Published in the July-August 2016 issue of Vineyard & Winery Management
California counties are increasingly using California’s Unfair Competition Law (UCL) to bring government enforcement actions against local businesses for myriad reasons. California’s UCL is extremely broad, encompassing unlawful, fraudulent or even unfair business practices. UCL cases can often result in large fines and costs — as well as reputational damage from negative publicity.
Local district attorney and county counsel offices in winemaking regions are increasingly using the UCL to bring cases against wine industry businesses. These cases have addressed a wide range of conduct, from minor county code violations to alleged serious health and safety risks.
UCL cases filed against wineries and vineyards have included allegations of grading and vegetation removal outside of the erosion control plan approved by the county. In one case, this resulted in a total cost to the winery of $20,000. Another case involved allegations of a winery letting paid guests stay on its property in violation of local zoning ordinances, resulting in a total cost to the winery of more than $30,000. A third case involved allegations of a winery doing construction on its property, including building a wine cave without proper permitting, resulting in a total cost to the winery of $85,000. Other cases involving fish and game violations on winery property have also resulted in five-figure settlements. These costs only represent the amounts paid to settle the case. They don’t include the costs to the businesses in attorney’s fees (which can be high) or the reputational costs due to negative publicity resulting from the lawsuits.
Scope of California’s UCL
Codified in Sections 17200 and 17500 of the California Business & Professions Code, California’s UCL is essentially a consumer protection law, providing government entities and private citizens the ability to bring lawsuits against businesses for practices that are alleged to harm consumers. It’s one of the broadest, if not the broadest, consumer protection laws in the country — and it includes expansive definitions, creating potential liability for a wide range of business conduct.
The UCL prohibits four types of wrongful conduct by businesses: unlawful business acts or practices; unfair business acts or practices; fraudulent business acts or practices; and unfair, deceptive, untrue or misleading advertising.
Under the UCL, an “unlawful” business act or practice is one that violates any law, be it federal, state, local, statutory or court-made. The UCL borrows violations of other laws and treats them as unlawful practices that are independently actionable. For example, “unlawful” UCL cases have been brought based on county code violations, zoning ordinances, building and housing code violations, and environmental statutes, such as the California Fish & Game Code.
“Unfair” under the UCL is intentionally broad to allow law enforcement agencies maximum discretion to take action against new schemes to defraud consumers that may not yet violate any law. The California courts have disagreed on one definition of “unfair” and have held a wide variety of practices to be “unfair” under the UCL. Examples include a car rental company concealing a refueling service charge, even though charging such a fee itself was legal; an insurance company’s use of a polygraph test to deny insurance; and intentionally placing unenforceable terms in consumer contracts.
A business act or practice is “fraudulent” under the UCL if members of the public are likely to be deceived by that act or practice. “Fraudulent” under the UCL is broader than common law fraud because UCL liability doesn’t require intent, reliance, damages or even actual deception — rather, the mere likelihood of deception is sufficient.
UCL government enforcement actions can be brought by a number of law enforcement officials, including the California Attorney General, county district attorneys, county counsel and city attorneys. Given this broad and potentially overlapping number of law enforcement officials who can investigate and prosecute UCL actions, there’s an unfair competition database allowing for coordination between agencies. In addition to civil discovery methods that may apply to private UCL actions, law enforcement officials can use administrative subpoenas and other investigative techniques — such as wiretap surveillance — in UCL investigations and actions.
For both government enforcement and private actions, the standard of proof in UCL actions is preponderance of the evidence. The preponderance of the evidence standard is relatively low and is met if the plaintiff (whether the government or a private litigant) shows that it’s more likely than not that the defendant engaged in a business act or practice that violates the UCL.
Successful government UCL enforcement actions have a number of potential remedies, including injunctions, requiring cessation of the violative practice or act, and restitution or reimbursement for victims’ losses due to violative conduct.
Additionally, the government can seek civil monetary penalties and investigation costs. The maximum allowable civil monetary penalty under the UCL is $2,500 per violation. This may not sound like much, but calculation of the number of violations can increase the fine exponentially. For example, in many counties, each day on which a violation of the county code is in existence is considered a separate and distinct violation for penalty purposes.
The ability to obtain civil monetary penalties, especially in such large amounts, provides a powerful incentive for law enforcement agencies to bring UCL cases, because any penalty paid goes directly to the agency that investigated and prosecuted the action. UCL cases provide an alternate way to fill the agency’s coffers at a time when budget cuts and lack of funding plague many law enforcement agencies.
How to Avoid Becoming a Target
Because UCL liability is so broad in scope and can apply to such a wide range of conduct (including minor county code violations), these investigations and cases may be difficult to avoid. However, there are actions a business owner can take in an attempt to avoid a UCL investigation or government enforcement action.
Know and comply with state and local ordinances, including county permitting, building and zoning requirements. These ordinances and the requirements pursuant to them can be complicated, and dealing with state and county agencies can be frustratingly slow. However, the risk of noncompliance, given the UCL penalties and costs, can be enormous. Consider hiring a consultant or advisor to help navigate state and local ordinance issues.
Supervise and educate employees about compliance with state and local ordinances. Businesses can and will likely be held vicariously liable for any conduct of their employees who are considered to be acting within the scope of their employment. An employee is considered to be acting within the scope of his or her employment if the conduct is reasonably related to the tasks the employee was hired to perform or the employee’s conduct was reasonably foreseeable in light of the employer’s business or the employee’s job responsibilities. Consider educating employees as well about potential government investigative tactics such as issuance of subpoenas, questioning by government investigators, and even “sting operations” in which government enforcers may misrepresent their identities in an attempt to ferret out code violations.
Don’t assume independent contractors will take responsibility for getting necessary and required permits. As the business owner, you are ultimately responsible for making sure your business and the property on which it operates are in compliance with state and county ordinances and laws. Ask to see all the authorized permits and necessary certificates — don’t just take your independent contractors at their word.
Be nice to your neighbors. A significant portion of UCL investigations begin with a neighbor complaint to a state, county or local agency. If there are issues with your business’ neighbors, try to address and resolve them directly.
What to Do If Targeted
There are several steps you should take to mitigate the potential damage to your business if you’re the target of a UCL investigation.
Engage counsel to act on your behalf. Counsel experienced in defending UCL actions and negotiating with the investigating agency can help formulate and execute a strategy to resolve the investigation or case with the best possible outcome for your business — financially and reputationally.
Don’t make any statements to investigating agencies without consulting with your counsel. Any statements you or your employees make directly to agencies investigating a UCL case can be used against you in that case and can potentially get your business in more trouble, especially if the investigating agency thinks the statements are false or misleading in any way. An attorney can talk to the investigating agency and negotiate on your business’ behalf without creating statements that bind or can be attributable to your business.
Counsel will also be able to advise you in responding to government agency requests, including administrative subpoenas. Although not necessarily tied to a filed lawsuit, administrative subpoenas should be treated like any formal civil discovery request, with responses stating and preserving all objections and potential privileges.
Remember that cooperation is valuable. Demonstrating to an investigating agency that you’re willing to cooperate and work with the agency to resolve UCL issues can go a long way in resolving an investigation before it becomes a lawsuit or, if a lawsuit is already filed, resolving the case outside of court. Out-of-court resolutions often involve the government agency agreeing to take a much-reduced civil penalty to resolve the case than could be sought in a court judgment. As soon as you learn about a UCL investigation or lawsuit affecting your business, have your counsel consider the benefits of cooperation. If those benefits weigh in your business’ favor, engage with the investigating agency on the topic of cooperation as soon as possible.
With its broad applicability and low standard of proof, the UCL provides a powerful tool for government entities to enforce state and local ordinances and to obtain civil penalties for their often underfunded agencies. The best practices to avoid UCL investigations and lawsuits is to be vigilant about state and local ordinance compliance as well as potential investigations and to supervise and educate your employees to do the same.