The July/August 2008 issue of CAOC's Forum magazine just arrived in the mail. It has my latest article, "UCL Standing to Seek Injunctive Relief: Is a Restitutionary Loss Required?" The article addresses two opposing federal decisions on that topic, Walker v. USAA Casualty Insurance Co. 474 F.Supp.2d 1168 (E.D. Cal. Feb. 12, 2007) and G&C Auto Body Inc. v. Geico General Insurance Co., 2007 WL 4350907 (N.D. Cal. Dec. 12, 2007). Focusing on the language of the UCL and relevant California decisional law, the article explains why a loss amounting to "damages" is sufficient to confer UCL standing, regardless of whether the loss also constitutes recoverable "restitution."
The article will soon be available at CAOC's website to CAOC members only. Other plaintiff-side attorneys, government lawyers, judges, research attorneys, etc., should email me at firstname.lastname@example.org if you would like a copy of the article.
A recent unpublished opinion, The Upper Deck Co. v. Orrick, Herrington & Sutcliffe, no. D050373 (Feb. 26, 2008), illustrates a creative use of the UCL. The Upper Deck Co. sued Orrick, Herrington & Sutcliffe for legal malpractice. Orrick cross-complained under the UCL, arguing that Upper Deck "had a pattern and practice of hiring law firms without the intent to pay the fees and, after incurring significant fees, claiming malpractice as a pretext to avoid paying the fees." Slip op. at 1-2. Orrick sought "equitable relief as well as restitution for the value of the services it provided to Upper Deck." Id. at 3. Upper Deck moved to strike the UCL claim under the anti-SLAPP law (Code of Civil Procedure section 425.16), arguing that it was a strategic lawsuit against public participation in the petitioning process and the right to use the courts for that purpose. The trial court denied the motion, and the Court of Appeal affirmed.
The Court determined that the gravamen of the UCL claim was Upper Deck's alleged promissory fraud, not its petitioning activity (which allegedly took the form of filing unmeritorious legal malpractice claims):
A close evaluation of Attorney's operative allegations demonstrates that any tacit reference to Upper Deck's petitioning activity is incidental or collateral to the core of Attorney's section 17200 claim. First, the wrongful and injury-producing conduct is the alleged promise without intent to perform--Upper Deck's hiring of Attorney and promise to pay for Attorney's services while allegedly intending not to pay for the services--not the later filing of the malpractice lawsuit. Second, the actual injury to Attorney alleged by the complaint is that it performed the services and was not paid, and the recovery sought by Attorney is payment for those services. Thus, the injury caused by the core wrongful conduct was complete prior to, and apart from, any petitioning activity by Upper Deck. These facts convince us that the "wrongful and injury-causing conduct ... that provides the foundation for the claim" (Martinez v. Metabolife Internat., Inc., supra, 113 Cal.App.4th at 189) is the alleged promissory fraud by Upper Deck rather than Upper Deck's subsequent petitioning activity. .... [A]lthough Upper Deck's malpractice claims preceded Attorney's cross-complaint, the core of the injury alleged by the section 17200 claim is conduct unrelated to protected activity.
Slip op. at 8-9, 10 (footnote omitted). This was a fortunate ruling for the merits of Orrick's UCL claim as well. If the Court of Appeal had found that the UCL claim rested at its core on the malpractice lawsuit, Upper Deck could have argued that Orrick did not lose money or property (the value of its services) "as a result of" the initial hiring, but rather as a result of the subsequent malpractice claim. Orrick might then have been faced with an argument that it could not establish causation or reliance if the allegedly unfair and fraudulent conduct occurred after the monetary loss. Of course, whether reliance and causation are elements of a UCL claim is an unresolved question that the Supreme Court is expected to address in In re Tobacco and Pfizer.
Thanks to the blog reader who emailed me about this opinion. The full text of the opinion (unformatted) appears after the jump.
In Animal Legal Defense Fund v. Mendes, ___ Cal.App.4th ___ (Feb. 15, 2008), the Court of Appeal (Fifth Appellate District) held that the plaintiffs—two consumers of dairy products—lacked standing to pursue a UCL claim against ranchers who allegedly confined dairy calves in isolation crates without an "adequate exercise area," in violation of Penal Code section 579t. The plaintiffs, the Court held, had not suffered "loss of money or property": "Here, the consumers had the benefit of their bargain—that is, they received dairy products that were not of inferior quality. Any injury they suffered upon learning 'the truth' about industrial dairy farming was not economic." Slip op. at 11.
The Court also held that the Penal Code provision that the defendants allegedly violated carries no private right of action. Id. at 4-9.
On February 7, 2008, the Daily Journal ran a Focus article called "Limiting Legal Scope" (subscription). The article addresses, from a defense-oriented perspective, the economic abstention doctrine that has developed in the UCL case law. According to the article,
The [UCL] frequently has met its match when claims of unlawfulness depend on borrowed laws that an executive agency has been assigned to enforce. Courts have abstained or declined equitable jurisdiction in unfair-competition cases that ask them to assume administrative-agency functions, to make ad hoc determinations of economic policy or to regulate defendants with rulings, injunctions and other equitable remedies that might conflict with an agency's adjudication of the same subject.
That summary of the law reflects a defendant-centric interpretation of the decisions. The thing to keep in mind is that the key factor is not whether an agency already regulates the area, but whether the area involves questions of complex economic policy that the legislative (or executive) branch is better equipped to deal with. The fact that agency regulations may also govern the particular subject matter of the case does not mean that the UCL claim fails. Rather, under Cel-Tech and the economic abstention decisions, the UCL claim fails only if (a) the regulation expressly permits the challenged conduct, or (b) the regulated area raises complex questions of economic policy that should be left to regulative bodies.
The article also does not cite the cases in which courts have declined to apply the "economic abstention doctrine," of which there are many. See, e.g., McKell v. Washington Mutual, Inc., 142 Cal.App.4th 1457, 1473-74 (2006) ("While we appreciate the wisdom of abstention in matters calling for a legislative determination of economic policy, we do not believe abstention is required in the instant case.").
Here are a few of my prior blog posts on the subject:
In Williams v. Washington Mutual Bank, 2008 WL 115097 (E.D. Cal. Jan. 11, 2008), the court (Judge William B. Schubb) had this to say about the Cel-Tech "safe harbor":
California's UCL restricts "any unlawful, unfair, or fraudulent business act or practice and unfair, deceptive, untrue, or misleading advertising." Cal. Bus. & Prof.Code § 17200. The UCL " 'borrows' violations from other laws by making them independently actionable as unfair competitive practices." Korea Supply Co. v. Lockhead Martin Corp., 29 Cal.4th 1134, 1143 (2003). However, "[w]hen specific legislation provides a 'safe harbor,' plaintiffs may not use the general unfair competition law to assault that harbor." Cal-Tech [sic] Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 182-83 (1999); Schnall v. Hertz Corp., 78 Cal.App. 4th 1144, 1154 (2000). Therefore, plaintiff cannot assert a UCL claim if a federal or state law legalizes defendant's practice. See Augustine v. FIA Card Servs., N.A., 485 F.Supp.2d 1172, 1176 (E.D.Cal.2007) (stating that federal or state law can provide a safe harbor).
As discussed above, [T]ILA authorizes defendant's practice because defendant provides sufficient notice in its initial disclosures. Defendant's practice comes within the UCL's "safe harbor," thus negating plaintiff's ability to challenge the practice under the UCL. C[e]l-Tech Commc'ns, Inc., 20 Cal.4th at 182-83. Accordingly, the court must dismiss plaintiff's third cause of action.
A reader wrote to me with the following hypothetical:
Can the usual one-year statue of limitations for legal malpractice (Code of Civil Procedure section 340.6) be elongated to four years if it is pleaded under section 17200?
My answer would be yes. It seems to me that legal malpractice could be pleaded as an "unlawful" prong claim based on the violation of the common-law rule against attorney negligence or perhaps based on violation of the Business & Professions Code provisions governing attorney conduct (e.g., section 6068). However, the remedies for the additional period would be limited to restitution and injunctive relief, so it might not be of much use except perhaps to recover the fees that the client paid to the attorney. Other ideas? Please post them in the comments.
Tuesday's Daily Journal reported that a settlement may be in the offing in the Ford case:
Ford Motor Co. and lawyers for more than 414,000 California owners of Explorers announced Monday that they have reached a tentative settlement in the nation's first consumer class action to go to trial over the sport-utility vehicle. Sacramento County Superior Court Judge David De Alba met with lawyers for a half hour before announcing he had canceled closing arguments in the non-jury case because the parties had reached an apparent resolution.
Many thanks to the reader who wrote in with an update on the Ford trial (Ford Explorer Cases, JCCP nos. 4266 & 4270). I'm told that 48 days of trial had been completed as of September 7, 2007 (about 28 days of testimony for plaintiffs and about 18 for Ford). After a two-week break, trial is expected to resume on Monday, September 24. Ford has a couple of hours more of its case to present before it rests, and plaintiffs expect to put on a short rebuttal case. Closing arguments, limited to about two hours per side, are expected to take place on the 25th or 26th. Thereafter, both sides are expected to file post-trial briefs, proposed findings of fact and conclusions of law, etc. My source writes, "I would hope that Judge DeAlba would issue a decision by the end of this year."
If I receive copies of the post-trial briefing, I will definitely put it up here.
Many thanks to the blog reader who emailed to update me on the Ford bench trial in Sacramento (Ford Explorer Cases, JCCP nos. 4266 & 4270). I'm told that the plaintiffs rested their case yesterday, on the 31st day of trial; that the judge took Ford's motion for judgment under submission; and that Ford began presenting its defense yesterday afternoon.
I've also received some interesting materials from the case. These trial briefs provide a roadmap to a monetary award under the UCL, offering "three alternative models of calculating the amount of money that Ford acquired, by its wrongful conduct, from members of the class":
The briefs will be very useful to anyone pursuing a UCL case based on non-disclosures or misleading advertising. Also, here are several of Judge David De Alba's orders, including his orders denying Ford's motions to decertify the class and for summary adjudication:
In Alvarado v. Selma Convalescent Hospital, ___ Cal.App.4th ___ (Aug. 1, 2007), the Court of Appeal applied the "economic abstention doctrine" in holding that the trial court properly declined to hear a UCL claim predicated on alleged violations of certain Health and Safety Code provisions governing the operation of nursing homes:
The trial court did not abuse its discretion by abstaining from adjudicating this lawsuit. Adjudicating the alleged controversy would have required the trial court to become involved in complex health care matters concerning the staffing of skilled nursing and intermediate care facilities and assume regulatory functions of the Department of Health Services (DHS). In addition, granting and enforcing the requested relief would place an unnecessary burden on the trial court given the power of the DHS to monitor and enforce compliance with [the Health and Safety Code provision in question].
Lott v. Pfizer, Inc., ___ F.3d ___ (7th Cir. June 25, 2007) (addresses CAFA and the right to recover attorneys' fees after improper removal; see this post on the Seventh Circuit's prior opinion in the same case)
McAdams v. Monier, Inc., ___ Cal.App.4th ___ (May 30, 2007, modified June 25, 2007) (Third Appellate District) (court just issued an order modifying the original opinion; an interesting change in wording re "restitution" "reliance")
Juarez v. Arcadia Financial., Ltd., ___ Cal.App.4th ___ (June 26, 2007) (Fourth Appellate District, Division One) (probably the most interesting of the bunch; addresses UCL remedies)
I've had limited time to read or analyze these decisions. Time permitting, I will post more about them later on.
On November 8, 2006, the Court of Appeal (Second Appellate District, Division Eight) published its opinion in Daugherty v. American Honda Motor Co., ___ Cal.App.4th ___ (Oct. 31, 2006). The opinion is well summarized in the petition for review that was filed with the Supreme Court on December 19, 2006. See Daugherty v. American Honda Motor, no. S148931. Many thanks for counsel for Ms. Daugherty for sharing his brief. Both the opinion and the review petition are worth reading.
In Daugherty, the Court of Appeal affirmed the judgment that resulted after the trial court sustained the defendant's demurrer to all causes of action without leave to amend. The complaint alleged that a design defect in certain Honda vehicles "causes oil loss and contamination of nearby engine parts and, in severe cases, requires repair or replacement of the engine." Slip op. at 2. According to the plaintiffs, Honda knew or should have known about the defect, yet failed to disclose it to consumers. The complaint pleaded causes of action for breach of warranty and for violation of the Magnuson-Moss Warranty–Federal Trade Commission Improvement Act, the CLRA, and the UCL. Id. at 3. The Court of Appeal's treatment of the latter two causes of action is particularly problematic.
Regarding the CLRA, the court held that Honda had no duty to disclose the alleged defect because the defect did not represent a safety risk. Id. at 11-13. The court further held that the CLRA does not impose liability for a defendant's failure to disclose material facts absent an independent duty to disclose. Unless the defect presents a safety risk, the court held, there is no such duty. See id. at 12. In other words, according to the Daugherty court, the CLRA only prohibits affirmative misrepresentations. This holding is contrary to well-established CLRA jurisprudence, most notably Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282 (2002). It also contravenes the CLRA's statutorily-declared consumer protection purpose by curtailing the CLRA's scope. Civ. Code § 1780.
The UCL claim fared no better with the Daugherty court. The "unlawful" prong claim failed because the statutory claims on which it was predicated (including the CLRA claim) failed. Slip op. at 15. The "fraudulent" prong claim failed because: "We cannot agree that a failure to disclose a fact one has no affirmative duty to disclose is 'likely to deceive' anyone within the meaning of the UCL. " Id. at 16. And the "unfair" prong claim failed, too: "[T]he failure to disclose a defect that might, or might not, shorten the effective life span of an automobile part that functions precisely as warranted throughout the term of its express warranty cannot be characterized as causing a substantial injury to consumers, and accordingly does not constitute an unfair practice under the UCL." Id. at 18 (citing Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394, 1403 (2006) (adopting FTC Act formulation of of "unfair" )).
The "fraudulent" prong holding is particularly problematic. Plenty of cases hold that failure to disclose material information to consumers violates the "fraudulent" prong. See, e.g., Mass. Mutual, 97 Cal.App.4th at 1292 (failure to disclose information that "should have been disclosed given the characteristics” of the transaction); Day v. AT&T Corp., 63 Cal.App.4th 325, 333 (1998) (“failure to disclose other relevant information”); Podolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 651 (1996) (failure to disclose “all the pertinent facts”); Schnall v. Hertz Corp., 78 Cal.App.4th 1144, 1164 (2000) (concealment of information “relevant to the … decision” faced by the consumer). Failure to disclose information about a design defect that could affect a product's value should be actionable under the UCL's fraudulent prong. Restitution would then be measured based on the proportion of the purchase price attributable to the non-disclosure. See Colgan v. Leatherman Tool Group, Inc., 135 Cal.App.4th 663 (2006).
For this and other reasons, the Supreme Court should take a close look at this case. It represents the danger of conflating the UCL and the CLRA with warranty law—a entirely separate body of law intended to remedy different wrongs. The Supreme Court should either take the case up or depublish it.
On Wednesday, in Hodge v. Superior Court, ___ Cal.App.4th ___ (Nov. 29, 2006), the Court of Appeal (Second Appellate District, Division Eight), confirmed that UCL claims are equitable and carry no right to a jury trial. (Coincidentally, I made this exact point in a post three days ago.) In so holding, it rejected the argument that when a plaintiff pursues a UCL "unlawful" prong claim, the Court should look at whether the "borrowed" law carries a jury trial right. Instead, the focus should be on the UCL claim and its available remedies, which are equitable. (This holding is consistent with my recent post explaining that the UCL's "unlawful" prong only borrows the liability principles, not the remedies.) The Court also held that the assertion of non-equitable affirmative defenses does not alter the analysis of whether a claim carries the right to a jury trial.
As a final interesting point, it appears that in this case the plaintiffs wanted the bench trial, while the defendants asked for a jury:
[P]laintiffs amended the complaint to state only a cause of action for violation of section 17200. Plaintiffs’ stated rationale was strategic: they wanted a bench trial instead of a jury trial.
Slip op. at 3. In my experience, the reverse is usually true. In this case, the fact that a prior attempt to try the case to a jury resulted in a mistrial probably explains it. Thanks to the readers who emailed me about this case.
Yesterday, in Wells v. One2One Learning Foundation, ___ Cal.4th ___ (Aug. 31, 2006), the Supreme Court addressed the word "person" as used in the UCL. Restitution and injunctive relief may be obtained against "[a]ny person who engages, has engaged, or proposes to engage in unfair competition …." Bus. & Prof. Code § 17203. A charter school, the Supreme Court concluded, falls within the definition of "person" under the UCL:
[T]he UCL defines “persons” subject to that law to “mean and include natural persons, corporations, firms, partnerships, joint stock companies, associations and other organizations of persons.” (Bus. & Prof. Code, § 17201.) The charter school defendants either are, or are operated by, corporations, and they also constitute “associations” or “organizations.” They are within the plain meaning of the statute.
Noting that several cases have held government entities are not “persons” who may be sued under the UCL (e.g., Community Memorial Hospital v. County of Ventura (1996) 50 Cal.App.4th 199, 209 (Community Memorial); see also People for the Ethical Treatment of Animals, Inc. v. California Milk Producers Advisory Bd. (2005) 125 Cal.App.4th 871, 877-883; California Medical Assn. v. Regents of University of California (2000) 79 Cal.App.4th 542, 551; Trinkle v. California State Lottery (1999) 71 Cal.App.4th 1198, 1203-1204; Janis v. California State Lottery Com. (1998) 68 Cal.App.4th 824, 831; Santa Monica Rent Control Bd. v. Bluvshtein (1991) 230 Cal.App.3d 308, 318; but see Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 939-945), the charter school defendants insist they are entitled, as part of the public school system, to this “public entity” exemption. The Court of Appeal agreed. We do not.
As we have indicated, charter schools are operated, pursuant to the CSA, by nongovernmental entities. Though, by statutory mandate, these institutions are an alternative form of public schools financed by public education funds, they and their nongovernmental operators are largely free and independent of management and oversight by the public education bureaucracy. Indeed, charter schools compete with traditional public schools for students, and they receive funding based on the number of students they recruit and retain at the expense of the traditional system. Insofar as their nongovernmental operators use deceptive business practices to further these efforts, the purposes of the UCL are served by subjecting them to the provisions of that statute.
Nor is the state’s sovereign educational function thereby undermined. Even if governmental entities, in the exercise of their sovereign functions, are exempt from the UCL’s restrictions on their competitive practices (see Community Memorial, supra, 50 Cal.App.4th 199, 209-211 [county was not “person” for purposes of UCL, such that county hospital’s treatment of paying patients in competition with private hospitals would be subject to statute], no reason appears to apply that principle to nongovernmental entities, covered by the plain terms of the statute, who compete with the traditional public schools for students and funding. We conclude that the charter school defendants are “persons” covered by the UCL.
While not a UCL decision, Abouab v. City and County of San Francisco, ___ Cal.App.4th ___ (July 20, 2006), is worth reading because it addresses four of the potential bases for an attorneys' fees award in UCL cases: the private attorney general doctrine, the common fund theory, the substantial benefit theory, and the catalyst theory. The Court of Appeal (First Appellate District, Division Two) held that the plaintiff was not entitled to recover fees under any of these theories.
The decision addresses a question about the catalyst theory that I've had in my mind ever since the Supreme Court decided Graham v. DaimlerChrysler Corp., 34 Cal.4th 553 (2004). In Graham, the Supreme Court held that fees can be recovered under the catalyst theory only if the plaintiff made a pre-lawsuit attempt to resolve the dispute. Id. at 577. So, what if your case was already on file before Graham was decided? How can you satisfy that requirement after the fact? Under Abouab, you can't. The Court of Appeal held that the plaintiff could not recover fees under the catalyst theory because (among other reasons) he had not satified the pre-lawsuit notification requirement, even though his case was filed before the Supreme Court announced that requirement in Graham. (Slip op. at 21-30.) That does not seem entirely fair, but I suppose we should all be thankful that the Supreme Court adopted the catalyst theory at all.
Yesterday, the Supreme Court issued its decision in Kearney v. Salomon Smith Barney, Inc. , ___ Cal.4th ___ (July 13, 2006). In that case, the plaintiff's UCL "unlawful" prong claim was predicated on the defendant's alleged violation of a California Penal Code provision prohibiting tape-recording of telephone calls without both parties' consent. The Supreme Court examined choice-of-law principles at length, and concluded that California law prevailed over the less-protective Georgia law (which requires the consent of only one party to the call). However, California law would govern only for purposes of defendant's future conduct. The Supreme Court concluded that it would be unfair to apply California law to the defendant's past conduct, given the doubt over which law governed. Accordingly, monetary relief, including restitution, would be unrecoverable, but the claim for injunctive relief could proceed.
At the end of the opinion, the Court had this to say about the UCL:
Finally, we briefly address a point raised by one of the amicus curiae briefs that have been filed in this court, focusing specifically upon the potential application of California’s unfair competition law (UCL) in this case. The brief of amicus curie Pacific Legal Foundation suggests that because, as compared to other states’ consumer protection laws, the UCL “provides the broadest right of action to the widest number of people,” the reach of the statute should be restrained in the application of California’s choice-of-law principles.
In our view, we have no occasion in the present case to address the concerns advanced by amicus curiae, because this case does not present any of the potentially more controversial aspects of the UCL and the provisions of that law will not affect the potential relief that plaintiffs may obtain in this case. Here, we are not dealing with conduct that assertedly is simply “unfair” (see generally Cel Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180-187), but rather with alleged conduct that is “unlawful” and already subject to an express statutory private right of action. ([Penal Code] § 637.2.) Further, both the named plaintiffs and the members of the proposed class allegedly are direct victims of the unlawful conduct, rather than simply unharmed persons suing on behalf of the general public. (Cf., e.g., Consumers Union of United States, Inc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433, 1437-1444; see also Prop. 64, Gen. Elec. (Nov. 2, 2004), amending Bus. & Prof. Code, § 17204.) In addition, an injunctive remedy is authorized not only by the terms of the UCL (Bus. & Prof. Code, § 17203), but by the terms of section 637.2 itself. Finally, as discussed earlier (ante, at p. 47, fn. 17), to the extent plaintiffs seek reimbursement under the UCL for [the defendant’s] past conduct, we have concluded that such reimbursement is unavailable.
(Slip op. at 48-49.) I don't know what specific arguments the Pacific Legal Foundation made in its amicus brief (if anyone has it, please forward a copy), but it's clear the Supreme Court thought they were irrelevant to this case. Moreover, there's no reason why a choice-of-law analysis should be performed any differently for UCL claims than other types of claims. The statute provides broad-ranging relief because its purpose is to protect California consumers. To water down that purpose just because other states choose to protect their consumers less vigorously than California would eviscerate the whole point of a choice-of-law analysis, which is, “to the extent practicable, to achieve ‘the “maximum attainment of underlying purpose by all governmental entities.” ’ ” (Slip op. at 37 (citation omitted).)
Because the UCL has no attorneys' fees provision, successful plaintiffs typically seek their fees under Code of Civil Procedure section 1021.5, the "private attorney general" doctrine. In Lindelli v. Town of San Anselmo, ___ Cal.App.4th ___ (May 26, 2006), the Court of Appeal (First Appellate District, Division Five) held that, absent a contrary agreement with the client, the right to recover fees under section 1021.5 belongs to the attorney. That means that the attorney can intervene in the action and seek fees on her own behalf even if the client refuses to authorize a fee request:
Were we to interpret section 1021.5 as precluding intervention and an attorney’s request for fees where the client declines to move for a fee award, we would diminish the certainty that attorneys who undertake public interest cases will receive reasonable compensation and dilute section 1021.5’s effectiveness at encouraging counsel to undertake litigation enforcing important public policies. (SeeFlannery [v. Prentice], supra, 26 Cal.4th  583 [(2001)].) Were we to adopt respondents’ position it would also provide a windfall to the wrongdoing defendant, at the expense of the attorneys who labored in the public interest. (Cf.id. at pp. 585-586 [interpreting Government Code section 12965 to avoid windfall to client]; MacIsaac v. Waste Management Collection & Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1091 [“California courts are justifiably reluctant to construe statutes to confer a windfall”]; Lolley v. Campbell (2002) 28 Cal.4th 367, 376 [interpreting fee provision in the Labor Code to avoid windfall to wrongdoing employer in form of exemption from paying attorney fees].) Finally, interpreting section 1021.5 as permitting intervention and a motion for fees by attorneys on their own behalf avoids wasteful collateral actions wherein attorneys sue their former clients because the clients’ refusal to move for fees led to loss of an opportunity to seek a fee award under section 1021.5.
Slip op. at 15. The opinion also notes that any motion for fees under section 1021.5 must be filed before entry of final judgment. Slip op. at 14.
On Friday, in R&B Auto Center, Inc. v. Farmers Group, Inc., ___ Cal.App.4th ___ (Jun. 9, 2006), the Court of Appeal (Fourth Appellate District, Division Three) reinstated a UCL claim for injunctive relief, holding that the trial court had improperly employed the motion in limine procedure to dismiss that cause of action. The opinion has several interesting components:
First, the Court held that the plaintiff's UCL claim was separate and distinct from its insurance bad faith/breach of contract claim:
After the trial court ruled on the motions in limine and held that there was no coverage as a matter of law, it also dismissed the three causes of action suggested by [defendant] Truck Insurance — those for breach of contract, bad faith and unfair competition. We cannot see why a ruling that the insurance contract provided no coverage for the Peralta litigation claim should translate into a ruling that [plaintiff] R & B cannot state a cause of action seeking to enjoin unfair business practices. Whether the insurance contract provided for lemon law coverage for used car sales was a question of law that the court readily answered by reviewing that contract. But the fact that the insurance contract limited lemon law coverage to new car sales hardly proves that Truck Insurance does not engage in unfair business practices in the sale of its new car lemon law coverage to used car dealerships. The court erred in disposing of the unfair business practices cause of action just because it held that the insurance contract did not provide coverage for the Peralta litigation.
(Slip op. at 33-34.)
Second, the Court reaffirmed its holding that Prop. 64 applies retroactively to pending cases, in part because the plaintiff conceded the point:
We invited the parties to file supplemental briefs on the retroactivity of Proposition 64 and the effect of any retroactive application on the case before us. The parties all agreed that the proposition is retroactive, citing this court’s opinion in Benson v. Kwikset Corp. (2005) 126 Cal.App.4th 887, review granted April 27, 2005, S132443. The Supreme Court granted review of Benson, and several other cases addressing the retroactivity of Proposition 64, after the filing of the supplemental letter briefs in the matter before us. Pending a Supreme Court decision on the question of retroactivity, the trial court is directed to apply the Proposition 64 statutory amendments to this case.
(Slip op. at 38-39.)
Third, the Court interpreted the "suffered injury in fact and lost money or property" language of Prop. 64:
Truck Insurance says that R & B lacks standing, under Business and Professions Code section 17204, to maintain the unfair competition cause of action because it has not alleged that it has “lost money or property as a result of unfair . . . competition.” With this assertion, we certainly disagree. R & B alleges that it paid premiums for illusory coverage and it had to make payment on a lemon law claim that it would not have had to pay had the Truck Insurance policy said what it was represented to say. This is an allegation of loss caused by the purported misrepresentations concerning the scope of coverage. The standing requirement is met.
(Slip op. at 39-40 (emphasis added).)
Fourth, the Court addressed (without deciding) whether a UCL claim seeking injunctive relief only must satisfy the class certification requirements of Code of Civil Procedure section 382:
Next, Truck emphasizes that R & B cannot seek injunctive relief on behalf of the general public unless it meets the requirements of Code of Civil Procedure section 382, with reference to class actions. .... Truck Insurance states that R & B may only seek class action injunctive relief if it can demonstrate compliance with these requirements. However, Truck Insurance does not assert that R & B cannot do so.
R & B contends that it can meet the class certification requirements and points us to its offer of proof with respect to the anticipated testimony of Fena, Rusich and Sweet. R & B requests that this court remand the matter so that it will have an opportunity to show that it can satisfy the requirements of Code of Civil Procedure section 382. It is only fair to grant this request, since at the time R & B filed its third amended complaint it was not required to comply with Code of Civil Procedure section 382.
(Slip op. at 40.)
Evidently, the plaintiff chose not to raise the argument that an injunctive-relief-only UCL claim should not have to satisfy section 382, and to argue instead that it can meet section 382's requirements (which is probably the better strategy in many situations). This case could be an example of the "be careful what you wish for" aspect of Prop. 64. On remand, the plaintiff will seek formal class certification of the injunctive relief claim, and based on the opinion alone, I see no reason why the plaintiff should not also amend to seek restitution (at least for itself, if not on a classwide basis). Overall, the amended UCL claim could enhance, not lessen, the defendant's potential exposure.
In an unpublished opinion dated April 6, 2006, the Court of Appeal (First Appellate District, Division Five) reiterated the rule that a UCL claim may not be predicated on conduct that falls within the litigation privilege of Civil Code section 47(b). Othman v. Wells Fargo Bank, N.A., no. A109606 (slip op. at 15-16).
A reader writes in with the following hypothetical:
Let's say a company, which we'll call "The Big Space," sells its own branded clothes, makes misleading statements about the existence of price discounts. For example, it advertises that these pants were "Usually $50, now $25, for a limited time." However, the true facts are that the retailer only sold the pants at $50 ten percent of the time, and the regular price was actually the "discounted" price of $25. Under 17200 and CLRA, and pursuant to FTC guidelines, this is probably misleading advertising. But what are the damages, if any, to the consumer?
For instance, let's say a retailer, whom we'll call "The Big Space," is the only retailer who sells its branded pants, and you can't buy them from any other store. What is the consumer's damages, if any, where he bought the pants at $25, thinking he was getting a $25 discount? What if comparable pants from Calvin Klein cost $25 also, so the consumer actually got a decent deal on the pants? And that's not even addressing the issue of reliance, which apparently isn't necessarily required under Prop 64 according to what I read on your blog. Regarding reliance, the consumer could argue that he bought the pants because he thought, based on the "limited time" language, that he had better act fast before the price was raised back to the supposed $50 regular price.
Does the consumer have a case for damages, besides just suing for an injunction (which state attorneys general or the FTC could do themselves)?
Keeping in mind that damages are recoverable under the CLRA, but not the UCL (which limits monetary recovery to restitution), what do you think?
In County of Santa Clara v. Atlantic Richfield Corp., ___ Cal.App.4th ___ (Mar. 3, 2006), the Court of Appeal held that a group of California public entities, including Santa Clara County and others, may seek to require certain paint manufacturers to pay to abate the hazards caused by lead paint. The presscoverage heralded the plaintiffs' victory in having their claims restored. However, the last few pages of the opinion affirmed the trial court's order dismissing the UCL claim because, as pleaded, it was barred by the applicable statute of limitations. (Slip op. at 50-53.) The Court of Appeal did not take the opportunity to address whether the discovery rule applies to UCL claims. Other than that loss, the opinion was a complete victory for the public entites.
In Shamsian v. Department of Conservation, ___ Cal.App.4th ___ (Feb. 7, 2006), the Court of Appeal (Second Appellate District, Division Five) held that the trial court properly declined to hear a UCL "unlawful" prong claim predicated on alleged violations of the California Beverage Container Recycling and Litter Reduction Act (Pub. Res. Code §§14500 et seq.). After a lengthy discussion of that Act, the Court explained:
It is well-established that a court of equity will abstain from employing the remedies available under the unfair competition law in appropriate cases. .... In this case, the complex statutory arrangement of requirements and incentives involving participants in the beverage container recycling scheme is to be administered and enforced by the [D]epartment [of Conservation] consistent with the Legislature’s goals. For the court at this point to issue restitution and disgorgement orders against the corporate defendants would interfere with the department’s administration of the act and regulation of beverage container recycling and potentially risk throwing the entire complex economic arrangement out of balance. The public’s need for opportunities to recover its cash redemption value funds and to conveniently recycle its beverage containers is not so great as to warrant judicial interference in the administrative scheme designed to address those needs at this point.
(Slip op. at 22-23.) The opinion includes a useful string cite that lists most of the leading UCL "economic abstention" decisions. Generally speaking, the "economic abstention" doctrine applies in cases involving matters of complex economic policy that are better addressed by the legislature than the judiciary. See, e.g., Desert Healthcare District v. PacifiCare FHP, Inc., 94 Cal.App.4th 781 (2001). Whether the doctrine applies is typically determined on a very fact-specific, case-by-case basis.
Yesterday's Daily Journal reported on American Products Co. v. Law Offices of Geller, Stewart & Foley, LLP, ___ Cal.App.4th ___ (Dec. 16, 2005) (Fourth Appellate District, Division Two), handed down last Friday, in which the Court of Appeal held that the litigation privilege did not bar a suit against lawyers accused of filing Trevor-like "shakedown" suits under the former UCL. In a now-familiar irony, the lawyers were themselves sued for violating the UCL, as well as for intentional interference with prospective economic advantage.
The article incorrectly reported that "[a]fter the Trevor debacle, lawmakers changed the law so that plaintiffs now have to cite specific damages in their claims and post notice to the class." It was not lawmakers, but rather the initiative process, that resulted in the amendment.
In an opinion just handed down this afternoon, the Court of Appeal (Sixth Appellate District) addressed whether non-restitutionary disgorgement of profits is recoverable in a certified UCL class action. Exacerbating the split in appellate authority on this question, the Court held that such a remedy is not available. Feitelberg v. Credit Suisse First Boston LLC, ___ Cal.App.4th ___ (Dec. 9, 2005).
To complement the Daily Journal's story from Monday, the Court of Appeal (Fourth Appellate District, Division Three) yesterday issued yet another opinion called People ex rel. Lockyer v. Brar, ___ Cal.App.4th ___ (Nov. 30, 2005). The case involves the Attorney General's UCL action against a lawyer accused of abuses like those of the Trevor Law Group. The AG obtained a $1.7 million default judgment, representing substantial civil penalties, after the attorney failed to timely answer the complaint. The Court of Appeal affirmed the trial court's order denying the attorney's motion for relief from default. To say that the opinion is harsh is to put it mildly, so I will just say this. The CLRA is a very good alternative cause of action to consider in the post-Prop. 64 world. If your client has suffered injury in fact and you are seeking class certification anyway, pleading a CLRA claim should not significantly complicate your UCL action (assuming the CLRA applies to the defendant's conduct). But no one should try to file a Trevor-style "shakedown" case under the CLRA. Civil Code section section 1780(d) gives the trial court discretion to award attorneys' fees to a prevailing defendant if the plaintiff acts in subjective bad faith. Corbett v. Hayward Dodge, Inc., 119 Cal.App.4th 915, 925-26 (2004). The problem here is not with the law (either the CLRA or the UCL), but with the attorney who decides to abuse it.
The case involved the scope of the Attorney General's power to obtain UCL remedies against an insolvent insurance company whose assets were under control of the Insurance Commissioner. In 1999, the AG intervened in a qui tam action against the insolvent insurer, which was later removed to federal court. The Ninth Circuit asked the California Supreme Court to decide whether the AG's suit could proceed concurrently with another action (also removed to federal court) that the Insurance Commissioner was pursuing. (Slip op. at 1-5.) The Supreme Court separately addressed each UCL remedy that the AG sought (restitution, civil penalties, and injunctive relief).
The opinion (authored by Justice Moreno) mentions Prop. 64 several times, but does not breathe a word about retroactivity, which is logical, since Prop. 64 did not really change anything for public prosecutors. A few things are interesting about the opinion from the perspective of private UCL litigation.
First, the Court quotes the post-Prop. 64 language about "injury in fact" even though there was no reason to mention it given that the AG's suit was based, of course, on the public prosecutor provisions:
"Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices in order to protect the public and restore to the parties in interest money or property taken by means of unfair competition." (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126 (Kraus); see Bus. & Prof. Code, § 17204.) A UCL action may be prosecuted by the Attorney General, by certain specified local law enforcement officials, "or by any person who has suffered injury in fact and has lost money or property as a result of such unfair competition.” (Ibid.)
(Slip op. at 19-20; see also id. at 25-26 (also quoting Prop. 64).) The quotation from Kraus suggests that the Court believes that the underlying definition of "restitution" is unchanged, and that Prop. 64 only affected who can file the suit.
Next, the Court held:
Business and Professions Code section 17205 provides: "Unless otherwise expressly provided, the remedies or penalties provided by [the UCL] are cumulative to each other and to the remedies or penalties available under all other laws of this state." Therefore, the fact that there are alternative remedies under a specific statute does not preclude a UCL remedy, unless the statute itself provides that the remedy is to be exclusive. (See Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 573 (Stop Youth Addiction).) We conclude that Insurance Code section 1037, subdivision (f) is such an express limit on the authority of the Attorney General to seek a restitutionary remedy under the UCL.
(Slip op. at 20.) Such express limits are relatively rare; most published cases involve less clear-cut situations. As the Court observed: "We have left open the question whether Business and Professions Code section 17205 precludes the Legislature from impliedly repealing a UCL remedy if the two are 'clearly repugnant and so inconsistent that the two cannot have concurrent operation.' (Stop Youth Addiction, supra, 17 Cal.4th at p. 574.) Because we decide the limit on UCL remedies is express in the present case, we need not decide that question." (Slip op. at 20 n.6.)
[If class certification is denied, c]an the individual claimants still maintain a 17200 claim? Does Prop. 64 now essentially limit 17200 claims to class actions only, such that individuals can no longer bring 17200 claims? Is there any decision regarding this issue--or even orders you know of from local trial courts?
My response was:
17200 claims could always be brought by individuals on behalf of themselves and I don't see anything in Prop. 64 that would change that. The text of Prop. 64 says that you have to obtain class certification only if you intend to seek relief on behalf of others.