In Alvarez v. May Department Stores Co., ___ Cal.App.4th ___ (Oct. 11, 2006), the Court of Appeal (Second Appellate District, Division Four) addressed the interplay between the doctrine of collateral estoppel and class certification orders. The Court determined that a prior order denying class certification, which was final and had been affirmed on appeal, was binding in a later action, brought by a different plaintiff, but seeking certification of an identical class and identical claims.
Because collateral estoppel requires "balanc[ing] the rights of the party to be estopped against the need for applying collateral estoppel in the particular case" (slip op. at 8), the conceptual issue the Court grappled with was the nature of the rights of unnamed putative class members:
The initial question we must answer is the following: What is the precise nature of appellants’ right at issue here? Our decision will not eliminate appellants’ substantive right to bring their lawsuit. Instead, it could potentially deny them the ability to serve as a representative of other litigants. The distinction may be crucial when we balance appellants’ due process rights against the competing interests promoted by the doctrine of collateral estoppel. If the right to proceed as a class plaintiff is a property right, we must keep in mind the general principle “in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process.” (Hansberry v. Lee (1940) 311 U.S. 32, 40 (Hansberry).)
Slip op. at 8. The Court concluded that the right to act as a class representative is not a substantive, property right. Slip op. at 9-12. The Court cited, among other decisions, Californians for Disability Rights v. Mervyn’s, LLC, 39 Cal.4th 223 (2006), in which the Supreme Court held, in the context of a non-class, representative UCL action, that “the interest in suing on another’s behalf is not a property right beyond statutory control.” Slip op. at 9. It then held:
Appellants give no reason why a class plaintiff has any greater right to serve as a representative than a shareholder in a derivative action or a representative of the public in an unfair competition suit. That appellants cannot is not surprising. There is no such right. We conclude that there is a distinction between using a prior ruling to bar a litigant from receiving a hearing on the merits and applying a prior decision to prevent a litigant from proceeding as a class representative.
Slip op. at 9-10. The Court then turned to the facts of the case before it. It held that the prior order denying class certification, which was affirmed on appeal in an unpublished decision called Duran, barred the subsequent effort to seek class certification:
Slip op. at 12-14.
The Duran complaint and the TAC allege respondent engaged in the same general misconduct concerning the same policies and procedures. Both complaints allege the misconduct took place during approximately the same time period. The parties sought certification of the same class of employees. In fact, in the trial court, appellants conceded that the class in the Duran action included, by definition, appellants. The Duran plaintiffs and appellants sought class certification using the same attorneys and there is no allegation that the representation provided to the plaintiffs in Duran was inadequate. Although the causes of action are not identical, the principle of collateral estoppel does not depend on the legal theory used but the primary right asserted. (Balasubramanian v. San Diego Community College Dist. (2000) 80 Cal.App.4th 977, 992; Johnson v. American Airlines, Inc. (1984) 157 Cal.App.3d 427, 432.) The primary right asserted in each case was the right to litigate claims in a class action lawsuit. ....
In analyzing the facts, we conclude the Duran plaintiffs were the “virtual representatives” of appellants. The only difference we can discern between the parties is the name of the representative plaintiff. The interested parties, their claims, and their counsel are the same. We also examine whether the first party had the same interest as the precluded party and the motive to present the same claim. (Clemmer [v. Hartford Ins. Co. (1978)] 22 Cal.3d [865,] 877.) The Duran plaintiffs had a strong motive to assert the same interest as appellants, as each group’s goal was identical--each wanted its class certified. As noted, the Duran plaintiffs had a full opportunity to present their case. The circumstances are such that appellants should reasonably have expected to be bound by the Duran decision. As appellants would have enjoyed the fruits of a favorable outcome, fairness dictates that they should be bound by the effect of the decision against them. Ultimately, applying the doctrine of collateral estoppel does not lead to an unfair result, as appellants remain free to litigate the merits of their personal claims.
The outcome in this case seems largely driven by the fact that some of the same attorneys filed both actions. The opinion repeatedly references this fact, and goes out of its way to hold that "similarity of counsel" (whatever that means) "is one factor that may be considered on the issue of whether a non-party's interest was truly represented in the first lawsuit." Slip op. at 13. It would be difficult for attorneys to argue that they themselves did not adequately represent the putative class in the original lawsuit, which is what this decision seems to require for class certification ever to be re-raised in a later case. The only other relevant factor the decision identifies is the possibility that new evidence has been developed. Id. ("Appellants do not argue that there is any evidence or argument that the Duran plaintiffs failed to present.").
The Court's reliance on the identity of counsel as, in effect, the deciding factor in whether collateral estoppel will apply may have unintended effects. One possible effect is to encourage copycat actions filed by other attorneys who did not do the work to develop the evidence of substantive wrongdoing in the first place. Copycat actions are common, as experienced class action litigators know. In those actions, it seems, the parties will be allowed to re-litigate whether class certification is appropriate, while the lawyers who personally satisfied their pre-lawsuit invesigation duties will have one, and only one, shot at class certification. That is not entirely fair given that defendants have many opportunities before trial to try to decertify the class. The opinion also interferes with the putative class members' right to retain counsel of his or her choice. To avoid the collateral estoppel problem as articulated in this opinion, the putative class member will have no choice but to retain different attorneys. It is also very ironic that a trial court's holding that common questions did not predominate among the putative class members can be converted through collateral estoppel into a ruling that all of the putative class members are similarly situated.
The opinion then addresses whether the legal issues were the same in both Duran and the later-filed case, or whether any changes in law made application of collateral estoppel inequitable. Plaintiffs argued that Sav-on Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319 (2004), which was decided after Duran, changed the standards governing class certification. The Court of Appeal did not think so:
They are incorrect. The Sav-On court resolved the question of “whether the trial court abused its discretion in certifying as a class action this suit for recovery of unpaid overtime compensation.” (Id. at p. 324.) The court evaluated the evidence presented in the trial court and did not change the standards for class certification, citing Lockheed Martin Corp.[ v. Superior Court (2003)] 29 Cal.4th 1096, 1106, which had recently reviewed those standards. (Sav-On at p. 326.) The Lockheed Martin Corp. case was the law relating to class certification standards when the Duran court affirmed the trial court’s order denying certification.
Actually, while Sav-on did not change the standards that the trial courts apply when ruling on class certificaiton, it did clarify the standard of review that the Court of Appeal is to apply to the trial court's factual findings. That probably would not have affected the outcome in Duran, however, because Sav-on clarified that the standard of review was more deferential than previously thought.
The opinion concludes with the observation that:
[I]f appellants are correct, every motion denying class certification could be relitigated until the desired result was reached. The losing class plaintiff could merely insert the name of a different individual to be the potential class representative. When appellants’ counsel was asked in oral argument when the string of unsuccessful lawsuits would end, his answer in essence was--when the pursuit is no longer economically feasible. .... It is manifestly unfair to subject respondent to a revolving door of endless litigation.
Slip op. at 16-17. The problem is that this opinion, with its emphasis on the identity of the counsel who filed the actions, will not close the revolving door. It does nothing to prevent copycat actions filed by new attorneys who can argue that the prior lawyers failed to adequately represent the putative class. The opinion is quite clear that under such circumstances, the doctrine of collateral estoppel would not apply. The opinion also encourages the filing of successive individual lawsuits (which, after all, may be entirely meritorious). And what really closes the door on the filing of "endless" lawsuits is the statute of limitations, not collateral estoppel.
The lesson for the attorneys who filed the original action is to make sure that adequate discovery is conducted before moving for class certification, to seek reconsideration when appropriate, to move to amend the complaint to substitute class representatives when necessary, and to file appropriate motions for certification of any available subclasses—all within the original action.