The Unfair Competition Law (Bus. & Prof. Code § 17200)

IV. The Unfair Competition Law (Bus. & Prof. Code § 17200)

A. The Three Prongs (Unlawful, Unfair, Fraudulent)

The Unfair Competition Law, Business and Professions Code section 17200, defines "unfair competition" broadly as "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by [section 17500 et seq.]." Each prong is independently actionable.

The "unlawful" prong borrows violations from any other state, federal, or local law and treats them as independently actionable under section 17200. Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180. The "unfair" prong, in competitor cases, requires conduct that "threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws." Id. at 187. In consumer cases, courts apply either a balancing test or a tethering-to-public-policy test (the law in this area remains unsettled). The "fraudulent" prong requires a showing that members of the public are likely to be deceived; actual deception, reasonable reliance, and damage are not required. In re Tobacco II Cases (2009) 46 Cal.4th 298, 312.

B. Standing After Proposition 64

Before 2004, anyone could sue under the UCL on behalf of the general public. Proposition 64 narrowed standing dramatically. Under section 17204, a private plaintiff must now have "suffered injury in fact and . . . lost money or property as a result of the unfair competition." The Supreme Court interpreted this requirement in Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, holding that a plaintiff must allege "(1) economic injury (2) caused by the unfair business practice." Id. at 322. The injury requirement is satisfied where the plaintiff was induced to purchase a product they would not otherwise have purchased — for instance, falsely labeled "Made in U.S.A." products in Kwikset. Id. at 329–30. Class actions under the UCL further require compliance with Code of Civil Procedure section 382 and Civil Code section 1781.

C. The Limitation to Restitution and Injunction (Korea Supply)

Critically, UCL remedies are equitable. Korea Supply, supra, 29 Cal.4th at 1144, definitively held that "[a]ny award that plaintiff would recover from defendants would not be restitutionary as it would not replace any money or property that defendants took directly from plaintiff." The Supreme Court rejected disgorgement of nonrestitutionary profits and reaffirmed that UCL plaintiffs are limited to (i) restitution of money or property taken from the plaintiff (or in which the plaintiff has a vested interest), and (ii) injunctive relief. Id. at 1148–52. There is no right to a jury trial on UCL claims; no compensatory damages; no punitive damages.

That said, UCL claims remain valuable because the "unlawful" prong can extend the limitations period (four years under § 17208 versus, e.g., three years for fraud) and because the "unfair" and "fraudulent" prongs can reach conduct that does not satisfy the elements of any traditional tort.

D. False Advertising (§ 17500)

Business and Professions Code section 17500 prohibits "untrue or misleading" statements made "with the intent directly or indirectly to dispose of" property or services where the speaker "knows, or which by the exercise of reasonable care should know, to be untrue or misleading." Section 17500 violations are independently actionable and serve as the predicate for the UCL "unlawful" prong. Section 17535 provides standing and remedies parallel to those under the UCL (restitution and injunction). The Consumer Legal Remedies Act, Civil Code section 1750 et seq., provides a damages remedy for similar conduct — but only to "consumers" (not businesses) and only for transactions in goods or services.

V. Fiduciary Duty and Conversion

A. Breach of Fiduciary Duty

A claim for breach of fiduciary duty requires (1) the existence of a fiduciary relationship, (2) breach of duty, and (3) damages. Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086. Fiduciary relationships arise as a matter of law in certain settings (attorney-client, trustee-beneficiary, partner-partner, corporate director-shareholder, agent-principal) and may arise as a matter of fact where one party reposes "trust and confidence" in another who knowingly accepts that trust. The duty includes loyalty, care, candor, and good faith.

In commercial cases, the most common fiduciary settings are partnerships (Corp. Code § 16404), LLC managers (Corp. Code § 17704.09), corporate officers and directors (Corp. Code §§ 309, 7231), and majority-shareholder duties to minority shareholders in close corporations, Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 110–11. Punitive damages are available under Civil Code section 3294 where fiduciary breach involves fraud, malice, or oppression.

B. Aiding and Abetting Fiduciary Breach (Casey v. U.S. Bank)

A non-fiduciary may be liable for aiding and abetting a fiduciary's breach. The leading case is Casey v. U.S. Bank Nat. Assn. (2005) 127 Cal.App.4th 1138, in which a bankruptcy trustee sued a bank that had allegedly assisted corporate insiders' looting of company funds. The Court of Appeal held that aiding-and-abetting liability requires the defendant to have (1) "actual knowledge" of the specific primary violation and (2) provided "substantial assistance" to achieve the breach. Id. at 1144. Mere atypical banking transactions, without actual knowledge of the underlying breach, are insufficient. Id. at 1145–52. Casey is the standard demurrer authority for banks and other financial intermediaries seeking dismissal of aiding-and-abetting claims.

C. Conversion of Money and Specific Property

Conversion is the wrongful exercise of dominion over another's personal property. Elements: (1) plaintiff's ownership or right to possession of property; (2) defendant's conversion by a wrongful act or disposition; and (3) damages. Hartford Fin. Corp. v. Burns (1979) 96 Cal.App.3d 591, 598. Hartford is the foundational California case for the proposition that money can be the subject of conversion only when it is a "specific, identifiable sum" — for example, funds entrusted for a particular purpose, identifiable proceeds of a sale, or a sum held in a segregated account. Id. at 598. A general debt is not enough.

This rule has practical importance in commercial-fraud cases involving the diversion of funds. To plead conversion, the plaintiff must trace the money — preferably to a specific account, transfer, or identifiable instrument — rather than merely allege that the defendant owes a sum of money.

D. Constructive Trust and Accounting

Constructive trust under Civil Code sections 2223 and 2224 is an equitable remedy, not an independent cause of action. It imposes a trust on property wrongfully acquired and traceable to the wrong, including by fraud, conversion, or breach of fiduciary duty. Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990. An accounting is also equitable and is appropriate where (i) a fiduciary or other relationship requires it, or (ii) the accounts between the parties are sufficiently complicated that an action at law will not afford an adequate remedy. Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179.

This analysis is for informational purposes only and does not constitute legal advice. Consult qualified counsel for advice specific to your situation. Attorney advertising.