Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

Since the passage of Proposition 64 in November 2004 by the California electorate, which sought to limit the scope of frivolous or “shakedown” lawsuits under the Unfair Competition Law, Business & Professions Code section 17200 et seq. (the “UCL”), courts in California have waited for the California Supreme Court to clarify the scope of standing for a plaintiff to pursue a UCL claim. In 2009, the Court issued its decision in In Re Tobacco II Cases, 46 Cal. 4th 298 (2009), which held that only the named plaintiffs bringing a UCL claim had to demonstrate standing, not each class member that the named plaintiffs sought to represent. 

Now, in Kwikset Corporation, Inc. v. Superior Court, decided January 27, 2011, the Court finally analyzed the scope of the Prop 64 language that limited UCL standing to “a person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” In a 5-2 opinion, the Court cut back Prop 64’s limitation on standing, which will allow more UCL cases to at least proceed beyond the demurrer stage.

Kwikset involved named plaintiffs who purchased a lockset that said on the packaging “Made in U.S.A,” but it was substantially made in Taiwan and Mexico. While there were no claims that the lockset was defective or worth less than ones actually made in the United States, the sole contention made in an amended complaint was that the persons would not have purchased the lockset had it not been important to them that it was made in the United States: “When purchasing the locksets each plaintiff ‘saw and read Defendants’ misrepresentations . . . and relied on such misrepresentations in deciding to purchase . . . them. [Each plaintiff] was induced to purchase and did purchase Defendants’ locksets due to the false representation that they were “Made in U.S.A.” and would not have purchased them if they had not been so misrepresented.’”

The Court of Appeal had found that the complaint should be dismissed based on the UCL standing requirements imposed by Prop 64, explaining that although the plaintiffs “had adequately alleged injury in fact, they had not alleged any loss of money or property,” and that while their “patriotic desire to buy fully American-made products was frustrated,” such an injury “was insufficient to satisfy the standing requirements” of the UCL.

The Supreme Court, in a lengthy decision, reversed and found that

“plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property’ within the meaning of Proposition 64 and have standing to sue.” 

The Kwikset case sets forth a standing test broader than just for product mislabeling cases, as the Court later stated as follows:

“As we shall explain, a party who has lost money or property generally has suffered injury in fact. Consequently, the plain language of these clauses suggests a simple test: To satisfy the narrower standing requirements imposed by Proposition 64, a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Emphasis by Court.) 

And, to provide further guidance for future cases, the Court observed:

“There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary.” 

The majority opinion in Kwikset also reaffirmed that, apart from demonstrating economic injury in the form of loss of money or property, the named plaintiff must still allege the causal element of reliance (“that the misrepresentation was an immediate cause of the injury-producing conduct”), as earlier set forth in the Court’s Tobacco II decision. The Court also held that there is no need to show for standing purposes that the lost money or property would otherwise qualify as restitution, the only monetary remedy permitted under the UCL. This was a point noted by the Court in its rent decision in Clayworth v. Pfizer, Inc., 49 Cal.4th 758 (2010), which found that parties may seek an injunction under the UCL whether or not restitution is also available.

Despite the breadth of the Kwikset opinion and the position by Prop 64 proponents that this decision will undercut the protections against frivolous lawsuit intended by the proposition, in two reassuring footnotes, the Court also confirmed that it was only considering matters at the demurrer stage, where a court “must take the allegations as true,” and that “[o]nce this threshold pleading requirement has been satisfied, it will remain the plaintiff’s burden thereafter to prove the elements of standing and of each alleged act of unfair competition, and the trial court’s role to exercise its considerable discretion to determine which, if any, of the various equitable and injunctive remedies provided for by sections 17203 and 17535 may actually be warranted in a given case.”

Finally, in a powerful dissent, two of the Supreme Court justices explained how they would have affirmed the Court of Appeal’s decision and dismissed the lawsuit since the majority’s opinion disregards Prop 64’s actual statutory language and the intent of the electorate to limit standing under the UCL. Indeed, the dissent even references the fact that proponents of Prop 64 included the Kwikset case on their website as an example of a “shakedown lawsuit” that the proposition sought to curb. Ending its minority opinion, the dissent concluded that the majority opinion had relieved plaintiffs of the burden to show standing imposed by Prop 64:  

“All plaintiffs now have to allege is that they would not have bought the mislabeled product. . . . This cannot be what the electorate intended when it sought ‘unequivocally to narrow the category of persons who could sue businesses under the UCL.’”

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Recently, we reported on the California Supreme Court’s decision in Clark v. Superior Court (National Western Life Insurance Company), wherein the Court confirmed that the only monetary remedy available under the Unfair Competition Law, Business & Professions Code section 17200 (the “UCL”) is restitution, and that a claim for treble damages is not restitution, nor is the nature of restitution comparable to a penalty.  

The Court echoed that holding in a new decision issued November 18, 2010, Pineda v. Bank of America, N.A. As with Clark, Pineda was a unanimous opinion by the Court.

At issue in Pineda were penalties provided for under California Labor Code section 203 when an employer fails to timely pay final wages to an employee. The first issue addressed by the Court was whether a one-year or three-year statute of limitations applied to a claim for such penalties when an employee sues only to recover the penalties and not the final wages themselves (which had already been paid). On that issue, the Court held that the longer, three-year statute applied.

Turning to the second issue, whether Section 203 penalties can be recovered as restitution under the UCL, the Court explained once again that a penalty is not restitution because it does not function to restore to a plaintiff the status quo or something in which the plaintiff had a vested interest. Relying on its earlier decision in Cortez v. Purolator Air Filtration Products Co., 23 Cal. 4th 163 (2000), which held that unpaid overtime wages were able to recovered as restitution under the UCL, the Court contrasted such unpaid wages to a penalty for not paying wages. The former are consider to be the earned property of the employee and thus restitutionary in nature whereas the latter are not compensation for work performed or restoring to the employee funds in which the employee has a vested ownership interest, but rather a payment to encourage employers to timely pay their employees and to punish them if they do not do so.

One would hope that, with the holdings of the Clark and Pineda cases, the issue of what is restitution and the limited monetary remedies available for a private action under the UCL can now be laid to rest.

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Earlier today, the California Supreme Court issued its unanimous opinion concluding that Civil Code section 3345, which allows treble damages to be awarded to seniors when a statute provides for a fine or penalty, is not permitted under the Unfair Competition Law, Business & Professions Code section 17200 (the “UCL”). 

The decision, Clark v. Superior Court (National Western Life Insurance Company), confirms that the only monetary remedy available under the UCL is restitution, and that a claim for treble damages is not restitution, nor is the nature of restitution comparable to a penalty.

The plaintiffs in the case filed a class action lawsuit against National Western Life Insurance Company arising out of the sale of deferred annuities issued to California residents who were senior citizens. The trial court denied certification as to all claims except one under the UCL. In addition to seeking restitution in the UCL claim, the plaintiffs sought treble damages on their restitution claim under section 3345.

As reported in our earlier blog post last September when the Supreme Court accepted review, in the more than two decades since the enactment of section 3345, no case had ever permitted any sort of damages, be they compensatory, treble or punitive, under the UCL. The trial court dismissed the claim for treble damages, but the Court of Appeal reversed, finding that the plain meaning of section 3345 applied to a private action seeking restitution under the UCL.

In reversing the decision issued by the Court of Appeal, the Supreme Court focused on two issues. First, the Court considered whether a claim under section 3345 only applies to treble amounts awarded under the Consumer Legal Remedies Act (“CLRA”), since the first subsection of section 3345 makes reference to and cites language from the CLRA. The Court concluded that a claim under section 3345 is not so limited, observing that, if trebling was to apply only to a claim under the CLRA, there would have been no need for a separate statute (section 3345); the Legislature could have just amended the CLRA. Nevertheless, the Supreme Court did not articulate any other statutes that might be able to be trebled under section 3345.

After this, the Supreme Court specifically addressed whether section 3345 trebling was permitted under the UCL. The Court focused on the salient language of section 3345 where it requires the underlying statute to impose a “fine, or a civil penalty . . . or any other remedy the purpose of which is to punish or deter,” and found that it cannot refer to the UCL. First, citing to a number of its past decisions, the Court reiterated that the only monetary remedy under the UCL is restitution. 

Next, the Court relied on the well-established canon of statutory construction that when there is a general term followed by various specific terms, as is the case in the language of section 3345 just quoted, the general term must be limited to the nature of the specific terms. In other words, “any other remedy” must refer to a remedy in the nature of a penalty, and thus section 3345 trebling is only allowed when a statute permits a remedy that is in the nature of a penalty. The UCL, however, is not such a statute. Confirming that restitution only allows the restoration of something taken, or a return to the status quo, restitution under the UCL is not a penalty, which is a recovery without reference to the actual damage sustained. In sum, the Supreme Court concluded:

Because restitution in a private action brought under the unfair competition law is measured by what was taken from the plaintiff, that remedy is not a penalty and hence does not fall within the trebled recovery provision of Civil Code section 3345, subdivision (b).

Kent Keller and Larry Golub of Barger & Wolen represent National Western Life Insurance Company in the Clark case.

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In November 2004, the voters of California passed Proposition 64, which was intended to rein in certain abuses in and bring some clarity to the Unfair Competition Law, California Business & Professions Code sections 17200 et. seq. (“the UCL”). Five years later, and after a number of decisions issued by the California Supreme Court construing the changes made by Prop 64, that clarity is still elusive.

Take, for example, the Court’s May 18, 2009 decision In re Tobacco II Cases, 46 Cal. 4th 298 (2009), which concluded that the new standing requirements for a UCL claim created by Prop 64 only require the named plaintiff/class representative to establish standing and not absent class members. In the months since the issuance of Tobacco II, a number of decisions have considered whether the Court’s conclusion as to “standing” applies to a trial court’s determination when it comes to considering the issue of “commonality” (i.e., whether common issues predominate over individual issues) for purposes of a class certification motion. Our firm’s blogs have reported on two intermediate appellate cases that found “Tobacco II to be irrelevant because the issue of ‘standing’ simply is not the same thing as the issue of ‘commonality.’”  See Cohen v. DIRECTV, Inc., 178 Cal. App. 4th 966 (2009); Kaldenbach v. Mutual of Omaha Life Insurance Co., 178 Cal. App. 4th 830 (2009). 

Cohen is now the subject of a Petition for Review pending before the Supreme Court, along with several requests for depublication of the intermediate court’s opinion. The court is expected to decide whether the case is to be accepted for review or depublished by March 1, 2010.

But Cohen is just one case on the Supreme Court’s plate. The following are cases now actual pending before the Supreme Court that address issues relating to the UCL, along with the date the Court accepted review and the issue(s) presented on the Court’s website:

Loeffler v. Target Corporation, Case No. S173972 (June 19, 2009) 

Does article XIII, section 32 of the California Constitution or Revenue and Taxation Code section 6932 bar a consumer from filing a lawsuit against a retailer under the Unfair Competition Law (Bus. & Prof. Code sections 17200 et seq.) or the Consumers Legal Remedies Act (Civ. Code, section 1750 et seq.) alleging that the retailer charged sales tax on transactions that were not taxable?  [The Court also issued a “grant and hold” on November 19, 2009 in Yabsley v. Cingular Wireless, Case No. S173972, pending consideration and disposition of a related issue in Loeffler v. Target Corp.]

Clark v. Superior Court (National Western Life Insurance Co.), Case No. S174229 (September 9, 2009)

Is Civil Code section 3345, which permits an enhanced award of up to three times the amount of a fine, civil penalty, or “any other remedy the purpose or effect of which is to punish or deter” in actions brought by or on behalf of senior citizens or disabled persons seeking to “redress unfair or deceptive acts or practices or unfair methods of competition,” applicable in an action brought by senior citizens seeking restitution under the Unfair Competition Law?

Kwikset Corp. v. Superior Court, Case No. S171845 (June 10, 2009)

Does a plaintiff's allegation that he purchased a product in reliance on the product label's misrepresentation about a characteristic of the product satisfy the requirement for standing under the Unfair Competition Law that the plaintiff allege a loss of money or property, or is such a plaintiff unable to allege the required loss of money or property because he obtained the benefit of his bargain by receiving the product in exchange for the payment?

Pineda v. Bank of America, Case No. S170758 (April 22, 2009)

Can penalties under Labor Code section 203 (late payment of final wages) be recovered as restitution in an Unfair Competition Law action?

Sullivan v. Oracle Corp., Case No. S170577 (April 22, 2009)

Request that the Supreme Court deicide questions of California law presented in a matter pending in the United States Court of Appeals for the Ninth Circuit.  (Sullivan v. Oracle Corp., 547 F.3d 1177 (9th Cir. 2008) (now withdrawn))  The questions presented are: (1) Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week? (2) Does the UCL apply to the overtime work described in question one? (3) Does the UCL apply to overtime work performed outside of California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the federal Fair Labor Standards Act (29 U.S.C. section 207 et seq.)?

Clayworth v. Pfizer, Inc., Case No. S166435 (November 19, 2008)

This case presents the following issues: (1) When plaintiffs pay overcharges on goods or services as a result of the anticompetitive conduct of defendant sellers but recover the overcharges through increased prices at which the goods or services are sold to end users, may defendants assert a “pass-on” defense and argue that plaintiffs were not injured because they did not suffer financial loss as a result of the anticompetitive conduct? (2) Is restitution available under the Unfair Competition Law to plaintiffs who recovered from third persons the overcharges paid to defendants? (3) When plaintiffs recover from third persons the overcharges paid to defendants, have they suffered actual injury and lost money or property for purposes of establishing standing under the Unfair Competition Law, as amended by Proposition 64?

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