California Supreme Court: No Right to Jury in Unfair Competition, False Advertising Cases

Morgan Lewis
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Morgan Lewis

In a case that has implications for anyone doing business in California, the California Supreme Court recently overturned an appellate court ruling that there was a right to a jury trial in actions for penalties and injunctive relief under California’s unfair competition and false advertising laws.

In Nationwide Biweekly Administration, Inc. v. Superior Court of Alameda County (People, Real Party in Interest),[1] the California Supreme Court held on April 30 that claims for civil penalties brought by government entities under California’s Unfair Competition Law (UCL) and False Advertising Law (FAL) should be decided by a judge—not a jury.

Nationwide Biweekly Administration, Inc. (Nationwide) had taken the position that there was a right to a jury trial under the UCL and FAL, California Constitution, and US Constitution because the causes of action were legal in nature. The court limited its ruling to causes of action arising out of the UCL and FAL in which the injured party seeks civil penalties as well as injunctive relief and restitution.

The court concluded that there is no statutory right to a jury trial under either the UCL or the FAL. Further, the court interpreted the California Constitution as not guaranteeing a jury trial when the People seek both injunctive relief and civil penalties. Finally, the court found the Seventh Amendment of the US Constitution is inapplicable because the California constitutional right to a civil jury trial is entirely independent of the federal constitutional right to a civil jury trial.

BACKGROUND

Under the UCL and FAL, the California attorney general or local prosecuting authorities may bring a civil action against a business that has allegedly violated those laws and may obtain civil penalties as well as injunctive relief and restitution. Historically, California appellate court decisions have held that there is no right to a jury trial for UCL and FAL causes of action.

In May 2015, the district attorneys of four California counties (on behalf of the People) filed a civil complaint alleging that Nationwide—a debt payment service in California—had violated the UCL and FAL. Nationwide demanded a jury trial “on all issues so triable” in its answer. The People filed a motion to strike the jury demand in their response. The trial court granted the People’s motion to strike.

Nationwide filed a petition for writ of mandate challenging the trial court’s ruling striking the jury demand. The California First District Court of Appeal summarily denied the writ petition. Nationwide then filed a petition for review to the California Supreme Court. The court granted the petition and sent the matter back to the court of appeal with directions to issue an order requiring the People to show cause as to why Nationwide does not have a right to a jury trial when the government seeks civil penalties authorized under the UCL and FAL.

On this second consideration of the issue, the court of appeal determined the trial court erred in striking the jury demand because the California Constitution grants Nationwide a right to a jury trial. Relying on the US Supreme Court decision Tull v. United States,[2] the court of appeal determined the jury trial provision of the California Constitution should be interpreted to require a jury trial in any action brought under the UCL or FAL in which the government seeks civil penalties as well as injunctive or other equitable relief.

The People petitioned the California Supreme Court for review to determine whether there is a right to a jury trial in a UCL or FAL action brought by the government when the government seeks civil penalties as well as injunctive relief and restitution. The court granted review.

THE OPINION

The California Supreme Court held that there is no right to a jury trial in UCL or FAL causes of action because they are equitable in nature.

First, the court addressed the statutory arguments. The court did not read the UCL or FAL as explicitly addressing whether causes of action in which the government seeks civil penalties as well as injunctive relief and restitution are to be tried by the court or by a jury. In reviewing the legislative history and purpose of both statutes, the court determined the California legislature intended those causes of action to be tried by the court, exercising the traditional flexible discretion and judicial expertise of a court of equity.

The UCL and FAL specify that in assessing the amount of the civil penalty to be imposed under the statutes, the court is afforded broad discretion to consider a nonexclusive list of factors that include the relative seriousness of the defendant’s conduct and the potential deterrent effect of such penalties. The court reasoned that this type of qualitative evaluation and weighing of a variety of factors is typically undertaken by a court and not a jury. The court was also mindful of the fact that civil penalties under the UCL and FAL are noncompensatory in nature, do not require any showing of actual harm to consumers, and are not based on the amount of losses incurred by the target of the unfair practices or misleading advertising.

Second, the court addressed the constitutional arguments. Historically, California decisions have relied upon the “gist of the action” standard in determining whether an action should be considered legal or equitable for purposes of constitutional jury trial issues. Here, the court concluded that UCL and FAL causes of action are equitable in nature either when brought by a private party seeking only an injunction, restitution, or other equitable relief or when brought by the attorney general, a district attorney, or another governmental official seeking not only injunctive relief and restitution but also civil penalties.

The court based its conclusion on the fact that the substantive standards embodied in the UCL and FAL contemplate the exercise of the type of equitable discretion and judgment traditionally applied by a court of equity. There are no close or analogous counterparts at common law to the UCL and FAL in which government officials and injured private individuals are explicitly authorized to seek injunctive relief.

The court also addressed the precedent cited by the appellate court, and concluded that Tull is inapplicable because it was based exclusively on the US Constitution and applied to civil trials in federal court that do not apply to California state court proceedings. The court viewed the right to a jury trial in state court proceedings as governed by the provisions and judicial interpretation of a state’s own constitutional jury trial provision. The decision stated that the court of appeal’s reliance on Tull was misplaced because Tull did not address a statutory standard, like those involved in the UCL and FAL, which contemplates the exercise of the type of equitable discretion typically undertaken by a court of equity. The decision also noted that California courts take a holistic approach to whether the gist of the action is legal or equitable and which aspects predominate, which has not typically been applied in federal courts.

The court’s ruling is explicitly limited to the UCL and FAL and does not extend to the potential right to a jury trial for other statutory causes of action.

PROPOSITION 65 IMPLICATIONS

Beyond the direct impact on trials involving the UCL or FAL, the decision was closely watched by the Proposition 65 bar. The court of appeal’s decision in Nationwide questioned the legal reasoning and conclusion of DiPirro v. Bondo Corp.[3] The DiPirro court examined the statutory framework of Proposition 65 to determine whether the gist of the action was legal or equitable, and concluded that jury trials are not available because the purpose of Proposition 65 is to provide equitable relief, not to impose civil penalties.

The California Supreme Court did not specifically address DiPirro or the court of appeal’s analysis in its opinion. However, given the similar reasoning, the Nationwide holding supports the DiPirro determination that there is no right to a jury trial in Proposition 65 actions.

Similar to the UCL and FAL, Proposition 65 permits a court to issue an injunction and impose a civil penalty if it finds a statutory violation. Like Nationwide, because both injunctive relief and civil penalties are contingent on whether a statutory violation exists, the equitable and legal aspects are not severable.

Although the California Supreme Court limited its Nationwide holding to the UCL and FAL, its opinion supports the court of appeal conclusion in DiPirro and does not change the current standard: Proposition 65 actions are equitable in nature and there is no right to a jury trial.

[1] Cal. Sup. Ct. S250047.

[2] 481 U.S. 412 (1987).

[3] 153 Cal. App. 4th 150 (2007).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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