With Its Decision in Kwikset, the California Supreme Court Unlocks the Door to Section 17200 Actions Between Competitors

January 27th, 2011
By: Erich Schiefelbine, Stephens Friedland LLP
and John B. Stephens, 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  The 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, we wrote, would be an anomaly in the law.  On January 18, 2011 the Stephens Friedland LLP blog posted an article entitled “Where does the unfair competition law stand on standing?” in which we discussed the California Supreme Court decision in Clayworth v. Pfizer, 49, Cal. 4th 758 (2010).  The Pfizer decision held that pharmacies had standing to seek restitution because of overpayments, even though the overpayments were not made directly to the defendant.  Id. at 789 (“Pharmacies indisputably lost money when they paid an allegedly illegal overcharge.”)  The Pfizer decision was a major step forward in re-instituting the ability of competitors to seek redress, in the form of injunctive relief, against each other for violation of the UCL.  Nevertheless, there remained some residual uncertainty as to whether standing exists to obtain UCL relief when direct restitution is not available. 

The California Supreme Court’s decision in Kwikset unlocks the UCL door and firmly establishes that “ineligibility for restitution is not a basis for denying standing under section 17204.”  This applies to both competitor and consumer actions.  In particular, the Supreme Court wrote: 

Finally, the Court of Appeal rested its holding in part on a line of cases that have read the “lost money or property” requirement as confining standing under section 17204 “ ‘to individuals who suffer losses . . . that are eligible for restitution.’ ”  (Quoting Buckland v. Threshold Enterprises, Ltd., supra, 155 Cal.App.4th at p. 817; see also Silvaco Data Systems v. Intel Corp. (2010) 184 Cal.App.4th 210, 245; Citizens of Humanity, LLC v. Costco Wholesale Corp. (2009) 171 Cal.App.4th 1, 22; Walker v. GEICO General Ins. Co. (9th Cir. 2009) 558 F.3d 1025, 1027 [following Buckland].) Because plaintiffs were not entitled to restitution, the Court of Appeal reasoned, they necessarily lacked standing.

As we recently have noted, however, the standards for establishing standing under section 17204 and eligibility for restitution under section 17203 are wholly distinct.  (See Clayworth v. Pfizer, Inc., supra, 49 Cal.4th at p. 789.)  For the drafters of Proposition 64, which amended both sections 17203 and 17204, to make standing under section 17204 expressly dependent on eligibility for restitution under section 17203 would have been easy enough, but nothing in the text or history of Proposition 64 suggests this was intended.  (Clayworth, at pp. 788-789.)…

* * * 

Accordingly, we hold ineligibility for restitution is not a basis for denying standing under section 17204 and disapprove those cases that have concluded otherwise.  (See Silvaco Data Systems v. Intel Corp., supra, 184 Cal.App.4th 210, 245; Citizens of Humanity, LLC v. Costco Wholesale Corp., supra, 171 Cal.App.4th 1, 22; Buckland v. Threshold Enterprises, Ltd., supra, 155 Cal.App.4th 798, 817.)

Slip op. at 29-32 (footnote omitted; emphasis added). 

Furthermore, the California Supreme Court recognized that injunctions are the proper form of relief under the UCL, while restitution is ancillary.  As such, conditioning injunctive relief on the availability of restitution would “turn the remedial scheme of the UCL on its head.”  Specifically, the Supreme Court wrote:

This leads to a larger point:  To make standing under section 17204 dependent on eligibility for restitution under section 17203 would turn the remedial scheme of the UCL on its head.  Injunctions are “the primary form of relief available under the UCL to protect consumers from unfair business practices,” while restitution is a type of “ancillary relief.”  (In re Tobacco II Cases, supra, 46 Cal.4th at p. 319.)  As the availability of an injunction depends on standing to sue, if standing to sue depends on eligibility for restitution, then injunctive relief—the primary form of relief under the UCL—has been rendered dependent on the availability of a mere ancillary form of relief.  As we have recognized, “Proposition 64 did not amend the remedies provision of section 17203.”  (In re Tobacco II Cases, at p. 319.)  We have no reason to believe it sub silentio dramatically change the relative availability of the remedies contained in section 17203.

Slip op. at 31-32.

Thus, while Proposition 64’s standing requirements have been used as a shield to essentially foreclose actions between competitors, and to severely curtail actions by consumers, the Kwikset decision restores a sense of balance to the UCL and, most importantly, provides an avenue for industry competitors to seek an injunction when they have been the victim on unfair competition. 

There is much more to this Opinion and we will post further comments later.

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