United States: California's Unfair Competition Law And Consumers Legal Remedies Act - 2023 Overview

In California, plaintiffs' lawyers and state and local prosecutors wield two powerful tools: the Unfair Competition Law (UCL)¹ and the Consumers Legal Remedies Act (CLRA).²The UCL forbids "unlawful, unfair or fraudulent" conduct in connection with virtually any type of business activity.³ With its sweeping liability standards and broad equitable remedies, the UCL is often the weapon of choice for plaintiffs' lawyers and is almost uniformly invoked by prosecutors in consumer cases. The CLRA is more defined in structure, but no less potent. The CLRA applies to any "consumer" transaction involving the "sale or lease of goods or services"⁴ and authorizes recovery of actual, statutory and punitive damages.⁵ While the UCL broadly prohibits any "unfair" practice, CLRA liability depends upon proof of a violation of one of its expressly stated prohibitions, organized into 30 main categories as of July 1, 2024. The CLRA also provides for streamlined class certification and dispositive motion proceedings; the UCL lacks similar provisions.

2023 involved significant activity on the legislative, executive and judicial fronts. The California Legislature amended the UCL to give prosecutors express authority to seek disgorgement of profits in UCL cases, in addition to civil penalties.⁶Money obtained by way of the new disgorgement power is to be deposited into a new Victims of Consumer Fraud Restitution Fund.⁷Under the new statute, the attorney general is to promulgate regulations governing how victims are to be compensated from the fund.⁸ Notably, this additional power given to state prosecutors comes at a time when judicial action has limited the ability of the Federal Trade Commission to seek disgorgement.⁹This new legislation, in combination with authority previously conferred by the California Supreme Court to allow local prosecutors to seek statewide relief,¹⁰ now arguably gives individual county district attorneys more power than federal trade regulators. It remains to be seen whether the new statute will be construed in this fashion. Another open question is whether entry of a disgorgement award in favor of the government (whether by litigated judgment or in connection with a settlement) will cut off consumer disgorgement and restitution claims asserted in parallel or subsequent litigation, pursuant to principles like res judicata.

Other UCL-related legislation pertains to new efforts to restrict the scope of noncompetition agreements in the employment setting. New section 16600.1 of the Business and Professions Code both forbids use of such agreements (unless a statutory exception applies) and requires notice both to current and former employees (if they had been employed after January 1, 2022) that any prior agreement is void. A violation of section 16600.1 is deemed as a matter of law to be a violation of the UCL.¹¹ As such, both workers and public prosecutors may seek UCL remedies if a violation occurs. With public prosecutors now having disgorgement power in addition to the ability to seek civil penalties (of up to $2,500 per violation), companies should expect active enforcement in this area.

The CLRA also was amended substantially in response to President Biden's call, during his February 2023 State of the Union address, for companies to eliminate "junk" fees and other allegedly unfair pricing schemes such as "drip pricing" whereby, particularly with online purchases, all fees and charges related to the purchase are not stated when the customer begins shopping.¹² New section 1770(a)(29)(A) to the Civil Code will forbid, as of July 1, 2024, "Advertising, displaying or offering a price for a good or service that does not include all mandatory fees or charges" other than government-imposed taxes or fees, and postage and shipping fees. However, postage and shipping fees may be imposed (if not initially advertised, displayed or offered) only if they "will be reasonably and actually incurred to ship the physical good to the consumer."¹³ The new "drip pricing" rule exempts certain products and services, such as bundled broadband internet access provided by an entity regulated by the Federal Communications Commission,¹⁴and financial products that are independently subject to federal or state disclosure statutes or rules.¹⁵Litigation and enforcement activity can be expected with respect to what sort of fees and charges are "mandatory," and as such must be immediately disclosed to the consumer. Similarly, it remains to be seen how broadly the courts will construe the term "displaying"; arguably, any display that mentions any price must also disclose all other mandatory fees and charges. Industries most likely to be affected by the new CLRA "drip pricing" prohibition are hospitality, vehicle rental, and airlines.¹⁶

In the enforcement area, prosecutors are actively using the UCL to achieve broader policy goals. Recently, California Attorney General Robert Bonta filed a UCL lawsuit against Meta (owner of the social media networks Facebook and Instagram) for allegedly cultivating addiction in young children and teens.¹⁷Attorney General Bonta also has sued anti-abortion crisis pregnancy centers for what is claimed to be misleading messaging designed to discourage abortion, including with respect to allegedly falsely stating that the process of medicated abortion can be reversed if certain other medication is taken before the fetus is expelled from the body.¹⁸

New judicial interpretations also can be expected to affect UCL and CLRA litigation going forward.

In a long-awaited opinion, the California Supreme Court broadly expanded the right of a physicians' professional organization to seek relief under the UCL on behalf of its members.¹⁹ The organization's right to sue had been challenged on the grounds that the organization's members—not the organization itself—had been harmed by a payor's alleged policy to discourage referrals to out-of-network health care providers. The lower courts ruled that because the organization had not itself sustained injury in fact, or lost specific money or property, the organization could not seek UCL relief on behalf of its members. The California Supreme Court reversed, despite the lack of direct impact on the organization itself, holding "that the UCL's standing requirements are satisfied when an organization, in furtherance of a bona fide, preexisting mission, incurs costs to respond to perceived unfair competition that threatens that mission, so long as those expenditures are independent of costs incurred in UCL litigation or preparations for such litigation."²⁰ The court accepted the organization's claim that it directly sustained harm by having to divert staff members' time to help physicians respond to the anti-referral policy: "When staff are diverted to a new project undertaken in response to an unfair business practice, the organization loses the value of their time, which otherwise would have been used to benefit the organization in other ways."²¹As a practical matter, this ruling will likely have broad implications not limited to the health care context by lowering the standing bar for organizations of all kinds to assert UCL claims directly on behalf of their members.

The federal Ninth Circuit Court of Appeals also issued a broad standing ruling in Epic Games, Inc. v. Apple, Inc.²² The court held that potential impact on subsidiary's earnings provided standing for the parent company to seek injunctive relief under the UCL. On the merits, the court reaffirmed longstanding principles that an antitrust plaintiff who is unable to prove a violation of federal antitrust statutes nonetheless may obtain a statewide injunction pursuant to the UCL against unfair conduct.²³

An important question of health care law was resolved, after a longstanding split in the lower courts, when the California Supreme Court ruled that the federal Medicare Act preempts numerous state-law claims (including UCL claims) against a managed care organization based on the organization's alleged failure to approve care to which the patient supposedly was entitled under Medicare rules.²⁴ The patient had signed up for a privately-administered health plan under Medicare Part C, which provides benefits funded in part by federal funds and funded in part by premiums paid by the covered individual. Benefits are provided by managed care organizations, which bear most of the financial risk associated with providing care because they agree to accept a flat, monthly fee from the federal government for each plan enrollee (versus being paid on a fee-for-service basis, as is the case for traditional Medicare Parts A and B). The California Supreme Court held that the federal Medicare Act broadly preempts state law, and that a Part C plan cannot be sued under state law for allegedly improperly refusing to approve care on profit-motivated grounds, even if the state law in question does not target Part C plans or otherwise discriminate against them.²⁵The Court stressed that it was not examining whether claims against the actual provider of care might be preempted, just claims against the organization responsible for paying for care, where those claims are based on specific duties described in Medicare Part C.²⁶

The federal Ninth Circuit Court of Appeals provided clarity in 2023 with respect to the substantive standards that apply to UCL claims based on allegedly deceptive product labeling. In McGinty v. Procter & Gamble Company,²⁷ the Court addressed whether a back-label ingredient list on a product can "ameliorate any tendency" of the front label to mislead. In McGinty, a consumer brought UCL and CLRA claims based on his purchase of mass-produced consumer products containing the phrase "Nature Fusion" on the front label. Since the products contained non-natural/synthetic ingredients, the consumer claimed he was deceived into purchasing products he otherwise wouldn't have purchased. In response, the defendant manufacturer moved to dismiss for failure to allege facts that would show a reasonable consumer would be deceived by the labeling. The district court dismissed the consumer's complaint, and the consumer appealed. The Ninth Circuit affirmed the district court's ruling, holding that a back-label ingredient list can ameliorate any tendency of a front label to mislead, so long as the front label is not "unambiguously deceptive." Ninth Circuit Judge Ronald M. Gould concurred, noting that, while the defendant's labeling did not violate the UCL or CLRA, such labeling resembles a rising practice known as "greenwashing," which he described as a "set of deceptive marketing practices in which an entity publicly misrepresents or exaggerates the positive environmental impact or attributes of a product," arising from an increase in consumers' desire to purchase environmentally-friendly products.²⁸In light of the public attention to environmental matters, an increase in UCL and CLRA "greenwashing" claims may be on the horizon.

Looking ahead, several matters pending before the California Supreme Court may shape UCL and CLRA jurisprudence in 2024 and beyond.

Still pending before the California Supreme Court is Morgan v. Ygrene Energy Fund.²⁹The case pertains to exhaustion of administrative remedies and calls into question a popular method of funding environmental improvements like solar panels or other energy-saving technology.³⁰ Under so-called Property Assessed Clean Energy (PACE) programs, the cost of improvements is advanced by a local government entity, which is then repaid via property tax assessments. In Morgan, homeowners complain that they were duped into agreeing to encumber their properties for more than $100,000 of overpriced improvements, at excessive interest rates.³¹The Court of Appeal rejected their effort to file UCL unfairness claims against private lenders and other participants in PACE programs, finding that plaintiffs must first seek administrative relief from the local taxing authority responsible for assessing the taxes to repay the PACE funding.³²If Morgan is reversed, the decision could potentially threaten the viability of programs that currently fund millions of dollars' worth of environmental improvements throughout California, by undermining lenders' confidence in their ability to be repaid. Despite a 2022 settlement involving the Federal Trade Commission and the California Attorney General, there continues to be active briefing on the Morgan docket, and accordingly the California Supreme Court can be expected to deliver a ruling in the case.

The California Supreme Court also can be expected to continue to take an active role in UCL matters pertaining to the health care industry. The judicial abstention defense is based on the notion that, where a challenged business practice arises in the context of a regulated industry and the practice has not been prohibited, the courts should not do what the Legislature or a responsible agency has left undone.³³However, if pursuit of a UCL claim is consistent with the overall goal of the legislation, courts will not abstain.³⁴ The California Supreme Court may revisit the issue in Capito v. San Jose Healthcare System.³⁵ In this case, review was granted to examine whether, in light of the extensive federal and state regulation of hospital emergency rooms, a hospital nonetheless may have a duty under either the UCL or the CLRA to make specific disclosure of emergency room charges at the time of admission. Previous cases have disagreed, with Moran v. Primehealthcare Management, Inc.,³⁶holding that it is sufficient that the hospital generally publish its "chargemaster" in compliance with other healthcare laws and regulations, and with Naranjo v. Doctors Medical Center of Modesto, Inc.,³⁷ holding the contrary.

An unusual statute of limitations question is pending before the California Supreme Court as well: Rosenberg-Wohl v. State Farm Fire & Casualty Co.³⁸ In a complaint alleging bad faith denial of insurance coverage, the plaintiff also included a cause of action seeking injunctive relief under the UCL. The policy required that claims be filed within one year, pursuant to a standard form approved by the Legislature and included within the Insurance Code. The complaint was filed more than a year after the claim accrued, but within the four-year UCL statute of limitations. In a split decision, the Court of Appeal ruled that the Insurance Code provision applied, because functionally the claim was for insurance bad faith. A dissenting justice argued that the UCL expressly states that it is "cumulative" to other provisions of law, and noted that the general rule in California is that the UCL extends statutes of limitations with respect to claims seeking UCL-specific relief. The California Supreme Court's decision to grant review comes at an interesting time. Federal courts recently have been rejecting California authority permitting plaintiffs to use the UCL to extend the time to bring otherwise out-of-statute claims.³⁹

As in previous years, arbitration continues to be an active area at both the California and United States Supreme Court levels. In McGill v. Citibank, N.A.,⁴⁰ the California Supreme Court held that claims for public injunctive relief under the UCL and CLRA are not arbitrable. Numerous attempts to have the US Supreme Court examine that ruling under the preemption provision of the Federal Arbitration Act (FAA) were rejected at the certiorari stage.⁴¹However, the US Supreme Court's 2022 decision in Viking River Cruises, Inc. v. Moriana, finding that FAA preemption did require arbitration of employment claims under California's Private Attorneys General Act, suggested that perhaps the US Supreme Court might show renewed interest in the arbitrability of UCL and CLRA claims. In subsequent decisions, the California Supreme Court interpreted California law in an effort to avoid the full consequences of the US Supreme Court's arbitrability ruling.⁴²New certiorari proceedings are pending in the US Supreme Court in an effort to clarify the scope of Viking River⁴³ and the outcome of these proceedings may provide further guidance as to arbitrability of UCL and CLRA claims.

Trial-court litigation under the UCL and the CLRA remains vigorous, with plaintiffs' theories consistently evolving in response to changing economic and social conditions. We expect that 2024 will continue to show high levels of activity in this developing area of the law.⁴⁴

Click to download the full 2023 Annual Overview.

Footnotes

1 Cal. Bus. & Prof. Code § 17200 et seq.

2 Cal. Civ. Code §§ 1750-1784.

3 Cal. Bus. & Prof. Code § 17200. The UCL also expressly prohibits "unfair, deceptive, untrue or misleading advertising" and incorporates California's False Advertising Law, Cal. Bus. & Prof. Code § 17500 et seq. ("FAL"). See id. Because the standards for liability under the UCL and FAL are similar, and the remedies are co-extensive, in private litigation FAL violations often are pleaded as predicate acts in support of a UCL claim.

4 Cal. Civ. Code §§ 1770(a) (stating prohibited practices), 1761 (definitions).

5 See Cal. Civ. Code § 1780(a).

6 A.B. 1366 (Oct. 12, 2023), adding new section 12527.6 to the California Government Code.

7 Cal. Gov't Code § 12527.6(c).

8 Cal. Gov't Code § 12527.6(e).

9 See AMG Cap. Mgmt. v. FTC, 593 U.S. 67 (2021) (rejecting FTC claim to authority to seek restitution or disgorgement under section 13(b) of the Federal Trade Commission Act).

10 See Abbott Labs. v. Super. Ct., 9 Cal. 5th 642, 664 (2020) (county prosecutor may seek civil penalties based on conduct outside the county).

11 See Cal. Bus. & Prof. Code § 16600.1(c).

12 Senate Floor Analysis S.B. 478, at 3 (Cal. Sept. 11, 2023).

13 See Cal. Civ. Code § 1770(a)(29)(A)(ii).

14 See Cal. Civ. Code § 1770(a)(29)(B).

15 See Cal. Civ. Code § 1770(a)(29)(C).

16 See Hall v. Marriott Int'l, Inc., 344 F.R.D. 247, 265-66 (S.D. Cal. 2023) (rejecting drip pricing claim under pre-amendment version of CLRA); see also Santul Nerkar, It's a Great Deal, Before the "Drip Pricing,"N.Y. Times (Feb. 23, 2024), https://www.nytimes.com/interactive/2024/02/23/business/what-is-drip-pricing.html#:~:text=It%20can%20happen%20with%20airline,trying%20to%20stamp%20it%20out.

17 Natalie Hanson, States accuse Meta of 'cultivating addiction' to social media in California lawsuit Courthouse News Service (October 24, 2023), https://www.courthousenews.com/states-accuse-meta-of-cultivating-addiction-to-social-media-in-california-lawsuit/.

18 Press Release, Off. Att'y Gen., Attorney General Bonta Sues Anti-Abortion Group, Give California Crisis Pregnancy Centers for Misleading Patients (September 21, 2023), https://oag.ca.gov/news/press-releases/attorney-general-bonta-sues-anti-abortion-group-five-california-crisis-pregnancy.

19 California Medical Ass'n v. Aetna Health of Cal. Inc., 14 Cal. 5^th1075 (2023).

20 Id. at 1082.

21 Id. at 1089.

22 67 F.4th 946, 1000 (9th Cir. 2023), cert. denied (U.S. Jan. 16, 2024)

23 Id. at 1001-02.

24 Quishenberry v. UnitedHealthcare, Inc., 14 Cal. 5^th1057 (2023).

25 Id. at 1071-72.

26 Id. at 1074.

27 69 F.4th 1093 (9th Cir. 2023).

28 Id. at 1100 (citing to Greenwashing and the First Amendment, 122 Colum. L. Rev. 2033, 2037 (2022)).

29 No. S277628 (Cal. filed Dec. 7, 2022).

30 See Morgan v. Ygrene Energy Fund, Inc., 84 Cal. App. 5th 1002 (2022), review granted, No. S277628 (Cal. Feb. 22, 2023).

31 Id. at 1007.

32 Id. at 1014-1015.

33 See Uber Techs. Pricing Cases, 46 Cal. App. 5th 963 (2020) (even though California Public Utilities Commission had not yet regulated rideshare pricing, that it had statutory authority to do so meant that industry pricing could not be challenged in court by way of litigation under the UCL or the Unfair Practices Act).

34 See Villanueva v. Fid. Nat'l Title Co., 11 Cal. 5th 104, 133-34 (2021).

35 Review granted, No. S280018 (Cal. July 26, 2013).

36 94 Cal. App. 5th 166 (2023).

37 90 Cal. App. 5th 1193 (2023), review granted and ordered held pending decision in Capito (Aug. 7, 2023).

38 93 Cal. App. 5^th436 (2023), review granted, No. S281510 (Cal. Oct. 18, 2023)

39 See Guzman v. Polaris Indus. Inc., 49 F.4th 1308 (9th Cir. 2022).

4 2 Cal. 5th 945 (2017).

41 E.g., McArdle v. AT&T Mobility LLC, 772 F. App'x 575 (9th Cir. 2019), cert. denied (2020); Tillage v. Comcast Corp., 772 F. App'x 569 (9th Cir. 2019), cert. denied (2020).

42 E.g., Adolph v. Uber Techs., Inc., 14 Cal. 5th 1104 (2023).

43 E.g., Uber Techs., Inc. v. Gregg, No. 23-645, pet. for cert. filed (Dec. 14, 2023).

44 The research in this Overview is current through February 23, 2023. The purpose of the Overview is to provide information and perspective. We sometimes reference unpublished and/or non‑citable opinions to demonstrate reasoning, illustrate trends, etc. The authors thank associates Brianna Bauer, Emily Tifft, Rebecca Mandel, and paralegal Andrew Aquino, for their assistance with this year's Overview.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.