This infographic is an excellent summary of the major problems of the for-profit education sector: high student fees, low graduation rates, high pressure sales tactics, and big profits. Many of these high pressure sales tactics have been found to be violations of California’s unfair competition law in Business and Professions Code §17200 and similar provisions in other states.
It has become common practice in class action litigation, particularly in cases concerning consumer fraud, to include a cause of action for violation of California Business & Professions Code § 17200, also known as the Unfair Competition Law (“UCL”). Section 17200 states
As used in this chapter, unfair competition shall mean and include any unlawful,unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code.
In order to successfully assert a cause of action under section 17200, it is important to anticipate the defenses that may be raised against such a claim. One of the most common defense arguments is that the UCL claim is preempted by federal law. Because the preemption issue is so complicated, this issue arises frequently in UCL cases with often unpredictable results. For instance, the California Supreme Court reversed itself on the issue with respect to claims against tobacco companies allegedly targeting minors with their advertising. In 1994, in Mangini v. R.J. Reynolds Tobacco Co., 7 Cal.4th 1057 (1994) the Supreme Court held that such a claim was not preempted by the Federal Cigarette Labeling and Advertising Act. Thirteen years later in In re Tobacco Cases II, 41 Cal.4th 1257 (2007), the court overruled Mangini and held that such claims are preempted by that federal law.
Another defense is that there can be no claim under the UCL if the underlying law specifically bars a claim. For example, in Safeco Ins. Co. v Superior Court, 216 Cal.App.3d 1491 (1990) the court held that an alleged violation of Insurance Code § 790.03(h) cannot be the predicate for a section 17200 claim because that would circumvent the Supreme Court’s holding in Moradi-Shalal v. Fireman’s Fund Insurance. Companies., 46 Cal.3d 287, 250 (1988), which bars direct actions against insurers for such claims.
Additionally, a UCL claim will not succeed if the alleged unlawful conduct is specifically permitted by law. As an example, in Shvarts v. Budget Group, Inc., 81 Cal.App.4th 1153 (2000), the rental car industry’s practice of allegedly charging unfairly high prices for refueling returned cars was held to be expressly permitted by Civil Code § 1936(m)(2) and so a section 17200 claim challenging the practice could not proceed.
Finally, certain types of claims are simply not recognized under the UCL. For example, in People for the Ethical Treatment of Animals, Inc. v. California Milk Producers Advisory Board, 125 Cal.App.4th 871 (2005), PETA alleged that the Board’s “happy cows” campaign constituted false advertising. The court held the Board is not a “person” within the meaning of the UCL and therefore could not be sued under section 17200.
In essence, the UCL is a powerful tool for plaintiffs and in order to succeed under the statute, plaintiffs should anticipate the various defenses that may be asserted.
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