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ARTICLE

Lost Market Share Not Compensable under California’s UCL

Summary

  • The Luxxotica decision reinforces California’s long-standing precedent that only equitable remedies, not damages, are recoverable under the UCL. In addition, Luxottica highlights that plaintiffs are precluded from recovering anticipated but unearned future income or profits under the UCL.
  • In Luxottica, the plaintiff brought a putative class action on behalf of California optometrists against Luxottica Retail North America, Inc.—doing business as LensCrafters—and its wholly owned subsidiary, Eyexam California. The plaintiff alleged that the defendants operated LensCrafters stores “in a manner that violated state laws regulating the practice of optometry and the dispensing of optical products, thereby constituting unfair and/or unlawful business practices in violation of the UCL.”
  • Following the California Supreme Court’s Korea Supply decision, the Luxottica court struck down the plaintiff’s “lost market share” theory and held that “regardless of label (‘lost market share,’ ‘lost business opportunity,’ or ‘lost profits’), a plaintiff cannot recover anticipated but unearned further income under the UCL in the guise of restitution.” Luxottica, 65 Cal. App. 5th at 807. The court explained that “absent a legally enforceable right to that stream of future income, the plaintiff lacks an ownership interest in it and thus there is nothing to ‘restore.’”
  • The Luxottica case is one more in California’s long line of decisions holding that damages are not recoverable in private UCL actions.
Lost Market Share Not Compensable under California’s UCL
Luis Alvarez via Getty Images

In June 2021, the California Court of Appeal held in Lee v. Luxottica that lost profits are damages, not restitution, and are therefore unavailable as a remedy in a private action under California’s Unfair Competition Law (UCL). Lee v. Luxottica Retail N. Am., Inc., 65 Cal. App. 5th 793 (2021). This decision reinforces California’s long-standing precedent that only equitable remedies, not damages, are recoverable under the UCL. In addition, Luxottica highlights that plaintiffs are precluded from recovering anticipated but unearned future income or profits under the UCL.

Luxottica Case

In Luxottica, the plaintiff brought a putative class action on behalf of California optometrists against Luxottica Retail North America, Inc.—doing business as LensCrafters—and its wholly owned subsidiary, Eyexam California. The plaintiff alleged that the defendants operated LensCrafters stores “in a manner that violated state laws regulating the practice of optometry and the dispensing of optical products, thereby constituting unfair and/or unlawful business practices in violation of the UCL.” The plaintiff further alleged that the putative class members “lost market share in their optical retail sales,” which “improperly increase[ed] [the defendants’] market share of optical product sales in California.” Id. In pursuing his claims against the defendants, the plaintiff requested one remedy, namely, restitution “of all sums obtained by [d]efendants through improper taking of market share” on the theory that class members were entitled to recover their “lost market share” of potential customers who may have visited other optometrists but for the alleged misconduct.

The California Court of Appeal noted that although the case was one of first impression, “it [was] squarely controlled” by the California Supreme Court’s 2003 decision in Korea Supply Co. v. Lockheed Martin Corp., which addressed the appropriate remedies available to plaintiffs alleging lost business opportunities due to a competitor’s unfair practices. Id. at 800 (highlighting Korea Supply, 29 Cal. 4th 1134 (2003)). In Korea Supply, the court dismissed the plaintiff’s UCL cause of action and held that nonrestitutionary disgorgement of profits—that is, profits that are neither money a defendant took from the plaintiff nor funds in which the plaintiff has an ownership interest—is not an authorized remedy under the UCL. See Korea Supply, 29 Cal. 4th at 1148–49.

Following the California Supreme Court’s Korea Supply decision, the Luxottica court struck down the plaintiff’s “lost market share” theory and held that “regardless of label (‘lost market share,’ ‘lost business opportunity,’ or ‘lost profits’), a plaintiff cannot recover anticipated but unearned further income under the UCL in the guise of restitution.” Luxottica, 65 Cal. App. 5th at 807. The court explained that “absent a legally enforceable right to that stream of future income, the plaintiff lacks an ownership interest in it and thus there is nothing to ‘restore.’” Id.

UDAP Statutes

The UCL is one of California’s Unfair and Deceptive Acts and Practices (UDAP) statutes. Although UDAP statutes exist in all 50 states, there are meaningful differences between and among the various states’ statutes.

For example, although California’s UCL “is a notoriously broad statute,” private litigants pursuing a UCL claim are limited to only injunctive and restitutionary relief. Flamingo Indus. (USA) Ltd. v. U.S. Postal Serv., 302 F.3d 985, 996 (9th Cir. 2002), rev’d on other grounds by U.S. Postal Serv. v. Flamingo Indus. (USA) Ltd., 540 U.S. 736 (2004). In addition, under California’s UCL, “[p]laintiffs may not receive damages, much less treble damages, or attorney fees.” Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 179 (1999).

By contrast, New York’s UDAP law, the Deceptive Practices Act, allows private litigants to recover (1) injunctive relief; (2) actual damages or $50, whichever is greater; (3) treble damages up to $1,000 per violation if the defendant acted willfully or knowingly; and (4) reasonable attorney fees. N.Y. Gen. Bus. Law § 349(h).

Likewise, under Texas’s UDAP statute, private litigants may recover (1) multiple damages, which are limited to economic damages, specifically defined to be compensatory for pecuniary loss; (2) restitution; (3) injunctive relief; and (4) reasonable and necessary attorney fees. Tex. Bus. & Com. Code § 17.50(b), (d).

Similarly, Iowa’s UDAP statute allows plaintiffs to seek (1) actual damages, (2) equitable relief, (3) reasonable attorney fees if they are entitled to receive actual damages, and (4) treble damages if the prohibited practice or act constituted a willful and wanton disregard for the rights or safety of others. Iowa Code Ann. § 714H.5.

Conclusion

The Luxottica case is one more in California’s long line of decisions holding that damages are not recoverable in private UCL actions. Eliminating recovery for all types of damages—including lost market share, lost business opportunities, and lost profit in UCL actions—removes a significant weapon from a plaintiff’s arsenal.