Lawyer May Use Unfair Competition Law to Sue Online Legal Service Provider for UPL

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By Joan C. Rogers  

A lawyer has a cause of action under California's unfair competition law against an online legal service provider that allegedly engages in the unauthorized practice of law by using nonlawyers to perform legal services, the California Court of Appeal, Fourth District, held March 14 (Law Offices of Mathew Higbee v. Expungement Assistance Services, Cal. Ct. App. 4th Dist., No. G046778, 3/14/13).

In an opinion by Justice Eileen C. Moore, the court decided that an unfair competition claim can be premised on alleged violation of UPL statutes and that the complaint in this case adequately asserts actual economic injury from the defendant's alleged unauthorized practice. The lack of direct business dealings between the lawyer and the defendant is not fatal to the unfair competition claim, the court ruled.

Record Clearing Services

The plaintiff is Law Offices of Mathew Higbee. The firm, now known as Higbee & Associates, is based in Santa Ana, Cal. As part of its practice, the firm offers criminal record expungement.

The defendant is Expungement Assistance Services (EAS). According to Higbee's complaint, EAS is a Delaware corporation with its principal place of business in Kentucky, and is not authorized to practice law in California or any other state.

Higbee's complaint asserted that EAS established websites such as that offered customers legal advice and legal services for clearing criminal records. The complaint also alleged that EAS used unlicensed persons to perform legal work and employed unbonded and unregistered legal document assistants. These unlawful practices allegedly cost Higbee market share and diminished the value of the firm.

The trial court sustained EAS's demurrer, holding that the complaint did not allege injury in fact as required to establish a claim under California's unfair competition law.

The appellate court revived the lawsuit, concluding that the allegations were sufficient to state a cause of action.

'Unlawful' Business Act

California's unfair competition law (UCL) prohibits “any unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code §72000.

Higbee alleged that EAS violated California statutes that require an active law license to practice law and to handle certain criminal matters, as well as a state statute that imposes registration and bonding requirements for legal document assistants. EAS's business methods do not comply with these statutes and are “unlawful” practices for purposes of a UCL claim, Higbee argued.

“[W]e see no reason why the alleged violation of statutes concerning the unauthorized practice of law cannot serve as a predicate for [an unfair competition] action.”
Justice Eileen C. Moore

EAS contended, however, that alleged violation of UPL laws cannot support an unfair competition claim because UPL laws are intended to protect the public and the integrity of the judicial process, not to shield lawyers from competition.

The court sided with Higbee, saying “we see no reason why the alleged violation of statutes concerning the unauthorized practice of law cannot serve as a predicate for Higbee's UCL action.” The UCL law “borrows” violations of other laws to define unfair competition, Moore explained.

Actual Injury

Section 17204 of the UCL law was amended nearly 10 years ago to provide that no private party has standing to pursue an action under the law unless that person “has suffered injury in fact and has lost money or property as a result of the unfair competition.” The amendment resulted from Proposition 64, a voter initiative intended to prevent attorneys from fleecing businesses by threatening to bring UCL suits on behalf of consumers even though no one had actually been injured.

EAS contended that Higbee lacked standing, arguing that a loss of market share is not the type of economic injury that qualifies as an “injury in fact” for the purpose of standing under the UCL.

Following a detailed look at cases decided after Proposition 64 took effect, the court ruled that Higbee's complaint alleged “at least an identifiable trifle of injury as necessary for standing under the UCL” by asserting that the lawyer was forced to pay increased advertising costs, that he had to reduce his prices for services in order to compete, that he had lost business, and that the value of his law firm had diminished.

The court also decided that the complaint adequately asserted that Higbee's injury was caused by EAS's alleged unauthorized practice, even though EAS did business over the internet and never had any business dealings with Higbee.

This holding is strictly limited to the context of business competitors and does not permit a consumer who has never done business with a company to sue it under the UCL, the court stated.

Mathew K. Higbee, Santa Ana, Cal., represented his firm. Jeffrey L. Sikkema and David G. Hagopian of Carothers DiSante & Freudenberger in Irvine, Cal., represented EAS.

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