New class action decision: Fireside Bank v. Superior Court

Last Friday, the Court of Appeal (Sixth Appellate District) issued a significant new class certification decision addressing the problem of "one-way intervention." Fireside Bank v. Superior Court, ___ Cal.App.4th ___ (Oct. 21, 2005). The appellate courts haven't addressed this issue for quite a long time.

The concept of one-way intervention originated in California in the two Home Savings cases, Home Sav. & Loan Assn. v. Superior Court, 42 Cal.App.3d 1006 (1974) ("Home Savings I") and Home Sav. & Loan Assn. v. Superior Court, 54 Cal.App.3d 208 (1976) ("Home Savings II"). These cases basically held that if the defendant objects, merits rulings may not be made until after class certification. Defendants typically invoke this rule to prevent plaintiffs from seeking summary adjudication before they have sought class certification. As Home Savings I explained:

The vice in the procedure followed by the trial court is that it allows so-called "one-way intervention," a procedure under which potential members of the class can reserve their decision to become part of the class until the validity of the cause asserted by the named plaintiffs on behalf of the class has been determined. While one-way intervention has obvious attractions for members of the class on whose behalf an action has been brought in that it creates for them a no-lose situation, for a defendant it holds the terrors of an open-ended lawsuit that cannot be defeated, cannot be settled, and cannot be adjudicated. To him it presents a classic no-win option.

42 Cal.App.3d at 1011. The reasoning is that if merits determinations are made before class certification and class notice, the members of the putative class who are deciding whether to "opt out" will already know what the outcome will be. Presumably, if the representative plaintiff has won a favorable summary judgment ruling, the putative class members will choose not to "opt out." By contrast, if the plaintiff has lost a significant merits issue, the putative class members will (presumably) "opt out" and perhaps refile a new action against the defendant. They can do that because rulings made before class certification and class notice are not binding on them. The defendant has no similar escape route. The Home Savings courts thought that this was so unfair to the defendant as to rise to the level of a due process violation.

The Fireside Bank court sequentially addressed each rationale underlying the rule against "one-way intervention," and found none of them valid. As one example:

At bottom the decision [in Home Savings] appears to rest not on any ponderable injury to a concrete interest, but on a perceived lack of symmetry in conducting a proceeding that exposes the defendant to liability on numerous claims without guaranteeing a reciprocal opportunity to conclusively defeat those claims should the merits be decided for the defendant. But the class action procedure is designed in the interests of judicial efficiency, not in recognition of some right in defendants to be “subjected to only one lawsuit.” [Citation.] A purely conceptual asymmetry cannot properly be relied upon to impose categorical constraints on the trial court’s power to manage a putative class action in a manner most conducive to substantial justice and judicial economy. The court in Home Savings I, supra, 42 Cal.App.3d at p. 1014, wrote that “[d]ue process of law calls for a certain degree of logic and order in the trial of an action.” But while logic is always orderly, “order” is not always logical, especially when it involves slavish devotion to abstract conceptions of symmetry divorced from practical experience. “Order” of this kind, unlike logic, is entirely in the eye of the beholder.

Slip op. at 17. The court also determined that there never really was any "rule" against "one-way intervention" in the federal courts:

It thus appears that the “rule” against one-way intervention was never categorically applied in federal courts. At most, federal courts have encouraged an early determination of class issues, and may not permit—or may not until recently have permitted—the postponement of class certification, over a defendant’s clear and consistent objection, for the purpose of rendering a decision on the merits. Whatever its erstwhile status, the putative federal “rule” against deciding the merits before certification has become little more than a jurisprudential derelict, the hollow shell of a rule, suffered by virtue of judicial inertia to drift upon the surface currents of federal law.

Id. at 27 (emphasis in original). Ultimately, the court held that "there is no categorical prohibition against" merits rulings before class certification, that instead "there exists at most a preference for resolving class issues before entering a dispositive order on the merits," and that trial courts have discretion to determine the proper order of proceedings. Id. at 1, 7, passim.

The opinion is worth reading. I also think a petition for review is virtually guaranteed. Whether it will be granted is another question.

Comments

[Scott]

Does this case further muddle the separation between merits and certification? If merits can be addressed before or after certification, why not simultaneous with certification? It may be an interesting opinion, but it is also troubling. I have this sense that that the class certification process is going to get murkier in California.

[Scott]

Does this case further muddle the separation between merits and certification? If merits can be addressed before or after certification, why not simultaneous with certification? It may be an interesting opinion, but it is also troubling. I have this sense that that the class certification process is going to get murkier in California.

[Kimberly]

Yes, I thought about that too. The big question decided by Linder was whether or not a plaintiff is required to prove that the case has merit as a prerequisite to class certification. Linder said no. Fireside Bank holds that a plaintiff may, but is not required to, move for summary judgment (or for judgment on the pleadings) before moving for class certification. If a defendant moves for summary judgment before class certification, that means that the defendant has waived any "one-way intervention" due process argument. That was true even before Fireside Bank, and defendants waived the "one-way intervention" rule all the time. Allowing a defendant to seek summary judgment before class certification is a far cry from requiring the plaintiff to prove the merits of the case as an element of class certification. That is because the summary judgment process has built-in procedural safeguards that the class certification process lacks.