Court of Appeal (Cal.) Disagrees with Decades-old Rule that Vicarious Liability Does Not Apply to California’s UCL

In People v. JTH Tax, Inc., — Cal.Rptr.3d —-, 2013 WL 177140 (Cal.App. 1 Dist.), the Court of Appeal for the First District disagreed with a seemingly well-settled, decades-old rule that the doctrine of vicarious liability did not apply to California’s Unfair Competition Law.  The facts were as follows:

Defendant JTH Tax, Inc., doing business as Liberty Tax Service (Liberty), appeals from a judgment issued after a bench trial awarding plaintiff, the People, approximately $1.169 million in civil penalties, ordering Liberty to pay approximately $135,000 in restitution, and permanently enjoining Liberty in several ways for violating state and federal lending, unfair competition, consumer protection, and false advertising laws.  Liberty argues that the trial court made errors of law and/or fact in determining that a “handling fee” charged for certain bank products was an undisclosed finance charge under the federal Truth In Lending Act (TILA); Liberty’s cross-collection practices regarding past loan debts owed by customers were improper; Liberty was vicariously liable for its franchisees’ advertising; certain civil penalties for advertising violations should be paid by Liberty; and a permanent injunction regarding certain of Liberty’s practices going forward was necessary and appropriate.   We disagree with each of Liberty’s arguments.  We find the trial court’s analyses and findings to be thoughtful and well-calibrated regarding the circumstances before it, and affirm the judgment.

The Court of Appeal affirmed the judgment imposing vicarious liability on JTH Tax for the acts of its franchisees.

Liberty relies primarily on case law from other jurisdictions for its argument, while largely ignoring the most significant in California.  Liberty does quote the language in Toomey addressed by the trial court, that being “[t]he concept of vicarious liability has no application to actions brought under the unfair business practices act.”  (Toomey, supra, 157 Cal.App.3d at p. 14.)  However, it does not rely on Toomey to argue that it is not subject to agency theory under California law.  ¶  Liberty also cites Emery v. Visa Internat. Service Assn. (2002) 95 Cal.App.4th 952 (Emery) to argue that courts have declined to impose vicarious liability in the face of the realities of remote business relationships.  Emery involved an action against certain VISA defendants by the plaintiff, acting as a private attorney general (id. at p. 955), for unfair business practices and deceptive advertising related to foreign lottery solicitations; the plaintiff sued while acknowledging VISA had nothing to do with the creation or mailing of the solicitations, which allowed payments by VISA bank cards.  (Id. at p. 954.)  The trial court granted summary judgment to VISA, rejecting, among other things, the plaintiff’s theories that VISA’s advertising, licensing of its logo, and utilization of its payment system created an actual or ostensible agency relationship with its merchants, or agency by ratification.  (Id. at pp. 954, 959.)   ¶  In discussing the plaintiff’s agency theories, the Emery court stated that it did not need to go further than to “remind plaintiff that his unfair practices claim under [the UCL] cannot be predicated on vicarious liability,” quoting the language from Toomey that we have quoted herein.  (Emery, supra, 95 Cal.App.4th at p. 960.)  The appellate court also found the undisputed facts did not show any agreement or control by VISA that would establish an agency relationship.  (Id. at pp. 960-961.)   ¶  Although the Emery court concluded that the plaintiff could not proceed on agency theories because vicarious liability is not available under California’s unfair business practices law, Liberty does not rely on Emery for this proposition either.  . . . ¶  Also, as the People point out, our Supreme Court has held, without the limitations urged by Liberty in the present case, that “section 17500 [the FAL] incorporates the concept of principal-agent liability.”  (Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 361 (Ford Dealers).)  Since violations of the UCL “include any . . . unfair, deceptive, untrue or misleading advertising and any act prohibited by [the FAL]” (§ 17200), Ford Dealers establishes that persons can be found liable for misleading advertising and unfair business practices under normal agency theory.  To the extent that Toomey, supra, 157 Cal.App.3d 1, or Emery, supra, 95 Cal.App.4th 952 hold otherwise, which defendant implies without stating outright in the course of arguing its limiting theories, these cases are mistaken.