Washington Mutual Bank v. Superior Court, S070418.

Citation15 P.3d 1071,103 Cal.Rptr.2d 320,24 Cal.4th 906
Decision Date25 January 2001
Docket NumberNo. S070418.,S070418.
CourtUnited States State Supreme Court (California)
PartiesWASHINGTON MUTUAL BANK, FA, Petitioner, v. The SUPERIOR COURT of Orange County, Respondent; Jayne A. Briseno, Real Party in Interest.

Stroock & Stroock & Lavan, Julia B. Strickland, Lisa M. Simonetti, Los Angeles, and Andrew W. Moritz, for Petitioner.

O'Melveny & Myers, Martin S. Checov, Brian P. Brooks, Canton, MA, John H. Beisner and William H. Satchell for the Product Liability Advisory Council, Inc., American Bankers Association, California Chamber of Commerce, California Bankers Association and Chamber of Commerce of the United States as Amici Curiae on behalf of Petitioner.

Severson & Werson, Jan T. Chilton, Mark Joseph Kenney, Michael J. Steiner and William L. Stern, San Francisco, for Mortgage Bankers Association of America, California Mortgage Bankers Association, American Financial Services Association and California Financial Services Association as Amici Curiae on behalf of Petitioner.

Gibson, Dunn & Crutcher, Gail E. Lees, Los Angeles, Kevin R. Nowicki, Irvine, and Thomas D. Bunton for ITT Residential Capital Corporation, ITT Residential Capital Servicing Corporation and ITT Bowest as Amici Curiae on behalf of Petitioner.

No appearance for Respondent.

Blumenthal Ostroff & Markham, Norman B. Blumenthal, David R. Markham, Sheldon A. Ostroff, Barron E. Ramos, San Diego; Chavez & Gertler and Mark A. Chavez, San Francisco, for Real Party in Interest.

Kirby Mclnerney & Squire, Alice Mclnerney, New York, NY, Jill M. Manning; Law Office of Jeffrey F. Keller, Jeffrey F. Keller, San Francisco; Law Office of Patrick O. Patterson, Patrick 0. Patterson and Gretchen E. Miller, Milwaukee, WI, for Roger Babcock et al, as Amici Curiae on behalf of Real Party in Interest.

BAXTER, J.

The trial court certified this case as a nationwide class action without determining the force and effect of contractual agreements that, according to the defendant, would require the application of different states' laws in the action. The Court of Appeal found certification was proper because the defendant had failed to show that the contractually selected laws would lead to different results. We conclude the certification order must be vacated, for it was based upon an incomplete and erroneous analysis of factors relevant to certification.

FACTUAL AND PROCEDURAL BACKGROUND

American Savings Bank, now Washington Mutual Bank, FA (hereafter, ASB), originated home mortgage loans in California, Arizona, Colorado, and Texas, and purchased loans from other lenders throughout the United States. ASB's standard loan documents included a deed of trust that requires the mortgagor to maintain hazard insurance on the secured property and provides that if the mortgagor fails to do so, "then Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the property," and "[a]ny amounts [so] disbursed ... shall become additional debt" of the mortgagor, secured by the deed of trust. The deed of trust also contained a clause stating: "This Security Instrument shall be governed by federal law and the law of the jurisdiction in which the [secured property] is located."

Jayne A. Briseno sued ASB on behalf of herself and all others similarly situated for breach of contract, breach of the implied covenant of good faith and fair dealing, unfair business practice violations under California's unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.),1 unjust enrichment, and conversion. According to the second amended complaint, ASB maintained a practice of procuring expensive replacement insurance (forced order insurance) when mortgagors defaulted on their loan obligation to maintain appropriate policies of hazard insurance for their properties. The amount ASB charged the mortgagor for forced order insurance typically was two to five times more than the amount of the premium on the original lapsed policy would have been. The crux of the dispute is whether ASB victimized its borrowers by systematically overcharging for the replacement insurance coverage and secretly profiting through cash commissions or in-kind services from the vendors of the replacement insurance.

In 1998, Briseno moved to certify this case as a nationwide class action, comprised of at least 25,000 mortgagors located throughout the United States who were charged excessive premiums for forced order insurance since 1993, excluding those who received refunds of the entire premium. She argued, among other things, that California could constitutionally exercise jurisdiction over the claims of nonresident mortgagors and that California could apply its own substantive law unless ASB proved otherwise under California conflict of laws rules. ASB responded that common questions of law do not predominate for a nationwide class because enforcement of the choice-of-law provision in each mortgagor's loan documents meant that the action would entail the application of the laws of all 50 states.

The trial court ordered certification of a nationwide class action without purporting to decide what law applies to the claims of the class members. After the Court of Appeal summarily denied ASB's petition for extraordinary relief, we granted ASB's petition for review and transferred the case back to the Court of Appeal with instructions to issue an alternative writ.

After complying with our directive, the Court of Appeal denied ASB's writ petition and discharged the alternative writ. The court affirmed the certification order, reasoning that "[a]t most the choice of law clause raises the potential that another state's law might apply." It concluded, in effect, that a defendant who opposes nationwide class certification on the basis of choice-of-law agreements has the burden of demonstrating that the contractually selected laws will lead to results different from California law and render a nationwide class action unsuitable. We granted ASB's petition for review.

DISCUSSION

Section 382 of the Code of Civil Procedure authorizes class suits in California when "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." The burden is on the party seeking certification to establish the existence of both an ascertainable class and a welldefined community of interest among the class members. (Under v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435, 97 Cal.Rptr.2d 179, 2 P.3d 27

; Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470, 174 Cal.Rptr. 515, 629 P.2d 23.)

To establish the requisite community of interest, the proponent of certification must show, inter alia, that questions of law or fact common to the class predominate over the questions affecting the individual members (hereafter sometimes referred to as predominance). (See Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at p. 470, 174 Cal.Rptr. 515, 629 P.2d 23.) In essence, this means "each member must not be required to individually litigate numerous and substantial questions to determine his [or her] right to recover following the class judgment; and the issues which may be jointly tried, when compared with those requiring separate adjudication, must be sufficiently numerous and substantial to make the class action advantageous to the judicial process and to the litigants." (City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 460, 115 Cal.Rptr. 797, 525 P.2d 701

.) A class action should be certified only if it will provide substantial benefits both to the courts and the litigants. (Under v. Thrifty Oil Co., supra, 23 Cal.4th at p. 435, 97 Cal.Rptr.2d 179, 2 P.3d 27; City of San Jose v. Superior Court, supra, 12 Cal.3d at p. 460, 115 Cal.Rptr. 797, 525 P.2d 701.)

"Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification." (Under v. Thrifty Oil Co., supra, 23 Cal.4th at p. 435, 97 Cal.Rptr.2d 179, 2 P.3d 27

.) Nonetheless, "an order based upon improper criteria or incorrect assumptions calls for reversal'"even though there may be substantial evidence to support the court's order."'" (Id. at p. 436, 97 Cal. Rptr.2d 179, 2 P.3d 27.)

ASB contends that, where putative class members across the nation have contractually agreed in advance to application of their own state's law, the trial court must apply the choice-of-law analysis set forth in Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (Nedlloyd ) when evaluating a certification motion. Here, ASB claims, both the trial court and the Court of Appeal impermissibly sidestepped Nedlloyd's analysis and erroneously concluded that, even if class claims are subject to enforceable choice-of-law clauses, the clauses are of no significance to the certification decision unless their proponent demonstrates that the contractually designated law is different from California law and when applied will lead to a different result. ASB requests that we reverse the denial of its petition for a writ of mandate and remand this matter to the Court of Appeal with instructions as to the appropriate analysis for the trial court to undertake.

This case presents two pivotal questions arising when certification of a nationwide or multistate class action is sought. First, what is the appropriate analysis for selecting applicable law in a class action where putative class members have contractually agreed to application of another state's law? Second, what analysis must be undertaken in the event litigation of the class action will necessitate application of the laws of multiple states? We address these questions in turn.2

A. Selection of applicable law

California has two different analyses for selecting which law should be applied in an action. When the parties have...

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