California Supreme Court: Section 3345 Damages Are A Penalty, Not Available Under UCL

SAN FRANCISCO - (Mealey's) The statute providing for treble damages in cases brought by senior citizens alleging unfair competition provides for such a remedy only as a penalty, making recovery under the unfair competition law, Business and Professions Code Section 17200, et. seq., impossible, the California Supreme Court held Aug. 9 (James A. Clark v. Superior Court of Los Angeles County, National Western Life Insurance Co., No. S174229, Calif. Sup.).

The statutory construction of California Civil Code Section 3345 indicates that the additional remedy it provides was intended as a penalty and clearly requires such an outcome, the court said.

Section 3345 provides for treble damages "or any other remedy the purpose or effect of which is to punish or deter."  To read that as anything but a penalty "would turn into meaningless surplusage the phrase immediately preceding the statute's 'deter' language, which expressly refers to a 'fine, or a civil penalty or other penalty,'" the court concluded.

"All remedies have some incidental deterrent effect.  Here, the trebled recovery provision comes into play when the governing statutory remedy has 'the purpose or effect' of punishing or deterring," the court held.

Therefore, trebled damages under Section 3345 are permissible only if the statute under which recovery of those damages is sought allows for recovery of a penalty, the court said.  Because the unfair competition law limits recovery to injunctions and restitution, it cannot be used to recover Section 3345 damages, the court held.

James Clark sued National Western Life Insurance Co. in September 2004 in the Los Angeles County Superior Court, alleging that the insurer deceived senior citizens into purchasing high-commission annuity contracts.  Clark alleged that the conduct violated the UCL, and he sought treble damages under Section 3345.

The court also held that Section 3345 is not limited to actions brought under the Consumer Legal Remedies Act, as defendant National Western Life Insurance Co. had argued.

[Editor's Note:  Full coverage will be in the August issue of Mealey's California Section 17200 Report.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #58-100831-005Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

For more information, call editor Bryan Redding at 610-205-1124, or e-mail him at bryan.redding@lexisnexis.com.