California’s Unfair Competition Act has generated an enormous amount of litigation, and has long been a target of tort reform groups. Those reform efforts met with an important success in 2004, when the voters approved Proposition 64, finding that the statute had been “misused by some private attorneys” to file “frivolous lawsuits as a means of generating attorney’s fees.” Proposition 64 significantly tightened standing requirements for private enforcement suits based on the UCL.
Earlier this week, the Fourth District of the California Court of Appeal filed an important decision strengthening the arsenal of weapons available to defense counsel defending UCL suits.
Durell v. Sharp Healthcare [pdf] was a putative class action alleging violations of the UCL, the Consumer Legal Remedies Act, and various common law claims. Plaintiff had been a patient in the defendant’s emergency room several times, and he alleged that the defendant had engaged in deceptive and unfair practices by billing uninsured patients such as plaintiff its full standard rates, while accepting sharply reduced payments for Medicare and privately insured patients.
The UCL prohibits “unlawful, unfair or fraudulent” business acts. In 2009, the state Supreme Court held in In re Tobacco II Cases that Prop 64 meant that a plaintiff must show actual reliance on any supposed misrepresentation to plead a “fraudulent” act. The first question for the Court in Durell was whether Tobacco II applied equally to the “unlawful” prong of the statute.
The court unequivocally held that it did:
A consumer’s burden of pleading causation in a UCL action should hinge on the nature of the alleged wrongdoing rather than the specific prong of the UCL the consumer invokes.
But the court went even further. In Cel-Tech Communications, the state Supreme Court held that a competitor’s claim of an “unfair” act had to be tethered to an incipient violation of an antitrust law, or a comparable statute aimed at protecting competition. Since then, the districts of the Court of Appeal have been divided as to whether Cel-Tech applied to consumer actions. Durell came down firmly on the side of applying the restrictive Cel-Tech test to plaintiff’s action, a test he came nowhere near meeting. Plaintiff’s failure to plead causation was similarly fatal to his claim under the Consumer Legal Remedies Act.
Durell is an important reaffirmation of the voters’ will in Prop 64, and the message for the defense bar is clear: when defending a UCL case based on a purported misrepresentation, always begin by carefully studying plaintiff’s allegations of reliance.