The California Court of Appeal has made it more difficult for plaintiffs to circumvent the limitations on the scope of remedies allowed in class actions brought under California's Unfair Competition Law, Business and Professions Code Section 17200 et seq., or the “UCL”. In Frieman v. San Rafael Rock Quarry, Inc., 2004 WL 345619 (Feb. 24, 2004 Cal.App.1st), the First District Court of Appeal held that UCL plaintiffs cannot use a class action to force disgorgement of profits into a fluid recovery fund, where the proposed class members have no ownership (restitutionary) interests in the monies being sought.

In Frieman, two Marin County residents filed a class action complaint against a nearby rock quarry, alleging that its operations violated multiple zoning, mining, environmental and health and safety regulations, codes and statutes. Plaintiffs sought class certification of a UCL claim brought under the statute's “unlawfulness” prong, complaining that the quarry's activities violated these predicate laws and also constituted a public nuisance. With respect to the UCL claim, the plaintiffs defined the class as:

"all persons who are or have been legal residents for at least 30 days' duration within Marin County, California, and reside (or did reside) in an area within five square miles of the [quarry] … since September 25, 1998. This class would share equally in the disgorgement of profits that [the quarry] realized from its non-compliance with the 1982 Marin County Amended Reclamation Plan and violations of various zoning and Health and Safety Code regulations. This equitable remedy is sought under [the provisions of the UCL]." (Emphasis added.)

Despite existing decisional law holding that nonrestitutionary disgorgement is not an available remedy in non-class, “private attorney general” UCL actions, the plaintiffs cited the California Supreme Court's decision in Kraus v. Trinity Management Services, Inc. (“Kraus”), 23 Cal.4th 116 (2000) and the Court of Appeal decision Corbett v. Superior Court (“Corbett”), 101 Cal.App.4th 649 (2002) to argue that nonrestitutionary disgorgement is available to plaintiffs under the “necessary to prevent” prong of the UCL when, as plaintiffs proposed, an actual class is certified.

The Court of Appeal upheld the trial court's denial of certification, reasoning that the plaintiffs had “put[] the cart before the proverbial steed....[because] [b]efore they may address the availability of a particular remedy, plaintiffs must establish that the purported class action is appropriate for certification.” In this instance, the plaintiffs had failed to demonstrate a substantial benefit from class certification, an essential showing for certification.

In particular, the Frieman Court held that “when the members of a proposed class have no individual monetary loss that may be redressed by disgorgement, that factor may weigh against class treatment.” (Emphasis added.) Since plaintiffs were admittedly seeking disgorgement of the quarry's profits simply to create “the opportunity to obtain fluid recovery,” and further admitted that disgorgement was the only possible remedy other than injunctive relief, the plaintiffs had failed to show any benefit to certification of their UCL claim. Accordingly, the Court of Appeal affirmed the trial court's denial of class certification.

The Frieman decision is a significant obstacle to UCL plaintiffs seeking to avail themselves of the broader remedial mechanisms available in class actions. While clarifying the distinction between the restorative character of allowable “restitution” and the non-restorative nature of a non-restitutionary disgorgement of “profits,” the Frieman court expressly declined to “determine whether nonrestitutionary disgorgement such as is sought here, is ever available in a properly certified class action, because this case has not been shown to be a properly certifiable class action.” That statement alone will come as a surprise to UCL plaintiffs. They had come to take for granted that Kraus, while foreclosing fluid recovery restitution in non-class cases, had at least recognized the potential availability of nonrestitutionary disgorgement in putative class cases – before such classes were certified. The Frieman court's insistence that class certification precede claims for nonrestitutionary disgorgement may well reflect hesitancy about the limits of the UCL disgorgement remedy generally, following last year's Supreme Court decision in Korea Supply v. Lockheed Martin Corp., 29 Cal.4th 1134, 1148 (2003), in which the Supreme Court stated it “has never approved of nonrestitutionary disgorgement of profits as a remedy under the UCL.” At bottom, Frieman demonstrates that the issue of whether a class of persons with valid restitutionary UCL claims may seek a disgorgement of profits in a certified class action has yet to be resolved by the appellate courts.

Attorney Contacts
Jack Yeh, 310.312.4367
Andrew Struve, 310.312.4355