In Ticconi v. Blue Shield of California Life & Health Ins. Co., ___ Cal.App.4th ___ (Jul. 30, 2007), the Court of Appeal (Second Appellate District, Division Three) reversed an order denying class certification of the plaintiff's UCL claim, which alleged that the defendant violated certain Insurance Code provisions. The Court of Appeal determined that the trial court made an erroneous legal assumption concerning available defenses to the UCL claim.
In particular, the Court held that any non-common questions surrounding the defendant's defenses of unclean hands and fraud could not defeat certification of the UCL claim because those were not valid defenses to that claim:
Courts have long held that the equitable defense of unclean hands is not a defense to an unfair trade or business practices claim based on violation of a statute. To allow such a defense would be to judicially sanction the defendant for engaging in an act declared by statute to be void or against public policy. (Kofsky v. Smart & Final Iris Co. (1955) 131 Cal.App.2d 530, 532; Page v. Bakersfield Uniform Etc. Co. (1966) 239 Cal.App.2d 762, 770 [“The equitable doctrine of the refusal of aid to anyone with ‘unclean hands,’ does not, as such, apply to actions under [the unfair practices act].”) ....
More recently, our Supreme Court explained that “equitable defenses may not be asserted to wholly defeat a UCL claim [under Bus. & Prof. Code, § 17200] since such claims arise out of unlawful conduct. . . .” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179.) In Cortez, the plaintiff brought an action under the UCL seeking restitution of overtime wages withheld from her and other employees. The defendant argued that where the UCL sounded in equity, the trial court was obligated to consider equitable defenses. The Supreme Court held that the equities may be considered when the trial court exercises its discretion to fashion a remedy under Business and Professions Code section 17203. (Ibid.) But, equitable defenses may not be used to defeat the cause of action under the UCL. As more fully explained by Justice Werdegar in her concurrence in Cortez, “in general, as between a person who is enriched as the result of his or her violation of the law, and a person intended to be protected by the law who is harmed by its violation, for the violator to retain the benefit would be unjust.” (Cortez, supra, at p. 182, conc. opn. of Werdegar, J.)
Accordingly, Blue Shield Life should not be entitled to raise the equitable defense of unclean hands to defeat the UCL cause of action here. To allow Blue Shield Life to argue as a defense to the UCL claim of postclaims underwriting that plaintiffs have unclean hands because they misrepresented material medical information on unattached and unendorsed insurance applications, would be to sanction Blue Shield Life’s unlawful and unfair conduct. (Cortez v. Purolator Air Filtration Products Co., supra, 23 Cal.4th at p. 182, conc. opn. of Werdegar, J.; Page v. Bakersfield Uniform Etc. Co., supra, 239 Cal.App.2d at p. 770; Kofsky v. Smart & Final Iris Co., supra, 131 Cal.App.2d at p. 532.) Of course, the trial court has the discretion to consider equitable defenses such as unclean hands in creating the remedies authorized by Business and Professions Code section 17203. (Cortez, supra, at p. 179.) Such defenses may not be used, however, to wholly defeat the UCL cause of action. (Ibid.)
Nor is fraud available as a defense to defeat plaintiff’s cause of action. Insofar as Blue Shield Life failed to attach its insureds’ applications to or endorse them on the policies, those insureds would “not [be] bound by any statements made in [those] application[s]” (§ 10381.5) and “[a]ny waiver of the provisions of this section shall be void” (§ 10113). To raise unclean hands and fraud based on statements in the application to defeat this UCL claim, Blue Shield Life would need to hold insureds to those statements. Yet, not only would that defense violate section 10113’s anti-waiver provision and the very sanction that section 10381.5 provides for failure to attach or endorse the applications to the policy, but that defense is specifically denied the insurance company by the Supreme Court. (Telford v. New York Life Ins. Co., supra, 9 Cal.2d at p. 106.)
Slip op. at 14-16. Applying these principles, the Court determined that class certification had been improperly denied:
[W]here equitable defenses may not be used to wholly defeat the UCL cause of action (Cortez v. Purolator Air Filtration Products Co., supra, 23 Cal.4th at p. 179), and where the insurer may not raise a defense based on misstatements made in unattached and unendorsed applications (Telford v. New York Life Ins. Co., supra, 9 Cal.2d at p. 106), the diverse facts making up Blue Shield Life’s fraud and unclean hands defenses are not to be factored in when determining whether the community interest requirement is met. That is, where they are not to be considered, legal and factual issues that go to remedies simply cannot outweigh the common issues related to liability. In short, the trial court relied on erroneous legal assumptions when it weighed the legal and factual issues of fraud and unclean hands in deciding to deny plaintiff’s motion for class certification. (Linder v. Thrifty Oil Co., supra, 23 Cal.4th at pp. 435-436.)
We disagree with Blue Shield Life that equitable considerations at the remedy stage involve individual issues precluding class treatment of liability. “In the absence of California authority, California courts may look to the Federal Rules of Civil Procedure (FRCP) and to the federal cases interpreting them [citation].” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2006) 14:11.20, p. 14-9.) As explained by the authority on federal class actions, “Individual issues will often be present in a class action, especially in connection with individual defenses against class plaintiffs, rights of individual class members to recover in the event a violation is established, and the type of amount of relief individual class members may be entitled to receive. Nevertheless, it is settled that the common issues need not be dispositive of the litigation. The fact that class members must individually demonstrate their right to recover, or that they may suffer varying degrees of injury, will not bar a class action; nor is a class action precluded by the presence of individual defense against class plaintiffs.  Moreover, a court has the discretion to limit a class suit to liability issues only, or to select common claims and defenses . . . .” (1 Newberg on Class Actions § 3:12, pp. 315-316, fns. omitted; see also Gerdom v. Continental Airlines, Inc. (9th Cir. 1981) 648 F.2d 1223, 1228, vacated in part in 692 F.2d 602, cert. den. sub nom. Continental Air Lines, Inc. v. Gerdom (1983) 460 U.S. 1074 [commonality requirement not defeated by fact that members had differing injuries].)
Slip op. at 17-18.