"The court delivered a mixed bag," said John H. Sullivan, Civil Justice Association of California president. "Certainly some of the wind has been taken out of the sails of private lawyers trying to use the Unfair Competition Law to fund their enterprises. But the court may have given UCL litigation a booster shot by letting the longer, four-year statute of limitations apply regardless of whether the infraction alleged to be unfair has a much shorter time limit on lawsuits.

"We're happy that the court gave us part of what we wanted in legislation we sponsored this year [AB 2186 - Robert Pacheco, which failed passage in the Assembly Judiciary Committee on May 2]. That is, the requirement that a private attorney bringing a UCL suit for restitution have at least a real plaintiff with a real loss. No more of this channeling money into a fund for future lawsuits instead of getting it to real people with a legitimate loss.

"And we'll have to see what comes of the court's emphasis in the Cortez declaration of the UCL's grand of 'broad equitable power' to trial court judges," Sullivan said.

The Decisions

Kraus v. Trinity Management Services: By a 6-1 vote, the court in an opinion authored by Justice Marvin Baxter, overturned a court of appeal decision and found that the Unfair Competition Law -- unlike class action law -- does not permit funds "disgorged" by a company involved in an unfair business practice to be channeled into a "fluid recovery fund," in this case a fund "for the advancement of legal rights and interest of residential tenants" in San Francisco

The court affirmed that the only monetary relief allowed under the Unfair Competition Law is the return of money to people who had it taken from them in an unfair business practice. It cannot be steered into a lawyer-controlled fund for future litigation.

Cortez v. Purolator: In a unanimous vote, again authored by Justice Marvin Baxter, the court held that unpaid wages can be subject to the restitution provisions of the Unfair Competition Law and that the four-year statute of limitations for bringing a lawsuit applies in UCL cases rather than a shorter three-year limit for violations of the Labor Code.

The Cases - A Summary

Kraus v. Trinity Management Services demonstrates how the UCL unfairly allows a "non-class" action to be brought without certification, including providing notice of a class action. In this case, four tenants sued a landlord for collecting illegal deposits. They named themselves and 4,500 current and former tenants in the suit; however, the lawsuit was never officially certified as a "class action." The court found for the four plaintiffs and awarded almost $1 million in restitution. Because no "class" was ever certified, the other 4,500 tenants can now sue the same landlord over the same issue.

Cortez v. Purolator illustrates the potential of using the UCL to evade the statute of limitations' deadline for filing a lawsuit. Additionally, it poses the question of the difference between damages and restitution as types of recovery. Plaintiff Cortez sued her former employer alleging it violated the Labor Code in the manner in which it calculated employees' wages and in its calculation of overtime pay. In addition to her individual claim, Cortez prosecuted a UCL claim seeking restitution of the overtime wages withheld from approximately 175 Purolator employees, even though the statute of limitations for these employees' claims had expired. Additionally, these former employees were not provided notice that their claims were being prosecuted.