A decade ago, California’s unfair competition law (UCL) and its closely related false advertising law (FAL) were the ideal plaintiff’s tools. Any person—even one with no connection to a particular asserted violation or harm—was able to bring a claim on behalf of the “general public” and recover restitution for thousands of people (and, of course, attorney’s fees) without going through the hassle of class certification. But in 2004, the California voters changed that; private plaintiffs who want to sue on behalf of others must certify a class. The statutes still work the old way for public prosecutors, who can invoke the public’s rights without meeting the requirements for class certification.
Sometimes a plaintiff’s attorney and a prosecutor fasten on the same target. Then what? What if the private plaintiffs get there first, settling for the class before a prosecutor brings an action on behalf of the general public?
The Ninth Circuit recently addressed this scenario in People v. Intelligender, LLC. Intelligender makes a test designed to predict a baby’s gender. The test’s accuracy allegedly disappointed some of its purchasers, who brought a class action under the UCL and FAL. Intelligender removed the case to federal court under the Class Action Fairness Act of 2005 (CAFA), and eventually settled the class action. As part of the settlement approval process, the parties notified the California Attorney General, as CAFA requires (see 28 U.S.C. § 1715). The AG did not seek to challenge the settlement—which involved both monetary and injunctive relief—and the district court approved it.
Enter the San Diego City Attorney, who decided that Intelligender had not paid enough. The City Attorney brought a new action in state court on behalf of the general public and in the name of the State, seeking not only a broader injunction and civil penalties but also restitution for same class of buyers that had settled the federal case.
But Intelligender did feel that enough was enough. After removing the case to federal court under CAFA, Intelligender asked the district court to enjoin the entire lawsuit. The district court declined and remanded the case to state court. Intelligender then asked the district court to enjoin only the State’s pursuit of restitution, but the district court declined again.
The Ninth Circuit affirmed in part and reversed in part. The court of appeals agreed that California could pursue its own injunction and could seek civil penalties because the private settlement did not have res judicata effect over a public entity. The court reasoned that law enforcement cannot be shut down by a private settlement, and the private plaintiffs could not and did not pursue civil penalties.
But the Ninth Circuit drew the line at the pursuit of duplicative restitution, which failed under “longstanding principles of res judicata.” Citing the Supreme Court’s admonition in EEOC v. Waffle House, Inc. that “it goes without saying that the courts can and should preclude double recovery by an individual” even when a public agency litigates on the individual’s behalf, the Ninth Circuit turned back the State’s effort to increase the private payout. Because the certified class of all purchasers had settled all their claims for restitution, the State could not step in and seek greater compensation for the same injury. This was so even though the settlement only compensated those whose test results were inaccurate, while the State also sought “restitution” of the entire purchase price for buyers who got everything they paid for—persons who were in the settlement class, but received no payment under the settlement. The time for the State to challenge the lack of payment to uninjured buyers was in the private case after receiving the CAFA-required notice of the settlement.
The Ninth Circuit—joining a long list of district court decisions, including one we blogged about last year—was right to prevent the State from reopening the issue of compensation for class members. Whatever a State may do in pursuing public law enforcement remedies, it cannot try to extract greater payments to individuals whose own claims have been decided or settled. So while defendants cannot altogether stop follow-on UCL actions by public prosecutors, any additional pecuniary liability must run to the State, not to the plaintiffs who sued—and settled—first.