Class Action

Thoughts on Clark v. Superior Court (Nat'l Western Life Ins. Co.)

By Kimberly A. Kralowec

I've been meaning to write more on Clark v. Superior Court (Nat'l Western Life Ins. Co.), 50 Cal.4th 605 (Aug. 9, 2010).  In Clark, the Supreme Court held that the enhanced remedies of Civil Code section 3345 (applicable in certain cases brought by senior citizens and disabled persons) are not recoverable in a UCL "unlawful" prong case predicated on violation of that statute.  

The Court had this to say about UCL restitution:

For the reasons given above, we conclude that trebled recovery may be awarded under Civil Code section 3345, subdivision (b) only if the statute under which recovery is sought permits a remedy that is in the nature of a penalty. We now consider whether the unfair competition law, the basis of plaintiffs' private party action, falls within that category. 

As we have seen, restitution is the only monetary remedy authorized in a private action brought under the unfair competition law.  (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at pp. 1146, 1148.)  Restitution is not a punitive remedy.  The word ?restitution? means the return of money or other property obtained through an improper means to the person from whom the property was taken.  (Kasky v. Nike, Inc., supra, 27 Cal.4th at p. 950; Kraus v. Trinity Management Services, Inc., supra, 23 Cal.4th at pp. 126-127.) ?The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.? (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1149, italics added.) In contrast, a penalty is a recovery ? ?without reference to the actual damage sustained....? ? (Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1104.) ?Penalties provide for ? ?recovery of damages additional to actual losses incurred, such as double or treble damages....? ? ? (Ibid.)  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).

Slip op. at 9-10 (emphasis added).  Contrast this with what the Court said in Tobacco II a year earlier:

"[T]o state a claim under either the UCL or the false advertising law, based on false advertising or promotional practices, 'it is necessary only to show that "members of the public are likely to be deceived."'" (Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951 [119 Cal.Rptr.2d 296, 45 P.3d 243].)  To achieve its goal of deterring unfair business practices in an expeditious manner, the Legislature limited the scope of the remedies available under the UCL. "A UCL action is equitable in nature; damages cannot be recovered. [Citation.] . . . We have stated under the UCL, '[p]revailing plaintiffs are generally limited to injunctive relief and restitution.' [Citation.]" (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

The fraudulent business practice prong of the UCL has been understood to be distinct from common law fraud. "A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for injunctive relief" under the UCL. (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 332; see State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1105.)  This distinction reflects the UCL's focus on the defendant's conduct, rather than the plaintiff's damages, in service of the statute's larger purpose of protecting the general public against unscrupulous business practices. (Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 453.)

In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009) (footnote omitted) (emphasis added). 

So, enthusiastic readers, are the two holdings consistent, and if not, how do we reconcile them?

Full post as published by The UCL Practitioner on October 05, 2010 (boomark / &linkurl=http://uslaw.com/library/Class_Action/Thoughts_Clark_v_Superior_Court_Natl_Western_Life_Ins_Co.php?item=909596' rel=nofollow title='The UCL Practitioner'>email).