In Clark v. Superior Court, the Court of Appeal tackles a major, but novel question about the interplay between the UCL and statutory penalty provision protecting seniors

The California Court of Appeal, Second Appellate District, Division Seven, has been in the thick of many a difficult class action or class-related question.  Why should today be any different?  After all, I spent an hour and half driving about 8 miles to work, so everything seems to be functioning as intended in our fine City and State.  But I digress.  Today, the Division Seven, in Clark v. Superior Court (May 21, 2009) was asked to reconcile statutes with similar purposes (consumer protection) but very different means of implementing those purposes.  The question presented to the Court makes the challenge clear:

Civil Code section 3345 (section 3345) authorizes the award of an enhanced remedy—up to three times greater than the amount of a fine, civil penalty "or any other remedy the purpose or effect of which is to punish or deter" that would otherwise be awarded—in actions by or on behalf of senior citizens or disabled persons seeking to "redress unfair or deceptive acts or practices or unfair methods of competition." Is this enhanced remedy available in a private action by senior citizens seeking restitution under California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.)?

(Slip op., at p. 2.)  Can the protected classification of senior citizens receive triple UCL restitution?  That's quite a question.  What might be more suprising at first blush is that the Court of Appeal said, "Yes."

Procedurally, after a class was certified, defendant National Western filed a motion for judgment on the pleadings, asserting section 3345’s enhanced, "treble damages" remedy was inapplicable to a private action under the unfair competition law.  The trial court granted the motion.  Plaintiffs filed a petition for a writ, and the Court of Appeal granted the petition, issuing the writ.  By necessity, the Court of Appeal reviewed the two laws:

Since 1977 the unfair competition law has prohibited unlawful, unfair or fraudulent business practices or unfair, deceptive, untrue or misleading advertising (Bus. & Prof. Code, § 17200) and subjected violators in actions prosecuted by public prosecutors to civil penalties not exceeding $2,500 for each violation (Bus. & Prof. Code, § 17206), as well as to injunctions and restitution orders (Bus. & Prof. Code, § 17203). Private plaintiffs may also prosecute actions under the unfair competition law, but their remedies are limited to orders for injunctions and restitution. (Bus. & Prof. Code, § 17203.) Damages and penalties, whether compensatory or punitive, are prohibited. (Korea Supply, supra, 29 Cal.4th at p. 1148 [only monetary relief available to private plaintiffs under unfair competition law is restitution; compensatory and punitive damages are not authorized]; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 950 ["[i]n a suit under [unfair competition law], a public prosecutor may collect civil penalties, but a private plaintiff’s remedies are ‘generally limited to injunctive relief and restitution’"]; Cel-Tech, supra, 20 Cal.4th at p. 179 [under unfair competition law "[p]laintiffs may not receive damages, much less treble damages, or attorney fees"].)

(Slip op., at pp. 5-6.)  Many years later, the legislature determined that senior citizens were regular targets of unfair competition schemes and required additional protection.  A variety of potential statutes and amendments to existing laws were considered, including revisions to the UCL and the CLRA.  (Slip op., at pp. 6-10.)  Sweeping legislation was finally passed.

As finally enacted the legislation effected three major changes to California’s consumer protection laws relating to senior citizens and disabled persons. First, it amended the unfair competition law by adding Business and Professions Code section 17206.1,8 which authorizes the Attorney General and prosecutors in civil enforcement proceedings to recover an added civil penalty up to $2,500 (in addition to the $2,500 civil penalty available under Business and Professions Code section 17206) when the unfair practice is perpetrated against a senior citizen or disabled person. (See Bus. & Prof. Code, § 17206.1; Stats. 1988, ch. 823, § 1, pp. 2665-2666.)

Second, it amended the CLRA to authorize private litigants to recover, in addition to other remedies available under the act, including compensatory and punitive damages, an additional monetary award—up to $5,000—when the unfair practice prohibited by the act is perpetrated against a senior citizen or disabled person. (Civ. Code, § 1780, subd. (b)(1)(A)-(C); Stats. 1988, ch. 823, § 3, pp. 2667-2668.)

Third, it added section 3345 to the Civil Code, authorizing an enhanced remedy in actions brought by or on behalf of senior citizens seeking redress for "unfair or deceptive acts or practices or unfair methods of competition." (§ 3345, subd. (a).) Section 3345, subdivision (a), limits the new provision to actions "brought by, or on behalf of, or for the benefit of senior citizens or disabled persons, as those terms are defined in subdivisions (f) and (g) of [Civil Code] Section 1761[10] to redress unfair or deceptive acts or practices or unfair methods of competition." Section 3345, subdivision (b), provides the enhanced remedy: "Whenever a trier of fact is authorized by a statute to impose either a fine, or a civil penalty or other penalty, or any other remedy the purpose or effect of which is to punish or deter, and the amount of the fine, penalty, or other remedy is subject to the trier of fact’s discretion, the trier of fact shall consider all of the following factors, in addition to other appropriate factors, in determining the amount of fine, civil penalty or other penalty, or other remedy to impose. Whenever the trier of fact makes an affirmative finding in regard to one or more of the following factors, it may impose a fine, civil penalty or other penalty, or other remedy in an amount up to three times greater than authorized by the statute, or, where the statute does not authorize a specific amount, up to three times greater than the amount the trier of fact would impose in the absence of that affirmative finding."

(Slip op., at pp. 12-13.)  The Court then turned to the question:

Under the plain language of section 3345 two prerequisites must be satisfied before its enhanced remedy may apply: (1) The action must be brought by or on behalf of senior citizens or disabled persons seeking redress for "unfair or deceptive acts or practices or unfair methods of competition"—plainly satisfied here; and (2) the action must be one in which the trier of fact is authorized by a statute to impose a fine, civil penalty or any other penalty the purpose or effect of which is to punish or deter.

(Slip op., at p. 14.)  The Court then concluded that the enhanced restitution remedy was available:

Unlike Korea Supply and Cel-Tech, in this case the plaintiffs do not seek to justify monetary relief other than restitution under the unfair competition law: The enhanced remedy is sought under section 3345, a separate statute, which specifically authorizes such an enhanced remedy in unfair competition actions brought by senior citizens. We simply must presume the Legislature meant what it said when it provided section 3345 applied in unfair competition actions involving a fine, civil penalty or "any other remedy" the purpose of which is to punish or deter. (See People v. Toney (2004) 32 Cal.4th 228, 232 ["[i]f the statutory language is unambiguous, ‘we presume the Legislature meant what it said, and the plain meaning of the statute governs’"]; accord, Genlyte Group, LLC v. Workers’ Comp. Appeals Bd. (2008) 158 Cal.App.4th 705, 714; see also Hood v. Hartford Life & Accident Insurance Co. (E.D. Cal. 2008) 567 F.Supp.2d 1221, 1227 ["[t]he text of the statute clearly indicates that section 3345 applies to the UCA [unfair competition law] and the CLRA, as both Acts prohibit ‘unfair practices’"].)

(Slip op., at p. 16-17.)  I can't imagine that this ruling won't at least generate a Petition for Review.

Update on 2009-05-22 04:52 by The Complex Litigator

UPDATE:  The Court of Appeal issued a modification to the opinion, adding a footnote with no change in the judgment.

Tobacco II Opinion generates widespread media coverage and commentary

Monday's Tobacco II Cases Opinion has generated extensive media coverage and commentary.  Here's a sample of the reactions:

• Courthouse News Service said, in a brief commentary, "Plaintiffs in a class-action lawsuit against the tobacco industry are not required to show that every member has relied on the tobacco industry's claims about cigarettes, the California Supreme Court ruled."
• In a press release issued through PRWeb's emediawire.com, commentary included: "This new ruling will clarify a number of legal issues, and will reject the idea that in a class action, each and every class member will have to show "reliance" on a fraudulent act to win a class action. This will mean that the hundreds of thousands of California residents who have been harmed by tobacco companies may seek relief in court."
• LegalNewsline primarily focused its coverage on the Tobacco II Cases, "The California Supreme Court, in a 4-3 vote Monday, has reinstated a class action lawsuit against tobacco companies accused of misleading advertising."
• Jon Hood, at consumeraffairs.com, discussed the significant implications for consumer class actions, "Justice Carlos Moreno, writing for the majority, said that the law was only intended to stop 'shakedown' lawsuits against businesses, and was passed in response to the practice of small business paying lawyers off to make threatened suits go away. Moreno said that the Court of Appeals' view 'would effectively eliminate the class action lawsuit as a vehicle for vindication of (consumer) rights.' Moreno also pointed out that Prop 64's sponsors explicitly provided in ballot arguments that they did not intend to weaken consumer protection laws."
• Metnews.com also focused on the facts of the case itself, but delved further into the rationale of the majority opinion, "Proposition 64, Moreno elaborated, amended the UCL by requiring a showing that the plaintiff has suffered injury 'as a result of' an unfair, unlawful, or fraudulent act or practice. The initiative does not, he said, make 'any reference to altering class action procedures to impose upon all absent class members the standing requirement imposed upon the class representative.'"
• The UCL Practitioner collected blog and news commentary in posts here and here.  I find it particularly amusing that Will Stern, an architect of Proposition 64, seems surprised that the ballot measure promise that the amendment was not intended to weaken consumer protections should come back as a basis for the Supreme Court's Tobacco II Cases Opinion.

Despite all this coverage, one comment that I find particulary significant has received little in the way of analysis:

Moreover, Proposition 64 left intact provisions of the UCL that support the conclusion that the initiative was not intended to have any effect on absent class members. Specifically, Proposition 64 did not amend the remedies provision of section 17203. This is significant because under section 17203, the primary form of relief available under the UCL to protect consumers from unfair business practices is an injunction, along with ancillary relief in the form of such restitution “as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (§ 17203.)

(Slip op., at p. 21)  Over the last several years, I have contended in many class certification motions that UCL classes could be certified under the less stringent Fed. R. Civ. P. 23(b)(2) class (recognized by California Courts) because the essence of a UCL claim is injunctive relief, including any Order of restitution.  I contend that this is particularly valid where a minimum amount of restitution can be identified.  Under the policy that unjust enrichment cannot be tolerated under the UCL, an equitable order directing disgorgement in that circumstance is primarily injunctive in nature.  Circumstances have conspired to deprive me of a trial court ruling on the issue.  Perhaps I shall have a further opportunity to pursue this theory in the near future.

BREAKING NEWS: Tobacco II Cases Opinion is available and does not impose classwide reliance showing under the UCL

In re Tobacco II Cases is available for viewing now.  The summary of the case is best that I can provide for now:

On review, we address two questions: First, who in a UCL class action must comply with Proposition 64’s standing requirements, the class representatives or all unnamed class members, in order for the class action to proceed? We conclude that standing requirements are applicable only to the class representatives, and not all absent class members. Second, what is the causation requirement for purposes of establishing standing under the UCL, and in particular what is the meaning of the phrase "as a result of" in section 17204? We conclude that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, however, do not require the class representative to plead or prove an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign. Accordingly, we reverse the order of decertification to the extent it was based upon the conclusion that all class members were required to demonstrate Proposition 64 standing, and remand for further proceedings regarding whether the class representatives in this case have, or can demonstrate, standing.

(Slip op., at pp. 2-3.)  There should be some very interesting adjustments to positions in consumer class actions alleging UCL claims for deceptive or misleading statements.

BREAKING NEWS: The California Supreme Court will issue the IN RE TOBACCO II CASES Opinion on Monday, May 18, 2009

According to the Notice posted on the California Courts website, the California Supreme Court will issue the IN RE TOBACCO II CASES Opinion on Monday, May 18, 2009.  The issues presented are described as follows:

This case includes the following issues: (1) In order to bring a class action under Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), as amended by Proposition 64 (Gen. Elec. (Nov. 2, 2004)), must every member of the proposed class have suffered “injury in fact,” or is it sufficient that the class representative comply with that requirement? (2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Class action suit accuses lawfirm of overbilling for online legal research

A class action lawsuit filed earlier this month in Los Angeles Superior Court alleges that Chadbourne & Parke, a New York-based law firm, charged clients hourly rates for online legal research services that billed the firm at a flat rate.  (Erik Sherman, Law Firms Allegedly Overcharging for Online Legal Research (May 14 2009) industry.bnet.com; Tresa Baldas, Lawsuit Claims Chadbourne Overcharged For Computerized Legal Research (May 8, 2009) www.law.com.)  Patricia Meyer, counsel for the plaintiff, says that other suits are in the works.  (Id.)  I suspect that this billing practice is pandemic in the legal industry.  Keep your eyes on this story; we could be in for a wild ride.

In Hatfield v. Halifax PLC, et al., the Ninth Circuit explains that American Pipe tolling and California's equitable tolling doctrine are not identical

The Ninth Circuit issued a very interesting opinion last week about serial class action tolling in California state courts (for purposes of this post, let's just assume that "interesting" and "serial class action tolling" are phrases you would arguably use in a single sentence that did not also involve irony or sarcasm).  In Hatfield v. Halifax PLC, et al. (May 8, 2009), the Ninth Circuit reviewed a district court decision in which the district court found that Plaintiff "Hatfield’s claims, brought eight-and-a-half years after her causes of action arose, were barred by California’s statutes of limitations, which are four years or less for each of Hatfield’s claims."  (Slip op., at p. 5403.)  On appeal, Hatfield argued, in part, that the "limitations period was tolled by the filing of a previous class action in New Jersey state court, making this action timely.  (Id.)

First, the Ninth Circuit concluded that Hatfield, as an individual, was entitled to tolling from the filing of the New Jersey class action.  (Slip op., at pp. 5412-15.)  The Ninth Circuit then turned to the more difficult question of whether Hatfield could claim such tolling on behalf of class members that Hatfield sought to represent:

While there is no California precedent directly on point, based on closely analogous precedent, we see no reason why California’s equitable tolling doctrine would not also apply to the claims of its unnamed putative class members who, like Hatfield, are California residents.  First, the California Supreme Court has indicated a general agreement with tolling in the class action context, going so far as to cite with approval the Supreme Court’s decision in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). See Jolly v. Eli Lilly & Co., 751 P.2d 923, 934-35 (Cal. 1988). In American Pipe, the Supreme Court held that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” 414 U.S. at 554.  In Jolly, 751 P.2d 934-35, the California Supreme Court noted with approval the two major policies that underlie the American Pipe tolling rule, the first of which is most relevant here.  That policy protects the class action device because, without it, potential class members would be induced to file protective actions to preserve their claims, thus depriving class actions of their ability to secure “efficiency and economy of litigation.”  Id. at 935 (quoting American Pipe, 414 U.S. at 553).  In Jolly, despite the endorsement of American Pipe, the court rejected its application under the facts of that case.  Id. at 935-36.

(Slip op., at pp. 5415-16, footnotes omitted.)  Defendant Halifax then argued that a recent Ninth Circuit opinion, Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008), precluded "cross-jurisdictional tolling."  The Ninth Circuit agreed that, while Clemens would preclude American Pipe tolling, it would not bar California's equitable tolling doctrine:

Although the Clemens decision would foreclose application of American Pipe here, it does not dictate a similar rejection of California’s equitable tolling doctrine, especially as it applies to California’s own residents. Although the two types of tolling—equitable and American Pipe —overlap to some extent, see Becker, 277 Cal. Rptr. at 496, and even though California courts have treated them at times as interchangeable, they are not congruent. The Halifax Appellees themselves concede that “the equitable tolling applied to individual actions is distinct from American Pipe tolling.” They cite Newport v. Dell, Inc., No. CV-08-0096, 2008 WL 4347311, at *4 n.8 (D. Az. Aug. 21, 2008), a case decided shortly after Clemens, which stated that “[t]he class-action tolling discussed in American Pipe and Crown is a species of legal tolling, not equitable tolling.” Thus, by the Halifax Appellees’ own admission, Clemens, which only rejected the application of American Pipe tolling in a cross-jurisdictional action, does not affect the application of California’s equitable tolling doctrine, which covers situations beyond those covered by American Pipe. See McDonald v. Antelope Valley Cmty. Coll. Dist., 194 P.3d 1026, 1032 (Cal. 2008) (“[California’s equitable HATFIELD v. HALIFAX PLC tolling] may apply where one action stands to lessen the harm that is the subject of a potential second action; where administrative remedies must be exhausted before a second action can proceed; or where a first action, embarked upon in good faith, is found to be defective for some reason.”).

(Slip op., at pp. 5417-18.)  The Court concluded that California would protect its own citizens with its equitable tolling doctrine ("California has a strong interest in providing a remedy for wrongs committed against its citizens"), but would not extend that same equitable tolling protection to individuals outside of California. 

As a final observation, the Ninth Circuit also offered a useful comment on the extent of tolling that is available under American Pipe:

Although American Pipe is clearly applicable to individual actions, some federal decisions have refused to allow the doctrine to toll the limitations period for subsequently filed class actions. See Robbin v. Fluor Corp., 835 F.2d 213, 214 (9th Cir. 1987) (“We agree with the Second Circuit that to extend tolling to class actions ‘tests the outer limits of the American Pipe doctrine and . . . falls beyond its carefully crafted parameters into the range of abusive options.’ ” (quoting Korwek v. Hunt, 827 F.2d 874, 879 (2d Cir. 1987) (alteration in original))).  In Catholic Social Services, Inc. v. INS, 232 F.3d 1139, 1149 (9th Cir. 2000) (en banc), however, the Ninth Circuit extended American Pipe to toll the claims of an entire class where “[p]laintiffs . . . are not attempting to relitigate an earlier denial of class certification, or to correct a procedural deficiency in an earlier would-be class.”  Whether the subject class action was actually trying to relitigate the certification issue was disputed by one of the dissents.  Id. at 1157-58 (Graber, J., dissenting in part).  However, the current action is clearly not an instance in which Hatfield is trying to reargue a denial of class certification because of a failure to meet Rule 23 of the Federal Rules of Civil Procedure or its state counterpart.  Rather, the previous class action was dismissed for lack of in personam jurisdiction.  Thus, if Hatfield had brought the original class action in California, American Pipe would permit tolling for the entire class action.

(Slip op., at p. 5419, fn. 8.)

In D'Este v. Bayer Corporation, Ninth Circuit certifies interesting issue to California Supreme Court

The Ninth Circuit has been certifying questions to various state Supreme Courts with increasing frequency.  After giving this observed increase some thought, I theorize that at least one reason for this increase is the shift of some class actions to federal court as a result of CAFA.  For example, in a post on this blog, I noted a recent question certified to the California Supreme Court about e-mail spam.  Other issues certified to state supreme courts are simply questions of first impression, at least as the caselaw is viewed by the Ninth Circuit.  One example of such an issue involves a question about statutes of limitation in California, noted in this post on Products Liability Prof Blog.  The most famous recent example involves the certification of questions in Sullivan v. Oracle Corp., covered on The UCL Practitioner.

On May 5, 2009, in D'Este v. Bayer Corporation (link now corrected) the Ninth Circuit certified a challenging question that actually a colleague of mine fits in a class action we both worked on several years ago.  Here is the key question certified to the California Supreme Court:

“The Industrial Welfare Commission’s Wage Orders 1-2001 and 4-2001 define “outside salesperson” to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” 8 Cal. Code Regs., tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a pharmaceutical sales representative (PSR) qualify as an “outside salesperson” under this definition, if the PSR spends more than half the working time away from the employer’s place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors’ prescriptions of specific drugs?

(Order, at p. 5193.)  But the question doesn't really capture the issue.  The underlying issue, developed in the factual description, turns on the fundamental nature of sales for purposes of the "outside salesperson" overtime exemption.  The pharmaceutical representatives in question promote Bayer products to doctors and hospitals, but they don't actually enter into bindings sales agreements.  Instead, they attempt to influence the prescription decisions of doctors and hospitals.  Are they "selling" when they engage in this promotion that does not end in a commercial transaction?  The Ninth Circuit thinks that the wage order can be interpreted in either manner.  Without CAFA, this issue would certainly have made its way to a California Court of Appeal.  Instead, it has moved outside the state court system, up to the Ninth Circuit, and may end up at the California Supreme Court through this inefficient route.

Update on 2009-05-07 23:39 by The Complex Litigator

UPDATE:  With apologies to the UCL Practitioner, I've fixed the link error to the 9th Circuit opinion.  It happens from time to time when posting while tired.

Answer on the merits filed in Brinker Restaurant v. Superior Court (Hohnbaum)

When the Supreme Court granted the Petition for Review in Brinker Restaurant v. Superior Court (Hohnbaum), the news opportunities in the case diminshed substantially.  For those in need of a Brinker news fix, its worth a mention that on April 28, 2009, Brinker Restaurant submitted its Answer on the merits, along with an application for permission to file an overlong Answer Brief.  Since the Real Party in Interest received approval from the Court to file an overlong Opening Brief, it's safe to assume that the Answer will be approved as well.

The docket also shows that the Amicus filings are already underway.  If Branick is instructive, expect the Amicus briefing period to continue until well into the Fall.

California Supreme Court grants review in Lu v. Hawaiian Gardens Casino, Inc.

The Supreme Court has granted review in Lu v. Hawaiian Gardens Casino, Inc.  The docket indicates that review has been granted on the limited issue of whether a private right of action exists under Labor Code section 351.  In Lu, the Court of Appeal was called upon to determine whether plaintiffs challenging a tip-pooling arrangment could bring a private right of action under Labor Code section 351.  The Court of Appeal concluded that Labor Code section 351 did not create a private right of action. The Court of Appeal then noted that such Labor Code sections could nevertheless serve as predicates for the “unlawful” conduct prong under the UCL:

“Nevertheless, Lu alleged a cause of action under the UCL for violation of Labor Code sections 351 and 450. “ ‘Virtually any law -- federal, state or local -- can serve as a predicate for an action under Business and Professions Code section 17200.’ [Citation.]” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539; cf. Louis v. McCormick & Schmick Restaurant Corp. (C.D.Cal. 2006) 460 F.Supp.2d 1153, 1156, fn. 5; Matoff v. Brinker Restaurant Corp., supra, 439 F.Supp.2d at pp. 1037-1038.) The UCL is a proper avenue for Lu to challenge violations of these Labor Code provisions. Therefore, we turn to the substantive question of whether the tip pool procedure here violates the Labor Code sections enumerated in the complaint such as would support UCL causes of action.

(Slip op., at p. 11.)  My original post on Lu is here.  Lu was the first in a group of tip-pooling decisions that were all decided in the last few months.  See a recap here.

in brief: Gomez v. Lincare, Inc. provides a satisfying "I told you so"

In Gomez v. Lincare (April 28, 2009), the Court of Appeal (Fourth Appellate District, Division Three) reversed portions of various Trial Court Orders that caused the dismissal of a putative class action by employees that provided respiratory services and medical equipment setup to patients in their homes. The opinion, from the habitually conservative Fourth Appellate District, was originally unpublished. I find the decision particularly satisfying because I worked on that case for several years while employed by Plaintiffs' counsel. I may post more on this decision later.