Monday, April 01, 2013

Proposition 64 didn't remove standing from competitors in California

Law Offices of Mathew Higbee v. Expungement Assistance Services, No. G046778 (Cal. Ct. App. Mar. 14, 2013)

California’s UCL was amended “to preclude the shakedown lawsuit—the ‘I get rich’ lawsuit brought by a person who has had no business dealings with the proprietor being sued, but who has happened to notice that the hapless proprietor is out of compliance with a particular law.”  The question was whether this amendment also removed standing from business competitors who’d allegedly been harmed by a competitor’s noncompliance with some law, but who hadn’t themselves engaged in consumer transactions with the competitor.  The court’s answer, which seems to me easy and obvious, was no: competitors can have standing, not just consumers, as long as the unlawful business practices caused injury and loss of money or property to the plaintiff-competitor.  The court pointed, among other things, to the UCL’s original purpose of protecting business competitors and to the goal of deterring unfair competition.

Higbee sued an online legal services provider, EAS, for unfair competition based on the unfair practice of law.  “EAS purportedly undercut the competition by using unlicensed persons to perform legal work, thereby saving on attorney fees, and by employing unbonded and unregistered legal document assistants, thereby saving on the costs of posting statutorily mandated bonds and paying registration fees.”  The trial court found that Higbee couldn’t establish injury in fact because there was no Higbee-EAS transaction in which Higbee was deprived of money and property, and there was no cause of action for lost market share, but the court of appeals reversed.

Proposition 64 amended the UCL to prohibit private attorneys from suing for unfair competition in the absence of a client injured in fact.  By proscribing “any unlawful business practice,” the UCL borrows violations of other laws and makes them actionable.  Virtually any law can serve as a predicate.  EAS nonetheless argues that the ban on unlicensed practice of law wasn’t supposed to protect lawyers from competition, but rather to protect the public.  True, but that doesn’t change the structure of the UCL, and so violation of the ban can be a predicate for a UCL claim.

As for standing, Proposition 64 means that a plaintiff must have suffered injury in fact and lost money or property as a result of the unfair competition. But nothing about that requires that the lost money or property must have been lost in a direct transaction between plaintiff and defendant. Higbee alleged that EAS’s unauthorized practice of law and advertising that it could perform the same legal services he did forced him to lower his prices and spend more money on ads; that he’d lost clients and revenue; and that the value of his firm had diminished.  Kwikset established, and the 9th Circuit in Pom Wonderful recognized, that standing under the UCL doesn’t depend on eligibility for restitution.  EAS argued that Higbee’s alleged injury wasn’t sufficiently concrete and particularized or actual and imminent, not conjectural or hypothetical.  But Higbee did plead injury in fact.  He alleged lost customers, consistent with the original purpose of unfair competition laws.

“Although the UCL was ultimately expanded to provide equitable relief to consumers in addition to business competitors, this does not mean that the UCL no longer protects business competitors.”  Its purpose is to protect both consumers and competitors. It suffices to allege some specific “identifiable trifle” of injury.  The allegations of increased ad costs and forced reduced prices, along with lost business and lost value to the law practice, were enough.

EAS also argued that Higbee hadn’t shown causation because he had no business dealings with EAS.  But that’s not required for causation. Though business dealings with a defendant are one route to standing, they aren’t the only route. The court emphasized that its decision was limited to business competitors.

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