Class Action and Product Insights for Your Business
July 01, 2020 - False Advertising, Consumer Products, Class Action

Ninth Circuit Holds Plaintiffs Not Entitled To Equitable Restitution Under UCL/CLRA If Adequate Remedy At Law Is Available

Ninth Circuit Confirms No Choice-of-Law Analysis Necessary to Certify Settlement Class

Earlier this month, the Ninth Circuit held that state law cannot expand or confine a federal court’s power to issue equitable restitution because federal courts are bound by traditional equitable principles, which require, among other things, a showing of an inadequate remedy at law. Thus, the Ninth Circuit affirmed the district court’s dismissal of plaintiff’s claims for restitution where she failed to establish an inadequate legal remedy.[1]

Plaintiff sought to avoid a jury trial by voluntarily dismissing her damages claim and instead seeking to try her equitable restitution claims to the court.

Plaintiff Kathleen Sonner (“Sonner” or “plaintiff”) represented a certified class of California consumers who claimed that Premier’s Joint Juice did not provide the advertised joint health benefits. Plaintiff sought damages under the Consumer Legal Remedies Act (CLRA), restitution under California’s Unfair Competition Law (UCL) and the CLRA, and injunctive relief under the UCL and CLRA.

After more than four years of litigation and on the eve of trial, Sonner sought leave to amend to voluntarily dismiss her CLRA claim for damages and proceed solely with claims for equitable restitution under the UCL and CLRA. The unorthodox move to dismiss a claim for money damages was motivated by plaintiff counsel’s desire to avoid a jury trial in favor of a bench trial. Plaintiff’s counsel advised the district court that it would continue to seek the same $32 million in equitable restitution that it sought as money damages under the CLRA. Premier opposed plaintiff’s eleventh-hour maneuver on the grounds that she had an adequate remedy at law (money damages under the CLRA) so plaintiff was prohibited from seeking equitable restitution. Premier advised the court that, if plaintiff were granted leave to amend, Premier would move to dismiss the equitable restitution claims.

Although the district court granted plaintiff leave to file an amended complaint and vacated the jury trial, the judge strongly cautioned plaintiff’s counsel that if he ultimately granted Premier’s motion to dismiss, he would not allow plaintiff to amend her complaint for a third time to reallege the previously dismissed CLRA damages claim. Plaintiff’s counsel disregarded the district court’s warning and filed an amended complaint that only contained claims for equitable relief.

Premier moved to dismiss the restitution claims pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that Sonner needed to—but could not—establish that she lacked an adequate legal remedy as required by both federal equitable principles and California law. After full briefing and oral argument, the district court granted Premier’s motion to dismiss, holding that plaintiff could not proceed on her equitable claims for restitution in lieu of a claim for damages. Specifically, the district court concluded that equitable restitution claims brought under the UCL and CLRA remained subject to the inadequate-remedy-at-law doctrine, and that plaintiff failed to establish that she lacked an adequate legal remedy for the same past harm for which she sought equitable restitution. The district court also denied Sonner’s request to amend her complaint to reallege the CLRA damages claim that she had voluntarily dismissed.

Ninth Circuit affirms district court’s order.

On appeal, Sonner argued (along with amici the CA Attorney General and Consumer Attorneys of CA), that because her UCL and CLRA claims arise under California law and the court’s jurisdiction rests in diversity, state law alone decides whether she must show a lack of an adequate legal remedy before obtaining restitution under those statutes. Sonner and the Amici further argued that the California legislature abrogated the inadequate-remedy-at-law doctrine for equitable restitution claims under the UCL and CLRA.

The Ninth Circuit rejected this argument, finding that pursuant to Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), and Guaranty Trust Co. of New York v. York, 326 U.S. 99 (1945), federal courts must apply equitable principles derived from federal common law to claims for equitable restitution under California’s UCL/CLRA. Thus, state law cannot circumscribe a federal court’s equitable powers even when state law affords the rule of decision.

The Court held that, “[r]egardless of whether California authorizes its courts to award equitable restitution under the UCL and CLRA, when a plain, adequate, and complete remedy exists at law, we hold that federal courts rely on federal equitable principles before allowing equitable restitution in such circumstances. And because Sonner fails to demonstrate that she lacks an adequate legal remedy in this case, we affirm the district court’s order dismissing her claims for restitution.”[2]

The Ninth Circuit further explained that “the strong federal policy protecting the constitutional right to a trial by jury outweighs [a state’s] procedural interest.”[3] Following federal common law, plaintiffs must establish that they lack an adequate remedy at law before obtaining equitable restitution. The Ninth Circuit held that Sonner failed to make such a showing because the complaint did not allege she lacked an adequate legal remedy, and she failed to explain how seeking the exact same amount of money she requested in damages for the same harm was inadequate or incomplete.[4]

Lastly, the Ninth Circuit held that the district court did not abuse its broad discretion in denying leave to amend, considering it cautioned Sonner that a third amendment would be “unfair, prejudicial, and an affront to the judicial system.”[5]

Takeaways

When litigating in federal court, defendants should consider moving to dismiss equitable claims for restitution when the plaintiff has an adequate legal remedy, even if state law authorizes its courts to award equitable restitution. Federal courts rely on federal equitable principles before allowing equitable restitution in such circumstances. See Mort v. United States, 86 F.3d 890, 892 (9th Cir. 1996) (“It is a basic doctrine of equity jurisprudence that courts of equity should not act . . . when the moving party has an adequate remedy at law.” (ellipsis in original) (quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381 (1992))). Thus, a plaintiff must establish that she lacks an adequate remedy at law before securing equitable restitution for past harm, even under consumer protection statutes like California’s UCL, CLRA, and False Advertising Law.

Notably, the relevant test is whether an adequate damages remedy is available, not whether plaintiff elects to pursue it, or whether plaintiff will be successful in that pursuit. See, e.g., McKesson HBOC, Inc. v. New York State Common Ret. Fund, Inc., 339 F.3d 1087, 1093 (9th Cir. 2003) (holding that equitable relief was not available to plaintiff because it had “potential legal claims against any number of parties,” and “[w]hether [a plaintiff] chooses to pursue these remedies… does not alter the availability of the remedies at law.”); United States v. Elias, 921 F.2d 870, 874 (9th Cir. 1990) (“[f]ailure to comply with a remedy at law does not make it inadequate so as to require the district court to exercise its equitable jurisdiction.”); Rhynes v. Stryker Corp., 2011 WL 2149095, at *4 (N.D. Cal. May 31, 2011) (“[p]laintiffs’ argument that they will have no adequate remedy at law if their other claims fail is unavailing. Where the claims pleaded by a plaintiff may entitle her to an adequate remedy at law, equitable relief is unavailable.” (emphasis in original)). Therefore, even if a plaintiff fails to assert a legal remedy, defendants should investigate whether an adequate remedy at law is available. If so, defendants should consider moving to dismiss equitable claims for restitution.

[1] Sonner v. Premier Nutrition Corp., No. 18-15890, 2020 WL 3263043 (9th Cir. June 17, 2020).

[2] Id. at *8.

[3] Id. at *5.

[4] Id.

[5] Id. at *8.