A common element in many business lawsuits or disputes is the accusation of “unfair business practices.” Unfair business practices are outlined in the Business and Professions Code and Unfair Competition Statutes. Generally, unfair business practices are associated with the relationships among the parties or members of a company. However, it could also extend to an external business or a competitor. Unfortunately, the crime of unfair business practices attracts hefty fines or even a jail term. If you face unfair business practice charges, the Los Angeles Business & Real Estate Law Firm can help you create the best defense against your charges.
Unfair Business Practice Under California Law
The crime of unfair business practices in California is defined under the Business and Professions Code 17200, also known as the Unfair Competition Law (UCL). This statute borrows heavily from Section 5 of the Federal Trade Commission Act, but it has created its independent case statutes. Business and Professions Code 17200 defines the crime of unfair business practice as follows:
- Any unfair, fraudulent, or unlawful business practice or act
- Misleading, false, or deceptive advertising
A business practice violates the “unfair, fraudulent, or unlawful” prong if it is against public policy or is illegal under the law. Any violation of the law can form the basis for unfair business practice accusations if the unfair practice:
- Gives your business an unfair advantage over other businesses
- Causes harm to consumers
False Advertising Explained
If the prosecutor accuses you of false advertising, he/she proves the following elements:
- You engaged in misleading, untrue, deceptive, or unfair advertising
- The victim lost property or money
Most courts interpret “advertising” as any statement you make associated with selling services or goods. Therefore, the courts always evaluate the advertisement’s whole impression to determine whether it is misleading, including images, words, format, and product packaging. Under the law, your advertising can only be misleading if it deceives members of the public. Usually, according to Proposition 64, a victim must prove that he/she was genuinely deceived by your advertising and suffered a loss.
Unfair business practices always apply to people within a business relationship, like:
- Majority interests
- Employees and former employees
- An individual director or board of directors
- Officers or executives
- Fellow members, partners, or shareholders
Some examples of unfair advertising include the following:
- Spoofing a phone number, or robocalling, which is a violation of FCC regulations
- Luring customers into a shop by advertising a low price but only providing the higher-priced options is called bait-and-switch.
- Pretending to be endorsed by or affiliated with a well-known brand
Examples Of Unfair Business Practices
The common elements of an unfair business practice accusation include, but are not limited to:
- Minority shareholders or investors trying to cut out the company’s majority stakeholders
- Misappropriation or misrepresentation of trade secrets
- Breach of fiduciary duty
- Majority stakeholders’ efforts to eliminate or dilute minority shareholders or investors
- Unethical accounting, “cooking the books”, or financial reporting
- Tortious interference
- Embezzlement, theft, bribery, or commingling
- Self-dealing
- Business conspiracies
- Breach of contract
- Efforts to gain a significant interest in a business and then promote or encourage actions that are against the company’s best interests or the desire of managing stakeholders to increase the value of that investment, also called “corporate raiding” or “corporate raid.”
- Fraud, conspiracy, and other forms of unfair business practices
Minority and Majority Stakeholders Trying to Eliminate Each Other
Usually, unfair business practice accusations are levied against minority shareholders. This happens when they attempt to take adverse action against corporate raiders or majority stakeholders. Majority stakeholders often obtain substantive interests in corporations and manipulate the actions or factors to drive up their investments’ value. They do so in a manner that is not in the best interests of the majority of shareholders or corporations.
Misappropriation Or Misrepresentation Of Trade Secrets
Misappropriation or misrepresentation of trade secrets are also examples of unfair business practices. Business fraud is common, including creating a fake vendor or employee and trying to gain financial resources via fraudulent payroll or invoicing records. In addition, an employee can commit unfair business practices by misappropriation of trade secrets. For example, he/she could do so by taking a supplier or customer list and using it to create competition against the company or selling the goods to a competitor.
Breach Of Fiduciary Duty
Individuals with authority over finances, like trustees or board members, have a fiduciary duty to the estate or company they control. A fiduciary duty constitutes a duty of loyalty and a responsibility to act in good faith. If these individuals breach these duties, companies and estates could suffer.
Most corporate disputes or shareholder actions involve allegations of a breach of fiduciary duty. A representative or a trustee controlling another person’s estate could breach their fiduciary duty in the following ways:
- Untimely or improper distribution
- Excessive fees
- Incompetence
- Fraud
- Self-dealing or co-mingling of estate funds
Breach Of Contract
A contract breach occurs when one or more parties to a contract fail to perform their end of the bargain without an established legal reason. The following factors could also breach an agreement:
- When one person prevents another person from performing their responsibilities
- When parties declare that they do not intend to fulfill their contracted responsibilities
- When one party refuses to pay
- Supply or labor challenge
Every person in a breach of contract lawsuit has a crucial duty under the contract. Failure to take quick legal action as the victim of the breach or as the person who breaches the contract can lead to significant financial, legal, and business impacts.
Several elements must be evident for a party to have valid allegations to seek a contract-related claim. Some of the elements are:
- Significant evidence that a contract existed between the involved parties
- There must be written evidence showing that a valid contract breach has happened
- Those who suffered from the contract breach must show that they lost property or money
The History Of Unfair Business Practice Statute 17200
Civil Code 3369 was the first unfair competition statute enacted in 1872. However, this statute only addressed the availability of civil solutions for business violations in cases of forfeiture, criminal offense, and penalty. An amendment in 1933 saw the law extend to banning individuals from engaging in unfair business practices.
Unfortunately, the amendment did not extend unfair business practices to consumers. This limitation occurred in response to the 1931 Supreme Court’s ruling in Raladam v. Federal Trade Commission (FTC). In Raladam, the court ruled that an FTC Act Section 5 violation must indicate actual damage to the business. The ruling prohibited consumers from filing lawsuits under the FTC Act. The unfair competition statute was later applied to unfair business practices following this rationale. This later development affected business competitors but not consumers.
In 1935, business competitors and consumers were allowed to file lawsuits under the Unfair Competition Statute. The Supreme Court clarified this law by stating that the unfair competition statute should protect the public from deceit and fraud. The appellate court reiterated this statute in 1962, outlining that it extended “equitable relief to circumstances that exceed the scope of purely business competition.” The legislature moved the Unfair Competition Statute to Business and Professions Code 17200 in 1977. The voters enacted Proposition 64 in 2004, which limited unfair competition statutes to people who suffered property or financial loss because of unfair business practices.
Proposition 64
This was a ballot proposition enacted by voters on November 2, 2004. This was an initiative law that restricted the law on unfair competition. It restricted private cases against a company, specifically when a person suffers financial loss through unfair, illegal, or fraudulent business practices. It also allowed only public prosecutors to prosecute unfair business practices charges.
Proponents claimed that the law would restrict “frivolous cases” against companies. The proponents also claimed that businesses should pass along their costs by charging higher prices to consumers.
Comparing BPC 17200 And Other Consumer Protection Laws
Most victims of unfair business practices file lawsuits under BPC 17200 and 17500 concurrently. The courts always fail to distinguish the two statutes despite their significant differences. The charges you could face under BPC 17200 are not similar to the charges under BPC 17500. BPC 17500 prohibits any misleading or false statements you could make associated with the sale of goods or services. Under BPC 17200, this is a narrower standard.
Business and Professions Code 17500 only covers advertising services or property, while BPC 17200 prohibits fraudulent business practices unrelated to advertising. Under BPC 17500, you can only face the charges if the prosecutor proves that you knew or should have known that the advertising was misleading or false. Business and Professions Code 17200 is a strict liability law with no such requirement. Only civil remedies are available for BPC 17200, while BPC 17500 carries criminal penalties.
People filing lawsuits under BPC 17200 or BPC 17500 often claim violations of the Consumer Legal Remedies Act (CLRA), outlined in Civil Code 1750. The CLRA prohibits 23 unfair and deceptive business practices against consumers. Most of those practices are covered under BPC 17500 and Civil Code 1770. For example, it is a crime under both BPC 17500 and Civ. Code 1770 to advertise goods without intending to sell them as advertised. Misrepresenting a product’s price or source is also a crime under the two statutes. Typically, most victims simultaneously claim violations of each law because the penalties are cumulative. For example, the CLRA provides for statutory, punitive damages, and attorney’s fees.
Qualifications For Filing Unfair Business Practice Lawsuit
A member of the public can only be eligible to bring a UCL claim if he/she has lost property or money through illegal conduct or false advertising. However, according to the state statute, government organizations and consumer watchdog groups are not eligible to file a lawsuit for this cause of action.
In illegal practice, the plaintiff must prove you intend to destroy the competition. However, the plaintiff does not require proving your intent if you face false or deceptive advertising charges.
Consumers affected by your unfair business practices can sue you under the CLRA if they cannot prove your intent to destroy competition.
Punishment For Unfair Business Practice
Business and Professions Code 17200 prohibits the use of unfair business practices. It also helps victims of unfair business practices restore their property and money. BPC 17200 also allows both injunctive relief and monetary damages where necessary. When the court issues an injunction under BPC 17200, you could face a fine that does not exceed $6,000 per day for an intentional violation.
Usually, the courts use restitution and disgorgement of profits to discourage future violations. However, several factors are considered while determining the amount of penalty you could face, including:
- Your net worth
- Your assets and liabilities
- The willfulness of your misconduct
- The period over which your misconduct occurred
- The persistence of your misconduct
- The number of violations
- The nature and seriousness of your misconduct
You could also face a civil penalty that does not exceed $2,500 for every violation when an authorized government agency files a charge against you. Fortunately, BPC 17200 does not grant punitive damages awards.
Defenses BPC 17200 Charges
The following are the defenses you could present to contest your BPC 17200 charges:
Preemption
You could present preemption by federal statute as a defense if you face accusations of unfair business practices. Federal statutes governing transportation, food safety, the environment, banking, and other areas could preempt the state’s laws. However, judges also maintain that the federal statute does not preempt state statutes in some areas.
Constitutional Defense
In some cases, statements deemed to violate the BPC 17200 could be non-commercial speech, which falls under the category of free speech protections under the First Amendment. You could present other constitutional defenses to BPC 17200 charges, including an argument that the underlying law is unconstitutionally vague.
No Unfair Or Fraudulent Practices
Various courts have different standards for ascertaining if the alleged practice or act was unfair under the UCL. The Supreme Court tried to come up with the meaning of “unfair,” which includes the following:
- Behavior that violates the spirit or policy of the antitrust law
- The behavior that threatens an incipient violation of an antitrust law
Your defense will only be successful if it is tailored toward a particular court’s definition of “unfair.” It should also prove how you did not act in a manner that fits that definition. You could also claim that the alleged character followed a standard industry practice.
UCL accusations for fraudulent business practices do not require evidence of loss, reliance, or intent. The prosecutor, however, must provide proof that members of the public were likely to be deceived by your practice. You could contest your charges through consumer surveys or expert testimony. You could allege that your business practice or act did not gear toward misleading ordinary consumers and did not lead to any actual loss.
If you are accused of false representation in association with the sale of goods, you could claim that the statement was mere sales talk or “puffery.”
Your Business Practice Did Not Violate The Law
You could present an affirmative defense if you face unfair competition allegations based on illegal business practices or acts. For example, you could argue that you did not commit the crime or claim your business practice did not violate the law. You could also allege that your business practice was according to the law.
If you are accused of trademark infringement in violation of the federal Lanham Act, you could claim that the underlying accusations are false. If you are charged with violating the state financial disclosure statute, you claim that your practice is not covered by BPC 17200. You could also argue that you made the required disclosures.
Expired Statute Of Limitations
Under the law, the plaintiff must file an unfair business practice lawsuit within the specified time. The statute of limitations for UCL lawsuits is four years. If the plaintiff fails to act within this period, you could get your charges dismissed.
Lack Of Standing To Sue
This is the common defense against unfair business practice charges. The plaintiff must provide substantial evidence that he/she lost property or money through your unfair business practice.
Statute Of Limitations For Unfair Business Practice Lawsuits
The law allows the filing of unfair business practice lawsuits within four years. The statute of limitations period starts on the earlier of:
- When a person discovers your unfair practice
- When, in the exercise of reasonable diligence, the unfair practice should have been discovered
An attorney helps you understand the statutes of limitations that pertain to your particular case and create an effective legal strategy that matches your unique needs.
Find a Business and Real Estate Law Attorney Near Me
If you would like to bring a lawsuit alleging unfair business practices or fraud against another party, or if you would like to defend yourself in an unfair business practice lawsuit, we invite you to contact the Los Angeles Business & Real Estate Law Firm. Our attorneys will provide outstanding legal representation. We are experienced in all matters related to commercial real estate and business practices. We focus on providing cost-effective, customized services to our clients, both individuals, and businesses. We will answer all your commercial property and business law questions. Call us at 310-796-7794 to speak to one of our attorneys.
