National Solar Equipment Owners' Assn. v. Grumman Corp.

• Decision Date: 05 November 1991
• Docket Number: No. G009030,G009030
• Citation: 1 Cal.Rptr.2d 325,235 Cal.App.3d 1273
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL SOLAR EQUIPMENT OWNERS' ASSOCIATION, INC., etc., Plaintiff and Appellant, v. GRUMMAN CORPORATION et al., Defendants and Respondents.

Page 325

1 Cal.Rptr.2d 325

235 Cal.App.3d 1273

NATIONAL SOLAR EQUIPMENT OWNERS' ASSOCIATION, INC., etc., Plaintiff and Appellant, v. GRUMMAN CORPORATION et al., Defendants and Respondents.

No. G009030.

Court of Appeal, Fourth District, Division 3, California.

Nov. 5, 1991.

As Modified Nov. 27, 1991.

Review Denied Jan. 23, 1992.

Weinfeld & Mixon and David A. Weinfeld, Rutan & Tucker Ira G. Rivin, Mark Smith Flynn and Matthew K. Ross, Costa Mesa, for plaintiff and appellant.

Bruck & Perry, Paul C. Nyquist and Michael W. Kinney, Newport Beach, Buchalter, Nemer, Fields & Younger, Leonard D. Venger, LouCinda Laughlin, Los Angeles and James R. Rosen, San Francisco, for defendants and respondents.

SILLS, Presiding Justice.

OPINION

Plaintiff National Solar Equipment Owners' Association, Inc. (the Association), as a representative of its individual members, appeals from the trial court's order denying class certification. Such an order is appealable. (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470, 174 Cal.Rptr. 515, 629 P.2d 23.) We find the trial court erroneously relied on certain criteria in reaching its conclusion, and therefore reverse.

FACTS

The parties before us cannot even agree on what the plaintiff is. The Association asserts it is a nonprofit corporation "formed for the express purpose of protecting and pursuing the rights of its members against the numerous defendants in this action." Defendants characterize the Association as something far more sinister, asserting it was formed by five financial planners who, "fearing their own liability ..., founded the [Association] so as to maintain control over the direction of almost certain lawsuits." The above disagreement is but one example proving that, although this is not a criminal case, it hardly has been a civil one either.

The Association filed suit in March 1985 "in a representative capacity on behalf of its members." The Association consists of approximately 2,070 members. According to the operative complaint, respondents Grumman Corporation, Grumman Allied Industries, Inc., and Grumman Energy Systems, Inc. (collectively "Grumman") manufactured solar heating equipment in the early 1980's. This equipment was later sold to the Association's members as part of an investment program initially developed by other defendants. According to the Association, "Grumman also took part in the offer for sale and sale of plaintiff's members' investments and had a substantial pecuniary interest in the success of the solar investment program." The other respondent in this appeal, Greg Mortensen, is an Orange County attorney who allegedly acted as legal counsel in the sale and promotion of the investment program.

According to the operative complaint, the investment program was apparently the brainchild of three defendants, Paul Mills, Randolph Shipley, and Roger Bergeson. All three filed for bankruptcy and evidently were never served in this action. They used Mills' company, defendant Southwest Solar Products, Inc. (Southwest), as a conduit to purchase and sell the solar equipment. Southwest purchased all of the solar equipment used in the investment program from defendant Sun West Distributors, Inc. (Sun West), a Grumman distributor. According to the Association, Grumman provided promotional materials and sales assistance to its distributors (such as Sun West) and its dealers, including a "sales pitch book." ¹ Grumman also purportedly engaged in direct consumer advertising. The Association alleged that Grumman knew other defendants would use its "good name" and sales materials to induce Association members into investing in the solar equipment program. A high percentage of Grumman's solar equipment sales allegedly resulted from the investment program.

The investment package was designed to take advantage of the ongoing energy crisis and recent changes in federal and state income tax laws. Each investor typically made a large down payment and executed a promissory note for the balance of the purchase price of the solar equipment. Shipley's company, defendant Solar Energy Leasing Company, was to arrange to have the equipment leased to third party users. According to the Association, however, Grumman preassigned serial numbers to some of the solar equipment before it was manufactured, and Grumman knew other defendants were representing that this equipment had already been made. This equipment never in fact was manufactured or leased, and some investors improperly (and unwittingly) claimed tax credits and deductions for equipment that never existed. This led to an investigation by the Internal Revenue Service, which disallowed claimed tax credits and imposed penalties upon the Association's members. The Association claimed these penalties as damages on behalf of its members, along with each member's down payment, and sought rescission of the promissory notes.

After about four years of demurrers and discovery, Grumman moved for summary judgment. Among its contentions was that the Association lacked standing to pursue the action in a representative capacity. The trial court treated the motion as a motion for judgment on the pleadings, and dismissed the Association's complaint with leave to amend. According to the trial court, the Association was "not entitled to recover for any damages other than the Association's own damages...." The Association then petitioned this court for a writ of mandate. In a brief order, we denied the petition because we felt "the injuries [the Association] foresees are largely speculative." However, we also stated that "[t]he trial court's order appears wrong." (National Solar Equipment Owners' Association v. Superior Court (Aug. 14, 1989) G008491.) The trial court, on its own motion, then vacated its prior ruling and denied the motion for summary judgment. It also determined the matter was a class action and should proceed on that basis.

On November 20, 1989, the Association moved to certify a plaintiff class. The Association listed a number of questions of law or fact which it claimed were common to the action. Among these questions were whether Grumman had a duty to investigate the economic viability of the investment program, whether Grumman was aware of the "material deficiencies in the program which it failed to disclose," and whether Grumman improperly preassigned serial numbers to the solar equipment before it was manufactured. The Association also asserted common questions existed as to Mortensen, including whether his tax opinion was erroneous and, assuming it was in error, whether the promoters would have been able to sell the investment program without it.

Defendants' ² opposition centered around two major themes. First, they claimed the Association was an inadequate class representative because it was operated and controlled by financial planners who were responsible for promoting and marketing the solar equipment investment program to Association members. Second, they asserted individual questions predominated because promotional materials changed throughout the life of the investment program, and reliance on these materials was always a question requiring individual proof.

At the hearing, the trial court initially stated that "[t]he questions of law are common." The focus of the argument then shifted to discovery. One of defendant's counsel complained that the Association's attorneys were resisting efforts to have all 2,000 members of the Association deposed. The trial court stated this was "a very valid objection." The court then stated: "I could grant the motion [to certify], for example, on some conditions.... The further condition that the plaintiffs stipulate that defendants have full discovery rights against all members of the class concerning the nature and sources of the representations, and then, based on that discovery, if it in fact discloses what now basically is your position, [defendants] would have a right to make a motion to decertify the class. [p] That is one possible approach. But I am not inclined to put you in a procedural box where you are precluded from having this discovery." The following colloquy then ensued:

"Mr. Rivin [Association's counsel]: If it is an appropriate class action, and we think this is, they shouldn't need to take depositions of every member of the Association."

"The Court: Since it appears to bear on the issue of whether the representations were uniform, I think then you have not made an adequate showing to permit me to assign this as a class action ... because I think it is something they should be permitted to test."

The trial court then denied the motion to certify the class. Relying on Osborne v. Subaru of America, Inc. (1988) 198 Cal.App.3d 646, 661, 243 Cal.Rptr. 815, the court ruled the Association had "failed to show the representations were made uniformly to all members of the class and that the same representations were made." The court also stated it was "not satisfied that the plaintiff is an appropriate representative of the class." This appeal followed.

DISCUSSION

I

The Association claims the trial court erred in ruling that this lawsuit should proceed as a class action. It relies on cases where homeowner's associations have sued in a representative capacity on behalf of the individual owners. If the Association is correct, of course, it should never have been required to seek certification of the class. Respondents, on the other hand, argue that the trial court never should have allowed the Association to sue in the first place. They claim the Association has no standing to sue because that entity has not suffered any damages of its own.

The Association relies primarily on the factually similar case of Salton City etc. Owners Assn. v. M. Penn Phillips Co. (1977) 75 Cal.App.3d 184, 141 Cal.Rptr. 895. That opinion, however, supports the propriety of both aspects of the trial court's ruling here. In Salton City a property owners...