S101003

IN THE SUPREME COURT

OF THE STATE OF CALIFORNIA

JOSE E. CRUZ,

Respondent,

vs.

PACIFICARE HEALTH SYSTEMS, INC., et al.,

Petitioners.

On Review from the First Appellate District

Court of Appeal, Division Two

BRIEF OF AMICI CURIAE

TRIAL LAWYERS FOR PUBLIC JUSTICE,

AARP, NATIONAL ASSOCIATION OF CONSUMER

ADVOCATES, CONSUMER ATTORNEYS OF CALIFORNIA

IN SUPPORT OF RESPONDENT JOSE E. CRUZ

Unfair Competition Case (See Bus. & Prof. Code

Section 17209 and Cal. Rule of Court 16(d))

Attorneys for Amici Curiae

STATEMENT OF INTEREST OF THE AMICI CURIAE

Trial Lawyers for Public Justice (“TLPJ”) -   is a national public interest law firm that specializes in precedent-setting and socially significant civil litigation and is dedicated to pursuing justice for the victims of corporate and governmental abuses. Litigating throughout the federal and state courts, TLPJ prosecutes cases designed to advance consumers' and victims' rights, environmental protection and safety, civil rights and civil liberties, occupational health and employees' rights, the preservation and improvement of the civil justice system, and the protection of the poor and the powerless.

           Over the past several years, TLPJ has been contacted by a large

number of consumer attorneys around the nation who were faced with mandatory binding arbitration schemes that threatened to deprive their clients of their day in court. In each case, the attorney's consumer clients wished to pursue their claims through the civil justice system, and to have their cases heard by a jury of their peers, but the corporate defendant sought to force the consumers to submit these claims to arbitration. As a result of our investigations and research, TLPJ became convinced that, in many cases, abuse of mandatory arbitration agreements may deny consumers access to a neutral forum for the resolution of disputes. Accordingly, TLPJ established its Mandatory Arbitration Abuse Prevention Project. In connection with this project, TLPJ has represented consumers and has filed amicus briefs on issues relating to mandatory arbitration in courts around the nation.

AARP - is a non-profit, non-partisan organization with more than 35 million members, approximately 3 million of whom live in California. As the largest membership organization representing the interests of Americans aged 50 and older, AARP is greatly concerned about widespread fraudulent and deceptive practices in a broad range of marketplace transactions, since older Americans are disproportionately victimized by many of these practices. AARP thus supports laws and public policies designed to protect their rights and to preserve the means for them to seek legal redress when they are harmed in the marketplace. Due to its interest in preserving court access for consumers and ensuring that they can seek the full range of remedies that state legislatures enacted for their benefit , AARP filed amicus briefs in Broughton v. CIGNA Healthplans of California, both in this Court, 21 Cal.4th 1066, 988 P.2d 67, 90 Cal. Rptr. 2d 334 (1999), and in the California Court of Appeal, 65 Cal. App. 4th 314, 76 Cal. Rptr. 2d 431 (1998). AARP is filing this brief to urge the Court to continue to recognize that arbitration conflicts with the public nature of the underlying actions and relief sought in this case.

National Association of Consumer Advocates (“NACA”) - is a

non-profit corporation whose members are private and public sector

attorneys, legal services attorneys, and law professors and students whose

primary practice involves the protection and representation of consumers.

Its mission is to promote justice for all consumers by maintaining a forum

for information sharing among consumer advocates across the country and to serve as a voice for its members as well as consumers in the ongoing

struggle to curb unfair and abusive business practices. From its inception,

NACA has focused primarily on issues which concern abusive and fraudulent business practices, and has been concerned about the imposition by businesses of mandatory arbitration clauses on their customers, because of the expense, limitation on discovery and remedies such as public injunctive relief, and inability to reverse decisions which are incorrectly decided and result in injustice.

Consumer Attorneys of California (“CAOC”) - is a voluntary membership organization of approximately 3,000 consumer attorneys practicing throughout California. The organization was founded in 1962 and its members predominately represent individuals subjected in a variety of ways to consumer fraud practices. CAOC has taken a leading role in advancing and protecting the rights of consumers in both the courts and the Legislature.

All of the amici have specific and compelling interest in assuring that the loss of constitutional rights resulting from pre-dispute, binding arbitration agreements in the consumer context is not allowed to interfere with the State’s power to regulate unfair business practices in this State.

LEGAL ARGUMENT

1.

INTRODUCTION

           PacifiCare’s attacks on this Court’s decision in Broughton v. CIGNA Healthplans of California, Inc. (1999) 21 Cal.4th 1066 are essentially twofold. First, PacifiCare asserts, Broughton was wrongly decided and conflicts with controlling United States Supreme Court authority applying the Federal Arbitration Act (“FAA”). Second, PacifiCare contends, even if Broughton were correctly decided, its rationale should not be extended to claims for restitutionary relief brought pursuant to the Unfair Competition Law (“UCL”), Business & Professions Code sections 17200, et seq. and 17500, et seq.

           But the United States Supreme Court’s arbitration decisions make clear that Broughton was correctly decided. Because the statutes involved here are statutes of general application, not statutes intended to single out, limit or undermine arbitration, and because the public policy purposes underlying those statutes cannot be vindicated in an arbitral setting where arbitrators do not have the power to issue the unique type of public injunctive and restitutionary relief created by those statutes, the FAA does not compel arbitration.

           And the United States Supreme Court’s recent decision in Equal Employment Opportunity Commission v. Waffle House, Inc. (2002) 122 S.Ct. 754, is dispositive on the second issue. In that case, the Court explicitly held that because the EEOC was not a party to any arbitration agreement, it could not be forced to arbitrate statutory enforcement claims brought by it even though the relief sought in the action included victim-specific damages such as back pay, reinstatement and damages and the victim was, himself, bound by the arbitration agreement. That holding is directly applicable to actions brought pursuant to the UCL: UCL plaintiffs do not bring the action on behalf of themselves, but as representatives of the general public. Since the general public obviously is not a party to any arbitration agreement, it cannot be bound to one, even though a UCL plaintiff seeks restitution on behalf of the individuals victimized by the defendant’s unlawful, unfair or fraudulent business practices.

           Thus, the appellate court’s decision should be affirmed.

2.

BROUGHTON WAS CORRECTLY DECIDED

AND IS CONSISTENT WITH U.S. SUPREME

COURT AUTHORITY

           As PacifiCare acknowledges (Opening Brief on the Merits, at p. 11), the FAA, as interpreted and applied by the United States Supreme Court, forbids states from “singling out arbitration provisions for suspect status.” (Citing Doctors’ Assoc., Inc. v. Casarotto (1996) 517 U.S. 681, 687.) Similarly, the United States Supreme Court recently noted in Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, 121 S.Ct. 1302, 1312-1313, its earlier holding in Southland Corp. v. Keating (1984) 465 U.S. 1, 16, that “Congress intended the FAA to apply in state courts, and to pre-empt state antiarbitration laws.” (Emphasis added.) And the FAA itself expressly provides that arbitration provisions are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. section 2.) Essentially, then, the FAA cloaks valid arbitration agreements with protection from laws designed and intended to limit their effect. But the FAA expressly permits the states to enact laws of general application and allows those laws of general application to be applied to arbitration provisions. What PacifiCare fails to acknowledge is the fact that both the UCL and the CLRA are statutes of general application, not statutes that “single out” arbitration provisions for suspect status. Nor are they laws which are, in and of themselves, “antiarbitration laws.” That being the case, PacifiCare’s reliance on the United States Supreme Court’s two-prong test for determining whether a statute limiting arbitration provisions is enforceable (Opening Brief on the Merits, at pp 7-12) has no application here because this case does not concern such a statute.

           Another law of general application in California is that a defendant may not include provisions in its contract which serve to exculpate it from its wrongs - especially wrongs against the public. (See, e.g., Civil Code section 1751 [“Any waiver by a consumer of the provisions of this title is contrary to public policy and shall be unenforceable and void.”]; Civil Code section 1668 [“All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law.”].) Indeed, as this Court held in Henrioulle v. Marin Ventures, Inc. (1978) 20 Cal.3d 512, relying on its earlier decision in Tunkl v. Regents of the University of California (1963) 60 Cal.2d 92, the common law in this state prevents a defendant from exculpating itself from liability - particularly where a public interest is involved.

           Thus, the generally-applicable law of this State forbids a contract term which would have the effect of exculpating a defendant from liability, particularly where the interests of the public are in issue. That generally-applicable law can - under the express terms of section 2 of the FAA - properly be invoked to invalidate an arbitration agreement where the agreement would have the effect of limiting or precluding the effectiveness of the consumer protection principles embodied in the CLRA and the UCL.

           And PacifiCare’s reliance on Green Tree Financial Corp. - Alabama v. Randolph (2000) 531 U.S. 79 is particularly misplaced in this regard. In Randolph, the United States Supreme Court ratified this analysis when it quoted its own statement in Gilmer that, “even claims arising under a statute designed to further important social policies may be arbitrated . . . ‘so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum.’” (Id. at 88, quoting from Gilmer v. Interstate/Johnson Lane Corporation (1991) 500 U.S. 20, 28; emphasis added.)

           But the corollary to that statement necessarily means that if the plaintiff cannot vindicate the statutory cause of action in the arbitral forum, the arbitration provision fails and cannot be enforced. That is the whole point of the Broughton decision: If arbitration is mandated for a claim under the UCL or CLRA seeking an injunction or other public relief, there is not merely a risk that those statutory claims will not be vindicated, there is an absolute certainty that they cannot be vindicated - because an arbitrator can neither order nor enforce a public injunction and cannot enforce an order for public restitutionary relief.

           First, as to the injunctive relief issue, California law does not permit an arbitrator to issue permanent injunctions. Indeed, although a municipal court or court of limited jurisdiction is permitted to issue temporary restraining orders and preliminary injunctions (Code of Civil Procedure § 86, subd. (a)(8)), it is not allowed to issue permanent injunctions. (See St. James Church of Christ Holiness v. Superior Court In and For Los Angeles County (1955) 135 Cal.App.2d 352 [provision allowing municipal court to issue preliminary injunctions or temporary restraining orders did not confer jurisdiction to issue permanent injunctions].) An arbitrator’s power is even more narrowly circumscribed: An arbitrator does not even have the power to issue temporary restraining orders or preliminary injunctions. (Code of Civil Procedure section 1281.8).

           Indeed, the California courts have consistently held that an arbitrator’s power is not coextensive with that of the courts. For example, in Marsch v. Williams (1994) 23 Cal.App.4th 238, 245, the court held that an arbitrator did not have the power to appoint a receiver. In Luster v. Collins (1993) 15 Cal.App.4th 1338, 1347-1348, the court held that an arbitrator did not have the power to order what amounted to contempt sanctions against a party to the arbitration for that party’s failure to remove trees from an easement as ordered by the arbitrator. See also Badgley v. Van Upp (1994) 20 Cal.App.4th 218, holding that an arbitrator does not have the power to issue provisional relief, including injunctions, and Outdoor Services, Inc. v. Pabagold, Inc. (1986) 185 Cal.App.3d 676, 685 [same: holding that an arbitrator does not have the power to issue provisional relief, including injunctions].)

           Moreover, as discussed in detail below, the United States Supreme Court’s recent decision in Waffle House makes clear that issuance of a public injunction is beyond an arbitrator’s power. Indeed, a public injunction is just that - an injunction issued on behalf of and in the interest of the public. The public, not being a party to any arbitration agreement, cannot be forced to arbitrate its right to enjoin conduct that harms the public. (See Waffle House, 122 S.Ct. at 764 [“It goes without saying that a contract cannot bind a nonparty”].)

           This same analysis precludes an arbitrator from issuing a restitutionary award under these public interest statutes. As this Court held in Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126, the UCL authorizes restoration of money or property taken by means of unfair competition directly to the victims of that unfair competition - even without the procedural protections of a class action and despite the fact that those victims are not parties before the court. But it is equally clear that an arbitrator cannot similarly compromise or affect the rights of those non-party victims. As this Court held in Vandenberg v. Superior Court (Centennial Ins. Co.) (1999) 21 Cal.4th 815, 831-832, arbitration awards cannot affect the rights of those who are not parties to the proceeding:

“As we recently observed, private arbitration is a process in which parties voluntarily trade the safeguards and formalities of court litigation for an expeditious, sometimes roughshod means of resolving their dispute. The traditional rule is that ‘“[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.” [Citations.] As early as 1852, this court recognized that, “The arbitrators are not bound to award on principles of dry law, but may decide on principles of equity and good conscience, and make their award ex aequo et bono [according to what is just and good].” [Citation.] “As a consequence, ... ‘[p]arties who stipulate in an agreement that controversies ... shall be settled by arbitration, may expect not only to reap the advantages that flow from the use of that nontechnical, summary procedure, but also to find themselves bound by an award reached by paths neither marked nor traceable and not subject to judicial review.’ [Citation.]”’ (Moncharsh, supra, 3 Cal.4th 1, 10-11, 10 Cal.Rptr.2d 183, 832 P.2d 899, quoting Nogueiro v. Kaiser Foundation Hospitals (1988) 203 Cal.App.3d 1192, 1195, 250 Cal.Rptr. 478, italics added.)

“But while the informal and imprecise nature of private arbitration, and its insulation from judicial interference, are ‘“the very advantages the ... parties [seek] to achieve”’ in arbitrating their own claims (see, ante, 88 Cal.Rptr.2d p. 376, 982 P.2d p. 238, quoting Moncharsh, supra, 3 Cal.4th 1, 10, 10 Cal.Rptr.2d 183, 832 P.2d 899), these same features can be serious, unexpected disadvantages if issues decided by the arbitrator are given leveraged effect in favor of strangers to the arbitration.”

           Obviously, the other victims of the unlawful, unfair or fraudulent business practices addressed by the UCL and the CLRA are necessarily strangers to any arbitration ordered with respect to an individual agreement between a specific plaintiff and the defendant. As such, the arbitrator has no power to affect their rights and cannot, in fact, fulfil the intended ameliorative purposes of the statutes by ordering restitution to them.

           Because an arbitrator has neither the power to issue or enforce a public injunction nor the power to order restitution to strangers to the proceeding, the public policy purposes underlying the UCL and the CLRA cannot be vindicated in the arbitral forum. That inability to vindicate those rights and effectuate the twin remedies of restitution and disgorgement properly warrants the conclusion that arbitration cannot be compelled with respect to those claims. (See Green Tree Financial Corp., 531 U.S. at 88; Gilmer,500 U.S. at 28.) This Court has made plain that arbitration clauses may not explicitly strip consumers of their rights under California's consumer protection statutes. (See Armendariz v. Foundation Health Psychare Servs., Inc. (2000) 24 Cal. 4th 83 ["The principle that an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorney fees appears to be undisputed."].) This same indisputable principle applies to Broughton - an arbitration clause may not deny consumers the opportunity to pursue their statutory rights to public injunctions and/or public restitution under the CLRA and UCL, and since requiring arbitration of such claims necessarily and effectively denies those rights, the "undisputed" generally applicable law of this state is that arbitration may not be compelled for such claims. Thus, Broughton was correctly decided, not because Congress intended these statutes to be exempt from the FAA, but because these statutory purposes cannot be fulfilled - the statutory rights they create cannot be vindicated - if claims brought pursuant to them are required to be arbitrated.

3.

THE U.S. SUPREME COURT’S DECISION IN

WAFFLE HOUSE MAKES CLEAR THAT ARBITRATION

PROVISIONS ARE NOT ENFORCEABLE IN

REPRESENTATIVE ACTIONS

           The second argument proffered by PacifiCare, i.e., that in any event, Broughton cannot be extended to a UCL claim, has been disposed of by the United States Supreme Court’s recent decision in Equal Employment Opportunity Commission v. Waffle House, Inc., supra.

           In Waffle House, the EEOC brought a statutory enforcement action against an employer for discrimination under the Americans With Disabilities Act (“the ADA”) on behalf of an employee who was discharged after he suffered a seizure at work. The EEOC’s complaint sought to enjoin the employer from continuing to violate the ADA, as well as victim-specific relief for the employee, including reinstatement, back pay and damages. The employer moved to compel arbitration under the FAA, based on the arbitration agreement between it and the specific employee whose claim was the foundation for the EEOC’s suit. The Supreme Court rejected the argument that the arbitration agreement between the employer and employee bound or limited the EEOC’s right to a judicial forum for its statutory claims - even though those claims included recovery of damages that would be ordered paid to the employee:

“‘Arbitration under the [FAA] is a matter of consent, not coercion.’ [Citation.] Here there is no ambiguity. No one asserts that the EEOC is a party to the contract, or that it agreed to arbitrate its claims. It goes without saying that a contract cannot bind a nonparty. Accordingly, the proarbitration policy goals of the FAA do not require the agency to relinquish its statutory authority if it has not agreed to do so.” (Waffle House, 122 S.Ct. at 764.)

           Moreover, the Court went on to hold that even the claims for victim-specific relief sought by the EEOC were not subject to arbitration. The Court held that the statutory remedy of victim-specific relief helps to vindicate the public interest underlying the EEOC’s statutory enforcement rights, and that, as such, forcing arbitration of the claims for victim-specific relief “would undermine the detailed enforcement scheme created by Congress simply to give greater effect to an agreement between private parties that does not even contemplate the EEOC’s statutory function.” (Id. at 765.)

           This analysis is directly and immediately applicable to a UCL claim. To start, the UCL is only a public right of action, brought in equity, to enjoin unfair business competition. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4^th 553, 567.) The purpose of the UCL is to make sure that the commercial playing field is level, i.e., that one business does not gain a competitive advantage over other businesses in the same industry by using unfair practices or by violating the law in order to save itself money and gain greater profits than companies who obey the law. (See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [UCL “governs ‘anti-competitive business practices’ as well as injuries to consumers, and has as a major purpose ‘the preservation of fair business competition.’”].) But the fact that the action is directed toward unfair business competition does not restrict its application only to situations in which business competitors are harmed. Indeed, the goal of the act is much broader and is intended to address the general societal harm that results when business enterprises act illegally or unethically. (Bank of the West v. Superior Court (Industrial Indemnity Co.) (1992) 2 Cal.4^th 1254, 1264; People ex re. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 770.) Thus, the plaintiff in a UCL action does not bring the action in order to obtain personal damages - in fact, such damages are forbidden. (Bank of the West v. Superior Court (Industrial Indemnity Co.) (1992) 2 Cal.4^th 1254,1266; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163 173.)

           That a UCL action is not dependent on, tied to, or limited by private rights or interests is illustrated by this Court’s decision in Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, holding that a private, for-profit corporation had standing under the UCL to bring the action - on behalf of general public - against a retailer for allegedly violating Penal Code 308 by selling cigarettes to minors even though that organization had no personal claim against the defendant. (See, also, Consumers Union, etc. v. Fisher Development, Inc. (1989) 208 Cal.App.3d 1433 [consumers group not personally aggrieved had standing to bring suit under the UCL].)

           Thus, any person or entity, even one who has no contract at all with the defendant, has standing to sue that defendant under the UCL. Under Waffle House, if the representative bringing the UCL action has no contract with the defendant, then, obviously, the defendant cannot enforce an arbitration agreement against that representative plaintiff. That analysis cannot change simply because the representative plaintiff also happens to have a private, individual contract with the defendant that contains an arbitration agreement. Irrespective of the individual status of any particular plaintiff in a UCL case, the reality is that the plaintiff is not suing to vindicate personal rights, but is suing on behalf of the general public to vindicate the public’s rights. And since the public has no contract with the defendant, there is no arbitration agreement to enforce. It would, in fact, substantially undermine the purposes of the statute and impair its utility to allow discrimination between a representative plaintiff who did have a personal contract with the defendant and was forced to arbitrate the public claims and a representative plaintiff who was not bound by an arbitration provision and who could therefore litigate those claims in the judicial forum. There is no justification for ever forcing the public’s claims into the private arbitration system.

           Additionally, the nature of a UCL action precludes any argument that the action is subject to any contractual limitations whatsoever. The UCL claim addresses only an illegal business act or practice. (Business & Professions Code section 17200 [“unfair competition shall mean and include any unlawful, unfair or fraudulent business acts or practices”]; Stop Youth Addiction, supra 17 Cal.3d at 561-567 [a 17200 action enforces 17200, not the underlying predicate statute, the violation of which constitutes the illegal practice]; Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 178-179 [statute of limitations of underlying statute does not control in 17200 case.].) If that practice happens to involve the defendant’s illegal application of a contract term, it is not the fact that the illegal practice causes a breach of contract that is actionable – it is the practice itself which is. Respondent here is not alleging in the context of the UCL claim that PacifiCare breached any contracts - although that may well have been an incidental result of the unlawful practice that is alleged. Once the focus is returned to the true object at issue in this case – i.e., PacifiCare’s unlawful or unfair practices – it is readily apparent that the procedural terms and provisions of any individual contract are neither relevant nor applicable to the claims in this action.

           Since any person or organization - even one that has no contract with the defendant - can bring an action under the UCL, there can be no contractual basis for enforcing an arbitration agreement with respect to any part of a UCL action. This means that a UCL representative plaintiff has essentially the same status and standing as the EEOC in Waffle House. And like the EEOC, a UCL representative plaintiff is not bound by any arbitration agreement.

           Moreover, the Waffle House holding applies not only with respect to the injunctive relief claims sought in a UCL action, but as to the restitutionary claims as well. In Waffle House, the Supreme Court made abundantly clear that the fact that the EEOC was seeking recovery of victim-specific relief for the employee who did have an arbitration agreement with the employer did not require the EEOC to arbitrate even those claims. As the Supreme Court noted, when the EEOC chooses from among the various potential enforcement cases to bring, the agency is “seeking to vindicate a public interest,” and not merely attempting to obtain the victim-specific relief. (Waffle House, 122 S.Ct. at 765.) Notably, the Court of Appeals in Waffle House distinguished between injunctive relief, which it held was not subject to arbitration, and victim-specific damages sought by the EEOC, which it held was subject to arbitration because of the employee’s contract provision. The Supreme Court rejected that distinction, stating that:

“To the extent the Court of Appeals construed an employee’s agreement to submit his claims to an arbitral forum as a waiver of the substantive statutory prerogative of the EEOC to enforce those claims for whatever relief and in whatever forum the EEOC sees fit, the court obscured this crucial distinction and ran afoul of our precedent.” (Waffle House, supra, at 765, n. 10.)

           Here, too, a contracting party does not have the power to limit or restrict the public’s right to pursue statutory remedies under the UCL in whatever forum it sees fit - even with respect to claims for restitutionary relief. Thus, as in Waffle House, a UCL plaintiff is not bound by arbitration provisions that may have been entered into by the victims of the unfair practice at issue.

           And preclusion of arbitration as to UCL restitutionary claims is consistent with this Court’s analysis in Broughton. There, this Court relied on several United States Supreme Court decisions and concluded that “when the primary purpose and effect of a statutory remedy is not to compensate for an individual wrong but to prohibit and enjoin conduct injurious to the general public, i.e., when the plaintiff is acting authentically as a private attorney general, such a remedy may be inherently incompatible with arbitration.” (Broughton, 21 Cal.4th at 1077.) After examining the purpose and effect of the CLRA’s injunctive remedy provision, this Court concluded that “the injunction plaintiffs seek in the present case is indeed beyond the arbitrator’s power to grant” because “[t]he CLRA plaintiff in this case is functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public.” (Id. at 1079-1080; emphasis added.)

           This Court explained its rationale on the basis that:

“the evident purpose of the injunctive relief provision of the CLRA is not to resolve a private dispute but to remedy a public wrong. Whatever the individual motive of the party requesting injunctive relief, the benefits of granting injunctive relief, by and large, do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered. . . . [I]n other words, the plaintiff in a CLRA damages action is playing the role of a bona fide private attorney general.” (Id. At 1080; emph, added.)

           Thus, as in Waffle House, the principal issue in deciding whether any aspect of a public interest action should be subjected to private arbitration is whether the action is brought on behalf of the general public in the context of a bona fide private attorney general action, or whether it is brought primarily to resolve a private dispute. In the context of a UCL action, the resolution of that issue mandates that all the relief sought, both the injunctive and restitutionary, must be tried by the court and cannot be relegated to arbitration. This is because, as noted above, the UCL is only a public right of action, brought in equity, to enjoin unfair business competition, (Stop Youth Addiction, supra, 17 Cal.4^th at 567), or disgorge ill-gotten gains to deter wrongdoing. (ABC International Traders, Inc. v. MECA (1997) 14 Cal.4th 1247.)

           When a court determines that a defendant engaged in unfair competition as defined under the statutes, Business & Professions Code section 17203 outlines the remedies a court may award against that defendant. In addition to the imposition of injunctive relief, a “court of competent jurisdiction” may also “make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition.” (Bus. & Prof. Code § 17203.) As this Court recently noted in interpreting and applying this section:

“Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices in order to protect the public and restore to the parties in interest money or property taken by means of unfair competition. These actions supplement the efforts of law enforcement and regulatory agencies. This court has repeatedly recognized the importance of these private enforcement efforts.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126; emphasis added.)

           Not only is restitution (i.e., restoring money wrongfully taken from consumers) a goal of the statute, a court’s “orders may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons.” (Id. at 127; emphasis added.) As this Court went on to explain, disgorgement or restitution have “also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” (Id.)

           A long line of this Court’s cases has emphasized the ameliorative public policy purposes for ordering disgorgement of profits in a UCL case. As noted in People v. Thomas Shelton Powers, M.D., Inc. (1992) 2 Cal.App.4th 330, 341-342, disapproved on other grounds in Kraus:

"In Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 153 Cal.Rptr. 28, 591 P.2d 51, the court found disgorgement to be a proper remedy under section 17535, noting that by the statute's language, "the Legislature obviously intended to vest the trial court with broad authority to fashion a remedy that would effectively 'prevent the use ... of any practices which violate [the] chapter [proscribing unfair trade practices]' and deter the defendant, and similar entities, from engaging in such practices in the future. The requirement that a wrongdoing entity disgorge improperly obtained moneys surely serves as the prescribed strong deterrent." (Id. at p. 450, 153 Cal.Rptr. 28, 591 P.2d 51.) In so holding, the court, citing both state and federal cases, reaffirmed a policy against permitting a defendant to retain any profits gained by means of an unfair business practice: "[I]nasmuch as '[p]rotection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society' [citation], we must effectuate the full deterrent force of the unfair trade statute.... We do not deter indulgence in fraudulent practices if we permit wrongdoers to retain the considerable benefits of their unlawful conduct. [¶] As one court has stated, “The injunction against future violations, while of some deterrent force, is only a partial remedy since it does not correct the consequences of past conduct. To permit the [retention of even] a portion of the illicit profits, would impair the full impact of the deterrent force that is essential if adequate enforcement [of the law] is to be achieved. One requirement of such enforcement is a basic policy that those who have engaged in proscribed conduct surrender all profits flowing therefrom.” [Citations.] . . .’” (Emphasis added.)

           Thus, as with the EEOC’s statutory power to seek victim-specific relief, the disgorgement remedy under the UCL has as its fundamental purpose something other than simply rendering restitution to the plaintiff or the other victims of the unfair practice. To accomplish disgorgement in a UCL action, this Court has authorized the trial court to order defendants “[t]o identify, locate and repay to each [affected individual] the full amount of funds improperly acquired from that [person], retaining the power to supervise defendants’ efforts to insure that all reasonable means are used to comply with the court’s directives.” (Kraus, 23 Cal.4th at 138.) In a footnote, this Court went on to say that in representative UCL actions, “[t]he trial court may order the defendant to notify the absent persons on whose behalf the action is prosecuted of their right to make a claim for restitution, establish a reasonable time within which such claims must be made to the defendant and retain jurisdiction to adjudicate any disputes over entitlement to and the amount of restitution to be paid.” Id. At 138, n. 18.) Thus, the particulars of ordering and superintending the disgorgement/restitutionary remedy designed to protect the public and insure that a wrongdoing defendant does not retain the ill-gotten gains in an action under the UCL is simply beyond the power and authority entrusted to any arbitrator. (Code of Civil Procedure section 1281.8.) That being the case, the disgorgement remedy under the UCL must be ordered by a court and not an arbitrator - just like the injunctive remedy that Broughton held could not be subjected to arbitration.

           This same analysis was applied in Coast Plaza Doctors Hosp. v. Blue Cross of Calif. (2000) 83 Cal.App.4th 677, 691-692. There, the court applied Broughton to a UCL action, noting that, like the injunctive relief claim in Broughton, both the injunctive relief claim and the restitution/disgorgement claim in a UCL action are brought in the public interest by private attorneys general and do not provide private compensation:

“Broughton is controlling here. Much like a claim for injunctive relief under the CLRA, a claim for injunctive relief under the Unfair Competition Act, Business and Professions Code section 17200 et seq., is brought by a plaintiff acting in the capacity as a private attorney general. (Bus. & Prof.Code, § 17203 ["Any person who engages, has engaged ... in unfair competition may be enjoined in any court of competent jurisdiction."].) Although the private litigant controls the litigation of an unfair competition claim, the private litigant is not entitled to recover compensatory damages for his own benefit, but only disgorgement of profits made by the defendant through unfair or deceptive practices in violation of the statutory scheme or restitution to victims of the unfair competition. (Citations.)” (Emphasis added.)

           And, finally, even the health insurance industry’s own trade associations urged the U.S. Supreme Court last year to hold that restitution is a type of “equitable relief” that must be distinguished from claims for damages. (See Brief of Amici Curiae The American Association of Health Plans, et al., in Great-West Life & Annuity Ins. Co. v. Knudson, No. 99-1786, 2001WL 487681, at 6.) Thus, the suggestion that claims for public restitutionary relief are comparable to claims for damages runs counter to the approach that the HMO industry itself urged upon the U.S. Supreme Court just last year.

           The same analysis applies with respect to the restitutionary claims made by a plaintiff under the CLRA. In Broughton, the plaintiff sued the defendant under an individual cause of action for damages resulting from medical malpractice, as well as for violations of the CLRA. The individual claims were, in fact, substantial and the CLRA damage claims, as distinguished from the CLRA injunctive relief claim, were duplicative of the individual malpractice damages. Because the CLRA damage claims were fundamentally the same as the individual damage claims, this Court held that both the malpractice claims and the CLRA damage claims were to be relegated to the arbitral process under the contractual provisions.

           That scenario does not, however, play out where the plaintiff is asserting a CLRA claim that seeks restitutionary remedies. Rather, such CLRA restitutionary claims address the same injury that is addressed under the UCL restitutionary remedy. (Civil Code section 1780(a)(3).) Indeed, if the CLRA claims are duplicative of anything, they are duplicative of the UCL claims, not of any individual financial harm claimed by any plaintiff. In fact, under Civil Code section 1780(a), the remedies provision of the CLRA, a court may award actual damages, injunctive relief, restitution, punitive damages and any other relief that the court deems appropriate. Thus, like the UCL claim, the CLRA claim seeks recovery of statutory damages that are designed to fulfill and vindicate the protective purposes of the statute and the public benefit is not merely incidental to private compensation. Under the rationale applied in Broughton, such claims are not subject to arbitration provisions, whether they are injunctive relief claims or restitutionary relief claims:

“Whatever the individual motive of the party requesting . . . relief, the benefits of granting . . . relief by and large do not accrue to that party, but to the general public in danger of being victimized by the same deceptive practices as the plaintiff suffered. In this important respect, the injunctive relief at issue in this case differs from the antitrust treble damages remedy considered in Mitsubishi Motors, supra, 473 U.S. at pages 635-636, 105 S.Ct. 3346, in which any public benefit was merely incidental to private compensation. In other words, the plaintiff in a CLRA damages action is playing the role of a bona fide private attorney general.” (Broughton, at 1080; emph. added.)

           As this Court noted there, where the plaintiff is playing the role of a bona fide private attorney general, even “in a CLRA damages action,” the public benefit is not merely incidental to the private compensation and arbitration is not permitted. Thus, where the CLRA restitutionary damages claim is designed and intended to vindicate the public’s right, rather than to merely duplicate the individual plaintiff’s personal damages, that claim cannot be forced into arbitration.

CONCLUSION

           PacifiCare’s challenge to the correctness of the Broughton decision is meritless. Because arbitration would force the public to litigate its rights in a forum never chosen by it, and because arbitration would substantially impair the public’s ability to obtain complete relief - in violation of the United States Supreme Court’s mandate in Gilmer that arbitration cannot be required where to do so would render a party unable to vindicate their statutory rights - Broughton correctly concluded that arbitration cannot be imposed under the CLRA with respect to injunctive relief requests. And the same analytical structure applies with equal force to both UCL claims and CLRA restitutionary claims.

           Additionally, Waffle House makes clear that a non-party to an arbitration agreement - such as the general public suing under the UCL through a representative plaintiff - cannot be bound by any arbitration agreement entered into between private parties.

           Accordingly, not only should the Court affirm Broughton, but the Court should extend its reasoning, rational and application, along with that of Waffle House, to all UCL claims, both injunctive and restitutionary, as well as to CLRA restitutionary claims that are designed to vindicate the public’s interest.

Dated: February 13, 2002

ROBINSON, CALCAGNIE & ROBINSON

By:_______________________________

SHARON J. ARKIN

Attorney for Amici Curiae

TABLE OF CONTENTS

STATEMENT OF INTEREST OF THE AMICI CURIAE

LEGAL ARGUMENT

           1.        INTRODUCTION

           2.        BROUGHTON WAS CORRECTLY DECIDED
AND IS CONSISTENT WITH U.S. SUPREME
COURT AUTHORITY

           3.        THE U.S. SUPREME COURT’S DECISION IN
WAFFLE HOUSE MAKES CLEAR THAT

ARBITRATION PROVISIONS ARE NOT ENFORCEABLE IN REPRESENTATIVE

ACTIONS

CONCLUSION

TABLE OF AUTHORITIES

CASES

ABC International Traders, Inc. v.
MECA (1997) 14 Cal.4th 1247

Adams v. Murakami (1991)
54 Cal.3d 105

Armendariz v. Foundation Health
Psychare Servs., Inc. (2000)
24 Cal. 4th 83

Badgley v. Van Upp (1994)
20 Cal.App.4th 218

Bank of the West v. Superior Court (Industrial
Indemnity Co.) (1992) 2 Cal.4^th 1254

Broughton v. CIGNA Healthplans of
California, Inc. (1999) 21 Cal.4th 1066

Cel-Tech Communications, Inc. v. Los Angeles
Cellular Telephone Co. (1999) 20 Cal.4th 163

Circuit City Stores, Inc. v. Adams (2001)
532 U.S. 105, 121 S.Ct. 1302

Coast Plaza Doctors Hosp. v.
Blue Cross of Calif. (2000)
83 Cal.App.4th 677

Consumers Union, etc. v. Fisher Development,
Inc. (1989) 208 Cal.App.3d 1433

Cortez v. Purolator Air Filtration Products
Co. (2000) 23 Cal.4th 163

Doctors’ Assoc., Inc. v. Casarotto
(1996) 517 U.S. 681

Equal Employment Opportunity
Commission v. Waffle House, Inc.
(2002) 122 S.Ct. 754

Fletcher v. Security Pacific National
Bank (1979) 23 Cal.3d 442

Gilmer v. Interstate/Johnson Lane
Corporation (1991) 500 U.S. 20

Green Tree Financial Corp. -
Alabama v. Randolph
(2000) 531 U.S. 79

Henrioulle v. Marin Ventures,
Inc. (1978) 20 Cal.3d 512

Kraus v. Trinity Management Services,
Inc. (2000) 23 Cal.4th 116

Luster v. Collins (1993)
15 Cal.App.4th 1338

Marsch v. Williams (1994)
23 Cal.App.4th 238

Outdoor Services, Inc. v. Pabagold,
Inc. (1986) 185 Cal.App.3d 676

People ex re. Mosk v. National Research Co. of Cal.
(1962) 201 Cal.App.2d 765, 20 Cal.Rptr. 516

People v. Thomas Shelton Powers,
M.D., Inc. (1992) 2 Cal.App.4th 330

Southland Corp. v. Keating
(1984) 465 U.S. 1

St. James Church of Christ Holiness v.
Superior Court In and For Los Angeles
County (1955) 135 Cal.App.2d 352

Stop Youth Addiction, Inc. v. Lucky Stores, Inc.
(1998) 17 Cal.4^th 553, 71 Cal.Rptr.2d 731

Tunkl v. Regents of the University
of California (1963) 60 Cal.2d 92

Vandenberg v. Superior Court
(Centennial Ins. Co.) (1999)
21 Cal.4th 815

Weeks v. Baker & McKenzie
(1998) 63 Cal.App.4th 1128

STATUTES

9 U.S.C. section 2

Business & Professions Code section 17200

Business & Professions Code section 17500

Business and Professions Code section 17203

Civil Code section 1668

Civil Code section 1751

Civil Code section 1780(a)

Civil Code section 1780(a)(3)

Code of Civil Procedure section 1281.8

Code of Civil Procedure § 86, subd. (a)(8)