California Supreme Court Decision on Military Procurement and Unfair Competition: KOREA Supply Company v. Lockheed Martin
(Supreme Court of California Ct.App. 2/4 B13641)
This case addresses what claims and remedies may be pursued by a plaintiff who alleges a lost business opportunity due to the unfair practices of a competitor. The Republic of Korea wished to purchase military equipment known as synthetic aperture radar (SAR) systems and solicited competing bids from manufacturers, including Loral Corporation (Loral) and MacDonald, Dettwiler, and Associates Ltd. (MacDonald Dettwiler). Plaintiff Korea Supply Company (KSC) represented MacDonald Dettwiler in the negotiations for the contract and stood to receive a commission of over $30 million if MacDonald Dettwiler’s bid was accepted. Ultimately, the contract was awarded to Loral (now Lockheed Martin Tactical Systems, Inc.). KSC contends that even though MacDonald Dettwiler’s bid was lower and its equipment superior, it was not awarded the contract because Loral Corporation and its agent had offered bribes and sexual favors to key Korean officials. KSC instituted the present action asserting claims under both California’s unfair competition law (Bus. & Prof. Code, § 17200 et seq.) and the tort of interference with prospective economic advantage.
We granted review to decide two issues. First, we 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. Accordingly, we reverse the judgment of the Court of Appeal on this issue.
Second, we address whether, to state a claim for interference with prospective economic advantage, a plaintiff must allege that the defendant specifically intended to interfere with the plaintiff’s prospective economic advantage. We conclude that a plaintiff need not plead that the defendant acted with the specific intent to interfere with the plaintiff’s business expectancy in order to state a claim for this tort. We affirm the judgment of the Court of Appeal on this issue.
“Because ‘[t]his case comes to us after the sustaining of a general demurrer
. . . , we accept as true all the material allegations of the complaint.’ ” (Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 807, quoting Shoemaker v. Myers (1990) 52 Cal.3d 1, 7.)
Plaintiff KSC is a corporation engaged in the business of representing manufacturers of military equipment in transactions with the Republic of Korea. In the mid-1990’s, the Republic of Korea solicited bids for a SAR system for use by its military. KSC represented MacDonald Dettwiler, a Canadian company, in its bid to obtain the contract award. KSC expected a commission of 15 percent of the contract price, or over $30 million, if MacDonald Dettwiler were awarded the contract.
In June 1996, the Korean Ministry of Defense announced that Loral,1 an American competitor of the Canadian company MacDonald Dettwiler, was awarded the contract, despite the fact that MacDonald Dettwiler’s bid was about $50 million lower and that the project management office of the Korean Defense Intelligence Command had determined that MacDonald Dettwiler’s equipment was far superior to Loral’s system. The Ministry of Defense explained that the decision to award Loral the contract was based on a suggestion that the United States government would not be favorably disposed to share intelligence information with the Republic of Korea if the latter selected a Canadian supplier.
Beginning in October 1998, major news publications in the Republic of Korea revealed that an internal investigation had established that the SAR contract was awarded to Loral as a result of bribes and sexual favors, rather than pressure from the United States government. Loral’s agent for the procurement of the SAR contract, defendant Linda Kim, had bribed two Korean military officers. In addition, Ms. Kim had extended bribes and sexual favors to the Minister of National Defense, the ultimate decision maker with respect to the award of the SAR contract. Ms. Kim reportedly received approximately $10 million in commission from Loral, an amount that exceeded the maximum established by the Foreign Corrupt Practices Act (15 U.S.C. § 78dd-2) and foreign military sales policies and regulations. As a result of the internal investigation by the Republic of Korea, several persons were imprisoned, including high-ranking Korean military officers. Ms. Kim herself was indicted in absentia; she avoided imprisonment because she resides in the United States and refuses to travel to the Republic of Korea.
Upon learning of these alleged reasons for the award of the SAR contract to Loral, KSC commenced the present action on May 5, 1999. In its first amended complaint, KSC alleged that defendants2 “conspired, knowingly and intentionally to induce and did knowingly and intentionally induce the Republic of Korea, through its authorized agencies, to award the SAR contract to Loral instead of MacDonald Dettwiler by employing wrongful means including bribes and sexual favors.” As a direct and proximate result of defendants’ actions, the Republic of Korea awarded the contract to Loral; but for the bribes and sexual favors, this contract would have been awarded to MacDonald Dettwiler. “In securing the contract by wrongful means, Loral acted with full knowledge of the commission relationship between plaintiff and MacDonald Dettwiler and knowing that its interference with the award of the contract . . . would cause plaintiff severe loss.” “Defendant Lockheed Martin has been the beneficiary of the illegal Loral-Kim conduct and to that extent has been unjustly enriched.”
The first amended complaint asserts three causes of action: (1) conspiracy to interfere with prospective economic advantage, (2) intentional interference with prospective economic advantage, and (3) unfair competition pursuant to Business and Professions Code section 17200. For its unfair competition claim, KSC sought disgorgement to it of the profits realized by Lockheed Martin on the sale of the SAR to Korea. For the tort claims, KSC sought damages for the loss of its expected compensation from MacDonald Dettwiler.
Lockheed Martin, joined by Ms. Kim, generally demurred to all counts. The trial court sustained the demurrer without leave to amend, finding that plaintiff’s complaint did not state facts sufficient to constitute a cause of action under California law. Judgment was entered dismissing the action on September 7, 1999. After the trial court subsequently denied KSC’s motion for reconsideration, KSC filed its notice of appeal. The Court of Appeal reversed the trial court’s judgment in full, finding that plaintiff had sufficiently stated causes of action for unfair competition and for intentional interference with prospective economic advantage.
Lockheed Martin sought review in this court of two bases of the Court of Appeal’s decision: first, its holding that disgorgement of profits is an available remedy under the UCL even where the disgorgement sought does not represent restitution of money or property in which plaintiff has an ownership interest; and second, its holding that the tort of intentional interference with prospective economic advantage does not require plaintiff to plead that defendant acted with the specific intent to interfere with plaintiff’s business expectancy. We granted review on both issues.
We first address plaintiff’s unfair competition claim. Business and Professions Code section 17200 et seq. prohibits unfair competition, including unlawful, unfair, and fraudulent business acts. The UCL covers a wide range of conduct. It embraces “anything that can properly be called a business practice and that at the same time is forbidden by law. [Citations.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech), internal quotations omitted.) Standing to sue under the UCL is expansive as well. Unfair competition actions can be brought by a public prosecutor or “by any person acting for the interests of itself, its members or the general public.” (§ 17204.)
Section 17200 “borrows” violations from other laws by making them independently actionable as unfair competitive practices. (Cel-Tech, supra, 20 Cal.4th at p. 180.) In addition, under section 17200, “a practice may be deemed unfair even if not specifically proscribed by some other law.” (Cel-Tech, at p. 180.) In the present case, KSC’s third cause of action, for unfair competition, “borrowed” from the federal Foreign Corrupt Practices Act, which prohibits, among other things, bribing a foreign government official for the purpose of influencing any act or decision in his or her official capacity and in violation of a lawful duty, or for the purpose of inducing the use of official influence to obtain or retain business. (See 15 U.S.C. § 78dd-2(a)(1)(A), (B).) The Court of Appeal determined that a claim under the UCL may be predicated on a violation of this act.
While the scope of conduct covered by the UCL is broad, its remedies are limited. (Cel-Tech, supra, 20 Cal.4th at p. 180.) A UCL action is equitable in nature; damages cannot be recovered. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1266 (Bank of the West).) Civil penalties may be assessed in public unfair competition actions, but the law contains no criminal provisions. (§ 17206.) We have stated that under the UCL, “[p]revailing plaintiffs are generally limited to injunctive relief and restitution.” (Cel-Tech, supra, 20 Cal.4th at p. 179.) The question raised by this case is whether disgorgement of profits that is not restitutionary in nature is an available remedy for an individual private plaintiff under the UCL.
The Court of Appeal in this case held that plaintiff can recover disgorgement of profits earned by defendants as a result of their allegedly unfair practices, even where the money sought to be disgorged was not taken from plaintiff and plaintiff did not have an ownership interest in the money. This holding was based on language taken from our recent decision in Kraus, supra, 23 Cal.4th 116. As we explain, the Court of Appeal’s reliance on this language was mistaken.
In Kraus, we held that disgorgement of unfairly obtained profits into a fluid recovery fund is not an available remedy in a representative action brought under the UCL. (Kraus, supra, 23 Cal.4th at p. 137.) We began by describing the remedies that are clearly available to a plaintiff under the UCL: “Through the UCL a plaintiff may obtain restitution and/or injunctive relief against unfair or unlawful practices.” (Kraus, at p. 126.) We then differentiated between the terms “restitution” and “disgorgement” in order to show why a plaintiff in a representative action under the UCL could recover restitution but could not obtain disgorgement of profits into a fluid recovery fund.
We defined an order for “restitution” as one “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.” (Kraus, supra, 23 Cal.4th at pp. 126-127.) We then clarified that “disgorgement” is a broader remedy than restitution. We stated that an order for disgorgement “may include a restitutionary element, but is not so limited.” (Id. at p. 127.) We further explained that an order for disgorgement “may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons. It has also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” (Ibid.) Relying on this distinction between restitution and disgorgement, we held in Kraus that although restitution was an available remedy in UCL actions, a plaintiff in a representative action under the UCL could not recover disgorgement in the broader, nonrestitutionary sense, into a fluid recovery fund. (Kraus, at p. 137.)
The Court of Appeal in the present case misread our opinion in Kraus. Noting that plaintiff in this case seeks disgorgement of profits unjustly earned by defendants, the Court of Appeal quoted our statement in Kraus that “ ‘[a]n order that a defendant disgorge money obtained through an unfair business practice may include a restitutionary element, but is not so limited. . . . [S]uch orders may compel a defendant to surrender all money obtained through an unfair business practice even though not all is to be restored to the persons from whom it was obtained or those claiming under those persons. It has also been used to refer to surrender of all profits earned as a result of an unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.’ ” (Quoting Kraus, supra, 23 Cal.4th at p. 127, italics added.) Relying on this language, the Court of Appeal concluded that plaintiff adequately stated a claim under the UCL.
As Lockheed Martin and several amici curiae point out, however, this passage from Kraus, cited by the Court of Appeal as authorization for disgorgement under the UCL, merely defined the term “disgorgement” in order to demonstrate that it was broader in scope than “restitution.” In the above cited quotation, this court was not approving of disgorgement as a remedy under the UCL. To the contrary, we held in Kraus that while restitution was an available remedy under the UCL, disgorgement of money obtained through an unfair business practice is an available remedy in a representative action only to the extent that it constitutes restitution. We reaffirm this holding here in the context of an individual action under the UCL. We therefore reverse the judgment of the Court of Appeal on this issue.
We begin our analysis with the statutory authorization for relief under the UCL, found in section 17203: “Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction. The court may make such orders or judgments, including the appointment of a receiver, as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or 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.”
The fundamental objective of statutory construction is to ascertain the Legislature’s intent and to give effect to the purpose of the statute. (Code Civ. Proc., § 1859.) If the language of the statute is unambiguous, the plain meaning governs. (Day v. City of Fontana (2001) 25 Cal.4th 268, 272.) Under section 17203, “[t]he statutory authorization . . . to make orders necessary to restore money to any person in interest is clear.” (Kraus, supra, 23 Cal.4th at p. 129.) An order for restitution, then, is authorized by the clear language of the statute. In fact, “restitution is the only monetary remedy expressly authorized by section 17203.” (Ibid.)
While a remedy of nonrestitutionary disgorgement of profits is not expressly authorized by the statute, KSC argues that the equitable language in section 17203 is sufficiently broad to allow courts to award this monetary remedy for an unfair competition claim. KSC contends that under the UCL a court may, in its discretion, order Lockheed Martin to surrender its profits to KSC because KSC allegedly has been wronged by Lockheed Martin’s unfair conduct.
Here, since the remedy of nonrestitutionary disgorgement is not expressly authorized by the statute, we determine whether the Legislature intended to authorize such a remedy under section 17203. If the statutory language is ambiguous, we may look to the history and background of the statute. (Kraus, supra, 23 Cal.4th at p. 129.) In ascertaining the Legislature’s intent, we attempt to construe the statute to preserve its constitutional validity, as we presume that the Legislature intends to respect constitutional limits. (See ibid.)
We described the legislative history of the UCL in Kraus. (Kraus, supra, 23 Cal.4th at pp. 129-130.) As amended in 1933, the predecessor to the current law provided express authority to enjoin unfair competition. (Civ. Code, former § 3369, as amended by Stats. 1933, ch. 953, § 1, p. 2482.) While no specific provision empowered courts to order monetary remedies, in People v. Superior Court (Jayhill) (1973) 9 Cal.3d 283, 286, we held that trial courts retained their inherent equitable power to order restitution under the UCL. Three years after Jayhill, express authority to order restitution was added to Civil Code section 3369, the predecessor to section 17203. (Stats. 1976, ch. 1005, § 1, p. 2378.) As we have previously said, this revision of the act was intended to codify, not change, the remedies available to a trial court under the UCL. (Kraus, supra, at p. 132 [with the 1976 amendments, “the Legislature confirmed, but did not increase, the powers of the court in a UCL action”]; see also Assem. Com. on Judiciary, Analysis of Assem. Bill No. 1763 (1972 Reg. Sess.) May 1, 1972 [congruent amendments to false advertising law were intended to affirm equity power already existing in courts]; Sen. Com. on Judiciary, Analysis of Assem. Bill No. 1763 (1972 Reg. Sess.) [same].)
While express authority to order restitution was added to the UCL, courts were not given similar authorization to order nonrestitutionary disgorgement. Further, plaintiff has not pointed to anything in the legislative history that suggests that the Legislature intended to provide such a remedy in an individual action. Plaintiff contends that this court’s interpretation of the UCL and commentary by leading academic authorities establish that a court’s equitable power under the UCL is broad. Notably absent from this argument, however, is any showing from the language or history of section 17203 that the Legislature intended to authorize a disgorgement remedy that was not restitutionary in nature. Instead, KSC merely asserts, without pointing to any particular statutory language or legislative history, that a court’s equitable powers under section 17203 are broad enough to encompass its requested remedy.
We have previously found that the Legislature did not intend section 17203 to provide courts with unlimited equitable powers. In Kraus, we rejected the argument, revived by plaintiff in this case, that the general grant of equitable authority in section 17203 implicitly permitted a disgorgement remedy—in that case, into a fluid recovery fund in a representative action. We found that since there was nothing in the express language of the statute or its legislative history indicating that the Legislature intended to provide such a remedy, the remedy was not available. (Kraus, supra, 23 Cal.4th at p. 132.) Here, again, we find nothing to indicate that the Legislature intended to authorize a court to order a defendant to disgorge all profits to a plaintiff who does not have an ownership interest in those profits.
In fact, the language of section 17203 is clear that the equitable powers of a court are to be used to “prevent” practices that constitute unfair competition and to “restore to any person in interest” any money or property acquired through unfair practices. (§ 17203.) While the “prevent” prong of section 17203 suggests that the Legislature considered deterrence of unfair practices to be an important goal, the fact that attorney fees and damages, including punitive damages, are not available under the UCL is clear evidence that deterrence by means of monetary penalties is not the act’s sole objective. A court cannot, under the equitable powers of section 17203, award whatever form of monetary relief it believes might deter unfair practices. The fact that the “restore” prong of section 17203 is the only reference to monetary penalties in this section indicates that the Legislature intended to limit the available monetary remedies under the act.
Our previous cases discussing the UCL indicate our understanding that the Legislature did not intend to authorize courts to order monetary remedies other than restitution in an individual action. This court has never approved of nonrestitutionary disgorgement of profits as a remedy under the UCL. While prior
cases discussing the UCL may have characterized some of the relief available as “disgorgement,” we were referring to the restitutionary form of disgorgement, and not to the nonrestitutionary type sought here by plaintiff. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 176 (Cortez) [holding that because section 17203 authorizes an order compelling a defendant to pay back wages as a restitutionary remedy, we “need not consider whether the order might be proper under the UCL under a disgorgement of benefit theory”]; ABC International Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1271 [stating that “the defendant’s victims may be entitled to restitution” under section 17203]; Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442, 452 (Fletcher) [trial court may order restitution under the UCL for bank customers challenging a bank’s computation of per annum interest on the basis of a 360-day year]; People v. Superior Court (Jayhill), supra, 9 Cal.3d at p. 286 [court may order a defendant to pay restitution to victims who have been defrauded as a result of an unfair business practice].) The present case merely confirms what we have previously held: Under the UCL, an individual may recover profits unfairly obtained to the extent that these profits represent monies given to the defendant or benefits in which the plaintiff has an ownership interest.
In an attempt to fit its claim within the statutory authorization for relief, and
as an implicit acknowledgement that nonrestitutionary disgorgement is not an available remedy in an individual action under the UCL, plaintiff describes its requested remedy as “restitution.” This term does not accurately describe the relief sought by plaintiff. As defined in Kraus, an order for restitution is one “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.” (Kraus, supra, 23 Cal.4th at pp. 126-127.) The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.
The remedy sought by plaintiff in this case is not restitutionary because plaintiff does not have an ownership interest in the money it seeks to recover from defendants. First, it is clear that plaintiff is not seeking the return of money or property that was once in its possession. KSC has not given any money to Lockheed Martin; instead, it was from the Republic of Korea that Lockheed Martin received its profits. Any award that plaintiff would recover from defendants would not be restitutionary as it would not replace any money or property that defendants took directly from plaintiff.
Further, the relief sought by plaintiff is not restitutionary under an alternative theory because plaintiff has no vested interest in the money it seeks to recover. We have stated that “[t]he concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person.” (Cortez, supra, 23 Cal.4th at p. 178.) Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest. In Cortez, we determined that “earned wages that are due and payable pursuant to section 200 et seq. of the Labor Code are as much the property of the employee who has given his or her labor to the employer in exchange for that property as is property a person surrenders through an unfair business practice.” (Ibid.) Therefore, we concluded that such wages could be recovered as restitution under the UCL. We reached this result because “equity regards that which ought to have been done as done [citation], and thus recognizes equitable conversion.” (Cortez, supra, at p. 178.)
While the plaintiffs in Cortez had a vested interest in their earned but unpaid wages, KSC itself acknowledges that, at most, it had an “expectancy” in the receipt of a commission. KSC’s expected commission is merely a contingent interest since KSC only expected payment if MacDonald Dettwiler was awarded the SAR contract. (See United States v. Rodrigues (9th Cir. 2000) 229 F.3d 842, 846 [finding that under the federal Victim and Witness Protection Act of 1982, restitution was not available for a contingent loss in which the company had only an expectancy interest; restitution could only be recovered for the loss of a vested interest].) Such an attenuated expectancy cannot, as KSC contends, be likened to “property” converted by Lockheed Martin that can now be the subject of a constructive trust. To create a constructive trust, there must be a res, an “identifiable kind of property or entitlement in defendant’s hands.” (1 Dobbs, Law of Remedies (1993) § 4.1(2), pp. 589-590.) As the United States Supreme Court recently said, a constructive trust requires “money or property identified as belonging in good conscience to the plaintiff [which can] clearly be traced to particular funds or property in the defendant’s possession.” (Great-West Life & Annuity Insurance Co. v. Knudson (2002) 534 U.S. 204, __ [112 S.Ct. 708, 714].) The recovery requested in this case cannot be traced to any particular funds in Lockheed Martin’s possession and therefore is not the proper subject of a constructive trust.
KSC’s expectancy in this case is further attenuated since KSC never anticipated payment directly from Lockheed Martin. Instead, it expected the Republic of Korea to pay MacDonald Dettwiler, which would then pay a commission to KSC. In contrast, in Cortez, the defendant was the employer from which the plaintiffs expected payment. (Cortez, supra, 23 Cal.4th at p. 169.) Therefore, the order for restitution served to restore to the plaintiffs funds that were directly owed to them by the defendant. Unlike Cortez, then, the monetary relief requested by KSC does not represent a quantifiable sum owed by defendants to plaintiff. Instead, it is a contingent expectancy of payment from a third party.
For these reasons, we find that plaintiff’s claim is properly characterized as a claim for nonrestitutionary disgorgement of profits.
We reaffirm that an action under the UCL “is not an all-purpose substitute
for a tort or contract action.” (Cortez, supra, 23 Cal.4th at p. 173.) Instead, the act provides an equitable means through which both public prosecutors and private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices. As we have said, the “overarching legislative concern [was] to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition.” (Id. at pp. 173-174.) Because of this objective, the remedies provided are limited. While any member of the public can bring suit under the act to enjoin a business from engaging in unfair competition, it is well established that individuals may not recover damages. (Bank of the West, supra, 2 Cal.4th at p. 1266.)
The nonrestitutionary disgorgement remedy sought by plaintiff closely resembles a claim for damages, something that is not permitted under the UCL. As one court has noted: “Compensation for a lost business opportunity is a measure of damages and not restitution to the alleged victims.” (MAI Systems Corp. v. UIPS (N.D.Cal. 1994) 856 F.Supp. 538, 542.) Plaintiff suggests that its disgorgement remedy need not include all of the profits unfairly obtained by Lockheed Martin; instead, its recovery might be limited to the amount it allegedly would have obtained as a commission had McDonald Dettwiler been awarded the contract. This proposed recovery would be in exactly the same amount that plaintiff is seeking to recover as damages for its traditional tort claim of interference with prospective economic advantage. The only difference between what plaintiff seeks to recover as “disgorgement” and the damages it seeks under its traditional tort claim is that plaintiff would not recover its full expected commission under a “disgorgement” remedy if, for some reason, the profits obtained by Lockheed Martin did not equal the amount of plaintiff’s expected commission.
Allowing the plaintiff in this case to recover nonrestitutionary disgorgement under the UCL would enable it to obtain tort damages while bypassing the burden of proving the elements of liability under its traditional tort claim for intentional interference with prospective economic advantage. As we have stated, any member of the public can bring suit under the UCL. In addition, “to state a claim under the act one need not plead and prove the element of a tort. Instead, one need only show that ‘members of the public are likely to be deceived.’ [Citation.]” (Bank of the West, supra, 2 Cal.4th at p. 1267; see also Fletcher, supra, 23 Cal.3d at p. 453 [individual plaintiff’s knowledge of the unfair practice not needed in order to recover restitution].) Given the UCL’s liberal standing requirements and relaxed liability standards, were we to allow nonrestitutionary disgorgement in an individual action under the UCL, plaintiffs would have an incentive to recast claims under traditional tort theories as UCL violations. They could recover from a competitor without having to meet the more rigorous pleading requirements of a negligence action, or a breach of contract suit. The result could be that the UCL would be used as an all-purpose substitute for a tort or contract action, something the Legislature never intended.
In addition, it is possible that due process concerns would arise if an individual business competitor could recover disgorgement of profits under the UCL. While restitution is limited to restoring money or property to direct victims of an unfair practice, a potentially unlimited number of individual plaintiffs could recover nonrestitutionary disgorgement. Allowing such a remedy would expose defendants to multiple suits and the risk of duplicative liability without the traditional limitations on standing. (See Stop Youth Addiction v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 582 (conc. opn. of Baxter, J.) [disgorgement of profits to a party that has not paid money to the defendant and was not a party to the litigation “raises substantial due process issues implicating the rights of both the defendant and the absent parties”].) The disgorgement remedy requested in this case would not require that the disgorged money or property have come from the prospective plaintiff in the first instance. Nor is there any limit on the number of times the remedy could be sought or any limit on the monetary relief available. There is a risk of unfairness not only to defendants but also to direct victims of the unfair practice. If Lockheed Martin were forced to disgorge its profits to KSC, there might be little left for the Republic of Korea to recover, even though it is the party ostensibly entitled to restitutionary relief.
Plaintiff suggests ways of alleviating these due process concerns, proposing several “options to prevent abuse,” including that this remedy be “limited to instances where the defendant has engaged in egregious practices.” None of plaintiff’s proposals, however, alleviate the possibility that defendants would be subjected to duplicate liability. Further, none of plaintiff’s proposed “options to prevent abuse” are contemplated by the legislative scheme.
We conclude, therefore, that allowing plaintiff to recover monetary relief under the UCL in this case would be at odds with the language and history of the statute, our previous decisions construing the UCL, and public policy. We hold that nonrestitutionary disgorgement of profits is not an available remedy in an individual action under the UCL. We note that the UCL remains a meaningful consumer protection tool. The breadth of standing under this act allows any consumer to combat unfair competition by seeking an injunction against unfair business practices. Actual direct victims of unfair competition may obtain restitution as well. The present decision merely reaffirms the balance struck in this state’s unfair competition law between broad liability and limited relief.
In addition, we note that our decision does not foreclose all relief to plaintiff. While plaintiff may not recover monetary relief under the limited remedies provided by the UCL, plaintiff may pursue a cause of action under traditional tort law. In fact, as we conclude below, plaintiff in this case can state a claim for the tort of intentional interference with prospective economic advantage. While the pleading and proof requirements under this tort are more rigorous than under the UCL, if plaintiff succeeds in meeting its burden of proof, it may recover damages for the injuries it claims to have suffered as a result of unfair competition.
Lockheed Martin argues that KSC fails to state a claim for intentional interference with prospective economic advantage because it has not shown that Lockheed Martin acted with the specific intent to disrupt KSC’s business relationship. KSC counters that a plaintiff need only show that the defendant acted with the knowledge that its wrongful acts were substantially certain to disrupt plaintiff’s business expectancy. We conclude that the tort of intentional interference with prospective economic advantage does not require a plaintiff to plead that the defendant acted with the specific intent, or purpose, of disrupting the plaintiff’s prospective economic advantage. Instead, to satisfy the intent requirement for this tort, it is sufficient to plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.
We first articulated the elements of the tort of intentional interference with prospective economic advantage in Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827 (Buckaloo). These elements are usually stated as follows: “ ‘(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.’ [Citations.]” (Westside Center Associates v. Safeway Stores 23, Inc. (1996) 42 Cal.App.4th 507, 521-522.)
We most recently considered this tort in Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376 (Della Penna), where we held that a plaintiff seeking to recover damages for interference with prospective economic advantage must plead and prove as part of its case-in-chief that the defendant’s conduct was “wrongful by some legal measure other than the fact of interference itself.” (Id. at p. 393.) In Della Penna, we did not address the elements of the tort as we had formulated them in Buckaloo, other than noting that “[t]o the extent that language in Buckaloo . . . addressing the pleading and proof requirements in the economic relations tort is inconsistent with the formulation we adopt in this case, it is disapproved.” (Della Penna, supra, 11 Cal.4th at p. 393, fn. 5.)
Since our opinion in Della Penna, lower courts considering this tort have continued to apply the elements we articulated in Buckaloo, with the added understanding that a plaintiff must plead that the defendant engaged in an act that is wrongful apart from the interference itself. (See, e.g., Limandri v. Judkins (1997) 52 Cal.App.4th 326, 339; Arntz Contracting Co. v. St. Paul Fire and Marine Insurance Company (1996) 47 Cal.App.4th 464, 475; Westside Center Associates v. Safeway Stores 23, Inc., supra, 42 Cal.App.4th at pp. 521-522.) The Court of Appeal in the present case, however, in considering whether a plaintiff must plead specific intent, determined that after Della Penna, “it is no longer appropriate to apply the elements formulated in Buckaloo in all actions for interference with prospective advantage.”
We disagree with the Court of Appeal’s conclusion that the elements we first articulated in Buckaloo, supra, 14 Cal.3d 815, do not still apply to this tort. In Della Penna, we did not abandon these elements. Instead, we specifically stated that “[w]e do not in this case . . . go beyond approving the requirement of a showing of wrongfulness as part of the plaintiff’s case.” (Della Penna, supra, 11 Cal.4th at p. 378.) In fact, we explicitly approved the trial court’s modified version of the standard jury instruction on intentional interference with prospective economic advantage, BAJI No. 7.82. The instruction at issue articulated the traditional elements of the tort, but changed the third element to provide that the defendant “ ‘intentionally engaged in [wrongful] acts or conduct designed to interfere with or disrupt’ the relationship.” (Della Penna, at p. 380, fn. 1, italics and brackets added.) Rather than overrule the established elements of this tort, Della Penna merely clarified the plaintiff’s burden as to the third element, stating that to meet this element, a plaintiff must plead and prove that the defendant’s acts are wrongful apart from the interference itself. (Id. at p. 393.) Thus, as the majority of the Courts of Appeal have understood, after Della Penna the elements of the tort of interference with prospective economic advantage remain the same, except that the third element also requires a plaintiff to plead intentional wrongful acts on the part of the defendant designed to disrupt the relationship.
Having clarified the required elements, we now consider the intent requirement of this tort. The question is whether a plaintiff must plead and prove that the defendant engaged in wrongful acts with the specific intent of interfering with the plaintiff’s business expectancy. We conclude that specific intent is not a required element of the tort of interference with prospective economic advantage. While a plaintiff may satisfy the intent requirement by pleading specific intent, i.e., that the defendant desired to interfere with the plaintiff’s prospective economic advantage, a plaintiff may alternately plead that the defendant knew that the interference was certain or substantially certain to occur as a result of its action.
Lockheed Martin argues that specific intent is an established element of this tort. It contends that to satisfy the tort’s third element—intentional wrongful acts designed to disrupt the plaintiff’s relationship with its benefactor—a plaintiff must allege that the defendant purposely sought the disruption. It asserts that the inclusion of the word “designed” in the typical formulation of the third element is evidence that a plaintiff is required to plead specific intent. We disagree. The elements of the tort of interference with prospective economic advantage do not require a plaintiff to allege that the defendant acted with the specific intent, or purpose, of disrupting the plaintiff’s prospective economic advantage.
Contrary to Lockheed Martin’s assertion, the inclusion of the word “designed” in the third element of the tort does not necessarily mean that this tort contains a specific intent requirement. Our analysis of the intent requirement for the tort of intentional interference with contract in Quelimane Company, Inc. v. Stewart Title Guaranty Company (1998) 19 Cal.4th 26 (Quelimane) is instructive. In Quelimane, we articulated the elements of this tort, stating that the third element requires a plaintiff to plead the “defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship.” (Id. at p. 55.) Notwithstanding the presence of the word “designed,” we found that this tort did not require a plaintiff to plead that the defendant acted with the specific intent to interfere. (Id. at p. 79.)
In determining that intentional interference with contract does not contain a specific intent requirement, we relied on the Restatement Second of Torts. (Quelimane, supra, 19 Cal.4th at p. 56.) The Restatement, section 766, comment j, makes clear that the tort of intentional interference with contract applies not only when a defendant acts with the purpose or desire to interfere but that “[i]t applies also to intentional interference . . . in which the actor does not act for the purpose of interfering with the contract or desire it but knows that the interference is certain or substantially certain to occur as a result of his action. The rule applies, in other words, to an interference that is incidental to the actor’s independent purpose and desire but known to him to be a necessary consequence of his action.” (Rest.2d Torts, § 766, com. j, p. 12.)
We similarly look to the Restatement to determine whether the tort at issue in the present case, intentional interference with prospective economic advantage, contains a specific intent requirement. Restatement Second of Torts section 766B, entitled Intentional Interference with Prospective Contractual Relation,8 explains in comment d: “The intent required for this Section is that defined in § 8A. The interference with the other’s prospective contractual relation is intentional if the actor desires to bring it about or if he knows that the interference is certain or substantially certain to occur as a result of his action. (See § 766, Comment j).” (Rest.2d Torts, § 766B, com. d, p. 22.)
In explaining the intent requirement for intentional interference with prospective economic advantage, the Restatement Second of Torts specifically refers to the intent requirement for the tort of intentional interference with contract, as defined in section 766, comment j. We relied on this section of the Restatement in Quelimane to conclude that this tort contained no specific intent requirement. (Quelimane, supra, 19 Cal.4th at p. 56.) In addition, the Restatement refers to the definition of intent in section 8A, which states: “The word ‘intent’ is used throughout the Restatement [Second] of [Torts] to denote that the actor desires to cause consequences of his act, or that he believes that the consequences are substantially certain to derive from it.” (Rest.2d Torts, § 8A.) Comment b to this section clarifies that “[i]ntent is not, however, limited to consequences which are desired. If the actor knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he had in fact desired to produce the result.” (Rest.2d Torts, § 8A, com. b, p. 15.)
Based on our reading of the Restatement and our discussion in Quelimane of the intent requirement, we reject Lockheed Martin’s argument that the tort of intentional interference with prospective economic advantage contains a requirement that a plaintiff plead and prove that the defendant acted with the specific intent, purpose, or design to interfere with the plaintiff’s prospective advantage. Instead, we agree with the Restatement that it is sufficient for the plaintiff to plead that the defendant “[knew] that the interference is certain or substantially certain to occur as a result of his action.” (Rest.2d Torts, § 766B, com. d, p. 22.)
We caution that although we find the intent requirement to be the same for the torts of intentional interference with contract and intentional interference with prospective economic advantage, these torts remain distinct. We reiterate our statement in Della Penna that “[o]ur courts should . . . firmly distinguish the two kinds of business contexts, bringing a greater solicitude to those relationships that have ripened into agreements, while recognizing that relationships short of that subsist in a zone where the rewards and risks of competition are dominant.” (Della Penna, supra, 11 Cal.4th at p. 392.)
We note initially that even though these two torts are distinct, some plaintiffs may be able to state causes of action for both torts. As we stated in Buckaloo, “the tort of interference with contract is merely a species of the broader tort of interference with prospective economic advantage.” (Buckaloo, supra, 14 Cal.3d at p. 823.) In the present case, KSC’s claim was appropriately stated as one for interference with prospective economic advantage. KSC did not allege in its complaint that it had a contractual agreement with MacDonald Dettwiler. KSC merely alleged that it had an economic expectancy in that it was acting as MacDonald Dettwiler’s broker and it expected a commission if the contract was awarded to MacDonald Dettwiler. KSC nowhere pleads that this expectancy amounted to an enforceable contract.
Moreover, the existence of a contract does not mean that a plaintiff’s claim must be brought exclusively as one for interference with contract. In Buckaloo, we concluded that the tort of interference with prospective economic advantage “is considerably more inclusive than actions based on contract or interference with contract, and is thus is not dependent on the existence of a valid contract.” (Buckaloo, supra, 14 Cal.3d at pp 826-827; see id. at p. 823, fn. 6 [“ ‘the basic tort of interference with economic relations can be established by showing, inter alia, an interference with an existing contract or a contract which is certain to be consummated’ ”].) Thus, a plaintiff who believes that he or she has a contract but who recognizes that the trier of fact might conclude otherwise might bring claims for both torts so that in the event of a finding of no contract, the plaintiff might prevail on a claim for interference with prospective economic advantage. In the present case, even if KSC could have alleged a contractual relationship with MacDonald Dettwiler, its claim was properly brought as one for interference with prospective economic advantage. As we explain below, however, a plaintiff that chooses to bring a claim for interference with prospective economic advantage has a more rigorous pleading burden since it must show that the defendant’s conduct was independently wrongful.
As we have made clear in both Della Penna and Quelimane, the distinction between these two torts is found in the independent wrongfulness requirement of the tort of interference with prospective economic advantage. We stated in Quelimane: “Because interference with an existing contract receives greater solicitude than does interference with prospective economic advantage [citation], it is not necessary that the defendant’s conduct be wrongful apart from the interference with the contract itself. [Citation.] [¶] . . . Intentionally inducing or causing a breach of an existing contract is . . . a wrong in and of itself. Because this formal economic relationship does not exist and damages are speculative when remedies are sought for interference in what is only prospective economic advantage, Della Penna concluded that some wrongfulness apart from the impact of the defendant’s conduct on that prospect should be required.” (Quelimane, supra, 19 Cal.4th at pp. 55-56.)
Thus, while intentionally interfering with an existing contract is “a wrong in and of itself” (Quelimane, supra, 19 Cal.4th at p. 56), intentionally interfering with a plaintiff’s prospective economic advantage is not. To establish a claim for interference with prospective economic advantage, therefore, a plaintiff must plead that the defendant engaged in an independently wrongful act. (See Della Penna, supra, 11 Cal.4th at p. 393.) An act is not independently wrongful merely because defendant acted with an improper motive. As we said in Della Penna, “the law usually takes care to draw lines of legal liability in a way that maximizes areas of competition free of legal penalties.” (Della Penna, supra, 11 Cal.4th at p. 392.) The tort of intentional interference with prospective economic advantage is not intended to punish individuals or commercial entities for their choice of commercial relationships or their pursuit of commercial objectives, unless their interference amounts to independently actionable conduct. (Marin Tug & Barge, Inc. (9th Cir. 2001) 271 F.3d 825, 832.) We conclude, therefore, that an act is independently wrongful if it is unlawful, that is if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.11 (See Marin Tug & Barge, Inc., supra, at p. 835; see also Della Penna, supra, 11 Cal.4th at 408 (conc. opn. of Mosk, J.) [“It follows that the tort may be satisfied by intentional interference with prospective economic advantage by independently tortious means”].)
Here, KSC has clearly satisfied the independent wrongfulness requirement. In its complaint, KSC alleged that defendant Kim, as an agent for Loral, engaged in bribery and offered sexual favors to key Korean officials in order to obtain the contract from the Republic of Korea. Under the Foreign Corrupt Practices Act, it is unlawful to pay or offer money or anything of value to a foreign official for the purposes of influencing any act or decision of the foreign official, or to induce the foreign official to use his or her influence with a foreign government to affect or influence any act or decision of the government. (15 U.S.C. § 78dd-1(a)(1)(A), (B).) In addition, the complaint alleges that the commissions paid by Loral to Kim exceeded the maximum allowable amounts established by the Foreign Corrupt Practices Act. (15 U.S.C. § 78dd-2(a)(1)(A), (B).) The complaint thus clearly alleges that defendants engaged in unlawful behavior in order to secure the SAR contract. KSC has, therefore, sufficiently alleged that defendants’ acts, in addition to interfering with KSC’s business expectancy, were wrongful in and of themselves.
It is this independent wrongfulness requirement that makes defendants’
interference with plaintiff’s business expectancy a tortious act. Because we have determined that the act of interference with prospective economic advantage is not tortious in and of itself, the requirement of pleading that a defendant has engaged in an act that was independently wrongful distinguishes lawful competitive behavior from tortious interference. Such a requirement “sensibly redresses the balance between providing a remedy for predatory economic behavior and keeping legitimate business competition outside litigative bounds.” (Della Penna, supra, 11 Cal.4th at p. 378.)
The independent wrongfulness requirement also differentiates California law from that of other states and the Restatement Second of Torts. Lockheed Martin’s reliance on these authorities is unpersuasive since they require a plaintiff only to plead that the defendant’s interference was improper, and not that the interference was independently unlawful. As we explain, California’s independent wrongfulness requirement more narrowly defines actionable conduct under this tort.
According to the Restatement, there are two requirements for liability under this tort: The interference must be both intentional and improper. A defendant who “intentionally and improperly interferes with another’s prospective contractual relation” is subject to liability. (Rest.2d Torts, § 766B.) The intent requirement, as described above, is that the defendant either desires to bring about the interference or knows that the interference is certain or substantially certain to occur as a result of its action. (Rest.2d Torts, § 766B, com. d, p. 22.) In addition to this general intent, the second requirement is that “[t]he interference . . . must also be improper. The factors to be considered in determining whether an interference is improper are stated in § 767. One of them is the actor’s motive and another is the interest sought to be advanced by him. Together these factors mean that the actor’s purpose is of substantial significance. If he had no desire to effectuate the interference by his action but knew that it would be a mere incidental result of conduct he was engaging in for another purpose, the interference may be found to be not improper. Other factors come into play here, however, particularly the nature of the actor’s conduct. If the means used is innately wrongful, predatory in character, a purpose to produce the interference may not be necessary. On the other hand, if the sole purpose of the actor is to vent his ill will, the interference may be improper although the means are less blameworthy.” (Rest.2d Torts, § 766B, com. d, pp. 22-23, italics added.)
Unlike California, the Restatement Second of Torts does not require a plaintiff to plead that a defendant engaged in an independently wrongful act in order to show “improper” interference. Instead, a general intent plus an actor’s motive or purpose to interfere is enough to subject a defendant to liability under the Restatement. In the absence of an independent wrongfulness requirement, a purpose to interfere with the plaintiff’s business expectancy suffices to distinguish actionable conduct from behavior that is merely competitive, and therefore privileged. The Restatement, however, recognizes that when the defendant’s conduct is innately wrongful, a purpose to interfere may be unnecessary. The Restatement appreciates that the independent wrongfulness of a defendant’s acts may satisfy the “improper” requirement of the tort without the need to look to the motive or purpose behind a defendant’s acts.
Thus, while California does follow the Restatement’s general intent requirement, California law adheres to a narrower interpretation of what conduct is improper under this tort. After Della Penna, supra, 11 Cal.4th 376, California has required plaintiffs to show that a defendant has engaged in an independently, or inherently, wrongful act. Under this requirement, a defendant’s motive or purpose is relevant only to the extent that it renders the defendant’s conduct unlawful. We are therefore unconvinced by Lockheed Martin’s reliance on the Restatement in this regard.
Lockheed Martin’s citation to out-of-state decisions holding that a plaintiff must plead that the defendant acted with a specific intent or purpose to interfere with the plaintiff’s economic relations is similarly unpersuasive. Like the Restatement Second of Torts, the cases cited by Lockheed Martin look to a defendant’s motive or purpose to distinguish tortious conduct from lawful behavior. (See, e.g., Ethyl Corp. v. Balter (Fla.Dist.Ct.App. 1980) 386 So.2d 1220, 1223 [finding no interference because the defendant’s purpose or motive was not directed at the plaintiff]; Bank Computer Network Corp. v. Continental Illinois Nat’l Bank and Trust Co. (Ill.App.Ct. 1982) 442 N.E.2d 586, 593 [same]; K&K Management v. Lee (Md. 1989) 557 A.2d 965, 975 [same]; Anderson v. The Regents of the Univ. of California (Wis.Ct.App. 1996) 554 N.W.2d 509, 519 [same].) Unlike California, however, these states do not require a plaintiff to plead that the defendant has engaged in an independently wrongful act in order to state a claim for interference with prospective economic advantage. Instead of independent wrongfulness, a plaintiff is required to plead a purpose or motive to interfere in order to demonstrate that the defendant’s interference was improper.
We additionally reject Lockheed Martin’s reliance on DeVoto v. Pacific Fidelity Life Insurance Co. (9th Cir. 1980) 618 F.2d 1340 (DeVoto). In that case, the Ninth Circuit Court of Appeals attempted to anticipate whether California courts would require a plaintiff to plead that the defendant acted with a specific purpose or motive to interfere with the plaintiff’s prospective economic advantage. (Id. at p. 1347.) DeVoto was decided prior to our opinions in Della Penna, supra, 11 Cal.4th 376, and Quelimane, supra, 19 Cal.4th 26, and, as the Ninth Circuit noted, there was “a scarcity of pertinent authority on this issue.” (DeVoto, at p. 1347.) We agree with the Court of Appeal in the present case that DeVoto “does not support the requirement of an allegation of purposeful intent directed specifically at the plaintiff in every case.” Instead, the DeVoto court states: <