PEOPLE v. LOUDEN (1983)

Appellant became the master leaseholder of commercial property located on El Camino Real in Palo Alto, California (hereinafter the “property”), on March 28, 1975.   The property was owned by Joseph and Diana Chew.   The lease was for a five-year period, and included an option to buy the property.

According to overwhelming and undisputed evidence, massage parlors located on the property offered sexual services for a period of nearly two years before the complaint was filed.   Numerous undercover officers testified that acts of prostitution were committed on various occasions on the premises, at the following massage parlors:  The Pleasure Palace, Magnifique (also known as Alibaba), The Streaker and The Green Door.

The evidence shows that appellant operated some of the massage parlors located on the property before he became the master leaseholder.   And he owned and operated businesses in other locations which offered sexual services or products, including massage parlors, while he held the master lease to the property.   Appellant was also aware that massage parlors were being operated on the property, and was familiar with the reputation of massage parlors, particularly those in the Palo Alto area, as places where illegal sexual services were customarily offered.

But the record does not reveal that appellant was involved in the operation of any of the massage parlors on the property while he held the master lease.   In fact, by his uncontradicted testimony, appellant sold his interest in all of such businesses when he became the master leaseholder.   And while the record is very confusing and fails to give a definitive picture of the principals involved in the operation of the offending massage parlors, there is no evidence that appellant was other than the master leaseholder during the period in which the violations here at issue occurred.

On the contrary, it appears that others, including appellant's brother, owned and operated the businesses in question.   Appellant was never seen in the buildings and no records were produced to show that he owned or operated any of the massage parlors.¹  Thus, appellant's role was limited to receiving monthly rent—an average of approximately $3,000 per month according to his testimony—and paying the Chews about $1,500 monthly pursuant to his lease agreement with them.

Shortly after appellant acquired the master lease, a dispute arose between appellant and the Chews over use of storage areas on the property—which by agreement were specifically excepted from the area leased to appellant.   Eventually, in July of 1975, the Chews brought an unlawful detainer action which was settled in February 1976 when appellant agreed to make additional installment payments as part of a stipulated judgment.

When appellant failed to comply with the terms of the judgment, the Chews again filed suit for unlawful detainer and sent appellant a notice to quit in April of 1976.²  After a number of continuances, the sheriff served a writ of execution and possession on behalf of the Chews, on December 1, 1976, thereby terminating appellant's master lease and evicting the tenants who were in possession of the premises pursuant to sublease agreements with appellant.   Testimony from the executing officers indicates that by this time very little business was being conducted in the massage parlors on the property.

On December 2, 1976, a complaint was filed against appellant and other named defendants charging violations of the Red Light Abatement Act (Pen.Code, § 11225 et seq.) and the Unfair Business Practices Act (Bus. & Prof.Code, § 17200 et seq.).   After court trial, judgment was entered against appellant by which he was enjoined from involvement in any business offering certain defined sexual products or services, and fined a total of $60,000—$2,500 for each of 24 violations of Penal Code section 647, subdivision (b).

Among appellant's numerous challenges to the judgment, we focus upon his contention that the penalties so imposed are not supported by sufficient evidence.   While we view as fully supported by the record the trial court's finding that appellant knew of the illegal sex being offered at the establishments located on the property (People ex rel. Hicks v. Sarong Gals (1974) 42 Cal.App.3d 556, 561, 117 Cal.Rptr. 24), in the absence of substantial evidence that he participated in the businesses cited for violations,³ we are compelled to reverse the judgment.

 We are cognizant of the settled rule that a showing of personal knowledge of the nuisance by the defendant is not a prerequisite to abatement or closure under the Red Light Abatement Act.  (People ex rel. Hicks v. Sarong Gals, supra, 42 Cal.App.3d 556, 561, 117 Cal.Rptr. 24;  People v. McCaddon (1920) 48 Cal.App. 790, 792, 192 P. 325;  People v. Bayside Land Co. (1920) 48 Cal.App. 257, 261, 191 P. 994;  People v. Barbiere (1917) 33 Cal.App. 770, 779, 166 P. 812.)   As this court explained in People ex rel. Sorenson v. Randolph (1979) 99 Cal.App.3d 183, 188, 160 Cal.Rptr. 69 that “no specific intent need be shown, the statute [§ 11225] only requiring that lewd acts be shown to have regularly occurred on the premises.”   Costs may not be assessed against an owner or lessor who has no knowledge of the character of the business conducted on the property, but “ ‘the owner of property is presumed to know the business conducted thereon.’ ”  (People v. Barbiere, supra, 33 Cal.App. at p. 779, 166 P. 812.)

 An order granting relief under the Red Light Abatement Act would hence have been proper despite appellant's lack of participation in the offending businesses, and even if he had no knowledge of it.   But the trial court did not limit its order to abatement or to an injunction directed against the property;  instead, the judgment enjoined appellant personally from engaging in specified sex-related businesses, wherever located, and fined him for prior violations.   Neither remedy is permitted under the Red Light Abatement Act.  (Pen.Code, § 11225;  People ex rel. Van de Kamp v. American Art Enterprises, Inc. (1983) 33 Cal.3d 328, 334, 188 Cal.Rptr. 740, 656 P.2d 1170.) ⁴  Nor, we conclude, is the judgment justified under the Unfair Business Practices Act.

 The Unfair Business Practices Act (Bus. & Prof.Code, § 17200 et seq.) defines unfair competition to include “unlawful” business practices, such as the violations of Penal Code section 647, subdivision (b) established by the evidence in the present case.  (See People v. McKale (1979) 25 Cal.3d 626, 632, 159 Cal.Rptr. 811, 602 P.2d 731;  People v. E.W.A.P., Inc. (1980) 106 Cal.App.3d 315, 318–319, 165 Cal.Rptr. 73.)   The act also specifically authorizes injunctions and civil penalties—a maximum of $2,500 per violation, as was assessed here—against the offender.  (Bus. & Prof.Code, §§ 17203, 17206; ⁵  People v. E.W.A.P., Inc., supra, at p. 320, 165 Cal.Rptr. 73.)

 Unlike those of the Red Light Abatement Act, however, the proscriptions and sanctions of the Unfair Business Practices Act are expressly directed at the “person” rather than property.   Penalties may be imposed upon those who personally or jointly and severally commit unlawful acts (People v. Bestline Products, Inc. (1976) 61 Cal.App.3d 879, 918, 132 Cal.Rptr. 767), while those who conspire with or aid and abet the offenders will also incur liability under the Unfair Practices Act.  (People v. Arthur Murray, Inc. (1965) 238 Cal.App.2d 333, 341, 47 Cal.Rptr. 700.)   But on the present record appellant neither actively operated the offending massage parlors nor aided and abetted the commission of unlawful acts.⁶  His status is merely that of a landlord with knowledge that his lessees were violating the law.

  The Unfair Business Practices Act imposes severe sanctions on those who violate its terms, as illustrated by the broad injunction and substantial fines imposed upon appellant.   To punish appellant for unlawful business practices without any showing that he either operated the businesses, aided and abetting the commission of the unlawful acts, or conspired with others to do so, in our view requires a clear indication in the governing statutes that such vicarious liability is contemplated.   The language of the statutes, far from revealing an intent to include within its scope those who have mere knowledge of unlawful business practices, seems to require active participation by the defendant.  Section 17203 specifies that any “person performing ” or proposing to perform an act of unfair competition may be enjoined;  and section 17206 provides for imposition of fines on any “person who violates any provision of this chapter․”

Reference to case law reinforces the view that mere knowledge of unlawful practices will not justify sanctions under the Unfair Business Practice Act.

In People v. Regan (1979) 95 Cal.App.3d Supp. 1, 157 Cal.Rptr. 62, the defendant, an owner of a business, was charged with violating Business and Professions Code section 17500 ⁷ based upon illegal conduct by his employee.   The court concluded that defendant could not be held vicariously liable for the acts of his employee, noting that the statute does not impose strict liability and requires participation in the proscribed conduct with knowledge and intent.  (Id., at p. 4, 157 Cal.Rptr. 62;  see also Universal City Studios v. Sony Corp. of America (C.D.Cal.1979) 480 F.Supp. 429, 461–463.)   The court also emphasized that a person does not become liable under section 17500 merely by virtue of status as the owner of a business.   (Id., at p. 4, 157 Cal.Rptr. 62.)

 Similarly, in People v. EWAP, Inc., supra, 106 Cal.App.3d 315, 165 Cal.Rptr. 73, defendant argued that civil penalties cannot be imposed under Business and Professions Code section 17206 absent a showing of scienter.   The court explained that the evidence established defendant's knowing participation in the unlawful acts, thus impliedly recognizing the need to prove active as well as knowing involvement in the offending conduct by the defendant.  (Id., at p. 322, 165 Cal.Rptr. 73;  see also People v. Bestline Products, Inc., supra, 61 Cal.App.3d 879, 917–918, 132 Cal.Rptr. 767.)

 We accordingly conclude that a lessor, such as appellant, cannot incur civil penalties pursuant to sections 17203 or 17206 of the Business and Professions Code for illegal operation of the leasehold absent a showing of participation in such illegal enterprise.⁸

The judgment is reversed, and the trial court is instructed to enter judgment in favor of appellant.

FOOTNOTES

1.   The only testimony remotely linking appellant with the premises came from undercover officer Thomas McGowan, who saw appellant in an alley on the property on one occasion.

2.   The notice to quit was based partially upon appellant's nonpayment of amounts due under the judgment, but was primarily prompted by notice the Chews received from the City of Palo Alto that activities on the property violated the Red Light Abatement Act.

3.   There is some testimony from appellant, although confusing and equivocal in nature, that he owned and operated the Manifique massage parlor for a short time while he held the master lease to the property.   But the times during which he was the apparent operator of that business do not correspond to the dates of the violations cited by the trial court—January 1, 1976, and November 16, 1976.   And nothing in the record even remotely suggests that appellant operated any of the other offending massage parlors.

4.   Section 11225, by its terms, specifies that an injunction be directed at the building or property—for the purpose of restraining a public nuisance (In re Wood (1924) 194 Cal. 49, 55, 227 P. 908)—not the person.  (People ex rel. Van de Kamp, supra.)

5.   Section 17203 states:“Any person performing or proposing to perform an act of unfair competition within this state 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.”Section 17206 provides for imposition of fines as follows:“(a) Any person who violates any provision of this chapter shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the Attorney General or by any district attorney or any city attorney of a city having a population in excess of 750,000, and, with the consent of the district attorney, by a city prosecutor in any city or city and county having a full-time city prosecutor in any court of competent jurisdiction.(b) If the action is brought by the Attorney General, one-half of the penalty collected shall be paid to the treasurer of the county in which the judgment was entered, and one-half to the State General Fund.   If brought by a district attorney, the penalty collected shall be paid to the treasurer of the county in which the judgment was entered.   If brought by a city attorney or city prosecutor, one-half of the penalty collected shall be paid to the treasurer of the city in which the judgment was entered, and one-half to the treasurer of the county in which the judgment was entered.(c) If the action is brought at the request of a board within the Department of Consumer Affairs or a local consumer affairs agency, the court shall determine the reasonable expenses incurred by the board or local agency in the investigation and prosecution of the action.Before any penalty collected is paid out pursuant to subdivision (b), the amount of such reasonable expenses incurred by the board shall be paid to the State Treasurer for deposit in the special fund of the board described in Section 205.   If the board has no such special fund, the moneys shall be paid to the State Treasurer.   The amount of such reasonable expenses incurred by a local consumer affairs agency shall be paid to the general fund of the municipality or county which funds the local agency.”

6.   Knowledge of a crime and failure to take steps to prevent it does not establish a person as an aider and abettor.  (In re David K. (1978) 79 Cal.App.3d 992, 1000, 145 Cal.Rptr. 349;  People v. Gibson (1976) 56 Cal.App.3d 119, 131, 128 Cal.Rptr. 302.)

7.   Section 17500, also part of the Unfair Business Practices Act, provides:“It is unlawful for any person, firm, corporation or association, or any employee thereof with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise, or anything of any nature whatsoever or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state, or to make or disseminate or cause to be made or disseminated from this state before the public in any state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, any statement, concerning such real or personal property or services, professional or otherwise, or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any such person, firm, or corporation to so make or disseminate or cause to be so made or disseminated any such statement as part of a plan or scheme with the intent not to sell such personal property or services, professional or otherwise, so advertised at the price stated therein, or as so advertised.   Any violation of the provisions of this section is a misdemeanor punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500), or by both.”

8.   Our conclusion makes it unnecessary to consider appellant's remaining contentions.

 NEWSOM, Associate Justice.

ELKINGTON, Acting P.J., and HOLMDAHL, J., concur.