Can an organization sue you simply because it chose to divert resources to respond to your allegedly unfair business practices by claiming your practices are a perceived threat to its mission? The California Supreme Court just opened the door to such lawsuits in California Medical Association v. Aetna Health of California Inc., Cal. 5th, 2023 WL 4553703, 2023 Cal. LEXIS 4100 (July 17, 2023) (“CMA”).
California’s Business and Professions Code aims to prevent unfair competition that harms both consumers and competitors by banning “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. This law, commonly referred to as the “unfair competition law” (“UCL” or “Section 17200”), sweeps broadly. But in 2004, California voters approved a ballot initiative known as Proposition 64, which limited the private actors who may enforce the UCL to those who have “suffered an injury in fact” and “lost money or property as a result of” the challenged business practice. In other words, only individuals who could meet this heightened level of standing could sue under the UCL, and businesses could no longer be targeted by someone who was not harmed as a result of the alleged misconduct.
But what about suits by an organization? Can an organization sue on behalf of its members or those whom it served who may have been harmed by a business practice? After Proposition 64 passed, the answer was “no.” An organization cannot sue under section 17200 unless it can allege, and ultimately prove, that it can meet the heightened standing requirements of the UCL. That led the California Supreme Court to tackle the question of how an organization could demonstrate an injury sufficient to give it standing under UCL. Specifically, in CMA, the Court addressed whether an organization could satisfy the standing requirement “by diverting its own resources to combat allegedly unfair competition.” 2023 Cal. LEXIS at *3.
In CMA, the California Medical Association, a non-profit professional association representing California doctors, sued a health insurance company for implementing a policy designed to limit medical providers in its network from referring patients to non-network providers. The Association claimed the policy prevented doctors from exercising independent and sound medical judgment. The Association, whose mission is to protect “the public health and the betterment of the medical profession,” which it carried out by engaging in “legislative, legal, regulatory, economic, and social advocacy,” further claimed that it diverted upwards of 250 hours of staff time responding to the insurance company’s policy before suing it for unfair business practices under the UCL. An unknown amount of this staff time would have allegedly otherwise been spent serving the Association’s membership in other unrelated ways.
The insurance company argued that the organization lacked standing to sue under the UCL because it had lost neither money nor property as a result of the referral policy. The organization responded that it had suffered an economic injury through the diversion of personnel and other resources to respond to [the policy, i.e., the challenged business practice], resources that would otherwise have been deployed to assist CMA’s members in other ways.” CMA, 2023 Cal. LEXIS at *15. Noting that Proposition 64 “did not ‘purport to define or limit’ what constitutes lost money or property,” the Supreme Court “conclude[d] that diversion of salaried staff time and other office resources can constitute the loss of ‘money or property’ within the meaning of” the UCL. Id. at *15-16.
As the Court explained:
Every organization, including CMA, has finite resources to devote to its mission. If the organization uses staff time for a particular project, for example, it must either pull those hours from a different project or augment its staff. Even if, as here, the personnel involved are paid on a salaried basis rather than by the hour, their time clearly holds economic value to the organization. When staff are diverted to a new project undertaken in response to an unfair business practice, the organization loses the value of their time, which otherwise would have been used to benefit the organization in other ways.
Id. at *16. The Court emphasized that an out-of-pocket expenditure was not required. The association “may not have incurred additional out-of-pocket costs in responding to” the company’s “allegedly illegal practices; its employees were salaried and would have been paid regardless. But the economic value” that the Association received from their labor was reduced.” Id. at *18. In other words, the association “‘lost money or property’ . . . when its personnel were diverted from other activities that would also have served its goal of assisting its physician members.” Id. By diverting staff from other “useful projects” to respond to an unfair business practice, the Association “enter[ed] into a transaction, costing money or property, that would otherwise have been unnecessary.” Id. That, said the Court, was an injury sufficient to confer standing on the organization under the UCL: “an organization that has expended staff time or other resources on responding to a new threat to its mission, diverting those resources from other projects has suffered an injury in fact,” even if the organization chooses to do so voluntarily. Id. at *28, 30-33.
As a result of this decision, the California Supreme Court has expanded access to the courts for non-profits, trade groups, and other advocacy-based organizations to challenge alleged unfair business practices based on their decision to reallocate resources in response to perceived threats to their mission.
If you have any questions, please contact Jeff Topor or the Womble Bond Dickinson attorney with whom you usually work.