About three weeks ago, the Court of Appeal (Sixth Appellate District) published a new opinion called Fireside Bank Cases, ___ Cal.App.4th ___ (Jul. 28, 2010; pub. ord. Aug. 25, 2010). You may remember the Supreme Court's opinion in this same case, from April 2007, addressing the rule against one-way intervention in class action litigation. Fireside Bank v. Superior Court (Gonzalez), 40 Cal.4th 1069 (2007). The case has continued to wend its way through the lower courts, and the latest opinion addresses another fascinating procedural topic: claim preclusion.
The original named plaintiff took out a car loan from Fireside Bank and later defaulted. Fireside repossessed her vehicle, then filed suit against her for the deficiency. She filed a class action cross-complaint alleging that Fireside's redemption notice violated the Rees-Levering Motor Vehicle Sales and Finance Act (Civ. Code §§ 2981–2984.4) by misstating the amount necessary to cure. According to the cross-complaint, Fireside had a uniform practice of seeking and obtaining improper deficiency judgments against borrowers. For this wrongful conduct, the cross-complaint sought classwide UCL restitution of all sums Fireside had collected on those deficiency judgments. Slip op. at 1-2, 8.
The plaintiff then moved both for judgment on the pleadings and class certification. The trial court granted both motions simultaneously, ruling on the merits question before notice to the class. This led the Supreme Court to reverse the judgment, citing the one-way intervention rule. Id. at 2-3.
In December 2007, after remand to the trial court (and apparently after class notice), Fireside Bank moved to strike all allegations from the cross-complaint (as well as similar allegations in a second cross-action filed while the original case was pending and later coordinated with it, but in which class certification had not yet been granted) "insofar as they [sought] to overturn or bar Fireside from enforcing deficiency judgments it has previously obtained." Id. at 3-4. Fireside argued that those judgments operated as res judicata, barring the class claims (although not the named plaintiffs' claims, which did not attack any final judgment because none had yet been entered) to the extent they sought to undo the judgments' effects. Id. at 4.
The trial court granted this motion and (in the original case) entered judgment dismissing the claims of all class members against whom a deficiency judgment had been entered (referred to in the opinion as "judgment debtors"). The plaintiffs appealed, and the Court of Appeal affirmed. Id. at 4, 6.
Observing that "that the class setting of the order greatly complicates the required legal analysis," the Court first explained that the motion was not brought, or granted, on the basis that all of the elements of res judicata had been, or could be, either proven or disproven classwide. Id. at 7-8. Rather:
the issue was joined over one question: whether the judgment-debtor class members were entitled to relief en masse on the theory that the UCL rendered the judgments essentially irrelevant. Their argument—which is also their central argument on appeal—proceeds as follows: (1) The UCL empowers trial courts to “make such orders or judgments . . . as may be necessary to prevent the use or 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.” (Bus. & Prof. Code, § 17203.) (2) Fireside secured the judgments in question by means of unfair competition, i.e., violations of the Rees-Levering Act. (3) Any sums collected on the judgments were therefore also the products of unfair competition. (4) Therefore the court has the power to restore such sums to plaintiffs despite the judgments in Fireside’s favor, and to make any orders needed to accomplish that result.
Id. at 8. The Court of Appeal did not accept that reasoning, holding that res judicata principles apply in UCL cases just as they do in any other type of case. Id. at 9-11. The Court explained:
We find even less cause to suppose that the Legislature intended to free UCL litigants of the constraints ordinarily imposed on civil plaintiffs by the law of judgments. Cross-complainants have pointed to nothing in the legislative history that suggests such an idea was even remotely present in the legislative mind. Giving a prior judgment its normal effect in a UCL action does not “imply” an “exception” to the act or fashion a “safe harbor” from it. It simply recognizes a defense that is available to every civil defendant when the facts support it. We therefore reject cross-complainants’ contention that the court below was empowered by the UCL to grant class-wide relief to judgment debtors without a factual showing of grounds to avoid the judgments against them. Since no other basis for relief on their behalf was ever suggested, the court did not err by concluding that the UCL afforded no basis for the class-wide affirmative relief they sought in this class action.
Id. at 11 (emphasis added).
The Court of Appeal went on to explain that "[t]he real foundation for the order disposing of [the judgment debtors'] claims appears to have been the absence of any demonstrated basis for their class-wide adjudication," and that nothing in the order would prevent those class members from challenging the judgments in later, individual actions, in which the elements of res judicata could be litigated on the merits. Id. at 11-12. "All that is known is that Fireside obtained judgments against the affected class members, and that these judgments may furnish a defense to any claims those members might bring against Fireside. .... [T]he dismissal of the judgment debtors’ claims did not reflect any disposition of their individual rights, if any, to avoid the effects of the judgments." Id. (emphasis in original).