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August 2010

Clark v. Superior Court (Nat. Western Life Ins. Co.) ? No Trebling of Restitution Award Under Unfair Competition Law

Restitution Award Under Unfair Competition Law Cannot be Trebled Under Civil Code Section 3345

(August 9, 2010) _____Cal. 4th ____.

The Supreme Court of California issued a unanimous decision holding that Civil Code section 3345 is not applicable to treble an award of restitution under California's unfair competition law (Business and Professions Code § 17200 et seq.) (the "UCL") The Supreme Court held that treble damages under section 3345 may be awarded only if the statute under which recovery is sought provides a remedy that is in the nature of a penalty.  Because the only remedy available in a private action under the UCL is an award of restitution, which is not a penalty, section 3345 is inapplicable.  

Civil Code section 3345 applies "in actions brought by, on behalf of, or for the benefit of senior citizens or disabled persons . . . to redress unfair or deceptive acts or practices or unfair methods of competition."  Subdivision (b) of section 3345 allows for a damages award to be trebled only if the "trier of fact is authorized by a statute to impose either a fine, or a civil penalty or other penalty, or any other remedy the purpose of which is to punish or deter."  The UCL prohibits "any unlawful, unfair or fraudulent business act or practice." In a private action, the remedies are "generally limited to injunctive relief and restitution," and punitive and increased or enhanced damages are not recoverable. 

Plaintiffs are senior citizens that sued National Western Life Insurance Company ("National Western") among others, alleging deceptive practices relating to the purchase and sale of annuity contracts in violation of the UCL.  Plaintiffs sought an injunction, restitution and treble the amount of any monetary award under Civil Code section 3345.  After certifying the class, the trial court granted National Western's motion for judgment on the pleadings ruling that section 3345's trebled recovery provision did not apply to private actions under the UCL.  Plaintiffs' timely appealed.

The Court of Appeal granted Plaintiff's petition for writ of mandate and directed the trial court to enter an order denying National Western's motion for judgment on the pleadings. The Court of Appeal determined that Civil Code section 3345's trebled recovery provision applied to plaintiffs' demand for a monetary award under the UCL and that an award of restitution has a deterrent purpose and effect and therefore falls within the meaning of subdivision (b) of section 3345.  National Western appealed.

National Western contended Civil Code section 3345's trebling provision applies only to actions brought under the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.)("CLRA").  National Western argued the use of identical phrases such as "unfair or deceptive acts" and "unfair methods of competition" which are found in both section 3345 and the CLRA, but not found in the UCL, evidenced a legislative intent to limit section 3345 to CLRA claims.

The Supreme Court rejected National Western's contention and held it was evident from the plain language of Civil Code section 3345, and the circumstances surrounding its enactment, that it was not intended to be limited to actions brought under the CLRA.  The Supreme Court stated the language of section 3345 refers to actions brought to redress unfair or deceptive acts or practices or unfair methods of competition and is not expressly limited to only actions under the CLRA. 

The Supreme Court also noted the Legislature enacted Civil Code section 3345 and amended the CLRA at the same time.  The Supreme Court reasoned that if the Legislature had intended to limit section 3345 to only CLRA claims, it could have amended the CLRA without enacting section 3345.  Furthermore, the Supreme Court found Civil Code section 3345's incorporation of certain definitions from the CLRA (as opposed to incorporation of the entire act) was insufficient to show a legislative intent to restrict section 3345's applicability to the CLRA.

National Western next argued the Court of Appeal erroneously concluded that any remedy with a deterrent effect, including restitution under the UCL, falls within subdivision (b) of section 3345, because the Court of Appeal improperly interpreted the phrase "the purpose or effect of which is to . . . deter" in isolation, rather than in context with the immediately preceding language which restricts trebled recovery to a statutorily authorized "fine, or a civil penalty or other penalty." 

The Supreme Court agreed, relying on the canon of statutory construction that generally provides "if a statute contains a list of specified items followed by more general words, the general words are limited to those items that are similar to those specifically listed."  The Supreme Court stated that interpreting the "deter" language of subdivision (b) of section 3345 as providing that any remedy with a deterrent effect or purpose falls within the trebled recovery provision would render meaningless surplusage the immediately preceding statutory language referring to a "fine, or a civil penalty or other penalty."  As a result, the Supreme Court held that treble recovery may be awarded under Civil Code section 3345 only if the statute under which recovery is sought permits a remedy that is in the nature of a penalty.

The Supreme Court distinguished restitution (which is the return of money or property obtained through an improper means to the person from whom the property is taken and is not punitive in nature) from a penalty (which is recovery without reference to the actual damage sustained.)   The Supreme Court concluded that, because restitution is not a penalty and is the only monetary relief available to plaintiffs under the UCL, Civil Code section 3345, subdivision (b), is inapplicable. 

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Insurance

David C. Capell
Aaron P. Rudin


Insurance
Unfair Competition