California Supreme Court Clarifies Statute Of Limitations For Unfair Business Practices

Resolving a split between California appellate and federal courts, the California Supreme Court, in Aryeh v. Canon Bus. Sols., Inc., Case No. 8184929 (Jan. 24, 2013), clarified that actions under California’s Unfair Competition Law, Cal. Bus. & Prof. Code section 17200 (the “UCL”) are subject to the same rules of accrual and equitable exceptions to the running of the statute of limitations as common law claims.

The UCL broadly prohibits all “unlawful, fraudulent or unfair” business acts or practices.  The statute provides that suit must be filed “within four years after the cause of action accrued.”  Cal. Bus. & Prof. Code § 17208.  In Aryeh, the California Supreme Court held that, based on the statutory language and the applicable legislative history, the UCL’s limitations period is subject to “the well-settled body of law that has built up around accrual” of claims. 

The court noted that, generally, a claim accrues and the statute of limitations begins to run, “from ‘the occurrence of the last element essential to the cause of action.’”  The court explained, however, that several equitable modifications to this so-called “last element” accrual rule have developed under common law.  The most significant of those doctrines is the “discovery rule” which, if applicable, “postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” 

In Aryeh, the California Supreme Court disapproved of prior cases that had found the “discovery rule” categorically inapplicable to UCL claims.  Instead, the court held that “the underlying nature of the claim, not its form, should control” whether the equitable exceptions to the “last element” accrual rule, including the discovery rule, applies to a given UCL action.  The court recognized that, due to the breadth of the statute (which permits claims based on any of “unlawful, fraudulent or unfair” practices), its ruling means that some UCL claims will support application of the various exceptions to the “last element” accrual role, but others will not.

The court then addressed the potential application of two of the other equitable exceptions, the “continuing violation doctrine” and the theory of “continuous accrual” to the specific UCL claim asserted in Aryeh.  In that case, plaintiff, who ran a copy business, leased copiers from Canon Business Solutions in November 2001 and February 2002, and the leases required he make extra payments if the number of copies made exceeded a monthly allowance.  Plaintiff discovered shortly after entering the leases that Canon included “test copies” made by its employees during monthly service visits among those counted toward the monthly allowance, resulting in plaintiff owing excess copy charges to Canon.  Plaintiff filed suit in 2008, alleging that Canon’s practice of charging for test copies was both “unfair” and “fraudulent” under the UCL.  Plaintiff argued the action was, nevertheless, timely under the UCL’s four year limitations period, based on both the continuing violation and continuous accrual doctrines.

The court began its analysis by explaining the difference between these doctrines.  Initially, the “continuing violation” rule may apply in situations where the defendant commits “a series of small harms,” such that any single act might not give rise to a cause of action or the victim of the practice might not be able to identify with certainty when harm has occurred or is sufficiently serious.  In that circumstance, “allegations of a pattern of reasonably frequent and similar acts may, in a given case, justify treating the acts as an indivisible course of conduct actionable in its entirety,” even though part of the conduct occurred outside the limitations period.”  Thus, if the Aryeh complaint fell within the continuing violation doctrine, plaintiff could assert a UCL claim covering the entire time period back to 2002.  The continuous accrual theory, in contrast, “applies whenever there is a continuing or recurring obligation,” such that a new “cause of action accrues each time a wrongful act occurs, triggering a new limitations period,” so as to prevent a situation where a party “engaged in long-standing misfeasance would obtain immunity in perpetuity from suit even for recent and ongoing misfeasance.”  Accordingly, if the Aryeh complaint was held subject to the continuous accrual rule, plaintiff could sue on only those UCL claims that accrued within the four years prior to suit.  Because the Aryeh complaint alleged “a series of discrete, independently actionable alleged wrongs” (namely, excessive charges each month), and plaintiff “concedes he was aware of [and] recognized as wrongful” Canon’s conduct was early as 2002, the court held that plaintiff’s claim did not warrant application of the continuing violations doctrine, but did support applying the continuous accrual theory and, therefore, the UCL claim was timely with respect to conduct occurring within the four years prior to the filing of suit.

Joshua Lichtman & Peter Mason are Partners at Fulbright & Jaworski L.L.P.
jlichtman@fulbright.com & pmason@fulbright.com; 213-892-9200