New UCL decision: Morris v. Redwood Empire Bancorp
On Friday, in Morris v. Redwood Empire Bancorp, ___ Cal.App.4th ___ (Apr. 29, 2005), the Fourth Appellate District, Division Three, considered a UCL "unlawful" prong claim based on alleged violations of Civil Code section 1671, which prohibits unreasonable liquidated damages provisions in contracts, and Civil Code section 1670.5, which prohibits "unconscionable" contract terms. The Court held that the defendant's $150 credit card merchant account termination fee did not constitute liquidated damages, but might be "unconscionable," and that the defendant's demurrer should not have been sustained without leave to amend. The unpublished portions of the opinion are also quite interesting. There, the Court held, among other things, that a federal law cannot create a Cel-Tech "safe harbor":

The "safe harbor" principle of Cel-Tech has never been applied in situations where federal law provies the purported harbor. Applying this principle to federal statutory or regulatory law would supplant well-established decisional law surrounding the United States Constitution's Supremacy Clause and the preemption doctrine.

Slip op. at 27. Since the National Bank Act did not preempt the UCL claim (id. at 5-9), the defendant enjoyed no Cel-Tech "safe harbor." Id. at 28. It is unclear why the Court did not publish that part of its opinion along with the rest, for that holding is a first. A request for publication of that part of the opinion would be very appropriate.

UPDATE: The blog California Appellate Report has a different take on this decision, and posits that the Court's holding that the termination fee was not a liquidated damages provision makes no sense. The author of California Appellate Report is a law professor, so if a petition for review is filed, can the petitioner now say that a respected legal commentator has criticized the opinion, as if in a law review article?
- posted by Kim Kralowec @ 12:05 AM