Judge: Michael J. Strickroth, Case: 2022-01245251, Date: 2022-07-25 Tentative Ruling


Demurrer to Complaint

Defendant Volkswagen Group of America, Inc. demurrer to the 5th cause of action for violation of Business and Professions Code section 17200 is OVERRULED.

Business and Professions Code § 17200 et seq (“UCL”) prohibits unfair competition, which is defined “‘any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.’ [Citation.]” Zhang v. Superior Court (2013) 57 Cal.4th 364, 370 (Zhang). “A UCL action is an equitable action by means of which a plaintiff may recover money or property obtained from the plaintiff or persons represented by the plaintiff through unfair or unlawful business practices. It is not an all-purpose substitute for a tort or contract action.” Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173; see also Nationwide Biweekly Administration, Inc. v. Superior Court (2020) 9 Cal.5th 279, 301-305 [UCL is an equitable cause of action to be tried by a court].) “‘Prevailing plaintiffs are generally limited to injunctive relief and restitution. [Citations.] Plaintiffs may not receive damages....’ [Citation]” Zhang, supra, at  371.

Defendant argues the UCL cause of action fails to state a cause of action because the statute only provides equitable remedies and Plaintiffs have an adequate remedy at law under Song-Beverly and Magnuson-Moss. Plaintiffs contend they are permitted to plead alternative remedies, the UCL provides for cumulative remedies, and Song-Beverly does not provide an adequate remedy at law.

Defendant primarily relies on Durkee v. Ford Motor Co. (N.D. Cal. 2014) 2014 WL 4352184 (Durkee) and Sonner v. Premier Nutrition Corp. (9th Cir. 2020) 971 F.3d 834 (Sonner), for the proposition that a plaintiff cannot state a UCL cause of action when they have an adequate remedy at law.

Durkee involved a lemon law action against Ford Motors that alleged, among other things, a UCL claim and violation of Song-Beverly. Ford moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), arguing the UCL claim must be dismissed because the plaintiffs had an adequate remedy at law. The district court agreed and dismissed the UCL claim, noting that the UCL provides only equitable remedies, that a plaintiff seeking equitable relief must establish that there is no adequate remedy at law available, and that the plaintiffs have an adequate remedy in the Song-Beverly. Durkee, supra, at *2-3.

Sonner involved the marketing and sale of a liquid dietary supplement. The plaintiff brought a putative class action in diversity against the company for false and misleading advertising in violation of the UCL and the Consumer Legal Remedies Act (“CLRA”). The plaintiff sought injunctive relief and restitution for both claims, and damages under the CLRA. On the eve of trial, the plaintiff obtained leave to amend to drop the CLRA claim to avoid a jury trial and to have the court try the UCL claim, which sought $32M in restitution. The defendant moved to dismiss, and argued that the plaintiff could not establish that she lacked an adequate legal remedy, as required by federal equitable principles and California law. The trial court granted the motion to dismiss, finding that the UCL and CLRA claims were subject to California’s inadequate-remedy-at-law doctrine and the plaintiff failed to establish she lacked an adequate legal remedy for the same past harm for which she sought equitable restitution. The plaintiff appealed.

The 9th Circuit held that a federal court with diversity jurisdiction must apply traditional equitable principles before awarding restitution under the UCL and CLRA because of a long-standing principle that state law cannot expand or limit a federal court’s equitable authority. Sonner, supra, at  840-841. As such, regardless of what state law permits, traditional principles governing equitable remedies in federal courts, including the requisite inadequacy of legal remedies, applies when a party requests restitution under the UCL and CLRA in a diversity action. (Id., at p. 844.) Because the 9th Circuit found that the plaintiff failed to establish that she lacked an adequate remedy at law, it affirmed the district court’s decision to dismiss her claims for equitable restitution under the UCL and CLRA. Id.

Defendant’s reliance on Sonner is misplaced because its holding was based on federal law, not California law. While Durkee did rely on California law, its discussion was brief. Of note, Durkee reached its conclusion based on citations of two California cases, Knox v. Phoenix Leasing, Inc. (1994) 29 Cal.App.4th 1357, 1368 (Knox) and Prudential Home Mortgage Co. v. Superior Court (1998) 66 Cal.App. 4th 1236, 1249 (Prudential).

Durkee cited to Knox for the proposition that “[a] plaintiff seeking equitable relief must establish that there is no adequate remedy at law available.” Durkee, supra, at *2. However, Knox does not stand for the proposition asserted and has never been cited by a California court for that proposition. Knox involved an appeal of a judgment after a bench trial on a single cause of action for restitution, and did not involve a pleading challenge. The Court of Appeal reversed the judgment for the plaintiff because the equitable relief he sought was barred by statute. Knox, id., at 1360-1368. Knox did not discuss the issue of adequacy of a legal remedy. The case involved whether a seller of goods could recover restitution from a secured creditor who had lent money to the purchaser of the goods, after the purchaser defaulted with the lender and the lender obtained the goods as part of the purchaser’s liquidation. Knox, id., at 1359-1360. The Court of Appeal held that the seller’s restitution claim was barred by the Uniform Commercial Code. Id., at  1360-1368.

Durkee cited to Prudential for the proposition that “statutory relief under the UCL ‘is subject to fundamental equitable principles, including inadequacy of the legal remedy.’” Durkee, supra, at *2. In Prudential, borrowers brought three potential class actions against real estate lenders who failed to clear title by reconveyance of deed of trust after borrowers repaid loans. Two of the actions sought equitable relief under the UCL, requiring the lenders to record a deed of reconveyance on each loan repaid but not yet reconveyed. The trial court denied the lenders’ motion to strike the requests for equitable relief. The lenders appealed, asserting that the legal remedies are adequate and equitable relief unnecessary because the equitable relief sought can be achieved by having the title insurance company record a release of obligation under Civil Code section 2941. The Court of Appeal agreed and reversed. Prudential, supra, at 1249-1250. However, the analysis was brief and the court did not cite any authority when it adopted the lenders’ argument that “the availability of the statutory relief is subject to fundamental equitable principles, including inadequacy of the legal remedy.” Id., at 1249. Prudential has not been subsequently cited in California for the proposition that the availability of a UCL claim is subject to the lack of a legal remedy. It is not clear from the opinion why the lenders only moved to strike the relief sought and whether the UCL cause of action otherwise survived.

While Durkee supports Defendant’s position, the foundation upon which it is premised is questionable. Furthermore, Defendant’s position that a UCL cause of action cannot be had when a legal remedy exists conflicts with a plaintiff’s established right in California to plead alternative theories and that an election of remedy cannot be forced by demurrer. Tanforan v. Tanforan (1916) 173 Cal. 270, 274; Steiner v. Rowley (1950) 35 Cal.2d 713, 720; Acme Paper Co. v. Goffstein (1954) 125 Cal.App.2d 175, 178; see Riverside County Transportation Commission v. Southern California Gas Co. (2020) 54 Cal.App.5th 823, 840 [“A plaintiff is permitted to plead alternative theories of relief on the same set of facts. Pleading in the alternative is permitted because a plaintiff may abandon or dismiss one count without prejudice to his right to proceed on the other.”]; Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 234 fn.7 [“A plaintiff ordinarily may pursue inconsistent remedies in her complaint and need not make an election of remedies at the pleading stage.”]; Walton v. Walton (1995) 31 Cal.App.4th 277, 292 [“A plaintiff may plead inconsistent, mutually exclusive remedies, such as breach of contract and specific performance, in the same complaint.”].) A plaintiff may plead alternative remedies in the event one remedy cannot be obtained. Wong v. Stoler (2015) 237 Cal.App.4th 1375, 1385 [pleading rescission or damages for breach of contract or fraud].) That “plaintiffs [cannot] recover on both theories does not mean they may not plead both theories. Plaintiffs are entitled to plead inconsistent causes of action, and to submit to the trier of fact any theory which is supported by the evidence.” Ramsden v. Western Union (1977) 71 Cal.App.3d 873, 881.

Neither Durkee nor Prudential discussed the right to plead alternatively in California. In federal court, that issue was resolved since Sonner held in 2020 that state law does not govern federal courts sitting in diversity on the issue of equitable relief. Antonyan v. Ford Motor Co. (C.D. Cal. 2022) 2022 WL 1299964, at *6 [dismissing UCL claim for failure to show inadequate remedy at law and disposing of the argument regarding the right to plead alternative by citing to Sonner].

In reply, Defendant argues that the UCL cause of action is not an alternative remedy because it is premised on Song-Beverly and Magnuson-Moss causes of action and would not stand on its own if the statutory causes of action were dismissed. While Defendant cited to paragraph 56 in the complaint as Plaintiffs’ admission that the UCL cause of action is based on the statutes, that paragraph does not expressly cite to either statute, and is premised on the unfair prong of the UCL, not the unlawful one. And Defendant did not cite any authority to support its assertion that the UCL cause of action cannot stand on its own. Moreover, the UCL states that “‘[u]nless otherwise expressly provided, the remedies or penalties provided by [the UCL] are cumulative to each other and to the remedies or penalties available under all other laws of this state.’ Therefore, the fact that there are alternative remedies under a specific statute does not preclude a UCL remedy, unless the statute itself provides that the remedy is to be exclusive. [Citation.]” State of California v. Altus Finance (2005) 36 Cal.4th 1284, 1303; see Flores v. Southcoast Automotive Liquidators, Inc. (2017) 17 Cal.App.5th 841, 849-852 [appropriate correction offer under the Consumers Legal Remedies Act by a car dealer and lender does not prevent a consumer from pursuing cause for violation of the UCL based on the same conduct because the remedies are cumulative].  Defendants did not cite any portion of Song-Beverly or Magnuson-Moss which states that the remedies they provide are exclusive.

Lastly, Defendant asserts that, under Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144 (Korea Supply) and Philpott v. Superior Court (1934) 1 Cal.2d 512, 517 (Philpott), a plaintiff cannot assert a UCL cause of action when they have an adequate remedy at law. In Korea Supply, the plaintiff sued a defendant under the UCL and sought disgorgement of the defendant’s profits as restitution. The trial court sustained a demurrer to the UCL cause of action for failure to state a cause of action. The Court of Appeal reversed, and held that disgorgement of profits was an available remedy, even when the money was not restitution of money or property in which the plaintiff had an ownership interest. The Supreme Court disagreed and reversed. It held that nonrestitutionary disgorgement is not a remedy permitted by the UCL. Korea Supply, Id., at 1149-1151.

Defendant reads Korea Supply as holding that a UCL cause of action cannot be had when a plaintiff has a legal remedy available. However, that is not a fair reading of the case. The plaintiff in Korea Supply sought a remedy that is not permitted under the UCL. That constitutes a failure to state a cause of action. Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 467 [trial court properly sustained demurrer, without leave to amend, on a UCL cause of action because the complaint failed to allege a viable claim for restitution or injunctive relief, the only remedies available, and did not propose any amendment that would cure the defect]; See also, Casterson v. Superior Court (2002) 101 Cal.App.4th 177, 183 [A general demurrer will lie where the complaint has included allegations that clearly disclose a bar to recovery].

Perhaps Defendant’s interpretation of Korea Supply is based on the Court’s note in passing that its “decision does not foreclose all relief to plaintiff. While plaintiff may not recover monetary relief under the limited remedies provided by the UCL, plaintiff may pursue a cause of action under traditional tort law…[to] recover damages for the injuries it claims to have suffered as a result of unfair competition.” Korea Supply, supra, at 1152. However, there is nothing in Korea Supply that precludes a UCL cause of action when an alternative legal remedy is available. Korea Supply stands for the proposition that, if a particular remedy sought is barred or unavailable, that can be a reason a UCL claim is subject to a general demurrer.

The issue in Philpott was whether the plaintiff’s case was one in equity, in which the superior court alone had jurisdiction or one at law, over which the municipal court had jurisdiction. Philpott, Id., at 514. The plaintiff alleged two counts, for fraudulent inducement to enter into a contract and a common count for money had and received. In determining that the action was one at law, the court noted that when the primary right asserted is legal in nature, equitable jurisdiction was not proper where the legal remedy is full and adequate. Philpott, supra, at 517. Philpott stands for the proposition that a party cannot invoke equity jurisdiction when the primary right asserted is one at law.

Here, the UCL cause of action alleges that Defendant violated the fraudulent and unfair prongs of the statute, is not expressly based on Song-Beverly or Magnuson-Moss, and seeks restitution and injunctive relief. Defendant does not challenge the sufficiency of the allegations regarding how it violated the UCL. Defendant has not demonstrated the UCL cause of action seeks remedies which are barred or mutually exclusive to Song-Beverly or Magnuson-Moss. Defendant also has not shown that the availability of a legal remedy bars a UCL cause of action. To the extent that Prudential supports Defendant’s position, Prudential has not been cited in California for the proposition Defendant advances; i.e., a party’s long-standing right to plead in the alternative is lost. The demurrer to the 5th cause of action for unfair competition under the UCL is OVERRULED.

Plaintiff to give notice.