Opinion
A099066.
7-31-2003
MICHAEL A. WAUL, Plaintiff and Respondent, v. CHARLES SCHWAB & CO., INC., Defendant and Appellant.
In Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, the Supreme Court held that claims for injunctive relief under Business and Professions Code section 17200 are not arbitrable. It further held that claims for restitution and disgorgement are arbitrable, at least insofar as they are brought by an interested party subject to an arbitration agreement.
Ruling without the benefit of Cruz, the trial court in this case denied Charles Schwabs motion to compel arbitration of Michael Wauls Business and Professions Code section 17200 claims for injunctive relief, disgorgement, and restitution. We reverse as to the claims for disgorgement and restitution.
FACTUAL AND PROCEDURAL BACKGROUND
Michael Waul has brokerage accounts with Charles Schwab & Company (Schwab). In the course of his relationship with Schwab, Waul entered a series of arbitration agreements. The terms of these agreements do not materially vary. They each include some version of the following provision, applicable to Wauls Schwab One account:
Arbitration Agreement: You, your agents, and any other persons having or claiming to have a legal or beneficial interest in the account (collectively "you") agree to settle by arbitration any controversy between or among you, the Bank or us and/or any of our officers, directors, employees or agents relating to the Schwab One Account Agreement, your Schwab One Account or account transactions, any other Schwab account in which you claim an interest, or in any way arising from your relationship with us or the Bank.
In October 2001, Waul sued Schwab over its funds availability policy. When Schwab receives a check for a client account, it places a five business day hold on the check before crediting funds to the account, even though it may receive the funds earlier. According to the complaint, this policy "effectively denied numerous California residents of the full use of their funds and/or the availability of said funds."
Waul framed his complaint as two causes of action for unfair competition under Business and Professions Code section 17200. He sought an injunction requiring Schwab to credit client accounts as soon as it received funds from the clients banks and prohibiting Schwab from engaging in similar future acts of unfair competition. He further sought disgorgement and restitution on behalf of "affected California consumers."
All statutory references are to the Business and Professions Code.
Schwab moved to compel arbitration of all claims. The trial court denied the motion. It ruled that Wauls claim for injunctive relief was inarbitrable, and that his claim for disgorgement was ancillary to the claim for injunctive relief and thus also inarbitrable. Schwab timely appealed.
On October 10, 2002, Schwab filed a request for judicial notice. We deferred ruling on the request so that we could consider it along with the merits of the appeal. Having now considered Schwabs request, we deny it. The materials submitted have no bearing on the issues we decide. (See Mangini v. R.J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063, 875 P.2d 73.)
DISCUSSION
Cruz v. PacifiCare Health Systems, Inc., supra, 30 Cal.4th 303 (Cruz) governs this case. There, plaintiff challenged various healthcare marketing practices and sought injunctive relief, restitution, and disgorgement under section 17200, inter alia. The Court of Appeal affirmed the denial of defendants motion to compel arbitration. (Cruz, at p. 311.) It reasoned that injunctive claims for relief were inarbitrable under Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 988 P.2d 67 (Broughton), and any claims for restitution were purely equitable remedies ancillary to the request for an injunction and thus inarbitrable as well. (Cruz, at p. 311.)
The Supreme Court reversed in part. It agreed that the reasoning of Broughton, a Consumer Legal Remedies Act case, should be extended to section 17200 consumer cases seeking injunctions. First, a consumer action to enjoin deceptive business practices is undertaken for public, rather than private, benefit. (Cruz, supra, 30 Cal.4th at p. 316.) Second, a judicial forum is uniquely better suited to administer an injunction and protect that public benefit. (Id. at pp. 312, 316.) Consequently, there is an "inherent conflict" between the public policy in favor of arbitration and the public policies protected by section 17200 injunctions that renders injunctive claims inarbitrable. (Id. at p. 316.)
However, the Supreme Court rejected the Court of Appeals extension of these principles to deny arbitration of section 17200 restitution and disgorgement claims. "In the UCL [Unfair Competition Law] context, an order for restitution is an order 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.]" (Cruz, supra, 30 Cal.4th at p. 317.) While such claims might still be for the public benefit, courts hold no particular "institutional advantages" in deciding and administering money claims. (Id. at p. 318.) Consequently, there is no inherent conflict between issuance of restitution or disgorgement and arbitration. (Ibid.) Cruz compels reversal of the portion of the trial courts order denying arbitration of Wauls restitution and disgorgement claims.
Waul argues that we may affirm, notwithstanding Cruz, because Cruz expressly left open the question whether a party not subject to an arbitration agreement could proceed in court on a section 17200 restitution claim on behalf of parties who were subject to such agreements. (Cruz, supra, 30 Cal.4th at p. 320, fn. 7.) Waul argues that he is seeking restitution only on behalf of others, and that he should be permitted to proceed in court on those purely representative restitution and disgorgement claims.
Wauls attempted distinction fails as a matter of fact, law, and policy. As a matter of fact, the complaint seeks restitution "to the affected California consumers." Waul is an affected California consumer: he has brokerage accounts with Schwab. Waul is thus a member of the class on whose behalf restitution is sought. Also like Cruz, Waul is party to an arbitration agreement. Waul thus stands in the identical position as Cruz, and his restitution and disgorgement claims are arbitrable.
It is true that Cruz expressly sued on his own behalf (Cruz, supra, 30 Cal.4th at p. 308), while Waul asserts that he is suing only in a representative capacity. Nevertheless, as Waul conceded at oral argument, he is in the class of people who stand to benefit if he obtains the recovery sought in his prayer for relief.
As a matter of law, Wauls distinction fails because Cruz did not limit its holding based on whether an individual restitution claim was pled, but based on whether the particular plaintiff had an arbitration agreement. Because Cruz was party to an arbitration agreement, his "actions for restitution and/or disgorgement, whether brought as an individual or as a class action, are arbitrable." (Cruz, supra, 30 Cal.4th at p. 320, italics added.) Thus, even if Waul expressly had disavowed restitution for himself in his complaint, his class claims would be arbitrable.
As a matter of policy, Wauls distinction would eviscerate Cruz. If a plaintiff could avoid arbitration through the simple expediency of disavowing personal recovery, then two plaintiffs could readily accomplish what one cannot. Though each might be subject to an arbitration agreement, plaintiff A could sue on behalf of the general public — including plaintiff B-while plaintiff B could sue on behalf of the general public — including plaintiff A. Thus, restitution claims would be permitted to proceed in court, notwithstanding the fact that every affected consumer might have entered a valid and enforceable arbitration agreement. Cruz bars this outcome.
For the first time on appeal, Waul argues that the arbitration clause is unconscionable. By failing to raise this issue before the trial court, Waul has waived it. (Vikco Ins. Services, Inc. v. Ohio Indemnity Co. (1999) 70 Cal.App.4th 55, 66-67.) We decline to consider the issue.
DISPOSITION
We affirm the portion of the trial courts order denying arbitration of Wauls injunctive claims. We reverse the portion of the trial courts order denying arbitration of Wauls restitution and disgorgement claims. On remand, "the trial court has the discretion to stay proceedings on the inarbitrable claims pending resolution of the arbitration." (Cruz, supra, 30 Cal.4th at p. 320.) We remand to allow the trial court to exercise its discretion in the first instance. Costs are awarded to Schwab.
We concur. JONES, P.J., STEVENS, J.