A Competitor Could Sue For Unfair Competition

Law Offices of Mathew Higbee v. Expungement Assistance Services
(Cal. Ct. of App., 4th Dist.), filed March 14, 2013

KEY FACTS

The Law Offices of Mathew Higbee sued Expungement Assistance Services for, among other things, statutory unfair competition under Business and Professions Code section 17200.  Higbee alleged that Expungement Assistance Services, an online legal services provider, unfairly competed with it by engaging in the unauthorized practice of law. Expungement Assistance Services purportedly undercut the competition by using unlicensed persons to perform legal work, thereby saving on attorney fees, and by employing unbonded and unregistered legal document assistants, thereby saving on the costs of posting statutorily mandated bonds and paying registration fees.  Higbee also alleged that by doing this, Expungement Assistance Services diverted business from it, thereby causing it injury and damage and that in order to compete, Higbee had to expend additional sums on advertising and had to lower its prices.

The trial court sustained a demurrer by Expungement Assistance Services, concluding that because Higbee had no direct business dealings with Expungement Assistance Services, Higbee lacked standing to assert a cause of action under Section 17200.

HOLDING & REASONING

The Court of Appeal reversed.

Section 17200 was enacted to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.  The legislature used broad sweeping language.  However, it became overextended in its use.  It became the basis of what the court described as a “shakedown lawsuit — the ‘I get rich’ lawsuit brought by a person who has had no business dealings with the proprietor being sued, but who has happened to notice that the hapless proprietor is out of compliance with a particular law.”  As a result of this development, Section 17200 was narrowed to preclude such lawsuits.  This was accomplished by imposing a requirement that the plaintiff lost money or property or was deprived of money or property.

The question before it, according to the court, was whether “in endeavoring to protect ‘mom and pop’ operators from the devastation wreaked by gold-digging plaintiffs, the UCL has been so narrowed as to preclude one business competitor from maintaining a UCL lawsuit against another with whom he or she has had no direct business dealings, where the defendant competitor’s unlawful business practices have caused injury and monetary or property loss to the plaintiff competitor.”

The court then held:

Bearing in mind that the UCL was originally conceived to protect business competitors, and also that the deterrence of unfair competition is an important goal of the UCL, we conclude that the lack of direct dealings between two business competitors is not necessarily fatal to UCL standing, provided the plaintiff competitor has suffered injury in fact and lost money or property as a result of the defendant competitor’s unfair competition.

ANALYSIS

The court had to walk a fine line in rendering its decision.  On the one hand, if Higbee could prove its allegations, its claim would be squarely within the scope of what Section 17200 was enacted to prevent.  However, the court did not want to expend the 17200 claim to uninjured non-competitors.