California 17200: Its Nature, Function, and Limits – Remarks by Scott Leviant

Summer 2010

By Scott Leviant

California 17200: Its Nature, Function, and Limits

The debate surrounding use of the Unfair Competition Law, or UCL, has been framed by commentators favoring its curtailment as a choice between a deterrence model, where theoretical over-compensation is possible, and a tort model, where all class actions are viewed as a collection of individual actions. While this is an interesting framework in which to discuss the divergent positions of the defense and the plaintiff bar (as proxies, generally for consumer and corporate interests respectively), the dichotomy leaves important concepts out of that dialogue. Moreover, there are a broader set of interests that are at play in the ongoing struggle over the UCL: interests that extend well beyond the unfair competition law.

California’s UCL is being used as a proxy for a number of other arguments. When you examine cases where the UCL is alleged, the total number of cases is a relatively small number when compared to the total number of cases that are litigated within the state. Most of those UCL cases are class actions, and, while there are a few other types of litigation where the unfair competition law is a cause of action, when you say “class action,” you immediately get people very excited. But before everyone gets too excited, it makes sense to review the numbers.

There are probably somewhere between 1,500 and 2,000 class actions fi led in California state courts each year. That compares to roughly 1.5 million general jurisdictions civil litigations fi led in the state each year. Class actions are a very small sliver of the litigation that is going on, and yet, if you look at the decisions that are coming out of the Court of Appeals getting the attention, class actions receive a disproportionate share of the press.

One reason for this disproportionate attention is that businesses, consumers, and employees have chosen this area as one of the battlegrounds to argue about other issues broader than the UCL’s intended purpose, including arguments that are either political or economic, rather than primarily legal.

The arguments are all cast in legal terms, but they are serving as a proxy for a debate about government intervention and economics. On one side are those that believe that business should essentially be unregulated entirely or almost unregulated and that pure economic market forces should drive whether a business succeeds or fails. Proponents of the market approach believe that businesses should be allowed to conduct themselves as they see fi t and that the markets will weed out the bad actors. On the other side are individuals advocating various degrees of government intervention through laws and regulations. The more restrained advocates of this approach counsel that market correction forces only function as advertised if you have perfectly fl uid economic markets. But because all market participants do not possess symmetrical information, some regulation is required to steer behaviors of corporate actors. Consumers will not have the same information available to them that is available to businesses. Businesses possess more resources that they can use to collect information about the marketplace.

The UCL has become a whipping boy for people having political and economic arguments. Critics of the UCL are overstating the theoretical harm that can be caused by a UCL class action where, for example, we might presume that class members have relied on a potentially false advertisement. Th e critics of the UCL will suggest that you are allowing class members with no injury to recover, but they don’t acknowledge that they are also presuming something. What we do for efficiency’s sake in UCL litigation and in other contexts like securities litigation is allow, in certain circumstances, for a presumption that people exposed to false or incomplete information relied on it. The argument in response is that a plaintiff should be required to show that each person in a proposed class actually heard and actually relied on false representations. Plaintiffs argue that, along with deterrence, the presumption of reliance is a principle of equity. If a corporate actor made grossly misleading statements, that corporate actor ought to be held accountable for the fact that it shouldn’t have made the false statement in the fi rst place. If the corporate actor conducted itself appropriately, it wouldn’t have to engage in the debate about whether some people did or did not hear its false statements. The corporation should have conducted itself in a lawful manner.

A business chooses whether to cross the line when it advertises or discusses information about its stock value in the marketplace. If the corporate actor chooses wrongly, it has denied the market the opportunity to have full and fair information; the marketplace was manipulated. The consequence is that the corporate actor ought not to have any profit that was obtained through affected transactions. Th ere is a political and moral equity that underlies application of the UCL. Th ere is more going on here than simply a debate about how the UCL ought to shake out as a tort or a deterrence device.

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