Metropolitan News-Enterprise


Tuesday, April 17, 2007


Page 1


Supreme Court Clarifies Rule on Timing of Class Action Rulings

Justices Cite Unfairness of Allowing Class Members to Opt in After Merits Have Been Decided




A trial court should not, absent compelling justification, resolve the merits of a putative class action prior to deciding class certification and notice issues, the California Supreme Court ruled yesterday.

In a unanimous decision, the justices said a Santa Clara Superior Court judge abused his discretion by ruling, simultaneous with its certification of a plaintiff class of 3,000 borrowers, that a lender had violated a consumer finance statute by claiming excessive amounts in notices of default.

Justice Katherine M. Werdegar, writing for the high court, said there was no reason for Judge Kevin E. McKenney to hear a motion for judgment on the pleadings  prior to ruling on the certification motion and allowing class members to decide whether they wished to opt out.

‘One-Way Intervention’

The timing was unfair, Werdegar said, because it permitted “one-way intervention”—by ruling as it did, the court encouraged borrowers to opt in to the class action, whereas if the motion had been denied, those same class members could have opted out, avoided the effect of the ruling, and filed their own suits.

The case involved Fireside Bank, formerly Fireside Thrift Co., the assignee of Sandra Gonzalez’s loan agreement with the dealer from whom she purchased a used van that was later repossessed. The bank notified Gonzalez that she could redeem the van within 15 days by paying a total of $13,843.64.

The bank correctly itemized the elements of the outstanding debt, including the unpaid principal, late charges, and repossession costs, as well as the credits due for unearned finance charges and unearned insurance premiums. But it failed to deduct the unearned finance charges of $2,713.46 from the debt, so the amount due was overstated by that amount and was actually $11,130.18.

Fireside later acknowledged the “computer error” and conceded that similarly inaccurate notices were sent to the other members of the class.

When Gonzalez failed to redeem, Fireside sold the van and sued for a deficiency judgment.

It alleged the amount due as $11,130.18 less $3,100 in sale proceeds, for a net of $8,073.47.  Gonzalez pled an affirmative defense under the Rees-Levering Motor Vehicle Sales and Finance Act, which prohibits recovery of a deficiency unless the statute’s notice requirements have been complied with prior to sale.

Gonzalez later filed a cross-complaint alleging that Fireside repossessed the van prior to default, and thus converted it; that the bank violated the Rosenthal Fair Debt Collection Practices Act; and that the Rees-Levering violation constituted an unfair, illegal, and deceptive business practice under the unfair competition law.

Judgment on Pleadings

Gonzalez then moved for judgment on the pleadings with respect to the complaint. In addition to opposing the motion on the merits, Fireside noted that the plaintiff’s counsel had alluded to the possibility of moving for class certification, and urged the court not to rule on the motion for judgment on the pleadings until it was determined whether the case would proceed as a class action.

At the hearing, the plaintiff’s attorney advised that the bank had just provided discovery showing the size of the potential class, and that a motion for class certification was under consideration pending the receipt of additional discovery. The judge continued the hearing, and the plaintiff moved for class certification in the interim.

The court then held a status conference and hearing on the motions, then granted class certification on the cross-complaint and judgment on the pleadings on the complaint. The bank then sought writ relief, citing earlier cases dealing with the “one-way intervention” issue.

The Sixth District Court of Appeal denied the writ, reasoning that the trial court had broad discretion in the matter; that any rule against one-way intervention did not apply in this instance because the court only ruled on the merits of the complaint, not the cross-complaint as to which class certification was sought; and that the bank was not prejudiced.

But Werdegar, writing for the high court, disagreed. The high court, she noted, has previously held that the rule against one-way intervention “should apply not only to protect defendants from a belated motion for certification, but also to protect plaintiffs from a belated motion for decertification; a defendant should not be allowed to sandbag a plaintiff, withholding its best case against certification and then seeking decertification if it suffered an unfavorable merits ruling.”

The rule, she said, should not apply inflexibly. In this case, for example, the plaintiff’s failure to seek class certification before moving for judgment on the pleadings was justified because counsel did not until the discovery responses were served that the putative class was sufficiently numerous to support a class action, Werdegar explained.

But “there was no compelling justification for resolving the merits issue first; indeed, there was no justification at all,” the justice wrote. And the resulting exposure to one-way intervention, she added, constituted sufficient prejudice to support the grant of writ relief.

The court declined, however, to bar the possibility of class certification on remand, saying the trial judge may consider the issue de novo.

The case is Fireside Bank v. Superior Court (Gonzalez), 07 S.O.S. 1863.


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