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July 24, 2012 / Admin

Another split in authority on the definition of “unfair” under the UCL

For years, there has been a split in authority over the definition of “unfair” in consumer actions brought under California’s Unfair Competition Laws (“UCL”). Recently, the Court of Appeal (Second Appellate District, Division Three) discussed this split of authority in detail, and adopted a third formulation for the definition. Davis v. Ford Motor Credit Co., ___ Cal.App.4th ___, 2009 WL 3859327 (Nov. 19, 2009).

The UCL establishes three types of unfair competition – unlawful, fraudulent and unfair. (See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech). However, the UCL language is in the disjunctive, so that “a practice is prohibited as ‘unfair’ or ‘deceptive’ even if not ‘unlawful’ and vice versa.” (Cel-Tech, supra, 20 Cal.4th at p. 180.)

Defining the definition of the term “unfair” has remained unresolved as applies to consumer suits. While courts have created different balancing tests for unfair competition claims by competitors alleging anticompetitive practices, they have specifically excluded consumer actions from the reach of these tests. Cel-Tech, supra at 187, fn. 12. Until Davis, there were two main tests applicable to the definition of the term “unfair”.

Davis applied a third test to consumer actions that was first established in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006) (Second Appellate District, Division Eight). The Davis court held that Defendant’s demurrer was properly sustained without leave to amend because, as a matter of law, plaintiff could not satisfy the Camacho test. Slip op. at 19-20. The most significant barrier was the requirement of “an injury that consumers themselves could not reasonably have avoided.” Id. at 19 (citing Camacho). The court determined that Davis could have avoided the injury alleged, i.e. the imposition of late fees, by making timely payments to his auto loan despite the fact that plaintiff alleged that defendant’s interpretation of the contracts and method of applying payments to the load allowed defendant to assess multiple late fee charges for a single late payment.

Before Davis, very few courts followed the Camacho analysis. In fact, many have explicitly declined to follow it. See, e.g., Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718 (9th Cir. 2007); Overstock.com v. Gradient Analytics, Inc., 151 Cal.App.4th 688, 715 (2007). The Supreme Court, however denied the petition for rehearing on December 8, 2009, leaving the question unresolved of what “unfair” means under the UCL in consumer cases.

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