California's Highest Court Rejects Two Closely Watched Efforts To Restrict The Scope Of The Unfair Competition Law

August 05, 2013


California's Unfair Competition Law ("UCL") was the subject of two unanimous decisions issued August 1 by the California Supreme Court. While it is too early to know whether these latest cases will significantly alter the UCL playing field, the Court's rejection of separate efforts to narrow the scope of the UCL undeniably represents a victory for consumer groups and a setback for insurers and other businesses subject to the terms of the UCL.

The UCL is, as the California Supreme Court has repeatedly held, intended to prohibit "any unlawful, unfair or fraudulent business act or practice." Bus. & Prof. Code § 17200. One of the distinctive features of the UCL is that it expressly "borrows" from other state and federal statutes and makes violations of those statutes independently actionable. At the same time, it provides plaintiffs an alternative ground for relief for an "unfair" or "fraudulent" practice even if the acts alleged are not prohibited by another statute.

In Zhang v. Superior Court of San Bernardino County, No. S178542, 2013 DJDAR 10174, the California Supreme Court held that private citizens can use the UCL to sue insurance carriers for claims handling disputes. In Rose v. Bank of America, N.A., No. S199074, 2013 DJDAR 10197, the Court held that private citizens can maintain a private cause of action based on language borrowed from a federal statute even if that statute has since been repealed.

The Cases

In Zhang v. Superior Court of San Bernardino County, No. S178542, 2013 DJDAR 10174, plaintiffs brought, among other claims, a false advertising claim against its insurance provider for a failure to properly cover and reimburse the fire damage that occurred to the property at issue. The insurance provider sought to dismiss the false advertising claim based on California’s bar against private actions for unfair insurance practices under the Unfair Insurance Practices Act (“UIPA”). The insurance provider argued that because plaintiffs’ claim was actually just an improper insurance claims handling case, the claim was simply an attempt to “plead around” UIPA’s absolute bar to relief.

The Court disagreed, holding that the UIPA bar does not preclude all common law fraud and bad faith actions. Id. at 10180. The Court explained that “when insurers engage in conduct that violates both the UIPA and obligations imposed by other statutes or the common law, a UCL action may lie.” Id.

In the other UCL case decided last week, Rose v. Bank of America, N.A., No. S199074, 2013 DJDAR 10197, the Court was faced with the issue of whether a claim under the UCL can be based on a federal statute that had been repealed. Defendant Bank of America contended that because plaintiffs’ UCL claims were based on violations of the federal Truth in Savings Act (“TISA”) and because Congress had previously prohibited private rights of action under the TISA, the TISA cannot support plaintiff’s UCL claims. Bank of America argued that it was the intent of Congress to disallow all private enforcement of the TISA.

The Court again disagreed, holding that by leaving the TISA’s savings clause in place, Congress “explicitly approved” the enforcement of state laws that relate to and are consistent with the TISA, and the Court identified the UCL as one such law. Id. The Court explained that it is the very nature of the UCL to “borrow” as opposed to “enforce” the laws on which a claim of unlawful business practice is based: “[p]laintiffs are not suing to enforce TISA . . . [i]nstead they . . . [are] invoking the UCL’s restraints against unfair competition.” Id. at 10198.


These latest cases unquestionably represent wins for consumer groups but since the remedies available under the UCL are limited and do not include attorneys’ fees, it is too early to tell whether these two decisions will significantly impact either the scope or number of future UCL actions.


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This article was originally published by Bingham McCutchen LLP.