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Court of Appeal:
Lost Market Share Is Not Compensable Under UCL
By a MetNews Staff Writer
A putative class action brought under the Unfair Competition Law on behalf of more than 8,000 California optometrists with independent practices against LensCrafters and a subsidiary was properly scuttled, the First District Court of Appeal held yesterday, declaring that recompense for lost market share does not constitute restitutionary relief, as authorized by the relevant statute.
Business & Professions Code §17203, a part of the UCL, provides for injunctive relief against unfair competition and such orders “as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition” but does not permit an award of damages.
“Simply put, lost business is a form of damages—it is not restitutionary,” Justice Therese M. Stewart of Div. One wrote.
Her opinion affirms a judgment of dismissal which followed San Francisco Superior Court Judge Mary E. Wiss’s March 12, 2019 order sustaining a demurrer, without leave to amend, to the second amended complaint of optometrist Kim Lee. His action was against Luxottica Retail North America, Inc., an Ohio corporation which does business in California as LensCrafters, and its wholly owned subsidiary, Eyexam of California, Inc.
Lee sought to represent “all California doctors of optometry in practices independent of control by a retail chain optical store in California, and whose practices were located within 20 miles of a LensCrafters location between November 30, 2013 and September 1, 2015.”
Allegations of Complaint
The operative pleading sets forth:
“California law has long-required economic independence and separation between those licensed to perform eye examinations (optometrists) and others authorized only to sell and dispense lenses and frames (opticians and optical retailers). California has a public policy of prohibiting unlicensed persons from practicing any healing arts or exerting any control over decisions made by licensed healing arts practitioners.”
Eyexam employs optometrists. Blurring the lines between optometrists and opticians, the complaint avers, LensCrafters worked in tandem with Eyexam, which steered patients who were examined by its opticians to purchase their glasses at LensCrafters.
“Defendants’ failures to properly separate operations and premises of optometrists at or near Defendants’ retail chain optical stores, as alleged herein, are unfair and/or unlawful business practices in violation of the UCL,” the complaint sets forth.
It asserts that the defendants “are required to disgorge all ill-gotten gains and to make restitution to the Class Members for Class Members’ loss of market share of optometry practice business and optical product sales.”
Wiss’s Ruling
Wiss said in her March 12, 2019 order:
“[I]it appears that Plaintiff’s claim for restitution seeks only to recover for lost profits and/or economic opportunities, which are not recoverable under the UCL. Plaintiff’s counsel argued that the market for optometry services provides for a fixed amount of profits that certainly would have gone to Plaintiff and the class but for Defendants’ alleged unlawful practices. Even if this were true, the nature of the recovery sought in this case is still a mere expectancy interest in future profits, which is not recoverable as restitution.”
She added that the relief Lee sought “is not like the earned, but unpaid wages the California Supreme Court found” in the 2000 case of Cortez v. Purolator Air Filtration Prods., Co. “was recoverable as restitution because, once earned, the wages became property to which the employees were entitled,” explaining:
“Here, Plaintiff and the class had not provided services, and therefore had not “earned” their right to any lost future profits. Absent any authority supporting Plaintiffs theory of recovery, the Court finds that Plaintiff failed to sufficiently allege any entitlement to restitution under the UCL, and therefore his UCL claim fails.”
Stewart’s Opinion
Stewart agreed. She said that “[a]lthough the precise question here is one of first impression in California, it is squarely controlled by our Supreme Court’s 2003 decision” in Korea Supply Co. v. Lockheed Martin Corp.
There, then-Justice Carlos Moreno said:
“[W]e address whether disgorgement of profits allegedly obtained by means of an unfair business practice is an authorized remedy under the UCL where these profits are neither money taken from a plaintiff nor funds in which the plaintiff has an ownership interest. We conclude that disgorgement of such profits is not an authorized remedy in an individual action under the UCL.”
He went on to say:
“This court has never approved of nonrestitutionary disgorgement of profits as a remedy under the UCL.”
‘No Meaningful Distinction’
Stewart wrote:
“There is no meaningful distinction between the remedy struck down as non-restitutionary in Korea Supply and the ‘lost market share’ theory of recovery plaintiff asserts in this lawsuit. As in Korea Supply, plaintiff alleges that LensCrafters engaged in practices that caused him and the other putative class members to lose business. However one describes it (as ‘lost market share,’ loss of a business ‘opportunity,’ or lost profits), the only monetary relief that plaintiff seeks is lost income from sales that never took place, because such sales allegedly were unlawfully diverted to defendants. Yet Korea Supply stands unequivocally for the proposition that unearned income (there, commission from a single business transaction that failed to materialize) is not recoverable as restitution under the UCL—because the plaintiff has no ownership interest in it. It does not represent money the plaintiff ever parted with, nor does the plaintiff have any legally enforceable property interest in it, analogous to wages that have been earned but unlawfully withheld (Cortez).” The jurist noted:
“To be clear, we do not reach the question whether a contractual guarantee (or some other source of legally binding entitlement) would create a vested property interest sufficient to recover unearned income under the UCL, because no such interest has been alleged here and that issue is not before us. We hold only that in the absence of any legal entitlement to future income, anticipated but unearned future income is not recoverable in a private action under the UCL even when it is characterized as ‘lost market share.’ ”
The case is Lee v. Luxottica Retail North America, Inc., A157657.
Federal Litigation
A declaration by Lee was cited by District Court Senior Judge Lawrence K. Karlton of the Eastern District of California (now deceased) in a Dec. 6, 2006 opinion in which LensCrafters and others unsuccessfully challenged certain California statutory and regulatory provisions. Pointing to evidence in the form of that declaration, Karlton said:
“Defendants present evidence of the various problems which arise when optometrists are employed by companies such as Lenscrafters. This evidence generally suggests that Lenscrafters exerts pressure on optometrists who work within LensCratter stores. For example, limitations are placed upon the optometrists so that they prescribe LensCrafters’ proprietary optical goods, and optometrists are evaluated based upon the percentage of their eye exam patients who purchase Lenscrafters. eyewear.”
(The Ninth Circuit in 2009 reversed Karlton’s grant of summary judgment in favor of the state; on remand, Karlton again granted summary judgment in favor of California in 2010; the Ninth Circuit on June 13, 2012, affirmed.)
LensCrafters and others succeeded in gaining legislation in 2016 more favorable to their interests. Lee’s lawsuit pertained to a period pre-dating that legislation.
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