News
January 11, 2019

Do Local Officials in California Have Power to Enforce Unfair Competition and Antitrust Laws Statewide?

Advisory

From the category of "only in California," the state Supreme Court will soon consider whether California's Unfair Competition Law (UCL) authorizes each of 58 district attorneys to recover restitution and civil penalties for violations occurring outside of their counties. The issue has split the public-sector bar along institutional fault lines, with a faction, joined by the plaintiffs' bar, arguing for a system in which a plethora of local enforcers have overlapping, statewide enforcement authority. Over the next month, these groups and others will be submitting amicus briefs for the court's consideration.

Background

As a notorious outlier among little FTC Acts, the UCL delegates authority to obtain restitution on behalf of victims and civil penalties not only to the California Attorney General, but also to the state's 58 county district attorneys, and certain city and county attorneys. Under this four-decade-old system of concurrent jurisdiction, businesses in California have faced the prospect that any one of scores of independent government officials might decide to investigate and prosecute them for "unfair competition" or violations of antitrust or any other law (because otherwise "unlawful" conduct is one of the predicate acts under the UCL). Parties facing enforcement activities by one local official have had to take precautions to minimize the risk of duplicative recovery by another enforcer because the UCL authorizes both the Attorney General and local enforcers alike to bring their enforcement actions broadly "in the name of the people of the State of California."

During this time, however, the UCL's web of enforcement authority triggered no appellate-court review of the geographic scope of local enforcers' authority to obtain restitution or civil penalties.1Enforcers generally cooperated with one another through joint prosecution agreements and exercised prosecutorial restraint not to seek duplicative recovery. So while local enforcers would assert statewide enforcement authority, they cooperated with one another in a manner that avoided appellate litigation over the issue of whether the apparently broad and unbounded delegation of enforcement authority to local officials in the UCL can reasonably be interpreted to extend to conduct occurring outside the jurisdictions in which the officials were elected.

The Orange County District Attorney's Lawsuit

In late 2016, a lawsuit by the Orange County District Attorney disrupted this equilibrium. The district attorney retained a private law firm to represent "the people of the State of California" in a UCL enforcement action against certain drug manufacturers. The manufacturers (or their predecessors) were parties to an agreement resolving a dispute over the ability to sell a generic version of the drug branded as Niaspan, which helps manage cholesterol levels in patients with dyslipidemia. Private parties had already filed antitrust lawsuits alleging that the agreement unreasonably delayed the release of a generic version of Niaspan. (See In re Niaspan Antitrust Litigation, 2:13-md-02460-JD (ED Penn., filed Sept. 17, 2013).) No government enforcer, however, from any jurisdiction in the country had initiated a related investigation or enforcement action, until the Orange County District Attorney's suit.

Although styled as a UCL enforcement action, the complaint contained only one count and that count was premised on alleged violations of federal and state antitrust laws, including California's Cartwright Act and the federal Sherman, Clayton, and FTC Acts. Moreover, it clearly contemplated obtaining restitution and civil penalties for alleged antitrust violations occurring outside of Orange County. Specifically, the complaint alleged that "the violations of . . . law complained of herein resulted in damages to consumers of Niaspan in California, including in the County of Orange." And it sought restitution in the amount of overcharges for Niaspan and $2,500 for each UCL violation, with "[e]ach sale of Niaspan . . . constituting a separate violation."

Seeking to define the proper scope of the case at the outset, the defendants filed a motion to strike allegations that were premised on the district attorney's assumption of extraterritorial jurisdiction, such as all requests for recovery on behalf of "California Niaspan users." The trial court denied the motion to strike, and the defendants sought and obtained discretionary interlocutory review (a writ of mandamus under California procedure) by the California Court of Appeal.

The Split Among Government Enforcers

In the Court of Appeal, the public-sector bar filed amicus briefs taking different sides on the Orange County District Attorney's assertion of extraterritorial authority. All the other district attorneys—who are part of the California Department of Justice—and the Attorney General—who heads that department—lined up against the Orange County District Attorney. The Orange County District Attorney, represented by a private firm, clearly broke ranks within the Department of Justice. Jumping to his aid were city attorneys and county counsel who are not part of the Department of Justice but also have authority to enforce the UCL.

The state's other district attorneys and the Attorney General—joined by the US and California Chambers of Commerce—pointed to the general provisions in the state constitution and government code defining the authority of district attorneys. They argued that those provisions clearly limit a district attorney's authority to bring civil enforcement actions to those based on conduct in his or her county. Only the Attorney General, they noted, possesses statewide authority in civil litigation, and with that authority comes a duty to ensure that California's civil statutes are uniformly and adequately enforced across the state. If district attorneys can enforce the UCL based on conduct outside of their counties, the argument continued, one district attorney could both usurp the Attorney General's statewide role and infringe upon the authority of other district attorneys within their own counties. This result is particularly problematic where, as here, the UCL violation is premised on an antitrust violation because, to bring the action directly under the state's antitrust law, the district attorney would have needed the Attorney General's consent.

The Attorney General and Chamber of Commerce also argued that, as a policy matter, extraterritorial jurisdiction would create impermissible conflicts of interest for local enforcers. Under the UCL's provisions, local enforcers retain half to all of the penalties they secure, and they use those funds "exclusive[ly] . . . for the enforcement of consumer protection laws." The size of their civil penalty awards is directly related to the geographic reach of their enforcement authority because civil penalties are calculated by multiplying the number of violations by as much as $2,500 per violation and each sale under an unfair practice is commonly contended to be a separate violation. Therefore, were local enforcers able to bring UCL actions for violations statewide, the argument goes, local enforcers would have a greater financial incentive to rush to the courthouse and be the first to file and resolve any UCL claim. Additionally, on the issue of restitution, a local enforcer representing all residents of California would have an incentive to favor his or her constituents over other residents of the state.

Meanwhile, city attorneys and county counsel—joined by the Consumer Attorneys of California—pointed to the fact that the language of the UCL is broad and unrestrained in its delegation of enforcement authority to district attorneys and argued that this was intentional by the Legislature. The Legislature, they argued, wanted to give district attorneys license to bring UCL actions for violations anywhere in the state because that will lead to more enforcement activity, which will better achieve the goals of the Legislature in enacting the UCL. A contrary result, they contended, would "shield" defendants from liability for the full extent of their wrongdoing, absent concurrence by all district attorneys to pursue an action against the defendant.

The Decision in Abbott Laboratories v. Superior Court

After weighing these arguments, the Court of Appeal held, in a split 2–1 opinion, that absent written consent by the Attorney General and other district attorneys, a district attorney must confine any UCL claims for restitution or civil penalties to violations occurring within the county he or she serves. (Abbott Laboratories v. Superior Court, 24 Cal. App. 5th 1 (2018).)

The majority reasoned that a contrary holding "would permit the Legislature to usurp the Attorney General's constitutional authority as the state's chief law officer, and allow the district attorney of one county to impermissibly compromise and bind the Attorney General and the district attorneys of other counties." While the UCL authorizes district attorneys to bring enforcement actions "in the name of the people of the State of California," the majority's reasoning continued, such authorization "cannot reasonably or constitutionally be interpreted to grant the district attorney power to seek and recover restitution and civil penalty relief for violations occurring outside the jurisdiction of the county in which he was elected."

The dissent, in contrast, found no constitutional impediment to a district attorney possessing statewide authority and labeled as "overbroad" the majority's interpretation of the constitutional provisions defining the Attorney General's and district attorneys' authority. Looking at the plain language of the UCL, the dissent reasoned that the UCL's expansive delegation of enforcement authority intentionally creates overlapping enforcement power—i.e., a system without an intrastate geographic restriction on a district attorney's authority.

Impending Review by the California Supreme Court

Thereafter, the California Supreme Court granted a petition by the Orange County District Attorney for review. The parties' merits briefing is complete, and at this point, many amici will lend their support to one side or the other. The California Supreme Court is expected to conduct oral argument on the matter at some point later this year and issue a decision in late 2019 or early 2020. In the meantime, companies seeking to resolve investigations by individual district attorneys will need to consider whether to resolve matters on a local basis or request that any resolution include a broader scope and, therefore, additional prosecutors.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. In People v. Hy-Lond, Inc., the Court of Appeal addressed a related issue of whether a district attorney has authority to bind the Attorney General and other local enforcers to the terms of a settlement with a defendant in a UCL enforcement action. In the case, a district attorney's stipulated judgment proscribed the manner in which the defendant would operate its business going forward, absolved the defendant of past UCL violations, conferred immunity from UCL enforcement actions based on future conduct consistent with the judgment's proscriptions, and designated the district attorney as the exclusive governmental official that could enforce those proscriptions. (93 Cal. App. 3d 734 (1979).) The Court of Appeal held that the judgment was void because the district attorney had no authority to surrender the powers of the Attorney General and other district attorneys to commence UCL actions.

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