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)).