Petherbridge v. Altadena Fed. Sav. & Loan Assn.
| Decision Date | 08 February 1974 |
| Citation | 112 Cal.Rptr. 144,37 Cal.App.3d 193 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Marjorie A. PETHERBRIDGE, On Behalf of Herself and All Others Similarly Situated with Respect to Certain Policies and Actions of Defendants, Plaintiff and Appellant, v. ALTADENA FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Defendants and Respondents. Civ. 12472. |
Marjorie A. Petherbridge ('Plaintiff' and 'Appellant') is a borrower of Prudential Savings and Loan Association ('Prudential'). The loan is secured by a deed of trust on real property located in the County of Orange. Under the provisions of her trust deed, plaintiff is required to pay monthly, in addition to principal and interest, a sum estimated by Prudential at 1/12 of the combined annual costs of taxes and insurance on the property. These supplemental payments are called 'impounds.'
Plaintiff brought a class action upon behalf of herself and all impound-paying mortgage borrowers against Prudential and 37 other savings and loan associations doing business in Orange County. Her complaint contained the following allegations: the 38 lending institutions require the payment of impounds by their borrowers; the payment of impounds creates a 'trust relationship' between borrower and lender; the 38 savings and loan associations entered into a conspiracy to breach said trust relationship and to defraud the members of the class by investing the trust funds for their own uses and purposes and by not giving the borrowers credit for the interest derived therefrom; each savings and loan association should be required to account to their borrowers for the amount of impounds collected and the use of such impounds; they should also be required to pay their borrowers any income or interest earned on such impounds; and that the borrowers be awarded compensatory damages in excess of one billion dollars ($1,000,000,000) for the use of the impounds, together with punitive damages in a sum in excess of one hundred thirteen million dollars ($113,000,000) for the lenders' deception in appropriating the income derived from impounds to their own use.
Two (2) of the 38 defendants--American Savings and Loan and Home Savings and Loan--successfully brought an action in the Los Angeles Superior Court for a bill of peace, since they were then defending similar class actions in Los Angeles tribunals.
In any event, Prudential and the 35 remaining savings and loan associations answered plaintiff's complaint and, in essence, denied the existence of any trust relationship with their borrowers with respect to payments of impounds or need to pay interest on impound accounts. In addition, all specifically denied the existence of any conspiracy among them.
After some discovery proceedings had been completed, plaintiff filed a motion for determination that the action be maintainable as a class action. However, her counsel apparently did not take any action for the purpose of having the matter placed on calendar for hearing. A few months later, several of the defendants filed motions for an order determining that the action could Not be maintained as a class action. Before scheduling a full hearing on the matter, the court granted the parties more time to complete discovery and to submit declarations in support of their respective positions.
Eventually, several lengthy hearings were held on the consolidated motions for the purpose of determining the propriety of maintaining the suit as a class action.
At the hearings, plaintiff made the following showing: the defendants followed the common practice of commingling impounds with general assets; they invested such assets and failed to pay interest on impounds; defendants were allegedly in violation of a regulation of the Federal Housing Administration requiring sequestration of impounds on FHA insured loans; as to the charge of conspiracy, defendants were all members of a trade association known as the California Savings and Loan League; the League has an attorneys committee which sends communications to members; on one occasion the committee sent out a 56-page report to its members; and one provision of the report dealt with 'impounds' and with 'contracts of adhesion.'
In opposition to the foregoing proof, the defendants filed multiple declarations containing the following assertions: the impound practices of the various associations differ; they are arrived at independently; the associations have never formulated or effected any policy regarding their impound accounts on the basis of any agreement or understanding with each other; membership in the California Savings and Loan League is equivalent to an attorney being a member of the State Bar; the issue as to whether any trust relationship exists between the thousands of borrowers and their respective lenders would necessitate an examination of each deed of trust executed by them; and most of the provisions of deeds of trust used by the respective associations vary in form and content.
Following the hearing on the consolidated motions, the court made the following findings of fact: (1) plaintiff failed to show a Substantial possibility that she could prove the existence of a civil conspiracy among Prudential and the remaining defendants; (2) plaintiff is a mortgage loan borrower from Prudential and enjoys no contractual relationship with any of the remaining defendants; (3) the questions of law and fact in the instant action which differ among defendants and among their respective mortgage loan borrowers predominate over those questions of law and fact which are common to them; and (4) it would consume undue judicial time to permit the action to proceed as a class action against all the defendants.
The court came to the following conclusions: (1) plaintiff had failed to establish by competent evidence that there is a Substantial possibility that she could prove the existence of the alleged civil conspiracy among Prudential and the remaining defendants; (2) plaintiff is Not a member of any class of mortgage loan borrowers, except Prudential's borrowers; and (3) plaintiff could Not fairly represent the claims of any of the respective loan borrowers of the remaining 35 defendants.
A judgment dismissing the action as to the 35 associations ('Respondents') was duly entered and this appeal followed.
Although stated in varying ways, appellant raises two issues: (1) the trial court improperly considered whether the class action (as framed by the pleadings, affidavits and declarations) had some likelihood of success; and (2) even assuming the trial court acted with propriety in requiring plaintiff to establish a possibility of success on the merits, she did, in fact demonstrate the requisite likelihood of success.
Preliminarily, a brief discussion of the Procedural mechanism employed by the trial court to determine whether this suit was maintainable as a class action might be appropriate inasmuch as this kind of lawsuit is a relatively new phenomenon. 1
Until recent times, the issue as to whether a class action could be maintained was litigated by way of demurrer. However, in 1971 the Supreme Court (Vasquez v. Superior Court, 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964) observed that the bare allegations of the complaint should be sufficient to sustain the action as a purported class action through the pleading stages, but that it would be proper for the trial court to hold an evidentiary hearing (after the matter was at issue and before trial) to determine whether or not the procedural prerequisites of a class action were, in fact, present. The Supreme Court suggested that trial judges utilize the criteria and procedures provided in section 1781 of the Civil Code (entitled the Consumers Legal Remedies Act) and rule 23 of the Federal Rules of Civil Procedure in making the class determination. (Ibid, pp. 820--821, 94 Cal.Rptr. 796, 484 P.2d 964.)
Section 1781, subdivision (b) of the Civil Code states the following are the essential conditions of a class action:
(1) It is impracticable to bring all members of the class before the court.
(2) The questions of law or fact common to the class are substantially similar and predominate over the questions affecting the individual members.
(3) The claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class.
(4) The representative plaintiffs will fairly and adequately protect the interests of the class.
Inasmuch as the Vasquez court recognized that section 1781 might not provide adequate guidance to trial courts in devising 'pragmatic procedural devices' for determining the propriety of a class action, it also recommended the use of rule 23 of the...
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