Schneider v. Vennard

• Decision Date: 01 August 1986
• Court: California Court of Appeals Court of Appeals
• Parties: William H. SCHNEIDER, et al., Plaintiffs and Appellants, v. John VENNARD, et al., Defendants and Respondents. H000729.

Page 800

228 Cal.Rptr. 800

183 Cal.App.3d 1340

William H. SCHNEIDER, et al., Plaintiffs and Appellants, v. John VENNARD, et al., Defendants and Respondents.

H000729.

Court of Appeal, Sixth District, California.

Aug. 1, 1986.

Review Denied November 26, 1986.

William S. Lerach, John E. Grasberger, Steve W. Pepich, Milberg, Weiss, Bershad, Specthrie & Lerach, San Diego, Stuart H. Savett, Kohn, Savett, Marion & Graf, Sherrie R. Savett, Berger & Montague, Leonard Barrack, Barrack, Rodos & Bacine, Philadelphia, Pa., Joseph W. Cotchett, Cotchett & Illston, San Mateo, for plaintiffs and appellants.

M. Laurence Popofsky, Douglas M. Schwab, Paul W. Sugarman, Jonathan P. Hayden, Christopher M. Patti, Meryl Macklin, Carol P. Laplant, Heller, Ehrman, White & McAuliffe, Michael F. Perlis, Pamela J. Roberts, Pettit & Martin, San Francisco, for defendants and respondents.

AGLIANO, Presiding Justice.

Plaintiffs appeal from an order of the Santa Clara Superior Court denying certification of this action as a class action. We hold that although the facts satisfy the requirements for class certification under Civil Code section 1781, subdivision (b), the trial court properly denied class certification on the basis of an already pending federal class action between the parties for the same cause.

Plaintiffs William Schneider, Charles Cohn, Jeanne Cohn, and Estelle Ellis, the owners of shares of common stock of Apple Computer, Inc., brought this action on their own behalf and as a class action. Defendants are Apple Computer, Inc. (Apple) and 13 individuals, ¹ all of whom are present or former shareholders or members of the Board of Directors of Apple. Plaintiffs seek damages and other relief for losses allegedly caused by defendants' false and misleading statements.

On February 28, 1984, and March 7, 1984, plaintiffs initiated in Santa Clara Superior Court the instant two substantially identical, shareholder actions (Schneider v. Vennard, No. 543437, and Ellis v. Vennard, No. 544063). While the cases were not formally consolidated, the trial court considered them together in its memorandum of decision.

The complaints set forth eight causes of action, including violation of section 17(a) of the Securities Act of 1933 (15 U.S.C. § 77q, subd. (a)), fraud, negligent misrepresentation, and various violations of the Corporations Code. Plaintiffs allege that beginning on November 12, 1982, defendants misled the investing public by issuing a series of false statements about Apple and its Lisa computer and by failing to disclose material information about the company and its products; that defendants then allegedly took advantage of their inside information by selling shares of Apple stock at artificially inflated prices; that when the true state of affairs became public on September 23, 1983, the price of Apple stock dropped, and the shareholders suffered damage. Plaintiffs estimate there are over 3,000 members of the class.

On March 2, 1984, and March 7, 1984, two actions involving the same parties and the same facts, but differing in the causes of action alleged were filed in federal court. The federal cases were subsequently consolidated. The federal action alleges violations of section 10(b) (15 U.S.C. § 78j, subd. (b)) and section 20(a) (15 U.S.C. § 78t, subd. (a)) of the Securities Exchange Act of 1934 and Securities and Exchange Commission rule 10b-5 (17 C.F.R. § 240.10b-5).

On March 29, 1984, defendants removed the state actions to federal court, claiming plaintiffs were obligated to bring their entire controversy before one court, and that because plaintiffs had invoked the jurisdiction of the federal courts, removal of the state actions was proper. On November 5, 1984, however, plaintiffs moved to remand the state actions to state court, arguing that because the state actions included claims under section 17(a) of the Securities Act of 1933 which were nonremovable by statute, defendants could not remove. Plaintiffs' motion for remand was subsequently granted.

On December 21, 1984, defendants moved in the state actions for an order striking the class allegations from the complaints on the ground plaintiffs could not demonstrate that a class action in state court was superior to other methods of proceeding. Plaintiffs then moved for class certification in both the federal and state actions. Relying on concerns for judicial efficiency and flexibility in dealing with class actions, the court declined to certify the state actions as class actions. The trial court's decision was expressly conditioned upon defendants' withdrawal of their opposition to a class action in federal court. Thereafter, the federal action was certified as a class action.

Plaintiffs contend the trial court erroneously considered the requirements of rule 23 of the Federal Rules of Civil Procedure in determining whether to certify the instant action as a class action. They maintain the Consumers Legal Remedies Act (Act) (Civ. Code, § 1750, et seq.), including Civil Code section 1781, provides the exclusive procedural requirements for class certification.

In the case before us, the trial court found the allegations of the complaint met the requirements of section 1781, subdivision (b). Section 1781, subdivision (b), states: "The court shall permit the suit to be maintained on behalf of all members of the represented class if all of the following conditions exist: [p] (1) It is impracticable to bring all members of the class before the court. [p] (2) The questions of law or fact common to the class are substantially similar and predominate over the questions affecting the individual members. [p] (3) The claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class. [p] (4) The representative plaintiffs will fairly and adequately protect the interests of the class."

Class certification was denied, however, on the basis of Federal Rules of Civil Procedure, rule 23, subdivision (b)(3). The rule provides in pertinent part that the trial court must find "a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: ... (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; ..."

The decision whether to certify a class is within the discretion of the trial court. (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470, 174 Cal.Rptr. 515, 629 P.2d 23; Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355, 361, 134 Cal.Rptr. 388, 556 P.2d 750.) A trial court ruling on class certification which is supported by substantial evidence will not be reversed unless the trial court used improper criteria or indulged in erroneous legal assumptions. (Richmond, supra, 29 Cal.3d at p. 470, 174 Cal.Rptr. 515, 629 P.2d 23.)

Class actions, other than consumer actions, are authorized by Code of Civil Procedure section 382 which provides in relevant part: "[W]hen 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, one or more may sue or defend for the benefit of all." In interpreting this section, courts have established two prerequisites to the certification of a class action: there must be "an ascertainable class" as well as "a well-defined community of interest in the questions of law and fact involved" affecting the parties to be represented. (Occidental Land, Inc. v. Superior Court, supra, 18 Cal.3d 355, 360, 134 Cal.Rptr. 388, 556 P.2d 750; Daar v. Yellow Cab (1967) 67 Cal.2d 695, 704, 63 Cal.Rptr. 724, 433 P.2d 732.)

However, section 382 is general in nature and does not provide a procedural framework for certifying a class action. Thus, courts have turned to both Civil Code section 1781 relating to consumer class actions and the Federal Rules of Civil Procedure for guidance. Accordingly, we examine those decisions applying section 1781 and rule 23.

In Vasquez v. Superior Court (1971) 4 Cal.3d 800, 94 Cal.Rptr. 796, 484 P.2d 964, our Supreme Court held a group of consumers could maintain a class action for fraudulent misrepresentation against both a seller of a product and a finance company. The court acknowledged the recent enactment of section 1781, but found it did not apply retroactively to the case then before it. Nevertheless, the court suggested the trial court utilize the procedural provisions of the Act upon remand. "The technique described in the act may not adequately encompass all the procedural problems facing a court in the trial of a class action. In the event of a hiatus, rule 23 of the Federal Rules of Civil Procedure prescribes procedural devices which a trial court may find useful.... we must rely upon the ability of trial courts to adopt innovative procedures which will be fair to the litigants and expedient in serving the judicial process." (Id., 4 Cal.3d at p. 821, 94 Cal.Rptr. 796, 484 P.2d 964.)

In Civil Service Employees Ins. Co. v. Superior Court (1978) 22 Cal.3d 362, 149 Cal.Rptr. 360, 584 P.2d 497, the plaintiffs brought a class action against an insurance company to recover damages which allegedly resulted from the insurance company's refusal to pay benefits. One of the issues raised by the defendant was whether the trial court was authorized to order the defendant to bear the cost of notifying absent class members of the action. In resolving the issue, our Supreme Court turned to section 1781, subdivision (d), authorizing the trial court to "direct either party to notify each member of the class of the action." While the court recognized that section 1781 was not directly applicable because insurance was neither a good nor a service as defined by the Act, it stated the procedures outlined...