The Ninth Circuit held that, irrespective of a state’s own standards for equitable relief, a federal court exercising diversity jurisdiction is bound by federal common law requirements for granting the equitable remedy of restitution, including the mandate that such relief is unavailable unless there is no adequate remedy at law. Sonner v. Premier Nutrition Corp., __ F.3d __, No. 18-15890, 2020 WL 3263043 (9th Cir. Jun. 17, 2020).
Plaintiff Kathleen Sonner represented a certified class of California consumers of the defendant’s Joint Juice, a dietary supplement that allegedly was falsely advertised as providing benefits to cartilage and joint health. As trial neared, the Plaintiff strategically dismissed the sole claim for damages, thus avoiding a jury trial. Instead, plaintiff sought to try before the court an equitable claim for $32 million in restitution under California’s Unfair Competition Law (“UCL”) and Consumers Legal Remedies Act (“CLRA”). The District Court, however, dismissed the case, holding that the Plaintiff could not proceed on an equitable claim for damages under California’s inadequate-remedy-at-law doctrine. Slip Opinion at 6-7.
Affirming on alternative grounds, the Ninth Circuit held that under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), and Guaranty Trust Co. of New York v. York, 326 U.S. 99 (1945), federal common law, not California law, determined whether the Plaintiff’s equitable claims for monetary recovery could proceed to trial. Slip Opinion at 11 (“we hold that the traditional principles governing equitable remedies in federal courts, including the requisite inadequacy of legal remedies, apply when a party requests restitution under the UCL and CLRA in a diversity action.”)
In York, the Supreme Court had explained that equitable remedies available in state court are not necessarily available to a claimant in a diversity suit in federal court:
“Equitable relief in a federal court is of course subject to restrictions: the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery; a plain, adequate and complete remedy at law must be wanting; explicit Congressional curtailment of equity powers must be respected; [and] the constitutional right to trial by jury cannot be evaded. That a State may authorize its courts to give equitable relief unhampered by any or all such restrictions cannot remove these fetters from the federal courts.”
Slip Opinion at 10 (quoting York, 326 U.S. at 105-06) (emphasis added by Sonner). In short, “’State law cannot define the remedies which a federal court must give simply because a federal court in diversity jurisdiction is available as an alternative tribunal to the state’s courts.’” Id. (quoting York, 326 U.S. at 106).
The Ninth Circuit went on to explain that federal common law would apply even if application of California law would achieve a different result: “Even assuming California decided as a matter of policy to streamline UCL and CLRA claims by abrogating the state’s inadequate-remedy-at-law doctrine, the strong federal policy protecting the constitutional right to a trial by jury outweighs that procedural interest.” Slip Opinion at 13.
Under federal common law, the Plaintiff would have to “establish that she lacks an adequate remedy at law before securing equitable restitution for past harm under the UCL and CLRA.” Slip Opinion at 17. By voluntarily dismissing the lone claim for damages—which sought precisely the same recovery as the equitable claim—the Plaintiff demonstrably failed to make this showing. Id. at 18 (“Sonner fails to explain how the same amount of money for the exact same harm is inadequate or incomplete, and nothing in the record supports that conclusion.”)
Plaintiff’s tactical decision to avoid a potentially adverse jury verdict on her legal claim cost her any chance of a favorable judgment on her equitable claim as well. This blunder illustrates the adage of being careful of what you ask for–particularly when the Court warns you of the consequences in advance. Slip Opinion at 6.