California Supreme Court Review: September 2023

This month's installment of the California Supreme Court Review explores how recent decisions have expanded potential liability under the California Unfair Competition Law and the California Fair Employment and Housing Act. It also revisits a case previously previewed in our December 2022 installment.

In July 2023, the California Supreme Court issued its decision in California Medical Association v. Aetna Health of California Inc., S269212 (decided July 17, 2023), determining whether an organization can satisfy the UCL's standing requirements by diverting its own resources to combat allegedly unfair competition. The UCL confers standing on a private plaintiff if it has "suffered injury in fact" and "lost money or property as a result of the unfair competition" at issue. See Cal. Bus. & Prof. Code § 17200 et seq. The Court of Appeal had affirmed the trial court's grant of summary judgment in Aetna's favor, agreeing that the California Medical Association's diversion of resources to combat Aetna's policy seeking to increase the number of in-network provider referrals was insufficient to confer standing under the UCL. The Supreme Court reversed, holding that "the UCL's standing requirements are satisfied when an organization, in furtherance of a bona fide, preexisting mission, incurs costs to respond to perceived unfair competition that threatens that mission, so long as those expenditures are independent of costs incurred in UCL litigation or preparations for such litigation." 14 Cal.5th 1075, 1082 (2023). The Court concluded that, under this standard, there were triable issues of fact as to whether the CMA had standing to sue under the UCL. Id.

This decision may lead to an increase in UCL claims brought by organizational plaintiffs, such as nonprofits and unions, who previously did not have UCL standing given they usually do not suffer direct economic injury from perceived unlawful business acts. The Court has now made clear that any organization that expends resources in response to a perceived threat to its mission, such as investigating an alleged wrongdoing or preparing a resource guide to advise its members and the public, may bring a private action against the threatening company. See 14 Cal.5th at 1099-100. At the same time, the Court provided some clear limitations to its holding, including: (1) the threat must be towards an organization's preexisting mission; (2) UCL standing cannot exist solely based on expenditures made in preparing to litigate a UCL claim; and (3) an organization still cannot base standing to sue on injuries to its members. Moving forward, businesses likely should keep the UCL in mind when they are drafting their policies or practices, especially given that organizational plaintiffs, now with an expanded basis to establish standing, could seek injunctive relief against such policies and practices for UCL violations.

A month later, in Raines v. U.S. Healthworks Medical Group, S273630 (decided August 21, 2023), the Court expanded potential liability with regards to the FEHA, Cal. Gov. Code § 12900 et seq. In Raines, plaintiffs received offers of employment conditioned on successful completion of preemployment medical screenings conducted by U.S. Healthworks Medical Group USHW, which acted as an agent of the prospective employers. The federal district court dismissed plaintiffs' FEHA claims against USHW, concluding that FEHA does not impose liability on the agents of a plaintiff's employer. The Ninth Circuit subsequently asked the Court to answer the following question of state law: "Does California's Fair Employment and Housing Act, which defines 'employer' to include 'any person acting as an agent of an employer,' Cal. Gov't Code § 12926(d), permit a business entity acting as an agent of an employer to be held directly liable for employment discrimination?" The Court held that an employer's business-entity agents can be held directly liable under the FEHA for employment discrimination in appropriate circumstances when the business-entity agent has at least five employees and carries out FEHA-regulated activities on behalf of an employer.

Although this holding is not entirely surprising in light of federal court decisions ruling similarly with regards to federal antidiscrimination laws (see, e.g., 534 P.3d 40, 48-52 (2023)), it makes clear that, under California law, being an agent of an employer does not protect a business from direct FEHA liability. Businesses that assist employers in carrying out certain functions related to their employees should evaluate their practices to ensure that they are not violating the FEHA. Businesses cannot dismiss legal concerns just because they are providing services they typically provide, but must consider who is requesting their services. If the requestor is an "employer," then businesses must consider whether the service they are being asked to provide could violate employees' rights under the FEHA. For example, a medical provider who provides health screenings and evaluations as part of its normal operations may run into problems if an employer asks it to provide screenings as part of its employee screening process because such services could now be subject to the FEHA.

Finally, in this article we wanted to provide an update on one of the cases we reviewed in December 2022, regarding Turner v. Victoria. There, the question before the Court of Appeal was whether a director or officer of a California nonprofit public benefit corporation could maintain standing as a derivative plaintiff when she does not remain in the role through the entirety of litigation. The Court recently issued its decision in Turner v. Victoria, S271054 (decided Aug. 3, 2023), holding that there is no continuous directorship requirement that would require dismissal of a lawsuit brought under these statutes if the director-plaintiff fails to retain a director position. We noted that, if the Court chose to upheld the appellate court's decision that a continuous relationship was necessary, then it would likely result in fewer derivative lawsuits. However, with this latest ruling, the scope and potential for liability will not be reduced, and it would be prudent for directors and officers of nonprofit public benefit corporations to stay alert to the possibility of suit.

These three decisions expand the universe of persons or entities who may bring claims for alleged aggrieved harms. With this expansion of potential liability, these three decisions should not be ignored.