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June 26, 2020

Stroock Special Bulletin

By: Julia B. Strickland, Stephen J. Newman

On June 25, 2020, the California Supreme Court issued its long-awaited ruling on whether county and city prosecutors could seek restitution and civil penalties under California’s Unfair Competition Law, Business & Professions Code section 17200 (the “UCL”), based on conduct that occurs within the state but outside the local prosecutor’s specific jurisdiction. In Abbott Laboratories v. Superior Court (No. S249895), the Court rejected the views of a lower appellate court as well as the California Attorney General, and held that local prosecutors may seek civil penalties for statewide conduct, including conduct outside their particular jurisdictions. “The UCL does not preclude a district attorney, in a properly pleaded case, from including allegations of violations occurring outside as well as within the borders of his or her county.” 

In Abbott Laboratories, the Orange County District Attorney (the “OCDA”) sued several pharmaceutical manufacturers for allegedly scheming to keep generic versions of prescription drugs off the market. The OCDA sought civil penalties and restitution, as well as injunctive relief, on a statewide basis. The UCL authorizes a prosecutor to recover up to $2,500 in civil penalties per violation. The OCDA alleged that such penalties should be calculated on the basis of defendants’ statewide sales, and not just on sales made to county residents. The OCDA further alleged that all California residents should be awarded restitution for purchases made at supposedly inflated prices. Responding to the complaint, Abbott moved to strike all allegations seeking statewide financial relief, arguing that “a district attorney’s enforcement authority under the UCL is limited to the geographic boundaries of his or her county.” The trial court denied the motion to strike, and Abbott obtained a writ from the Court of Appeal, directing the trial court to strike the allegations. The OCDA petitioned the California Supreme Court for review.  

Notably, the California Attorney General filed an amicus brief before the Supreme Court supporting Abbott, arguing that all efforts to seek statewide relief should be centralized in the Attorney General’s office. The Attorney General posited, among other arguments, that permitting local enforcement threatens inconsistent and conflicting enforcement positions and court rulings.

Ruling that the UCL on its face creates a system of concurrent jurisdiction, the California Supreme Court set aside the Court of Appeal’s writ, thus reinstating the trial court’s order refusing to strike the allegations. As the Supreme Court explained, although the Attorney General has statutory authority to intervene in a UCL case and take control in the event a local prosecutor either is not prosecuting the case effectively or, conversely, is pursuing it in an aggressively unfair manner or otherwise in a manner that “does not adequately serve the public interest,” nothing in the statute requires a local prosecutor to obtain advance permission from the Attorney General before seeking statewide relief. To the contrary, the Legislature “chose to create a decentralized enforcement model.”

In a concurring opinion, three justices expressed concern that “empowering scores of local officials to sue in the name of the State of California will inevitably create some practical challenges [that] are particularly acute in the context of the UCL, which provides that any civil penalties recovered by a district attorney shall be paid to the treasurer of the county in which the judgment was entered.” They acknowledged, however, that there is little evidence races to the courthouse or other inter-county conflict result in either ineffective enforcement or abuse of defendants’ rights. Nonetheless, the justices suggested that the Legislature enact a notice system to ensure that the Attorney General could, as a practical matter, perform his function of supervising law enforcement efforts throughout the state, beginning at the earliest stages of a case filing.

This opinion is unlikely to have much practical impact on public prosecutions of UCL cases. Cases often are brought in high-population jurisdictions, such as Los Angeles or San Francisco, or by a consortium of local prosecutors, functionally resulting in pursuit of statewide relief. It remains to be seen whether the ruling encourages district attorneys in low-population counties to file more cases seeking statewide relief in an effort to enhance local treasuries with civil penalties calculated based on statewide conduct. The opinion confirms, however, that the Attorney General retains power to restrain local prosecutors from any abuse of their broad UCL powers.

We remain available to discuss California unfair practices issues, including the impact of this decision. 

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For More Information:

Julia B. Strickland

Stephen J. Newman

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.