In Montoya v. Ford Motor Co., ___ Cal.App.5th ___ (Mar. 12, 2020), the Court of Appeal (Fourth Appellate District, Division Three) reversed a $58,000 judgment in an individual action for breach of the implied warranty of merchantability, finding the claim time-barred. The trial court reasoned that the statute of limitations had been tolled during the pendency of two prior putative class actions, but the Court of Appeal disagreed.
Plaintiff's four-year limitations period began to run on November 30, 2005, when he knew or should have known his Ford Excursion was a lemon. Slip op. at 2. A proposed class action was filed on April 21, 2006 and was pending for 199 days before class certification was denied. Id. Notice was not provided to the class. See id. Had that been the only pending class action, plaintiff's four-year limitations period would have run on approximately June 17, 2010 (November 30, 2009 plus 199 days). But a second class action was filed on January 8, 2010. This case settled in 2013 on a classwide basis, with notice to the class and an opt-out deadline of April 22, 2013. Id. at 4-5. Plaintiff opted out on April 19, 2013 and filed an individual action on June 14, 2013. Id. at 5. That action went to trial, and plaintiff won. Id.
So far, this procedure seems totally normal. The second case embraced the claims of all persons whose limitations periods had not yet run, including plaintiff, and the notice probably informed those class members that they if they opted out, they could pursue their claims individually. (The opinion does not mention what the notice said about that, but such language is typical.) The opt-out procedure exists precisely in order to permit the class members to file and pursue their own litigation if they wish to do so, so that they can control the litigation themselves and make their own decisions about settling or going to trial.
The Court of Appeal, however, held that plaintiff was out of luck and not entitled to sue. According to the Court, even if the first putative class action tolled his limitations period, the second putative class action did not have the same effect. Hence, to preserve his right to pursue individual litigation, plaintiff would have had to file a separate action on top of the class case commenced on January 8, 2010, or sought to intervene and become a party to that action. The Court considered this outcome more "efficient" than the prospect of the exact same suit being filed in 2013.
The Court began its analysis with an interesting chronological summary and discussion of American Pipe, Crown Cork, and China Agritech (U.S. Supreme Court decisions) as well as two California Supreme Court decisions, Jolly and Fireside Bank. (This blog's 2007 coverage of Fireside Bank is at this link.) The Court then explained its reasoning as follows:
From our canvass of the interaction between class actions and statutes of limitation as explained by both our federal and state Supreme Courts, we think the idea of tolling an individual action during the period of a second class action to be untenable. Tolling during a second class action – particularly this second class action – defeats the objectives of judicial economy and efficiency that were the foundations of American Pipe. It overlooks the problem of endless tolling that informed and suffused the China Agritech opinion.
Judicial economy and efficiency are defeated because second class action tolling reintroduces the problem of one-way intervention the 1966 amendments to Federal Rule 23 were intended to cure. One-way tolling was an “abuse” of the system because it gave putative class members an incentive to wait and see what the trial court would do (or at least signal what it might do) with the ostensible class action before it. If the merits looked bad, class members could bail on the class action and pursue their own actions elsewhere.
And that is precisely what happened here. The Crown Cork court’s anticipation was that a putative class member might receive notice a class action has not reached class status so the member would have the opportunity to opt out and bring an individual action. But Montoya waited more than four years after Class Action 1 failed to be certified to bring his individual action. Only when Class Action 2 ended with a proposed settlement that would have afforded Montoya – had he stayed in Class Action 2 – only a fraction of the recovery he would later obtain suing individually, did he finally sue.
Slip op. at 12-13.
The problem with this reasoning is that no notice was given to the class in Class Action 1. What is more, in Class Action 2, the parties agreed to resolve the action through certification of a settlement class, which was apparently expressly defined to include class members with (arguably) time-barred claims, and to afford all of those class members notice and opt-out rights. As a result, the defendant waived the potential one-way intervention problem described in the opinion. See Fireside Bank, 40 Cal.4th at 872. Moreover, in the settlement context, class members are supposed to be considering whether they think they can get a better result on the merits by opting out. That is not a one-way intervention problem, but a mechanism to protect the class. If numerous class members opt out, that would signal to the trial court that the settlement might be unfair to the class, and it might not be approved at all.
The Court of Appeal's reasoning flips the opt-out process on its head and could end up barring meritorious individual suits by opt-outs, even though a central purpose of the opt-out process is to enable such individual suits. Also, it seems to me that by agreeing to certification of a settlement class embracing this specific plaintiff's claims, and by agreeing to a settlement notice that probably advised the class that if they opted out, they could bring an individual action, the defendant waived the right to assert, and/or was estopped from asserting, a statute of limitations defense in any such individual action.
It will be interesting to see whether the Supreme Court shows any interest in this case. Further guidance is plainly needed on the interplay between the five decisions canvassed in this opinion and to what extent principles from the three U.S. Supreme Court decisions apply in California. The only other published California opinion construing China Agritech is Fierro v. Landry’s Restaurant Inc., 32 Cal.App.5th 276 (2019), which the Court of Appeal found distinguishable. Slip op. at 13. It appears that no review petition was filed in Fierro in 2019. In 2018, Fierro was a "grant and transfer," in which the Supreme Court granted review and directed the Court of Appeal to vacate its earlier opinion and "reconsider the cause" in light of China Agritech (docket). That led to the 2019 opinion, with no further proceedings in the Supreme Court after that.
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