Richmond v. Dart Industries, Inc.

• Citation: 29 Cal.3d 462,174 Cal.Rptr. 515,629 P.2d 23
• Decision Date: 15 June 1981
• Docket Number: S.F. 24225
• Parties: , 629 P.2d 23 Harold H. RICHMOND et al., Plaintiffs and Appellants, v. DART INDUSTRIES, INC., et al., Defendants and Respondents; Tahoe Donner Association, Intervener and Respondent.
• Court: United States State Supreme Court (California)

Page 515

174 Cal.Rptr. 515

29 Cal.3d 462, 629 P.2d 23

Harold H. RICHMOND et al., Plaintiffs and Appellants, v. DART INDUSTRIES, INC., et al., Defendants and Respondents Tahoe Donner Association, Intervener and Respondent.

S.F. 24225.

Supreme Court of California, In Bank.

June 15, 1981.

Harold A. Berliner, Richard F. Ellers, James L. Porter and Wood, Porter & Simon, Truckee, for plaintiffs and appellants.

Severson, Werson, Berke & Melchior, Kurt W. Melchior, Jan T. Chilton, San Francisco, Kronick, Moskovitz, Tiedemann & Girard, Adolph Moskovitz and James E. Thompson, Sacramento, for defendants and respondents.

Lawrence L. Hoffman and Hoffman & Linde, Tahoe City, for intervener and respondent.

BIRD, Chief Justice.

May a trial court deny a motion to certify a class if the defendants are able to show there was antagonism to the lawsuit on behalf of some absent class members? A secondary issue centers on whether the plaintiffs' prayer for rescission and punitive damages prevents the use of a class action suit.

I.

Tahoe Donner Subdivision is a recreational home site with approximately 6,000 lots near Truckee, California. Dart Industries, Inc. (Dart) developed the subdivision in 1971 and sold approximately 2,600 lots by 1976. Then, 157 past and present owners at Tahoe Donner ¹ filed suit based on claims of fraud and violations of the Subdivided Lands legislation (Bus. & Prof.Code, § 11000 et seq.). ²

The record indicates that the development of these lots at Tahoe Donner engendered a great deal of public controversy. When Dart attempted to draw water for the subdivision from Donner Lake, the Attorney General's office filed suit and successfully enjoined this activity. In order to deal with the sewage from these lots and others, a new agency was established and new sewage treatment facilities were developed. As late as February of 1976, the Department of Real Estate issued a cease and desist order banning further sales of lots at Tahoe Donner until the adequacy of the sewage connections could be assured. This order remained in effect for 18 months.

In their complaint, plaintiffs alleged that Dart or its subsidiary, Dart Resorts, failed to plan and provide for adequate water supply, sewage treatment facilities, recreational facilities, and maintenance. ³ They prayed for compensatory and punitive damages, rescission, declaratory relief, and requested that a constructive trust be established to ensure that there was sufficient money to provide adequate facilities. Each individual who purchased a lot at Tahoe Donner was given a copy of the Final Subdivision Public Report. That report gave assurances that there would be an adequate water supply, sewage treatment and recreational facilities for the entire development. It is the alleged violation of these assurances upon which plaintiffs base their suit.

Plaintiffs filed a class certification motion under Code of Civil Procedure section 382 which authorizes class action suits. ⁴ They requested that the trial court grant them the right to represent all of the record owners of Tahoe Donner lots. A certification hearing was held on the 17th and 18th of November 1977.

Plaintiffs based their motion for class certification on the allegations of their complaint, their declarations, exhibits incorporated in the record, and points and authorities. The thrust of their argument was that a class action was proper since they had established an ascertainable class and a well-defined community of interest among the class members. (See Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 704, 63 Cal.Rptr. 724, 433 P.2d 732.) The ascertainable class, they maintained, consisted of the record owners of lots at Tahoe Donner who had received the Final Subdivision Public Report and since each member of the class was affected by the failure of Dart to meet the needs of the subdivision, the requirement of a community of interest was also met.

In order to prove that they could adequately represent the entire class, the plaintiffs filed declarations by their attorneys as to the attorneys' experience with class action suits. Individuals who were personally aware of the attorneys' prior experience, also filed declarations.

The Tahoe Donner Association (TDA), interveners in this lawsuit, opposed the motion to certify the class. This association automatically includes in its membership any purchaser of a lot at Tahoe Donner. At the time TDA decided to intervene, Dart had a controlling interest in the association since a majority of the Tahoe Donner lots were still owned by Dart. Furthermore, Dart then had three representatives on the five-member board of directors of this association and the president of TDA was Mr. Sid Karsh, president of Dart Resorts.

At the certification hearing, a "survey" conducted with Dart's assistance in the spring of 1976 was introduced to attempt to show that there was antagonism within the class to be represented. The "survey" consisted of a flyer entitled "Support Your Project!," which was sent to the property owners by Dart Resorts on the approval of its president, Mr. Karsh. The flyer was written by a homeowner, Mr. Jess Huffman, who subsequently reimbursed Dart Resorts for the cost of producing and mailing the pamphlet.

The flyer accused plaintiffs of damaging the Dart project by filing their lawsuit. It was claimed that the lawsuit was "more emotional than factual." There was no attempt to present the opposite viewpoint or even to list the factual allegations contained in the complaint that there had been problems with adequate water and sewage connections. The flyer boldly stated: "Dart has gone the distance, plus the extra mile, to meet their (sic) commitments to us, the property owners."

The pamphlet invited each property owner to return to Mr. Huffman the lower portion of the flyer after checking one of the boxes which indicated that (1) the owner felt that "Tahoe Donner is a fine project and Dart is meeting their (sic) commitments"; or (2) the owner was "not satisfied with Dart's efforts to meet their (sic) commitments"; or (3) the owner could be "counted on to contribute some funds towards the 'support Tahoe Donner' effort."

Of the 2,600 lot owners to whom it was mailed, only 325 responded. Testimony was adduced which indicated that 266 of those who responded checked the first alternative, 41 checked the second, and 18 simply returned the flyer unmarked. Some of the responses asked for more information and indicated they were unaware of the lawsuit. In comments appended to the returned flyers, some owners indicated support for the project but wished more information about the lawsuit and others endorsed Mr. Huffman's approach. ⁵

The trial court denied class certification on July 11, 1978. The order of the court rested primarily on the results of the Huffman/Dart survey and the opposition of the Tahoe Donner Association to the suit. The court concluded that plaintiffs had not "carried the burden of proving the 'representative party has interests which are compatible with, and not antagonistic to those whom he (Richmond et al.) would represent.' "

This appeal followed.

II.

"Class actions serve an important function in our judicial system. By establishing a technique whereby the claims of many individuals can be resolved at the same time, the class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation." (Eisen v. Carlisle & Jacquelin (2d Cir. 1968) 391 F.2d 555, 560.) Because of these important dual functions, courts and legislators have looked with increasing favor on the class action device. Dramatic developments in class action procedure have marked the last two decades, with the expansive amendments in 1966 of rule 23 of the Federal Rules of Civil Procedure (28 U.S.C.) ⁶ and with the passage in 1970 of the Consumers Legal Remedies Act ⁷ in California. As a result of these and other changes, the class action, which began as a child of the equity courts with limited usefulness, has matured and expanded to meet the needs of modern society. (See Developments Class Actions (1976) 89 Harv.L.Rev. 1318-1644; Yeazell, From Group Litigation to Class Action, Part I: The Industrialization of Group Litigation (1980) 27 UCLA L.Rev. 514, 515-516.)

Code of Civil Procedure section 382 authorizes class action suits in California "when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court ...." The party seeking certification as a class representative must establish the existence of an ascertainable class and a well-defined community of interest among the class members. (Daar v. Yellow Cab Co., supra, 67 Cal.2d at p. 704, 63 Cal.Rptr. 724, 433 P.2d 732.) The community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. (See Civ.Code, § 1781, subd. (b)(2)-(4).)

A decision by a trial court denying certification to an entire class is an appealable order. (Daar v. Yellow Cab Co., supra, 67 Cal.2d at pp. 698-699, 63 Cal.Rptr. 724, 433 P.2d 732; see also Morrissey v. City and County of San Francisco (1977) 75 Cal.App.3d 903, 907, 142 Cal.Rptr. 527.) However, trial courts have been given great discretion with regard to class certification. (Petherbridge v. Altadena Fed. Sav. & Loan Assn. (1974) 37 Cal.App.3d 193, 199-200, 112 Cal.Rptr. 144.) For example, in the absence of other error, this court will not disturb a trial court ruling on class certification which is supported by substantial evidence unless (1) improper criteria were used (see Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355, 361, 134...