People v. Fremont Life Ins.

Decision Date18 December 2002
Docket NumberNo. B139066.,B139066.
Citation128 Cal.Rptr.2d 463,104 Cal.App.4th 508
CourtCalifornia Court of Appeals Court of Appeals
PartiesThe PEOPLE ex rel. BILL LOCKYER, as Attorney General, etc., Plaintiff and Respondent, v. FREMONT LIFE INSURANCE COMPANY, Defendant and Appellant.

Horvitz & Levy, David M. Axelrad, Lisa Perrochet, Encino, Loren Homer Kraus, Los Angeles; Woolls & Peer, Paul Woolls and Gregory B. Scher, Los Angeles, for Defendant and Appellant.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, Albert Shelden, Michael R. Botwin, Michele R. Van Gelderen, Margaret Reiter and Seth E. Mermin, Deputy Attorneys General, for Plaintiff and Respondent.

DOI TODD, J.

INTRODUCTION

In a bench trial the court found Fremont Life Insurance Company (appellant) had violated Business and Professions Code section 17200 et seq, the "unfair competition law," in connection with the sale of certain annuity policies. The trial court imposed approximately $2.5 million in civil penalties, granted injunctive relief, and required appellant to offer restitution. Appellant contends that the civil penalties should be reversed as an abuse of discretion and a violation of constitutional due process; that the restitution provisions should be reversed because not all consumers were harmed by appellant's violations and on the ground that the restitution order constitutes an excessive, double punishment; and that the restitution notification requirements should be modified. We affirm the judgment.

BACKGROUND

Appellant concedes that substantial evidence supports the findings of the trial court. The following factual summary is based on the statement of decision.

Appellant and the Alliance for Mature Americans (AMA) "combined in various ways unlawfully to sell inter vivos trusts and annuities primarily to senior citizens." AMA first solicited potential consumers through mass mailings or telemarketing techniques, offering free consultations about living trusts in their residences. An AMA representative would then visit a prospect and identify himself or herself as a "certified trust advisor" or as an expert in estate planning. The representative would offer to sell the prospect an estate plan, which would include standardized forms, many of which were based on California statutory forms but without cautionary and instructive information. The documents included an inter vivos trust, pourover will, and various powers of attorney. When the documents were delivered at a later date, the representative presented the documents for signature and notarized some of them. During this encounter, the person delivering the documents, who at that point was a life insurance agent of appellant, would engage in efforts to persuade the consumer to purchase an annuity policy. "From the start of their contact with each prospect, AMA and the representatives had the intention of trying to sell an annuity," which was their major goal and "dwarfed everything else of value, including the consideration paid for the estate plan and the commission arising from the estate plan sale." The representatives did not identify themselves as life insurance agents and did not advise the prospective purchaser that the ultimate goal was to sell the annuity policy and earn a commission from that sale.

The relationship between appellant and AMA and their conduct resulted in the unauthorized practice of law and unfair, fraudulent, and deceptive business practices in the marketing of annuity policies that, in turn, were deceptive.

Respondent filed suit against appellant and other defendants pursuant to Business and Professions Code section 17200 et seq., the "unfair competition law," hereafter, the UCL.1 The complaint alleged, inter alia, that appellant had violated the UCL based upon its involvement in various acts of unfair competition (§ 17200) and the making of untrue or misleading statements (§ 17500).2

The trial court agreed, finding appellant violated sections 17200 and 17500 based on "three sets of circumstances, each of which is independently adequate": (1) Appellant was involved in the unauthorized practice of law; (2) Appellant "was involved in an unfair, fraudulent, and deceptive business practice in the marketing of its annuities, i.e, the indication by its sales agents, pursuant to training, that they were advisors on matters of estate planning by the use of inter vivos trusts, rather than salespersons who had the ultimate goal of selling annuity policies to the customers, and the indication that AMA was an organization of senior citizens or an organization which functioned on behalf of senior citizens, rather than [a] sales organization, all of which was likely to deceive"; and (3) Appellant "marketed an annuity policy which was misleading and deceptive in its failure clearly to describe the full economic consequences of early withdrawal of funds and was therefore likely to deceive."

In addition to ordering injunctive relief, the trial court imposed a civil penalty of $210 for each violation of section 17200 and for each violation of section 17500, enhanced by an additional $210 per violation because senior citizens were targeted (§ 17206.1; fn. 14, post), for a total of $2,543,000.3 The trial court stated that the civil penalty imposed closely reflected "the seriousness and harmfulness of the violations" and that the "gross amount ... is an appropriate remedy based on the various factors material to setting such an amount, which are essentially undisputed between the sides." It also ordered restitution and notice of restitution.

This appeal followed.

DISCUSSION

Appellant makes the following contentions: I. The civil penalty should be reversed on the grounds that it violates due process requirements, is an abuse of the trial court's discretion, and is not necessary as a deterrent; II. The restitution order should be reversed because not all annuitants were deceived or harmed, and on the additional ground that it is an excessive, double punishment; and III. The notification of restitution should be modified.

I. The Civil Penalty

Appellant contends the imposition of the civil penalty violates federal due process, constitutes an abuse of discretion, and is not necessary as a deterrent.

A. Due Process

The Fourteenth Amendment to the federal Constitution prohibits states from depriving any person (including a corporation) of property without due process of law. (See generally 7 Witkin, Summary of Cal. Law (9th ed. 1988) Constitutional Law, §§ 481-483, pp. 668-670.) Appellant argues the civil penalty imposed in the instant case violates the federal procedural due process requirement on the ground that the broad authority granted courts under the UCL denies defendants fair notice that specific conduct may subject them to imposition of a substantial penalty, and on the additional ground that the civil penalty imposed is grossly excessive.

The standard of review of constitutional questions is independent judgment, "but with deference to underlying factual findings, which we review for substantial evidence, viewing the record in the light most favorable to the ruling [citations]." (City and County of San Francisco v. Sainez (2000) 77 Cal.App.4th 1302, 1313, 92 Cal.Rptr.2d 418.) "[A] statute is presumed to be constitutional and ... it must be upheld unless its unconstitutionality `clearly, positively and unmistakably appears.' [Citations.]" (Hale v. Morgan (1978) 22 Cal.3d 388, 404, 149 Cal.Rptr. 375, 584 P.2d 512.)

The primary purpose of the UCL is "`the preservation of fair business competition.' [Citations.]" (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527, hereafter Celr-Tech.) This purpose includes "'the right of the public to protection from fraud and deceit.'" (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 110, 101 Cal.Rptr. 745, 496 P.2d 817; see also Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 209-210, 197 Cal.Rptr. 783, 673 P.2d 660.)

Sufficiency of Notice

Appellant argues that the UCL did not afford appellant sufficient notice that various acts would result in a substantial civil penalty.

As quoted in the margin, section 17200 states in part: "As used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice ...."(§ 17200; fn. 2, ante.) Written in the disjunctive, this language "establishes three varieties of unfair competition." (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647, 58 Cal.Rptr.2d 89.)

With respect to the unlawful prong, "[virtually any state, federal or local law can serve as the predicate for an action" under section 17200. (Podolsky v. First Healthcare Corp., supra, 50 Cal. App.4th at p. 647, 58 Cal.Rptr.2d 89; see, e.g., People v. Landlords Professional Services (1989) 215 Cal.App.3d 1599, 264 Cal. Rptr. 548 [unauthorized practice of law].) "`[I]n essence, an action based on Business and Professions Code section 17200 to redress an unlawful business practice "borrows" violations of other laws and treats these violations, when committed pursuant to business activity, as unlawful practices independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder.'" (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383, 6 Cal.Rptr.2d 487, 826 P.2d 730, disapproved on another point in Cel-Tech, supra, 20 Cal.4th at p. 185, 83 Cal.Rptr.2d 548, 973 P.2d 527.) The UCL remedies and penalties are cumulative to those imposed under the other laws. (Ibid; § 17204.)

As to the second prong, the California Supreme Court has not yet developed or approved a definition regarding what is unfai...

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