In yet another expansion of California’s unfair competition law, the California Supreme Court recently ruled that state law claimants may base a cause of action on a “borrowed” federal statute even though the U.S. Congress had repealed that federal statute’s private enforcement provision. In Rose v. Bank of America N.A., 57 Cal. 4th 390 (2013), the Court reversed the lower courts on the legal sufficiency of plaintiff’s claim, holding that Congress’ failure to remove a savings clause from the underlying federal law, the Truth in Savings Act (“TISA,” 12 U.S.C. § 4301 et seq. at § 4312), left open the ability for plaintiffs to bring a state law claim based on a violation of TISA.
Plaintiffs in Rose brought a class action suit against Bank of America, asserting that certain violations of TISA’s disclosure requirements relating to fee increases on personal bank accounts constituted unlawful and unfair business practices under California’s unfair competition law (“UCL” Calif. Bus. & Prof. Code, § 17200 et seq.). Under settled California law, violation of federal statues may constitute an “unlawful” act for purposes of the UCL, even where the underlying federal statute does not itself contain a private enforcement mechanism. See, e.g., In re Farm Raised Salmon Cases, 42 Cal. 4th 1077, 1095-96 (2008) (permitting UCL claim based on violations of California statutes that mirror requirements from the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 301 et seq.)).
To date, the major limitation on the UCL’s “borrowing” of federal statutes is where the federal statute purports to provide an exclusive remedy or where Congress intended the federal statute to preempt any related state laws. See Safeco Ins. Co. v. Superior Court, 265 Cal. Rptr. 585 (Cal. Ct. App. 1990). When enacted, TISA included a provision authorizing private civil actions. 12 U.S.C. § 4310. However, Congress repealed that provision in 1996 by adding a “sunset clause” to the private action provision, effective 2001. (Omnibus Consolidated Appropriations Act of 1997, Pub. L. No. 104-208, § 2604(a) (Sept. 30, 1996), 110 Stat. 3009-470).
The question posed by the Rose case was whether Congress’ repeal of TISA’s private right of action would impact the UCL’s ability to “borrow” TISA violations. In the trial court, defendant successfully demurred to the Rose plaintiffs’ complaint, arguing that Congress’ action demonstrated a desire to eliminate any private right of action under TISA, and that TISA therefore constituted an exclusive federal scheme. 57 Cal. 4th at 394. The Court of Appeal, Second District, affirmed the demurrer, reasoning that Congress’ repeal of TISA’s private right of action was an express rejection of any private right to enforce TISA. Rose v. Bank of America, N.A., 133 Cal. Rptr. 3d 615, 624 (Cal. Ct App. 2011).
The California Supreme Court granted petition for review, and reversed. In discussing its reasoning, the Court noted that the post-repeal TISA retains a separate savings clause which states that TISA does “not supersede any provision of the law of any state relating to the disclosure of yields payable or terms for accounts . . . except to the extent that those laws are inconsistent with the provisions of this subtitle, and then only to the extent of the inconsistency.” 12 U.S.C. § 4312. Neither lower court had addressed the significance of the savings clause, but the Supreme Court suggested that the UCL was exactly the kind of statute contemplated by the savings clause, and that the continued existence of the savings clause, despite Congress’ repeal of the private action provision, indicates that UCL claims may still be based on violations of TISA.
The Court’s holding can also be understood in the context of longstanding California jurisprudence treating the UCL as providing a strong, independent cause of action. Notably, the Court relied upon its own prior analysis in Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553 (1998), in which the Court held that a corporation had standing under the UCL to enforce a violation of the California Penal Code related to the prohibition of cigarette sales to minors. Id. at 567. Following this prior guidance, in Rose, the Court repeatedly emphasized the UCL’s force as an independent cause of action and that the pursuit of a claim under the UCL is not the same as “enforcement” of the underlying federal statute. See, e.g., 57 Cal. 4th at 397 (“[B]y borrowing requirements from other statutes, the UCL does not serve as a mere enforcement mechanism. It provides its own distinct and limited equitable remedies for unlawful business practices, using other laws only to define what is ‘unlawful.’”); Id. at 396 (“[A] UCL action does not ‘enforce’ the law on which a claim of unlawful business practice is based. By proscribing ‘any unlawful’ business practice [the UCL] ‘borrows’ violations of other laws and treats them as unlawful practices that the [UCL] makes independently actionable.”) (emphasis in original) (internal citations omitted).
While the Court notes early on that its holding is limited to the unique circumstances of the case (57 Cal. 4th at 395 (“the issue before us is a narrow one”)), the logic of the decision and its discussion of the independence of the UCL suggest that the outcome might have been the same even without the existence of the savings clause, such that the Court may permit UCL “borrowing” from federal statutes whenever there is any ambiguity about Congress’ desire to create exclusive and preemptive federal schemes.
Alternatively, the scope of Rose may truly be quite narrow, permitting UCL claims based on borrowed federal law that precludes private enforcement only where the underlying statute also contains a clause expressly protecting consistent state laws.