Opinion ID: 807798
Heading Depth: 4
Heading Rank: 2

Heading: “Fraudulent” and “Unfair” Business Practices

Text: Claim Against Best Buy [20] A business practice is fraudulent under the UCL if members of the public are likely to be deceived. Puentes v. Wells Fargo Home Mortg., Inc., 72 Cal. Rptr. 3d 903, 909 (Ct. App. 2008). The challenged conduct “is judged by the effect it would have on a reasonable consumer.” Id. (internal citation and quotation marks omitted). For the same reasons that we rejected Davis’s FAL claim, we also conclude that the advertisements were not fraudulent under the UCL. Last, we turn to Davis’s contention that Best Buy’s advertisements were “unfair” under the UCL. The UCL does not define the term “unfair.” In fact, the proper definition of “unfair” conduct against consumers “is currently in flux” among California courts. Lozano, 504 F.3d at 735. Before Cel-Tech, courts held that “unfair” conduct occurs when that practice “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 85 Cal. Rptr. 2d 301, 316 (Ct. App. 1999) (internal quotation marks omitted). Under this approach, courts must examine the practice’s “impact on its alleged vic10392 DAVIS v. HSBC BANK NEVADA tim, balanced against the reasons, justifications and motives of the alleged wrongdoer.” Id. (internal quotation marks omitted). In short, this balancing test must weigh “the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.” Id. (internal quotation marks omitted). Cel-Tech held that the balancing test was “too amorphous” and “provide[d] too little guidance to courts and businesses.” 973 P.2d at 543. Instead, the court held that “unfair” means “conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” Id. at 544. It further required that “any finding of unfairness to competitors under section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition.” Id. However, the court expressly limited its new test to actions by competitors alleging anti-competitive practices, emphasizing that “[n]othing we say relates to actions by consumers or by competitors alleging other kinds of violations of the unfair competition law such as ‘fraudulent’ or ‘unlawful’ business practices or ‘unfair, deceptive, untrue or misleading advertising.’ ” Id. at 544 n.12. “Following Cel-Tech, appellate court opinions have been divided over whether the definition of ‘unfair’ under the UCL as stated in Cel-Tech should apply to UCL actions brought by consumers.” Durell v. Sharp Healthcare, 108 Cal. Rptr. 3d 682, 695 (Ct. App. 2010) (internal citation and quotation marks omitted); see also Lozano, 504 F.3d at 736 (“The California courts have not yet determined how to define ‘unfair’ in the consumer action context after Cel-Tech.”). As we previously have summarized, some courts in California have extended the Cel-Tech definition to consumer actions, while others have applied the old balancing test, or borrowed the three-pronged test set forth in the FTC Act. Lozano, 504 F.3d DAVIS v. HSBC BANK NEVADA 10393 at 736; see also Durell, 108 Cal. Rptr. 3d at 695-96 (describing split of authority). The question then is whether we are to apply the new definition in Cel-Tech, or to follow the former balancing test under South Bay. 504 F.3d at 736. In this regard, the district court erred when it held that Davis could not invoke the unfairness prong at all. The proper inquiry is what definition of “unfair” must apply to Davis’s claim. We need not resolve that question here, however, because Davis fails to state a claim under either definition. With respect to Cel-Tech, Davis advances no factual allegations to support the claim that the omission of the annual fee in Best Buy’s advertisements threatens to violate the letter, policy, or spirit of the antitrust laws, or that it harms competition. As for the balancing test, we begin by noting that nothing in the FAC supports the conclusion that the advertisements were against public policy, immoral, unethical, oppressive, or unscrupulous. Quite the opposite, the advertisements warned that “other restrictions might apply,” and the subsequent application process clearly disclosed the annual fee. More than this, Davis had the opportunity to cancel the account for a full refund within 90 days. [21] Because Davis failed to read the terms and conditions before agreeing to them, and because he refused to cancel his card within 90 days, even when viewing the facts in Davis’s favor, we must conclude that any harm he suffered was the product of his own behavior, not the advertisements. As a result, we cannot say that the FAC alleges “above the speculative level” that the advertisements themselves caused any harm. Bell Atl. Corp., 550 U.S. at 555. Meanwhile, any harm is offset by Best Buy’s strong justification for publishing the advertisement. Specifically, although Regulation Z does not expressly permit the omission of the annual fee disclosure from advertisements, it surely does not require such disclosure where, as here, the advertisement does not include spe10394 DAVIS v. HSBC BANK NEVADA cific terms that trigger additional disclosure. 12 C.F.R. § 226.16(b). Therefore, Best Buy justifiably relied on this federal guidance in circulating the advertisements. While we are mindful that what is “unfair” is a question of fact, “which involves an equitable weighing of all the circumstances, . . . we will affirm a judgment of dismissal where the complaint fails to allege facts showing that a business practice is unfair.” Bardin v. Daimlerchrysler Corp., 39 Cal. Rptr. 3d 634, 644 (Ct. App. 2006). Davis fails to plead facts to show that Best Buy engaged in an unfair business practice as defined in South Bay. In sum, Defendants’ online application is protected by the safe harbor doctrine. As for Defendants’ advertisements, Davis fails to allege that they were “unlawful” as they were not deceptive and their alleged harm was reasonably avoidable. Davis also fails to allege that the advertisements were “fraudulent” or “unfair.” Therefore, the district court properly dismissed the UCL claims in their entirety.6