What is California’s Unfair Competition Law?—The Michael Scott Explanation

The UCL, codified as Bus. & Prof. Code Section 17200, provides for injunctive and other relief for any business practice that is “unfair,” “unlawful” or “fraudulent.”  Volumes could be written on this statute but, in keeping with the objective of our Michael Scott Explanation series, this post will just touch the highlights. 

The starting point for understanding the UCL statute (often referred to as “seventeen-two-hundred”) is to learn just a bit about the three predicates—often referred to as the three “prongs” of the statute. 

  1. What is Unfair?  An unfair business practice is one that has the tendency to deceive the public.  Courts have struggled to come up with some sort of formula for defining “unfair” business practices.  Several years ago, we obtained some clarification stating that the unfairness prong of the UCL does not give a general license for courts to review the fairness of contracts; the statute is directed at enjoining particularly deceptive or sharp business practices.  Beyond that, there is not a great deal of guidance on the unfairness prong.
  2. What is Unlawful?  An “unlawful” practice is more easily defined—anything that violates any statute, regulation or rule.  That statute, regulation or rule might be an obscure federal regulation or even local city ordinance.  Even if there is not a private cause of action for a violation of the underlying law, a UCL plaintiff can nonetheless bring the claim under this theory.
  3. What is Fraudulent?  The important thing to understand about the fraudulent prong is that common law fraud is not required.  Common law fraud requires a misrepresentation of fact, actual and reasonable reliance and resulting damages.  Not so under a UCL fraudulent theory.  The rather nebulous standard for fraudulent conduct is apparently lower than the common law standard.

The statute uses the disjunctive which means that the business practice may satisfy any one of the three prongs in order to state claim.  The statute is intentionally broad to give the courts maximum discretion to control whatever new schemes may be contrived, even though they are not yet forbidden by law

No Damages.  Another interesting feature of the UCL is that a plaintiff cannot obtain money damages.  There are only two remedies—an injunction to stop the business practice and restitution.  In most cases, the only restitution allowed is for the return of money paid to the defendant by the plaintiff. In essence the defendant is stating that the plaintiff overcharged or obtained some other benefit from the defendant and has to be compelled to pay that back.

Attorney Fees and Class Actions.  What makes a UCL case potentially risky for a defendant business is the attorney fees that can be sought.  Under the current system, a plaintiff’s lawyer can petition the court based not only on hours expended but the supposed public benefit that has been achieved as a result of the lawsuit. 

This risk of having to pay attorney fees, coupled with the prospect of having to pay a class action settlement (aggregating even a small amount of money obtained from thousands if not millions of transactions), can result in a multi-million dollar liability arising from what may appear to be a silly theory.  From the company’s perspective, a UCL claim that a billing practice was unfair because it overcharged customers a few cents, seems absurd.  From the class action plaintiff lawyers’ perspective, it is a potential gold mine that will yield fees in the thousands or even millions of dollars. 

A major objective of this blog and future posts will be to figure out how to avoid UCL lawsuits in the first place (a rather daunting if not impossible task) and how to prevail in defeating these types of claims.