The California Supreme Court Reiterates Analysis for Determining Whether a Statutory Violation Confers a Private Cause of Action

Posted on August 10, 2010 by James Castle

Yesterday, the California Supreme Court issued its unanimous opinion in Lu v. Hawaiian Gardens Casino, Inc., in which the high court found that a specific Labor Code provision could not be enforced by private litigants. This opinion is important in that it reiterates important cases and analyses that can be used to defeat a plaintiff’s attempt to set forth a private cause of action where no such right was intended by the legislature. Unfortunately, however, the Supreme Court declined to further address the question of whether a statute that cannot independently confer a private cause of action can still be utilized as a predicate for a cause of action under the “unlawful” prong of the Unfair Competition Laws (“UCL”).

Louie Lu (“Lu”) was a card dealer at the Hawaiian Islands Casino in Southern California. As a dealer, he was provided tips. However, not all of the tips were his to keep. Instead, he was required to provide 15% to 20% of his tips to a community fund that was then split among other employees who were offering services to the card players, but were not as routinely tipped as the dealers (i.e., floormen, poker tournament coordinators, concierges, etc.)

The tip pool policy specifically prohibited managers and supervisors from receiving any money from the pool. This exclusion of managerial persons from sharing in the tips is important, as Labor Code Section 351 prohibits an employer from taking, collecting or receiving employees’ tips. However, California courts have long-held that the pooling of tips to be split amongst like-situated employees, such as waiters and waitresses on the same shift, is not a violation of Section 351. Similarly, courts have held that the pooling of tips in the casino setting when those tips are spread among the non-managerial staff is perfectly acceptable and not a violation of Section 351. Lu contended that “agents” of the casino (presumably managerial employees) were improperly sharing in the pooled tips, and set forth causes of action for violation of Section 351 and Section 17200 of the UCL. 

The trial court dismissed both causes of action. As to the Section 351 claim, the trial court found that the section did not provide a private cause of action, as the enforcement of that provision was explicitly provided solely to the Department of Industrial Relations. The trial court likewise found that the UCL claim must also be dismissed because Section 351 could not serve as a predicate for the “unlawful prong” of the UCL unless it could be enforced in a private cause of action, and since it could not, the UCL cause of action too could not be maintained. Lu appealed.

The appellate court agreed with the trial court that Lu could not assert a private cause of action under Section 351 itself. However, the appellate court disagreed with the trial court by finding that Section 351 could still afford Lu a private cause of action by using it as a predicate for the “unlawful” prong of the UCL. More specifically, the Court of Appeal held:

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. The UCL is a proper avenue for Lu to challenge violations of these Labor Code provisions.

The California Supreme Court accepted Lu’s petition for review on the sole question of whether Section 351 itself afforded a private right of action – leaving the Court of Appeal’s ruling that the section can be utilized as a predicate for a UCL claim in limbo (as the entire Court of Appeal decision became depublished when the petition for review was accepted on the Section 351 issue). 

The Supreme Court’s opinion provides a lengthy analysis of why Section 351 does not provide a private right of action on its own; citing with approval a number of case (including Moradi-Shalal v. Fireman’s Fund, Vikco Insurance Services Inc.  v. Ohio Indemnity Co., Crusader v. Scottsdale Insurance Co. and Middlesex Ins. Co. v. Mann) that Barger & Wolen attorneys have utilized to argue that a plaintiff does not have a private cause of action for perceived violations of the Insurance Code, including sections 790.03 and 1763. The Supreme Court decision in Lu provides additional fodder to combat plaintiffs who seek to expand the civil enforcement of statutory provisions by the private litigants where no such right was intended. 

While the Supreme Court chose not to address the UCL aspects that were presented by the conflicting trial and appellate court decisions, that fight will surely return to California’s high court on another day.   

Barger & Wolen attorneys have significant experience is defending UCL claims in state and federal court, as well as presenting arguments against plaintiffs’ attempts to assert private causes of action based on Insurance Code statutes.

 
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Ninth Circuit Applies California UCL Standards, Confirming Recent State Law Precedents

Posted on July 28, 2010 by James Castle

In a follow up to last week’s post regarding the Nelson v. Pearson opinion, the Ninth Circuit has now applied similar principles when applying California state law. In Rubio v. Capital One Company, the Ninth Circuit further confirmed that all that is required to establish a plaintiff’s standing under the California Unfair Competition Law (“UCL”) is an allegation of some lost “money or property” fairly traceable to unlawful, unfair, and/or fraudulent conduct by the defendant.

Raquel Rubio (“Rubio) received a credit card solicitation from Capital One Bank (“Capital One”) offering a 6.99% fixed rate. The fixed rate was further explained in smaller text on the page as being fixed, so long as none of three conditions occurred: (1) a late payment; (2) charges are made over the credit limit; and (3) a payment is returned for any reason. Rubio did not allow any of those conditions to occur; however, three years later, Rubio received a letter noting that her APR of 6.99% would increase to 15.9%. Rubio could avoid the increase only by closing her credit card account and paying off the balance on the card by the end of the next month. Capital One defended the hike in interest rate by referring to additional language in eight-point type, found under the heading “Terms of Service,” that stated “[m]y Agreement terms (for example, rates and fees) are subject to change.”

Rubio brought suit alleging violations of the federal Truth in Lending Act (“TILA”), the UCL and breach of contract. The Ninth Circuit agreed with the District Court by finding that there was no breach of contract because the solicitation was not a contract, and therefore, Capital One was not bound by its terms. The Ninth Circuit found however that it was error for the District Court to dismiss Rubio’s TILA claims because Capital One failed to show that its APR disclosure in the solicitation was “in a reasonably understandable form and readily noticeable to the consumer.” Therefore, the Court reversed the trial court’s decision to dismiss the TILA claim, sending it back for further proceedings.

 As for standing to assert the UCL claim, the Court noted that “a private plaintiff needs to have ‘suffered injury in fact and … lost money or property as a result of the unfair competition.” In other words, Rubio needs to be able to show that she has lost “money or property” sufficient to constitute an “injury in fact” under Article III of the Constitution. The Court found that Rubio had sufficiently alleged a loss of money or property. More specifically, the Court held:

Rubio has alleged a loss of money or property. When Capital One increased the APR from 6.99% to 15.9%, it gave Rubio a choice either to close the account and pay off the outstanding balance, or to keep the account open and accept the increased APR. Rubio does not allege which choice she accepted, though either would cause a loss of money or property. If she closed the account, she would have suffered a monetary loss by losing the credit that Capital One extended. If she kept her account open, she would have accepted a higher APR and thus also lost money. This “actual economic injury” is enough to create standing under the UCL. 

Having found that Rubio had sufficiently alleged standing to pursue the UCL claim, the Ninth Circuit next turned to the merits of that cause of action. The Court found that Rubio had properly alleged a UCL cause of action under any of its three prongs because: (1) by alleging a TILA violation, Rubio had also properly alleged a UCL violation under the “unlawful” prong of the UCL; (2) by alleging the facts of the solicitation, she may show “that reasonable members of the public are likely to be deceived,” thus establishing the “fraudulent” prong; and (3) by alleging that the potential for deceit outweighs the public utility of the solicitation, Rubio had stated a claim under the UCL’s “unfair” prong. Therefore, the Ninth Circuit reversed the district court’s dismissal of Rubio’s UCL claim.

The Ninth Circuit’s opinion reconfirms the standing and merit requirements for a plaintiff to bring a UCL claim. When reading the opinion, there is nothing novel about the use of UCL standards and prior precedents. Indeed, the Ninth Circuit applied UCL requirements that likely all of the parties agreed upon. However, what is interesting is how the District Court and the Ninth Circuit are able to come to diametrically conflicting results, when both are applying the same “law.” For example, the trial judge found that the inclusion of “terms are subject to change” completely undermined Rubio’s lawsuit, while the Ninth Circuit found the solicitation potentially fraudulent, despite the same language. Both courts had to apply their own subjective judgments and opinions about what is deceitful, resulting is vastly differing results. Thus, this case demonstrates that it is an advocate’s job in not only pointing out to the court what the law is, but also the more artful (and harder to practice) task of explaining to the decision-maker why his or her preexisting beliefs and viewpoints already comport with the story the advocate is offering.

Barger & Wolen has extensive experience arguing UCL actions on behalf of its clients, in both state and federal court. 
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