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May 1, 2020

Stroock Special Bulletin

By: Julia B. Strickland, Stephen J. Newman

The California Supreme Court has decided an important legal question under California’s oft-used Unfair Competition Law (Business & Professions Code section 17200) (“UCL”) and False Advertising Law (Business & Professions Code section 17500) (“FAL”), holding that all claims asserted under these statutes must be tried to the court, rather than to a jury. In so holding, the Supreme Court also signaled important thinking on other key issues central to UCL/FAL litigation.

On April 30, in Nationwide Biweekly Admin., Inc. v. Superior Court, the California Supreme Court rejected a claim by a corporate defendant that it had a right to a jury trial in a civil case, pursued by government officials, seeking an award of monetary penalties under the UCL and FAL. The defendant argued that civil penalties of this kind are akin to a government-imposed fine, and quasi-penal in nature, such that the state and federal constitutions guarantee a right to a jury trial. The Supreme Court disagreed, explaining that civil penalties are part of the UCL’s and FAL’s overall equitable program to deter unfair competition and false advertising. Because at common law, there was no jury trial right with respect to equitable claims, there is no jury trial right here. Even though claims for money damages are traditionally claims “at law,” entitling the defendant to a jury trial, UCL/FAL penalties are not claims for compensatory damages, and even the statutes’ authorization of restitution is a traditional equitable remedy.

Importantly, the California Supreme Court stressed a trial court’s “broad discretion” in determining a penalty amount. Notably, penalties are not recoverable in private litigation, only in actions pursued on behalf of government entities. Given the lack of guidance from prior case law on this issue, defendants may take comfort in some of the opinion’s dicta. Often in settlement negotiations, prosecutors will argue that if the case is litigated, the defendant will be exposed to a catastrophic penalty judgment:  the number of violations multiplied by $2,500, the maximum per-violation penalty amount under each statute. The Nationwide Biweekly ruling, however, strongly suggests that such an extraordinary method of penalty calculation should be imposed only in the rarest and most extreme circumstances.  Indeed, the Supreme Court rejected as “hyperbole” the defendant’s argument that a serious risk exists of such massive awards, because “the applicable statutes and case law grant trial courts broad, but not unlimited, discretion to impose penalties in a reasonable amount (up to $2,500 per violation) in light of the nature and severity of an offending business’ conduct.”

Based on the decision, another area defendants might wish to explore in private-plaintiff cases including UCL and FAL claims is whether a plaintiff, by including such a claim, waives his right to seek a jury trial as to all claims in the case. Much of the California Supreme Court’s analysis of the “equity first” doctrine potentially could apply to private civil cases in which a plaintiff alleges that the violation of some other principle of law gives rise to a UCL claim. A defendant might argue, based on Nationwide Biweekly, that plaintiffs must dismiss their UCL claims if they wish to preserve their ability to have the case as a whole decided by a jury.

Finally, the California Supreme Court continued its longstanding practice of not conclusively defining what constitutes “unfair” conduct under the UCL. As in previous opinions, the Supreme Court noted that the intermediate appellate courts had developed multiple tests of  “unfair” conduct, but declined to state which is preferable or required.

Jurisprudence in this important area is continuing to evolve. Please do not hesitate to reach out to us to discuss this or other issues in further detail.

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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.