Restitution Under UCL Is Not Limited to Direct Purchases

A Plaintiff Can Seek Restitution of Money That He Spent Because of Alleged Unlawful Practice

Shersher v. Superior Court (Sept. 10, 2007, B195317, Second District)
11 p. opinion

Plaintiff Shersher brought a consumer action against Microsoft. He sought restitution. Shersher alleged that he, and many others, had paid money to purchase Microsoft wireless products because false or misleading statements on the product packages described the products as 11 Mbps or 54 Mbps. But, the plaintiff alleged, the products were not able to transmit consumer data at these speeds.

The plaintiff had purchased Microsoft's product from a retailer. Microsoft brought a motion to strike the plaintiff's claim for restitution on the grounds that, under the UCL, restitution was limited to purchasers who had bought the product directly from Microsoft. Microsoft argued that this requirement could be found in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134. The trial court agreed with Microsoft's interpretation and granted the motion. That ruling came before the Court of Appeal on plaintiff's petition for a writ of mandate.

Microsoft's authority for the limitation to direct purchasers was a single sentence in Korea Supply (29 Cal.4th at 1149). However, in Korea Supply one competitor had sued another alleging that the defendant company had used illegal bribes to obtain a contract for which the plaintiff company had submitted the lowest bid.

The Court of Appeal rejected the alleged "direct purchase" requirement. Plaintiffs in UCL actions are not permitted to obtain "restitution" of money in which they never had an ownership interest (such as the money paid to a competitor by a third party). But Shersher could seek restitution of money that he had owned and had paid to the retailer in order to purchase the Microsoft product. The crucial requirement for restitution was that the plaintiff had at one time owned the money.
Justice Kriegler wrote the opinion. Presiding Justice Turner and Justice Armstrong concurred.

Comment: This opinion is the source of the quote of the week for the week of September 10th on the Civil Litigation Quote of the Week blog.

Insurance is Not Covered by the Consumer Legal Remedies Act

Insurance is Neither a Good Nor a Service Within the Meaning of the CLRA

Fairbanks v. Superior Court (Aug. 22, 2007, B198538, Second Dist. Div. Three)
16 page opinion

UPDATE: REVIEW GRANTED (On Nov. 14 the Supreme Court granted review) (S157001)

The Court of Appeal resolved the question of whether the Consumer Legal Remedies Act (Civil Code section 1750 et seq.), a statute intended to protect low-income consumers from deceptive or unfair business practices, covers insurance. The CLRA prohibits deceptive or unfair acts in the sale or lease of goods and services. The Court held that insurance was neither a "good" nor a "service" within the meaning of the Act.

The Court found that the plain language of the CLRA excluded insurance because its definitions of "goods" and "services" could not be read to include insurance. The Court also noted dicta from the California Supreme Court that insurance is neither a good nor a service under the CLRA.

In addition, the Court examined the legislative history of the CLRA. The CLRA was adapted from the National Consumer Act, a model statute. However, the NCA definition of services specifically included insurance. The California legislature eliminated insurance from that definition when it adapted the language of the NCA. At the time that the CLRA was enacted, insurance practices in California were already regulated by the Unfair Insurance Practices Act (UIPA). Omitting insurance from the CLRA left the regulatory scheme developed under the UIPA intact and in force.

Finally, the Court noted policy considerations supporting its ruling. The CLRA provides for private actions with the recovery of restitutionary relief, injunctive relief, compensatory damages, punitive damages and attorney's fees. The UIPA provides only for administrative enforcement. The California Supreme Court has explicitly held that the UIPA does not create a private right of action.
Justice Croskey wrote the opinion. Presiding Justice Klein and Justice Kitching concurred.

Comment: Although it is short, this opinion is extremely thorough. It examines all four of the criteria that are commonly used to interpret a statute - the plain language of the statute, other case law interpretations, indications of legislative intent and public policy considerations. The definitions of "good" and "service" in the statute were all by themselves very pursuasive on the question of whether insurance is covered by CLRA. One consequence of the thoroughness of this opinion should be the prevention of any future calls upon limited judicial resources to deal with arguments that insurance is covered by CLRA.