The UCL Practitioner
Monday, July 19, 2004
 
How does the UCL really work?
Thanks to the readers who have been writing in with questions about the nuts and bolts of the UCL.  (See this comment, for example.)  I want to take this opportunity to dispel some common misconceptions, especially with the vote on Proposition 64, the UCL "reform" initiative, coming up in November.  True, a few unscrupulous lawyers have reportedly abused the UCL, and those abuses have garnered a lot of publicity.  But most UCL claims are brought by ethical lawyers who would never dream of misusing the statute.  These lawyers are working in the UCL trenches with no recognition in the press for what they do.  Here’s how the UCL works in a legitimate case:

What kind of plaintiffs bring UCL cases?  The UCL allows “any person acting for the interests of itself, its members or the general public” to file a lawsuit seeking a remedy for "unlawful, unfair, or fraudulent" business acts or practices.  Bus. & Prof. Code §§17200, 17204.  This means that the person filing the suit need not have been personally affected by the challenged practice.  This rule exists for two primary reasons: (1) to supplement the work of the public prosecutors, whose offices cannot be expected to catch and pursue every wrongful business practice that occurs in our large state; and (2) to increase the likelihood that an unfair business practice that harms a large group in a small way will be stopped.   Yes, cases have been filed by “shell” corporations created by lawyers for the sole purpose of being UCL plaintiffs.  Those cases get a lot of attention and publicity.  But they are the exception, not the rule.  UCL actions are filed by affected people for real wrongs all the time—usually as an adjunct to other legal claims brought in the same lawsuit.  In fact, despite the broad standing rules, most UCL cases are brought by affected individuals.  For reasons I’ve explained before, it is almost always better for an affected person, rather than an unaffected “shell” company, to be the plaintiff in a UCL case.  Ethical lawyers carefully evaluate a proposed UCL case and ask themselves whether it passes the smell test.  If it doesn’t, the case isn’t filed.   

How do ethical lawyers approach UCL cases?  The relationship between the attorney and the plaintiff in a UCL case is no different from any other attorney-client relationship.  First of all, there is a retainer agreement.  The agreement is the result of arm’s-length negotiations between the attorney and the client.  The agreement specifies how the attorney is to be compensated for his or her work.  UCL cases, like many other kinds of cases, are typically taken on a contingency fee basis, which means that the attorneys don’t get paid unless they win the case.  The courts held years ago that contingency fee agreements are proper, since many legitimate cases could not otherwise be brought at all.  Some contingency fee agreements give the attorney a specified percentage share in any recovery.  In class and representative UCL actions, however, the contingency fee agreement typically states that if the case succeeds, the attorney may apply to the court for fees (which may or may not be awarded; see below).  In my 12 years of practice, I have never seen a contingency fee agreement that would give the plaintiff’s attorney 70-90% of the recovery—in a UCL case or in any other kind of case.  

Who decides whether the defendant violated the UCL?  The UCL is an equitable statute, which means that the defendant’s liability is decided by a judge—not a jury.  Judges are viewed as better able than juries to set aside the emotional appeal of a case, and rule based solely on the applicable law.  For that reason, the UCL affords an extra layer of protection against runaway verdicts—a protection the defendant does not enjoy in most other kinds of cases.  Also, judges are usually not very sympathetic to UCL cases brought by unaffected "shell" corporations—another reason why it's better for a person who was actually impacted by an unfair business practice to challenge that practice in court.

What remedies does the UCL afford?  The UCL affords very limited remedies, and intentionally so, to balance the broad scope of its application.  Bank of the West v. Superior Court, 2 Cal.4th 1254, 1266-67  (1992).  By statute, it permits two forms of relief: injunctive relief and restitution.  Bus. & Prof. Code §17203.  In other words, the UCL allows the court to order the defendant to (1) stop the unfair business practice, and (2) pay back any money the defendant took away from consumers by means of the unfair business practice.  A court-ordered injunction can be mandatory or prohibitive, depending on what the particular case requires.  In some cases, the UCL arguably allows the court to order the defendant to disgorge all of its ill-gotten profits as well—but that can only happen in a certified UCL class action.  What that means is that disgorgement of profits is not an available remedy unless the plaintiff who is bringing the case has been personally affected by the unfair business practice (and otherwise satisfies the requirements for class certification (see Code Civ. Proc. §382)).  The UCL also allows public prosecutors (but not private plaintiffs) to recover statutory penalties of up to $2,500 per violation.  Bus. & Prof. Code §17208.  Finally, I have never seen a punitive damages award in a UCL action—which does not necessarily mean that such an award could not be made in a proper case upon a proper showing of “oppression, fraud or malice.”  But that is the standard that governs punitive damages awards in all cases, not just UCL cases.  Civ. Code §3294. 

If money is recovered, who gets it?  If monetary restitution or disgorgement of profits is awarded in a representative UCL action, that money goes to the affected consumers or to the general public.  The representative plaintiff shares in the proceeds just like anyone else—in accordance with its proportionate injury (if any).  The rest of the money is distributed to the affected persons using procedures very similar to those used in certified class actions.  If the UCL case has been certified as a class action, the proceeds may be placed into a fluid recovery fund and then distributed to the affected persons or, if those persons cannot be easily identified or located, put to the "next best use" to benefit the general public and/or discourage the unlawful conduct the defendant was found guilty of.  See Corbett v. Superior Court, 101 Cal.App.4th 649, 655 (2002) (citing Kraus v. Trinity Management Services, Inc., 23 Cal.4th 116 (2000)).  The plaintiff's attorney does not get to keep all the money in a UCL case.  That is one of the most misleading tall tales I’ve heard told about the UCL (see my post about this editorial, for example).  It is simply not true.  
 
Can attorneys’ fees be awarded under the UCL?  The UCL has no attorneys' fees provision.  In a successful UCL case, as in any other kind of case, the judge may award attorneys' fees only if (1) a contract, (2) a statute, or (3) an equitable doctrine permits it, and only if a formal fee application is filed.  For example, attorneys' fees are sometimes awarded under Code of Civil Procedure section 1021.5, which permits a fees award if the plaintiff succeeds in litigating a case that confers a substantial benefit on the general public or a large class of persons.  That statute applies to all cases, not just UCL cases.  Attorneys' fees might also be awarded under the "common fund" doctrine, which allows the attorney to share in a "common fund" of money that exists only because of the attorney's efforts and hard work.  Again, that theory applies to all cases, not just UCL cases.  Other attorneys' fees statutes and equitable doctrines might apply depending on the facts of the particular case.  The important thing to remember is that in a successful, litigated UCL action, the judge decides whether to award attorneys' fees and how much to award.
 
How are attorneys' fees calculated in UCL cases?  Attorneys' fees are calculated and awarded in UCL cases in the same way as in all other cases in which the judge determines the award.  Depending on the basis for the fees award, the judge will calculate fees as a reasonable percentage of the recovery and/or based on the number of hours of work the attorney put into the case, while also accounting for factors such as the risk the attorney took on, the difficulty of the litigation, and the degree of success achieved.   Sometimes, the fees are paid out of the recovery that the litigation generated; other times, the defendant must pay the fees on top of that recovery.  The judge makes that decision. 
 
I hope this answers some of the questions I’ve been getting about how the UCL works.  Please post a comment or email me if you have more questions, and I’ll try to answer some of them in future posts.  (And please remember, the foregoing should not be relied on as legal advice.  It is a broad outline of the UCL; there are nuances I haven't mentioned.  See my disclaimer here.)
Comments:
This comment has been removed by a blog administrator.
 
Thanks for your comment. To clarify, the UCL affords three different kinds of relief in private cases: (1) injunctive relief; (2) restitution; and (3) disgorgement of profits. Restitution and disgorgement of profits are two different things. Restitution is measured by the money or property that the defendant took away from consumers by its unlawful conduct. Disgorgement of profits is measured by how much the defendant earned by its unlawful conduct, over and above what it took directly from consumers. The idea is that a defendant who has engaged in unlawful conduct should not be allowed to keep its ill-gotten gains. The caselaw is still somewhat in flux on this point, but as of right now, it appears that disgorgement of profits is only recoverable in a UCL case that has been certified as a class action. In non-class UCL representative actions (as well as in certified UCL class actions), both injunctive relief and restitution are available remedies. Restitution is the primary form of monetary relief in a non-class UCL representative action.
 
Oh!!! I get it. That makes much more sense to me.


You wrote:

"If monetary restitution or disgorgement of profits is awarded in a representative UCL action, that money goes to the affected consumers or to the general public. The representative plaintiff shares in the proceeds just like anyone else—in accordance with its proportionate injury (if any). The rest of the money is distributed to the affected persons using procedures very similar to those used in certified class actions."

Say you have an environmental group that brings a representative action on behalf of the people through their organization and they win a case that brings about injunctive relief AND restitution. How would the proceeds be distributed in that case?

There might not be any affected persons or only a couple of affected persons who actually suffered any injury. When you say the money goes to the general public, do you mean the state treasury? Perhaps, you mean it is given to charity and the like. In such a case, would the non-profit organization seeking to bring the action be awarded the restitution to continue its 'good works?'



Again, thanks for taking the time to share your knowledge regarding this matter. This is really the only comment that I have come across on the web that really elaborates in detail how this works. I have seen other comments, but they are usually biased one way or the other.
 
Hey Kimberly

I did some more studying online and found out that you didn't mean the money is sent to a state fund, but instead to a charitable foundation/trust.

Are these watchdog groups that serve as the plaintiff in these legitimate UCL actions ever awarded this money to continue to put it to its 'next best use'?

I came across this passage online:

"Through a seldom-used device known as fluid recovery or cy pres, grants or distribution of unclaimed class action settlement funds may provide a source of funding for public interest and legal services organizations whose work can be said to further the interests of the class."

It would seem that these watchdog groups are legitimate vehicles to further the interests of the class. However, perhaps, there is a conflict of interest here?
 
Thanks for your comments. Here's how the Supreme Court once described the cy pres doctrine, on which fluid recovery in UCL actions is based: "Under this approach, the uncollected funds are disbursed to a reasonable governmental organization for use on projects that benefit noncollecting class members and promote the purposes of the underlying cause of action." State v. Levi Straus & Co., 41 Cal.3d 475, 474 (1986). In a UCL case, whether the uncollected funds would go to a governmental agency, to the representative plantiff organization, or to some other non-profit organization would, I believe, depend on the nature of the organization and its relationship to its members. You can be sure the court will be very watchful for any potential conflicts of interest. I would imagine that the activities of a non-profit orgnization in bringing a UCL enforcement action would align with the interests of its members and/or the members of the public whom it seeks to represent. If the recovery is then used to further those interests, which is what the court would order, I see no conflict.
 
One more thing: You have to remember that disgorgement of profits into a fluid recovery fund is only allowed in a certified UCL class action. To achieve class certification, the court must have found (among other things) that the representative plaintiff is "adequate" to represent the class. That means that the court will have specifically determined that the representative plaintiff's interests are aligned with those of the class members and that there is no conflict of interest. This rule is designed to protect against the very abuses you seem to be concerned about (and the rule applies to all class actions, not just UCL actions).
 
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