Korea Supply Co. v. Lockheed Martin Corp.
29 Cal. 4th 1134, 131 Cal. Rptr. 2d 29, 63 P.3d 937 (2003)
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Rule of Law:
Disgorgement of profits is not an available remedy in an individual action under California's Unfair Competition Law (UCL) unless it is restitutionary in nature. To state a claim for intentional interference with prospective economic advantage, a plaintiff must show the defendant engaged in an independently wrongful act and knew that interference was certain or substantially certain to occur, but need not prove the defendant acted with the specific intent to disrupt the plaintiff's relationship.
Facts:
- The Republic of Korea solicited bids for a synthetic aperture radar (SAR) system for its military.
- Korea Supply Company (KSC) represented MacDonald, Dettwiler, and Associates Ltd. (MacDonald Dettwiler) in the bidding process.
- KSC had an agreement with MacDonald Dettwiler for a commission of over $30 million if MacDonald Dettwiler was awarded the contract.
- Loral Corporation (now Lockheed Martin) was a competing bidder for the same contract.
- Loral's agent, Linda Kim, offered bribes and sexual favors to key Korean officials involved in the decision-making process.
- The Republic of Korea awarded the SAR contract to Loral, despite MacDonald Dettwiler's bid being approximately $50 million lower and its equipment being deemed superior by Korean defense officials.
- An internal investigation by the Republic of Korea later revealed that the contract was awarded to Loral as a result of the bribery scheme.
Procedural Posture:
- Korea Supply Company (KSC) sued Lockheed Martin and its agent in a California superior court (trial court) for, among other things, unfair competition and intentional interference with prospective economic advantage.
- Lockheed Martin filed a general demurrer to all claims.
- The trial court sustained the demurrer without leave to amend and entered a judgment dismissing the action.
- KSC (appellant) appealed the dismissal to the California Court of Appeal.
- The Court of Appeal reversed the trial court's judgment in full, finding KSC had sufficiently stated both causes of action.
- Lockheed Martin (appellant) sought review in the Supreme Court of California on the issues of whether nonrestitutionary disgorgement is a valid UCL remedy and whether specific intent is required for the interference tort.
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Issue:
1. Does California's Unfair Competition Law (§ 17200 et seq.) authorize a private plaintiff to obtain nonrestitutionary disgorgement of profits acquired by a defendant through unfair business practices? 2. Does the tort of intentional interference with prospective economic advantage require a plaintiff to plead that the defendant acted with the specific intent to interfere with the plaintiff's business expectancy?
Opinions:
Majority - Moreno, J.
1. No. Nonrestitutionary disgorgement of profits is not an authorized remedy in an individual action under the UCL. The statute's monetary remedy is explicitly limited to restitution, which requires restoring to a person money or property in which they have a vested ownership interest. KSC had only a contingent expectancy in a future commission, not an ownership interest in the profits Loral received from the Republic of Korea. To allow nonrestitutionary disgorgement would improperly transform the UCL into a substitute for a tort action and raise due process concerns about duplicative liability. 2. No. A plaintiff need not plead that the defendant acted with the specific intent to interfere with the plaintiff's business expectancy. To satisfy the intent requirement, it is sufficient to plead that the defendant knew the interference was certain or substantially certain to occur as a result of its action. The tort requires that the defendant's conduct be independently wrongful by some legal measure (e.g., statutory, regulatory, common law), which distinguishes tortious interference from legitimate competition. Here, KSC sufficiently alleged an independently wrongful act (bribery in violation of the Foreign Corrupt Practices Act) and that Loral knew its actions were substantially certain to deprive KSC of its commission.
Concurring - Kennard, Acting C. J.
Concurs with the majority. The holding on the UCL remedy logically follows from this court's precedent in Kraus, as disgorgement is not available in a representative UCL action that is not a class action. Because the plaintiff KSC paid no money to the defendant, it is not entitled to restitution.
Concurring - Werdegar, J.
Concurs with the judgment. Agrees fully with the majority's reasoning on the intentional interference with prospective economic advantage claim. Feels compelled by the precedent of Kraus, from which she previously dissented, to agree that nonrestitutionary disgorgement is not an available remedy under the UCL.
Concurring-in-part-and-dissenting-in-part - Chen, J.
1. Concurs with the majority that nonrestitutionary disgorgement is not a proper remedy under the UCL. 2. Dissents from the majority's conclusion on the interference tort. Argues that KSC's alleged injury is too remote, indirect, and derivative to be legally cognizable. The direct victim of the interference was MacDonald Dettwiler, not KSC. Allowing such indirect claims opens the door to unlimited liability, a principle recognized in federal antitrust and RICO case law which should be applied here. Such remote, indirect plaintiffs should only be allowed to recover if they can prove the defendant specifically intended to interfere with their prospective economic advantage.
Analysis:
This decision significantly clarifies the boundaries of two major business torts in California. It firmly limits monetary relief under the Unfair Competition Law to restitution, preventing it from being used as a substitute for traditional tort actions seeking damages for lost profits or expectancies. Simultaneously, it clarifies the intent element for intentional interference with prospective economic advantage by adopting the Restatement's 'substantial certainty' standard, making it possible for indirect victims of independently unlawful conduct to bring a claim without having to prove the defendant had the specific purpose of harming them.
