II. ANTI-COMPETITIVE BUSINESS PRACTICES
A. Area Summary: Unfair Competition Act. (Bus. & Prof. Code §§
17200, et seq. and Class Actions)
Fees and costs charged in making, arranging, servicing and foreclosing upon loans are constant
sources of disputes between consumers, lenders, brokers,
`servicers and trustees (herein collectively “Lenders”). RESPA, Regulation X and California real
estate law (Business & Professions Code and State regulations) deal with many, but not all, of
these fees and costs issues. Issues relating to fees and costs are frequently challenged under
California’s Unfair Competition
Law (“UCL”) in conjunction with class actions.
While each particular cost or fee may be regulated by specific state or federal statute or
regulation (e.g., RESPA, Article 7 limitations found in Business and Professions Code §§ 10240, et
seq., or foreclosure fees and costs found in Civil Code §§2924c and 2924d), lenders should be aware
that generally to avoid problems, a fee is a charge for a service which the broker, servicer,
trustee or lender is providing and a cost is generally a charge by a third party (or an expense
incurred as a component part of providing the lender’s or broker’s service). Because many lenders
and brokers provide a menu of services, the distinction between a fee and a cost may become
B. What is Cover Under the UCL?
The UCL defines “’unfair competition to include ‘any unlawful, unfair or fraudulent business act
or practice.’ . .. Its coverage is ‘sweeping, embracing “‘anything that can properly be called a
business practice and that at the same time is forbidden by law.’ ” ‘ It governs ‘anti-competitive
business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation
of fair business competition.’” [Emphasis Added]. (Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Co. (1999) 20 Cal.4th 163, 180,)
1. What is Unfair under the UCL?
The courts are not in agreement. There are two distinct approaches to how to define “unfair” under
the UCL. “One line defines “unfair” as prohibiting conduct that is immoral, unethical, oppressive,
unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of
the defendant’s conduct against the gravity of the harm to the alleged victim. (Smith v. State Farm
Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 718-719 (Smith); Pastoria v. Nationwide Ins.
(2003) 112 Cal.App.4th 1490, 1498.) The other line of cases holds that the public policy which is a
predicate to a consumer unfair competition action under the “unfair” prong of the UCL must be
tethered to specific constitutional, statutory, or regulatory provisions. (Scripps Clinic v.
Superior Court (2003) 108 Cal.App.4th 917 (Scripps); Gregory v. Albertson’s, Inc. (2002) 104
Cal.App.4th 845 (Gregory).)” (See, Bardin v. DaimlerChrysler Corporation (2006)
136 Cal. App. 4th 1255.) Hopefully, this dispute will be resolved by the legislature
or State Supreme Court.
C. What is a Fraudulent Business Act or Practice under the UCL?
Under UCL Fraud the plaintiff does not have to prove the more rigorous elements of common law
fraud. Bardin v. DaimlerChrysler Corporation (2006) 136 Cal. App. 4th 1255.) Historically a
plaintiff in an UCL action does not have to show that he was personally misled or relied on the
fraud. (Id.) Still unanswered is: what is the impact of Proposition 64 on this historical
interpretation of UCL fraud? The problem is that Proposition 64 (discussed later) for actions after
2004, requires that a plaintiff actually be harmed by the conduct of the defendant before he can
represent members of the general public as a private attorney general. This seems to fly in the
face of the historic definition of fraud.
“In order to state a cause of action under the fraud prong of the UCL a plaintiff need not show
that he or others were actually deceived or confused by the conduct or business practice in
question. ‘The “fraud” prong of [the UCL] is unlike common law fraud or deception. A violation can
be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained
any damage. Instead, it is only necessary to show that members of the public are likely to be
deceived.'” (See, Bardin v. DaimlerChrysler Corporation (2006) 136 Cal. App.
Plaintiffs may have to allege that members of the public had an expectation or an assumption about
the business practice (e.g., in a car manufacturing case that the manufacturer made a
representation regarding the quality or the materials used). (Id.)
The court of appeal observed that under the UCL a plaintiff does not have to plead or prove the
more rigorous elements of common law fraud.
D. Standing to File a Representative Action (Unfair Business
Practices Action or Class Action.
Class actions, regardless of whether they are for Unfair Business Practices or for other type of
action, require that the plaintiff be a person actually injured by the defendant and to be a
representative of a class the plaintiff must show that there is a well-defined community of
interest among the class members. (Code of Civil Procedure § 382.) However, a class action may not
be brought as part of a class action where each member’s right to recover depends on facts peculiar
to his case. (Newell v. State Farm General Insurance Co., (2004) 118 Cal.App.4th
In Newell, Plaintiff insureds brought a class action claim against defendant insurers on claims for
policy benefits for damages incurred by the Northridge earthquake alleging that they and members of
their class were wrongfully denied policy benefits for damage inflicted on their homes by the
Northridge earthquake, and alleged that settlements were improperly and fraudulently carried out.
The court of appeal held that there was no reasonable possibility that the insureds could satisfy
the community of interest requirement under the California Code of Civil Procedure §382. The
unfair business practices claim was premised on the improper denial of benefits under earthquake
insurance policies. Because claims of breach of contract and bad faith would require each member
of the putative class to prove his or her individual claims by showing that their claim was
wrongfully denied, individualized court assessment of how each of the claims were handled is
necessary. Similarly, claims of improper and fraudulent settlement practices on the part of the
defendants also required an assessment of each insured state of mind during settlement and the
particular settlement negotiation. Thus, the court held that no community of interest may be
established for class action certification.
E. UCL Standing To Sue and the Impact of Proposition 64.
Until the passage of Proposition 64 in the November, 2004 California General Election, UCL actions
could be filed by any person, including non-profit organizations, on behalf of its members and on
behalf of the general public even though the underlying statute, which serves as the basis of the
suit, does not provide for a private right of action. (Stop Youth Addiction, Inc. v. Lucky Stores,
Inc. (1998) 17 Cal.4th 553; and see, Washington Mutual Bank v. Superior Court, (1999) 75
Cal.App.4th 773). Prior to Proposition 64, the plaintiff did not have to be personally damaged to
have standing to sue. (Gregory v. Albertson’s Inc. (2002) 104 Cal.App.4th 845.) However, even
before Proposition 64, if a party failed to showed that he/she filed the suit on behalf of the
general public, his/her action is subject to summary judgment for lack of standing. (Rosenbluth
International, Inc. v. Superior Court (2d Dist. 2002) 101 Cal.App.4th 1073.)
Substantial abuses by some plaintiffs’ counsel and the refusal of the California Legislature to
remedy these abuses lead to Proposition 64 which was a ballot initiative on the November 2004,
General Election ballot.
Proposition 64 made changes the UCL both in its general unfair competition provisions (Bus. & Prof.
Code § 17200 et seq.) and in its unfair advertising provisions. (Bus. & Prof. Code § 17500 et seq.)
Proposition 64 limits non-government attorneys and plaintiffs by requiring that “[a]ny person may
pursue representative claims or relief on behalf of others only if the claimant meets the standing
requirements of [Section 17204 or 17535 of the UCL] and complies with Section 382 of the Code of
Civil Procedure [class action rule], but these limitations do not apply to claims brought
under this chapter by the Attorney General, or any district attorney, county counsel, city
attorney, or city prosecutor in this state. To have standing under the UCL the plaintiff must: (1)
be a person “who has suffered injury in fact and has lost money or property as a result of such
unfair competition [or unfair advertising]” (Bus. & Prof. Code §§ 17203, 17204, 17535) and (2) meet
the requirements of Code of Civil Procedure § 382 which established the ability of an individual to
bring a class action where “the question is one of a common or general interest, of many person, or
when the parties are numerous, and it is impracticable to bring them all before the court, . . .”
Proposition 64 did not affect actions brought by governmental attorneys (e.g., attorney general,
district attorney, county counsel or city attorney) except to require that the penalties recovered
by them (which cannot be recovered by private counsel) “shall be for the exclusive use by the
Attorney General, the district attorney, the county counsel, and the city attorney for the
enforcement of consumer protection laws.” This takes away the incentive for these types of actions
to be used as general revenue raising tools.
Proposition 64 limited the rights of private plaintiffs to bring civil actions as a private
attorney general under California’s Unfair Competition Laws and Unfair Advertising law (Bus. and
Prof. Code §§ 17200 and 17500). Proposition 64 was passed by the voters on November 2, 2004, and
became law the day after.
Prior to the passage of Proposition 64, there was no requirement that a representative plaintiff
had to have done business with the defendant or been harmed by the defendant’s conduct. While
these statutes could be effective consumer protection tools, their abuse in recent years had become
widespread. To remedy some of the abuses, Proposition 64 requires that before a plaintiff may act
as a private attorney general, he/she must have suffered actual injury as a result of the
defendant’s unfair business practices or false advertising.
Because there were so many of these types of actions pending, the question of the retroactivity of
Proposition 64 became critical. Prior to the California Supreme Court’s decisions in the Branick
and Mervyn’s cases (discussed below), application of Proposition 64 to pending cases was unclear as
there were, at least, nine published Courts of Appeal decisions on the issue of whether Proposition
64 should be applied retroactively. The appellate cases appealed to the California Supreme Court
were: (1) Californians for Disability Rights v. Mervyn’s, (review granted) Cal. Supreme Court case
no. S131798; (2) Benson v. Kwikset Corp., (review granted) Cal. Supreme Court case no. S132443; (3)
Branick v. Downey Savings & Loan Assn., (review granted) Cal. Supreme Court case no. S132433; (4)
Bivens v. Corel Corp., (review granted) Cal. Supreme Court case no. S132695; (5) Lytwyn v. Fry’s
Electronics, Inc., (review granted) Cal. Supreme Court case no. S133075; (6) Frey v. Trans Union
Corp., (petition for depublication pending) Supreme Court case no. S133272; (7) Thornton v. Career
Training Center, Inc., (petition for depublication pending), Supreme Court case no. S133275.
The appellate court in the Mervyn’s case decided that Proposition 64 was not retroactive with
respect to a case that had already been tried and was on appeal on November 3, 2004 when
Proposition 64 became effective. A similar conclusion was reached by the court of appeal
(2nd Dist. Div. 8) in its May 17,
2005, opinion holding that Proposition 64 is not retroactive in the case of Consumer Advocacy Group
v. Kintetsu Enterprises, 2nd Dist. Case no. B158840. All of the other Courts of Appeal opinions,
including Huntingdon Life Sciences, Inc. v. Stop Huntingdon Animal Cruelty USA, Inc., decided on
June 1, 2005, held that Proposition 64 was retroactive. However, the Courts of Appeal in Branick
v. Downey Savings & Loan Assn. and in other decisions have generally allowed the plaintiffs to
amend their complaints to substitute in a representative plaintiff who meets the requirements of
Proposition 64 (i.e., a plaintiff who actually did business with the defendant and was
harmed by the defendant’s conduct).
In granting the petition in the Mervyn’s case, the California Supreme Court also decided to take up
four of the other nine appellate court opinions. The published decisions in each of these cases have been decertified, meaning they can no longer be cited as
Mervyn’s and Branich Rulings.
The Supreme Court in Californians for Disability Rights v. Mervyn’s (2006) 39
Cal.4th 223 (and related cases held that Proposition 64 did not create or eliminate any substantive
rights, but merely affected the procedures of how those rights are enforced (i.e., an unfair
business practice action now must be brought by designated government attorneys or by a person who
actually suffered harm or injury as opposed to any unaffected individual or group allegedly
representing the general public). The California Supreme Court held that Proposition 64 is
retroactive as to all pending cases. (Californians for Disability Rights v. Mervyn’s (2006) 39
Cal.4th 223 (and related cases).
In Branick v. Downey Savings & Loan Assn. (2006) 39 Cal.4th 235 the California Supreme Court held
that complaints pending when Proposition 64 passed, in the trial court’s discretion, may be amended
to add new parties who meet the Proposition 64 requirement and, as long as the amendments do not
add a wholly different cause of action, the technical amendments adding a party will relate back to
when the complaint was originally filed.
Under Proposition 64, Plaintiffs Must Alleged that the Representative Plaintiff under the UCL
or the False Advertising Law (Bus. & Prof. Code sections 17500 et. seq. herein “FAL”) and each
member of the putative class (Represented Group) Suffered Injury in Fact and Lost Money or Property
as a Result of Such Violation.
In Pfizer Inc. v. Superior Court of Los Angeles (2006) 141 Cal. App. 4th 290 (hearing granted by
Cal. Supreme Court), the California court of appeal, in a UCL and FAL case, held that:
“Proposition 64 requires private representative actions to satisfy the procedural requirements
applicable to class action lawsuits. (Ballot Pamp., General Elec. (Nov. 2, 2004) Prop. 64, Official
Title & Summary, p 38.) [fn. om.] We conclude that in order to meet the “community of interest”
requirement of Code of Civil Procedure section 382, which requires, inter alia, the class
representative to have claims typical of the class, it is insufficient if the class representative
alone suffered injury in fact and lost money or property as a result of the unfair competition or
false advertising. (§§ 17204, 17535.) The class members being represented by the named plaintiff
likewise must have suffered injury in fact and lost money or property as a result of such
This case to a large extent answers the question raised by the court of appeal in Bardin
regarding whether a “fraudulent” business practice under the UCL will require the showing of some
reliance and damages by both the class representative and the individuals in the class being
represented. The Pfizer case is current awaiting hearing before the California Supreme Court and
should resolve the issue to whether both the class representative and each member of the class must
meet the requirements of Proposition 64.
It is an Abuse of the Trial Court’s Discretion, to Allow a Class Action (or UCL Action)
Representative Plaintiff Who is Not–and Never Was–a Member of the Class He Purports to Represent,
to Obtain Precertification Discovery From The Defendants for the Express Purpose Of Identifying A
Member of the Class Who is Willing to Become a Named Plaintiff and Pursue The Action.
• First American Title Ins. Co. v. Superior Court (2007) 146 Cal.App.4th
In February 2004, plaintiff, a licensed real estate broker purchased a home. The seller
and the mortgage lender insisted that he use First American Title Insurance Company (“FATCO”).1
The home was not a new home and was purchased from existing sellers and was financed through a
mortgage company that made a purchase money loan to plaintiff. The seller’s agent selected and
insisted upon FATCO of Los Angeles as the escrow holder and the title company.
Plaintiff wanted to use a different title company. Plaintiff, the buyer, was represented by his
own counsel in the purchase. Before close of escrow or immediately afterward, plaintiff’s loan
agent observed that some of the escrow and title costs were suspiciously high. Plaintiff said
nothing until after the close of escrow.
As noted by the court of appeal:
1 The court of appeal observed that there were many different FATCO entities and that the one used
by plaintiff was FATCO of Los Angeles.
Four days after the government settlements were announced, plaintiff filed his class action, as a
class representative, alleging similar kickback schemes. The complaint alleged causes of action
for breach of fiduciary duty, constructive fraud, unjust enrichment, violation of the Consumer
Legal Remedies Act (Civ. Code, § 1750 et seq.; CLRA), unfair business practices, and declaratory
relief. After preliminary motions of the pleadings and the filing on a first amended complaint,
plaintiff’s counsel in essence admitted that there may not have been a kickback in plaintiff’s
situation, but that plaintiff was indirectly harmed by increased title insurance fees
charged as a result of kickbacks paid to others and he further claimed that, if plaintiff was
allowed to do pre-class certification discovery he may find a plaintiff to amend into the complaint
who was, in fact, harmed by the kickback scheme.
As the class action putative (i.e., prospective) representative, plaintiff sought to obtain
precertification discovery from defendants for the express purpose of identifying a class member
who was willing to become a named plaintiff and pursue the action. The class representative argued
that he might have standing to assert a kickback in his purchase of title insurance, or that he
might have standing to bring a class action on behalf of all customers of the lead defendant whose
premiums might have been increased as a result of a reinsurance kickback scheme. The
trial court granted the class representative’s motion for precertification discovery.
The Court of Appeal issued a writ of mandate directing the trial court to vacate its order granting
the class representative’s motion for precertification discovery and to enter a new order denying
that motion. The court held that a plaintiff who purports to bring a cause of action on behalf of a
class of which the plaintiff was never a member may not obtain precertification discovery to find a
new class representative. Regardless of whether he might have another, unpleaded, claim against the
lead defendant, and regardless of whether he made his initial allegations in good faith, the class
representative was not, and never had been, a member of the class that he purported to represent.
The class representative was, in effect, a stranger to the action. Because the potential for abuse
of the class action procedure was over-whelming, while the interests of the real parties in
interest were minimal, precertification discovery under the circumstances was an abuse of
Plaintiff in a UCL Action was Not Entitled to File a Second Amended Complaint
Substituting Another Plaintiff With Standing To Pursue The Action Where As Plaintiff Made no
Attempt, or Argument, that he Could Amend The Complaint, Using The Existing Plaintiff Or By Adding
A New Plaintiff. Absent Grounds to Amend the Complaint Plaintiff Could Not Engage in Discovery to
Find a Property Plaintiff.
• Cryoport Systems v. CNA Ins. Cos. (2007) 149 Cal. App. 4th 627.
Plaintiff’s insurance policy was cancelled for nonpayment of premium. Just prior to the passage of
Proposition 64 (approved Nov. 2, 2004), plaintiff filed a complaint under California’s Unfair
Competition Law (“UCL”) alleging that the insurers had a practice of collecting unearned premiums
from customers for a no loss period upon reinstating a cancelled policy. The complaint failed to
allege that the plaintiff policyholder had ever tried to reinstate its canceled policy, that it was
required to execute a no loss letter as a condition to reinstate its policy, or that it had paid
any premiums to the insurers covering a no loss period. The trial court gave plaintiff the
opportunity to amend its complaint to allege that it met the standing requirements of Proposition
64 or as allowed under Branick to add a plaintiff did meet those requirements (Bus. & Prof. Code,
§§ 17203, 17204). In its amended complaint, however, the policyholder again failed to allege that
it suffered injury in fact and lost money or property as required by Proposition 64 or to add a new
plaintiff who met these requirements. . Plaintiff’s main argument was that he should be allowed to
engage in discovery to find a proper plaintiff. The trial court sustained the defendant insurance
company’s demurrer without leave to amend. Plaintiff appealed.
The Court of Appeal affirmed, holding that the policyholder was not entitled to file a second
amended complaint substituting another plaintiff with standing to pursue the action as
plaintiff made no attempt, or argument, that he could amend the complaint, using the existing
plaintiff or by adding a new plaintiff , . The denial of leave to amend was proper because it did
not appear that the complaint could be amended to cure the defect. As to plaintiff’s argument
that it should be allowed to do discovery to find a proper plaintiff, the court of appeal held:
_ “As in First American, the potential for abuse of such discovery in a case like
this is great. Cryoport clearly has no interest of its own in this litigation, having been
unable to amend its complaint to allege its own standing. “California law is clear that a
representative plaintiff must be a member of the class he seeks to represent. Indeed, Proposition
64 was enacted to prevent abuses of the class action system by ‘ “prohibit[ing] private attorneys
from filing lawsuits for unfair competition where they have no client who has been injured in
fact.” ‘ [Citation.] We cannot permit attorneys to make an ‘end-run’ around Proposition 64 by
filing class actions in the name of private individuals who are not members of the classes they seek to represent and then
using precertification discovery to obtain more appropriate plaintiffs.” (First American,
supra, 146 Cal.App.4th at p. 1577.) And as in First American, the potential class members’ interests in this
particular lawsuit are minimal. “Any further legal action can be pursued by members of the class,
if they so desire. [Plaintiff] makes no argument that any future action they might pursue would be
time-barred, or offer any other reason why the class members might be denied relief if this action
is unable to proceed on their behalf. In short, the potential for abuse of the class action
procedure is overwhelming, while the interests of the real parties in interest are minimal.
Precertification discovery under these circumstances would be an abuse of discretion.” (Ibid.) 2
Unfair Competition Remedies.
No Damages, Only Restitution under UCL.
The general remedy for an individual acting as a private attorney general is an injunction
restraining the unfair business practice and restitution (i.e., returning the monies obtained by
the unfair business practice). Damages and civil penalties are not available to private
litigants under the UCL. On the other hand, in class actions not based solely on the UCL, damages
may be recovered in addition to other remedies.
The court of appeal held that such non-restitutionary disgorgement is not available under
the UCL. (Feitelberg v. Credit Suisse First Boston, LLC (2005)
134 Cal. App. 4th 997.) To obtain restitution, the offending party must have (1) obtained something
to which it was not entitled, and (2) the victim must have given up something it was entitled to
keep. (Id.) To the extent a plaintiff seeks non-restitutionary disgorgement that too closely
resembles a claim for damages, which are not permitted under section 17200 et seq. However, such
damages may be recovered under a class action under other theories.
Civil Penalties Where Brought By Government Counsel.
However, in addition to restitution and an injunction, if the action is brought by the attorney
general, a district attorney, county counsel or, in some instances, by a city attorney, the
plaintiff (the “People of the State of California”) may recover a civil penalty of not to exceed
$2,500.00 for each violation. (Bus. & Prof. §
17206). Typical cases involved UCLs for TILA, Reg. Z and DRE regulation violations. For example,
each time an advertisement is run containing 4 separate violations, there is the possibility that
the, per day penalty may be $10,000.00 ($2,500.00 x 4 for each time the ad is run). DRE’s prior
approval of an advertisement is not a safe harbor from such violations. Some DA’s take the
position that the fact that they took no action for 4 years while violations continued
in no way is a waiver of the People’s right to recover for each violation. Therefore, even if an
advertisement had 1 violation which ran each day in the news paper for 4 years (the time of the statute of limitations), the civil penalties could be
$3,652,500.00.) While the government attorneys frequently consider the ability of the defendant
to respond to damages, such a large potential civil penalty is a substantial incentive to accept an
otherwise unacceptable settlement proposal.
In addition, Business and Professions Code § 17206.1 provides to additional civil penalty with
respect to certain acts against senior citizens or disabled persons. That section provides:
(a) In addition to any liability for a civil penalty pursuant to Section
17206, any person who violates this chapter, and the act or acts of unfair competition are
perpetrated against one or more senior citizens or disabled persons, may be liable for a civil
penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which may be
assessed and recovered in a civil action as prescribed in Section
17206 [Emphasis Added].
Subject to subdivision (d), any civil penalty shall be paid as prescribed by subdivisions (b) and
(c) of Section 17206.
(b) As used in this section, the following terms have the following meanings:
(1) “Senior citizen” means a person who is 65 years of age or older. (2) “Disabled person” means
any person who has a physical or
mental impairment which substantially limits one or more major life activities.
(A) As used in this subdivision, “physical or mental impairment” means any of the following:
(i) Any physiological disorder or condition, cosmetic disfigurement, or anatomical loss
substantially affecting one or more of the following body systems: neurological; muscoloskeletal;
special sense organs; respiratory, including speech organs; cardiovascular; reproductive;
digestive; genitourinary; hemic and lymphatic; skin; or endocrine.
(ii) Any mental or psychological disorder, such as mental retardation, organic brain syndrome,
emotional or mental illness, and specific learning disabilities. The term “physical or
mental impairment” includes, but is not limited to, such diseases and conditions as orthopedic,
visual, speech and hearing impairment, cerebral palsy, epilepsy, muscular dystrophy, multiple
sclerosis, cancer, heart disease, diabetes, mental retardation, and emotional illness.
(B) “Major life activities” means functions such as caring for one’s self, performing manual tasks,
walking, seeing, hearing, speaking, breathing, learning, and working.
(c) In determining whether to impose a civil penalty pursuant to subdivision (a) and the amount thereof, the court shall consider, in addition to any other
appropriate factors, the extent to which one or more of the following factors are present:
(1) Whether the defendant knew or should have known that his or her conduct was directed to one or
more senior citizens or disabled persons.
(2) Whether the defendant’s conduct caused one or more senior citizens or disabled persons to
suffer: loss or encumbrance of a primary residence, principal employment, or source of income;
substantial loss of property set aside for retirement, or for personal or family care and
maintenance; or substantial loss of payments received under a pension or retirement plan or a
government benefits program, or assets essential to the health or welfare of the senior citizen or
(3) Whether one or more senior citizens or disabled persons are substantially more vulnerable than
other members of the public to the defendant’s conduct because of age, poor health or infirmity,
impaired understanding, restricted mobility, or disability, and actually suffered substantial
physical, emotional, or economic damage resulting from the defendant’s conduct.
(d) Any court of competent jurisdiction hearing an action pursuant to this section may make orders
and judgments as may be necessary to restore to any senior citizen or disabled person any
money or property, real or personal, which may have been acquired by means of a violation of this
chapter. Restitution ordered pursuant to this subdivision shall be given priority over recovery of
any civil penalty designated by the court as imposed pursuant to subdivision (a), but shall not be
given priority over any civil penalty imposed pursuant to subdivision (a) of Section 17206. If the
court determines that full restitution cannot be made to those senior citizens or disabled
persons, either at the time of judgment or by a future date determined by the court, then
restitution under this subdivision shall be made on a pro rata basis depending on the amount of
Frequently, after a judgment or settlement of a class action, many of the class members fail to
make claims or cannot be located. As such, large amounts of the damages or restitution paid by a
defendant in a class action are left unclaimed. To resolve this problem, unclaimed funds are
frequently, by settlement or judgment, paid into a fluid recovery fund, often for the protection of
consumers affected by the alleged unfair business practice (e.g., tenant’s rights groups). The
fluid recovery fund approach cannot be used in a UCL action; restitution must go to those actually
entitled to the funds. (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 128).
These cases should not change under Proposition 64 as nothing has changed with respect to the remedies that are available to private attorneys’ general representing their clients.
Attorney’s Fees and Costs.
Where an action is fundamentally one under the UCL (Bus. & Profs. Code §§
17200 et seq.) and not an action on the note and deed of trust, the defendant who prevails is not
entitled to recover attorney’s fees even where the action involved a promissory note and deed
of trust containing an attorney’s fees clause. (Walker v. Countrywide Home Loans, Inc. (2002)
98 Cal.App.4th 1158,1164.) However, when a plaintiff prevails under the UCL, it may seek attorney’s fees as a
private attorney generally pursuant to Code of Civil Procedure §
Previously, No Res Judicata Protection under a UCL Settlement or
Judgment. Currently, who knows?
Historically, prior to Proposition 64, the settlement or resolution by trial of a UCL action does
not bestow upon the defendant res judicata protection (i.e., protection against being sued
again on the same issue by essentially the same person). Class actions afford such protection,
while Unfair Business Practice actions may not. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc.,
supra.) The California Supreme Court has exercised judicial restraint and declined to remedy the
vague and ambiguous Unfair Business Practice statute by finding that such actions constitute res
judicata as to future actions (e.g., similar class actions). The Supreme Court noted that it was up
to the legislature to amend the statute if it intended for UCL judgments to be res judicata.
Since a defendant’s protection as a result of settlement is so much less in a UCL
action than in a class action, the settlement value is generally much lower.
Now that the electorate by ballot initiative have amended the UCL statute to require actual
injury and damages to the representative plaintiff and to incorporate Code of Civil
Procedure § 382 [class actions rules] and in light of the handful of published cases interpreting
Proposition 64, it is likely that the courts of appeal may have to rethink a UCL action will not
receive res judicata or collateral estoppel protection (i.e., making such judgments final and
binding on the litigants) barring other class representatives from filing copycat or duplicative
actions as has been done in the past. If the courts adopt the same approach used for class
actions, judgments will become final and binding on the parties, resulting in better consumer
settlements in legitimate cases but benefiting businesses as well because a defendant will be able
to have some certainty that settlements with the class representative in a UCL or FAL will prevent
multiple actions for the same injury for the same class of plaintiffs
Direct and Indirect Add-Ons to Costs.
The competitive marketplace may create pressure to characterize fees as costs or to attempt to
convert charges for costs into a profit center (e.g., making a “loan fee” or “commission” appear low but then adding a surcharge to third party fees like credit
reports, appraisals, attorney’s fees, foreclosure fees, etc.). (See, Washington Mutual Bank v.
Superior Court (1999) 75 Cal.App.4th 773.) Plaintiffs’ class action attorneys have asserted
this for years and their attacks on costs as being hidden fees is nothing new. It makes no
difference whether the profit is in the form of cash, rebates and/or services.
Forced Placed Insurance.
Forced placed insurance or Lender Collateral Insurance arises where the deed of trust provides that
the lender may acquire insurance when the borrower has failed to provide proof that the Borrower
has acquired the collateral insurance required by the deed of trust. However, even though the
lender may be able to acquire forced placed insurance which has a higher premium (and
less coverage) than that available directly to the borrower, the lender may not acquire forced
placed insurance that, in addition to the actual cost of the premium for the replacement insurance,
also includes a fee incurred by the insurance broker or insurance company for administrative
services provided to the lender relating to the lender’s entire portfolio and not just the loan in
default. (Gibson v. World Savings and Loan Association (2002) 103 Cal.App.4th 1291. In addition,
it is likely there is a UCL violation where the lender represents to borrowers that the cost of
the forced placed insurance is the actual cost of the replacement insurance when in fact
the premium includes other charges, add-ons or fees. (Id.)
In-House Services vs. Third Party Service Providers.
Where a broker, servicer, trustee or lender directly provides services generally provided by a
third party, the issue becomes more complex (e.g., broker escrow, in-house appraisal or insurance
arranged through in-house insurance agent or affiliated corporation). Particularly in an era of
“one-stop shopping”, it is common for a service provider (broker or lender) to provide a range of
products and services from one location. In many cases, there is nothing unlawful about providing
a menu of varied services (e.g., mortgage brokering, loan servicing, foreclosure and REO services,
appraisal, escrows, etc.) Charges for many of these services, while in-house, may be classified as
“costs” as distinguished from the broker’s commission or loan origination fee charged for
making/arranging the loan.
However, challenges tend to arise
to “all acts within the
scope of the arbitral process.” (Id at 432.) Arbitral immunity is well founded in both state and
federal cases. (Id.) Claims of bias should be addressed by petition to set aside the arbitrator’s
award. However, arbitral immunity may not apply if the arbitrator simply fails to do his/her job.
Who Can Execute a Binding Arbitration Agreement?
A party who holds a valid power of attorney can enter into a binding arbitration agreement on
behalf of the party who granted the power. Garrison v. The Superior Court of Los Angeles (Country
Villa Belmont Heights Healthcenter (2005) 132 Cal. App. 4th 253 . In Garrison, an aging parent
granted a power of attorney including a health care directive. The children committed the parent
to a convalescent home. After the death of the parent, a suit ensued. The arbitration clause in
the commitment contract, resisted by the children, was held valid. Even thought it was executed by
the children, it was authorized and valid.
Husband who did not have power of attorney could not sign an arbitration agreement on
behalf of his wife who suffered from dementia.
• Flores v. Evergreen at San Diego, LLC, (2007) 148 Cal. App. 4th 581
Summary: The husband signed arbitration agreements when admitting his wife, who suffered from
dementia and other ailments, into the skilled nursing facility. The arbitration agreements were on
forms separate from the admission agreement. At the time he signed these documents, the husband did
not yet have a power of attorney to act for his wife, nor had he been declared her conservator or
guardian. The negligence claim arose from an alleged failure to provide medical care for an
injury. The trial court, in denying the facility’s petition to compel arbitration, concluded that
the husband did not have authority to agree to arbitration on his wife’s behalf. The court found no
evidence that the wife gave her express or implied consent to have her husband act as her agent in
signing the agreements. Moreover, an agency could not be implied from the marriage relation alone.
The lesson is, make certain that the signators on your documents have proper authority to do so.