaintiff paid the obligation in full. The plaintiff claimed that the defendant's actions of "sending [I]nvoices before the expiration of the free trial period to obtain immediate payment for the book requested" constituted unfair, unlawful, and/or fraudulent business practices under the UCL.
The court upheld the lower court's dismissal of the complaint on the grounds that the plaintiff lacked standing to pursue a UCL claim. To demonstrate standing, the plaintiff had to show that (1) he suffered an injury-in-fact, and (2) the defendant's unfair competition caused him to lose money or property (causation). This Court adopted this standard as a result of Proposition 64, which amended B&P Code Section 17204 to state that UCL suits may be brought by any person "who has suffered injury in fact and has lost money or property as a result of such unfair competition." The court found that no injury-in-fact was suffered because although the plaintiff expended money to the defendant; he received a book that was neither unsatisfactory nor undesired in exchange. Second, the court found that plaintiff did not meet the causation requirement because the "[I]nvoice did not cause [plaintiff] Hall to remit payment immediately on receiving the book: Rather, he remitted payment 10 months after receiving the book, long after the free trial period had expired." Because the plaintiff did not rely on the Invoice and immediately make a payment (prior to the trial period ending) upon that Invoice, his so-called "injury" was not caused by the defendant's Invoice. Thus, the plaintiff lacked standing to bring a UCL claim.
This case recognizes a complete reversal of the broad standing provisions recognized by the California Supreme Court in Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, and provides a sound basis for objecting to a plaintiff's standing under the UCL.