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8 tips for unfair-competition actions

Prevent

  1. Know and comply with state and local ordinances.
  2. Supervise and educate employees on compliance.
  3. Don’t assume independent contractors will get permits.
  4. Be nice to neighbors. Many of these actions start with them.

Survive

  1. Get counsel.
  2. Consult counsel before making statements to investigators.
  3. Work with counsel before responding to agency requests such as subpoenas.
  4. Cooperate with the investigating agency.

California counties in winemaking regions are increasingly using the state’s Unfair Competition Act (Business & Professions Code Section 17200 and 17500) to bring government enforcement actions against local wine industry businesses for a myriad of reasons.

These cases have addressed a wide range of conduct, from minor county code violations to alleged serious health and safety risks. California’s UCL is extremely broad, encompassing unlawful, fraudulent or even unfair business practices. Unfair competition law, or UCL, cases can often result in large fines and costs— as well as reputational damage from negative publicity.

UCL government enforcement actions can be brought by a number of law enforcement officials, including the state attorney general, county district attorneys, county counsel and city attorneys. In additional to civil discovery methods that may apply to private UCL actions, law enforcement officials can use administrative subpoenas and other investigative techniques, such as wiretap surveillance, in UCL investigations and actions.

Successful government UCL enforcement actions have a number of potential remedies, including injunctions, requiring cessation of the violative practice or act, and restitution, or reimbursement for victims’ losses due to violative conduct.

Additionally, the government can seek civil monetary penalties and investigation costs. The maximum allowable civil monetary UCL penalty is $2,500 per violation. This may not sound like much, but calculation of the number of violations can increase the fine exponentially. For example, in many counties, each day on which a violation of the county code is in existence is considered a separate and distinct violation for penalty purposes.

UCL cases filed against wineries and vineyards have included allegations of grading and vegetation removal outside of the erosion-control plan approved by the county. One winery had to pay $20,000. It cost another winery $30,000-plus in facing violations of local zoning ordinances for letting paid guests stay on its property. The cost for third winery was $85,000 related to allegations construction with proper permits, including a wine cave. Other cases involving fish and game violations on winery property have also resulted in five-figure settlements.

These settlement costs don’t include attorney’s fees, which can be high, or the reputational damage from publicity of the lawsuits.

HELP AVOID UCL ACTIONS

Because UCL liability is so broad in scope and can apply to such a wide range of conduct (including minor county code violations), these investigations and cases may be difficult to avoid. However, there are actions a business owner can take in an attempt to avoid a UCL investigation or government enforcement action.

Know and comply with state and local ordinances, including county permitting, building and zoning requirements.

Supervise and educate employees about compliance with state and local ordinances. Businesses can and will likely be held vicariously liable for any conduct of their employees who are considered to be acting within the scope of their employ. Consider educating employees as well about potential government investigative tactics such as questioning by government investigators, and even “sting operations” in which government enforcers may misrepresent their identities in attempting to ferret out code violations.

Don’t assume independent contractors you hire will take responsibility for getting necessary and required permits. As the business owner, you are ultimately responsible for making sure that your business and the property on which your business operates are in compliance with state and county ordinances and laws. Ask to see all the authorized permits and necessary certificates — don’t just take your independent contractors at their word.

8 tips for unfair-competition actions

Prevent

  1. Know and comply with state and local ordinances.
  2. Supervise and educate employees on compliance.
  3. Don’t assume independent contractors will get permits.
  4. Be nice to neighbors. Many of these actions start with them.

Survive

  1. Get counsel.
  2. Consult counsel before making statements to investigators.
  3. Work with counsel before responding to agency requests such as subpoenas.
  4. Cooperate with the investigating agency.

Be nice to your neighbors. A significant portion of UCL investigations begin with a neighbor complaint to a state or county or local agency. If there are issues with your business’s neighbors, try to address and resolve them directly.

IF TARGETED IN AN INVESTIGATION

There are several steps you should take to mitigate the potential damage to your business.

Engage counsel to act on your behalf. Counsel experienced in defending UCL actions and negotiating with the investigating agency can help formulate and execute a strategy to resolve the investigation or case with the best possible outcome for your business — financially and reputationally.

Don’t make any statements to investigating agencies without consulting with your counsel. An attorney can talk to the investigating agency and negotiate on your business’s behalf, without creating statements that bind or can be attributable to your business.

Counsel will also be able to advise you in responding to government agency requests, including administrative subpoenas. Although not necessarily tied to a filed lawsuit, administrative subpoenas should be treated like any formal civil discovery request, with responses stating and preserving all objections and potential privileges.

Remember that cooperation is valuable. Demonstrating to an investigating agency that you are willing to cooperate and work with them to resolve UCL issues can go a long way in resolving an investigation before it becomes a lawsuit, or if a lawsuit is already filed, resolving the case outside of court. Out-of-court resolutions often involve the government agency agreeing to take a much-reduced civil penalty to resolve the case than could be sought in a court judgment.

With its broad applicability and low standard of proof, the UCL provides a powerful tool for government entities to enforce state and local ordinances and to obtain civil penalties for their often underfunded agencies. The best practices to avoid UCL investigations and lawsuits is to be vigilant about state and local ordinance compliance as well as potential investigations and to supervise and educate your employees to do the same.

Jessica Nall (jnall@fbm.com) is a partner and Nell Clement (nclement@fbm.com) is a senior associate at Farella Braun + Martel LLP. They have assisted a number of wine industry businesses facing UCL enforcement actions. Vine Notes (nbbj.news/vinenotes) is a recurring column in Wine Industry Business Journal.