California Supreme Court Holds that Prop 64 Standing Cannot Be Negated by the Defense of Mitigation: Clayworth v. Pfizer

On July 12, 2010, the California Supreme Court issued its opinion in Clayworth v. Pfizer, __ Cal.4th __ (2010), concluding, among other things, that Prop 64 standing cannot be eliminated based on a plaintiff’s ability to mitigate the harm suffered. At issue were UCL claims brought by pharmacies predicated on alleged price fixing by a collective of drug manufacturers. The dismissal of such claims was subsequently upheld by the Court of Appeal on the grounds that the alleged “overcharging” injury was mitigated completely by pharmacies passing the increased drug costs to third parties (i.e. the consumer and third party payers), thereby eliminating completely the plaintiff’s standing and entitlement to a remedy under the UCL.

The Supreme Court reversed. As reasoned by the Court, the argument put forward by defendant manufacturers conflated the issue of plaintiffs' standing with the plaintiffs' ultimate entitlement to a remedy under the UCL, of which only the later was arguably subject to a defense based on “mitigation”:

While Manufacturers argue that ultimately Pharmacies suffered no compensable loss because they were able to mitigate fully any injury by passing on the overcharges, this argument conflates the issue of standing with the issue of the remedies to which a party may be entitled. That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them. (See Southern Pac. Co. v. Darnell-Taenzer Co., supra, 245 U.S. at p. 534 ["The plaintiffs suffered losses . . . when they [over]paid. Their claim accrued at once in the theory of the law and it does not inquire into later events."]; Adams v. Mills, supra, 286 U.S. at p. 407 ["In contemplation of law the claim for damages arose at the time the extra charge was paid," notwithstanding any subsequent reimbursement].) The doctrine of mitigation, where it applies, is a limitation on liability for damages, not a basis for extinguishing standing. (See Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1066 [" 'The rule of [mitigation of damages] comes into play after a legal wrong has occurred, but while some damages may still be averted' " (quoting Prosser & Keeton, Torts (5th ed. 1984) § 65, p. 458)].) This is so because mitigation, while it might diminish a party's recovery, does not diminish the party's interest in proving it is entitled to recovery.

Slip Opinion, at 39-40.

Moreover, the Court further concluded that a defense based on “mitigation” was incapable of eliminating plaintiffs' right to pursue injunctive relief. As reasoned by the Court, the lower court's analysis impermissibly linked the plaintiff’s right to an injunctive remedy to the plaintiff also establishing an entitlement to restitution:

The Court of Appeal held Pharmacies were barred from seeking injunctive relief because, it concluded, they had suffered no monetary loss. To the extent this holding rests on the conclusion Pharmacies lacked standing under section 17204, it is erroneous; as discussed ante, Pharmacies have standing. To the extent the holding rests on the conclusion that even if Pharmacies had standing, they could not seek injunctive relief unless they could also seek restitution, it similarly is erroneous. Section 17203 makes injunctive relief "the primary form of relief available under the UCL," while restitution is merely "ancillary." (In re Tobacco II Cases (2009) 46 Cal.4th 298, 319.) Nothing in the statute's language conditions a court's authority to order injunctive relief on the need in a given case to also order restitution. Accordingly, the right to seek injunctive relief under section 17203 is not dependent on the right to seek restitution; the two are wholly independent remedies. (See ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1268 [§ 17203 "contains . . . no language of condition linking injunctive and restitutionary relief"]; Prata v. Superior Court (2001) 91 Cal.App.4th 1128, 1139 [plaintiff could pursue injunctive relief even though restitution was unavailable].)

Slip Opinion, at 41.