Plaintiff Art Madrid seeks to pursue a class action lawsuit on behalf of California electricity customers, against parties involved in restructuring California’s electricity market, who allegedly engaged in unlawful business practices in violation of the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.
1
). Plaintiff appeals from a judgment of dismissal following the sustaining of demurrers to his complaint against defendants Perot Systems Corporation (Perot), California Independent System Operator (ISO), Terry Winter (president and corporate executive officer of ISO), and Paul Gribik, a Perot associate. Plaintiff argues he alleged viable UCL claims. We disagree. As we shall explain, damages are not
FACTUAL AND PROCEDURAL BACKGROUND
In June 2002, plaintiff filed in San Diego County a class action lawsuit against Perot, ISO, and Winter. Gribik was brought in as a Doe defendant in
The complaint’s “INTRODUCTION” alleged: “This action is brought under Califоrnia’s criminal antitrust and unfair competition laws. It seeks recovery of damages, and other monetary, equitable and injunctive relief arising from [Perot’s] aiding and abetting in the manipulation, distortion, and corruption of
The complaint alleged as follows:
1. Plaintiff was the Mayor of La Mesa but was suing not in his official capacity but on his own behalf and the behalf of a class consisting of all persons in California who have purchased electricity from San Diego Gas & Electric (SDG&E), Southern California Edison (SCE) or Pacific Gas & Electric (PG&E) for purposes other than resale or distribution since 1999.
2. ISO is a California mutual benefit corporation that operates the “real-time” and “ancillary services” power markets and manages the electricity transmission grid covering most of California. Winter is ISO’s president and corporate executive officer.
3. Perot, a Delaware corporation doing business in California, developed and implemented the business systems used to operate ISO and the California Power Exchange (PX).
4. In 1996, California enacted Assembly Bill 1890 (1995-1996 Reg. Sess.) (Bill No. 1890), codified as Public Utilities Code section 330 et seq. (Stats. 1996, ch. 854, § 10), to restructure the California electricity market. Bill No. 1890 required California’s investor-owned utilities (SDG&E, SCE and PG&E) to sell much of their electricity generation capacity in order to create competition in the generation and sale of wholesale electricity. California’s deregulation plan envisioned that, by removing a critical portion of wholesale generating capacity from the utilities’ control, competitive market forces would attract new sources of power and lower the price of electricity. Instead, a limited group of “inside players,” including defendants, used the opportunity to manipulate the California market to extract unconscionable profits. Defendants helped energy companies (Duke, Rеliant, Dynegy, Mirant, and Williams/AES) to devise deceptive schemes and engage in fraudulent and unlawful business conduct that thwarted the vision of a competitive energy market.
5. Bill No. 1890 also established ISO and the PX. The PX was to operate a market for the purchase and sale of electricity for delivery during the same or next day. ISO was to manage the transmission network, procure electricity during actual operation (“real time”) in order to manage imbalances between demand and supply as they occur, and to maintain the reliability of the transmission grid. ISO’s board of directors was comprised of energy company representatives and other stakeholders in the electricity marketplace. The electricity purchases administered by ISO and the PX were for subsequent resale, primarily to customers of the investor-owned utilities.
6. Substantial portions of the electricity requirements for any given day were scheduled through the PX in conjunction with ISO. ISO also was able to procure real-time energy as needed. These markets operate in one-hour increments (and even in 10-minute increments), requiring bidding, sales, and purchases for each one-hour or 10-minute increment. Ancillary services are separate markets operated by ISO for the delivery of electricity on demand. Generators bid into ancillary service markets and, when their bids are accepted, agree to provide electricity if ISO determines, through the operation of the grid, that the electricity is needed.
7. Perot was hired to set up the computer systems that controlled California’s deregulated energy market. Perot also provided business consulting and applications development services used by ISO and the PX to administer the power markets and transmission grid. Perot designed and implemented systems that allowed and facilitated energy market manipulation by market participants. Perot identified holes and gaps in ISO’s operating systems that could allow generators and traders to “game” the market and increase their profits through deceptive and fraudulent means. Perot aided and abetted the market participants in manipulating the market through bogus, fraudulent gaming strategies. Perot provided generators and traders with a detailed blueprint of how to exploit the market’s holes and gaps.
8. Perot created and gave to market participants a document proclaiming, “PEROT systems discovered a hole in the ISO’s protocols for buying, selling, and pricing imbalance energy.” The document instructed participants to “find leverage points you can use” and said gaps in the protocols “provide opportunities for increased profits.” The document warned there may be a limit to the “window of opportunity” to exploit the system before ISO recognized the gaps and revised its protocols to close them. The document said that, if market participants followed Perot’s strategies, even a small participant could control prices in California and destabilize the electricity market.
9. The “game plan” Perot shared with its “co-conspirators” included specific collusive and fraudulent trading strategies, which were used by market participants to manipulate the market. The strategies took on code names within the industry, e.g., Megawatt Laundering, the Black Widow, Load Shifting, Get Shorty, Ricochet, Forney’s Perpetual Loop, and Cong Catcher. For example, Death Star was designed to create artificial congestion (a traffic jam when scheduled electricity traveling over the transmission line exceeds the line’s capacity). To resolve the congestion, a party planning to use a congested line may receive from ISO a substantial payment (a decremental energy payment) not to use the line. Traders and generators would schedule energy over a transmission line they knew would be congested at a given point, even though they had no intention of actually using that line, in order to receive a payment not to use the line. Another scheme was Inc-ing, in which traders entered into bogus transactions in the “day-ahead” markets that had the effect of artificially inflating demand for electricity while simultaneously artificially diminishing the supply of power. The purchaser in the dummy transaction would thereafter draw only a fraction of the power it had purchased, allowing the seller to sell the excess power. In another scheme, Load Shift, traders overstated electrical load in one geographic zone, while understating it in another zone. By doing so, prices for power in the artificially congested zone would rise. The trader would then cancel or not use some or all of the power ordered in the high congestionzone. The trader would then receive a payment from ISO for not using the power.
10. Each of these schemes involved the use of dummy trading, collusion between market participants, false representations, and deceptive business practices. As a result of Perot’s conduct, market participants did engage in market manipulation on a massive scale, realizing extraordinary profits at the expense of plaintiff and Californians.
11. ISO and its employees acquiesced in and facilitated Perot’s wrongful conduct by combining with other market participants to manipulate and destabilize the market through dummy trades and manipulation of the transmission grid. ISO and Winter elicited fictitious load schedules from market participants, provided market information to market participants, and otherwise failed to act upon or alert appropriate authorities of the fraudulent and deceptive business practices.
12. Perot continued to aid the market participants, including at times ISO, in modifying and updating deceptive schemes designed to create volatility in the energy markets and transmission grid.
13. Defendants conspired with market participants to engage in deceptive, unlawful, and fraudulent gaming practices designed to raise, depress, fix, rig, and destabilize the California electricity market. ISO and Winter acquiesced in, aided, and conspired with market participants “through activities such as[] eliciting fictitious load schedules from market participants; providing market information to market participants; and otherwise failing to act upon or alert appropriate authorities of fraudulent and deceptive business practices of market participants.”
The complaint labeled the UCL counts as the second, third, and fourth causes of action, and included a reference to the UCL in the fifth cause of action. The second count alleged defendants’ violation of antitrust laws, by engaging in anticompetitive practices, constituted unfair business practices under the UCL. The third count alleged defendants’ conduct, which precipitated an emergency and occurred during the emergency, was immoral, unscrupulous, or offended public policy, shamelessly profiteering at consumers’ expеnse. The fourth count alleged defendants profited from unfair practices that caused an electricity emergency in California and violated Penal Code section 396 (which prohibits excessive and unjustified increases in prices to consumers when a state of emergency disrupts the market). The fifth count alleged defendants violated the UCL by violating Penal Code section 395, which makes it a misdemeanor to employ fraudulent means to affect market prices. The complaint alleged defendants violated section 17200 4 by engaging in unlawful business acts and practices, resulting in a state of emergency in California. 5
The prayer for relief asked for, among other items, (1) “restitution to restore all funds acquired by means of any act or
On July 26, 2002, defendants removed the lawsuit to federal court. Plaintiff filed a motion to remand the case to state court. On April 18, 2003, the federal court remanded the case to state court, ruling in part that none of the requests for relief under the UCL necessarily hinged on what constitutes “just and reasonable” rates under the Federal Power Act (FPA), title 16 United States Code sections 824 through 824m (which delegates to the Federal Energy Regulatory Commission (FERC) the exclusive authority to regulate the transmission and sale of wholesale electric energy in interstate commerce).
Back in state court, the case was transferred from San Diego to Sacramento County on July 28, 2003, pursuant to a motion to change venue filed by ISO and Winter.
Perot filed a demurrer and a motion to strike class action and damages allegations. Perot argued plaintiff had not pleaded facts entitling him to any relief, plaintiff did not allege Perot received any portion of the utility overcharges, and the lawsuit was barred by federal preemption and the “filed rate doctrine” (which provides that state law may not be used to invalidate a rate that a federal agency has reviewed and filed).
The other defendants filed joinders in Perot’s motion to strike (with Gribik filing his own motion that merely said he joined and incorporated by reference Perot’s mоtion).
ISO and Winter filed a demurrer, making points similar to Perot’s demurrer and adding that ISO and Winter could not have benefited from any UCL violations because the ISO is merely a “pass through” entity that does not profit from energy transactions. Because ISO and Winter never retained any of the increase in electricity prices, there was nothing for them to restore under the UCL. They also argued plaintiff was not entitled to injunctive relief because he alleged no ongoing enjoinable conduct by ISO or Winter.
Gribik also filed a demurrer, repeating points made by others and adding that there were no specific allegations against him, and plaintiff failed to exhaust administrative remedies.
Plaintiff filed combined oppositions to the various demurrers and motions to strike. He argued, among other things, that the lawsuit was not barred by federal law, because the UCL violations were unrelated to the rate of wholesale or resale electricity prices. He asserted he did not seek a refund for money spent for his electricity, but did seek restitution of any monies wrongfully received from him, and any profits. Plaintiff asserted (with an appended request for judicial notice) that he sought restitutiоn of $250 million that ratepayers paid for ISO’s start-up costs, of which $57 million went to Perot to design and implement the system.
Defendants filed replies. Perot’s reply asserted ISO already implemented corrections to prevent game opportunities. Perot submitted declarations asserting plaintiff could never state a claim against it, because no action was brought by the California Attorney General’s office or any other governmental enforcement authority.
On January 28, 2004, the trial court sustained all demurrers without leave to amend and granted the motions to strike. The court said plaintiff was seeking to recover money paid in the form of excessive electricity charges. The court concluded
The ruling said the court asked plaintiff what facts could be truthfully alleged in an amended complaint to cure the defects, but no specific facts were stated by counsel. However, the court’s tentative ruling (incorporated by reference in the ruling) acknowledged, “plaintiff contends that his claims are not barred by the filed rate doctrine, as they do not relate to any approved tariff and challenge only non-rate related conduct of defendants. Plaintiff concedes that he cannot obtain the recovery of the electricity overcharges, but argues that he can recover Cal/ISO’s $250 million start-up costs and $57 million contract amount paid by Cal/ISO to Perot for the development and implementation of Cal/ISO’s computer systems. These damages are not mentioned in the complaint. Plaintiff asserts that he seeks damages caused by defendants’ conduct in contracting to design and implement trading protocols and platforms for California’s deregulated energy market, undertaking a duty to act on behalf of and in the best interests of California rate payers and the state, but instead designing a system which allowed for market manipulation, taking rate-payers’ money for performing services purportedly on their behalf while at the same time providing confidential and/or restricted information on how to exploit the system to energy producers, traders and sellers, for the purpose of gaming California’s energy market, [f] Plaintiff contends that because providing insiders’ information to market participants is not a direct challenge to FERC’s authority to set rates, it does not require the application of the filed rate doctrine. [][] However, as the damages incurred by plaintiffs as California retail rate payers, are the overcharges for wholesale rates passed on to the retail electricity customers, the damages requested are barred by the filed rate doctrine. Even non-providers of electricity are protected by the filed rate doctrine.”
On February 17, 2004, the court entered a judgment of dismissal, from which plaintiff timely appealed.
DISCUSSION
I. Standard of Review
In reviewing a judgment dismissing a complaint on a demurrer, we assume the complaint’s prоperly pleaded or implied factual allegations are true, and we give the complaint a reasonable interpretation, reading it in context.
(Schifando v. City of Los Angeles
(2003)
II. No Viable UCL Remedy Against These Defendants
The UCL limits the remedies available for UCL violations to restitution and injunctive relief (and civil penalties,
As we shall see, neither restitution nor injunctive relief is available in this case.
A. Restitution
Plaintiff argues he was entitled to seek restitution, which he appears to define as any money defendants or their conspirators received. Although not made clear by plaintiff, it appears the possibilities would be (1) utility overcharges (though it is not clear whether plaintiff thinks any of that money went into the pockets of these defendants, as opposed to nonparty energy producers/suppliers); profits defendants may have received from third parties (assuming Perot sold confidential information to producers/suppliers); or (3) ISO’s $250 million start-up costs, of which $57 million was paid for Perot’s contract to design and implement the system. We shall explain that none of these possibilities presents viable UCL restitution claims.
“Restitution” is an ambiguous term, sometimes referring to the disgorging of something that has been taken and sometimes referring to compensation for injury done.
(People ex rel. Kennedy v. Beaumont Investment, Ltd.
(2003)
Thus, the California Supreme Court has defined a UCL order for restitution as one “ ‘compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken, that is, to persons who had an ownership interest in the property or those claiming through that person.’ [Citation.]”
(Korea Supply, supra,
29 Cal.4th at pp. 1144-1145, citing
Kraus v. Trinity Management Services, Inc.
(2000)
The complaint sought “disgorgement of all ill-gotten monies” but did not allege the existence of any ill-gotten monies other than the difference in electricity rates in excess of what customers would have paid in the absence of defendants’ conduct.
Defendants argue, among other things, that the alleged utility overcharges cannot be recovered in this lawsuit, because they are the subject of proceedings before FERC, and claims to recoup the alleged overcharges are barred by federal preemption and the “filed rate doctrine.” 7 Plaintiff briefly addresses these federal issues, arguing they do not apply because he is not challenging the amount of the electricity rates. We need not address these federal principles, because plaintiff has disavowed any attempt to recover alleged utility overcharges.
Thus, in opposing the demurrers in the trial court, plaintiff filed an opposition memorandum stating that, although plaintiff sought “restitution of any monies wrongfully received from Plaintiff,” “Plaintiff in the instant action does not seek a refund for money spent for his electricity. Plaintiff seeks recovery of the money unlawfully obtained by defendants and for damages unrelated to the cost of electricity which defendants caused through their unlawful conduct.”
On appeal, plaintiff argues as follows:
“[Plaintiff]—and the class he represents—is entitled to restitution under the UCL. But the trial court focused exclusively on [plaintiff]’s damages (i.e., ‘the overcharges for wholesale rates passed on to the retail electricity customers.’ . . . That remedy focuses on [plaintiff]’s loss and seeks to compensate for that loss. This damages remedy is not available under the UCL.
“But [plaintiff] is entitled to restitution which aims at preventing defendants’ unjust enrichment. Restitution is measured by defendants’ wrongful gain, not [plaintiff]’s loss (i.e., overcharges). Thus, the focus of restitution is on defendants’ unjust enrichment. Restitution simply returns that which defendants obtained from [plaintiff] as a result of their wrongful conduct. That remedy is measured by defendants’ gain, not [plaintiff]’s loss.
“To the extent defendants profited from their UCL violations, defendants should be ordered to return those monies. Those funds should be dispersed back to the customers from whom it was taken. That is restitution. Plain and simple.”
In a footnote, plaintiff says he “does not challenge the rates he paid. To the contrary, [plaintiff] would have paid any rate to keep the power on in order to protect the health and safety of Californians. After all, there was an energy crisis.”
Plaintiff argues the court should order defendants to “simply return to plaintiff exactly what was wrongfully taken, plus any profits made.” However, plaintiff fails to suggest what was taken that would be recoverable in a UCL action.
As we explain post, nonrestitutionary profits (which plaintiff ties into his class action argument) are not available in this UCL action.
As to the return of “what was wrongfully taken,” it is not clеar whether plaintiff thinks any of the alleged utility overcharges went into the pockets of these defendants (as opposed to the energy producers/suppliers), but in any event plaintiff has stated he “does not seek a refund for money spent for his electricity.” If plaintiff, in his somewhat convoluted argument, means to suggest he can recover the same money under a different label of “unjust enrichment” or “ill-gotten gain,” we reject such sophistry.
Thus, plaintiff relies on general principles of the law of remedies, e.g., that restitution in the broad sense focuses on the defendant’s unjust enrichment, rather than the plaintiff’s loss. Plaintiff’s generalization fails to acknowledge the specific limitation applicable in the UCL context—that restitution means the return of money to those persons from whom it was taken or who had an ownership interest in it. (Korea Supply, supra, 29 Cal.4th at pp. 1144—1145.) Although this restitution serves to thwart the wrongdoer’s unjust enrichment, courts ordering restitution under the UCL “are not concerned with restoring the violator to the status quo ante. The focus instead is on the victim.” (Beaumont, supra, 111 Cal.App.4th at pp. 134—135.) The object is to return to the plaintiff funds in which he or she has an ownership interest. (Ibid.) Thus, plaintiff’s assertion that defendants received ill-gotten gain does not make a viable UCL claim unless the gain was money in which plaintiff had a vested interest. As indicated, plaintiff admitted in the trial court that he “does not seek a refund for money spent for his electricity.”
We also reject plaintiff’s apparent position that he could recover money Perot received from third parties. Thus, plaintiff’s opening brief on appeal includes references to numerous documents, judicially noticed by the trial court, that were initially submitted to the federal court in connection with the remand motion. Though not clear, it appears plaintiff means to suggest these documents show Perot sold insider information about California’s situation to teach energy generators/suppliers how to manipulate the market. However, the documents merely reflect Perot’s attempts to market its consulting services to others; they do not reflect any contracts entered or sale of information or money received by Perot. In any event, even assuming Perot sold confidential information, plaintiff fails to show that such profit, received from third parties, would qualify as money taken from plaintiff or money in which plaintiff had a vested ownership interest, so as to be recoverable as restitution in this UCL action. (Korea Supply, supra, 29 Cal.4th at pp. 1144-1145, 1149 [restitution under UCL is limited to the return of money to those persons who had an ownership interest].)
Plaintiff suggests it was not necessary to show that these defendants received any of the ill-gotten gain from the utility overcharges, because restitution does not require tracing of money. However, plaintiff merely cites
Fletcher v. Security Pacific National Bank
(1979)
Plaintiff suggests that these defendants can be ordered to restore money received by nonparties, because defendants acted as conspirators or aiders/abettors. It is not clear what money is at issue, since plaintiff does not seek a refund of utility overcharges. Even assuming the unspecified monies could constitute UCL restitution, the argument fails.
Thus, some of plaintiff’s cited cases addressed fraud, despite the fact that plaintiff has expressly waived the trial сourt’s sustaining of the demurrer to the complaint’s counts for conspiracy to commit fraud and aiding/abetting fraud. Moreover, although the UCL counts of the complaint also alleged Perot and ISO were “co-conspirators” or aiders/abettors with the energy producers/traders (alleged as Doe defendants), plaintiff fails to cite any authority that a UCL plaintiff may recover money from a defendant who never received it on a theory that the defendant conspired with or aided someone else who did receive it. This sounds like damages (which are unavailable under the UCL) rather than restitution.
Thus, plaintiff cites
People
v.
Bestline Products, Inc.
(1976)
Bestline
said: “All parties to a conspiracy to defraud are directly liable for all misrepresentations made pursuant to such conspiracy and anyone who knowingly aids and abets fraud or furnishes the means for its accomplishment is liable equally with those who actually make the misrepresentations. In
American Philatelic Soc.
v.
Claibourne
[(1935)]
Thus, Bestline does not assist plaintiff in the case before us. It involved fraud, which is not at issue in this appeal. The issue in Bestline was vicarious liability versus direct liability. The court did not discuss recovery of restitution from someone who did not receive anything from the plaintiff as a rеsult of UCL violations. Moreover, the cases cited by Baseline involved situations distinguishable from the case before us, i.e., where the defendant did receive a small profit, or where the defendant was a fiduciary of the person who received the profit. Additionally, the older cases predated the UCL, and plaintiff fails to show applicability of the common law principles to the UCL statutes.
Plaintiff cites
People
v.
Toomey
(1985)
Plaintiff also cites
People
v.
Orange County Charitable Services
(1999)
Thus, the cases cited by plaintiff do not assist his appeal.
We conclude the complaint failed to allege any viable UCL restitution claim against these defendants.
On appeal, plaintiff argues (as he did in the trial court) that if the complaint is inadequate, he can amend it to allege a viable claim for restitution in that “Perot was paid under a $57 million contract with the ISO and the ISO’s funds ultimately came from California electricity consumers because consumers paid for the ISO and therefore consumers paid for Perot to design and implement the ISO. Thus, any monies paid to Perot came from California’s electricity consumers.” Plaintiff also claims entitlement to recover ISO’s start-up costs of $250 million.
We accept for purposes of argument that ratepayers like plaintiff ultimately paid this $250 million, including the $57 million paid to Perot (points disputed by defendants). However, plaintiff does not explain how this money may have been acquired by means of UCL violations. (§ 17203 [authorizing court to order restitution of money “which may have been acquired by means of such unfair competition”].)
Plaintiff does not offer any factual allegations that ISO or Perot received money from UCL violations.
The cases cited by plaintiff merely stand for the proposition that courts have broad authority to fashion a remedy to deter unfair practices. None of the cases authorized a court to fashion a remedy where there was no adequate allegation of recoverable restitution. (E.g.,
McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc.
(1983)
Thus, plaintiff’s proposed amendment will not cure the complaint’s defect in failing to allege any recoverable restitution.
B. Nonrestitutionary Disgorgement
Plaintiff claims that, because he filed the lawsuit as a class action (certification of which was denied by the trial court), he is entitled to pursue
nonrestitutionary
disgorgement of wrongfully obtained profits, because “fluid recovery”
8
of
Although not made clear by plaintiff, nonrestitutionary disgorgement in this case would appear to mean profits allegedly received not from plaintiff’s purported class members, but from third parties who allegedly bought the insider information about how to manipulate California’s energy market.
In general, the term “disgorgement of profits” may include both restitutionary and nonrestitutionary monies.
(Korea Supply, supra,
The California Supreme Court has held that, while
restitutionary
disgorgement may be an available remedy under the UCL,
nonrestitutionary
disgorgement is
not
available in a UCL individual action or in a UCL
representative
action (i.e., an action by an individual plaintiff on behalf of others without being certified as a class action).
9
(Cortez
v.
Purolator Air Filtration Products Co.
(2000)
Plaintiff argues these holdings do not extend to UCL class actions. We disagree and shall conclude that nonrestitutionary disgorgement is not an available remedy in a UCL class action.
An open question exists as to the availability of nonrestitutionary disgorgement in a properly certified UCL class action.
(Frieman
v.
San Rafael Rock
Quarry, Inc.
(2004)
Plaintiff maintains the reason the California Supreme Court restricted disgorgement in representative actions was because of due process concerns (multiple suits and duplicative liability), and such concerns are not present in class action litigation. However, the Supreme Court merely cited due process as an “additional]”
Plaintiff says that because UCL remedies are expressly made “cumulative ... to the remedies or penalties available under all other laws of this state [(§ 17205 10 )],” and because disgorgement into a fluid recovery fund is an available remedy in сlass actions (Code Civ. Proc., § 384; see fn. 8, ante), then nonrestitutionary disgorgement into a fluid recovery fund must be an available remedy in a UCL class action.
We disagree, because “[t]he UCL is a substantive statute and the class action statute is a procedural device for collectively litigating substantive claims.”
(Corbett
v.
Superior Court
(2002)
Plaintiff quotes from
Corbett, supra,
However,
Corbett, supra,
Thus, the money to be disgorged in
Corbett, supra, 101
Cal.App.4th 649, was money taken from the victims (i.e., restitutionary disgorgement), not money obtained from third parties (nonrestitutionary disgorgement). Although a fluid recovery fund in such a case might result in money going to an alternative recipient that did not have an ownership interest in the funds, that result occurs only because some class members
We conclude plaintiff fails to show grounds for reversal with respect to denial of class action certification.
We conclude plaintiff has failed to show any grounds for reversal of the judgment with respect to the remedy of restitution.
C. Injunctive Relief
As indicated, the UCL also authorizes injunctive relief. (§ 17203; fh. 6, ante.)
Plaintiff argues he was entitled to injunctive relief. We disagree.
The complaint prayed that the court “order defendants to immediately cease all acts of unfair competition and enjoin defendants from continuing to conduct business via the unlawful and unfair business acts or practices as described herein . . . .”
However, the complaint’s factual allegations did not allege a continuing threat of such misconduct. The complaint’s factual allegations referred only to acts that happened in the past, i.e., Perot was hired to set up the deregulated market system, the ISO markets were susceptible to manipulation, Perot warned, its conspirators of a limited window of opportunity to exploit the system before ISO noticed and closed the gaps, etc. The complaint alleged defendants caused a state of emergency to be declared in California in January 2001 and “profited by their unlawful and unfair acts and practices during California’s declared electricity emergency.”
Former Governor Davis declared an official end to the state of emergency on November 14, 2003, before the trial court denied injunctive relief in January 2004. (Kasler, supra, p. A3.) Plaintiff does not seek to amend the complaint to allege any ongoing or threatened acts.
Injunctive relief is appropriate only when there is a threat of continuing misconduct. (Code Civ. Proc., § 525 [“injunction is a writ or order requiring a person to refrain from a particular act”];
Gafcon, Inc. v. Ponsor & Associates
(2002)
Plaintiff argues he did not need to allege a threat of future misconduct, because injunctive relief under the UCL is not limited to ongoing or threatened acts. He quotes section 17203, as amended in 1992 (Stats. 1992, ch. 430, § 3, p. 1707), that “[a]ny person who engages, has engaged, or proposes to engage in unfair competition may be enjoined . . . .” (Italics added.) The prior statute said any person “performing or proposing to perform an act of unfair competition” could be enjoined. (Stats. 1977, ch. 299, § 1, p. 1202.)
However, section 17203, as amended in 1992, continued to provide in the next sentence that “[t]he court may make such orders or judgments . . . as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition . . . .” (Italics added.) Thus, there must still be something to prevent, i.e., some threat of future misconduct.
Under the pre-1992 statute: “Injunctive relief under section[] 17203 . . . cannot be used, however, to enjoin an event which has already transpired; a showing of threatened future harm or continuing violation is required. [Citation.] Injunctive relief has no application to wrongs which have been completed [citation], absent a showing that past violations will probably recur. [Citation.]”
(People v. Toomey, supra,
The purpose of the
Similarly, the other cases cited by plaintiff merely acknowledged the UCL now covers any unfair “act or practice,” such that single acts of misconduct may form the basis for a UCL lawsuit.
(Klein v. Earth Elements, Inc.
(1997)
Neither the statutory amendment nor any of the cases cited by plaintiff authorizes injunctive relief in the absence of a threat that an unlawful act will occur in the future.
Instead, as stated in cases cited by Perot (and ignored in plaintiff’s reply brief), the general rule is that an injunction may not issue unless the alleged misconduct is ongoing or likely to recur. Thus,
Gafcon, supra,
“Injunctive relief has no application to wrongs which have been completed [citation], absent a showing that past violations will probably recur. [Citation.]”
(People v. Toomey, supra,
Caro v. Procter & Gamble Co.
(1993)
A trial court’s denial of injunctive relief was affirmed in
Cisneros v. U.D. Registry, Inc.
(1995)
We conclude the current UCL has not altered the nature of injunctive relief, which requires a threat that the misconduct to be enjoined is likely to be repeated in the future.
Here, plaintiff’s complaint did not allege any facts that another incident is likely to occur.
Plaintiff argues defendants’ conduct was ongoing and likely to recur, but he fails to point to any supporting factual allegation in his complaint. He merely says he asked the court to order defendant to stop the unlawful acts. He says if there were any question, the trial court should have granted leave to amend the complaint. However, plaintiff fails to identify any amendment he would have made to cure the problem. He merely asserts, “there could not have been any question because the record before the trial court clearly established defendants’ conduct was ongoing and likely to recur. The ISO is still responsible for managing California’s electrical grid and for ensuring the safe and reliable transition of electricity throughout the grid. [Citation.] Perot still has inside information about the ISO and PX systems. Even though some of the gaps in the system were supposedly closed, ‘closing one gap may open others.’ [Citation.]
“The games Perot taught continue tо have ‘ongoing benefits.’ [Citation.] ‘Because the rules and markets are evolving,’ these games ‘will continue to see changes.’ [Citation.] Therefore, Perot continues to aid traders and other California market participants—including the ISO—by modifying and updating deceptive schemes designed to create volatility in the energy markets and transmission grid. [Citation.] Because defendants’ wrongful conduct is ongoing and likely to recur, [plaintiff] was entitled to seek injunctive relief for this reason too.”
The documents cited by plaintiff (even assuming they were or could be judicially noticed)
do not
help him. Thus, plaintiff points to documents generated in the late 1990’s (e.g., Gribik’s “power point presentation” and a 1998 proposal to Enron) stating things such as (1) “Closing one gap may open others”; (2) one of the “on-going benefits” of the presentation would be the education of Enron’s staff “in the process used for examining these situations”; and (3) “Because the rules and the market are evolving, [the first phase of the proposal] will continue to see changes.” These documents from the late 1990’s did not show a continuing threat at the time the complaint was filed in June 2002. Moreover, the 1998 proposal spoke of the future extension
Plaintiff cites newspaper articles quoting Perot and Gribik as defending the use of gaming theory in the energy market. One said, “Gribik noted that energy companies use gaming theory to seek advantages just as a football team would use a playbook.” The other said, “Perot said, however, that ‘game theory!’] is one of the ways that participants compete in a free market.” Neither of these quotes suggests that the wrongful conduct alleged in the complaint is ongoing or likely to recur.
Plaintiff cites
Consumers Union of U.S., Inc. v. Alta-Dena Certified Dairy
(1992)
We conclude plaintiff failed to present a viable claim for injunctive relief.
Since plaintiff failed to present a viable claim for restitution or injunctive relief (the only remedies available) and failed to propose any amendment that would cure the defect, plaintiff’s complaint failed to state a viable UCL claim, and the trial court properly sustained the demurrers without leave to amend.
DISPOSITION
The judgment is affirmed. Defendants shall recover their costs on appeal. (Cal. Rules of Court, rule 27(a).)
Blease, Acting P. J., and Hull, 1, concurred.
A petition for a rehearing was denied June 20, 2005, and appellant’s petition for review by the Supreme Court was denied October 12, 2005.
Notes
Undesignated statutory references are to the Business and Professions Code.
After the filing of the opening brief on appeal, but before the filing of the respondents’ briefs and appellant’s reply brief, the voters of California passed Proposition 64 at the November 2004 election. Proposition 64 amended the UCL to delete language that gave any person the right to bring an action to enforce the UCL for the benefit of the general public, and added language that an action on behalf of others may be brought by a private plaintiff (as opposed to a public official) only if that plaintiff complies with the class action statute (Code Civ. Proc., § 382) and “has suffered injury in fact and has lost money or property as a result of such unfair competitiоn.” (§ 17204; see § 17203.) The parties have not addressed Proposition 64. The California Supreme Court has under review the issue whether Proposition 64 applies to pending cases. (E.g.,
Branick
v.
Downey Savings & Loan Assn.
(2005)
We deny as unnecessary Gribik’s motion for judicial notice (filed Dec. 6, 2004) and ISO/Winter’s request for judicial notice (filed Dec. 6, 2004).
The factual allegations of the complaint did not allege Perot sold confidential information and did not specifically allege the utility overcharges went into the pockets of these defendants. Rather, the factual allegations alleged that Perot gave or provided the information to “co-conspirators” (power producers and traders) who profited. The complaint inconsistently portrayed ISO as a victim and a conspirator that acquiesced in the market manipulation.
Section 17200 provides in part: “unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 [advertising] (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code).”
The Governor declared a state of emergency with respect to energy in California on January 17, 2001.
(Pacific Gas & Electric Co. v. Department of Water Resources
(2003)
Section 17203 provides: “Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may 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.”
Under the filed rate doctrine, “interstate power rates filed with FERC or fixed by FERC must be given binding effect by state utility commissions determining intrastate rates.”
(Nantahala Power & Light
v.
Thornburg
(1986)
“Fluid recovery” refers to the application of the equitable doctrine of cy pres (putting charitable trust funds to the next best use if the trust purpose can no longer be accomplished) in the context of a modem class action. (Kraus, supra, 23 Cal.4th at pp. 127, 132.) First, the defendant’s total damage liability is paid over to a class fund. Second, individual class members are afforded an opportunity to collect their individual shares by proving their particular damages. Third, any residue is distributed as directed by the court. (Ibid.) The Legislature authorized fluid recovery in class actions in Code of Civil Procedure section 384, which authorizes the court in class action litigation to direct payment of the residue to, e.g., nonprofit orgаnizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the objectives of the underlying lawsuit.
The theory underlying fluid class recovery is that since each class member cannot be compensated exactly for the damage he or she suffered, the best alternative is to pay damages in a way that benefits as many of the class members as possible and in the approximate proportion that each member has been damaged, even though some class members may not receive compensation and some non-class-members will benefit from the distribution.
(Kraus, supra,
A fluid recovery remedy is necessary “only when a defendant must disgorge money that is not to be returned to the persons from whom they were [sz'c] obtained . . . .”
(Kraus, supra,
Proposition 64 eliminated representative actions. (See fn. 1, ante.)
Section 17205 provides in full: “Unless otherwise expressly provided, the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this state.”