Rising trends in California's Unfair Competition Law.

California's Unfair Competition Law, first enacted in 1933, and later codified as Business & Professions Code section 17200 in 1977, is a powerful weapon, commonly used and often abused by plaintiffs' attorneys in Los Angeles County and throughout the state.

The statute is a tool for consumer advocacy groups to pursue such "unfair and unlawful practices" as consumer fraud, environmental contamination, and elder abuse. Unfortunately, many plaintiffs' attorneys have demonstrated that with a little creative pleading, almost any conduct, whether harmful or not, can serve as the basis of an unfair competition claim. As a result, the purpose and future of this intentionally broad and amorphous statute has recently been the subject of much debate.

Section 17200, otherwise known as the Unfair Competition Law, prohibits "unlawful, unfair or fraudulent" business practices. The statute is unique in that it eliminates the traditional requirement of standing. Any person, public official, group or organization can file a Section 17200 claim "on behalf of the general public," without having personally suffered any harm from the practice or even having a nexus with the defendant.

The statute is drafted in the disjunctive, meaning that the complained of business practice can be either unlawful or unfair or fraudulent, not all three. The statute considers "unlawful" those practices forbidden by law. In effect, the statute "borrows" violations of other statutes or case law, labels them unlawful business practices, separately actionable under Section 17200. For example, an insurer's bad faith in denying coverage to its insured can also constitute an unlawful business practice under Section 17200.

The definition of an "unfair" business practice is developed by case law and is far-reaching. The most common definition of an "unfair" practice is one that "offends an established public policy or ... is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. Finally, "fraudulent" practices are those by which "the public is likely to be deceived."

The remedies available under a Section 17200 claim are fairly limited. There is no recovery for compensatory or punitive damages. A private plaintiff may only seek injunctive relief and restitution, although the courts have broad powers to fashion such relief. There is no express right to recover attorneys' fees, however, courts may generally grant attorneys' fees pursuant to their equitable powers if a "significant public benefit is conferred on the general public or a large class of persons."

It is clear that California's Unfair Competition Law has a broad purpose and scope, and can be used to challenge wrongful business conduct "in whatever context such activity may occur." In the past, the Unfair Competition Law was used in more traditional settings like commercial and competitive injury, consumer transactions, and advertising and marketing cases. As the law has developed, however, the statute has been expanded to challenge environmental issues such as groundwater contamination, asbestos and mold, and public health issues like health care fraud and elder abuse. For example, in Yedalian v. Kaiser, et al., the son of a Kaiser Hospital patient who died of breast cancer is using Section 17200 to challenge Kaiser's use of a binding arbitration clause.

The most recent trends in Section 17200 cases include targeting pharmaceutical companies and prescription drug contractors for such practices as promoting "off-label" use of prescription drugs, conspiring to increase sales of certain drugs, and encouraging prescribers to switch patients to less expensive medications. For instance, in a 2002 case, a patient who had been prescribed Ritalin sued various drug companies alleging they had conspired to increase sales of the drug in violation of California's Unfair Competition Law.

With the growing popularity of Internet shopping, on-line auctioneers and trading websites have increasingly been sued under Section 17200 alleging, among other things, misleading advertising and consumer fraud. Manufacturers and retailers are also gaining Section 17200 attention for alleged unfair product tie-ins and unfair rebate programs. It is no surprise that plaintiffs' lawyers have also targeted large credit institutions for alleged unfair and misleading credit offerings and failure to disclose fees.

In sum, California's Unfair Competition Law seems to have few boundaries. Because the Jaw is so expansive it is easily abused. Nowhere is this more evident than in the recent Trevor Law Group debacle, where two attorneys, now facing disbarment, created a shell, non-profit organization and filed baseless Section 17200 claims against numerous auto-repair shops for minor violations.

California voters will have to decide this November whether to curtail the statute, limiting Section 17200 claims to individual plaintiffs who have suffered actual monetary harm or property damage, and to public officials. If passed, this Proposition may well result in a shakedown of the Unfair Competition Law, significantly humbling its use and effect. We can only hope.

Thomas L. Van Wyngarden is a partner at Morgan, Lewis & Bockius LLP and is the Practice Group Manager for Litigation in the Los Angeles office.