In two decisions issued last week, the California Supreme Court permitted private plaintiffs to sue under the Unfair Competition Law (UCL) based on the defendants’ violations of separate statutes—even where those statutes themselves forbid private rights of action for such violations.
In the first case, Zhang v. California Capital Insurance, the Court interpreted the breadth of Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287 (1988). In that case, the Court held that the Unfair Insurance Practices Act (UIPA) did not provide for private causes of action. Since then, the Court has indicated that plaintiffs cannot recast their UIPA claims in terms of UCL violations in order to circumvent the UIPA’s ban on private lawsuits. But in Zhang, the Court held that plaintiffs can bring a suit where the defendant’s behavior—though covered by the UIPA—independently violates the UCL, or is actionable under the common law. Of course, where there is any overlap between UCL liability and UIPA liability, the plaintiff will be “recasting” its UIPA claim as a UCL violation. As a result of this holding, one can anticipate a slew of new cases against insurance companies under the UCL. The UCL is an already popular avenue for plaintiffs, given its provisions for restitution, recovery of premiums, and attorney’s fees. Zhang arms plaintiffs with a cause of action previously thought foreclosed under the UCL.
In Rose v. Bank of America, the Court considered whether plaintiffs may bring lawsuits for violations of the federal Truth in Savings Act (TISA)—which, like the UIPA, does not allow private causes of actions. Whereas in Zhang, the holding was based on the premise that defendants should not be able to avoid liability for conduct that independently violates the UCL, in Rose, the plaintiffs were allowed to sue despite that the defendants’ conduct only violated the UCL because the UCL considers TISA violations themselves “unlawful practices.”
The Court determined that the TISA’s savings clause, which permits states to regulate the conduct covered by the TISA so long as the state regulations are consistent with the federal statute, meant that the UCL’s borrowing from the TISA was permissible. The defendants had conceded that the California Legislature could have created a statute identical to the TISA, and provided a private cause of action within that statute. But because Congress had evidenced its intent to specifically preclude private lawsuits for TISA actions, the defendants argued a private cause of action for a TISA violation qua TISA violation under the UCL was precluded. The Court found that UCL actions of this type were not actions to enforce the TISA, but rather, independent UCL actions. Further, the savings clause indicated that private causes of actions were not entirely prohibited.
Private causes of actions under the UIPA and TISA were eliminated for a reason. In Zhang the Court noted that when private lawsuits were available under the UIPA, litigation proliferated and insurance costs rose. And in repealing private causes of action under the TISA, Congress clearly concluded that public enforcement was superior to private lawsuits. Time will tell if the California Supreme Court knows better.