"Consumer Attorneys Open Wallets to Fund No on Prop. 64 Campaign"
The Recorder reports this morning that Consumer Attorneys of California have finally formed a "No on 64" committee to oppose the UCL "reform" initiative, and that Attorney General Bill Lockyer formally announced his opposition to Prop. 64 yesterday.
- posted by Kim Kralowec @ 8:55 AM  | Comments (0) |

 
New UCL attorneys' fees decision: Baxter v. Salutary Sportsclubs, Inc.
On Tuesday, in Baxter v. Salutary Sportsclubs, Inc., ___ Cal.App.4th ___ (Sept. 28, 2004), the Court of Appeal held that the trial court properly denied a successful UCL plaintiff's motion for attorneys' fees under Code of Civil Procedure section 1021.5, the "private attorney general" statute. The plaintiff obtained an injunction requiring defendant health club to modify its membership agreement to comply with several statutes governing health club contracts, and to notify its patrons of the change. However, the trial court determined that the defendant's statutory violations did not actually harm anyone, and that plaintiff's lawsuit effected "a de minimus change in the defendant’s contracts that did not result in a significant benefit to the public." It therefore declined to award fees. Slip op. at 3. The Court of Appeal affirmed, observing that "[t]his case is a textbook example of valueless litigation against a private party 'under the guise of benefiting the public interest.'" Id. at 5. The appellate court concluded by saying:

While the broad sweep and relaxed standing requirements of the UCL often serve a valuable purpose in vindicating important rights on behalf of the general public, they are not, in combination with section 1021.5, a license to bounty hunt for niggling statutory violations that neither harm nor threaten to harm anyone, especially when there is no showing that the offending party refuses to correct the violations after they have been brought to its attention. The trial court did not err in refusing to award attorney fees for the miniscule benefit this litigation has conferred on the public.

Id. at 8.
- posted by Kim Kralowec @ 7:31 AM  | Comments (0) |

 
Another recent federal decision: Hull v. D&J Sports, Inc.
In Hull v. D&J Sports, Inc., 2004 WL 1771572 (N.D. Cal. Aug. 6, 2004), Judge Alsup partially dismissed a 17200 claim based on alleged patent infringement. The "fraudulent" prong claim failed because the complaint did not allege that "members of the public [were] likely to be deceived" by the defendant's conduct. Id. at *2 (quoting Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal.3d 197, 211 (1983)). The "unlawful" and "unfair" prong claims survived, however, because the defendant's motion to dismiss did not separately address them. "Section 17200 has three distinct theories under which a claim of unfair competition may proceed. In order to successfully dismiss a Section 17200 claim, defendant must argue separately against all three theories using the relevant standards. Defendant has failed to do this." Id. at *3; see also id. at *2 ("This order notes that defendant has not moved to dismiss under the theory of unlawful business practices." (emphasis added)).

What's even more interesting is the court's holding that Podolsky v. First Heathcare Corp., 50 Cal.App.4th 632 (1996) and the pre-Cel-Tech formulation of "unfair" would apply. Hull, 2004 WL 1771572 at *2. So far, most cases agree that the pre-Cel-Tech formulation of "unfair" still applies in consumer actions. A handful of cases, like this one, draw an even finer distinction between competitor actions and non-competitor business disputes. The pre-Cel-Tech formulation still governs the latter, as Judge Alsup's order seems to recognize. See also, e.g., Pegasus Satellite Tel., Inc. v. DirecTV, Inc., 318 F.Supp.2d 968, 978 (C.D. Cal. 2004) ("The test enunciated in Cel-Tech, however, applies only to cases between direct competitors, not all 'commercial' cases.") (citing Watson Labs., Inc. v. Rhone-Poulenc Rorer, Inc., 178 F.Supp.2d 1099, 1118 n.13 (C.D. Cal. 2001)).
- posted by Kim Kralowec @ 1:00 AM  | Comments (0) |

 
"Plaintiff firms lock onto Kryptonite"
Today's Recorder reports here on the 17200 lawsuits filed against the manufacturer of Kryptonite bike locks. The locks got a lot of press when a cyclist discovered that a ballpoint pen can open them. The lock maker has already offered free replacements, but that's not good enough, according to attorneys who filed the suits. "What if people don't want a Kryptonite lock anymore?" the Recorder quoted one as saying.
- posted by Kim Kralowec @ 8:56 AM  | Comments (0) |

 
Recent federal decision: Barnett v. Washington Mutual Bank
In Barnett v. Washington Mutual Bank, 2004 WL 2011462 (N.D. Cal. Sept. 9, 2004), the court followed Bronco Wine Co. v. Frank A. Logoluso Farms, 214 Cal.App.3d 699 (1989), in granting a motion to strike the non-class, representative UCL claims of the plaintiff loan officers. The loan officers alleged that their employer violated federal and state labor laws by not paying them overtime. Among other things, they sought restitution under the UCL. The court concluded that "these actions as presently framed are not appropriate for a non-class representative theory" because two factors suggested that the due process concerns recognized in Bronco Wine were present. First, "[t]he potential amount of restitution is great; potentially in the tens of thousands of dollars for each former loan officer. Moreover, and perhaps more importantly, the process for determining the amount of restitution is not automatic." The court distinguished two other overtime cases; in Cortez v. Purolator Air Filtration Prods. Co., 23 Cal.4th 163 (2000), the overtime was more easily calculable, and Bell v. Farmers Ins. Exchange, 115 Cal.App.4th 715 (2004) was a certified class action.

This holding is significant. Bronco Wine is often raised, but rarely followed. Curiously, the court did not mention the holding of Kraus v. Trinity Management Services, Inc., 23 Cal.3d 116, 138 (2000) that "in any case in which a defendant can demonstrate a potential for harm or show that the action is not one brought by a competent plaintiff for the benefit of injured parties, the court may decline to entertain the action as a representative suit."
- posted by Kim Kralowec @ 8:39 AM  | Comments (0) |

 
Proposition 64 pros and cons
Today's Daily Journal has a pair of articles debating the merits of Proposition 64. Unfortunately, there are no links to these articles on its website. The article supporting Proposition 64 is by Professor Robert C. Fellmeth of the University of San Diego School of Law: "Ballot Measure Administers Arsenic Where Small Dose of Ipacac Will Do." The article against the measure is by Michael Newman, an associate at Barger & Wolen in Los Angeles: "Initiative Is Sensible Attempt to Rein In a Terribly Problematic State Law."

The Daily Journal also reports this morning on a press conference held yesterday by the California Chamber of Commerce in Sacramento. The article, "Tort Reformers Bring Out Poster Child," also has no link. (Missing and broken links are unusual for the Daily Journal; I'll check back and see if they add the links later. If so, I will update this post.) (UPDATE: The links to the above articles have now been added, along with another article addressing the UCL: "'Headwaters' Could Head Off Private Attorney General Suits.")
- posted by Kim Kralowec @ 8:57 AM  | Comments (0) |

 
"No on Proposition 64"
Friday's Sacramento Bee had this editorial.
- posted by Kim Kralowec @ 8:56 AM  | Comments (0) |

 
New UCL decision: Alch v. Superior Court
On Tuesday, the Court of Appeal decided Alch v. Superior Court, ___ Cal.App.4th ___ (Sept. 14, 2004), involving over twenty putative class actions all alleging that television studios, television production companies, and talent agencies systematically discriminate against television writers older than age 40. The Court of Appeal reinstated the plaintiffs’ FEHA age discrimination claims, Unruh Act claims, and UCL claims. The decision got a lot of press as an employment case (see these articles, for example), but not as a UCL case. Its UCL components are interesting and significant.

The UCL claim was based on alleged employment practices (age discrimination) that FEHA makes unlawful. The trial court held that to state a UCL claim, the plaintiffs were required to allege “potential competitive harm or likely consumer deception.” Slip op. at 70. The appellate court disagreed, pointing out that “[a] practice is enjoinable as unlawful ‘totally apart from its inherent “fairness.”’” Id. (quoting Barquis v. Merchants Collection Assn., 7 Cal.3d 94, 112 (1972)). “Moreover, the court of appeal has expressly held that age discrimination in violation of FEHA is an unlawful employment practice that may be enjoined under the UCL, whose remedies are cumulative.” Id. at 71 (citing Herr v. Nestlé U.S.A., Inc., 109 Cal.App.4th 779, 789 (2003)).

The Court of Appeal also rejected the argument that under Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163 (1999), “all claims of unfairness under the UCL should be defined in connection with a legislatively declared policy.” Slip op. at 73 (citation omitted). After pointing out that Cel-Tech specifically limited that part of its holding to actions between business competitors, the court held that even if the Cel-Tech formulation of “unfair” applied, it was satisfied because “there is plainly a legislatively declared policy against age discrimination.” Id. “[N]othing in [the Cel-Tech formulation], in the context of an age discrimination claim, requires a showing of potential competitive harm or consumer deception.” Id. at 73-74.

Next, the Court of Appeal determined that “an order compelling the employers to reimburse the class for wages lost as a result of [their ageist hiring practices]” was not an available UCL remedy. Id. at 74-80. The fact that such relief would not be “restitutionary” was key to this holding. Because the plaintiffs were never hired (albeit for discriminatory reasons), they never acquired an ownership interest in any wages or salary. “The classwide backpay remedy suggested by the [plaintiffs] must be distinguished from the restitutionary backpay to employees authorized by the Supreme Court” in Cortez v. Purolator Air Filtration Products Co., 23 Cal.4th 163, 168 (2000). Cortez involved unpaid wages that “became property to which the employees were entitled,” so an order requiring those wages to be paid would be a “restitutionary” order. See Slip op. at 78 n.77.

Conceding that their prayed-for remedy was not “restitutionary,” plaintiffs pointed out that the UCL specifically authorizes “such orders … as may be necessary to prevent” unfair business practices. Id. at 74 (quoting Bus. & Prof. Code §17203). The Court of Appeal disagreed that this language was broad enough to authorize the backpay remedy they sought. “‘[A] court cannot, under the equitable powers of section 17203, order whatever form of monetary relief it believes might deter unfair practices.’ Accordingly, [plaintiffs’] claim that a trial court may award whatever ‘ancillary monetary relief’ it deems necessary to effectuate an injunction is incorrect. Moreover, the relevant precedents counsel against expanding the monetary relief available under the UCL to include classwide backpay in the absence of any indication that the Legislature intended to provide such a remedy.” Id. at 75-76 (quoting Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1148 (2003)).

The plaintiffs also pointed out that in Kraus v. Trinity Management Services, Inc., 23 Cal.4th 116, 129 (2000), the Supreme Court observed that nonrestitutionary disgorgement of profits might be an available remedy in a certified UCL class action. The Court of Appeal considered Kraus irrelevant for the simple reason that the plaintiffs did not seek such a remedy:

[Plaintiffs] do not seek disgorgement of unlawfully obtained profits into a fluid recovery fund; they seek an award of classwide backpay into a fluid recovery fund. Backpay to compensate persons discriminatorily refused employment is a very different remedy from the disgorgement of ill-gotten gains obtained from an illegal practice. It may well be that in a proper case a court may order disgorgement of profits into a fluid recovery fund in a UCL class action; at least one case has so held. (See Corbett v. Superior Court (2002) 101 Cal.App.4th 649, 655 ....) Fluid recovery in class actions, however, is merely a method of paying out damages after they have been awarded. The question is not whether the trial court could order fluid recovery of a damages award; it is whether the trial court has authority to award non-restitutionary backpay under the UCL in the first instance. It does not. As the Supreme Court stated in Korea Supply, the “nonrestitutionary disgorgement remedy sought by plaintiff closely resembles a claim for damages, something that is not permitted under the UCL.” (Korea Supply, supra, 29 Cal.4th at pp. 1150-1151.) So it is with the backpay remedy sought by [plaintiffs in this case].

Slip op. at 79-80 & n.79 (footnote incorporated into text). This holding still leaves open the possibility that Kraus will be construed to permit non-restitutionary disgorgement of profits in a certified UCL class action. No court (including Corbett) has definitively resolved that issue, but the weight of authority supporting a disgorgement-of-profits remedy is now heavier by one case.

In sum, the Court of Appeal concluded that the plaintiffs could not recover any form of monetary relief under the UCL. Accordingly, “the trial court correctly sustained the employers’ demurrers to the [plaintiffs'] UCL class claims, since the only remedy available to the [plaintiffs] is injunctive relief, which is obtainable to the same extent through the [plaintiffs'] representative actions." Id. at 80. (Although the court cited no authority for this final holding, Frieman v. San Rafael Rock Quarry, Inc., 116 Cal.App.4th 29 (2004) provides some support for it.)
- posted by Kim Kralowec @ 1:00 AM  | Comments (0) |

 
"Backers walk for Proposition 64"
This morning's Daily Journal has this article.
- posted by Kim Kralowec @ 9:44 AM  | Comments (0) |

 
Election Watchdog throws down the gauntlet
In a press release issued late last week, Election Watchdog challenged Governor Schwarzenegger to a debate on Proposition 64. The organization also called on the governor to return $2.4 million in campaign contributions he received from corporations that also donated money to support the measure, which the group said would "avoid the appearance of a conflict of interest." According to the press release, "Schwarzenegger is reneging on his commitment to seek a legislative solution to the issue in both public statements and private meetings with the state's leading environmental organizations."
- posted by Kim Kralowec @ 9:28 AM  | Comments (0) |

 
Schwarzenegger endorses Prop. 64
The San Francisco Chronicle reported Saturday that Governor Schwarzenegger issued a press release on Friday endorsing Proposition 64. The Recorder reports this morning that "Schwarzenegger Backs Measure to Limit 17200 Suits," and the Daily Journal reports that "Governor's Nod on Prop. 64 Expected to Energize Battle."
- posted by Kim Kralowec @ 8:33 AM  | Comments (0) |

 
New UCL preemption case
My hotel has an excellent business center, which allows me to report on a new case decided today, Prachasaisoradej v. Ralphs Grocery Co., ___ Cal.App.4th ___ (Sept. 8, 2004). The Court of Appeal held that neither the LMRA nor the NLRA preempted plaintiff's Labor Code and UCL claims because those claims "involve[d] independent rights that neither derive from nor require interpretation of a collective bargaining agreement." Plaintiff, a produce manager at Ralphs, alleged that his employer deducted certain expenses from his bonus checks in violation of the Labor Code. His UCL "unlawful" prong claim was also predicated on those alleged violations. While the collective bargaining agreement addressed bonus payments generally, it did not mention the specific conduct that Ralphs allegedly engaged in. Hence, the Court of Appeal held, the Labor Code and UCL claims were not preempted and the trial court improperly sustained Ralphs' demurrer. The Court of Appeal also reversed an extremely onerous-sounding attorneys fees award of $275,000.
- posted by Kim Kralowec @ 2:16 PM  | Comments (0) |

 
17200 blog hiatus
I will be traveling next week on business and will probably not be able to post again until next Friday, September 10, at the earliest. As usual, if you see any interesting news articles or court decisions on the UCL, please email me. Happy Labor Day!
- posted by Kim Kralowec @ 9:46 AM  | Comments (0) |

 
UCL caselaw roundup
We have been inundated lately with news articles on Proposition 64, but no new UCL decisions for a while. So, I will report on one decided in June. In DiPirro v. American Isuzu Motors, Inc., 119 Cal.App.4th 966 (2004), the complaint alleged "causes of action for violation of Proposition 65 itself [as well as] for Proposition 65-based unlawful business practices under Business and Professions Code section 17200." The Court of Appeal held that these claims were properly dismissed because the plaintiff had not satisfied Proposition 65's prelitigation certificate of merit requirement. This case appears to illustrate the rule that, under the UCL's "unlawful" prong, a defense to the underlying "borrowed" law is a defense to the UCL claim as well.

I also recently learned that the Court of Appeal, on its own motion, withdrew its opinion in Benson v. Kwikset Corp., formerly published at 120 Cal.App.4th 301 (2004), pending rehearing. Here is the docket page. We shall have to wait and see what happens. The original Benson opinion affirmed a UCL judgment against a lock manufacturer for mislabling its products as "Made in America" when many of the component parts were manufactured overseas. The dissenting opinion heartily criticized the UCL in general, and its application in that case in particular. My original posts on Benson are here and here.

Finally, Freespace had an interesting post a few days ago entitled "17200 abuse of the day," which addressed Kramer v. Intuit, Inc., ___ Cal.App.4th ___ (Aug. 11, 2004). I have to point out, though, that Kramer was a CLRA case, not a UCL case, and that unlike the UCL, the CLRA does have traditional standing requirements, which the plaintiff in Kramer satisfied. Also, the CLRA has a very specific laundry list of prohibited conduct, mostly involving the sale of goods and services. Civ. Code § 1770(a)(1)-(23), (b). On appeal, the plaintiff did not claim that the defendant's conduct was "deceptive or misleading," but rather that the conduct violated one of the CLRA's express prohibitions concerning rebate programs. The Court of Appeal simply disagreed with that legal theory. My original report on Kramer is here.
- posted by Kim Kralowec @ 1:00 AM  | Comments (0) |

 
"Business and Consumer Groups Clash Over Prop. 64"
This detailed article is in the September 2004 issue of the California Bar Journal, which arrived in my in-box today. (Thanks to RH for pointing it out.)
- posted by Kim Kralowec @ 8:48 PM  | Comments (0) |