The PEOPLE of the State of California, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF VENTURA, Respondent; Stephen F. GOOD, on behalf of himself and all others similarly situated, Real Parties in Interest.
Question: May a class of alleged victims of investment fraud intervene over plaintiff's objection in a civil action by a district attorney on behalf of the State of California charging the perpetrators of the fraud with false advertising and unfair competition?
Thomas Jackson Stones Jr. and others were indicted on 25 February 1975 by the Ventura County grand jury on criminal charges arising out of an investment fraud involving the sale of oil drilling contracts to numerous investors, who had been told their purchase of contracts would entitle them to an immediate tax deduction several times over the amount of their investment. On the same day the Ventura district attorney on behalf of the State of California brought a civil action (DA action) against the persons indicted, plus four corporations managed and controlled by Stones, seeking civil penalties, injunctive relief, restitution to the investors, and other equitable relief. The complaint was filed under the authority given district attorneys by Civil Code sections 3369(5), 3370.1, and Business and Professions Code sections 17535, 17536, and it alleged that in violation of Business and Professions Code section 17500, defendants made false and misleading statements with the intent to sell their oil drilling contracts, and in violation of Civil Code section 3369, defendants committed acts of unfair competition.
Two days after the filing of the indictment and the DA action, Stephen F. Good filed an action (Good action) against the four corporations, Stones, and two other persons named as defendants in the DA action. The Good action pleaded causes for breach of contract, fraud, and violation of corporate securities laws, on behalf of a class of 400 persons who had entered oil drilling contracts with defendants. It sought restitution of moneys paid by the class, $2,000,000 in punitive damages, and an award of attorneys' fees.
In early April the district attorney tentatively settled the DA action with Stones and the four corporate defendants.
On April 10 Good secured an ex parte order permitting him to intervene on behalf of a class in the DA action. His complaint in intervention listed as defendants the parties named in the DA action and pleaded breach of contract, fraud, restitution, and violation of corporate securities laws. His prayer for relief was identical to that in the Good action. The following day, pursuant to stipulation between the Ventura County district attorney and intervenor, the court ordered that moneys collected from Stones in the DA action by way of settlement or other disposition should be deposited in court and kept there until further order.
On April 22 a stipulated judgment was entered in the DA action between the district attorney, on the one hand, and Stones and the four corporations, on the other,1 which required Stones to pay a total of $360,000 in settlement, $60,000 to the California Franchise Tax Board to satisfy a tax lien and $300,000 to Venture County for deposit with the court, of which $200,000 was to be paid in 1975 and the remainder during the following ten-year period. Stones was required to tender restitution totalling $25,000 to seven named investors in the oil drilling contracts, but no similar provision for restitution was made for the remaining investors.2 The judgment recited that it neither accepted nor rejected defendants' and plaintiff's contention that the funds payable under the settlement were civil penalties and not investor restitution, and it further stated that plaintiff in intervention had the right to pursue his claims, rights, and remedies elsewhere.
On May 9 the district attorney moved the superior court to strike the complaint in intervention, and on the denial of his motion he petitioned this court for writ of mandate. We have concluded that intervention was improper for three reasons: (1) intervenor lacked a direct interest in the litigation, (2) intervention would expand the procedural, substantive, and remedial issues beyond those tendered by the original action, and (3) no special circumstances were present to justify intervention.
Code of Civil Procedure section 387, provides:
‘At any time before trial, any person, who has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both, may intervene in the action or proceeding. . . .’
The intervenor's interest must be direct and not consequential. (Allen v. California Water & Tel. Co., 31 Cal.2d 104, 109, 187 P.2d 393, 395 (1947).) The interest must be of ‘. . . ‘such a direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment.’' (Allen v. California Water & Tel. Co., supra.) If a judgment directly adds to or subtracts from intervenor's legal rights, then intervenor possesses an interest that justifies intervention. (Continental Vinyl Products Corp. v. Mead Corp., 27 Cal.App.3d 543, 549, 103 Cal.Rptr. 806; Olson v. Hopkins, 269 Cal.App.2d 638, 643, 75 Cal.Rptr. 33.)
In denying the motion to strike the complaint in intervention, the trial court noted: ‘. . . it seems clear to me that the major concern of intervention in joining this law suit is in hope to effect a claim to the monies heretofore paid by defendant Stones pursuant to the stipulated judgment in favor of plaintiff, or that which may hereafter be paid, based on the contention that intervenor's interests are in some fashion superior to those of plaintiff. Also, intervenor asserts that such payments render the defendant incapable of responding in damages or making restitution to the intervenor.’
Manifestly, Good and the class he purports to represent occupy the position of potential creditors of Stones and the other defendants. But the interest of a creditor in a third party's action against a debtor or the debtor's property is not sufficiently direct to permit the creditor to intervene under section 387. His intervention is no more than an attempt by one creditor to prevent another creditor obtaining judgment against the common debtor. (Horn v. Volcano Water Co., 13 Cal. 62, 69; Olson v. Hopkins, supra, 269 Cal.App.2d 638, 641–642, 75 Cal.Rptr. 33; Continental Vinyl Products Corp. v. Mead Corp., supra, 27 Cal.App.3d 543, 549–550, 103 Cal.Rptr. 806.) As stated in Continental Vinyl Products, 27 Cal.App.3d at 550, 103 Cal.Rptr. at 811: ‘An interest is consequential and thus insufficient for intervention when the action in which intervention is sought does not directly affect it although the results of the action may indirectly benefit or harm its owner. Thus an unsecured creditor of a defendant who will be rendered unable to pay the debt if he loses a lawsuit is held to have only a consequential interest not justifying intervention in the litigation.’ Intervenor's reliance on Sanders v. Pacific Gas & Elec. Co., 53 Cal.App.3d 661, 126 Cal.Rptr. 415, is misplaced, for in that cause the intervenor had a direct interest in the litigation by virtue of its claim of exclusive entitlement to the recovery of the civil penalties sought by private plaintiffs.
The complaint in intervention, if allowed to stand, would substantially enlarge the procedural, substantive, and remedial issues in the DA action.
1. Procedurally, the court would be required initially to resolve the multitudinous issues tendered by the class aspect of the complaint in intervention. (See Home Sav. & Loan Assn. v. Superior Court, 42 Cal.App.3d 1006, 1010–1011, 117 Cal.Rptr. 485.) Additionally, the court might be required to change the DA action from a nonjury to a jury cause. In a false advertising and unfair competition suit brought by a district attorney under Bus. & Prof.Code, §§ 17535 and 17536, and Civ.Code, §§ 3369 and 3370.1, no party has a right to a jury trial (People v. Witzerman, 29 Cal.App.3d 169, 176–177, 105 Cal.Rptr. 284), but in a civil fraud action a party has the right to demand trial by jury. (Bank of America v. Lamb Finance Co., 145 Cal.App.2d 702, 706, 303 P.2d 86 (1956); Cal.Const., art. I, § 16.) Although an intervenor generally takes the cause as he finds it, it has been said he cannot be deprived of his right to a jury trial. (Hospital Council of Northern Cal. v. Superior Court, 30 Cal.App.3d 331, 337, n. 6, 106 Cal.Rptr. 247 (1973); City of San Diego v. Andrews, 195 Cal. 111, 118, 231 P. 726 (1924).)
2. Substantively, the evidence needed by the district attorney to establish violations of Bus. and Prof.Code, § 17500 (false advertising) and of Civ.Code, § 3369 (unfair competition) is dissimilar from that required to establish the intervenor's claims of fraud. To prove false advertising under section 17500, the People need only prove that defendants made statements they knew or should have known were untrue or misleading in order to sell goods or services. The test for untrue or misleading statements is the likelihood that the public will be misled. (People v. Witzerman, 29 Cal.App.3d 169, 179–180, 105 Cal.Rptr. 284; People ex rel. Mosk v. National Research Co. of Cal., 201 Cal.App.2d 765, 772, 20 Cal.Rptr. 516; see also Double Eagle Lubricants, Incorporated v. F. T. C., 360 F.2d 268, 270 (10th Cir. 1965); Progress Tailoring Co. v. Federal Trade Commission, 153 F.2d 103, 105 (7th Cir. 1946). No victim need be produced; indeed, no victim need exist. Each solicitation by a deceptive sales statement constitutes a separate violation. (People v. Superior Court (Jayhill), 9 Cal.3d 283, 288–289, 107 Cal.Rptr. 192, 507 P.2d 1400.)
Civil Code section 3369(3) defines ‘unfair competition’ as: ‘[U]nlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising and any act denounced by Business and Professions Code Sections 17500 or 17535, inclusive.’ Thus a violation of Business and Professions Code § 17500 also constitutes a violation of Civil Code § 3369. A business practice need not be unlawful or fraudulent in order to constitute a violation of section 3369. (People ex rel. Mosk v. National Research Co. of Cal., supra, 201 Cal.App.2d 765, 772, 20 Cal.Rptr. 516.)
The limited proof required to make out false advertising and unfair competition, contrasts sharply with that needed to prove fraud and oppression, to establish punitive damages, and to require restitution to 400 members of a class, as sought by the complaint in intervention. To establish fraud intervenors must prove: ‘(1) a false representation, actual or implied, or the concealment of a matter of fact, material to the transaction, made falsely; (2) knowledge of the falsity, or statements made with such disregard and recklessness that knowledge is inferred; (3) intent to induce another into relying on the representation; (4) reliance by one who has a right to rely; (5) resulting damage.’ (Ach v. Finkelstein, 264 Cal.App.2d 667, 674, 70 Cal.Rptr. 472, 477.) It is readily apparent that the triable, substantive issues in the DA action will be extensively broadened by the complaint in intervention. Such multiplication of issues is ordinarily improper, for an intervenor will not be allowed to enter litigation on a claim that enlarges the issues and changes the nature of the main proceeding (Muller v. Robinson, 174 Cal.App.2d 511, 515, 345 P.2d 25; 3 Witkin, California Procedure (2d ed.) p. 1879). In this respect we note that the complaint in intervention in Sanders v. Pacific Gas & Elec. Co., supra, 53 Cal.App.3d 661, 126 Cal.Rptr. 415, did not add any substantive issues to the original complaint, but merely contested plaintiffs' right to be the recipients of any civil penalties that might be awarded under the judgment.
3. Remedially, the complaint in intervention seeks to expand the scope of remedies far beyond those sought by the district attorney, by including an award of interest, of $2,000,000 punitive damages, and of attorney's fees to intervenor's counsel. ‘[T]he general rule [is] that an intervenor may not broaden the scope of the . . . remedy offered the original plaintiff . . ..’ (City of San Diego v. Otay Municipal Water Dist., 200 Cal.App.2d 672, 681, 19 Cal.Rptr. 595, 601.)
Good argues that even if he lacks a direct interest in the litigation and even if intervention would expand the issues in the DA action, nevertheless, he should be permitted to intervene on behalf of his class by reason of special circumstances.
First, Good argues that the failure of the district attorney to obtain restitution for the majority of investors for whom restitution had been sought in the original complaint, furnishes sufficient justification for his intervention on behalf of the class. We disagree. While the district attorney may seek restitution in such an action (People v. Superior Court (Jayhill); 9 Cal.3d 283, 286, 107 Cal.Rptr. 192, 507 P.2d 1400), he is not compelled to secure all the relief he has sought.3 Many reasons can exist why a district attorney may not insist on restitution as part of a particular settlement. It may be difficult to determine the identity of the victims and the amount owed to each; reliance by the victims on false and misleading statements may not be provable; defendants may have specific and separate defenses to the claims of particular victims; settlement may not be feasible if restitution is required; the public interest may be better served by allowing the issue of restitution to be settled in an action between the parties themselves. At bench, the record contains assertions by the district attorney that many investors in the oil drilling contracts knew the purported tax deductions were improper, knowledge which, if true, could affect their right to restitution.
Next, Good argues his intervention on behalf of the class is necessary because the district attorney committed various unethical acts that have jeopardized the success of restitution for the majority of investors. In essence, Good claims the district attorney subordinated the interest of the class to the recovery of substantial civil penalties for the county treasury. If bad faith or collusion between the district attorney and defendants to defraud the intervenor and his class had been shown, then Good's interest in the DA action might evolve from a consequential to a direct interest. (Continental Vinyl Corp. v. Mead Corp., supra, 27 Cal.App.3d 543, 551, 103 Cal.Rptr. 806.) But no showing of improper conduct was made, nor were any such improprieties noted by the trial court.
Finally, Good argues that any judgment he might obtain in his own action (Good action) would be worthless because, as alleged in his complaint in intervention, the stipulated judgment in the DA action would make Stones insolvent. However, these allegations are made on information and belief, and for the purpose of determining the right to intervene they must be disregarded. (Olson v. Hopkins, supra, 269 Cal.App.3d 638, 644, 75 Cal.Rptr. 33.) Furthermore, this argument is merely a replay of Good's earlier argument that his status as a creditor provides sufficient justification for intervention, an argument the California courts have consistently rejected. If insolvency of defendants is or becomes a factor in this litigation, the remedy available to Good and the class he seeks to represent lies in the use of the bankruptcy laws. We also note that if Good and other investors can trace and identify specific moneys as their own, they can proceed against these moneys by way of third-party claim under Code of Civil Procedure, section 689, for the trial court ordered that the funds collected by the district attorney from Stones be deposited in court and kept there until further order.
The superior court is directed by writ of mandate to vacate its order denying the district attorney's motion to strike the complaint in intervention and to enter a new order granting the motion. The alternative writ of mandate is discharged.
1. Concurrently with the settlement of the DA action a plea bargain was entered in the criminal action whereby Stones pleaded nolo contendere to certain felony counts and received probation.
2. Most of the seven investors for whom restitution was ordered had assisted the district attorney in his investigation.
3. The following rule in criminal matters is analogous: ‘It is well settled, moreover, that unless a statute clearly makes prosecution mandatory, a district attorney is vested with discretionary power in the investigation and prosecution of charges, and a court cannot control this statutory power by mandamus.’ (People v. Vatelli, 15 Cal.App.3d 54, 58, 92 Cal.Rptr. 763, 765.)
FLEMING, Associate Justice.
ROTH, P. J., and COMPTON, J., concur.