Trotsky v. Los Angeles Fed. Sav. & Loan Assn.

• Decision Date: 06 May 1975
• Citation: 48 Cal.App.3d 134,121 Cal.Rptr. 637
• Court: California Court of Appeals Court of Appeals
• Parties: William TROTSKY et al., Plaintiffs and Respondents, v. LOS ANGELES FEDERAL SAVINGS AND LOAN ASSOCIATION, a federal savings and loan association, Defendant and Respondent, Robert E. Barwig, Objector and Appellant. Civ. 42271.

Page 637

121 Cal.Rptr. 637

48 Cal.App.3d 134

William TROTSKY et al., Plaintiffs and Respondents, v. LOS ANGELES FEDERAL SAVINGS AND LOAN ASSOCIATION, a federal savings and loan association, Defendant and Respondent Robert E. Barwig, Objector and Appellant.

Civ. 42271.

Court of Appeal, Second District, Division 5, California.

May 6, 1975.

As Modified May 21, 1975.

Thomas E. Garcin, Sherman Oaks, for objector and appellant

David Daar, Los Angeles, Florence Bernstein, Beverly Hills, Rich & Ezer, Los Angeles, for plaintiffs and respondents.

McKenna, Fitting & Finch, Bernard Kolbor and Aaron M. Peck, Los Angeles, for defendant and respondent.

ASHBY, Associate Justice.

Appellant Robert E. Barwig (hereinafter appellant) is a member of the class of plaintiffs represented by William and Rita Trotsky (hereinafter the Trotskys) in a class action brought on behalf of themselves and all other persons similarly situated, against respondent Los Angeles Federal Savings and Loan Association (hereinafter respondent). In response to notice of hearing on a proposed settlement of the class action, appellant entered an appearance and objected to the proposed settlement. The trial court overruled all objections and entered judgment approving the settlement.

The settlement relates to three clauses (clauses 9, 10, and 12) of a certain trust deed used by respondent which were alleged to be invalid. Appellant appeals from the judgment approving the settlement 'insofar as said settlement agreement and the judgment entered thereon purports to settle or waive the claims of those borrowers As a member of the affected class who appeared at the hearing in response to the notice, and whose objections to the proposed settlement were overruled, appellant is a party aggrieved, and has standing to appeal. (Code Civ.Proc., § 902.) This is true even though appellant could instead have 'opted out,' I.e., requested exclusion from the judgment. (See Civ.Code, § 1781, subd. (e).) As stated by the court in Ace Heating & Plumbing Company v. Crane Company, 453 F.2d 30, 33 (3d Cir. 1971), deciding a similar question under rule 23 of the Federal Rules of Civil Procedure, '. . . It is possible that, within a class, a group of small claimants might be unfavorably treated by the terms of a proposed settlement. For them, the option to join is in reality no option at all. Rule 23 recognizes the fact that many small claimants frequently have no litigable claims unless aggregated. So, without court approval and a subsequent right to ask for review, such claimants would be faced with equally unpalatable alternatives--accept either nothing at all or a possibly unfair settlement. We conclude that appellants have standing to appeal . . ..' (See also Research Corporation v. Asgrow Seed Company, 425 F.2d 1059, 1060 (7th Cir. 1970); Cohen v. Young, 127 F.2d 721, 724 (6th Cir. 1942), cert. den., 321 U.S. 778, 64 S.Ct. 619, 88 L.Ed. 1071.) ¹ Were the rule otherwise, a class member who objected in the trial court to the terms of the settlement would be unable to secure appellate review of the court's order approving the settlement.

from LOS ANGELES FEDERAL SAVINGS AND LOAN ASSOCIATION, whose interest rates were raised by said defendant pursuant to the provisions of clause 10' of the trust deed. We have determined that under the particular circumstances of this case the trial court should not have approved the inclusion of clause 10 claims in the settlement, and therefore the judgment should be reversed.

FACTS

In June 1969 the Trotskys filed the original complaint in Los Angeles Superior Court on behalf of themselves and all persons who had within four years prior to the filing borrowed money from respondent and executed a certain form of trust deed securing the loan. The complaint sought a declaration that three provisions of the trust deed were invalid, and it additionally sought damages for monies collected by respondent under those provisions. The three provisions were: (a) clause 9, authorizing respondent to increase the interest rate on the loan by one percent per annum in the event of the borrower's failure to pay six consecutive monthly payments within 15 days of the due dates; (b) clause 10, authorizing respondent to increase the interest rate on the loan by one-half of one percent per annum for each one-fourth of one percent per annum by which respondent increased the interest rate paid to its savings account holders; and (c) clause 12, authorizing respondent to impose a late charge of four percent on any installment paid more than 15 days after the due date.

In August 1969 the parties stipulated to the filing of a first amended complaint, which differed only insignificantly from the original complaint.

On January 8, 1970, also by stipulation of the parties, the Trotskys filed a second amended complaint which differed quite materially from the first amended complaint. Significantly, the second amended complaint omitted any reference to clause 10, the provision allowing an increased interest rate tied to an increase in savings On October 20, 1971, apparently unaware of the Trotsky case, appellant filed a complaint against respondent in Barwig v. Los Angeles Federal Savings & Loan Assn., Los Angeles Superior Court case No. C 14608 (hereinafter the Barwig case), on behalf of himself and all persons or entities who had borrowed money from respondent and executed a promissory note and a certain trust deed (the same trust deed involved in the Trotsky case). Appellant alleged that pursuant to clause 10 of the trust deed, respondent had increased the interest rate on such loans by notice dated August 1, 1966. Appellant alleged that clause 10 was invalid and unenforceable. On behalf of his class he sought declaratory relief and the return of the monies collected pursuant to clause 10. The Barwig case did not involve any claims as to clause 9 or clause 12. ⁴

                account interest rates.  2  The second amended complaint defined the class as those persons [48 Cal.App.3d 141] who within the four years preceding filing of the action had executed agreements and trust deeds containing clause 9 and clause 12 and from whom respondent had collected late charges pursuant to one or both of those provisions.  It was alleged that the Trotskys had been assessed late charges and increased interest under both of those provisions and that those provisions were invalid.  The second amended complaint sought declaratory relief and actual and punitive damages.  3
                

Respondent answered the complaint in the Barwig case in December 1971. Certain discovery was had, and appellant submitted a motion for an initial hearing to determine class action issues. (Vasquez v. Superior Court, Supra, 4 Cal.3d 800, 820--821, 94 Cal.Rptr. 796, 484 P.2d 964.) Respondent submitted a motion for summary judgment and a countermotion for a determination that the action was not a proper class action, and that appellant did not adequately represent the alleged class. The existence of the Trotsky case was not mentioned in the papers in support of these motions. The motion for summary judgment was denied on May 5, 1972, and the class action motion was continued. Under circumstances described Infra, the hearing on this motion was taken off calendar, and there has not yet been a determination by the trial court in the Barwig case as to its propriety as a class action or the adequacy of appellant's representation of the class, nor has notice to the class been given in the Barwig case.

In June 1972 the Trotskys and respondent reached agreement upon settlement of the Trotsky class action. With court permission the class was redefined, for purposes of settlement, to be 'all present mortgage loan borrowers' of respondent who in order to secure their respective loans executed the certain form of trust deed here involved. This removed from contention the claims of borrowers whose loans had been paid off, transferred or foreclosed. ⁵

The settlement agreement purported to include not only the clause 9 and clause 12 With respect to clause 12 (late charges for installments not paid within 15 days of due date) respondent agreed that as to class members respondent would observe the notice requirements of Civil Code section 2954.5, even though the statute applies only to loans made after January 1, 1971.

claims alleged in the second amended complaint, but also clause 10 claims. In general the settlement agreement provided that respondent would modify its practices with respect to the three provisions, but that respondent would not pay damages and would be released from further liability. (Respondent at all times maintained that the provisions were valid and enforceable and denied any liability for monies collected.)

With respect to clause 9 (increased interest in the event of six consecutive late payments) respondent agreed, among other modifications, to limit such increase to one-half percent per annum and to revoke such increase (prospectively only) upon written request of the borrower in the event that each installment during the two years following such increase is paid on time and there are no other defaults.

With respect to clause 10 (variable interest rates) respondent agreed to certain modifications affecting loans made prior to November 23, 1970, the effective date of Civil Code section 1916.5. (As to loans made after that date, section 1916.5 rendered clause 10 invalid.) Respondent agreed to give notice of such increase within six months of a passbook rate increase, and to deem the right to such increase waived upon failure to give timely notice. Respondent also agreed to revoke such increase (prospectively only), upon the written request of the borrower, in the event of a decline of the passbook interest rate to previous levels.

In return for these agreements respondent was, with certain exceptions, released and discharged 'from any and all liability for (respondent's) assessment and/or collection of...