California Supreme Court Holds Treble Damages Not Permitted under the Unfair Competition Law - Restitution is the Sole Monetary Remedy

Posted on August 9, 2010 by Barger & Wolen LLP

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.

Originally posted to Barger & Wolen's Insurance Litigation & Regulatory Law Blog.
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California Supreme Court Holds That Section 17200 Claims Must Comply With Class Action Requirements

Posted on July 2, 2009 by Barger & Wolen LLP

Arias v. Superior Court of San Joaquin (Angelo Dairy), 46 Cal.4th 969 (2009)

Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), 46 Cal.4th 993 (2009)

In a pair of cases, the California Supreme Court restricted the use of California Business & Professions Code Section 17200 et seq.   One case affirmed what many expected, that Proposition 64, a 2004 voter initiative, requires plaintiffs to follow strict class-action procedures when seeking to recover under California’s unfair competition law (Bus. & Prof. Code § 17200 et seq.) which prohibits “any unlawful, unfair or fraudulent business act or practice . . . .” 

Before 2004, any person could assert representative claims under the unfair competition law to obtain restitution or injunctive relief against unfair or unlawful business practices. Such claims were not required to be brought as a class action, and a plaintiff had standing to sue even without having personally suffered an injury. (See Former §§ 17203, 17204; Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 561 (1998)).

In 2004, however, the California electorate passed Proposition 64, amending the unfair competition law to provide that a private plaintiff may bring a representative action under this law only if the plaintiff has “suffered injury in fact and has lost money or property as a result of such unfair competition” and “complies with Section 382 of the Code of Civil Procedure . . . .” This statute provides that “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.” The Court has previously interpreted Code of Civil Procedure section 382 as authorizing class actions. See Richmond v. Dart Industries, Inc., 29 Cal. 3d 462, 470 (1981).

In Arias v. Superior Court of San Joaquin (Angelo Dairy), __ Cal. 4th __ , 2009 WL 1838973 (June 29, 2009), the Court held that employees can pursue penalties for wage-and-hour violations under the Private Attorneys General Act, or (“PAGA”), without having to qualify their lawsuit as a class action.

Justice Joyce L. Kennard, writing for the majority, also analyzed the effect of Proposition 64. Plaintiff contended that because Proposition 64’s amendment of the unfair competition law required compliance only with “[s]ection 382 of the Code of Civil Procedure” and because that statute makes no mention of the words “class action,” his representative lawsuit brought under the unfair competition law need not comply with the requirements governing a class action. The Court rejected this assertion, explaining:

In light of this strong evidence of voter intent, we construe the statement in section 17203, as amended by Proposition 64, that a private party may pursue a representative action under the unfair competition law only if the party “complies with Section 382 of the Code of Civil Procedure” to mean that such an action must meet the requirements for a class action. (See Fireside Bank v. Superior Court, supra, 40 Cal.4th at p. 1092, fn. 9.)

In a concurring opinion by Justice Werdegar, she disagreed with the majority’s “nonliteral interpretation of Proposition 64 (Gen. Elec. (Nov. 2, 2004)), which forecloses a variety of representative actions the measure clearly permits. Unlike the majority, I do not believe we would frustrate the voters’ intent by enforcing the measure according to its plain language.”

Similarly, in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (First Transit, Inc.), __ Cal. 4th __ , 2009 WL 1838972 (June 29, 2009), the Court ruled that the requirement that a plaintiff be one “who has suffered injury in fact,” combined with the PAGA requirement that a labor action be initiated by an “aggrieved employee,” prevents a union from bringing a UCL action based on associational standing.
 

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