The victim of a business swindle in California has at least three statutory remedies that may be available to seek relief in the private causes of action in addition to the usual civil claims of fraud and misrepresentation. Of course, complaints can always be made to various state and federal enforcement agencies depending on the type of alleged wrongdoing, ranging from medical boards and the State Bar to local district attorneys, state attorney generals, United States Attorneys and consumer fraud agencies.  Sadly, most state and federal agencies are overburdened and the process for relief may protracted and essentially unavailable. The goal of most agencies is to protect the public at large and the considerations of the individual’s case may not get the type of priority desired by the individual.

However, the victim can also seek his or her own relief in a civil court of law and that is true whether or not the victim is an individual or a business entity. The alleged fraud can be based on a transaction that is retail or wholesale, between individuals and businesses or between two businesses.

In California, there are usually three statutory based consumer claims: (1) the Unfair Competition Law (“UCL”); (2) the False Advertising Law (“FAL”); and (3) the Consumer Legal Remedies Act (“CLRA”). 

Each will be examined in order in this article.

Unfair Competition Law:

            The “UCL”:

This area of law is discussed in other articles on this website as well.  Business and Professions Code section 17200 et seq. (the UCL) prohibits “unfair competition,” which is defined as, “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by” the False Advertising Act (“FAL.”)  (Bus. & Prof. Code, § 17200.) 

Despite use of the term “Competition,” the Unfair Competition Law is not confined to anticompetitive business practices; it is also directed toward the public’s right to protection from fraud, deceit, and unlawful conduct.  (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 519.)  The prohibition against “unfair, deceptive, untrue or misleading advertising” is duplicative of the prohibition against “fraudulent” businesses practices.  Similarly, violations of the FAL (described below) would also be considered “unlawful,” “unfair,” and/or “fraudulent.”  The overlap of the various laws and doctrines normally means that any civil action brought alleges violations of both.

            Locale of Violation: Procedural Considerations

In determining whether the UCL applies to a case involving a nonresident party, the courts consider both the residency of the plaintiff, and “the place of the wrong,” which is the state where the last event necessary to make the actor liable occurred.  (See Mazza v. American Honda Motor Co., Inc. (9th Cir. 2012) 666 F.3d 581, 593.)

 In Application Group, Inc. v. Hunter Group, Inc. (2008) 61 Cal.App.4th 881, 908, the court held that a nonresident business whose wrongful business conduct  which derived from the use of noncompetition clauses in employment contracts affected California employers and employees and could be liable under the UCL in California jurisdiction.

Note that there could also be an issue as to whether California courts have personal jurisdiction over a nonresident business or person, whether there is “personal jurisdiction” over the party.  Personal jurisdiction will depend on whether the alleged wrongdoer has “minimum contacts” with California.  Signing a contract in that state, advertising in that state, performing in that state, offices or agents located in the state have often been held to constitute sufficient contact to achieve personal jurisdiction, but each case is reviewed by the Courts on a case by case basis.  A common argument is whether web sites that are viewed from a particular state constitute sufficient minimum contacts to constitute the personal jurisdiction and it often boils down to the number of sales into the state or whether the site directs itself to particular aspects of the state in question. 

            The Elements of a UCL Claim

An “unlawful” business act is an act that violates some other law or regulation.  (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1383.)  Thus, the “unlawful” prong of the UCL borrows violations of other laws and makes those unlawful practices actionable under the UCL.  (Ibid.)  Virtually any law or regulation—federal or state, statutory or common law—can serve as the predicate for an “unlawful” business act claim under the UCL.  (Ibid.)  An “unlawful” business act can include inserting a provision in a contract that a party is prohibited from enforcing. (See People v. McKale (1979) 25 Cal.3d 626, 635 [acknowledging potential claim for “unlawful” business practice where mobile home park required tenants to sign rules that the park was prohibited by law from enforcing].)

This must be emphasized. UCL is, in and of itself, not grounds for seeking civil relief unless a violation of some other law, regulation or statute is also alleged. 

As for the “unfair” prong of the UCL, there is a split of authority as to the test for determining whether a business act is “unfair.”  (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 907 [describing split of authority].)  Some cases hold that a practice is “unfair” if it “offends established public policy, that is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, or that has an impact on the victim that outweighs defendant’s reasons, justifications, and motives for the practice.”  (Ibid.)  Other cases require the public policy that is the predicate to the claim to be tethered to specific constitutional, statutory, or regulatory provisions.  (Ibid.)

The “fraudulent” prong of the UCL prohibits conduct that is likely to deceive members of the public.  (Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1144.)  Thus, the UCL prohibits, not only advertising that is false, but also advertising that, while true, is actually misleading or has a capacity, likelihood, or tendency to deceive or confuse the public.  (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 226.)  The test is objective and based on a reasonable consumer who is neither the most vigilant nor suspicious of advertising claims nor the most unwary and unsophisticated, but instead is the ordinary consumer within the target population.  (Ibid.

Advertising is “likely to deceive” if there is more than a mere possibility that the advertising might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner.  (Chapman, supra, 220 Cal.App.4th at p. 226.)  It must be probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.  (Ibid.)  The issue of whether consumers are likely to be deceived is a question of fact, unless the facts alleged and judicially noticed compel the conclusion as a matter of law that consumers are not likely to be deceived.  (Id. at pp. 226-27.) 

Further, a plaintiff must show actual reliance on the “fraudulent” business act, which requires a showing that the misrepresentation was a substantial factor in influencing his/her/its decision.  (Chapman, supra, 220 Cal.App.4th at p. 229.)  But while the plaintiff must show reliance, reliance can be inferred if the misrepresentation was material.  (Id. at p. 229.)  A misrepresentation is material if a reasonable person would attach importance to its existence or nonexistence in determining her choice of action in the transaction in question.  (Ibid.)  Materiality is generally a question of fact, unless the fact misrepresented is so obviously unimportant that no jury could reasonably find that a reasonable person would have been influenced by it.  (Ibid.)  Thus, for pleading purposes, reliance is alleged if a misrepresentation is alleged that is not so obviously unimportant that a reasonable person would not have been influenced by it.  (Ibid.)

False Advertising Law

The “FAL”:

The False Advertising Law prohibits a person, with the intent to dispose of property or perform services, from (1) publicly disseminating advertising concerning such property or services that is untrue or misleading when the defendant knew, or reasonably should have known, that the advertising was untrue or misleading, or (2) publicly disseminating advertising with the intent not to sell the property or services at the price stated or as advertised.  (Bus. & Prof. Code, § 17500.)  The FAL has been repeatedly interpreted to include oral statements made to individual members of the public.  (Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 358.)

The “fraudulent” prong of the UCL and the FAL are often treated the same.  As a result, the rules discussed above under the “fraudulent” prong of the UCL are also applicable to the FAL. Most actions brought include the same facts alleged and seeking relief under both the UCL and the FAL.

Indeed, it is seldom that FAL and UCL are not brought together in the same complaint since the facts of each and the elements of each are so interlocked.

Consumer Legal Remedies Act:

The “CLRA”:

This is law to protect consumers, not businesses. A federal district court has specifically held that the CLRA does not apply to a person who uses a service for a business.  (Mazur v. eBay Inc. (N.D. Cal. 2009) 257 F.R.D. 563, 568.) Business to business claims must be brought under FAL and UCL and the general civil complaints for fraud and misrepresentation, not under the CLRA.

The most common complaint by consumers is being misled by unscrupulous salespersons making false and misleading claims concerning the quality or other condition of a consumer product, such as new and used automobiles, boats, and R.V.'s, or the benefits or terms of a sales contract, service contract, mortgage loan, or other consumer product or service.

     Misrepresentations, even innocent ones, concerning a matter of significance as to the quality, age, benefits, rights, certification, geographic origin, characteristics, uses, grade, and others, during the sales negotiations are prohibited by the Act, and readily provide a remedy to rescind the contract, obtain actual damages, and if a lawsuit is necessary, to recover attorney's fees and court costs from the dealer or other business. Note that the recovery of attorney’s fees is a critical practical aspect of the relief as discussed later in this article.

     Three Day Right to Rescind:

California's three (3) day right to rescind some contracts granted to all consumers (and notice of such right a required part of each consumer contract subject to it) applies to home solicitation (door-to-door) contracts, mortgage loan contracts, dating service agreements, and many others, but does not apply to automobile purchase agreements. In fact, the only right to rescind found in the standard automobile purchase agreement, is in favor of the dealer to rescind if no financing can be arranged (in which case, the sales agreement is deemed rescinded by law, with each party obligated to return to the other any money or property previously given).

   But the CLRA does apply to purchases of automobiles in California. Thus, if the new car salesperson/finance manager tells you the car is new, when in fact it was a demonstrator, or worse, that it was sold once to someone whose financing did not go through and the sale "rolled back", or other disclosures required by law were not made, relief may be available.

And in terms of buying a home, if the mortgage broker tells you to sign the defectively drawn mortgage loan documents, and you will do not get a refund of the "erroneously" included points or other charges, relief may be available.

The California Department of Consumer Affairs accepts complaints against businesses in California.  While it appears that the Department’s jurisdiction is limited to businesses actually located in California, the Department has a unit that accepts complaints on issues regulated by other state or federal agencies and will provide information and refer complaints to the appropriate agency, if applicable. 

Practical Aspects:

Courts are expensive, take months or years to grant recovery, and most businesses accused of the violations described in this article have significant incentive to crush the opposition since admission of wrongdoing in one case can lead to additional claims. It is not poor business practice to spend one hundred thousand dollars in fees fighting a twenty-five thousand dollar claim if a message is clearly sent to others not to commence litigation on the same basis.

For that reason, many consumer complaints are class action suits which are remarkably expensive but have sufficient plaintiffs, if allowed by the court, to create the right cost benefit results. Few consumers wish to commit the resources to personally seek recovery against an ongoing business though letters of complaint, especially from legal counsel, can result in some relief being offered as the business tries to avoid the cost of litigation.

And most persons are well advised to seek relief if available via state or federal agencies since the cost to the individual is minimal since the action is brought by the governmental agency.

As discussed in our article on American Litigation, the courts are not designed for efficiency or economy. They are designed to comply with various mandates to allow all parties freedom to use expensive discovery and the right to jury trial and if the effect is to make court economically impractical for the average consumer, that is not a particular concern of the courts.

Business versus business litigation, however, has cost benefit for many disputes and constitute the bulk of the actions brought in the civil courts. Unfair business practices range from theft of trade secrets, violation of valid non-compete clauses, inaccurate representations as to products, trade libel, etc. Most businesses are loath to use the courts unless they have to, but as one client commented, “If I don’t stop them, no one will and it’s worth it to me to make them pay.”

Careful cost benefit analysis is vital before any suit is filed and, of course, state and federal agencies should be approached to enforce the law if they can be so persuaded. But the relief is available if the cost of the courts justifies it and, as seen in the cases above, can result in significant verdicts.