Remedies a short course

19 Sep


Thomas Jefferson School of Law

Summer 2002

Prof. Berenson

Utilizing Modern Remedies by Weaver, Strachan, Partlett, Lively, and Lawrence

Joseph M. Burello


A. Introduction

– The study of judicial civil remedies is about what lawyers and courts can actually do to help someone who has been, or is about to be, wronged.

B. Classifications of Remedies

1. Substitutionary versus Specific Remedies

– Substitutionary remedies occur when P receives money as a substitute for the right which was violated.

– Specific remedies operate to restore to P the exact item or state of being of which she was wrongfully deprived.

– Specific and substitutionary relief are not necessarily alternatives; it is often necessary to award both specific and substitutionary relief in order to make P completely whole.

2. The Four Major Remedial Categories: Damages Remedies, Coercive Remedies, Declaratory Remedies, and Restitutionary Remedies

a. Damages Remedies

– Damages are substitutionary remedies. The primary forms are compensatory damages and punitive damages. Other forms include nominal, statutory and liquidated damages. See page 3 for descriptions of each form.

b. Coercive Remedies

– Coercive remedies are specific remedies and are capable of being enforced through the court�s contempt power. Coercive remedies are the most effective and powerful remedies wielded by the courts today.

– The primary forms of coercive remedies are injunction and specific performance. When the court orders to do something it is a mandatory injunction. When it orders someone to refrain it is a prohibitory injunction.

– The goal or purpose of coercive remedies is to prevent irreparable harm before it occurs.

c. Declaratory Remedies

– Declaratory relief is neither substitutionary nor specific, in that no court order or directive results from the action.

– The goal or purpose of declaratory relief is simply to provide an authorative pronouncement regarding the rights, obligations or legal relationship of the parties.

d. Restitutionary Remedies

– The primary specific forms are constructive trust, equitable subrogation, rescission and reformation, accounting for profits, ejectment and replevin. The primary substitutionary forms are equitable lien and quasi contract.

– The goal and purpose of restitutionary remedies is to prevent defendant�s unjust enrichment, by making defendant give back that which defendant wrongfully or unjustly gained at plaintiff�s expense.

3. Legal versus Equitable Remedies

– The distinction between the two still makes a difference in five contexts. See page 7.

4. Provisional versus Final Remedies

– Provisional injunctive relief, in the form of a preliminary injunction or temporary restraining order, can provide critical protection pending trial on the merits to a plaintiff who makes a very strong showing of the need for such extraordinary relief.

– Obviously, they can only be justified in exigent circumstances to prevent irreparable harm from occurring before the merits of who�s right and who�s wrong can be adjudicated.

C. Enforcement of Remedies

– All a money judgment really gives a victor is an adjudication of liability entered into the official record. Nothing happens, unless P takes further action.

– Coercive remedies are�in personam� commands which, if not obeyed, can subject D to contempt penalties such as stiff fines or jail, until she obeys the court�s commands.

– Courts also use the contempt power against lawyers, litigants and witnesses to protect dignity and order in the courtroom.

D. Choice of Remedies

– One reason why good lawyers always think, early on, about rights and remedies is that in the vast majority of cases there are alternative claims, legal theories and remedies available � some of which are inconsistent with each other or could become unavailable if the putative P is not carefully advised.


A. A Historical Perspective

1. The merger of law courts and equity courts did not eliminate the use of equitable remedies or the limitations and conditions applicable top those remedies.

2. Over time, as equity courts heard more petitions, they began to develop �rules� or �maxims�governing equitable relief.

a. He who comes into equity must come with clean hands;

b. He who seeks equity must do equity;

c. Equity is a court of conscience;

d. Equity does not suffer a wrong to go without a remedy;

e. Equity abhors a forfeiture;

f. Equity regards as done that which ought to be done;

g. Equity delights to do justice and not by halves;

h. Equitable relief is not available to one who has an adequate remedy at law;

i. Equitable relief is discretionary;

j. Equity aids the vigilant, not those who slumber on their rights;

k. Equity regards substance rather than form;

l. Equity acts in personam;

m. Equity is equality;

n. Equity follows the law;

o. Equity will not aid a volunteer;

p. Where the equities are equal, the law will prevail;

q. Equity imputes an intent to fulfill an obligation;

r. Where the equities are equal, the first in time will prevail.

B. The Development of Equity in the United States

1. With merger, most jurisdictions have abolished distinctions between legal and equitable actions. Rule 2 of the Federal Rules of Civil Procedure is illustrative providing that�there shall be one cause of action known as the �civil action.��

C. Equitable Remedies Today

1. Standards for the Availability of Equitable Relief

a. Conscience and Equity

a. Equitable remedies are only available when �equity� and �conscience� demand them. Court�s use the maxims as well as their own sense of morality.

b. Equitable Remedies Are Granted In Personam

a. When a court renders an�in personam� judgment, it orders the defendant to do, or refrain from doing, some act. A defendant who refuses to comply can be held in contempt and subjected to prison or fine.

c. Inadequacy of Legal Remedy/Irreparable Harm

a. Equitable relief is not available except when plaintiff�s legal remedy is inadequate. This principle is also known as the �irreparable harm� requirement.

b. CASE: Fortner v. Wilson, (1950). Fortner�s rule was codified in Uniform Commercial Code, � 2-716: �specific performance may be decreed where the goods are unique or in other proper circumstances.�

c. CASE: Schiller v. Miller, (1993). Injunctions may not be granted for the retention of personal property unless it is found to be unique or otherwise peculiar, and unless the plaintiff demonstrates that there is no adequate remedy at law.

d. There is no general rule for determining when harm is or is not irreparable, in some circumstances equitable relief is so routinely granted that categories of inadequacy have emerged. The basic categories are:

i. Inability to restore or buy a substitute with money. This category is comprised primarily of property which is unique or unduly difficult to replace with an equivalent or important personal interest or civil rights.

ii. Absence of other remedy.

iii. Damages are too difficult to estimate.

iv. Problems with collecting a money judgment.

v. Multiple judicial proceedings will be necessary.

vi. Other procedural or practical difficulties with legal remedies (e.g., pre-trial delay, jurisdictional problems, immunity rules, etc.).

d. Equitable Relief is Discretionary

a. A court may deny equitable relief even though plaintiff�s legal remedy is inadequate.

b. CASE: Georg v. Animal Defense League, (1950). Even though the presence of the proposed animal shelter may result in some annoyance to appellants, their remedy is not by way of injunction but they are relegated to an action for damages.

c. CASE: Grossman v. Wegman�s Food Markets, Inc., (1973). Contracts which require the performance of varied and continuous acts will not, as a general rule, be enforced by courts of equity, because the execution of the decree would require such constant superintendence as to make judicial control a matter of extreme difficulty.

D. Equitable Defenses

1. Unclean Hands Doctrine

a. The �unclean hands�doctrine states that �he who comes to equity must come with clean hands.�Equity will deny relief to a plaintiff who comes with �unclean hands.�

b. CASE: Sheridan v. Sheridan, (1990). No one shall be allowed to benefit by his own wrongdoing, nor enrich himself as a result of his own criminal acts.

c. CASE: Seagirt Realty Corp. v. Chazanof, (1963). Exception to unclean hands. The clean hands doctrine only applies when the plaintiff has acted unjustly in the very transaction of which he complains.

d. CASE: American University v. Wood, (1920). A court of equity is a court of conscience, and will exercise its extraordinary powers only to enforce the requirements of conscience. It is no part of its function to aid a litigant in the promotion of a fraud upon the public.

e. �Unclean hands,�includes all misconduct and wrongdoing that is sufficiently related to the plaintiff�s claim. Almost any conduct considered to be unfair, unethical or improper � including, of course, the illegal � can be raised as a bar against equitable relief.

2. Unconscionability

a. Since equity developed as a �court of conscience,� courts feel free to deny equitable relief on the grounds of conscience.

b. CASE: Campbell Soup Co. v. Wentz, (1948). The contract involved is too hard a bargain and too one-sided an agreement to entitle the plaintiff to relief in a court of conscience.

3. Laches

a. Laches is any unreasonable delay by the plaintiff in instituting or prosecuting an action under circumstances where the delay causes prejudice to the defendant.

b. CASE: Stone v. Williams, (1989). Plaintiff in asserting her rights was guilty of unreasonable delay that prejudiced the defendant because there was no excuse for the delay in filing suit and evidence was lost.

c. CASE: City of Eustis v. Firster, (1959). The test of laches is whether there has been a delay which has resulted in the injury, embarrassment, or disadvantage of any person, but particularly the persons against whom relief is sought.

d. CASE: Nahn v. Soffer, (1991). In determining whether the doctrine of laches applies in a particular case, an examination is made of the �length of delay, the reasons therefor, how the delay affected the other party, and the overall fairness in permitting the assertion of the claim.�

4. Estoppel

a. Estoppel is a doctrine that can be used both offensively and defensively.

b. CASE: Feinberg v. Pfeiffer Company, (1959). A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promise and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.

c. CASE: O�Sullivan v. Bergenty, (1990). Any claim of estoppel is predicated on proof of two essential elements: the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief; and the other party must change its position in reliance on those facts, thereby incurring some injury.

E. The Right to Trial by Jury

1. CASE: Dairy Queen, Inc. v. Wood, (1962). Where both legal and equitable issues are presented in a single case, only under the most imperative circumstances, circumstances which in view of the flexible procedures of the Federal Rules we cannot now anticipate, can the right to a jury trial of legal issues be lost through prior determination of equitable claims.

2. CASE: Ross v. Bernhard, (1970). The right to jury trial attaches to those issues in derivative actions as to which the corporation, if it had been suing in its own right, would have been entitled to a jury.

3. CASE: C & K Engineering Contractors v. Amber Steel Company, Inc., (1978). Because plaintiff�s suit for damages for breach of contract was based entirely upon the equitable doctrine of promissory estoppel, the gist of the action must be deemed equitable in nature and, under well established principles, neither party was entitled to a jury trial as a matter of right.

III. Enforcement of Equitable Decrees

A. Contempt Defined

1. �Contempt� is broadly defined as an offense against the dignity of a court.

2. CASE: In re Little, (1972). The vehemence of the language used in court is not alone the measure of the power to punish for contempt. The fires which it kindles must constitute an imminent, not merely a likely, threat to the administration of justice. The danger must not be remote or even probable; it must immediately imperil.

B. Civil v. Criminal

1. Civil and Criminal Contempt Distinguished

a. CASE: United States v. Professional Air Traffic Controllers Organization, (1982). The purpose of a criminal contempt proceeding is the vindication of the court�s authority by punishment through the fine or imprisonment of the contemnor for his past conduct. Civil contempt proceedings are for the purpose of coercing compliance with the orders of the court and/or to compensate complainant for losses sustained by defendant�s noncompliance. A definite fine which is neither compensatory, nor conditioned on future violations of the court order is punitive and can be imposed only in criminal contempt proceedings.

b. CASE: Yates v. United States, (1957). When a witness is jailed for civil contempt, it is inappropriate to hold the witness in jail after the grand jury�s term ends. Since the witness can no longer purge the contempt, no coercive reason remains for keeping the witness in jail. However, the judge may hold the witness in criminal contempt, and impose a punishment for a continued refusal to testify.

c. CASE: Bagwell v. International Union, (1992). The punishment, whether fine or imprisonment, is deemed to be criminal if it is determinate and unconditional, and such penalties �may not be imposed on someone who has not been afforded the protections that the Constitution requires of such criminal proceedings.� The punishment is deemed to be civil if it is conditional, and a defendant can avoid such a penalty by compliance with a court�s order. Civil contempt sanctions are either compensatory or coercive. Compensatory, civil contempt sanctions compensate a plaintiff for losses sustained because a defendant disobeyed a court�s order. Coercive, civil contempt sanctions are imposed to compel a recalcitrant defendant to comply with a court�s order.

2. Civil Contempt Damages

a. CASE: Time-Share Systems, Inc. v. Schmidt, (1986). If any actual loss or injury to a party in an action or special proceeding, prejudicial to his right therein, in caused by such contempt, the court or officer, in addition to the fine or imprisonment imposed therefore, may order the person guilty of the contempt to pay the party aggrieved a sum of money sufficient to indemnify him and satisfy his costs and expenses, including a reasonable attorney�s fee incurred in the prosecution of such contempt. Indemnity must be based on proof of damages actually suffered or it cannot be sustained.

b. CASE: Vermont Women�s Health Center v. Operation Rescue, (1992). When imposed as a coercive sanction, the fine must be purgeable � that is, capable of being avoided by defendants through adherence to the court�s order. Further, the situation must be such that it is easy to gauge the compliance or noncompliance with an order. The fine will be due only upon a further violation of the injunction by one of the class of persons to which it is directed, with service or actual notice of its provisions.

C. Procedural Requirements

1. CASE: In re Yengo, (1980). When the contempt is in the presence of the court, the judge may act summarily without notice or order to show good cause. On other occasions, the proceedings shall be on notice and on an order for arrest or an order to show cause. Supreme Court�s dual test for summary contempt powers: (1) the act or omission must occur in the presence of the court so that no further evidence need be adduced for the judge to certify to the observation of the contumacious behavior and (2) the act must impact adversely on the authority of the court.

2. CASE: Bloom v. Illinois, (1968). Criminal contempt is a crime to which the jury trial provisions of the Constitution apply.

3. CASE: Illinois v. Allen, (1970). There are three constitutionally valid ways to handle an unruly defendant: (1) bind and gag him, thereby keeping him present; (2) cite him for contempt; (3) take him out of the courtroom until he promises to conduct himself properly.

D. The Duty to Obey: Collateral Challenges

1. CASE: United States v. United Mine Workers of America, (1947). An order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed by orderly and proper proceedings. (Collateral Bar Rule) Violations of an order are punishable as criminal contempt even though the order is set aside on appeal, or though the basic action has become moot.

2. CASE: Walker v. City of Birmingham, (1967). Order cannot be disobeyed even if Constitutionally invalid. (Collateral Bar Rule)

3. CASE: In re Providence Journal Company, (1986). There is an exception to the Collateral Bar Rule for court orders that are transparently invalid. Still, as a general rule, if the court reviewing the order finds the order to have any pretense to validity at the time it was issued, the reviewing court should enforce the collateral bar rule.

IV. Injunctions

A. Nature and Purpose of Injunctive Relief

1. Courts use injunctions to order litigants to engage in, or refrain from engaging in, an act. Sometimes injunctions are classified as being either mandatory or prohibitory: an injunction which compels an act is referred to as mandatory, while one which forbids an act is a prohibitory injunction.

2. Any in personam order which is enforceable by contempt is in fact an injunction.

B. Standards for Issuance of Injunctive Relief

– Some injunctions are permanent in nature: they are issued after a determination of the merits of a lawsuit and are designed to apply prospectively and permanently unless modified or dissolved.

– Other injunctions are temporary in nature including the temporary restraining order (TRO) and the preliminary injunction (a.k.a. temporary injunction).

o A preliminary injunction is issued at the beginning of litigation and is designed to prevent irreparable harm from occurring during the pendency of a suit (i.e., before the merits can be decided).

o A TRO can be issued ex parte and is designed to maintain the status quo until a hearing can be held on whether to grant a preliminary injunction.

1. Requirements for Provisional Relief

a. In order to obtain either a TRO or a preliminary injunction, a plaintiff must show that immediate and irreparable injury will result absent the injunction.

a. When a preliminary injunction is sought, plaintiff must show that this injury will occur during the pendency of the lawsuit.

b. When a TRO is sought, plaintiff must show that it will occur before a hearing can be heard on whether to grant a preliminary injunction.

b. CASE: Hughes v. Cristofane, (1980). In order to obtain relief by a temporary restraining order under Rule 65 of the Federal Rules, the plaintiffs must show:

i. That unless the restraining order issues, they will suffer irreparable harm;

ii. That the hardship they will suffer absent the order outweighs any hardship the defendants would suffer if the order were to issue;

iii. That they are likely to succeed on the merits of their claims;

iv. That the issuance of the order will cause no substantial harm to the public; and

v. That they have no adequate remedy at law.

c. CASE: Washington Capitols Basketball Club, Inc. v. Barry, (1969). The purpose of the preliminary injunction is to maintain the status quo between the litigants pending final determination of the case. In order for plaintiff to succeed in its motion for a preliminary injunction, it is fundamental that it show at least first, a reasonable probability of success in the main action and second, that irreparable damage would result from a denial of the motion.

d. CASE: American Hospital Supply Corporation v. Hospital Products, LTD., (1986). A district judge asked to decide whether to grant or deny a preliminary injunction must choose the course of action that will minimize the costs of being mistaken.

2. Hearing Requirement

a. In general, judicial orders should only be issued after a contested hearing. The TRO is unique because it can be granted ex parte.

b. CASE: In re Vuitton et Fils S.A., (1979). A temporary restraining order may be granted without written or oral notice to the adverse party or his attorney only if (1) it clearly appears from specific facts shown by affidavit or by the verified complaint that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party or his attorney can be heard in opposition, and (2) the applicant�s attorney certifies to the court in writing the efforts, if any, which have been made to give the notice and the reasons supporting his claim that notice should not be required.

c. CASE: American Can Company v. Mansukhani, (1984). Ex parte temporary restraining orders should be restricted to serving their underlying purpose of preserving the status quo and preventing irreparable harm just so long as is necessary to hold a hearing, and no longer.

3. Persons Bound

a. A TRO or preliminary injunction is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.

b. CASE: Alemite MFG. Corp. v. Staff, (1930). The only occasion when a person not a party may be punished is when they either abet the defendant, or are legally identified with him.

c. CASE: State University of New York v. Denton, (1970). Persons who are not connected in any way with the parties to the action, are not restrained by the order of the court.

d. CASE: United States v. Hall, (1972). WHAT IS THE RULE HERE????

e. CASE: Golden State Bottling Co., Inc. v. NLRB, (1973). A bona fide purchaser, acquiring, with knowledge that the wrong remains unremedied, the employing enterprise which was the locus of the unfair labor practice, may be considered in privity with its predecessor.

4. Notice Requirement

a. A TRO or preliminary injunction is binding only on those who receive actual notice of the order by personal service or otherwise.

b. CASE: The Cape May & Schellinger�s Landing R.R. Co. v. Johnson, (1882). Where the charge is that the defendant has willfully contemned the authority of the court, all that need be shown is that he knew of the existence of the order at the time he violated it. Notice, to be sufficient, need possess but two requisites � first, it must proceed from a source entitled to credit; and second, it must inform the defendant clearly and plainly from what act he must abstain.

c. CASE: Midland Steel Products Co. v. International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, Local 486, (1991). Criminal contempt must be proven beyond a reasonable doubt. Proof of the elements of criminal contempt may be established by circumstantial evidence.

d. CASE: Vermont Women�s Health Center v. Operation Rescue, (1992). Plaintiffs must show that defendants acted in concert or participation with named parties, that the order was specific and unambiguous, and that they violated the order with actual knowledge of its mandate.

5. Bond Requirement

a. One who obtains a preliminary injunction or a TRO must usually post security to protect the defendant against loss.

b. CASE: Coyne-Delany Co., Inc. v. Capital Development Board, (1983). �A prevailing defendant is entitled to damages on the injunction bond unless there is good reason for not requiring the plaintiff to pay in the particular case. A good reason for not awarding such damages would be that the defendant had failed to mitigate damages.

c. CASE: Smith v. Coronado Foothills Estates Homeowners Ass�n, Inc., (1977). The majority holds that recovery for wrongful injunction is limited to the amount of the bond unless malicious prosecution is shown. A minority allows for damages in excess of the bond amount when the bond amount is patently inadequate.

d. CASE: Continuum Co., Inc. v. Incepts, Inc., (1989). If a defendant might suffer damages in excess of the bond amount, the bond amount may be increased if it doesn�t impose an undue hardship on the plaintiff.

6. Stays

a. One who believes that a TRO or preliminary injunction was improperly granted can seek relief from the court that issued the order if done within 2 days.

b. If the trial court refuses the relief, the party against whom the relief was granted can seek a stay from an appellate court.

c. CASE: Sierra Club v. United States Army Corps of Engineers, (1984). A court may modify a final or preliminary injunction only where conditions have so changed as to make such relief equitable, i.e., a significant change in the law or facts.

d. CASE: Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., (1977). Criteria regarding stays: (1) Has the petitioner made a strong showing that it is likely to prevail on the merits of its appeal? (2) Has the petitioner shown that without such relief, it will be irreparably injured? (3) Would the issuance of a stay substantially harm other parties interested in the proceedings? (4) Where lies the public interest? �A court may exercise its discretion to grant a stay if the movant has made a substantial case on the merits.

C. Framing the Injunction

1. Every order granting an injunction and every restraining order shall set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained.

2. CASE: Murray v. Lawson, (1994). Injunctions are supposed to be specific in terms; and describe in reasonable detail the act or acts sought to be restrained.

3. CASE: Peggy Lawton Kitchens, Inc. v. Hogan, (1989). To constitute civil contempt, there must be a clear and undoubted disobedience of a clear and unequivocal command.

4. CASE: Madsen v. Women�s Health Center, Inc., (1994). When evaluating a content-neutral injunction, we think that our standard time, place, manner analysis is not sufficiently rigorous. We must ask instead whether the challenged provisions of the injunction burdens no more speech than necessary to serve a significant government interest.

D. Experimental and Conditional Injunctions

– In some cases, courts are moved by the balance of equities to enter partial (experimental) injunctions or conditional injunctions.

1. CASE: Boomer v. Atlantic Cement Company, (1970). When the granting of an injunction would place an undue hardship on a defendant industry as a whole, the court should grant the injunction on condition of the payment of permanent damages to plaintiffs which would compensate them for the total economic loss to their property present and future caused by defendant�s operations.

2. CASE: Spur Industries, Inc. v. Del E. Webb Development Co., (1972). Conditional injunctions allow courts to consider the following remedial options: 1) deny all relief (defendant wins); 2) grant an injunction permanently abating the nuisance (plaintiff wins); award Boomer-style injunctive relief, but award plaintiff damages (partial win for each side); and award Spur-style injunctive relief, but only if plaintiff pays for the cost of abatement (a win for both sides?).

E. Permanent Injunctions

– CASE: Garcia v. Sanchez, (1989). For removal of trees as a nuisance, the damage must encompass more than just damage to plaintiff�s plant life in order for an injunction to be ordered.

1. Decrees Affecting Third Parties

a. CASE: Hills v. Gautreaux, (1976). In the event of a Constitutional violation all reasonable methods are available to formulate an effective remedy, and every effort should be made by a federal court to employ those methods to achieve the greatest possible degree of relief, taking into account the practicalities of the situation.

b. CASE: General Building Contractors Association, Inc. v. Pennsylvania, (1982). Remedial powers of the federal courts can only be exercised on the basis of a violation of the law and can extend no further than required by the nature and the extent of that violation.

2. Modification

– On motion, and in such terms as are just, the court may relieve a party from a final judgment for the following reasons: it is no longer equitable that the judgment should have prospective application.

a. CASE: Ladner v. Siegel, (1930). The modification of a decree in a preventative injunction is inherent in the court which granted it, and may be made, (a) if, in its discretion judicially exercised, it believes the ends of justice would be served by a modification, and (b) where the law, common or statutory, has changed, been modified or extended, and (c) where there is a change in the controlling facts on which the injunction rested.

b. CASE: Board of Education v. Dowell, (1991). Compliance with an injunction may sometimes be enough to have the injunction terminated if the compliance was enough to allow the injunction to dissolved (look at the purpose of the injunction and the current effects after compliance).

c. CASE: Rufo v. Inmates of the Suffolk County Jail, (1992). A party seeking modification of a consent decree must establish that a significant change in facts or law warrants the revision of the decree and that the proposed modification is suitably tailored to the changed circumstance.

3. Statutory Injunctions: The Effect of Legislation on Equity

a. CASE: Weinberger v. Romero-Barcelo, (1982). In determining whether statutes allow injunctive relief that violates a statute, the question becomes one of statutory construction and legislative intent.

F. The Limits of Equity

1. CASE: Lynch v. UHlenhopp, (1956). �Religion Rearing Case� A court will strike portions of an injunction, thus making them unenforceable, if they are vague or uncertain. In this case, the mother was to raise the child in the Catholic religion. Rearing the child in a religion is to vague a concept to enforce.

V. Injunctions in Context

A. Injunctions Against Criminal Activity

– In general, courts have been reluctant to enjoin the commission of future crimes.

1. CASE: State v. Samuels Company, Inc., (1973). A repeated violation of a statute may receive equitable relief, not because the acts are in violation of the statute, but because they constitute in fact a nuisance.

2. CASE: Goose v. Commonwealth, (1947). If the statutory violation can be construed as a nuisance, a court of equity can grant appropriate relief.

B. Injunctions Against Litigation

1. State Court Injunctions Against Foreign State Litigation

– Assuming that a state court can obtain personal jurisdiction over the parties, a state court may have the power to order parties not to proceed with foreign litigation (enjoin them from).

a. CASE: James v. Grand Trunk Western Railroad Company, (1958). Courts generally recognize foreign court�s efforts to prevent litigation in the native court as an impediment to their jurisdiction and are free to disregard the foreign state.

b. CASE: Vanneck v. Vanneck, (1980). At least where the claim of a sister state is colorable, the court must heed the statutory command to defer adjudicating the dispute and communicate with the foreign court.

2. State Court Injunctions Against Federal Litigation

a. CASE: Donovan v. City of Dallas, (1964). Generally, state and federal courts should not interfere with or try to restrain each other�s proceedings. An exception has been made in cases where a court has custody of property, that is, proceedings in rem or quasi in rem. Here the court has no power to restrain federal-court proceedings.

3. Federal Court Injunctions Against State Litigation

a. CASE: Younger v. Harris, (1971). A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments. Even irreparable injury is insufficient unless it is both great and immediate.

b. CASE: Mitchum v. Foster, (1972). In order to qualify under the �expressly authorized� exception to the anti-injunction statute, the test is whether an Act of Congress, clearly creating a federal right or remedy enforceable in a federal court of equity, could be given its intended scope only by the stay of a state court proceeding.

4. Injunctions Against Officials

– These structural injunctions are designed to eliminate past violations and regulate the way a school, prison, or police department functions in the future.

a. CASE: Rizzo v. Goode, (1976). Must show that there is immediate and irreparable harm that the officials are conducting, not just those activities of persons under the officials.

b. CASE: Hutto v. Finney, (1978). Here the officials themselves were conducting the irreparable harm via non-compliance with an earlier injunction. Therefore, it was enforced against them.

c. CASE: Missouri v. Jenkins, (1995). Federal judges cannot make the fundamentally political decisions as to which priorities are to receive funds and staff, which educational goals are to be sought, and which values are to be taught.

C. Extra-territorial Decrees

1. Decrees Affecting Land

a. CASE: Deschenes v. Tallman, (1928). A court cannot convey title to land located in a foreign jurisdiction. A court of equity, having authority to act upon the person, may indirectly act upon real estate in another state, through the instrumentality of the authority over the person.

b. CASE: Burnley v. Stevenson, (1873). Courts cannot enforce the performance of foreign decrees by compelling the conveyance through its process of attachment; but when pleaded in our courts as a cause of action, or as a ground of defense, it must be regarded as conclusive of all the rights and equities which were adjudicated and settled therein.

c. CASE: The Salton Sea Cases, (1909). A court of equity can never compel a defendant to do anything which is not capable of being physically done within the territorial jurisdiction of the court. Effects of the defendant�s acts felt within the territorial jurisdiction suffice.

2. Decrees Affecting Personal Property

a. CASE: Madden v. Rosseter, (1921). Personal property may be managed with the help of the federal government and other states.

D. Injunctions Against Defamation

1. CASE: Near v. State of Minnesota, (1931). A greater evil is committed by placing prior restraints on a publication that that of the publication. The appropriate punishment should take place after such abuses of the publication.

2. CASE: Kramer v. Thompson, (1991). The courts will not enjoin a retraction of libelous claims.

E. Privacy

1. CASE: Eastwood v. Superior Court, (1983). Any person who knowingly uses another�s name, photograph, or likeness, in any manner, for purposes of advertising products, merchandise, goods, or services, or for purposes of solicitation of purchases of products without such person�s prior consent shall be liable for any damages sustained by the person injured as a result thereof.

2. CASE: Galella v. Onassis, (1972). The Constitution creates a �right to be left alone.� The law of privacy comprises four distinct kinds of invasion (1) commercial appropriation of one�s name or likeness, (2) intrusion, (3) public disclosure of private facts and (4) publicity which places the plaintiff in a false light in the public eye.

F. National Security

1. CASE: New York Times Company v. United States, (1971). Prior restraint may only arise when the nation is at war, during which times no one would question but that a government might prtevent actual obstruction to its recruiting service or the publication of the sailing dates of transports or the number and location of troops.

G. Leafleting

1. CASE: Organization for a Better Austin v. Keefe, (1971). Any prior restraint on expression comes to the court with a heavy presumption against its constitutional validity. A prior restraint on peaceful leafleting is unconstitutional.

H. Injunctions Against Obscenity

1. CASE: Times Film Corporation v. City of Chicago, (1961). The liberty of speech is not absolute. Submission to a licensing board of a film prior to exhibition is valid.

2. CASE: Freedman v. State of Maryland, (1965). Submission of a film to a censor is only valid if 1) the burden of proving that film is unprotected expression rests on the censor and 2) the manner in which it is administered cannot lend an effect of finality to the censor�s determination whether a film constitutes protected expression.

I. Admission Cases

1. CASE: Falcone v. Middlesex County Medical Society, (1961). Generally, courts will not interfere with membership associations, however, here there was an association that is viewed as �an economic necessity� which advanced the public welfare. Therefore, a properly qualified applicant could not be denied membership.

2. CASE: Blatt v. University of Southern California, (1970). Here there was no indication that the association was one of economic necessity and thus plaintiff was properly not admitted.

J. Expulsion

1. CASE: Board of Curators of the University of Missouri v. Horowitz, (1978). To be entitled to the Due Process protections of the 14th Amendment (notice and opportunity to be heard) it must be shown that you were deprived of either a liberty or a property interest.

2. CASE: Tedeschi v. Wagner College, (1980). Guidelines and rules conditioning the membership to an association must be observed, but the violator is still entitled to review by a board if the rule calls for one.

VI. Restitution

A. General Principles

– The purpose of restitution is simply to prevent a defendant from retaining benefits unjustly derived from plaintiff (�unjust enrichment�).

1. CASE: Beacon Homes, Inc. v. Holt, (1966). Even though a reasonable mistake of fact resulted in a house being built on another�s property, the owner of the property must pay the amount by which the value of the property was increased.

2. CASE: Stewart v. Wright, (1906). If defendants are more culpable than plaintiffs then defendant�s unjust enrichment may be recovered.

3. CASE: Western Coach Corporation v. Roscoe. (1982). A person who without mistake, coercion or request has unconditionally conferred a benefit upon another is not entitled to restitution, except where the benefit was conferred under circumstances making such action necessary for the protection of the interests of the other or of third persons.

B. Measuring the Enrichment

1. CASE: Frambach v. Dunihue, (1982). A court of equity may give restitution to a plaintiff and prevent the unjust enrichment of a defendant by imposing a constructive trust or by imposing an equitable lien upon the property in favor of the plaintiff. However, where the plaintiff makes improvements upon the land of another under circumstances which entitle him to restitution, he is entitled only to an equitable lien upon the land and he cannot charge the owner of the land as constructive trustee and compel the owner to transfer the land to him.

2. CASE: Bron v. Weintraub, (1964). Can�t figure out the rule here.

3. CASE: Iacomini v. Liberty Mutual Insurance Company, (1985). An equitable lien may be imposed to prevent unjust enrichment in an owner whose property was improved, for the increased value of the property. Measured by defendant�s gain.

C. Special Restitutionary Remedies

1. The Constructive Trust

a. CASE: Sieger v. Sieger, (1925). Constructive trusts arise by operation of law, without any reference to any actual or supposed intention of creating a trust, and frequently directly contrary to such intention.

b. CASE: Fletcher v. Nemitz, (1966). A constructive trust is one that arises by operation of law against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, to hold and enjoy.

2. Equitable Lien

a. CASE: Leyden v. Citicorp Industrial Park, (1989). An equitable lien is a creature of equity, is based on the equitable doctrine of unjust enrichment, and is the right to have a fund or specific property applied to the payment of a particular debt. A person has notice of a constructive trust or equitable lien on a property when he knows them, or should have known them thru reasonable inquiry.

b. CASE: Jones v. Sacramento Savings and Loan Association, (1967). A general doctrine of equity permits imposition of an equitable lien where the claimant�s expenditure has benefited another�s property under circumstances entitling the claimant to restitution.

c. CASE: Rolfe v. Varley, (1993). Where debts or claims against property are paid in good faith by another on the express or implied request of the owner of the property, the one so paying is entitled to an equitable lien on the property for his reimbursement. However, a person is not entitled to such a lien if he voluntarily pays the debts of another without such other�s request.

3. Special Advantages of Constructive Trusts and Equitable Liens

a. Tracing

a. CASE: G & M Motor Company v. Thompson, (1977). Where the wrongdoer mingles wrongfully and rightfully acquired funds, owner of wrongfully acquired funds is entitled to share proportionately in acquired property to the extent of his involuntary contribution.

b. CASE: In re Allen, (1986). Neither an equitable lien nor a constructive trust is available against a bona fide purchaser for value. They can extend to 3rd parties if the 3rdparty is not a bona fide purchaser.

c. CASE: Mattson v. Commercial Credit Business Loans, Inc., (1986). Tracing doctrine operates against innocent transferees who receive no legal title and transferees who are not bona fide purchasers and receive legal but not equitable title. An innocent purchaser is one who has no reasonable grounds to suspect that the person from whom he buys an article did not have good title.

b. Priority Over Other Creditors

a. CASE: In re Radke, (1980). A person defrauded is allowed a preferred claim over general creditors.

b. CASE: Cunningham v. Brown, (1924). Constructive trusts and equitable liens get precedence over unsecured creditors who can go after what is left.

c. Circumvention of Debtor Exemptions

a. CASE: Palm Beach Savings & Loan Association, F.S.A. v. Fishbein, (1993). Can�t force the sale of a property unless through mortgage or government tax lien.

d. Subrogation

a. CASE: Wilson v. Todd, (1940). Subrogation is the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the right of the creditor in relation to the debt.

b. CASE: Banton v. Hackney, (1989). Where property of one person is used in discharging an obligation owed by another or a lien upon the property of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the oblige or lien-holder.

VII. Declaratory Judgments

A. Generally

1. The basic purpose of declaratory judgment is to determine rights, obligations or status.

2. A declaratory judgment does not act coercively.

3. Declaratory judgments primary purpose is to eliminate uncertainty.

B. Case or Controversy

1. Declaratory judgments operate only in �a case of actual controversy.� There is no exemption from requirements of standing, subprinciples of mootness and ripeness and the prohibition against collusive actions or advisory opinions.

2. CASE: Aetna Life Insurance Co. v. Haworth, (1937). The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests.

3. CASE: United Public Workers of America v. Mitchell, (1947). Courts will not issue advisory opinions through declaratory judgments.

C. Jurisdiction

1. Absence of personal or subject matter jurisdiction is fatal to declaratory judgments.

2. CASE: Skelly Oil Co. v. Phillips Petroleum Co., (1950). Jurisdiction means the kinds of issues which give right of entrance to federal courts (diversity, federal question).

D. Standards of Review

1. Adequacy of Remedy

a. Unlike injunctions, declaratory judgments generally are not conditioned upon the inadequacy of remedial alternatives. Although inadequacy of other remedies is not a prerequisite for a declaratory judgment, courts properly exercise their discretion in denying such relief if convinced that it would be less effective than another methodology or is unnecessary.

b. CASE: Community for Creative Non-Violence v. Hess, (1984). Sound discretion withholds a declaratory judgment where it appears that a challenged continuing practice is, at the moment adjudication is sought, undergoing significant modifications so that its ultimate form cannot be confidently predicted.

c. CASE: Provident Tradesmens Bank & Trust Co. v. Patterson, (1968). A federal district court should, in the exercise of discretion, decline to exercise diversity jurisdiction over a declaratory judgment action raising issues of state law when those same issues are being presented contemporaneously to state courts.

d. CASE: Katzenbach v. McClung, (1964). In cases where the state criminal prosecution was begun prior to the federal suit, the same equitable principles relevant to the propriety of an injunction must be taken into consideration by federal district courts in determining whether to issue a declaratory judgment, and that where an injunction would be impermissible under these principles, declaratory relief should ordinarily be denied as well.

e. CASE: Wilton v. Seven Falls Co., (1995). The propriety of declaratory relief in a particular case will depend upon a circumspect sense of its fitness informed by the teachings and experience concerning the functions and extent of federal judicial power.

2. Judicial Discretion

a. The UDJA explicitly authorizes courts to refuse a declaratory judgment or decree when such judgment or decree would not terminate the uncertainty or controversy giving rise to the proceeding. Other factors may include the availability of more effective relief, existence of another action that will resolve the issue more comprehensively, tactical maneuvering calculated to harass, delay or achieve res judicata, procedural fencing, an inadequately developed record and demands of federalism.

b. CASE: National Wildlife Federation v. United States, (1980). Among the factors to be considered in deciding whether to grant declaratory relief in a particular case is the public interest vel non in resolving the controversy.

E. Declaratory Judgments in Context

1. Written Instruments

a. A contract may be construed by a declaratory judgment either before or after there has been a breach thereof.

b. CASE: Federal Kemper Insurance Company v. Rauscher, (1986). This was a dispute over the terms of coverage of an insurance policy. Once the case in controversy requirement and diversity jurisdiction were established, the court concluded that it could issue a declaratory judgment.

2. Intellectual Property]

a. CASE: Treemond Co. v. Schering Corporation, (1941). An �actual controversy� does not exist until the patentee makes some claim that his patent is being infringed.

3. Constitutional Claims

a. Although not statutorily prohibited, federal courts have been reluctant top resolve constitutional controversies by means of declaratory judgments. Such reticence is driven by the judiciary�s generally professed inclination to avoid constitutional controversies whenever possible.

b. CASE: Penthouse International, LTD. v. Meese, (1991). Where it is uncertain that declaratory relief will benefit the party alleging injury, the court will normally refrain from exercising its equitable powers. This is especially true where the court can avoid the premature adjudication of constitutional issues.

F. The Effect of Declaratory Judgments

1. Declaratory judgments, like any final judgment entered by a court bind the parties. Although a declaration of rights, obligations or status effectively may resolve a controversy, both the UDJA and FDJA provide for further relief to the extent necessary and proper. Both federal and state law establishes that a request for declaratory relief does not preclude other remedies, essential to a full resolution of the controversy, even if coercive in nature.


A. General Damage Principles

1. Monetary Compensation

a. The primary objective of contract damages law is to provide monetary compensation that will place an aggrieved party in the same position that would have been realized had the breaching party fully performed. Contract damages are premised on compensation of the aggrieved party rather than compulsion of the breaching party.

b. CASE: Peevyhouse v. Garland Coal & Mining Company, (1962). In building and construction contracts, the owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value.

2. The Expectation Interest

a. The expectation interest is protected by awarding the benefit of the bargain, or �profit,� that would have been realized through performance.

b. CASE: Vitex Manufacturing Corporation, LTD. v. Caribtex Corporation, (1967). In a claim for lost profits, overhead should be treated as a part of gross profits and recoverable as damages, and should not be considered as part of the seller�s costs.

3. Other Protected Interests

a. Reliance Interest

1. The reliance interest seeks to place the aggrieved party in as good a position as would have been realized had the contract not been created. This is good when the aggrieved party changed his or her position on reliance of the contract.

2. CASE: Security Stove & Mfg. Co. v. American Ry. Express Co., (1932). Where a party is aware of peculiar circumstances under which the contract is made, which will result in an unusual loss by the other party, the breaching party is responsible for the real damage sustained from the non-performance.

b. Restitution Interest

1. Restitution interest seeks to restore to the aggrieved party any benefit that he or she has conferred upon the breaching party. It is not generally preferred by plaintiffs because it is limited to the amount that the plaintiff has conferred upon defendant.

2. CASE: Campbell v. Tennessee Valley Authority, (1969). To protect a party�s restitution interest, damages can be measured: 1) by the reasonable value to the other party of what he received in terms of what it would have cost him to obtain it from a person in the claimant�s position, or 2) the extent to which the other party�s property has been increased in value or his other interests advanced. Restitution is not available when the breach gives rise to only a claim for partial damages.

4. Other Loss and the Applicable Limitations

– In addition to the benefit of the bargain, an aggrieved party is entitled to recover any other loss that was caused by the other party�s breach of contract. The availability of any recovery for expectancy damages is subject to the traditional limitations of avaiodability, foreseeability, and certainty.

a. Avoidability

1. The aggrieved party cannot recover damages for any loss that he or she could have reasonably avoided.

2. CASE: Oloffson v. Coomer, (1973). When defendant has materially breached the contract, the aggrieved party can 1) for a commercially reasonable time await performance by the repudiating party; or 2) resort to any remedy for breach.

b. Foreseeability

1. CASE: Sun Maid Raisin Growers of California v. Victor Packing Co., (1983). If a breaching party knew or should have known that the breach would have resulted in consequential damages of plaintiff, the breaching party is responsible for those damages. Knowledge or reason to know can be established by the ordinary course of business practice, or by special circumstances beyond the ordinary course of business. The aggrieved party must still cover in order to minimize losses.

5. Certainty

a. Any element of loss that cannot be proven with a reasonable degree of certainty cannot be recovered; but other elements (general damages) can still be recovered.

b. CASE: Handi Caddy, Inc. v. American Home Products Corporation, (1977). There are three general principles which the courts apply to determine when lost profits will be allowed as compensation: 1) in both tort and contract actions, lost profits will be allowed only if their loss is proved with a reasonable degree of certainty, 2) in both contract and tort actions, lost profits will be allowed only if the court is satisfied that the wrongful act of the defendant caused the lost profits, and 3) in contract actions, lost profits will be allowed only if the profits were reasonably within the contemplation of the defaulting party at the time the contract was entered into.

6. Liquidated Damages

a. Subject to certain limitations, the law generally permits parties to a contract to agree on the amount or the manner in which damages may be recovered for a breach.

b. Contract remedies are intended to be compensatory in nature, not punitive. Thus, the validity of a liquidated damages clause may be challenged on the theory that it constitutes a penalty.

c. CASE: Greenbach Bros., Inc. v. Alfred E. Burns, (1966). For a liquidated damages amount to be upheld, the amount agreed upon must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained. The damages amount must also be difficult to ascertain.

B. Contracts In Context

1. Sales of Goods

– Contracts for sale of goods retain the basic common-law measure of expectation damages, but incorporate some additional measures.

a. Buyers� Damages

1. Cover

i. The preferred damage measure awards the buyer the difference between the cost of cover and the contract price together with any incidental or consequential damages, but less expenses saved in consequence of the seller�s breach.

ii. CASE: Huntington Beach Union High School Dist. v. Continental Information Systems Corp., (1980). The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective. Consequential damages resulting from the seller�s breach include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise.

2. Damages for Breach of Warranty

i. CASE: Chatlos Systems, Inc. v. National Cash Register Corporation, (1982). The correct measure of damages is the difference between the FMV of the goods accepted and the value they would have had if they had been as warranted. Award of that sum is not confined to instances where there has been an increase in value between date of ordering and date of delivery.

ii. CASE: Nelson v. Logan Motor Sales, Inc., (1988). A common method for establishing the difference in value between the goods as warranted and as delivered is to prove the cost to repair the deficient aspects of the goods.

3. Consequential Damages

i. CASE: Erdman v. Johnson Brothers Radio and Television Co., Inc., (1970). In order to get consequential damages it must be shown that there was 1) a breach of a contract that 2) proximately caused the injury complained of.

b. Sellers� Damages

1. Resale

i. CASE: Coast Trading Company v. Cudahy Company, (1979). Under this formula, if the seller resells in good faith and in a commercially reasonable manner he is entitled to recover the difference between the resale price and the contract price together with any incidental damages allowed under the provisions, but less expenses saved in consequence of the buyer�s breach.

2. Lost Profits

i. CASE: R.E. Davis Chemical Corporation v. Diasonics, Inc., (1987). A volume seller can recoup lost profits that are an extension from buyer�s non-acceptance.

3. Action for Price

i. CASE: Integrated Circuits Unlimited v. E.F. Johnson Company, (1989). When the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages, the price: 1) of goods accepted or conforming goods lost or damaged within a commercially reasonable time after risk of their loss has passed to the buyer; and 2) of goods identified to the contract if the seller is unable after reasonable effort to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.

4. Limitation on Specific Restitution

i. A seller who sells goods to a buyer on credit generally does not have the right to repossess the goods if the buyer does not pay for them. If the buyer misrepresented his credit or is insolvent, the seller may reclaim the goods if done with notice and within 10 days of the receipt.

ii. Only unique items warrant specific restitution.

2. Executory Land Sale Contracts

a. A variety of remedies are available when a contract for the sale of land is breached including specific performance and damages.

b. The standard contract measure of damages applies, namely the difference between the contract price stated in the contract and the market value of the real property on the date of the breach.

c. CASE: Kramer v. Mobley, (1949). Where the seller under an executory contract for the sale of personal property breaches his contract by failing to deliver the property, the measure of damages is the difference, if any, between the contract price and the market value of the property either at the time of the breach or at the time fixed for delivery. However, if the seller is not guilty of bad faith or fraud in the sales failure then the buyer may recover any consideration he has paid, with interest, and any legitimate expenses he has incurred, but he can recover nothing for the loss of his bargain.

3. Construction Contracts

a. Alternatives to Lost Value

1. If the breach results in defective or unfinished construction and the loss in value to the injured party is not proved with sufficient certainty, he may recover damages based on: 1) the diminution in the market price of the property caused by the breach, or 2) the reasonable cost of completing performance or of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him.

2. CASE: Prier v. Refrigeration Engineering Company, (1968). For defective or unfinished construction the injured party can get judgment for�1) the reasonable cost of construction and completion in accordance with the contract, if this is possible and does not involve unreasonable economic waste.

3. CASE: Jacob & Youngs, Inc. v. Kent, (1921). �The Pipe Case� In this case, the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. A property owner should not be relegated to this measure unless the contractor has substantially performed.

b. Losing Contracts

1. CASE: Kehoe v. Rutherford, (1893). As an alternative to the measure of damages based on the expectation interest, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the breaching party can prove the injured party would have suffered even if the contract had been performed. This is a good measure when the cost of complete performance would exceed the compensation promised by the breaching party.

c. Delays

1. CASE: W.G. Cornell Company of Washington, D.C. v. Ceramic Coating Company, Inc., (1980). When the other party delays in performance of a contract, the aggrieved party can recover the fair rental value of either the equipment or the property that is idle as a result of the delay.

2. CASE: Lorch, Inc. v. Bessemer Mall Shopping Center, Inc., (1975). When a landlord prevents a tenant from going out of business, the landlords actions amount to an unreasonable delay even if the terms were specified in the lease. This is based on the complexity and supervision involved in enforcing the business to stay open.

3. CASE: Northern Delaware Industrial Development Corp. v. E.W. Bliss Co., (1968). Specific performance of adding more workers to cure a delay will not be enforced because of the complexity and supervision involved in enforcement.

4. Employment Contracts

a. CASE: Sullivan v. David City Bank, (1967). For a wrongful discharge, the plaintiff cannot recover �wages� for services constructively performed. He can recover only damages for the breach of the contract of employment. The employee may recover his full damages even where the action is tried before the expiration of the term of the employment.

b. CASE: Mr. Eddie, Inc. v. Ginsberg, (1968). An employee who has been wrongfully discharged before the termination of his contract of employment must endeavor to reduce the loss or damage by seeking other employment. He may, however, recover the reasonable costs expended in seeking that other employment. Generally, an employee is not required to accept a position that is different or inferior to the position under the contract, and the employee is not required to leave the same geographic area for a substitute.

c. Covenants not to Compete Unless there exists special circumstances warranting protection, a business activity has no protectable interest in its employees leaving and working elsewhere. Must show no adequate remedy at law and that irreparable harm would result.

d. Suits by Employees Agreements to perform a personal service will not be specifically enforced in favor of the employer. One situation in which the courts will order an employer to reinstate an employee is when the employee has been discharged in violation of civil rights laws or free speech.


A. General Principles

1. Types of Damages

a. Compensatory Damages designed to place plaintiffs in the same position they would have been in had the wrongful interference not occurred.

b. Consequential (�Special�) Damages may be awarded to more fully compensate the victim of wrongdoing.

c. Nominal Damagesawarded in order to vindicate a right.

d. Supercompensatory Damages awarded in the form of punitive or exemplary damages.

2. Requirement of Certainty

a. CASE: James Mastandrea v. Chicago Park District, (1994). A loss need not be proven with absolute certainty, but speculation, remote or uncertain amounts are improper.

b. CASE: Bigelow v. RKO Radio Pictures, Inc., (1946). Juries are allowed to act upon reasonable and inferential, as well as direct and positive proof in computing estimates of damages.

B. Interference With Real Property Interests

– Interference with real property interests may be litigated on a number of theories including trespass, private and public nuisance, and negligence. The measure of damages remain the same.

1. Compensatory Damages

a. CASE: Stevinson v. Deffenbaugh Indus., Inc., (1993). A nuisance is temporary if it may be abated, and it is permanent if abatement is impracticable or impossible. Damages for a permanent nuisance are measured by the difference in the land�s market value immediately before and after the injury. Damages for temporary nuisance are the decrease in rental or usable value of the property as well as any special costs (repair, loss of use, etc.).

b. CASE: Terra-Products v. Kraft Gen. Foods, Inc., (1995). In the context of environmental contamination of land, although deemed a temporary nuisance, a party should be entitled to recover as damages any proven reduction in the fair market value of real property remaining after remediation.

c. CASE: State of Ohio v. United States Department of the Interior, (1989). In environmental restoration cases subject to CERCLA, the correct measure of damages is restoration costs because natural resources are not fungible goods.

d. CASE: Scantlin v. City of Pevely, (1987). There is no requirement that loss of use damages be specifically pled.

e. CASE: Dodd Properties (Kent) v. Canterbury City Council, (1980). If an award is given to cover future repairs, the award should be discounted to its present value.

f. CASE: Coty v. Ramsey Assocs., (1988). As a general rule, the mere unsightliness of a thing, without more, does not render it a nuisance, however, when malice or spite were the motivation, nuisance liability attaches. The purpose of punitive damages are to punish those culpable. In order to award punitive damages, plaintiff must demonstrate actual malice on part of the defendant.

g. CASE: Riblet v. Spokane-Portland Cement Co., (1954). In an action for damages for maintaining a nuisance, recovery may be had for inconvenience, physical discomfort, and illness to the occupant of the property resulting from the nuisance. This is so even though damages for property value or rental value are awarded.

2. Consequential Damages

a. CASE: Lunda v. Matthews, (1980). Distinct from or in addition to damages compensating plaintiffs for the diminution in property value as a result of a nuisance, it is proper to award consequential damages for discomfort, annoyance, inconvenience and personal injury. Consequential damages are also recoverable in an action for trespass.

b. CASE: Davey Compressor Co. v. City of Delray Beach, (1993). In tort cases, plaintiff may recover all damages which are natural, proximate, probable or direct consequence of the act, but do not include remote consequences. Abatement costs are allowed.

C. Interference With Personal Property Interests

– If the trespass causes harm to the chattel, the trespasser is liable for all damges proximately caused by the act. In conversion or trover the basis of the tort is the conversion of the plaintiff�s property to the defendant�s own use (forced sale). Plaintiff can then receive its full value.

1. CASE: Paccar Fin. Corp. v. Howard, (1993). The theory of trover (�conversion�) was that the defendant, by �converting� a chattel to his own use, appropriated the plaintiff�s rights, for which he was required to make compensation.

2. CASE: Ehman v. Libralter Plastics, Inc., (1994). The value of the chattel converted is the FMV of the item at the time of conversion plus interest. If there is no regular market value for the item, the measure is the value of the property to the owner at the time of the conversion plus interest.

3. CASE: Goodpasture, Inc. v. M/V Pollux, (1982). Damages in a conversion action should compensate for the loss actually sustained as a result of the tortfeasor�s wrong, and a plaintiff may generally recover the reasonable market value of the goods converted, as of the time and place of conversion.

4. CASE: Caballero v. Anselmo, (1991). Damages recoverable for the conversion of property are limited to the value of the property at the time of the conversion. However, an exception applies to property of fluctuating value, such as shares of stock; the measure of damages for conversion of stock certificates is the cost of replacement within a reasonable period after the discovery of the conversion, regardless of when the conversion may have occurred.

5. CASE: Broadwater v. Old Republic Sur., (1993). The New York Rule: Sets the measure of damages as the highest market price of the stock between the date of the conversion and a reasonable time following notice of the conversion. The reasonable time requirement varies with the particular facts and circumstances of each case.

6. CASE: Badillo v. Hill, (1990). The span of time for loss of use damages is limited to the period of time reasonably necessary to procure parts and make repairs and the amount should not exceed the amount of the greater injury of total destruction.

D. Tortious Interference With Economic Interests

– Tort law has powerful remedial weapons, not available in breach of contract cases.

1. CASE: Hinkle v. Rockville Motor Co., (1971). The �Flexibility Approach� in fraud and negligene cases: 1) If the defrauded party is content with the recovery of only the amount that he actually lost, his damages will be measured under that rule; 2) if the fraudulent representation also amounted to a warranty, recovery may be had for loss of the bargain because a fraud accompanied by a broken promise should cost the wrongdoer as much as the later alone; 3) where the circumstances disclosed by the proof are so vague as to cast virtually no light upon the value of the property had it conformed to the representations, the court will award damages equal only to the loss sustained; and 4) where the damages under the benefit-of-the-bargain rule are proved with sufficient certainty, that rule will be employed.

2. CASE: Texaco, Inc. v. Pennzoil, Co., (1987). One who is liable to another for interference with a contract is liable for damages for: 1) the pecuniary loss of the benefits of the contract; and 2) consequential losses for which the interference is a legal cause. Because this suit was brought in tort and not in contract the measure of damages was the pecuniary loss of the benefits it would have been entitled to under the contract. Moreover, punitive damages are recoverable in tort actions where there exists ingredients of malice, fraud, oppression, insult, wanton or reckless disregard of plaintiff�s rights, or other circumstances of aggravation. The exemplary damages must be reasonable (look to surrounding factors, the wrong, defendant�s conduct, public policy, etc.).

E. Punitive Damages

1. CASE: BMW of North America, Inc. v. Gore, (1996). The Due Process Clause of the 14th Amendment prohibits a state from imposing a grossly excessive punishment on a tortfeasor. Grossly excessive damages can be determined by looking at the degree of reprehensibility of the act, the disparity between the harm or potential harm and the amount of the award, and sanctions for comparable conduct.


A. General Principles

1. CASE: Seffert v. Los Angeles Transit Lines, (1961). For an appellate court to overturn trial court damages, the verdict must be so out of line with reason that it shocks the conscience and necessarily implies that the verdict must have been the result of passion and prejudice.

2. CASE: Sharman v. Evans, (1977). The appropriate criterion for damages must be that such expenses that plaintiff may reasonably incur should be recoverable from the defendant. Double compensation is to be avoided.

B. Economic Losses

1. Earning Capacity

a. CASE: Jones & Laughlin Steel Corp. v. Pfeifer, (1983). An award for impaired earning capacity is intended to compensate the worker for the diminution in the stream of income he would have earned; including fringe benefits. The award should be calculated pertaining to after-tax wages. Work related costs (uniforms, etc.) should be deducted from the award. Also, the award should be discounted by the discount rate which is based on the rate of interest that would be earned on the best and safest investments.

2. Collateral Benefits

a. CASE: Helfend v. Southern California Rapid Transit District, (1970). The collateral source rule allows plaintiff to receive benefits from an insurance policy andthe award from defendant. This is because the tortfeasor should not garner benefits of the victim�s providence of buying insurance.

C. Non-economic Losses

1. CASE: McDougald v. Garber, (1989). Some degree of cognitive awareness is a prerequisite to recovery for loss of enjoyment of life.

D. Loss of Consortium

1. CASE: Belcher v. Goins, (1990). �Parental consortium� refers to the relationship between parent and child and is the right of the child to the intangible benefits of the companionship, comfort, guidance, affection, and the aid of the parent. Courts are split on this, but the modern trend is to allow recovery for this to minors and handicapped children who rely on the parents for care.

2. CASE: Whittlesey v. Miller, (1978). Marital consortium concerns the loss of society and services of the spouse and includes impairment for sexual intercourse. Either spouse has a cause of action for loss of consortium with the other spouse as a result on injury caused to the other spouse by a third party tortfeasor�s negligence.

E. Mitigation

1. CASE: Baker v. Morrison, (1992). The mitigation theory requires the consideration of the doctrine of avoidable consequences and whether the plaintiff should have anticipated the defendant�s negligence before the accident occurred. Comparative negligence is now the rule in most jurisdictions. Comparative negligence decreases the award by the percentage of negligence attributed to the plaintiff. Proximate cause of plaintiff�s negligence is required.

F. Punitive Damages

1. CASE: Sturm, Ruger & Co., Inc. v. Day, (1979). In order to recover punitive damages, the plaintiff must show the wrongdoer�s action were done with malice or bad motives or a reckless indifference to the interests of another. They are meant to punish and deter. The amount must bear some resemblance to the proportion of actual damages.

G. Torts and Damages at the Frontier

1. CASE: Sterling v. Velsicol Chemical Corporation, (1988). In order to collect damages for environmental contamination, plaintiff must show that the defendant actually caused the contamination and that the contamination resulted in, or will likely result in, the medical injuries. Mental anguish damages will be awarded only where such distress is foreseeable or is a natural consequence of, or reasonably expected to flow from, the present injury.

2. CASE: Marciniak v. Lundborg, (1990). Damages caused by a negligently performed sterilization practice may be recovered until the child reaches age of majority and benefits of having that child may not be deducted from that award.

H. Wrongful Death

1. CASE: Green v. Bittner, (1980). For the loss of a child, damages should not be limited to the pecuniary loss of the child (chores, etc.) and should extend to the loss of companionship as they grow older.

2. CASE: DeLong v. County of Erie, (1982). What is the rule here?

3. CASE: Lamm v. Lorbacher, (1952). The plaintiff in a wrongful death action may recover such damages as are a fair and just compensation for the pecuniary injury resulting from such death.

4. CASE: Murphy v. Martin Oil Co.� (1974). An action for conscience pain and suffering prior to death is recoverable as a separate action, and in addition, to the wrongful death action.

CRLA current decisions Civil Code 1750

19 Sep

Posts categorized “The CLRA”

Tuesday, September 06, 2011

New UCL and CLRA “safe harbor” decision: Alvarez v. Chevron Corp.

In Alvarez v. Chevron Corp., ___ F.3d ___ (9th Cir. Sept. 1, 2011), the Ninth Circuit applied the Cel-Tech safe harbor to a UCL claim and, citing Bourgi v. West Covina Motors, Inc., 166 Cal.App.4th 1649 (2008), applied a similar safe harbor to the CLRA claim.

Posted by Kimberly A. Kralowec at 05:00 AM in The CLRA, UCL – “unfair” prong | Permalink|Comments (0)|TrackBack (0)

Tuesday, July 12, 2011

Recent UCL “fraudulent” prong decision: Hill v. Roll Int’l Corp.

In Hill v. Roll International Corp., 195 Cal.App.4th 1295 (May 26, 2011), the Court of Appeal (First Appellate District, Division Two) held as a matter of law that “no reasonable consumer would be misled to think that the green drop on Fiji water represents a third party organization’s endorsement or that Fiji water is environmentally superior to that of the competition.” Id., slip op at 5 (emphasis in original).

The Court discussed the “reasonable consumer” standard in some detail (id. at 8-10), and concluded that “in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, … a reasonable consumer … does not include one who is overly suspicious.” Id. at 9.

The Court also held that Kwikset did not dictate a contrary result:

We agree wholeheartedly that “labels matter,” all labels, including that here. Defendants obviously put the green drop on the label for a purpose, as their counsel had to necessarily concede at oral argument: that the green drop was for a “marketing” purpose, to signify “something to do with the environment.” Such concession notwithstanding, we hold—and it is all we hold—that no reasonable consumer would be misled to think that the green drop represents a third party organization’s endorsement or that Fiji water is environmentally superior to that of the competition.

Id. at 12.

Accordingly, the Court affirmed the judgment of dismissal following the trial court’s order sustaining the defendant’s demurrer to the UCL, FAL, and CLRA claims without leave to amend.

Posted by Kimberly A. Kralowec at 05:00 AM in The CLRA, UCL – “fraudulent” prong | Permalink|Comments (0)|TrackBack (0)

Monday, January 10, 2011

Six pending cases to watch in 2011

Here are six important cases to follow in the coming months (listed in no particular order):

  1. Kwikset Corp. v. Superior Court (Benson), no. S171845 (Cal.). This UCL case was argued in the California Supreme Court on November 3, 2010, which means that the opinion is due by Tuesday, February 1, 2010. Because the Court hands down opinions on Mondays and Thursdays, we can expect the opinion no later than Monday, January 31, 2011 — assuming former Chief Justice George sends his vote in from Antarctica! In this case, the Supreme Court will be interpreting Prop. 64’s “lost money or property” language.
  2. AT&T Mobility LLC v. Concepcion, no. 09-893 (U.S.). This case was argued in the U.S. Supreme Court on November 9, 2010. The issue is whether the FAA preempts state-law unconscionability principles as applied to no-class-action arbitration clauses in consumer contracts of adhesion, and the continuing vitality of our own Supreme Court’s Discover Bank decision could be at stake. The opinion will be filed by the end of the current Term, which means no later than June 27, 2011.
  3. Brinker Restaurant Corp. v. Superior Court (Hohnbaum), no. S166350 (Cal.). This wage and hour case raises substantive questions relating to California’s meal period and rest break laws, but could also be a significant class certification case. The Supreme Court has not directly addressed core class certification issues since Sav-on in 2004. The case is fully briefed, but has not yet been scheduled for oral argument. It may or may not be set this year. [Disclosure: My firm is co-counsel for the workers in Brinker.]
  4. Wal-Mart Stores, Inc. v. Dukes, no. 10-277 (U.S.). The U.S. Supreme Court granted cert. in this case on December 6, 2010, and has scheduled oral argument for March 29, 2010. The opinion will be filed by the end of June 2011, when the current Term ends. The district court granted class certification of certain employment discrimination claims under Rule 23(b)(2), and the Ninth Circuit, sitting en banc, affirmed in part.
  5. Mazza v. American Honda Motor Co., no. 09-55376 (9th Cir.). In this auto defect case, the district court granted nationwide class certification of UCL and CLRA claims for recovery of economic losses. Mazza v. American Honda Motor Co., 254 F.R.D. 610 (C.D. Cal. 2008). The Ninth Circuit granted a Rule 23(f) petition for permission to appeal, and the case was argued on June 11, 2010. One day after the Supreme Court granted cert. in Dukes, however, the Ninth Circuit issued a sua sponte order deferring submission of the action pending resolution of that case.
  6. Sullivan v. DB Investments, Inc., no. 08-2784 (3d Cir.). In this antitrust case for price-fixing in the diamond industry, the Third Circuit reversed the district court’s order granting final approval of a nationwide class action settlement. Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010). On August 27, 2010, en banc rehearing was granted, and the case has been scheduled for argument on February 23, 2011. On November 10, 2010, the Court ordered supplemental briefing on some broad class-certification-related questions.

Wednesday, August 25, 2010

Two new opinions on no-class-action arbitration clauses: Fisher v. DCH Temecula Imports LLC and Walnut Producers of California v. Diamond Foods, Inc.

The Court of Appeal has recently handed down two new decisions addressing arbitration clauses with class action bans.

In the first, Fisher v. DCH Temecula Imports LLC, ___ Cal.App.4th ___ (Aug. 13, 2010), the Court of Appeal (Fourth Appellate District, Division Two) held that the CLRA’s no-waiver provision (Civ. Code section 1751) and its class action provision (Civ. Code section 1781) trumped a class action ban in an arbitration clause:

[T]he clear language of the CLRA does not allow a consumer to waive the provisions of the CLRA in advance, including the right to bring a class action. Since the plain language of the statute provides that a consumer “may” bring a class action if there is damage to other consumers similarly situated, he or she cannot be asked to waive this class action right in advance.

Slip op. at 24. This is an interesting argument that no appellate court had expressly adopted before. The Court held the entire arbitration clause unenforceable. Id. at 24-25.

In the second case, Walnut Producers of California v. Diamond Foods, Inc., ___ Cal.App.4th ___ (Aug. 16, 2010), the Court of Appeal (Third Appellate District) held that an arbitration clause with a class action ban in a commercial contract was not unconscionable. Slip op. at 12-25. The Court also held that an order striking class allegations from a complaint is appealable and reviewed de novo. Id. at 5-8.

The Complex Litigator also has a short post on these two decisions.

Tuesday, August 24, 2010

New CLRA and UCL “unlawful” prong decision: Vitug v. Alameda Point Storage, Inc.

In Vitug v. Alameda Point Storage, Inc., ___ Cal.App.4th ___ (Aug. 10, 2010), the Court of Appeal affirmed a judgment entered following a demurrer to CLRA and UCL “unlawful” prong claims predicated on alleged violations of the California Self-Service Storage Facility Act (Bus. & Prof. Code §§ 21700 et seq.).

Posted by Kimberly A. Kralowec at 05:00 AM in The CLRA, UCL – “unlawful” prong | Permalink|Comments (0)|TrackBack (0)

Monday, July 19, 2010

New UCL “unlawful” prong decision: Nelson v. Pearson Ford Co.

In Nelson v. Pearson Ford Co., ___ Cal.App.4th ___ (Jul. 15, 2010), the Court of Appeal (Fourth Appellate District, Division One) addressed a number of interesting UCL-related issues. The most interesting one is the class representative’s standing in an “unlawful” prong case. Slip op. at 32-34.

The first 30+ pages of the opinion focus on whether the defendant auto dealer violated various provisions of the Automobile Sales Finance Act (Civ. Code §2981 et seq.) (“ASFA”). After concluding that it had, the Court of Appeal turned to the UCL and CLRA claims. The first question was Prop. 64 standing:

Pearson Ford does not challenge the conclusion that its violations of the ASFA support Nelson’s UCL claims; rather its appeal is limited to the trial court’s finding that Nelson had standing to pursue claims under the UCL. Pearson Ford focuses its argument on whether Nelson suffered injury “as a result of” its unfair competition under the UCL. (Bus. & Prof. Code, § 17204.) Relying on Troyk [v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009)], Pearson Ford contends that Nelson needed to prove he would not have bought the car if he had known that the second contract: (1) charged him pre-consummation interest; (2) misstated the APR; and (3) failed to separately itemize the $250 insurance premium. We disagree.

The failure of Pearson Ford to comply with the ASFA caused Nelson to suffer an injury and lose money as to both classes because he paid pre-consummation interest (the backdating class), and paid sales tax and financing charges on the insurance premium (the insurance class). Unlike Troyk, these illegal charges violated the UCL and Pearson Ford improperly collected additional funds from Nelson. UCL causation exists because Nelson would not have paid pre-consummation interest, or sales tax and financing charges on the insurance premium had Pearson Ford complied with the ASFA. Because Nelson had standing to pursue claims under the UCL, we reject Pearson Ford’s argument that the judgment in favor of both classes should be vacated to the extent it grants relief under the UCL.

Slip op. at 34 (emphasis added).

This holding is consistent with the Tobacco II footnote explaining that “the concept of reliance” will have “no application” in many UCL cases. In re Tobacco II Cases, 46 Cal.4th 298, 325 n.17 (2009). In Nelson, the defendant violated the law, which meant that additional charges and incorrect interest calculations were incorporated into the plaintiff’s sales contract. This occurred wholly apart from any “reliance” by the plaintiff. By contrast, “the lack of disclosure of proper charges, not illegal charges, violated the UCL in Troyk.” Nelson, slip op. at 33.

The Nelson opinion goes on to discuss UCL restitution (slip op. at 35-38) (worth reading); UCL rescission (slip op. at 39-40) (which it holds is not an available remedy); unclaimed residual funds under Code of Civil Procedure section 384 (slip op. at 40-42) (see this blog post for more on that topic); the CLRA (slip op. at 45-47); and 998 offers in the class action context (slip op. at 48-52).

Friday, January 22, 2010

New UCL class certification decision: Steroid Hormone Product Cases

Another case interpreting Tobacco II has been handed down, and this one, like Weinstat a couple of weeks ago, refutes the Cohen court’s interpretation.

In Steroid Hormone Product Cases, ___ Cal.App.4th ___ (Jan. 21, 2010), the Court of Appeal (Second Appellate District, Division Four) reversed an order denying class certification of UCL and CLRA claims. The case alleged that the defendant (GNC) sold nutritional supplements containing a controlled substance that was illegal to sell or possess without a prescription, and that the defendant failed to disclose to consumers that its product contained this illegal ingredient. Slip op. at 3-4. The plaintiff class consisted of all those who purchased the supplements. See id., passim.

The trial court denied class certification “on the ground that, with regard to both the UCL claim and the CLRA claim, an individualized inquiry would have to be conducted into whether the illegality of androstenediol products was material to each purchaser, to determine whether GNC’s alleged conduct caused injury to that purchaser.” Id. at 8.

The Court of Appeal disagreed. Under Tobacco II made clear that “the standing provision added by Proposition 64 ‘was not intended to have any effect at all on unnamed class members.'” Id. at 10 (quoting Tobacco II, 46 Cal.4th at 321.) “Therefore, while a named plaintiff in a UCL class action now must show that he or she suffered injury in fact and lost money or property as a result of the unfair competition, once the named plaintiff meets that burden, no further individualized proof of injury or causation is required to impose restitution liability against the defendant in favor of absent class members.” Id. (emphasis added).

This holding is directly contrary to Cohen.

The defendant raised the argument that the Cohen court found persuasive, namely, that Tobacco II merely addressed “standing” and was not relevant to class certification. This panel did not read Tobacco II that way:

GNC tries to avoid the required reversal by arguing in its respondent’s brief that the trial court’s ruling does not conflict with Tobacco II because Tobacco II addressed standing, while the trial court specifically stated that standing was irrelevant to the certification analysis. Although the court did state that standing was irrelevant, it nevertheless found that Proposition 64 added actual injury as an element of a cause of action for restitution under the UCL, and therefore injury must be established for each class member. Tobacco II made clear, however, that Proposition 64 only affected the named plaintiff’s standing in a UCL class action seeking restitution; it did not add an additional element to be satisfied by all class members.

Id. at 10-11 n.8 (citing Tobacco II, 46 Cal.4th at 321) (emphasis added). In other words, the Steroid Hormone Product Cases court recognized that because reliance and injury are not elements of a UCL claim, they are irrelevant to class certification. The court concluded that class certification should have been granted because common questions predominated:

Martinez’s UCL claim presents two predominate issues (other than Martinez’s individual standing), both of which are common to the class: (1) whether GNC’s sale of androstenediol products was unlawful; and if so, (2) the amount of money GNC “may have . . . acquired by means of” those sales that must be restored to the class (Bus. & Prof. Code, § 17203). 11.As for the CLRA claim, the doctrine of presumed reliance based on the materiality of the undisclosed information warranted class certification of that claim as well:

[Plaintiff] correctly argues that he is entitled to show that GNC’s alleged deceptive conduct caused the same damage to the class by showing that the alleged misrepresentation was material, even if GNC might be able to show that some class members would have bought the products even if they had known they were unlawful to sell or possess without a prescription. [Citation.] In other words, if Martinez can show that “‘material misrepresentations were made to the class members, at least an inference of reliance [i.e., causation/injury] would arise as to the entire class.’”

Id. at 13 (citing Vasquez v. Superior Court, 4 Cal.3d 800 (1971); Massachusetts Mutual Life Ins. Co. v. Superior Court, 97 Cal.App.4th 1282 (2002)) (footnote omitted).

The court then reaffirmed the “reasonable consumer” standard for CLRA cases, explaining:

the question that must be answered in this case is whether a reasonable person would find it important when determining whether to purchase a product that it is unlawful to sell or possess that product. It requires no stretch to conclude that the proper answer is “yes” — we assume that a reasonable person would not knowingly commit a criminal act.

Id. at 14 (citing Civ. Code § 3548; Garnette v. Mankel, 71 Cal.App.2d 783, 787 (1945)). Finally, the court rejected the argument that a “reasonable bodybuilder” standard should apply instead, as well as the argument that “as a rule, bodybuilders care less about legality than non-bodybuilders.” Id. Bodybuilders as a class will no doubt appreciate the vindication.

Tuesday, July 14, 2009

New Ninth Circuit UCL/CLRA pleading decision: Kearns v. Ford Motor Co.

In Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. Jun. 8, 2009), the Ninth Circuit held that “the heightened pleadings standards of Rule 9(b)” applied to UCL and CLRA claims that were “grounded in fraud.”

In a recent post-Tobacco decision, a federal district court followed Kearns but determined that the complaint’s allegations satisfied the heightened pleading standard because they “sufficiently identified ‘the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations.'” Germain v. J.C. Penney Co., 2009 WL 1971336, *3-*5 (C.D. Cal. Jul. 06, 2009) (quoting Walling v. Beverly Enterprises, 476 F.2d 393, 397 (9th Cir.1973)).

Monday, April 20, 2009

Supreme Court holds that the CLRA does not apply to life insurance: Fairbanks v. Superior Court

The Fairbanks opinion is up. Not surprisingly (in light of the oral argument report), the Supreme Court has held that life insurance is not a “good” or a “service” within the meaning of the CLRA. Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), ___ Cal.4th ___ (Apr. 20, 2009). The opinion addresses only life insurance, not insurance generally. Slip op. at 2 n.1.

Posted by Kimberly A. Kralowec at 11:10 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Friday, April 17, 2009

Supreme Court to hand down CLRA decision Monday: Fairbanks v. Superior Court

The Supreme Court just announced that it will be handing down its opinion in Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), no. S157001, on Monday at 10:00 a.m. That is the case involving whether insurance is a “good” or a “service” within the meaning of the CLRA. Here is Harvey Rosenfield’s excellent report on the oral argument. When the opinion is handed down on Monday, it will be available here:

Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), ___ Cal.4th ___ (Apr. 20, 2009)

Fairbanks was argued on March 4th. Tobacco was argued on March 3rd, and the marriage cases were argued on March 5th. This is the first opinion to be handed down in that trilogy of interesting cases argued during that week in March. The Court’s deadline to file the other two opinions falls in the first week of June (90 days after submission).

Posted by Kimberly A. Kralowec at 12:31 PM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Thursday, April 02, 2009

Supreme Court denies rehearing in Meyer v. Sprint Spectrum

Yesterday, the Supreme Court denied the petition for rehearing in Meyer v. Sprint Spectrum, no. S153846.

Posted by Kimberly A. Kralowec at 02:41 PM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Monday, February 23, 2009

Rehearing petition filed in Meyer v. Sprint Spectrum

On February 17, 2009, a petition for rehearing was filed in the Supreme Court CLRA case, Meyer v. Sprint Spectrum, no. S153846. The opinion is available here: Meyer v. Sprint Spectrum L.P., ___ Cal.4th ___, 2009 WL 197560 (Jan. 29, 2009). See these blog posts for more.

Thanks to a loyal blog reader, here are copies of the petition for rehearing and an amicus letter filed by eight consumer advocacy groups in support of the petition.

Under Rules of Court 8.268 and 8.536, the Supreme Court would need to either grant or deny rehearing, or extend its time to do so, within thirty days after the opinion was filed on January 29. Thirty days from January 29 is Saturday, February 28. As a practical matter, that means the Court can be expected to take action on or before its conference scheduled for the preceding Wednesday, February 25 — i.e., in two days. If the Court takes no action before the thirty-day deadline, the petition is deemed denied.

UPDATE: Today (Feb. 23), the Court issued an order giving itself an extension of time, through Wednesday, April 29, 2009, to grant or deny rehearing.

Posted by Kimberly A. Kralowec at 06:00 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, February 04, 2009

MORE BREAKING NEWS: Oral argument set in CLRA case, Fairbanks v. Superior Court

Thanks to the blog reader who pointed out that yet another case of interest has been set for argument during the first week of March. In Fairbanks v. Superior Court, no. S157001, the Supreme Court will consider whether insurance is a “good” or a “service” within the meaning of the CLRA. Fairbanks is set for argument on Wednesday, March 4, 2009 at 9:00 a.m.

The Court of Appeal’s opinion is Fairbanks v. Superior Court, 154 Cal.App.4th 435 (2007), and some of the briefs are collected at these links.

Friday, January 30, 2009

More coverage of Meyer v. Sprint Spectrum

Today’s Recorder reports that “CLRA Suits Require Actual Injury” (subscription). The article begins:

More than four years ago, California voters passed Proposition 64, limiting suits filed under the state’s unfair competition law to individuals actually injured by someone else’s illegal acts.

On Thursday, the California Supreme Court took a similar step by restricting suits filed under the state’s Consumer Legal Remedies Act to plaintiffs who have suffered real damage because of an allegedly unlawful practice.

The Complex Litigator, however, points out in this post that the Supreme Court in Meyer took pains to emphasize the difference between “any damage,” as used in the CLRA, and “actual damage,” and to explain that “the breadth of the phrase ‘any damage’ indicates a category that includes, but is greater than, ‘actual damages.” Meyer, slip op. at 5 (emphasis added). In other words, the CLRA’s standing requirement remains less strict than the UCL’s. As Monique Olivier told The Recorder, “The ruling … [is] no ‘death knell’ for the CLRA.”

Agreed. Most plaintiffs who bring CLRA cases have suffered “any damage” as interpreted in Meyer and won’t have an issue with standing. Still, as I told The Daily Journal, “it’s a significant problem when companies insert unconscionable provisions into their contracts and apparently no one can sue to stop them from doing that.” Laura Ernde, “Justices Restrict Fine-Print Lawsuits,” The Daily Journal (Jan. 30, 2009). Consumers could very well be deterred from attempting to enforce rights that, because of an unconscionable contract term, they thought they had given up.

Posted by Kimberly A. Kralowec at 06:01 AM in News reports and practice articles, The CLRA | Permalink|Comments (0)|TrackBack (0)

Thursday, January 29, 2009

Landmark Supreme Court CLRA decision: Meyer v. Sprint Spectrum L.P.

The Supreme Court’s opinion is now up in Meyer v. Sprint Spectrum L.P., ___ Cal.4th ___ (Jan. 29, 2009). It holds that Civil Code section 1780(a) creates a standing requirement even for CLRA injunctive relief cases, and that plaintiffs lacked standing where the defendant inserted an unconscionable provision into a contract (which the CLRA prohibits) but had not yet attempted to enforce it. Slip op. at 3-14. Notably, the opinion expressly disapproves part of Kagan v. Gibraltar Sav. & Loan Assn., 35 Cal.3d 582, 593 (1984), where the Supreme Court had previously said “we interpret broadly the requirement of section 1780 that a consumer ‘suffer[ ] any damage’ to include the infringement of any legal right as defined by section 1770.” Id. at 10 n.3.

I view this case as an outgrowth of Prop. 64. I do not think that litigants or courts would have focused so heavily on reading an actual damage “standing” requirement into the CLRA if not for that fact that most CLRA cases also include UCL claims. After Prop. 64, UCL standing was on everyone’s mind and was actively and repeatedly litigated in cases that also included CLRA claims. We have seen Prop. 64 bleed over into several other causes of action, not just the CLRA. The CLRA is simply the most notable example of a related, but separate, claim that Prop. 64 jurisprudence has significantly affected.

Posted by Kimberly A. Kralowec at 10:41 AM in The CLRA | Permalink|Comments (2)|TrackBack (1)

Wednesday, January 28, 2009

BREAKING NEWS: Supreme Court to hand down Meyer v. Sprint Spectrum decision tomorrow

The Supreme Court just announced that tomorrow, it will hand down its eagerly-anticipated decision in Meyer v. Sprint Spectrum, no. S153846, in which the Court will interpret the CLRA. When the opinion is posted at approximately 10:00 a.m. tomorrow morning, it will be available at this link: Meyer v. Sprint Spectrum, ___ Cal.4th ___ (Jan. 29, 2009).

Meanwhile, here is my oral argument preview with the issues on review and links to some of the briefs, and here is attorney Kelly Chen’s oral argument report.

Posted by Kimberly A. Kralowec at 11:04 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, January 21, 2009

Ninth Circuit refuses to enforce forum selection clause in UCL/CLRA case: Ramkissoon v. AOL LLC

In Ramkissoon v. AOL LLC, 552 F.3d 1077 (9th Cir. Jan. 16, 2009), the Ninth Circuit refused to enforce a contract provision selecting Virginia state courts as the forum for all claims against AOL. California’s interest in enforcing its broad consumer protection statutes outweighed any interest of Virginia. Virginia has no procedure for consumer class actions; by contrast, the CLRA expressly prohibits waiver of the rights conferred. Civ. Code §1781. Hence, the majority concluded that the choice-of-law clause was unenforceable as well. One judge believed further development of the record was needed to confirm that the plaintiffs were California consumers to whom the CLRA would apply in the first place.

UPDATE: I was reading this opinion again and noticed that in his concurrence, Judge Bea cited a law blog — The Wall Street Journal Law Blog. 552 F.3d at 1088 n.3.

Posted by Kimberly A. Kralowec at 06:00 AM in Class actions – choice of law, The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, January 14, 2009

New UCL/CLRA decision: Paduano v. American Honda Motor Co.

In Paduano v. American Honda Motor Co., ___ Cal.App.4th ___ (Jan. 12, 2009), the Court of Appeal (Fourth Appellate District, Division One) reinstated UCL and CLRA causes of action that the trial court had summarily adjudicated in the defendant’s favor. One justice dissented.

Yesterday’s Recorder reported that “Hybrid Owner’s Suit Gets Green Light” (subscription).

Posted by Kimberly A. Kralowec at 06:00 AM in The CLRA, UCL – “fraudulent” prong | Permalink|Comments (0)|TrackBack (0)

Thursday, December 18, 2008

Supreme Court modifies Vasquez opinion

Yesterday, on its own motion, the Supreme Court issued an order modifying one sentence of its opinion in Vasquez v. State of California, 45 Cal.4th 243 (2008). Previously, the sentence read:

For example, a plaintiff suing under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) must notify the defendant of the particular violations alleged and demand correction, repair, replacement, or other remedy at least 30 days before commencing an action.

Id. at 252 (slip op. at 8). The sentence has been modified to read:

For example, a plaintiff suing under the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq.) must notify the defendant of the particular violations alleged and demand correction, repair, replacement, or other remedy at least 30 days before commencing an action for damages.

(Emphasis added.) This is an important correction, as a CLRA action for injunctive relief has no prelitigation demand requirement. See Civ. Code § 1782(a) (“Thirty days or more prior to the commencement of an action for damages pursuant to this title, the consumer shall do the following: ….”); id. § 1782(d) (“An action for injunctive relief brought under the specific provisions of Section 1770 may be commenced without compliance with subdivision (a).”) In fact, the CLRA specifically authorizes consumers to file suit for injunctive relief, then, after providing the appropriate notice, amend the complaint to add damages allegations “without leave of court.” Id.

UPDATE: According to the Vasquez docket, a non-party, The Sturdevant Law Firm, filed a request for modification of the opinion, resulting in the modification discussed above. In effect, the Supreme Court granted that request, although the order states that the Court modified the opinion on its own motion. Excellent catch, Jim and Monique!

Posted by Kimberly A. Kralowec at 06:00 AM in Attorneys’ fees (CCP §1021.5), The CLRA | Permalink|Comments (0)|TrackBack (0)

Tuesday, October 28, 2008

Recent federal CLRA decision: Friedman v. 24 Hour Fitness USA, Inc.

Friedman v. 24 Hour Fitness USA, Inc., ___ F.Supp.2d ___, 2008 WL 4370005 (C.D. Cal. Sept. 22, 2008), is an interesting new federal decision on the CLRA. Here is what the court (Judge A. Howard Matz) had to say about whether a CLRA claim for broad-ranging injunctive relief may proceed without formal class certification:

Plaintiffs … bring the Fifth Claim for injunctive relief under “in their individual capacity on behalf of the general public,” but they do not seek class certification on this claim. Fourth Am. Compl. ¶ 138. Plaintiffs’ claim arises under California Civil Code section 1780, which authorizes a civil action by “[a]ny consumer” for violations of the CLRA. Fourth Am. Compl. ¶ 144. Under this claim, Plaintiffs seek an injunction pertaining to Defendant’s allegedly deceptive representations to consumers about its special deals and discounts and the nature of the monthly membership. Defendant contends this claim fails because the CLRA does not permit suits “on behalf of the general public,” so this claim must be construed as a class claim subject to the class action provision in the CLRA, California Civil Code § 1781. Section 1781 states:

Any consumer entitled to bring an action under Section 1780 may, if the unlawful method, act, or practice has caused damage to other consumers similarly situated, bring an action on behalf of himself and such other consumers to recover damages or obtain other relief as provided for in Section 1780.

Cal. Civ.Code § 1780 (emphasis added). Because Plaintiffs did not plead compliance with section 1781, Defendant argues, this claim is legally insufficient.

Defendant cites no authority that would require Plaintiffs’ CLRA claim to be construed as a class claim subject to the requirements of section 1781, nor any authority that states that a CLRA claim for injunctive relief cannot be “on behalf of the general public.”Although Proposition 64, as codified at Cal. Civ.Code § 17203, eliminated representative UCL actions unless it met the requirements of a class action, it did not impose the same limitation on the CLRA.

Plaintiffs, in contrast, do cite authority suggesting that it is acceptable to seek such relief on behalf of the general public. In Broughton v. Cigna Healthplans of California, 21 Cal.4th 1066, 1079-80, 90 Cal.Rptr.2d 334, 988 P.2d 67 (Cal.1999), the California Supreme Court indicated that when a plaintiff seeks injunctive relief under the CLRA, he “is functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public.” The Court went on to explain,

the evident purpose of the injunctive relief provision of the CLRA is not to resolve a private dispute but to remedy a public wrong. Whatever the individual motive of the party requesting injunctive relief, the benefits of granting injunctive relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered.

Id. at 1080, 90 Cal.Rptr.2d 334, 988 P.2d 67. Despite the differing circumstances, Broughton is nonetheless instructive. It suggests there is nothing defective about pleading a claim for injunctive relief under the CLRA “on behalf of the general public.”Plaintiffs’ Fifth Claim seeks precisely what the CLRA is designed to do, according to Broughton–an injunction intended to benefit the public at large. Therefore, Plaintiffs state a viable claim in their Fifth Claim for Relief.

Id. at *8-*9. Support for this holding can also be found in Thompson v. 10,000 RV Sales, Inc., 130 Cal.App.4th 950, 980 (2005), in which the Court of Appeal affirmed a broad-ranging CLRA injunction that had been entered without formal class certification, and Cruz v. Pacificare Health Systems, Inc., 30 Cal.4th 303, 312 (2003), in which the Supreme Court strongly suggested that “public injunctions” may be ordered under the CLRA without class certification.

Posted by Kimberly A. Kralowec at 06:00 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Friday, October 24, 2008

Supreme Court sets CLRA case for argument: Meyer v. Sprint Spectrum

On Wednesday, the Supreme Court scheduled oral argument in a case raising CLRA issues, Meyer v. Sprint Spectrum, no. S153846. The argument will take place on December 3, 2008 at 9:00 a.m. in Los Angeles. These are the issues on review in Meyer:

(1) Has a person suffered “damage” within the meaning of the Consumer Legal Remedies Act (Civil Code, section 1780, subd. (a)), such as to allow that person to bring an action under the Act if that person is a party to an agreement containing an unconscionable term (see Civil Code, section 1770, subd. (a)(19)), even though no effort has been made to enforce the unconscionable term? (2) Did plaintiffs have standing to seek declaratory relief?

The Court of Appeal said “no” to both questions. Meyer v. Sprint Spectrum L.P., 150 Cal.App.4th 1136 (2007) (review granted). See these two blog posts for more on the Court of Appeal’s opinion.

Monday, October 13, 2008

New federal CLRA decision: Galindo v. Financo Financial, Inc.

In Galindo v. Financo Financial, Inc., 2008 WL 4452344 (N.D.Cal. Oct. 3, 2008), the court (Judge William Alsup) wrote this about the CLRA’s pre-filing notice requirement:

California courts require “strict” compliance with Section 1782. Outboard Marine Corp. v. Superior Court, 52 Cal.App.3d 30, 40-41, 124 Cal.Rptr. 852 (1975). Plaintiffs filed the present action in state court on June 29, 2007. Plaintiffs admit that they filed no notice as required by Section 1782 until October 1, 2007–months after the state-court action was filed. According to plaintiffs, however, the notice requirements were met because notice was given thirty days before the second amended complaint in this action was filed. Plaintiffs cite to no support for this argument. Significantly, Section 1782 requires that notice be given thirty days before the “commencement of an action” (emphasis added). Notice, therefore, should have been given thirty days before June 29, 2007. This was not done. Defendants request that plaintiffs claim be dismissed with prejudice. The Court is aware that Magistrate Judge James Stiven of the Southern District has dismissed a CLRA claim with prejudice where a plaintiff has failed to satisfy the pre-litigation requirements of Section 1782. See Von Grabe v. Sprint, 312 F.Supp.2d 1285, 1394 (S.D.Cal.2003). The undersigned believes this draconian sanction is unwarranted here. There are other disciplinary ways to deal with any willful disregard of the law, such as attorney’s fees awards to name just one. Accordingly, plaintiffs’ CLRA claim is hereby DISMISSED WITHOUT PREJUDICE.

What this paragraph overlooks is the fact that the CLRA’s pre-filing notice requirement applies only to claims for damages. It is perfectly appropriate to file a CLRA action for injunctive relief without giving any pre-filing notice at all, or to file a CLRA injunctive relief action and then amend the complaint to add a damages claim after the 30-day notice period has expired. If the plaintiff sought both injunctive relief and damages, therefore, neither dismissal nor any form of sanctions would be warranted, in my opinion. At most, an order striking the damages portion of the prayer might be indicated.

Posted by Kimberly A. Kralowec at 06:00 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, October 08, 2008

Supreme Court denies review in CLRA case: Ball v. FleetBoston Financial Corp.

Last week, the Supreme Court denied review in Ball v. FleetBoston Financial Corp., no. S165154. This case raised the issue of whether the CLRA applies to credit card transactions. See Ball v. FleetBoston Financial Corp., 164 Cal.App.4th 794 (2008). In my blog post on the Court of Appeal’s opinion, I opined that the issue was ripe for review, but the Supreme Court seemingly disagreed.

Posted by Kimberly A. Kralowec at 06:01 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Thursday, October 02, 2008

New CLRA decision: Bourgi v. West Covina Motors, Inc.

In Bourgi v. West Covina Motors, Inc., ___ Cal.App.4th ___ (Sept. 24, 2008), the Court of Appeal (Second Appellate District, Division Eight) discussed what happens when the CLRA overlaps more specific statutory provisions (here, provisions of the Vehicle Code). The Court determined that the Vehicle Code and CLRA “must be read together” and that the more specific Vehicle Code provisions created what it called a “safe harbor defense” to the CLRA claim. Slip op. 11-13. The Court further held that the trial court erred by not instructing the jury on the defense. Id. at 16-18.

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Friday, September 26, 2008

New CLRA attorneys’ fees decision: Shisler v. Sanfer Sports Cars, Inc.

In Shisler v. Sanfer Sports Cars, Inc., ___ Cal.App.4th ___ (Sept. 25, 2008), the Court of Appeal (Sixth Appellate District) reaffirmed the rule that the CLRA authorizes attorneys’ fees to a prevailing defendant only upon proof of the plaintiff’s subjective bad faith. Slip op. at 8 (citing Corbett v. Hayward Dodge, Inc., 119 Cal.App.4th 915, 924 (2004)). (Here is my original blog post on Corbett.)

Posted by Kimberly A. Kralowec at 06:00 AM in Attorneys’ fees (CCP §1021.5), The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, August 20, 2008

New UCL/CLRA choice-of-law decision: Brack v. Omni Loan Co.

In Brack v. Omni Loan Co., ___ Cal.App.4th ___ (Jun. 17, 2008; pub. ord. Jul. 16, 2008), the Court of Appeal (Fourth Appellate District, Division One) refused to enforce a choice-of-law provision in a consumer loan contract, holding that California had a greater interest in the transactions and the claims than Nevada. The court relied primarily on the fundamental policy underlying the Finance Lenders Law (Fin. Code §§ 22000 et seq.), but also cited the CLRA’s anti-waiver provision (Civ. Code § 1751). Slip op. at 14-15, 21. The Court observed that earlier opinions have held that the CLRA’s anti-waiver provision precludes enforcement of choice-of-law and forum selection clauses. Id. at 14-15 (citing American Online, Inc. v. Superior Court, 90 Cal.App.4th 1, 15 (2001)).

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Tuesday, August 19, 2008

Final approval and attorneys’ fees orders in Ford Explorer Cases

Many thanks to the blog reader who forwarded these orders signed by Judge De Alba in the Ford case (Ford Explorer Cases, JCCP Nos. 4266 & 4270):

Thursday, August 14, 2008

More briefs from Fairbanks v. Superior Court

Many thanks to the blog reader who forwarded some additional amicus curiae briefs from Fairbanks v. Superior Court (no. S157001), the CLRA/insurance case now pending before the Supreme Court:

Any more briefs? Please forward to me at

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Tuesday, August 12, 2008

Merits briefs from Supreme Court CLRA case: Fairbanks v. Superior Court

Thanks to a loyal blog reader, I can share with you the following briefs from Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), no. S157001 (review granted 11/14/07), in which the Supreme Court will address whether the CLRA applies to insurance:

If you have copies of additional briefs from this case, please send them to me at

Posted by Kimberly A. Kralowec at 06:00 AM in The CLRA | Permalink|Comments (0)|TrackBack (0)

Wednesday, August 06, 2008

New CLRA decision: Ball v. FleetBoston Financial Corp.

In Ball v. FleetBoston Financial Corp., ___ Cal.App.4th ___ (Jun. 5, 2008; pub. ord. Jul. 7, 2008), the Court of Appeal (Fourth Appellate District, Division Three) addressed whether the Consumers Legal Remedies Act (“CLRA”) applies to credit card transactions. Citing Berry v. American Express Publishing, Inc., 147 Cal.App.4th 224 (2007), the Court held that it does not.

The Supreme Court has recently granted review in two other CLRA cases. In Fairbanks v. Superior Court (Farmers New World Life Ins. Co.), no. S157001 (review granted 11/14/07), it will address whether the CLRA applies to insurance, and in Meyer v. Sprint Spectrum, no. S153846 (review granted 08/16/07), it will address whether the CLRA’s prohibition of “unconscionable” contract terms provides a remedy against a defendant who included an unconscionable term, but had not yet enforced it.

Whether the CLRA applies to extensions of credit has been addressed in a number of decisions, with conflicting results. In Knox v. Ameriquest Mortgage Co., 2005 WL 1910927 (N.D. Cal. Aug. 10, 2005), for example, the court held (in contrast to Berry and Ball) that “California courts generally find financial transactions subject to the CLRA,” and concluded that “because other types of financial transactions involving banking services appear to be covered by the CLRA, the Court finds that the CLRA covers the mortgages at issue.” Id. at *4 (citing Kagan v. Gibraltar Savings & Loan Association, 35 Cal.3d 582 (1984); Corbett v. Hayward Dodge, Inc., 119 Cal.App.4th 915 (2004)). Two other federal district courts have reached the same conclusion. Hernandez v. Hilltop Financial Mortgage, Inc., 2007 WL 3101250 (N.D. Cal. Oct. 22, 2007); Jefferson v. Chase Home Finance LLC, 2007 WL 1302984 (N.D. Cal. May 3, 2007). On the other hand, in McKell v. Washington Mutual, Inc., 142 Cal.App.4th 1457 (2006), the court held that the CLRA did not apply to “transactions resulting in the sale of real property.” Id. at 1488.

In sum, the question is ripe for review, and a petition for review was filed in Ball on July 15, 2008 (no. S165154). It will be interesting to see what happens.

UPDATE: On October 1, 2008, the Supreme Court denied the petition for review.

unfair business practices

18 Sep

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.
4th 1255.)

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.

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
violation. (Ibid.)”.

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
disabled person.

(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  §
1021.5. (Id.).

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.


California says sues law firms on national mortgage fraud

1 Sep
By Jonathan Stempel

NEW YORK | Thu Aug 18, 2011 5:15pm EDT

NEW YORK (Reuters) – California has broken up what it called a ring of law firms that fraudulently induced struggling homeowners nationwide to pay thousands of dollars each to file mass lawsuits against their mortgage lenders.

Kamala Harris, the state’s attorney general, said on Thursday she sued three law firms, four lawyers and 14 other companies and individuals who preyed on borrowers desperate to obtain mortgage relief.

She said these defendants took advantage of borrowers’ frustration with lenders and servicers in a housing crisis now in its fifth year and which hit California particularly hard.

“With the industry’s growing reputation for fraud and the legislative ban on advance fees for loan modification services, defendants saw a more profitable opportunity to sell lawsuits rather than loan modifications,” the state said in its complaint filed in the Los Angeles County superior court.

According to officials, the defendants solicited homeowners in 17 U.S. states with at least 2 million pieces of mail and extracted retainer fees of up to $10,000 from each of roughly 2,500 borrowers to participate in “mass joinder” lawsuits.

Harris said these defendants would deceive borrowers into believing their participation would help them avoid foreclosures, reduce their loan balances or interest rates, or even receive clear title to their homes.

Instead, she said borrowers were often provided bad legal advice or unable to get answers to simple questions, including whether they were in fact added to lawsuits. A disproportionate number were black or Hispanic, officials said.

Victims were led to believe the lawsuits “would be the way that they could receive justice,” Harris said at a news conference monitored via webcast. “The only people who paid were those homeowners.”

California said its state bar seized the law practices and attorney accounts of the three law firms, which are all based in the state, and the four lawyers.

They are the Calabasas-based firm Kramer & Kaslow and its principal Philip Kramer, who officials called the leader of the scheme; Costa Mesa-based Mesa Law Group Corp and its principal Paul Petersen; Walnut Creek- and Agoura Hills-based Mitchell J Stein & Associates and its principal Mitchell Stein; and the Encino-based lawyer Christopher Van Son.

The lawsuit alleges violations of several laws and seek a halt to the illegal practices, as well as fines and other remedies. Kramer’s firm and some other defendants’ firms were put into receivership on Monday, Harris said.

A call to the Kramer firm was answered by a recorded message. The Mesa law firm and Van Son did not respond to requests for comment. Stein’s office referred a call to the office of U.S. Sen. Dianne Feinstein. A spokesman there declined to comment.

The case is California v. The Law Offices of Kramer and Kaslow et al, California Superior Court, Los Angeles County, No. LC 094571.

The Kramer opposition to the Attorney General order to show cause

30 Aug

A good read

Opposition of Defendant (AG)

KCWP Review of the Kramer Kaslow mass joiner litigation

28 Aug



In Southern California it is a fact of life; that no matter how ugly deceptive or predatory the mortgage loan; or unjust the foreclosure….. unless the homeowner has 50k or so sitting around to invest in affirmative action litigation the homeowner has not one whit of hope of prevailing against  powerful bank interests or fighting back against their aggressive attorneys .


Lets face it; Homeowners  and property owners with 50k or more in the bank would typically not choose to litigate,  no matter what dirty tricks have been played,  even if their property was being progressively devalued until it was upside-down. 


It is another fact of life that our Southern California Judiciary; including our State Superior Courts and Federal Bankruptcy Courts and Federal District Courts are all notoriously pro-bank and will typically strike down even the strongest lawsuits filed against the foreclosing lenders by individual homeowners.


KCWP Review of the Kramer Kaslow mass joiner  litigation (see notes below)   makes  it clear that like every predatory lending action brought in Southern  California it may be quite a challenge; but  a thorough analysis must also take into consideration  that the firm of Kramer and Kaslow boasts at least 19 attorneys and scores of paralegals has in its possession the funds generated from the  multiple consumers backing it,  and in our opinion  unless this lawsuit is derailed  or sabotaged somehow by mortgage industry interests it will gain enormous  public support and may very likely settle. 


We feel the action’s weakest point may be its outright allegation that  Countrywide caused the housing bubble; after all there were certainly numerous  other mortgage industry players who are just as cupable;  overall the joiner looks to be founded  on solid and supportable facts  and  makes numerous allegations that are legally sound and can be further developed.

Now we  must ask ourselves just how far mortgage industry  interests can reach to make certain that this action is prematurely derailed ; for the purpose of  ensuring  that no more similar  mass joiners may be brought  by other law firms in the future!


Just to show how supportive our State of California lawmakers are to  mortgage industry interests; the California Attorney General is has raided  the attorneys of   Kramer and Kaslow  taken all their files into custody  concurrently  filing  a complaint for redress therein  seeking no less than $5 million in sanctions on behalf of consumers!

 The AG accusations against Kramer and Kaslow  do not  seem to allege that the  mass joinder at issue has been  improperly brought, instead  AG accusations  are narrowly focused on methods that Kramer and Kaslow  purportedly  used to  solicits client participation.

     The California Attorney General action claims  that the law firm  Kramer and Kaslow  is unfairly  preying  on desperate consumer homeowners in  foreclosure  by selling participation in bogus “mass joinder” lawsuits and “litigation settlement(s), the AG  action states that   “No settlements exist and in some cases no lawsuit has even been filed.”
(See to Courthouse News reports.)(link)


Attorney Phillip Kramer, has made it quite clear that his firm was not responsible for any  inappropriate solicitation by stating on the record as follows. 

“I became aware of the mass mailing piece bearing my firm’s name when I saw it on a public  website.  I immediately called the toll free number, was outraged to learn that the people handling the calls were falsely purporting to be with my firm, and I asked to speak with a supervisor”

“I confirmed that the mailer was prepared by and sent by a law firm that I know.  The mailer was NOT approved by me.  I did NOT authorize the mailer.  I would NOT have authorized the mailer if I had been asked in advance.”

“My cases are progressing nicely, and I don’t need to mass market every homeowner.  I’d rather organically grow my client base.”

“I’m not opposed to representing a large number of clients in my mass joinder cases.  In fact, that is the idea of delivering economy of scale to clients and being able to properly litigate against banks.  However, I am opposed to careless and aggressive marketing campaigns, and I never was asked, nor did I approve, that law firm to market under my name, and/or to pose as my law firm when speaking with prospective clients.”

“In fact, I have never marketed these mass joinder cases, I have not approved any marketing under my name, nor have I authorized anyone to pose as me or to solicit prospective clients under my name.  As I become aware of people doing these things, I confront them and shut them down.”

“I know that Mitchell J. Stein feels the same way about people marketing under his name and he is also stopping offenders as he learns about them.”

“I know of no outbound calling.  If asked, I would not approve of that.  I knew that some law firms wanted to send out mailers.  I have insisted that everyone comply with State Bar rules and that anything with my name must be pre-approved.  As of this date, no one has submitted any proposed marketing for my review.  That piece was done without my knowledge.

“I am happy to pay a referral fee to other law firms.  I do not split fees, pay commissions, nor do I pay referral fees to non-lawyers.  I do not use cappers, and have never authorized anyone to robocall, telemarket, spam email, or undertake any mass marketing on my behalf.”


Kramer & Kaslow is now asserting your legal rights through “mass action” litigation to force the banks to do what they should have done voluntarily and pay for their predatory lending tactics. The old “loss mitigation” process may not be working any more, but we have a new and better approach, where we aim to force the banks to settle as they face multi-plaintiff “mass joinder” lawsuits of national scope that will seek to give you financial relief if not void your mortgage loan entirely.




KCWC Research shows it costs appox. $5,000 to participate in the mass joiner at issue.  A close look at the claims against Kramer and Kaslow  reveal that a Marketing Organization who may has been either retained by Kramer and Kaslow  or retained by parties determined to shut down the mass joiner (depending on whom you listen to) circulated inappropriate flyers and used promises of settlement to procure clients.

In our opinion if marketers and  telemarketers were indeed retained by Kramer and Kaslow  to screen clients; and paid a finders fee for each client it is very likely that salesman being salesman and determined to make a commission; unacceptable solicitation was bound to occur.

 After all similar salesmanship of predatory Sub-Prime Mortgage loans to the unsophisticated consumer borrower is exactly how the Housing Crises was facilitated in the first place. Apparently  these same consumers’ are similarly being sold participation in the lawsuit below for $5,000.00.    


The core case used  in the Kramer and Kaslow mass joinder lawsuit is: Ronald vs. Bank of America.  Which  accuses Countrywide (subsequent cases being filed include Citibank, One West, GMAC/Ally Bank, and perhaps others) created a fraudulent scheme through massive sale of  questionable and unsustainable sub-primes immediately sold downstream through line of credit securitization intentionally  perpetrating a massive fraud upon homeowners by use of knowingly inflating appraisals, always intending to create a bubble the bank knew would pop and leave homeowner equity devastated, enabling a second level of profit through foreclosure, always  planning that  real estate values would drop to insure bank profits.

Here’s an overview of what the third amended complaint says in its Introduction section:

2. This action seeks remedies for the foregoing improper activities, including a massive fraud perpetrated upon Plaintiffs and other borrowers by the Countrywide Defendants that devastated the values of their residences, in most cases resulting in Plaintiffs’ loss of all or substantially all of their net worths.

6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by- county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.

7. From as early as 2004, Countrywide’s senior management led by Mozilo knew the scheme would cause a liquidity crisis that would devastate Plaintiffs’ home values and net worths. But, they didn’t care, because their plan was based on insider trading – pumping for as long as they could and then dumping before the truth came out and Plaintiffs’ losses were locked in.

9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein.

This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.

10. As a result, Plaintiffs lost their equity in their homes, their credit ratings and histories were damaged or destroyed, and Plaintiffs incurred material other costs and expenses, described herein. At the same time, Defendants took from Plaintiffs and other borrowers billions of dollars in interest payments and fees and generated billions of dollars in profits by selling their loans at inflated values.

14. Since the time Plaintiffs filed the initial Complaint herein, Defendants’ improper acts have continued, including, inter alia: (i) issuing Notices of Default in violation of Cal. Civil Code §2923.5; (ii) misrepresenting their intention to arrange loan modifications for Plaintiffs, while in fact creating abusive roadblocks to deprive Plaintiffs of their legal rights; and (iii) engaging in intrinsic fraud in this Court and in Kentucky by stalling in addressing Plaintiffs’ legitimate requests to cancel notices of default and for loan modifications, and by refusing to respond, in any way, to Plaintiffs’ privacy causes of action.

Our review of the Los Angeles Superior Court’s online records database we find these events have transpired to-date or are set for the near future…

1. Original complaint was filed in March 2009.

2. First amended complaint was in June of 2009.

3. Second amended complaint March 2010.

4. August 2010: the banks try to remove the case to federal court, but fail.

5. Third amended complaint was filed July 7, 2010.

6. The defendant’s demurred.

7. Status conference set for Thursday, February 3rd, 2011.

8. There is also a hearing date scheduled for March 29, 2011.

Summary of  the mass joinder’s causes of action.

First Cause of Action… Fraudulent Concealment –

Second Cause of Action… Intentional Misrepresentation –

Third Cause of Action… Negligent Misrepresentation –

Fourth Cause if Action… Invasion of Constitutional Right to Privacy –

Fifth Cause of Action… Violation of California Financial Information Privacy Act –

Sixth Cause of Action… Civil Code 2923.5 –

Seventh Cause of Action… Civil Code 1798 –

Eighth Cause of Action… Unfair Competition Against All Defendants –




Qusetions I am being asked about the Mass Joinder and Kaslow and Kramer and Mitchell Stien

25 Aug

Attorney’s Frequently Asked Questions

1 Who is Mitchell J. Stein

2 Who is Philip A. Kramer

3 Lead Attorney Phillip A Kramer Introduces The Lawsuit(s)

4 Can I get a local lawyer to sue my lender or do a lawsuit myself?

5 What are Attorney Phillip A Kramer’s qualifications?

6 How do I know if my loan is the type that can join the suit?

7 What are my possible outcomes if I become a Named Plaintiff

8 What is MERS and why is it illegal and fraudulent?

9 What is the difference between Loan Modification and this Litigation?

10 What documents do I need to provide?

11 What is the flow of communication between my attorney and myself?

12 Should I continue to make my mortgage payments if I am accepted as a plaintiff on this suit?

13 What if I’m dealing with a pending foreclosure?

14 What about those annoying calls from my lender(s)?

15 How long until I can expect resolution?

16 What is the motivation behind this law suit?

17 In a nutshell, what did the banks do wrong?

18 How did this whole mess happen?

19 What is Securitization?

20 Litigation Verses Modification In Table Format

Who Is Mitchell J Stein?

Who Is Philip A Kramer?

Lead Attorney Phillip A Kramer Introduces The Lawsuit(s)

Can I get a local lawyer to sue my lender or do a lawsuit myself?

What are Attorney Phillip A Kramer’s qualifications?

How do I know if my loan is the type that can join the suit?

What are my possible outcomes if I become a Named Plaintiff

What is MERS and why is it illegal and fraudulent?

What is the difference between Loan Modification and this Litigation?

What documents do I need to provide?
What is the flow of communication between my attorney and myself?

Should I continue to make my mortgage payments
if I am accepted as a plaintiff on this suit?

What if I’m dealing with a pending foreclosure?

What about those annoying calls from my lender(s)?

How long until I can expect resolution?

What is the motivation behind this law suit?

In a nutshell, what did the banks do wrong?

How Did This Whole Mess Happen?

The Breakdown

To put this in perspective…the banks got greedy, really greedy. They were not satisfied with just making the 6% interest on your mortgage, they wanted more. So they chopped up their home loan portfolios and packaged them into “mortgage backed securities” (MBS) that could then be sold to Wall Street investors for even bigger profits. The only problem was, Wall Street had a huge appetite for these MBS’s and could not get enough of them. They kept demanding more of them from the banks so they did everything in their power to churn more out but unfortunately they took time to package and properly securitize. What happened next is where they went wrong. The banks decided to cut corners and avoid two critical steps in the securitization process so they could speed up the funding of these loans from the standard 45 – 60 days to as quick as 4 to 5 days. We all know time is money on Wall Street right? They committed this fraud knowingly and just kept doing it, over and over again 62 million times as shown on all of the documents being currently presented to the courts. The banks left their fingerprints on the gun, providing homeowners with the legal leverage needed to expose this fraud and use it to save their homes from imminent foreclosure.

The question is….will you choose to take action like so many have already done or will you sit back and wait to see what happens? The banks are counting on you doing nothing and going quietly? Become the “squeaky wheel” – show them you are serious about defending your home!

Securitization Explained

The Alphabet Problem – The Pooling and Servicing Agreement

The Pooling and Servicing Agreement (PSA) is the document that actually creates a residential mortgage backed securitized trust and establishes the obligations and authority of the Master Servicer and the Primary Servicer. The PSA also establishes that mandatory rules and procedures for the sales and transfers of the mortgages and mortgage notes from the originator’s to the Trust. It is this unbroken chain of assignments and negotiations that creates what we have called “The Alphabet Problem.”

In order to understand the “Alphabet Problem,” you must keep in mind that the primary purpose of securitization is to make sure the assets (e.g., mortgage notes) are both FDIC and Bankruptcy “remote” from the originator. As a result, the common structures seek to create at least two “true sales” between the originator and the Trust. You therefore have in the most basic securitized structure the originator, the sponsor, the depositor and the Trust. We refer to these parties as the A (originator), B (sponsor), C (depositor) and D (Trust) alphabet players. The other primary but non-designated player in my alphabet game is the Master Document Custodian for the Trust. The MDC is entrusted with the physical custody of all of the “original” notes and mortgages and the assignment, sales and purchase agreements. The MDC must also execute representations and attestations that all of the transfers really and truly occurred “on-time” and in the required “order” and that “true sales” occurred at each link in the chain. Section 2.01 of most PSAs includes the mandatory conveyancing rules for the Trust and the representations and warranties. The basic terms of this Section of the standard PSA is set-forth below:

The complete inability of the mortgage servicers and the Trusts to produce such unbroken chains of proof along with the original documents is the genesis for all of the recent court rulings. One would think that a simple request to the Master Document Custodian would solve these problems. However, a review of the cases reveals a massive volume of transfers and assignments executed long after the “closing date” for the Trust from the “originator” directly to the “trust.” We refer to these documents as “A to D” transfers and assignments. There are some serious problems with the A to D documents. First, at the time these documents are executed the A party has nothing to sell or transfer since the PSA provides such a sale and transfer occurred years ago. Second, the documents completely circumvent the primary objective of securitization by ignoring the “true sales” to the Sponsor (the B party) and the Depositor (the C party). In a true securitization, you would never have any direct transfers (A to D) from the originator to the trust. Third, these A to D transfers are totally inconsistent with the representations and warranties made in the PSA to the Securities and Exchange Commission and to the holders of the bonds (the “Certificate holders”) issued by the Trust. Fourth, in many cases the A to D documents are executed by parties who are not employed by the originator but who claim to have “signing authority” or some type of “agency authority” from the originator. Finally, in many of these A to D document cases the originator is legally defunct at the time the document is in fact signed or the document is signed with a current date but then states that it has an “effective date” that was one or two years earlier. Hence, this is what we call the Alphabet Problem. In the eyes of the courts and millions of homeowners nationwide, all of this spells out the word FRAUD, and there is no legal defense for the lender on this.

editors comment


Kramer and Kaslow

25 Aug

Advocates Alliance

K2 Law NorthWest

Kramer Kaslow, Oceanside

K2 Law Costa Mesa

Genesis Associates

Property Solutions

US Financial Advantage

MPowered Financial Solutions

Tommy J. Guerrazzi

Brian P. Crawley

Lead Producers

Homelife Solution

Sue Your Lenders

Yvonne Israelsen

Metropolitan LG

Prop Solutions Inc.

Real Estate Debt Relief

Reduce Your Loan

Sue My Bank Now

Matt Silverman

Alan Rhein

Kramer Stein Law

Bill Span

Charity Blossom

Loan Mod Bureau

How Can I Stay

Report: Kramer and Kaslow
Reported By: Stan (San Diego California United States of America)
Kramer and Kaslow Chris Fox and Gary Loan Mod shops use Kramer and Kaslow to push there fake litigation! , Internet
Category: Attorneys & Legal Services

Submitted: Thursday, December 09, 2010
Last posting: Friday, February 18, 2011

KRAMER AND KASLOW is another Law Firm acting as a front for all these ex loan mod shops who no longer are in business. Kramer and Kaslow used to be a intake office for loan modification companies to submit their loan modifications to them and they just took the money. Now all of a sudden they doing this “MASS JOINDER” called the Roland vs. Bank of America but quite frankly I don’t believe they have any agreement with the main attorney on this case nor have I ever seen ONE retainer signed by the main attorney on all these cases they are taking money on. They also are advertising that Kramer and Kaslow is doing their own “Litigation”. Once again I haven’t seen even one case being filed under Kramer and Kaslow. What I do know is this operation is being run by Gary and Chris Fox. Gary is an EX LOAN MOD agent and Chris Fox.. Well I think his name speaks for himself. He used to OWN Green Credit and that got Raided with a Criminal Search Warrant. (See link below) Then he left to work at United Law Group another operation that was raided and shut down. Chris Fox is back to his old tricks and is going around town getting every broker shop to send their previous loan modifications to Kramer and Kaslow and spin it as Litigation now. Well hers the issue with the business. 1) YOU ARE NOT ALLOWED TO FEE SPLIT WITH NON ATTORNEYS. 2) YOUR ARE NOT ALLOWED TO SOLICIT FOR LITIGATION “CAPPERS”. These are just some of the MANY rules Kramer and Kaslow are violating. I would stay clear from Kramer and Kaslow as they have no idea how to operate as a law office and are using this name to try and bait new victims. Here is my suggestion to any law firm you go to. BE PREPARED! Ask to speak with the attorney. If you don’t feel like he knows anything then don’t waste your time. If the attorney is not there dont waste your time. Ask to see the filing of the case. Ask if you join when your name will be added to the case and get that in writing. If they are representing other firms ask to see the agreements between that firm and the firm they so called are working with. And of course DO YOUR HOMEWORK!!
(Here is just a tip of the ice berg about Chris and those running Kramer and Kaslow)
This report was posted on Ripoff Report on 12/9/2010 10:53:21 AM and is a permanent record located here:
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mass joinder litigation complaint

25 Aug




mass joinder litigation complaint


And the first “meaty” part of the complaint….

5. The fraud perpetrated by the Countrywide Defendants from 2003 through 2007, including by BofA starting no later than 2007, was willful and pervasive. It begin with simple greed and then accelerated when Countrywide founder and CEO Angelo Mozilo (“Mozilo”) discovered that Countrywide could not sustain its business, unless it used its size and large market share in California to systematically create false and inflated property appraisals throughout California. Countrywide then used these false property valuations to induce Plaintiffs and other borrowers into ever-larger loans on increasingly risky terms. As Mozilo knew from no later than 2004, these loans were unsustainable for Countrywide and the borrowers and to a certainty would result in a crash that would destroy the equity invested by Plaintiffs and other Countrywide borrowers.

In other words, Countrywide is alleged to not only have made bad loans, but also to have intentionally inflated appraisals.

6. Hand-in-hand with its fraudulently-obtained mortgages, Mozilo and others at Countrywide hatched a plan to “pool” the foregoing mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes grew into a brazen plan to disregard underwriting standards and fraudulently inflate property values – county-by-county, city-by-city, person-by-person – in order to take business from legitimate mortgage-providers, and moved on to massive securities fraud hand-in-hand with concealment from, and deception of, Plaintiffs and other mortgagees on an unprecedented scale.

Oh, that’s rich. So not only (it is alleged) did Countrywide bamboozle borrowers, they also bamboozled investors.

9. It is now all too clear that this was the ultimate high-stakes fraudulent investment scheme of the last decade. Couched in banking and securities jargon, the deceptive gamble with consumers’ primary assets – their homes – was nothing more than a financial fraud perpetrated by Defendants and others on a scale never before seen. This scheme led directly to a mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States. From 2008 to the present, Californians’ home values decreased by considerably more than most other areas in the United States as a direct and proximate result of the Defendants’ scheme set forth herein. The Countrywide Defendants’ business premise was to leave the borrowers, including Plaintiffs, holding the bag once Countrywide and its executives had cashed in reaping huge salaries and bonuses and selling Countrywide’s shares based on their inside information, while investors were still buying the increasingly overpriced mortgage pools and before the inevitable dénouement. This massive fraudulent scheme was a disaster both foreseen by Countrywide and waiting to happen. Defendants knew it, and yet Defendants still induced the Plaintiffs into their scheme without telling them.

There’s the base of it all….

24. Defendants have gone to great lengths to avoid producing documents in this litigation because they know that such documents will establish all details of the massive fraud they perpetrated on Plaintiffs and other Californians. PennyMac, the Granada Network and Defendants’ overseas operations are used by Defendants to systematically hide documents. By delaying production of documents, the Defendants are buying time as they (a) accept the benefits of the scheme described herein, (b) cover up their fraud, and (c) make it materially more expensive and difficult for Plaintiffs and their counsel to obtain a just result.

Of course there’s the famous “let’s hide Waldo” game once the gig is pretty much up. After all, if we have to produce the documents, well, our goose might be cooked – and that would be bad.

So what else is presented in here? Oh, all sorts of good stuff. Here’s a sampling:

275. Defendant CT REAL ESTATE SERVICES, INC. is a California corporation – corporation number C0570795 – and is a resident of Ventura County, California. Defendant CT REAL ESTATE SERVICES has acted alongside and in concertwith BofA in carrying out the concealment described herein and in continuing to conceal from Plaintiffs, from the California general public, and from regulators the details of the securitization and sale of deeds of trust and mortgages (including those of Plaintiffs herein) that would expose all Defendants herein to liability for sale of mortgages of California citizens – including all Plaintiffs herein – for more than the actual value of the mortgage loans. The sale and particularly the undisclosed sale of mortgage loans in excess of actual value violates California Civil Code, §§ 1709 and 1710, and California Business and Professions Code § 17200 et seq., 15 U.S.C. §§ 1641 et seq. and other applicable laws.

That sounds like a problem to me……

290. At the time of entering into the notes and deeds of trust referenced herein with respect to each Plaintiff, the Countrywide Defendants were bound and obligated to fully and accurately disclose:

a. Who the true lender and mortgagee were.

b. That to induce a Plaintiff to enter into the mortgage, the Countrywide Defendants caused the appraised value of Plaintiff’s home to be overstated.

c. That to disguise the inflated value of Plaintiff’s home, Countrywide was orchestrating the over-valuation of homes throughout Plaintiff’s community.

d. That to induce a Plaintiff to enter into a mortgage, the Countrywide Defendants disregarded their underwriting requirements, thereby causing Plaintiff to falsely believe that Plaintiff was financially capable of performing Plaintiff’s obligations under the mortgage, when the Countrywide Defendants knew that was untrue. One way they systematically disregarded the underwriting requirements was through the use of the Granada Network, another fact which Defendants systematically failed to disclose to any California borrower.

Ding ding ding ding ding ding!

One of the keys to this mess is that the lenders knew full well that the borrowers could not pay “as agreed”, yet made the loans anyway.

i. The sales would include sales to nominees who were not authorized under law at the time to own a mortgage, including, among others, Mortgage Electronic Registration Systems Inc., a/k/a MERSCORP, Inc. (“MERS”), which according to its website was created by mortgage banking industry participants to be only a front or nominee to “streamline” the mortgage re-sale and securitization process;

ii. Plaintiff’s true financial condition and the true value of Plaintiff’s home and mortgage would not be disclosed to investors to whom the mortgage would be sold;

iii. Countrywide intended to sell the mortgage together with other mortgages as to which it also intended not to disclose the true financial condition of the borrowers or the true value of their homes or mortgages;

iv. The consideration to be sought from investors would be greater than the actual value of the said notes and deeds of trust;


v.The consideration to be sought from investors would be greater than the income stream that could be generated from the instruments even assuming a 0% default rate thereon;

You mean basically everything important about the loans, their quality, who they were going to be sold to, why and how was all bogus? And in addition, the price to be sought from investors exceeded the income stream that could be achieved even if nobody defaulted at all?

Heh, that’s a good gig if you can get it – and if you can find a way to do it legally.

Are there some facts behind this? Oh it appears there are…

The credit losses experienced by Countrywide in 2007 not only were foreseeable by the proposed defendants, they were in fact foreseen at least as early as September 2004. [¶ 33 (Emphasis in original)]

. . .

The credit risk described in the September 2004 warning worsened from September 2004 to August 2007. [¶ 35 (Emphasis in original)]

. . .

By no later than 2006, Mozilo and Sambol were on notice that Countrywide’s exotic loan products might not continue to be saleable into the secondary market, yet this material risk was not disclosed in Countrywide’s periodic filings. [¶ 45]

. . .

Mozilo and Sambol made affirmative misleading public statements in addition to those in the periodic filings that were designed to falsely reassure investors about the nature and quality of Countrywide’s underwriting. [¶ 91]

Oh my. 2004 eh? I seem to remember tAngelo on CNBS making multiple appearances talking about how his company was going to take market share from all these subprime lenders that collapsed, and this was going to be great for his company. Indeed, I remember chortling at the time that I believed he was a lying SOB, and of course the so-called “Fantastic Mainstream Media” lapped it up – and helped support his stock price.

It appears that the intrepid attorneys who filed this action remember that too…. and the pages surrounding 100 in the complaint document a whole bunch of them, including statements in 10Ks and 10Qs that, it is alleged, were flatly false.

And, of course, there’s this one, which I have referred to many times over the last three and a half years:

363. In the January 30, 2007 earnings conference call, Mozilo attempted to distinguish Countrywide from other lenders by stating “we backed away from the subprime area because of our concern over credit quality.” On March 13, 2007, in an interview with Maria Bartiromo on CNBC, Mozilo said that it would be a “mistake” to compare monoline subprime lenders to Countrywide. He then went on to state that the subprime market disruption in the first quarter of 2007 would “be great for Countrywide at the end of the day because all of the irrational competitors will be gone.”

I distinctly remember the cheesy suits and ties, not to mention the sprayed-on-looking tan.

370. In fact, the appraisals were inflated. Countrywide did not utilize quality underwriting processes. Countrywide’s financial condition was not sound, but was a house of cards ready to collapse, as Countrywide well knew, but Plaintiffs did not. Further, Plaintiffs’ mortgages were not refinanced with fixed rate mortgages and neither Agate nor Countrywide ever intended that they would be.

As I have repeatedly pointed out, the entire intent of these loans was not to be a mortgage at all. It was, I allege, more akin to an asset-stripping scheme where the borrower would be effectively forced to come back to the lender after a couple of years when the teaser expired or the inevitable reset or recast occurred and effectively hand over his accumulated “appreciation” in price through yet more fees to be paid to the “lender.”

I believe that for all intents and purposes, from the lender’s point of view, this was nothing more than renting the house, as passing of a clear title to the buyer was never part of what was contemplated by the lender – but of course the borrower wasn’t told this in advance – or at all.

There’s much more in the complaint, but this will do for a start.

Incidentally, the banks tried to get this removed to Federal Court and kill it, and were rebuffed, so it appears that it’s headed to trial. Plaintiff’s Bar 1, Banksters 0 thus far – I will be providing updates on this case as I become aware of them. Southern California (909)890-9192 Northern California(925)957-9797