California Supreme Court: Civil Penalty Claims Brought by Government Under UCL and FAL Should Be Determined by Court—Not Jury

The California Supreme Court has confirmed that claims for civil penalties brought by government entities under California’s Unfair Competition Law (“UCL”)[1] and False Advertising Law (“FAL”)[2] should be decided by a judge—not a jury. See Nationwide Biweekly Administration Inc. et al. v. Superior Court of Alameda County (People, Real Party in Interest), Cal. Sup. Ct., S250047. In a 74-page decision, the Court held that the UCL and FAL claims at issue in Nationwide were equitable in nature and, therefore, properly tried by the court, rejecting arguments that the statutes and California civil jury trial right compelled adjudication by a jury.

Background: California Department of Business Oversight and District Attorneys Sue Nationwide Biweekly Administrative

In May 2015, the California Department of Business Oversight and the District Attorneys of four counties (“the People”) accused Nationwide Biweekly Administration Inc.—a mortgage services company—of running an unlicensed debt payment service. The People brought claims under the UCL, the FAL, and other state laws, seeking civil penalties, injunctive relief, restitution, and disgorgement.

Court of Appeal Applies “Gist” Test to Determine Nationwide’s Right to Jury Trial for UCL and FAL Claims

At the trial court, Nationwide demanded a jury trial, which the People successfully moved to strike. Nationwide filed a petition for a writ of mandate challenging this ruling, which the court of appeal summarily denied. The California Supreme Court granted Nationwide’s petition for review and transferred the matter back to the court of appeal, with directions to issue an order to show cause why Nationwide did not have a right to jury trial. The court of appeal then partially granted Nationwide’s request, finding that the “gist” of the statutory causes of action levied against Nationwide were legal and thus gave rise to a right to jury trial. The court, following the United States Supreme Court’s decision in Tull v. United States,[3] found that the right to jury trial only extended to the issue of liability, while the amount of statutory penalties and whether any equitable relief (such as an injunction) was appropriate were for the judge to determine.

The Government Files an Appeal

In an appeal to the California Supreme Court, the People argued that the decision of the court of appeal ignored decades of precedent and incorrectly applied the “gist test” in finding that a jury could hear the claims. The People explained that the UCL and FAL are not common law causes of action but statutory equitable claims only suitable for resolution by a judge. Conversely, Nationwide argued that it had a statutory right to a jury trial under the UCL and FAL because, in addition to injunctive relief, the action sought monetary civil penalties. Nationwide asserted that it separately had a right under the civil jury trial provision of the California constitution to a jury trial in an action under the UCL or FAL that sought both injunctive relief and civil penalties. As did the court of appeal, Nationwide relied in part on the United States Supreme Court’s decision in Tull interpreting the federal Seventh Amendment right to a jury trial to a statute allowing simultaneous pursuit of civil penalties and injunctive relief.

California Supreme Court Reverses the Decision Below and Finds That the UCL and FAL Claims Are Equitable in Nature and There Is No Constitutional Right to a Jury

In the majority opinion, the California Supreme Court agreed with the People, finding that the causes of action established by the UCL and FAL are equitable in nature and properly tried by the judge rather than a jury.

The court first rejected Nationwide’s argument that it had a statutory right to a jury trial. The court found that the legislative history and the purpose of the UCL and FAL evidenced a legislative intent for causes of action under those statutes to be tried by the judge, using her traditional equitable authority to evaluate whether a challenged business or advertising practice should be considered impermissible. The tests for violations of the UCL and FAL were “too indeterminate” to be distilled into jury instructions and applied by a jury, the court stated.

The court also rejected Nationwide’s constitutional arguments, finding that because the “gist” of a civil action under the UCL and FAL was equitable rather than legal in nature, there was no constitutional right to a jury trial. The bulk of the remedies available under the UCL and FAL are equitable, the court said, and the civil penalties available in actions brought by certain government officials are noncompensatory and thus unlike traditional monetary damages awarded after an injury. The “broadly worded and expansive” standards to be applied in adjudicating a UCL or FAL claim, the court continued, call for the exercise of discretion and experience that only judges possess. The court rejected Nationwide’s reliance on Tull, finding that interpretation of the federal Seventh Amendment inapposite because of longstanding differences between interpretations of the federal and California constitutional civil jury trial provisions.

Finally, the court expressly limited its holding to UCL and FAL claims, saying that the civil jury trial right might apply different to other statutory causes of action that authorize both injunctive relief and civil penalties.[4]

Key Takeaways

The California Supreme Court has settled the ambiguity as to whether UCL and FAL claims brought by the government seeking both civil penalties and equitable relief should be tried by a court or jury. The Court confirmed that determinations under both statutes, such as when a challenged business practice is “unfair,” require equitable analysis to be performed by a court. The holding that UCL and FAL claims are for courts, not juries, was an overall win for defendants.

[1] Cal. Bus. & Prof. Code § 17200 et seq.

[2] Cal. Bus. & Prof. Code § 17500 et seq.

[3] 481 U.S. 412 (1987).

[4] Chief Judge Cantil-Sakauye wrote the opinion for the court, joined by Justices Chin, Corrigan, and Groban. Justice Kruger wrote a concurring opinion, joined by Justices Liu and Cuéllar, in which she departed from the court’s finding that the FAL created inherently equitable causes of action. But Justice Kruger ultimately agreed that the FAL claims in this case need to be tried by the judge because they were so intertwined with the UCL claims, and trying them separately would “create procedural complications without significant benefit” to Nationwide.