Settling a split in authority, the California Supreme Court has held that common law accrual rules apply to claims brought under California’s Unfair Competition Law ("UCL"). The ruling potentially extends the time to sue for certain recurring UCL violations and has important ramifications for California class actions, many of which include UCL claims.

Litigation Background - Aryeh v. Canon Business Solutions, Inc.

In 2001 and 2002, the plaintiff copy shop owner entered into copier lease agreements with defendant Canon. The agreements required the plaintiff to pay monthly rent for each copier, subject to a monthly copy allowance, which, if exceeded, required paying an extra per copy charge.  From 2002, the plaintiff noticed discrepancies between Canon meter readings and the actual number of copies made on each copier. The plaintiff determined that he had been improperly charged for Canon employees’ test copy runs during service visits between February 2002 and November 2004.  The test copy charges caused the plaintiff to exceed the monthly allowance and to owe Canon extra money.

The plaintiff waited until January 2008 to sue Canon. The plaintiff’s complaint alleged violation of the UCL, contained class allegations and sought restitution. Canon demurred, arguing that the four-year limitation period for UCL claims provided in Business & Professions Code § 17208 barred the suit.  The trial court sustained the demurrer, concluding that the statutory limitation period started running when the first violation occurred in 2002.  A divided appellate court affirmed, agreeing that common law accrual rules could not extend the statutory limitation period for UCL claims. The California Supreme Court granted review "to resolve lingering uncertainty over the timing of accrual and the applicability of continuing-wrong accrual principles under the UCL" (55 Cal. 4th at 1190).

The California Supreme Court’s Decision

The California Supreme Court unanimously reversed. The Court held that common law accrual rules apply to UCL claims and that continuous accrual principles prevented dismissal on statute of limitations grounds. The Court reasoned that the absence of a statutory definition of what it means for a UCL claim to accrue "triggers a presumption in favor of permitting settled common law accrual rules to apply" (Id. at 1193).

As the Court explained, there are two types of continuing-wrong accrual principles - the continuing violation doctrine and the theory of continuous accrual. The continuing violation doctrine applies where there is a pattern of reasonably frequent and similar acts that are justifiably treated as "an indivisible course of conduct actionable in its entirety" even though the conduct occurred "partially outside and partially inside the limitations period" (Id. at 1198).  The continuing violation doctrine has been applied in California to individual claims for harassing debt collection activities and employment retaliation, but not to class actions. Where the doctrine applies, so long as one act occurs within the statutory limitation period, the limitation period extends to the original conduct.

The theory of continuous accrual generally applies to separate continuing or recurring obligations that, when breached, "each trigger their own statute of limitations". Unlike the continuing violation doctrine, the theory of continuous accrual "supports recovery only for damages arising from those breaches falling within the limitations period" (Id. at 1199).

Canon established that under the default last element accrual rule, the plaintiff’s claim accrued in February 2002. Consequently, absent an applicable continuing-wrong accrual exception, the four-year limitation period would have expired in 2006, rendering the complaint time barred. The Court held that because the complaint "identifies a series of discrete, independently actionable wrongs", the continuing violation doctrine was inapplicable (Id. at 1198). However, because Canon’s duty not to impose unfair charges in monthly bills "was a continuing one, susceptible to recurring breaches", each of which triggered a new statute of limitations, the theory of continuous accrual applied (Id. at 1200). The plaintiff therefore could seek to recover excess charges billed within four years before the action was filed, rendering the complaint not entirely time-barred.

Ramifications for California Class Actions

The Aryeh decision is likely to impact class actions asserting UCL claims in important ways.  Despite the defendant’s argument in Aryeh and despite the Court’s characterization of the issue, it has been commonly accepted that a class action challenging an ongoing practice covers the period extending backwards four years from date of filing, consistent with the UCL limitation period.  Following Aryeh, we expect increased argument from the plaintiffs’ bar that the continuing violation doctrine applies, such that plaintiffs can reach back to the inception of the practice. In such cases, defending the class action requires analysis of new issues. We identify two examples.

First, defense counsel should analyze whether the possible applicability of the continuing violation doctrine might create a potential conflict among putative class members. Suppose there is a limited fund available to resolve the action (which, as a practical matter, is typically the case). Putative class members within the four year period preceding the date of filing have an interest in arguing that the action does not involve a continuing violation, because the funds available for resolution are then confined to a shorter period.  Putative class members who left the class prior to the four year period, on the other hand, have an interest in arguing that there is a continuing violation, so that they could participate in any recovery. In some cases, this could create a strong enough conflict that it would support an objection to class certification.

Second, defense counsel must determine the best possible course to ensure that a judgment entered on a stipulation of settlement will be sufficiently inclusive to bar future claims, balancing this interest against the interest in avoiding undue expansion of class size. One possible model for addressing this issue is to include, within the stipulation of settlement, an express determination of the applicable limitations period – coincident with the class period – which then becomes a finding of the Court included within the judgment. There is support for the proposition that such a specific determination has binding effect. See, for example, Perez v. Roe, 146 Cal. App. 4th 171, 186 (2007) (opining that judgment based on the statute of limitations should be res judicata when no new facts or alternative theories are available). Also see Mid-Century Ins. Co. v. Sup. Ct., 138 Cal. App. 4th 769, 776 (2006) (termination of action based on limitation period was not on the merits and did not give rise to res judicata). All class members potentially falling within the class defined by the agreed-upon limitation period must be given notice. The selected limitation period should be supported in the preliminary approval motion and specified in the settlement class notice to provide sufficient opportunity for objection, and to demonstrate sufficient "litigation" of the issue to justify preclusion. See Villacres v. ABM Industries, Inc., 189 Cal. App. 4th 562, 569, 581-590 (2011) (class member properly notified of settlement who chose not to object or opt out barred from bringing independent action raising additional claim within the scope of the release).