The UCL Practitioner

Interesting UCL restitution order: Ybarra v. Aramark Corp.

On May 1, 2008, Judge David C. Velasquez, Supervising Judge of the Orange County Superior Court Complex Civil Panel, issued an interesting order in a wage and hour case, Ybarra v. Aramark Corp., No. 30-2008-0018008-CU-OE-CXC (Orange Cty. Super.). Judge Velasquez held that waiting time penalties under Labor Code section 203 were recoverable under the UCL as "restitution":

In similar fashion to the "additional hour of pay" [in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1108], the instant court observes that Labor Code §203 does not provide that the employer is "subject to" the imposition of the waiting time penalty. Rather that section states "the wages of the employee shall continue" if the employer does not pay separation wages within 72 hours of the employee's termination. The employee is not required to do anything affirmative — "take action" — in order to be entitled to the continuing right to wages. The right to the waiting time penalty is self-executing, i.e., the employee's right to payment of the waiting time penalty arises immediately upon the satisfaction of the condition precedent, late payment of the last wages due to the employee at the time of termination from employment. In that respect, because the waiting time penalty becomes immediately due and payable to the employee, the right to receive the penalty becomes a vested property right of the employee and the proper subject of restitution. (Cf. Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178 [wages which are due but unpaid are the proper subject of restitution].)

Minute Order at 2. This would be a form of what I call "vested interest" restitution. Judge Velasquez therefore denied the motion to strike the complaint's references to UCL restitution and to the four-year statute of limitations (and overruled the defendant's demurrer to the UCL cause of action as a whole).

Many thanks to the blog reader who emailed this order to me. If you know of an interesting trial-level order like this one, I'd be glad to receive a copy of it (uclpractitioner@gmail.com).

New UCL restitution decision: Bradstreet v. Wong

The Court of Appeal's opinion in Bradstreet v. Wong, ___ Cal.App.4th ___ (Apr. 16, 2008) addresses "vested interest" restitution, which is one of the three types of UCL restitution. The California Supreme Court has held that the Labor Code gives employees a vested interest in earned but unpaid wages, which are therefore recoverable as restitution in a UCL action. Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163 (2000); see slip op. at 19-20 (citing Cortez). In Bradstreet, the Court of Appeal (First Appellate District, Division One) held that a defunct corporation's individual owner-officers could not be required to restore unpaid wages earned by the corporation's employees. The plaintiff-employees had a vested right to be paid by the corporate employer, but that right did not extend to its owner-officers:

There is no dispute ... that the unpaid wages could be recovered from the Wins Corporations as restitution pursuant to Business and Professions Code section 17203. “[A]n order that a business pay to an employee wages unlawfully withheld is consistent with the legislative intent underlying the authorization in [Business and Professions Code] section 17203 for orders necessary to restore to a person in interest money or property acquired by means of an unfair business practice.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178.) ....

The issue in the case before us is whether [the individual] defendants, who were not the employers, and who were not found to have required any employee to work for them personally, or to have misappropriated corporate funds for their own use, may also be required to pay the earned but unpaid wages as restitution.

“[A]n order for restitution is one ‘compelling a UCL defendant to return money [or earned wages for service performed] obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.’ ” (Korea Supply, supra, 29 Cal.4th at p. 1149.) The problem with requiring defendants, rather than the Wins Corporations, to pay unpaid wages as restitution is that the labor intervener performed was not for defendants personally, but for the employers, the Wins Corporations. Defendants did not personally obtain the benefit of those services, and the duty to pay wages was owed by the corporations as employers, not by defendants as owners, officers or managers. (See Reynolds, supra, 36 Cal.4th at p. 1087.)

Nor is this a case in which defendants “misappropriated to themselves, as individuals for their individual advantage, the unpaid wages” the Wins Corporations owed. (Reynolds, supra, 36 Cal.4th at p. 1090.) Although intervener cites evidence that she contends establishes defendants did take funds out of the Wins Corporations for their personal use, the court, as trier of fact, found that defendants did not personally obtain any “money or gains from which to . . . pay restitution.” It resolved against intervener conflicts in the evidence on the issue of withdrawal of funds from the Wins Corporations for defendants’ personal use. It found, instead, that defendants “put far more personal funds into the corporations in the form of capital infusions and loans than were alleged to have been improperly taken out. . . . [E]vidence indicated capital contributions and loans from Defendants to the corporations in excess of $1,000,000. These capital contributions and loans came largely toward the end of the Wins Corporations’ existence in an unsuccessful effort to keep the corporations afloat.”

In the absence of a finding that intervener performed labor for defendants personally, rather than for the benefit of Wins Corporations, or that defendants appropriated for themselves corporate funds that otherwise would have been used to pay the unpaid wages, we agree with the trial court’s conclusion that an order requiring defendants to pay the unpaid wages would not be “restitutionary as it would not replace any money or property that [defendants] took directly from” intervener. (Korea Supply, supra, 29 Cal.4th at p. 1149.) “[T]he notion of restoring something to a victim of unfair competition includes two separate components. The offending party must have obtained something to which it was not entitled and the victim must have given up something which he or she was entitled to keep.” (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 340.) Therefore, restitution is available where “ ‘a defendant has wrongfully acquired funds or property in which a plaintiff has an ownership or vested interest.’ ” (Feitelberg v. Credit Suisse First Boston, LLC (2005) 134 Cal.App.4th 997, 1012.) Defendants cannot be required to return or restore to intervener something they never obtained. (See Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 456 [noting absence of authority for proposition that “a UCL plaintiff may recover money from a defendant who never received it . . . ].) The intervener provided her labor to the employer, i.e., the Wins Corporations. The Wins Corporations, not their owners, officers or managers, owed the earned wages that became due and payable when the labor was performed. (See Reynolds, supra, 36 Cal.4th at p. 1087.) Not having acquired or directly and personally benefited from intervener’s labor without paying for it, or having misappropriated for their personal use corporate funds that could have been used to pay her wages, defendants could not be required to pay the unpaid wages as restitution. Such relief would not be “restitutionary as it would not replace any money or property that [defendants] took directly from” intervener. (Korea Supply, at p. 1149.)

Slip op. at 20-22 (emphasis in original) (footnote omitted). It is critical here that the owner-officers never misappropriated funds for their own use and contributed more capital to the corporation than they took out. Otherwise, a stronger argument might have been made that the value of the employees' labor passed from the employees, to the corporation, to the owners, and was thus traceable and subject to a restitutionary award.

Statement of issues on review in Reid v. Google

The Supreme Court's statement of issues on review in Reid v. Google, no. S158965, is up. It looks like the UCL restitution issue will not be a major focus of the case:

Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. This case presents the following issues: (1) Should California law recognize the "stray remarks" doctrine, which permits the trial court in ruling on a motion for summary judgment to disregard isolated discriminatory remarks or comments unrelated to the decision-making process as insufficient to establish discrimination? (2) Are evidentiary objections not expressly ruled on at the time of decision on a summary judgment motion preserved for appeal?

UPDATE: The blog Cal Biz Lit has an interesting post on the summary judgment issues that the Supreme Court will be reviewing in this case. And an article by Mike McKee in Monday's Recorder reports that "Google Appeal Carries Big Evidence Issue." An excerpt:

E-mails were flying between litigators Thursday as word spread that the California Supreme Court had agreed to resolve a thorny issue over how trial court judges should treat evidence.

Specifically, the high court decided Wednesday it was time to take a closer look at so-called Biljac rulings to clarify what lawyers and trial court judges must do to ensure that evidentiary objections are preserved for appellate review when summary judgment motions are decided.

For more discussion of the Biljac issue, see this post from my other blog, The Appellate Practitioner.

Supreme Court grants review in UCL "vested interest" restitution case: Reid v. Google

Yesterday, the Supreme Court granted review in Reid v. Google, no. S158965. In that case, the Court of Appeal held (among other things) that the UCL did not permit the plaintiff to recover his unvested stock options as "restitution" in an individual action for age discrimination. Reid v. Google, Inc., 155 Cal.App.4th 1342 (2007).

Because the Supreme Court has not yet posted its statement of issues on review, we can't tell whether the Supreme Court will be reviewing the restitution issue or some other issue in the case. The Court of Appeal's opinion also addressed some interesting issues regarding summary judgment procedure, one of which might have grabbed the Supreme Court's attention. My original post on Reid v. Google is here.

Review and depublication denied: Shersher v. Superior Court

Yesterday, the Supreme Court denied review and depublication of the Court of Appeal's opinion in Shersher v. Superior Court (Microsoft Corp.), 154 Cal.App.4th 1491 (2007). For more on this case, see this blog post. The Supreme Court's docket is here: Shersher v. Superior Court (Microsoft Corp.)., no. S157482.

"Three Evolving Facets of UCL Restitution"

My latest article, which appears in the December November 2007 issue of CAOC Forum, is called "Three Evolving Facets of UCL Restitution." The three facets of restitution that the article discusses are "money taken" restitution; "vested interest" restitution; and restitutionary disgorgement. If you're interested in receiving a copy, please send me an email at uclpractitioner@gmail.com

Supreme Court expresses potential interest in UCL restitution case: Shersher v. Superior Court

On October 19, 2007, a petition for review was filed in Shersher v. Superior Court (Microsoft Corp.)., no. S157482. On December 6, 2007, the Supreme Court gave itself an extension of time, through January 17, 2008, to grant or deny review.

In Shersher, the Court of Appeal (Second Appellate District, Division Five) held that the use of the word "directly" in Korea Supply does not mean that restitution is unrecoverable in cases in which money passed from the plaintiff, through a retail intermediary, to a defendant who violated the UCL by misrepresenting or making or material omissions concerning the goods it was selling:

Nothing in Korea Supply conditions the recovery of restitution on the plaintiff having made direct payments to a defendant who is alleged to have engaged in false advertising or unlawful practices under the UCL.

Shersher v. Superior Court (Microsoft Corp.), 154 Cal.App.4th 1491, 1494 (2007).

Here is my original post from September on this case. Thanks to the blog reader who emailed me with this development.

Oral argument preview: Farm Raised Salmon Cases

This morning at 9:00 a.m. in Los Angeles, the Supreme Court will hear oral argument in Farm Raised Salmon Cases, no. S147171. In that case, the Court of Appeal held that federal law preempted the plaintiffs' UCL claims, which alleged that the defendants failed to disclose to consumers that they used artificial coloring to turn grey-fleshed farm-raised salmon pink. Yesterday's Recorder reported that "State High Court Arguments to Get Fishy" (subscription).

A blog reader who is attending the argument has promised to provide a report for posting here tomorrow or the next day. Meanwhile, the Court of Appeal's opinion is here: Farm Raised Salmon Cases, 142 Cal.App.4th 805 (2006) (Second Appellate District, Division Three).

New UCL "vested interest" restitution decision: Reid v. Google, Inc.

In Reid v. Google, Inc., ___ Cal.App.4th ___ (Oct. 4, 2007), the Court of Appeal (Sixth Appellate District) addressed "vested interest" restitution under the UCL. The concept of "vested interest" restitution was addressed in Kraus, Cortez, and Korea Supply. In Reid, the Court of Appeal held that the UCL did not permit the plaintiff to recover his unvested stock options as "restitution" in an individual action for age discrimination:

Reid asserts the trial court erred in striking his prayer for restitution under the UCL, and specifically asserts he should have the right to seek the unvested stock options that he had at the time of his termination from Google.

As to the causes of action under the unfair competition law, while restitution is available under the UCL without individualized proof of the impact, the law does not contemplate recovery for individuals who were not in some way deprived of money or property by means of defendant’s unfair competition. (See Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1148 (Korea Supply Co.); Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126-127 (Kraus).) Specifically, a defendant may be compelled to return “money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property ....” (Kraus, supra, 23 Cal.4th at pp. 126-127.)

Reid seeks return of unvested stock options from the time he was terminated. However, unvested stock options are not owned by the option holder. In In re Marriage of Walker (1989) 216 Cal.App.3d 644, 647, the court noted that when an at-will employee (like Reid) is terminated prior to vesting, his stock options are subject to forfeiture, because the options are only earned after they have vested.

Here, Reid’s stock options were not earned at the time of his termination, because they had not yet vested. Reid at most had an expectancy interest in the options, however, such interest does not constitute ownership for the purpose of restitution. (See, e.g., Korea Supply Co., supra, 29 Cal.4th at pp. 1149-1150.)

We are not persuaded by Reid’s reliance on In re Marriage of Hug (1984) 154 Cal.App.3d 780 (Hug) for the premise that in some circumstances unvested stock options are owned by the optionee. Hug is inapplicable here, because its holding was specifically limited to marital dissolution actions in which a spouse had unvested stock options at the time of dissolution. The Hug court held that because some of the time needed to vest the options passed during the marriage, and the husband was still employed with the company and had an expectation of vesting at the time of dissolution, fairness required that the wife share in the interest of the options. (Id. at p. 790.)

Because an ownership interest is required in order to seek restitution under the UCL, and Reid had no ownership interest in his unvested stock options, the trial court was correct in striking the claim for restitution under the UCL.

Slip op. at 7-8.

This opinion is also interesting because it followed Biljac Associates v. First Interstate Bank, 218 Cal.App.3d 1410 (1990), despite a recent First District opinion (Demps v. San Francisco Housing Authority, ___ Cal.App.4th ___ (Apr. 7, 2007)) overruling that decision. The Reid court said "we believe the Biljac decision was substantially correct, and was surely more correct than its critics have been." Slip op. at 14. The court did not mention the Demps case.

The Reid opinion also has an intriguing discussion of the summary judgment procedure and how appellate courts review rulings on summary judgment motions. Id. at 14-17. Ultimately, the Court of Appeal reversed the summary judgment of most of the causes of action (with the exception of the UCL claim related to hiring and promotion; the court held that the plaintiff suffered no "injury in fact" because he was hired the only time he applied and was never refused a promotion (slip op. at 6-7)).

Supreme Court denies review in UCL restitution case: Juarez v. Arcadia Financial

Last Wednesday, September 25, the Supreme Court denied review and depublication in Juarez v. Arcadia Financial, no. S155139. The Court of Appeal's opinion is at Juarez v. Arcadia Financial, Ltd., 152 Cal.App.4th 889 (2007).

When that case was first handed down, I didn't have time to write much about it, but it is a significant decision. The Court of Appeal (Fourth Appellate District, Division One) allowed discovery intended to uncover the profits the defendant earned on the money wrongfully withheld from the plaintiffs, and reasoned as follows:

The situation in this case differs from that in Day [v. AT & T Corp., 63 Cal.App.4th 325 (1998), on which the trial court relied in denying the motion to compel,] in significant respects. First, unlike in Day, in this case there is a certified class, which means that a fluid recovery fund is possible pursuant to the class action statute, despite not being available under the UCL. (See Kraus v. Trinity Management Services (2000) 23 Cal.4th 116, 137 ["In sum, the Legislature has not expressly authorized monetary relief other than restitution in UCL actions, but has authorized disgorgement into a fluid recovery fund in class actions"].)

Second and more important, in this case the plaintiff class is alleged to have suffered a measurable loss. Thus, if the plaintiffs succeed in establishing UCL liability, it will be clear that Arcadia obtained something to which it was not entitled, and that the plaintiff class gave up something its members were entitled to keep. In Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1149 (Korea Supply), the Supreme Court concluded that "restitutionary disgorgement" is available under the UCL. This may include monies that were not necessarily in the plaintiff's possession: "We have stated that '[t]he concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person.' [Citation.] Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest." (Korea Supply, supra, 29 Cal.4th at p. 1149, citing Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178.)

The acknowledgement in Korea Supply that the concept of restitution is broader than simply the return of money that was once in the possession of the person from whom it was taken is not surprising. The basic premise of this type of remedy is that "[a] person who has been unjustly enriched at the expense of another is required to make restitution to the other." (Rest., Restitution, § 1.) "Ordinarily, the measure of restitution is the amount of enrichment received . . . , but as stated in Comment e, if the loss suffered differs from the amount of benefit received, the measure of restitution may be more or less than the loss suffered or more or less than the enrichment." (Id. at § 1, Com. a, p. 12, italics added.)

In this case, the plaintiffs arguably have an ownership interest in any profits Arcadia may have gained through interest or earnings on the plaintiffs' money that Arcadia wrongfully held. This case is distinguishable from the cases Arcadia cites for the proposition that "[e]very case that has considered the issue has denied recovery of defendant's profits under the UCL," because in none of those cases did the plaintiff or plaintiffs establish a measurable loss or a vested interest in the profits to be disgorged.

Id. at 914-15 (footnote omitted). What the Court is saying is that the profits of which disgorgement was sought in this particular case were restitutionary, rather than non-restitutionary. The Court also observed in a footnote that "although the UCL has been interpreted to permit relief in the form of restitution, but not damages, the concept of restitution that courts have applied in the UCL context appears to bear some relationship to the historical function of 'damages,' rather than the historical function of 'restitution.'" Id. at 913 n.14.

New Ninth Circuit UCL/class certification decision: Lozano v. AT&T Wireless

Yesterday, the Ninth Circuit affirmed class certification of a UCL "unfair" prong claim in Lozano v. AT&T Wireless Services, Inc., ___ F.3d ___ (9th Cir. Sept. 20, 2007). I have not had time to review the decision in detail, but I did notice this paragraph on restitution, which is particularly interesting in light of the recent Shersher decision:

The next question we address is whether these injuries are recoverable under the UCL. The only types of relief available under the UCL actions are injunctive and restorative. Cal. Bus. & Prof. Code § 17203; see also Cel-Tech, 83 Cal. Rptr. 2d at 560. While restoring Lozano's overage payments, if any, fits squarely within the restorative context of the UCL, we question whether restoring Lozano's "reserved" minutes falls into this category. Restitution in the UCL context, however, includes restoring money or property that was not necessarily in the plaintiff's possession. The California Supreme Court has stated that the concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person. Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest. See Juarez v. Arcadia Fin., Ltd., 61 Cal. Rptr. 3d 382, 400 (Cal. Ct. App. 2007) (citing Korea Supply Co. v. Lockheed Martin Corp., 131 Cal. Rptr. 2d 29, 42 (2003)). Here, Lozano has a vested interest in 400 free anytime minutes. Due to out-of-cycle billing, however, Lozano found it necessary to reserve, and therefore lose, a certain number of those minutes each billing period. Accordingly, we find that Lozano has properly stated an injury that he did not receive the full value of his contract with AWS due to its alleged failure to disclose out-of-cycle billing, and that this injury is redressable under the UCL. See Daghlian v. DeVry Univ., Inc., 461 F. Supp. 2d 1121, 1155 (C.D. Cal. 2006) (accepting plaintiff's theory that he suffered injury under the UCL because he paid thousands of dollars of tuition to defendant university and "did not receive what he had bargained for" due to its alleged unfair business practices).

Slip op. at 12772. The court also declined to employ the third, intermediate formulation of "unfair" adopted by the Court of Appeal in Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394 (2006). Instead, it held that the district court did not err by applying the pre-Cel-Tech formulation set forth in South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal.App.4th 861 (1999) (and other cases). Slip op. at 12775-77.

Important new UCL restitution decision: Shersher v. Superior Court

In an important new decision, Shersher v. Superior Court, ___ Cal.App.4th ___ (September 10, 2007), the Court of Appeal (Second Appellate District, Division Five) held that the presence of a retail intermediary does not bar a UCL restitution award. The following sentence from Korea Supply had led defendants to argue (and some trial courts to hold) that restitution is not an available remedy in cases involving retail intermediaries because the defendant took no money "directly" from the plaintiff: "Any award that plaintiff would recover from defendants would not be restitutionary as it would not replace any money or property that defendants took directly from plaintiff.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1132, 1149 (2003) (emphasis added). The Court of Appeal explained in Shersher that this language was not intended to limit the UCL's restitution remedy to cases by "direct" purchasers:

Nothing in the language of Korea Supply suggests that the Supreme Court intended to preclude consumers from seeking the return of money they paid for a product that turned out to be not as represented. Rather, the holding of Korea Supply on the issue of restitution is that the remedy the plaintiff seeks must be truly “restitutionary in nature”—that is, it must represent the return of money or property the defendant acquired through its unfair practices.

Slip op. at 7. Shersher should finally put an end to this argument in cases involving products sold through retailers. Shersher also distinguished Alch v. Superior Court, Madrid v. Perot Systems, and Feitelberg v. Credit Suisse.

UPDATE: A reader posted a comment asking why Korea Supply uses the word "directly," if it's not intended to limit the scope of UCL "restitution." In fact, no appellate court has held that the word "directly" limits UCL actions to cases not involving retail intermediaries. Nor would such a holding be consistent with Korea Supply. The quoted sentence appears to support such an argument only when taken out of context. As explained in the Shersher decision, Korea Supply involved a claim for what amounted to damages, and did not involve loss of money that was once in the plaintiff's hands. That was the point of the word "directly" in Korea Supply. No money or property had passed "directly" from the plaintiff's pocket to the defendant's (whether through an intermediary or otherwise). Nor had it done so in Alch, Madrid, or Feitelberg. Hence, the plaintiffs in those cases had no UCL restitution claim. The facts of Shersher (and other cases involving manufacturers who misled consumers about their goods, but sold the goods through retailers) are quite different and fall squarely within the definition of "restitution" set forth in Korea Supply. In the Shersher court's words:

The UCL [as interpreted in Korea Supply] ... requires only that the plaintiff must once have had an ownership interest in the money or property acquired by the defendant through unlawful means. Microsoft’s argument is contrary to the plain language of the UCL and the Supreme Court’s mandate that the UCL be interpreted broadly.

Slip op. at 10.

Review denied in two cases: Discover Bank and Colgan

Last week, the Supreme Court denied petitions for review in two cases:

1. The Discover Bank remand case, in which the Court of Appeal avoided the question of whether the no-class-action arbitration provision was unconscionable under California law by holding that Delaware law applied. Discover Bank v. Superior Court (Boehr), 134 Cal.App.4th 886 (2005) (Supreme Court docket). The Court also denied the depublication request. My original post on this case is here.

2. The UCL restitution decision, Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (2006) (Supreme Court docket). My original posts on Colgan are here and here.

Court of Appeal modifies UCL "restitution" opinion: Colgan v. Leatherman Tool Group, Inc.

On Tuesday, January 31, 2006, the Court of Appeal issued an Order Modifying Opinion and Denying Respondents' Petition for Rehearing in Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (Jan. 10, 2006). My original post on Colgan is here. The most interesting thing in the modification order is new footnote 24, concerning the nature of "restitution":

“[T]he terms equity and equitable are not always used to refer to remedial characteristics of a case. ... [E]quitable ... sometimes refers to fairness, sometimes to the jurisdictional mass of equity precedent, sometimes to remedies.” (Dobbs, Law of Remedies (2d ed. 1993) Meaning of Equity, § 2.1(3), p. 55; see 12 Corbin on Contracts (Interim edition 2002) Restitution, § 1103, p. 10 [“The remedy of restitution . . . can not properly be described as either ‘legal’ or ‘equitable’ in any narrowly restricted signification of those terms”].)

(Mod. Order at 2.)

New UCL "restitution" decision: National Steel v. Superior Court

On Friday, the Court of Appeal (Fourth Appellate District, Division One) penned this paragraph about UCL restitution in wage and hour cases:

Plaintiffs' third cause of action seeks restitution under Business and Professions Code section 17203 for the unpaid one hour of pay. Employees earn the additional hour of pay when they are denied a meal or rest period; thus, the payments under [Labor Code] section 226.7 are restitutionary and recoverable under California's Unfair Competition Law. (Tomlinson v. Indymac Bank F.S.B. [(C.D.Cal. 2005)] 359 F.Supp.2d [891,] 896.)

National Steel & Shipbuilding Co. v. Superior Court, ___ Cal.App.4th ___ (Jan. 20, 2006) (slip op. at 18). In other words, the statutorily-determined value of the missed meal or rest period constitutes recoverable restitution. That value—the worth of the lost opportunity for rest and refreshment—was wrongfully withheld from the employees, and the UCL requires the employer to restore it to them.

New UCL "restitution" decision: Colgan v. Leatherman Tool Group, Inc.

On Tuesday, January 10, 2006, the Court of Appeal issued a new and significant decision on UCL "restitution." Colgan v. Leatherman Tool Group, Inc., ___ Cal.App.4th ___ (Jan. 10, 2006). The decision provides a roadmap for plaintiffs on how to prove restitution in a UCL case.

The defendant manufactured products and sold them to consumers through retail intermediaries. The defendant represented that its products were "Made in U.S.A." when, in fact, "a significant portion of the various parts of the products were manufacturered abroad." Slip op. at 16. The trial court granted summary adjudication on liability in the plaintiff's favor. Then, following a court trial on remedies, it entered judgment for $13 million as "restitution" under the UCL (as well as the CLRA and the False Advertising Act). Slip op. at 7. The trial court also ordered broad-ranging injunctive relief, including a mandatory injunction requiring the defendant to issue a "corrective announcement" about its products, "to publish for twelve weeks in nine national magazines and forty-seven California newspapers notices of its deceptive labeling and advertising practices," and to pay the cost for retailers to return any offending products still in their inventories. Slip op. at 2-3, 9, 40.

The Court of Appeal, after a lengthy discussion, affirmed the order granting summary adjudication in plaintiff's favor on liability. Slip op. at 10-29. Then, it turned to the remedies.

Restitution, it observed, represents "the value of the property at the time of its improper ... disposition." Slip op. at 37 (quoting Rest., Restitution, §151). It determined that "the amount of restitution necessary to restore purchasers to the status quo ante ... would involve the amount attributable to the misleading 'Made in U.S.A.' representations." Id. at 39. Unfortunately, the plaintiff had presented "no evidence" on that point (partly because he had not cross-appealed from the trial court's adverse evidentiary rulings), so the $13 million award had to be reversed. Id. at 38-39. But the Court then went on to provide examples of the kind of evidence that would constitute sufficient proof of the amount of restitution. As one example, evidence could be offered of the property's "exchange value ..., or the amount for which it could be exchanged if there were an open market with a wide opportunity for buyers." Id. at 37 (quoting Rest., Restitution, §151). Other relevant evidence would include retail price, market value, and potential expert testimony on "the dollar value of the consumer impact or the advantage realized by" the defendant as a result of its UCL violations. Id. at 38.

Plaintiffs should take careful note of the evidentiary roadmap the Court of Appeal provides in this case to a UCL restitution award. This is the only detailed decision that I'm aware of that addresses how to measure UCL restitution in an action involving sale of goods. It confirms my own ideas of what restitution should look like in a UCL case like this. It is also a useful decision on UCL injunctive relief, since the Court of Appeal affirmed every aspect of the trial court's broad mandatory injunction except the part that would have required the defendant to "notify class members of the procedures for obtaining restitution"—a remedy the Court determined had not been proven. (Slip op. at 2-3, 9, 40.)

Supreme Court might take up UCL "restitution"

The Supreme Court is showing some interest in reviewing the Court of Appeal's decision in Madrid v. Perot Systems Corp., 130 Cal.App.4th 440 (2005), which addressed the scope of restitutionary relief under the UCL. According to the docket, the Supreme Court has given itself an extension of time, through October 19, to grant or deny review. My original post on Madrid is here. Thanks to the reader who emailed me with this tip. UPDATE: On October 12, 2005, the Supreme Court denied the petition for review.