On August 1, 2013, the California Supreme Court issued two important decisions expanding claims that may be made under California’s unfair competition law (Business and Professions Code section 17200 et seq. (the “UCL”).) The Zhang v. Superior Court1 case settled the split in authority as to the interpretation of Moradi-Shalal v. Fireman’s Fund Ins. Companies,2 which held that when the Legislature enacted the Unfair Insurance Practices Act (the “UIPA”) it did not intend to create a private cause of action for the commission of the unfair practices listed in Insurance Code section 790.03(h). In Zhang, the Court held that Moradi-Shalal did not preclude first party UCL actions based on grounds that are independent from section 790.03, even when the insurer’s conduct also happens to violate section 790.03. A link to a copy of the Zhang opinion can be found by clicking here. In Rose v. Bank of America,3 the Court held that a state court claim for violation of the UCL could be maintained based on the violation of a federal statute even where the federal statute does not provide for a private right of action. A link to a copy of the Rose opinion can be found by clicking here.
Zhang v. Superior Court
The Zhang case arose from a trial court’s sustaining of a demurrer to a complaint by California Capital Insurance Company, which had issued a general liability policy to Zhang. Zhang disputed the insurer’s coverage position following fire damage to her commercial policy. She claimed that the insurer falsely advertised that it would timely pay the true value of her covered claims, and that its treatment of her claim demonstrated that the insurer had no intention of honoring its promise. California Capital argued in its demurrer that the conduct alleged in the complaint was really premised on alleged improper claims handling, not false advertising. California Capital thus argued that plaintiff’s UCL claim based on false advertising was an “end-run” around Moradi-Shalal. California Capital also argued that any bad faith claim could be turned into a false advertising suit, since all insurers at least implicitly promise to pay covered claims under their policies.
The Court rejected the insurer’s arguments and disapproved the Textron Financial Corp. v. National Union Fire Ins. Co.4 case, which created the split in the courts’ interpretation of Moradi-Shalal. The Court noted that both plaintiff’s false advertising and insurance bad faith claims provided grounds for a UCL claim independent from the UIPA. The Court noted that allowing the plaintiff to sue under the UCL did not harm the Moradi-Shalal rule that a UCL action may not be premised on violation of section 790.03.
Rose v. Bank of America
In Rose, the issue concerned the effect of the Legislature’s repeal of the provision that authorized private rights of action under the federal Truth in Savings Act (“TISA”; 12 U.S.C. § 4301 et seq.). The plaintiffs filed a class action against Bank of America, alleging unlawful and unfair business practices based on violations of TISA disclosure requirements. Bank of America demurred to the complaint on the ground that Congress had expressly prohibited a private right of action under TISA, which was sustained and affirmed on appeal.
The Court held that by leaving TISA’s savings clause in place, Congress explicitly approved the enforcement of state laws related to TISA – and noted that the UCL is such a state law. The Court also noted that the plaintiffs were not suing to “enforce” TISA but were simply “borrowing” TISA as a predicate for their UCL claim, which provides its own distinct and limited equitable remedies for unlawful business practices. The Court thus allowed the plaintiffs to proceed in a state court action based on TISA violations, where a federal court action for violation of TISA could not be brought.
UCL actions have been hampered by “Proposition 64” requirement that plaintiffs have “injury in fact and loss of money or property” for standing, and curtailment of actions “on behalf of the general public” that do not meet the procedural rigors for class certification. However, UCL actions continue to be alive and well in California – especially in class action lawsuits. There will likely be more UCL actions (including class actions) against insurers, banks, and other businesses after these decisions.