Fireside Bank v. Superior Court

• Decision Date: 16 April 2007
• Docket Number: No. S139171.,S139171.
• Court: California Supreme Court
• Parties: FIRESIDE BANK, Petitioner, v. The SUPERIOR COURT of Santa Clara County, Respondent; Sandra Gonzalez, Real Party in Interest.

56 Cal.Rptr.3d 861

40 Cal.4th 1069

155 P.3d 268

FIRESIDE BANK, Petitioner, v. The SUPERIOR COURT of Santa Clara County, Respondent; Sandra Gonzalez, Real Party in Interest.

No. S139171.

Supreme Court of California.

April 16, 2007.

Severson & Werson, Jan T. Chilton and Mark D. Lonergan, San Francisco, for Petitioner.

Leland Chan, San Francisco, for California Bankers Association as Amicus Curiae on behalf of Petitioner.

Fred J. Hiestand, Sacramento, for The Civil Justice Association of California as Amicus Curiae on behalf of Petitioner.

No appearance for Respondent.

Kemnitzer, Anderson, Barron & Ogilvie, Carol McLean Brewer, Andrew J. Ogilvie, San Francisco; Alexander Community Law Center and Scott C. Maurer for Real Party in Interest.

WERDEGAR, J.

A largely settled feature of state and federal procedure is that trial courts in class action proceedings should decide whether a class is proper and, if so, order class notice before ruling on the substantive merits of the action. (See Green v. Obledo (1981) 29 Cal.3d 126, 146, 172 Cal. Rptr. 206, 624 P.2d 256 (Green); Fed.

Rules Civ.Proc, rule 23(c)(1)(A), 28 U.S.C; Hickey v. Duffy (7th Cir.1987) 827 F.2d 234, 237.) The virtue of this sequence is that it promotes judicial efficiency, by postponing merits rulings until such time as all parties may be bound, and fairness, by ensuring that parties bear equally the benefits and burdens of favorable and unfavorable merits rulings. The rule stands as a barrier against the problem of "one-way intervention," whereby not-yet-bound absent plaintiffs may elect to stay in a class after favorable merits rulings but opt out after unfavorable ones.

Here, over class defendant Fireside Bank's objections and to class representative Sandra Gonzalez's surprise, the trial court ruled on the substantive merits concurrent with deciding that a class could be certified and before class notice had gone out. The Court of Appeal denied writ relief, concluding the rule we endorsed in Green governing the order of operations in class action proceedings was largely a matter of discretion and was not violated by the trial court, and also rejecting Fireside Bank's substantive challenges to class certification.

We reverse. While the Green rule is subject to exceptions, leaving trial courts vested with a certain degree of discretion in its application, no such exception is applicable here and thus the trial court abused its discretion in acting as it did. On the merits, however, its class certification order was correct. Accordingly, we leave in place the trial court's class certification order, direct that the trial court's entry of judgment on the pleadings in favor of Gonzalez be vacated, and remand for further proceedings.

Factual and Procedural Background

In early 2001, Gonzalez purchased a used van under a conditional sales contract obligating her to make monthly payments and to keep the van insured. The dealer assigned the contract to Fireside Bank, then known as Fireside Thrift Co. Gonzalez purchased the van for her father, Guadalupe Gonzalez, with the intention that he use and pay for it. When certain sums claimed by Fireside Bank allegedly became overdue, it repossessed the van. On September 28, 2001, it sent a notice to Gonzalez, stating that she could redeem the van by paying the full amount due under the contract within 15 days. The notice correctly itemized the elements of the outstanding debt, i.e., a contract balance of $14,588.73, late charges of $24.91, repossession cost Of $300, a credit for unearned finance charges of $2,713.46, and a credit for unearned insurance premiums of $1,070. However, the notice stated the "total amount due"—the amount Gonzalez had to pay within 15 days to avoid having the van sold off—was $13,843.64, when the actual sum of the itemized charges, less credits, was $11,130.18. The "total amount due" thus overstated the amount actually due by $2,713.46, i:he amount of the credit for unearned finance charges. Fireside Bank attributes this discrepancy to "a computer error" and concedes that similarly inaccurate notices were sent to almost 3,000 other borrowers.

In October 2002, Fireside Bank filed a complaint against Gonzalez alleging that it had sold the van for $3,100 and seeking a judgment for the remaining contract balance of $8,073.47. Gonzalez answered the complaint and asserted as an affirmative defense that recovery was barred by Fireside Bank's failure to comply with the Rees-Levering Motor Vehicle Sales and Finance Act (Rees-Levering Act). (See Civ.Code, §§ 2981-2984.4.)

Thereafter, Gonzalez filed a cross-complaint alleging that Fireside Bank's notice of intent to sell failed to comply with the Rees-Levering Act's notice requirements and that Fireside Bank thereby lost its right to pursue a deficiency judgment. She asserted causes of action for (1) conversion, in that Fireside Bank had "repossessed the van before the loan was in default"; (2) violations of the Rosenthal Fair Debt Collection Practices Act (Civ. Code, § 1788 et seq.); and (3) illegal, unfair, and deceptive business practices in violation of the Rees-Levering Act and the unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.). The challenged business practices included serving notices that did not comply with the Rees-Levering Act, thereby forfeiting the right to claim deficiencies, yet nonetheless pursuing meritless collection actions against borrowers.

In April 2004, Gonzalez filed a motion for judgment on the pleadings on Fireside Bank's complaint. She argued that (1) the Rees-Levering Act required Fireside Bank to include in its notice of intent to sell both the amount owed on the contract, which could be paid within 15 days to avoid sale of the vehicle, and an itemization of how that amount was arrived at (see Civ. Code, § 2983.2, subd. (a)(1)); (2) the notice attached to the complaint overstated the amount due by $2,713.46 because it failed to properly credit unearned finance charges; and (3) because Fireside Bank had failed to provide a proper notice, it could not pursue a deficiency judgment. Fireside Bank opposed this motion both on the merits and procedurally. Procedurally, it argued that before obtaining a ruling on the motion Gonzalez must seek or forswear certification of a class, a potential remedy to which her counsel had alluded, and the trial court should take the motion off calendar or deny it without prejudice until class issues, if any, were resolved.

At the initial April 27, 2004, hearing on the motion, the trial court asked whether the action might proceed as a class action, in which case ruling on the motion would be premature. Gonzalez's counsel advised the court that Fireside Bank had just provided long-awaited discovery disclosing for the first time that the problem affected nearly 3,000 notices. Gonzalez's counsel further indicated that a decision on whether to seek class treatment was awaiting Fireside Bank's responses to newly propounded discovery. The trial court continued the hearing for approximately three months.

Gonzalez subsequently filed an amended cross-complaint. The amended cross-complaint added a class claim under the Rees-Levering Act and the UCL on behalf of all persons who had received postrepossession notices from Fireside Bank on accounts started in California in which the listed redemption amount failed to subtract the credit for unearned finance charges. Gonzalez moved for class certification; Fireside Bank opposed the motion.

The hearing on class certification was continued to July 20, 2004, the date already set for a status conference and for the continued hearing on the motion for judgment on the pleadings. At the hearing, the trial court expressed an initial inclination to certify the class and, after hearing argument on the issue, said it would have a ruling by the end of the week.

The parties then turned to the motion for judgment on the pleadings. Fireside Bank's counsel again objected to any ruling on the merits until certification issues were resolved. The trial court assured counsel that it was "not going to rule" on the motion for judgment on the pleadings "until I decide the issue of certification." Counsel clarified that Fireside Bank opposed any ruling on the motion until notice had been given to the class, if any, and the time for members to opt out had expired. The court replied: "I ... don't disagree with that...." Gonzalez's counsel concurred: "[I]f the defendant objects and doesn't want a ruling prior to class certification, then the defendant is entitled to have a ruling deferred." The trial court declined argument on the motion for judgment on the pleadings, indicating the motion was "in effect ... going to go off calendar" pending a ruling on certification, but that a further hearing would be set if it denied certification.

On August 20, 2004, despite these assurances, the trial court issued formal orders (1) granting class certification, and (2) granting Gonzalez's motion for judgment on the pleadings against Fireside Bank's complaint on the basis that Fireside Bank had "failed to comply with the notice requirements under the Rees-Levering Act," thus barring any recovery of a deficiency judgment. (See Civ.Code, § 2983.2.)

Fireside Bank sought writ relief. It argued that, by ruling on the motion for judgment on the pleadings before notice had been given to the class, the trial court had impermissibly provided class members an opportunity for one-way intervention. Although Gonzalez had acceded to Fireside Bank's request for a deferred ruling in the trial court, she opposed writ relief, arguing that the trial court's ruling created no risk of one-way intervention because it did not resolve the merits of the class action.

The Court of Appeal denied relief. After analyzing state and federal authorities at length, it concluded (1) any support for a rule against one-way intervention was tenuous at best, and the trial court retained...