Unfair Business Practices: California Supreme Court Verdict

TL/DR –

The California Supreme Court has ruled in the case of “California Medical Association v. Aetna Health of California Inc” that organizations can sue where they have diverted resources to combat allegedly unfair business practices. The court decided that such diversion of resources, such as staff time, can count as loss of ‘money or property’ under the state’s unfair competition law (UCL), despite a 2004 ballot initiative, Proposition 64, that limited the private actors who may enforce the UCL to those who have suffered injury and lost money or property as a result of the challenged practice. The ruling increases access to the courts for non-profits and other advocacy organizations to challenge alleged unfair business practices.

California Supreme Court Greenlights Organizational Lawsuits for Alleged Unfair Business Practices: A Look at California Medical Association v. Aetna Health of California Inc

The California Supreme Court has permitted organizations to sue for alleged unfair business practices that they perceive as threats to their mission. The ruling comes from California Medical Association v. Aetna Health of California Inc (“CMA”).

California’s Business and Professions Code, often referred to as the “unfair competition law” (UCL or Section 17200), restricts unfair practice that affects consumers and competitors. However, Proposition 64, passed in 2004, limits who can enforce UCL to individuals who have suffered a loss due to unfair practices. But, the recent ruling in CMA asks if an organization can sue for its members who may have been affected.

In CMA, the California Medical Association, a nonprofit representing state doctors, sued Aetna for a policy limiting referrals to non-network providers. The Association claimed the policy interfered with doctors’ judgment and said they diverted 250 hours of staff time responding to the policy.

Aetna argued the Association couldn’t sue under UCL as they hadn’t lost money or property due to the policy. The Association countered, stating they suffered an economic injury by diverting resources. The Supreme Court agreed, stating that diversion of staff time and resources can be a loss of money or property under the UCL.

“Every organization, including CMA, has finite resources for its mission. If they use staff time for a certain project, it either comes from another project or requires more staff. Even if the personnel involved are salaried, their time holds value to the organization. When staff are diverted to a new project due to an unfair business practice, the organization loses the value of their time, which would have otherwise benefited the organization.”

The Court emphasized that out-of-pocket expenditure wasn’t required. “The economic value” that the Association received from their labor was reduced as a consequence of diverting staff resources. The Court deemed this as an injury sufficient to confer standing on the organization under the UCL.

The ruling broadens court access for non-profits, trade groups, and other advocacy organizations to challenge alleged unfair business practices, based on their decision to reallocate resources in response to perceived threats to their mission.

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