Where Does the Unfair Competition Law Stand on Standing?

January 18th, 2011
By: Jonathanshin
and Evan Rothman, Stephens Friedland LLP

In August 2009, John Stephens and Todd Friedland wrote an article that was published in the Orange County Lawyer, entitled “The Changing Face of the UCL: Where Does it Stand on Standing?”  https://acrobat.com/#d=vY8w4yaddaw7Xge8kWOZhQ  Their article covered the conflict in the case law regarding whether a plaintiff must be entitled to a restitution remedy (e.g.  return of money directly taken by the defendant) in order to sue under the Unfair Competition Law (“UCL”) for an injunction.  If restitution is required, then in most cases businesses could not sue to enjoin their competitors from violating the UCL.  That, John and Todd wrote, would be an anomaly in the law.

Since their article was published, the California Supreme Court decided the case of Clayworth v. Pfizer (2010) 49 Cal. 4th 758.  Clayworth involved an alleged antitrust violation and unfair competition due to drug manufacturers overcharging pharmacies through the manufacturers’ distribution chain.  Clayworth addresses standing under the UCL.  The Court held that the pharmacies had standing to seek restitution because of the overpayments, even though the overpayments were not made directly to the defendant.  Id. at 789 (“Pharmacies indisputably lost money when they paid on allegedly illegal overcharge.”)  Furthermore, the Court decoupled the right to restitution from the right to an injunction, holding:

To the extent the holding rests on the conclusion that even if Pharmacies had standing, they could not seek injunctive relief unless they could also seek restitution, it similarly is erroneous.  Section 17203 makes injunctive relief ‘the primary form of relief available under the UCL,’ while restitution is merely ancillary.  (In re Tobacco II Cases [citation omitted])  Nothing in the statute’s language conditions a court’s authority to order injunctive relief on the need in a given case to also order restitution.  Accordingly, the right to seek injunctive relief under section 17203 is not dependent on the right to seek restitution; the two are wholly independent remedies.  Id. at 790 (emphasis added).

One Northern District Judge relied on Clayworth in ruling that “any inability by Finelite to state a claim for restitution does not constitute a bar to Finelite’s seeking injunctive relief.”  Finelite v. Ledalite Architectural Products, 2010 WL 3385027 at * 2. 

In a recent edition of The Journal of the Antitrust and Unfair Competition Law Section of State Bar of California, Matthew Wegner interpreted Clayworth to pave the way for competitor-against-competitor lawsuits, stating:  “The Clayworth holding cast aside the standing analysis in Buckland and Walker [Ninth Circuit case], and put a period on a sentence the Court began in its Tobacco II opinion:  A plaintiff suing under California’s UCL need not demonstrate harm for which it is entitled to restitution in order to maintain standing to bring a UCL claim.”  Wegner, The Revitalization of a Valuable Cause of Action for Competitors:  Clayworth v. Pfizer’s Implications For UCL Standing in Competitor Lawsuits, at 20.

Any residual uncertainty over the California Supreme Court’s position on the UCL standing issue should be resolved when the Court decides Kwikset Corp. v. Superior Court.  Oral argument in Kwikset was heard on November 3, 2010 and the case has been fully briefed, including a supplemental brief discussing the recent decision in Clayworth.  A decision in Kwikset is expected very soon and, as UCL practitioners, we are eagerly awaiting the Court’s decision in Kwikset.

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