Opinion
NOT TO BE PUBLISHED
Sonoma County Super. Ct. No. SCV-237667.
RIVERA, J.
The Patels appeal from a judgment following a court trial entered in favor of the City of Santa Rosa (the City) and the People of the State of California in this action under the red light abatement law (Pen. Code, § 11225 et seq.). They contend that the trial court erred in: (1) striking their cross-complaint; (2) awarding civil penalties under Business and Professions Code section 17206, subdivision (a); (3) ordering that the Patels disgorge alleged illegal profits; and (4) entering judgment at the same time it rendered its final statement of decision. They also argue that the City lacked standing to bring this action, and that the court erred in awarding red light abatement remedies. We modify the court’s judgment to reduce the amount of damages attributable to the disgorgement of profits, but otherwise affirm.
The Patels are: Raman D. Patel, individually and as trustee of the Raman D. and Jashu R. Patel Family Trust, Raman D. and Jashu R. Patel Residual Trust and Raman D. and Jashu R. Patel Survivor’s Trust, and as General Partner of the Jas 4 Ray Properties, L.P., Rita Patel, David Stafford, and Prita Patel.
FACTUAL BACKGROUND
The City filed this action for injunctive relief under the red light abatement law in October 2005 alleging that the Patels were operating the Llano Motel for the purposes of prostitution. Following the filing of the action, the parties entered into a stipulation and order for a preliminary injunction which included the Patels’ agreement to demolish the motel within certain time limitations. In a prior appeal, we addressed the trial court’s award of attorney fees following litigation concerning the Patels’ violation of the stipulation and order for a preliminary injunction. (Patel v. Jakela, Inc. (December 31, 2009, A121611 [nonpub. opn.] (Patel I)) As set forth in that opinion, the Patels failed to demolish the motel as they had agreed in the stipulation. (Id. at p. 2.) As a result, the City proceeded with the demolition as it was authorized to do per the terms of the stipulation. (Ibid.) The motel was demolished prior to trial in 2007. (Ibid.)
This appeal addresses the trial on the City’s complaint alleging violations of the red light abatement law and unfair business practices. Based on the evidence adduced at trial, the court found that in late 2004 and 2005, the Llano Motel became a “ ‘hooker haven’ ”–“the go-to-prostitution-destination in Sonoma County.” The Patels failed to respond to the complaints about the nuisance being maintained on their property and profited from the increased room rates they charged prostitutes and pimps, realizing a minimal profit of $70,000 from the higher rates charged. The court found that the City proved that the Patels knowingly operated a prostitution nuisance at the Llano Motel, ordered abatement of the nuisance, and imposed a civil fine in the amount of $25,000. The court also ordered the Patels to disgorge the illegal profits of $70,000 they realized from charging elevated room rates. Finally, the court found that the Patels engaged in unfair business practices within the meaning of the unfair competition law (UCL), Business and Professions Code section 17200, and ordered that the Patels pay penalties in the amount of $409,500 based on a nine-month period of daily violations. This appeal followed.
DISCUSSION
A. The Patels’ Cross-Complaint.
The Patels contend that the trial court erred in granting the City’s motion to strike their cross-complaint.
1. Procedural background
The City filed its complaint in this action on October 26, 2005. The Patels answered the complaint on January 6, 2006, and the matter was set for trial on October 6, 2006. The matter was subsequently reset to March 2, 2007 and then to July 13, 2007. On January 22, 2007, the City moved for leave of court to file an amended complaint to add a cause of action under the UCL, Business and Professions Code section 17200, et seq. to allege a claim for unfair business practices. The City subsequently filed an amended first complaint to add the People of the State of California as a plaintiff. On February 21, 2007, the court granted the City’s motion. The Patels demurred to the first amended complaint on February 28, 2007. The court overruled the demurrer. On May 4, 2007, the Patels answered the first amended complaint and, in addition, filed a cross-complaint. The City and the People (collectively, the City) moved to strike the complaint on the ground that the Patels failed to seek leave of court to file it in violation of Code of Civil Procedure section 428.50. Jakela, Inc. and Daniel O. Davis, Inc., respondents in Patel I, filed a separate motion to strike the cross-complaint. Before a hearing on the motions could be held, the Patels removed the action to federal court, but that court eventually remanded the matter back to the trial court and awarded sanctions to the City, finding that the Patels’ action in removing the case to federal court was “vexatious and frivolous.”
The hearing on the motions to strike was eventually held on October 31, 2007. The trial court granted the motions, finding that the Patels had not obtained leave of court to file the cross-complaints. We review the court’s order for abuse of discretion. (Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612.)
2. Analysis
The Patels argue that they were not required to seek leave of court to file the cross-complaint because it was authorized under Code of Civil Procedure section 428.50, subdivision (a) (section 428.50). Section 428.50, however, does not provide for the filing of a cross-complaint under the facts here.
Section 428.50 provides as follows: “(a) A party shall file a cross-complaint against any of the parties who filed the complaint or cross-complaint against him or her before or at the same time as the answer to the complaint or cross-complaint. [¶] (b) Any other cross-complaint may be filed at any time before the court has set a date for trial. [¶] (c) A party shall obtain leave of court to file any cross-complaint except one filed within the time specified in subdivision (a) or (b). Leave may be granted in the interest of justice at any time during the course of the action.”
Under the statutory scheme, “[s]ubdivision (a) addresses compulsory cross-complaints, those related to the subject matter of the underlying complaint which exist at the time of service of the answer to the complaint on the particular plaintiff.” (City of Hanford v. Superior Court (1989) 208 Cal.App.3d 580, 586-587.) It is not applicable here, where the Patels answered the underlying complaint in December 2005 and the trial date had already been set. Since the Patels’ cross-complaint was not a compulsory one and was not filed before the court set the first trial date, it was a permissive cross-complaint, and hence leave of court was required. As explained in Loney v. Superior Court (1984) 160 Cal.App.3d 719, 722, section 428.50 “allows filing [of a cross-complaint] without leave of court only before a trial date is set. If the Legislature had intended to extend the time for filing in cases where a trial date is set and then vacated, it could have done so expressly.” The Loney court further explained the practical considerations of allowing permissive cross-complaints to be filed only until the time of the first trial date. (Id. at p. 723.) By the time a case is set for trial, “it may be assumed that the original parties have engaged in discovery and investigated the applicable law and facts, and have learned of any new parties or additional causes of action that should be included in the litigation. Thus, the assignment of the first trial date becomes a logical point at which to cut off the right to file cross-complaints bringing in new parties without permission of court.” (Ibid.)
Here, the trial date had already been set at the time the Patels filed their cross-complaint. Consequently, it was incumbent upon the Patels to seek leave of court to file their cross-complaint. The rationale for section 428.50 is particularly apt here where the Patels not only sought to bring new causes of action but to add numerous new parties including the City’s police department, the mayor, a council member, 18 police officers, and the city attorneys prosecuting the complaint. The allegations in the Patels’ cross-complaint also related in whole or in part to actions that allegedly took place in 2006 and 2007, after the filing of their answer in 2005 and hence cannot be considered a compulsory cross-complaint. “To be considered a compulsory cross-complaint, a related cause of action must have existed at the time of the service of [the defendant’s] answer to [the] complaint.” (Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 864.) As the Patels did not seek leave of court to file their cross-complaint, the court properly granted the City’s motion to strike it.
B. Business and Professions Code section 17206, subdivision (a)
1. The trial court did not abuse its discretion in awarding penalties for the Patels’ unlawful business practices.
The Patels contend that the trial court erred in awarding the City civil penalties under Business and Professions Code section 17206 because there were no presently occurring or ongoing violations of unfair competition. They argue that because the motel had already been demolished and there was not a continuing threat of harm to the public, the court should have denied the request for penalties. The Patels recognize that the court rejected this argument based on the statutory language of Business and Professions Code section 17206, subdivision (a) which provides that “[a]ny person who engages, has engaged, or proposes to engage in unfair competition 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....” but argue that principles of equity dictate that penalties should be imposed only for ongoing or threatened activity.
Nonetheless, relying on Mangini v. Aerojet General Corp. (1991) 230 Cal.App.3d 1125, they argue that relief under the UCL requires ongoing conduct. Mangini was decided before the 1992 amendments to section 17206 which changed the statutory language to read as set forth above to provide for penalties to any person who “engages, has engaged or proposes to engage in unfair competition.” “The 1992 amendments overruled former case law that had limited the statute’s application. (Citation.)....” (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 570.) The Patels’ reliance on Mangini is thus misplaced.
Inasmuch as the trial court found that the Patels “knowingly condoned, enabled, and operated a red light nuisance, willfully failed to do what was necessary to abate that nuisance, and creatively found a way to profit from it [by engaging in an unfair rental practice of charging prostitutes higher motel room rates far beyond prevailing market rates], ” penalties under Business and Professions Code section 17206 were mandatory. “Section 17206, subdivision (a), requires a court to impose a penalty for each unlawful business practice committed.” (Hewlett v. Squaw Valley Ski Corp. (1997) 54 Cal.App.4th 499, 537.)
2. The City had standing to bring the UCL cause of action.
Section 17204 requires, in pertinent part, that actions alleging unfair competition be prosecuted “by a city attorney of a city having a population in excess of 750, 000, or by a city attorney in a city and county or, with the consent of the district attorney, by a city prosecutor in a city having a full-time city prosecutor in the name of the people of the State of California upon their own complaint....”
Here, the record establishes that the Sonoma County District Attorney’s Office authorized the Santa Rosa City Attorney’s Office to proceed with a Business & Professions Code section 17200 cause of action against the Patels. The Patels’ belated attempt to challenge the City’s standing to bring this action is without merit.
3. Substantial evidence supports the trial court’s finding of unfair business practices.
The Patels argue that there was no evidence presented that their practice of charging higher rental rates to prostitutes threatened or harmed competition. The record, however, shows that the Patels maintained a house of prostitution at the Llano Motel in 2004 and 2005 resulting in a public nuisance. Contrary to the Patels’ argument, the City was not required to prove that competitors or similarly situated businesses were harmed by the Patels’ unfair rental practices. “ ‘Section 17200 “is not confined to anticompetitive business practices, but is also directed toward the public’s right to protection from fraud, deceit, and unlawful conduct. [Citation.] Thus, California courts have consistently interpreted the language of section 17200 broadly.” [Citation.] “ ‘The statute imposes strict liability. It is not necessary to show that the defendant intended to injure anyone.’ ” ’ (Paduano v. American Honda Motor Co., Inc. (2009) 169 Cal.App.4th 1453, 1468.) The evidence adduced at trial was overwhelming that between 2004 and 2005, the Patels charged prostitutes excessive rents and allowed them to use the motel to engage in prostitution to the detriment of the community. The court properly found that their conduct constituted unfair competition within the meaning of section 17200.
4. The penalties imposed were not unreasonable.
The Patels contend that the penalties imposed were unreasonable and oppressive. We review the court’s award for abuse of discretion. (People v. First Federal Credit Corp. (2002) 104 Cal.App.4th 721, 733.)
Section 17206 requires that the court impose a penalty for each violation of unfair competition. (People v. First Federal Credit Corp., supra, 104 Cal.App.4th at p. 732; Hewlett v. Squaw Valley Ski Corp., supra, 54 Cal.App.4th at pp. 536-537.) Specifically, the court may impose “a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation.... [¶] (b)... In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including...: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth.” (§ 17206, subds. (a) and (b).) It is within the discretion of the court to determine what constitutes a violation; penalties under the statute are determined on a case-by-case basis. (Hewlett, supra, at p. 537; People ex rel. Kennedy v. Beaumont Investment, Ltd. (2003) 111 Cal.App.4th 102, 127.)
The Patels rely on language in People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 516, 523, 534 where the court determined that although the UCL authorized a $2,500 sanction for each violation, it would be unreasonable and oppressive to impose the penalty in that case where there were over 1, 000 failures to keep adequate patient records in violation of nursing home regulations. The court noted, however, that it would be “equally unreasonable” to count all of the violations of a particular rule or regulation and count them as one violation. (Id. at pp. 534-535.) The court therefore assessed $2,500 for each of 67 violations, aggregating certain types of violations into a single act. (Ibid.)
Here, the court found, and the evidence supported that the Patels charged unfair rental prices for a period of almost twelve months from November 2004 to October 2005. The court determined that at a minimum, the Patels benefited from nine months of unfair motel occupancy revenue, and that the daily violations were “serious, protracted, and willful.” The court further found that the Patels had sufficient assets to pay “appropriate” penalties. Although the court found that the Patels committed multiple daily violations by renting to numerous prostitutes, it “conservatively calculate[d] the penalties based upon a nine-month period” and set a daily penalty rate of $1,500. Thus, the court imposed penalties of $409,500 (39 weeks multiplied by 7 days per week or 273 days multiplied by $1,500). Based on the evidence before it, we cannot conclude that the court abused its discretion in its award of statutory penalties. The court could well have imposed the statutory amount of $2,500 per violation considering the number of violations, their duration, and the Patels’ willfulness in maintaining the nuisance.
5. Disgorgement of profits.
Section 17203 grants the court authority to make orders or judgments “as may be necessary to prevent the use of employment by any person of any practice which constitutes unfair competition... 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. Any person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of Section 17204 and complies with Section 382 of the Code of Civil Procedure, but these limitations do not apply to claims brought under this chapter by the Attorney General, or any district attorney, county counsel, city attorney, or city prosecutor in this state.”
“An order that a defendant disgorge money obtained through an unfair business practice may include a restitutionary element, but is not so limited. As in this case, such 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.” (Kraus v. Trinity Management Services, Inc. (2000) 23 Cal.4th 116, 127 (Kraus).)
The Kraus court, however, limited the disgorgement remedy of section 17203 to UCL actions certified as class actions. (Kraus, supra, 23 Cal.4th at p. 137.) The court declined to extend the remedy in a fluid recovery context – the payment of damages over to a class fund and disbursement to individual class members to compensate for damage he or she has suffered– in an UCL action that was not certified as a class action but was a private representative action brought on behalf of persons in addition to the plaintiff. (Id. at pp. 121, 126 and fn. 10, 127.) The court noted that the Legislature had not “expressly authorized fluid recovery in UCL actions, where restitution to a person in interest is the only monetary remedy for violation of the UCL described in section 17203.” (Id. at p. 128.) Further, the court recognized that it had “never construed section 17203 as authorizing an order for disgorgement into a fluid recovery fund, or held that such an order may be made as an exercise of the court’s equitable power.” (Id. at p. 133.)
While this action is not a private representative action under the UCL, but a representative action brought on behalf of the People, the Court reiterated in State of California v. Altus Finance (2005) 36 Cal.4th 1284, 1304-1305, fn. 7, an action by the Attorney General pursuing a civil remedy under the UCL, that a disgorgement remedy was not authorized “outside the class action context.” Consequently, the trial court’s order here for disgorgement of the profits of $70,000 for a restorative justice program for prostitutes and their customers cannot be upheld under section 17203. As the court ordered the disgorgement remedy concurrent with the identical order under the red light abatement law, we next consider whether the order is appropriate under that law.
C. Red Light Abatement Law (Penal Code, §11225 et seq.)
The red light abatement law provides that “[e]very building or place used for the purpose of illegal gambling....; lewdness, assignation, or prostitution, and every building or place in [which such acts] are held or occur, is a nuisance which shall be enjoined, abated, and prevented, and for which damages may be recovered, whether it is a public or private nuisance.” (Pen. Code, § 11225, italics added.) Penal Code section 11230 authorizes the court to order abatement of the nuisance including directing the closing of the building for a period of one year, or in lieu thereof if closure would create a nuisance or otherwise be harmful to the community, the payment of damages. (Pen. Code, § 11230, subd. (a).) Finally, subdivision (b) of section 11230 allows a court to “assess a civil penalty not to exceed twenty-five thousand dollars ($25,000) against any and all of the defendants, based upon the severity of the nuisance and its duration.”
The Patels argue that since the motel was demolished before trial, the court lacked authority to order civil penalties or disgorgement of profits. They rely on language in Mallon v. City of Long Beach (1958) 164 Cal.App.2d 178, 190 where the court stated, “[i]f, therefore, at the time of the order or judgment, in the absence of special circumstances, which are not here involved, there is no reasonable probability that past acts complained of will recur, injunctive relief will be denied. Injunctive power is not used as punishment for past acts and is ordered against them only if there is evidence they will probably recur.” The Mallon court, however, also recognized that an injunction should not issue against a party who has in good faith abated the condition that was the subject of the complaint. (Ibid.)
Mallon is of no import here where the Patels failed to exercise good faith in abating the nuisance. People v. McGonigle (1942) 56 Cal.App.2d 17 is instructive. There, the court rejected the argument that a remedy under the red light abatement law was erroneous because the defendant had voluntarily abated the nuisance before trial. The court determined that abatement of the nuisance ten days prior to the filing of the complaint did not preclude the court from ordering that the hotel the defendant operated for the purposes of prostitution be closed pursuant to the provisions of the statute. (Id. at pp. 18-20.)
Similarly, here, remedies under the red light abatement law are appropriate given the Patels’ bad faith and delay in abating the nuisance. The record demonstrates that it was not until the City filed its complaint, that the Patels agreed by stipulation to abate the nuisance. And then they reneged on the agreement, forcing the City to litigate the stipulation in both the trial court and on appeal. Under these circumstances, the court acted well within its authority in ordering civil penalties of $25,000 under Penal Code section 11230, subdivision (a)(4) against the Patels for maintaining the nuisance. As the trial court found, the City proved that the Patels knowingly condoned, enabled and operated a prostitution nuisance at the motel and that the nuisance was of great severity and long duration. Given the record, the court’s assessment of a civil penalty was justified.
We, however, have found no authority for the court’s imposition of a disgorgement remedy under the red light abatement law. Penal Code section 11225 provides that the court may award damages against a party for maintaining a public or private nuisance, but there is nothing in the statutory scheme providing for restitution or disgorgement of profits. People v. Superior Court (1973) 9 Cal.3d 283, 286 (Jayhill), cited by the court as supporting an equitable remedy here, recognized the court’s inherent equitable powers to restore the status quo and order restitution to customers defrauded by various sellers of encyclopedias. (Id. at p. 286.) The court, however, held that an award of exemplary damages was inappropriate in the absence of explicit statutory authorization. (Id. at p. 287.)
The court noted that the Legislature amended Business and Professions Code section 17535 after the filing of the action to provide that “ ‘[t]he court may make such orders or judgments... which may be necessary to restore to any person in interest any money or property... which may have been acquired by means of any practice in this chapter declared to be unlawful.’ ” (Id. at p. 287, fn. 1.)
Here, the red light abatement law does not provide for restitution or disgorgement. It is well settled that the “ ‘ “[c]ourts will not impose penalties for noncompliance with statutory provisions in addition to those that are provided expressly or by necessary implication.” ’ [Citations.]” (People ex rel. Van de Kamp v. American Art Enterprises, Inc. (1983) 33 Cal.3d 328, 334.) In light of the clear statutory scheme, we decline to extend the remedies available under the statute. We therefore modify the judgment to reduce the amount of damages by $70,000, the sum attributable to the disgorgement of profits.
D. Statement of Decision and Judgment
The court entered judgment on the same day as it filed its statement of decision instead of allowing the parties ten days in which to file any objections to the proposed judgment. (See Cal. Rules of Court, rule 3.1590 (h).) The error was harmless; the Patels have not shown they were prejudiced. (See In re Marriage of Steiner & Hosseini (2004) 117 Cal.App.4th 519, 524-525 [error in prematurely signing judgment not reversible where no prejudice was shown.]
DISPOSITION
The judgment is modified to reduce the monetary award to $434,500 ($504,500 -$70,000–the amount attributable to the disgorgement of profits). In all other respects, the judgment is affirmed. The City to recover its costs on appeal.
We concur: RUVOLO, P.J., REARDON, J.