Opinion ID: 2567359
Heading Depth: 2
Heading Rank: 2

Heading: The Attorney General's Standing to Pursue its Claims in Light of Insurance Code Section 1037, Subdivision (f).

Text: We turn now to the first question, that is, can the Attorney General pursue civil remedies, under the CFCA and the UCL, concerning the assets of an insolvent insurance company for which the Commissioner is acting as conservator or liquidator, or does the Insurance Code, particularly section 1037, subdivision (f), give exclusive authority to the Commissioner to bring civil actions? As discussed in the first part of this opinion, the assets to which the Commissioner acquires title from an insolvent insurance company under Insurance Code section 1101 are not state funds within the meaning of the CFCA. Therefore, the Attorney General has no standing to pursue a CFCA claim that pertains to those assets. As for the UCL claim, as explained below, we conclude the answer varies depending upon the remedy sought. Accordingly, each remedy the Attorney General seeks under the UCL  restitution, civil penalties, and injunctive relief  will be discussed in turn.
Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices in order to protect the public and restore to the parties in interest money or property taken by means of unfair competition. ( Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 126, 96 Cal.Rptr.2d 485, 999 P.2d 718 ( Kraus ); see Bus. & Prof.Code, § 17204.) A UCL action may be prosecuted by the Attorney General, by certain specified local law enforcement officials, or by any person who has suffered injury in fact and has lost money or property as a result of such unfair competition. ( Ibid. ) Business and Professions Code section 17205 provides: Unless otherwise expressly provided, the remedies or penalties provided by [the UCL] are cumulative to each other and to the remedies or penalties available under all other laws of this state. Therefore, the fact that there are alternative remedies under a specific statute does not preclude a UCL remedy, unless the statute itself provides that the remedy is to be exclusive. (See Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 573, 71 Cal.Rptr.2d 731, 950 P.2d 1086 ( Stop Youth Addiction ).) We conclude that Insurance Code section 1037, subdivision (f) is such an express limit on the authority of the Attorney General to seek a restitutionary remedy under the UCL. [6] As discussed in the previous part of this opinion, Insurance Code section 1057 defines the Commissioner's basic role in insolvent insurance company proceedings: In all proceedings under this article, the commissioner shall be deemed to be a trustee for the benefit of all creditors and other persons interested in the estate of the person against whom the proceedings are pending. Insurance Code section 1037 further defines the Commissioner's role when he takes possession of the property of the insolvent company. It provides in pertinent part: Upon taking possession of the property and business of any person in any proceeding under this article, the commissioner, exclusively and except as otherwise expressly provided by this article, either as conservator or liquidator: [¶] ... [¶] (f) May, for the purpose of executing and performing any of the powers and authority conferred upon the commissioner under this article, in the name of the person affected by the proceeding or in the commissioner's own name, prosecute and defend any and all suits and other legal proceedings, and execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary and proper to effectuate any sale of any real and personal property.... (Italics added.) The purpose of article 14 is, like federal bankruptcy law, to ensure the equitable distribution of an insolvent debtor's property among creditors, but also has the additional and more urgent purpose of protecting an insurance company's policyholders, as well as its creditors, by preventing dissipation of the company's assets when it is found by the commissioner to be a hazardous condition. ( Garamendi v. Executive Life Ins. Co. (1993) 17 Cal.App.4th 504, 519, 21 Cal.Rptr.2d 578.) Insurance Code section 1037, subdivision (f) recognizes that the Commissioner as trustee has the exclusive right to protect the interests of policyholders and other creditors. The statute is therefore in accord with the law of trusts, which generally gives the trustee, rather than the beneficiaries of the trust, the right to sue on behalf of the trust. (See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith (1998) 68 Cal.App.4th 445, 461-462, 80 Cal.Rptr.2d 329; see also 4 Scott on Trusts (4th ed.1989) § 282, pp. 26-28.) The Attorney General recognizes that the purpose of article 14 is to preclude common-law derivative actions by interested persons which are historically barred under trust laws. A UCL claim for restitution seeks to compel defendant[s] 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. ( Kraus, supra, 23 Cal.4th at pp. 126-127, 96 Cal.Rptr.2d 485, 999 P.2d 718, fn. omitted.) The Attorney General affirms that the restitutionary remedy will inure to the benefit of ELIC's creditors. [7] There can be little doubt that if, for example, a policyholder attempted a common law action seeking restitution as a remedy to restore property lost by an insolvent insurance company, such an action would be precluded by Insurance Code section 1037, subdivision (f). The suit would fall squarely within the exclusive role of the Commissioner, as conservator and trustee, to prosecute and defend any and all suits and other legal proceedings pertaining to the insolvent insurer's property and business. ( Ibid. ) There can also be little doubt that a policyholder's suit seeking such a restitutionary remedy on behalf of the insolvent company would be precluded by section 1037, subdivision (f), regardless of whether the claim for restitution was brought under the UCL or under a common law theory. In either case, the claim, in substance, would usurp the Commissioner's exclusive role as conservator and trustee under article 14 generally and section 1037, subdivision (f) specifically. It is difficult to see how the situation would be different if it were the Attorney General, rather than a policyholder, bringing a UCL action for restitution. It is true that the Attorney General is the state's chief law enforcement officer, and that restitution may have a collateral law enforcement effect, punishing the wrongdoer against whom restitution is sought. But the primary purpose of the Attorney General's attempt at restitution is to recover lost property on behalf of an insolvent insurer's creditors and policyholders. As such, he seeks to perform an action that is quintessentially within the scope of the Commissioner's power as conservator and trustee of the insolvent company. Because section 1037, subdivision (f) assigns the role of pursuing such restitutionary remedies on behalf of creditors and policyholders of the insolvent company exclusively to the Commissioner, we conclude that the Attorney General may not pursue that remedy. [8] The Attorney General cites People v. Pacific Land Research Co. (1977) 20 Cal.3d 10, 141 Cal.Rptr. 20, 569 P.2d 125 ( Pacific Land Research Co. ) in support of his position. In that case the Attorney General sought civil penalties, injunctive relief, and restitution pursuant to Business and Professions Code section 17535 [9] against a company alleged to have made the misrepresentations in connection with the sale of land. This court rejected defendant's contention that the Attorney General's action for restitution was in substance a class action lawsuit that was required to comply with the same procedural safeguards as private class action suits. ( Pacific Land Research Co., supra, 20 Cal.3d at p. 16, 141 Cal.Rptr. 20, 569 P.2d 125.) As we stated, in distinguishing the Attorney General's action from a private class action suit: An action filed by the People seeking injunctive relief and civil penalties is fundamentally a law enforcement action designed to protect the public and not to benefit private parties. The purpose of injunctive relief is to prevent continued violations of the law and to prevent violators from dissipating funds illegally obtained. Civil penalties, which are paid to the government [citations], are designed to penalize a defendant for past illegal conduct. The request for restitution on behalf of vendees in such an action is only ancillary to the primary remedies sought for the benefit of the public. [Citation.] While restitution would benefit the vendees by the return of the money illegally obtained, such repayment is not the primary object of the suit, as it is in most private class actions. ( Id. at p. 17, 141 Cal.Rptr. 20, 569 P.2d 125.) While the above is true, it is not significant in the present context. Although the action by the Attorney General for restitution may be ancillary to the primary remedies tied directly to law enforcement actions, the Attorney General cannot, when the Commissioner acts as conservator of an insolvent insurance company, pursue such remedies without trespassing on the Commissioner's role. The Attorney General also cites cases holding that the UCL endowed the Attorney General and the Commissioner with concurrent jurisdiction over violations of the Insurance Code. In Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 6 Cal.Rptr.2d 487, 826 P.2d 730, for example, we concluded that a statutory scheme that permitted those improperly denied a good drivers discount to pursue an administrative remedy with the Commissioner (see Ins.Code, §§ 1858, 1861.02 and 1861.05) did not preclude the Attorney General's UCL action, although we held the Commissioner had primary jurisdiction over the complaint. ( Farmers Ins. Exchange, supra, 2 Cal.4th at pp. 394-395, 398-399, 6 Cal.Rptr.2d 487, 826 P.2d 730.) But in that and other cases cited by the Attorney General, the Commissioner acted as a regulator, and there was nothing in the regulatory scheme to suggest an exception to the rule that UCL remedies are cumulative ... to remedies and penalties available under all other laws of this state. ( Id., at p. 395, 6 Cal.Rptr.2d 487, 826 P.2d 730; see also People ex rel. Orloff v. Pacific Bell (2003) 31 Cal.4th 1132, 1155, 7 Cal.Rptr.3d 315, 80 P.3d 201 [district attorney may pursue UCL action against public utility for misleading representations despite the Public Utility Commission's concurrent jurisdiction].) In the present case, the Commissioner is acting primarily not as regulator but as conservator and trustee, and is given, as discussed, the exclusive authority to act on behalf of the insolvent insurer's policyholders and creditors in civil actions. This exclusive authority precludes the Attorney General from exercising concurrent jurisdiction in a manner that would essentially duplicate the Commissioner's legal action. The Attorney General's claim for restitution under the UCL does precisely that and is therefore barred by Insurance Code section 1037 subdivision (f).
The Attorney General's claim for civil penalties under the UCL is a different matter. Civil penalties are authorized by Business and Professions Code section 17206, which provides in pertinent part: (a) Any person who engages, has engaged, or proposes to engage in unfair competition shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General, and by district attorneys, city attorneys and county counsel under specified circumstances. Thus, unlike Business and Professions Code section 17204, which authorizes that the injunctive and restitutionary remedies provided in the UCL may be pursued by any person who has suffered injury in fact, section 17206 limits the acquisition of civil penalties to the Attorney General and other specified government officials. Further, Business and Professions Code section 17206, subdivision (c) provides: If the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the State General Fund. If the action is brought by a district attorney or county counsel, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered. The recent amendment of section 17206 by Proposition 64 further provides that the penalty funds shall be for the exclusive use by the Attorney General [and other public officials] for the enforcement of consumer protection laws. (Bus. & Prof.Code, § 17206, subd. (c), as amended by Prop. 64, as approved by voters, Gen. Elec. Nov. 2, 2004.) In the present case, defendants are alleged to have violated several laws, including California Insurance Code section 699.5, precluding foreign governments from owning or controlling a California insurance company, and the Bank Holding Company Act, 12 United States Code section 1841 et seq., prohibiting a foreign bank from owning an American insurance company. Defendants concede Insurance Code section 1037, subdivision (f) does not preclude the Attorney General from bringing a criminal action against them. We fail to discern a difference, for present purposes, between the Attorney General seeking criminal penalties or civil penalties. Civil penalties, which are paid to the government [citations] are designed to penalize a defendant for past illegal conduct. ( Pacific Land Research Co., supra, 20 Cal.3d at p. 17, 141 Cal.Rptr. 20, 569 P.2d 125.) Such penalties are not primarily concerned with restoring policyholders' or creditors' property. Thus the public, penal objective of civil penalties under the UCL differs fundamentally from the Commissioner's purpose under article 14 of protecting the beneficiaries of the insolvent insurance company. We conclude that nothing in article 14 precludes the Attorney General from suing for civil penalties under the UCL.
We employ the same analysis when it comes to injunctive relief. As we have recognized, injunctive relief may fall into two categories: injunctions intended to remedy a public wrong ( Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1080, 90 Cal.Rptr.2d 334, 988 P.2d 67) and injunctions primarily intended to resolve a conflict between the parties and rectify[] individual wrongs ( id., at p. 1080, fn. 5, 90 Cal.Rptr.2d 334, 988 P.2d 67). Injunctions sought under the UCL may fall into either category. (See Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 315, 133 Cal.Rptr.2d 58, 66 P.3d 1157.) In line with the above discussion, we hold that when the Attorney General seeks an injunction that will protect the public and prevent defendants from committing future unlawful acts, he is fulfilling primarily a law enforcement function. Such a claim is therefore not prohibited by Insurance Code section 1037, subdivision (f). If however, he seeks an injunction designed to resolve a conflict or in some way change the relationship between defendants and policyholders, creditors or others represented by the Commissioner as conservator and trustee of the insolvent insurance company, that injunction would be precluded by Insurance Code section 1037 subdivision (f). It is unclear from the record before us into which category the Attorney General's requested injunctive relief falls.