Friday, April 25, 2014

FYI: Cal App Ct Reverses Dismissal of UDAP Claim Alleging Only an "Identifiable Trifle of Injury"

Sunday, March 24, 2013

Reversing the lower court, the California Court of Appeal, Fourth District, recently ruled that a plaintiff law firm sufficiently alleged an "identifiable trifle of injury," in the form of lost market share, decreased revenue, and increased advertising costs, to maintain a lawsuit against an on-line business competitor under California's Unfair Competition Law, even though the parties had no direct business dealings with each other. 

A copy of the opinion is available at:

Plaintiff law firm ("Law Firm") filed a law suit under California's Unfair Competition Law ("UCL") against an on-line business competitor ("Company"), alleging in part that Company engaged in the unauthorized practice of law in violation of various statutes and that Company undercut Law Firm's prices, thereby causing Law Firm to lose business, market share, and to expend more money in advertising.   Seeking damages and injunctive relief, Law Firm asserted a number of causes of action, including unfair competition. 

Company demurred, arguing that Law Firm lacked standing to assert a UCL claim, because Law Firm had not suffered an injury in fact as a result of Company's conduct.  Agreeing with Company, the lower court in part sustained the demurrer without leave to amend, and dismissed the lawsuit.  Law Firm appealed.

The Court of Appeal reversed and remanded, ruling that Law Firm had alleged sufficient injury in fact by a business competitor to withstand the demurrer.

As you may recall, California's UCL broadly prohibits "any unlawful, unfair, or fraudulent business act or practice," but specifies 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."  Bus. & Prof. Code § 17200 et. seq.; Californians for Disability Rights v. Mervyn's, LLC,   39 Cal. 4th 223 (2006).

Reviewing the policy behind California's UCL and that the standing requirement was changed in 2004, the Appellate Court ultimately concluded that Law Firm met the test for UCL standing.  See Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 320-21 (2011)(applying amended UCL to standing issue).  In so ruling, the Court noted that by prohibiting "any unlawful business practice, [the UCL] 'borrows' violations of other laws and treats them as unlawful practices' that the [UCL] makes independently actionable."  See, e.g., Aleksick v. 7-Eleven, Inc., 205 Cal. App. 4th 1176, 1184 (2012)(noting that UCL establishes three varieties of unfair competition); see also Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553 (1998). 

Turning to Company's argument that Law Firm had no cognizable right or interest under the unauthorized practice of law statutes to support its claim, the Court concluded that violations of statutes concerning the unauthorized practice of law could serve as the basis for Law Firm's UCL action.  See Saunders v. Superior Court, 27 Cal. App.4th 832 (1994)(holding that alleged violations of Business and Professions Code could serve as basis for UCL action).

The Appellate Court next addressed whether Law Firm had suffered injury in fact -- that is, an economic injury, in order to have standing to bring a UCL action against Company.  Noting that Law Firm's complaint alleged that Law Firm had been forced, as a result of Company's unlawful conduct, to lower its prices and expend more money on advertising, and that it had lost clients, revenue, and asset value, the Court disagreed with Company that a loss of market share was not sufficient to demonstrate injury in fact. 

Stressing that its opinion was strictly limited to the context of business competitors, the Appellate Court concluded that because Law Firm's complaint alleged some specific, "identifiable trifle of injury," it had standing to pursue a UCL claim.  See Kwikset Corp. v. Superior Court, supra, 51 Cal. 4th at 323; compare Allergan, Inc. v. Athena Cosmetics, Inc., 640 F.3d 1377 (Fed. Cir. 2011)(ruling that allegations of lost sales, revenue, market share, and asset value caused by defendant's unfair business practices are sufficient to confer standing to pursue a UCL claim) and VP Racing Fuels, Inc. v. General Petroleum Corp., 673 F. Supp.2d 1073, 1086 (E.D. Cal 2009)(loss of market share sufficient to demonstrate injury for purposes of UCL claim) with Bower v. AT&T Mobility, LLC, 196 Cal. App. 4th 1545 (2011)(ruling in a consumer case that allegation of injury was insufficient to survive a demurrer where complaint alleged a "conjectural or hypothetical injury, not an injury in fact) and Drum v. San Fernando Valley Bar Ass'n., 182 Cal. App. 4th 247 (2010)(plaintiff, seeking to acquire new market share, failed to allege that he had lost business or expended or was denied any money as a result of defendant's conduct).

As to whether Company's conduct was the cause of Law Firm's injury, the Appellate Court rejected Company's argument that UCL standing required the parties to have had business dealings with one another.  In so doing, the Court noted that one court's conclusion that those who have had business dealings with one another have standing to bring a UCL claim did not necessarily mean that having direct business dealings was a requirement to demonstrate UCL standing.  Nevertheless, given the procedural setting of the case, the Appellate Court refused to opine that Law Firm's causation allegation was insufficient to withstand a demurrer. 

Recognizing that injunctive relief might be appropriate in this case, the Appellate Court reversed and remanded.

Eric Tsai
McGinnis Wutscher Beiramee LLP
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