Unfair Competition Law (Bus. & Prof. Code, et seq.) Pending Cases

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1 HORVITZ & LEVY LLP Unfair Competition Law (Bus. & Prof. Code, et seq.) Pending Cases Horvitz & Levy LLP Ventura Boulevard, Suite 1800, Encino, California Telephone: (818) ; Facsimile: (818)

2 HORVITZ & LEVY LLP Unfair Competition Law - Pending Cases Page 1 Unfair Competition Law (Bus. & Prof. Code, et seq.) PENDING CASES 1. United States Supreme Court. Whether corporate statements about labor practices are commercial speech that enjoy only limited First Amendment protection, and could give rise to liability for unfair business practices and false advertising. Kasky v. NIKE, Inc. (2002) 27 Cal.4th 939, cert. granted Jan. 10, 2003, No , U.S. [123 S.Ct. 817, L.Ed.2d ]. The question presented is whether a business can be liable under the UCL for making statements in defense of its business practices, or whether liability for such statements is precluded by the First Amendment. Plaintiff sued Nike for misrepresenting its overseas labor practices and working conditions, in violation of Business and Professions Code sections (unlawful business practices) and (false advertising). Nike demurred on the ground that its conduct was fully protected by the free speech principals of the U.S. and California Constitutions. The trial court sustained the demurred and dismissed the action. Plaintiff appealed. The First District, Division One, affirmed, holding that Nike s statements were noncommercial speech and therefore deserving of the highest level of constitutional protection. Plaintiff petitioned the California Supreme Court for review. The California Supreme Court reversed. It held that Nike s statements were commercial speech, and therefore enjoyed only limited protection under the U.S. and California Constitutions. The Court stated that commercial speech, because it is both more readily verifiable by its speaker and more hardy than noncommercial speech, can be effectively regulated to suppress false and actually or inherently misleading messages without undue risk of chilling public debate. Although the Court concluded that Nike s speech was commercial speech, it did not decide whether that speech was false or misleading. The Court simply remanded to the trial court for further proceedings, including the possibility that Nike s demurrer could be granted on other grounds. The United States Supreme Court has granted certiorari to consider the constitutional issues raised.

3 HORVITZ & LEVY LLP Unfair Competition Law - Pending Cases Page 2 2. California Supreme Court. a. Whether claims for injunctive relief, disgorgement and restitution under the UCL are subject to arbitration. Cruz v. PacifiCare Health Systems, Inc. (2001) 91 Cal.App.4th 1179, review granted Oct. 31, 2001, S The primary question presented is whether requests for monetary relief under the Consumer Legal Remedies Act (CLRA), Business & Professions Code 17200, Business & Professions Code 17500, and common law theories are exempt from arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. 1, et seq. Also presented is the question whether an inarbitrable request for relief must be stayed pending resolution of arbitrable claims. Plaintiff filed a class action against PacifiCare for violation of the UCL. PacifiCare moved to compel arbitration. The trial court denied the motion and the First District, Division Two, affirmed. It relied on Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, which held the Federal Arbitration Act (FAA) does not require enforcement of arbitration agreements governing public injunctive relief claims under the CLRA. Cruz extended this rule to bar enforcement of arbitration agreements governing UCL claims seeking injunctive relief or and certain equitable monetary remedies. The court explained, Our holding in this case is a narrow one: Where, as here, a restitution claim is ancillary to injunctive relief sought under a statutory scheme whose primary purpose is to protect the public by punishing wrongdoing and deterring future violations, rather than to compensate individual plaintiffs, the restitution claim is not subject to arbitration, but must be tried along with the claim for injunctive relief in a court of law. The court declined to decide whether claims for relief in a UCL action not certified as a class would be arbitrable. On review, the Supreme Court will consider whether Broughton was property extended and whether Broughton has been impliedly overruled by subsequent United States Supreme Court decisions. b. Whether the safe harbor doctrine bars a UCL claim based on conduct that is allowed under a state statute, even when the statute is preempted by federal law. Olszewski v. ScrippsHealth (2001) 88 Cal.App.4th 1268, review granted Aug. 29, 2001, S The questions presented are: (1) May a plaintiff assert a UCL claim predicated on conduct that is permitted under state law, when the state law is found to be in conflict with and preempted by the controlling federal law? (2) Does the litigation privilege bar tort claims challenging a defendant s practice of using liens to collect monies to which

4 HORVITZ & LEVY LLP Unfair Competition Law - Pending Cases Page 3 the defendant has no legal right and for which the demand itself is prohibited by federal law? Plaintiff, an accident victim, was treated by ScrippsHealth. Because plaintiff was eligible for Medi-Cal benefits, ScrippsHealth billed and received payment from Medi- Cal. In plaintiff s action against a third party who allegedly caused plaintiff s injuries, ScrippsHealth filed a lien against any damages plaintiff might recover, contending that plaintiff should be responsible for the cost of services beyond the amount paid to ScrippsHealth by Medi-Cal. A California statute permitted the lien, but plaintiff sued ScrippsHealth under the UCL, claiming the lien was an unfair business practice and that federal law preempted the statute. The trial court sustained defendant s demurrer and dismissed the complaint. The Fourth District, Division One affirmed. It agreed with plaintiff that federal law pre-empted the statute authorizing the lien. But it held that a private party who is statutorily authorized to engage in certain conduct cannot incur liability under the UCL for engaging in such conduct, even if a court later determines that the statute has some defect. On review, the Supreme Court will consider whether a preempted statute creates a safe harbor defense for UCL defendants, and whether the litigation privilege provides a defense independent of the safe harbor doctrine. c. Whether courts have jurisdiction to adjudicate a UCL action when the Public Utilities Commission is already investigating the same conduct. People ex rel. Orloff v. Pacific Bell (2001) 89 Cal.App.4th 844, review granted Sept. 26, 2001, S The question presented is whether district attorneys may sue in court to enforce consumer protection laws against public utilities under the UCL where the Public Utilities Commission is concurrently conducting an administrative hearing to evaluate some of the same marketing practices. The district attorneys of three counties brought suit against Pacific Bell for unfair business practices related to its marketing of certain custom calling features. The trial court sustained Pac Bell s demurrer based on lack of jurisdiction because the same issues were already pending before the PUC in an administrative proceeding. The First District, Division Four, affirmed. It relied on section 1759 of the Public Utilities Code, which provides that trial courts lack jurisdiction to interfere with the PUC in the performance of its official duties. The court found that the factual and legal similarities between the superior court case and the administrative proceeding would likely lead to conflicts between the court and the PUC.

5 HORVITZ & LEVY LLP Unfair Competition Law - Pending Cases Page 4 d. Whether UCL action against utility for fire damage to unimproved property is preempted by Public Utilities Commission settlement. Pacific Gas & Electric Co. v. Superior Court (2002) 95 Cal.App.4th 1389, review granted May 1, 2002, S104412, and further action deferred pending People ex rel. Orloff v. Superior Court (2001) 89 Cal.App.4th 844, review granted Sept. 26, 2001, S The question presented is whether a UCL action is preempted when redress for the conduct challenged in the action has already been afforded through a settlement negotiated by an administrative agency. Plaintiffs, owners of unimproved land, sued utility for fire damage caused when trees contacted with power lines. The plaintiffs alleged the utility caused the fire by improperly diverting public funds earmarked for tree-trimming in violation of the unfair competition law. The utility claimed the cause of action was barred by Public Utilities Code section 1759 because the Public Utilities Commission (PUC) investigated the fire and initiated proceedings against the utility for the same conduct alleged in the plaintiff s suit. The PUC approved a settlement with the utility which included both specific and monetary relief. The First District, Division Four, held the superior court lacked subject matter jurisdiction and issued a writ of mandate to dismiss the cause of action. Plaintiff s cause of action was barred because it might interfere with the settlement. The Supreme Court has granted review and will hold the case pending its decision in People ex rel. Orloff v. Superior Court (2001) 89 Cal.App.4th 844, review granted Sept. 26, 2001, S