Friday, March 25, 2011

First District Contemplates Impact of Pleading a Case as a Class Action On Bilateral Fee Shifting: Turner v. Ass'n of Am. Med. Colleges

Can pleading a case as a class action impair a defendant's ability to recover fees under a bilateral fee shifting statute? According to the First District (Division Five), it may. On March 24, 2011, the Court issued an opinion in Turner v. Ass'n of Am. Med. Colleges, __ Cal.App.4th __ (2011), considering whether “a trial court [is] required to award attorney fees to a prevailing defendant under the bilateral, ‘prevailing party’ statutory fee-shifting provision in [Civil Code] section 55 for attorney hours that were inextricably intertwined with the hours incurred in defending claims under sections 52 and 54.3[.]” Slip Opinion, at 2. According to the Court it was not, due in part to the fact that doing so would undermine the policy underpinning the Legislatures’ enactment of the unilateral-fee shifting provision. See id., at 24.

However, the Court also noted another ground, specific to class actions. At footnote 17 of the Opinion, the Court explores an issue of a “conflict” that is unique to class cases, essentially stating that the named plaintiff cannot intentionally avoid pleading a claim to avoid a bilateral fee shifting provision without breaching his/her obligation to the class, who are not subject to any obligations regarding fees:
Although the above analysis is sufficient to support our conclusion that sections 52 and 54.3 should prevail as a matter of public policy, an additional case-specific consideration applies here. This case was pled as a class action, which complicated the risk-benefit calculus alluded to in Molski, supra, 164 Cal.App.4th at pages 790-791. "A class action is a representative action in which the class representatives assume a fiduciary responsibility to prosecute the action on behalf of the absent parties. [Citation.]" (Earley, supra, 79 Cal.App.4th at p. 1434.) It was in the interest of the prospective class that relief be sought under all potentially applicable statutes, particularly where section 55 has lower standing requirements. Moreover, unnamed class members are not liable for statutory fees awarded to a prevailing defendant. (Earley, at pp. 1435-1436.) Accordingly, to conclude that section 55 should prevail in cases such as the present one would create a conflict of interests between class representatives and unnamed class members: from the perspective of the unnamed class members, there would be no reason [*49] not to seek an injunction under section 55, but seeking such relief would involve great risk for the class representatives. And it is no answer that plaintiffs could have avoided such a dilemma by declining to seek certification of a class, because that solution—effectively, encouraging individual actions—would undermine judicial efficiency and "the effectiveness of the group remedy provided by the class action." (Earley, at p. 1435; see also Vasquez v. Superior Court (1971) 4 Cal.3d 800, 807 ["If each is left to assert his rights alone if and when he can, there will at best be a random and fragmentary enforcement, if there is any at all. This result is not only unfortunate in the particular case, but it will operate seriously to impair the deterrent effect of the sanctions which underlie much contemporary law. The problem of fashioning an effective and inclusive group remedy is thus a major one.' [Citation.]"].)
Slip Opinion, at 24.

While the Court’s analysis was limited to the procedural circumstances of this case, the logic of the Court’s reasoning is interesting, and conceivably could be applied in other areas, such as wage actions implicating both Labor Code section 218.5 (bilateral) and Section 1194 (unilateral) fee shifting.

Friday, March 18, 2011

California Supreme Court’s Decision in Kwikset Turns the Tide On UCL Standing Challenges:

In less than two months since publication, the California Supreme Court’s decision in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), previously discussed here, appears to have curtailed the success of defense efforts to dispose of UCL claims based on standing. Below is a list of cases which have rejected such challenges outright:

In Smit v. Charles Schwab & Co., 2011 U.S. Dist. LEXIS 25589 (N.D. Cal. Mar. 8, 2011), the court rejected the defendant’s claim that standing was lacking to pursue investor action under the UCL based on the fact “Plaintiff gained money by her investment in the Fund”:
Given the UCL standing principles set forth in Kwikset, the Court finds that Plaintiff has sufficiently alleged economic loss resulting from the alleged unlawful activity. Plaintiff alleges that Fund share values declined when the Fund deviated from its fundamental investment objective without first holding a shareholder vote. Even if Plaintiff gained money through dividends, as defendants claim, Plaintiff's argument is that she would have gained more if the Fund had not deviated from its investment objective. This alleged loss satisfies the "identifiable trifle" of economic harm required for standing under the UCL. Therefore, defendants' Motion to Dismiss on the basis of a lack of standing is DENIED. 
See Smit, 2011 U.S. Dist. LEXIS 25589, at 26-27.

In Shaw v. BAC Home Loans Servicing, LP, 2011 U.S. Dist. LEXIS 19875 (S.D. Cal. Feb. 28, 2011), the court rejected the defendant’s claim that standing was lacking in  deceptive home loan modification action based on the fact “the payments Plaintiff made pursuant to the terms of the alleged loan modification were due under the original note anyway”:
Assuming there was a loan modification agreement, Plaintiff was economically injured because he made the monthly payments to obtain, among other things, BAC's forbearance with respect to foreclosure proceedings. BAC may not have been under any duty to modify the original note. But if BAC agreed to a loan modification, Plaintiff was entitled to the benefit of the bargain. 
BAC's argument that Plaintiff must identify a loss of money that is eligible for restitution has been rejected by the California Supreme Court. In Kwikset, the California Supreme Court explained that nothing in the text or history of Proposition 64 suggests that voters intended for standing under § 17204 to be dependent on eligibility for restitution under § 17203. 51 Cal. 4th 310, Id. at *14. "Accordingly, we hold ineligibility for restitution is not a basis for denying standing under section 17204 and disapprove those cases that have concluded otherwise." 51 Cal. 4th 310, Id. at *15.
Even if Plaintiff is not eligible for restitution, Plaintiff has sufficiently pled economic injury and has standing to pursue a UCL claim. [] Therefore, BAC's motion for judgment on the pleadings is denied. 
Shaw, 2011 U.S. Dist. LEXIS 19875, at 5-8.

In Bottoni v. Sallie Mae, Inc., 2011 U.S. Dist. LEXIS 18874 (N.D. Cal. Feb. 11, 2011), which challenged a student loan lender’s practice of imposing liquidated damages, the court rejected defendant’s argument that standing was lacking “based on the attempts to collect the fees and the alleged collection practices”:
[T]he court in Kwikset held "ineligibility for restitution is not a basis for denying standing under section 17204" and disapproved of those cases — including Buckland — that concluded otherwise. Id. Accordingly, the court rejects Sallie Mae's argument that Plaintiffs must show losses of money or property eligible for restitution. 
See Bottoni, 2011 U.S. Dist. LEXIS 18874, at 3-4, 37-38.

In Hamana v. Kholi, 2011 U.S. Dist. LEXIS 26944, 10-11 (S.D. Cal. Mar. 15, 2011), the court rejected defendant’s argument that standing was lacking “because Plaintiff has received more money in principal than he has paid in allegedly unlawful interest”:
The California Supreme Court in Kwikset recently explained that showing loss of money or property requires a plaintiff to demonstrate "some form of economic injury" and that there are "innumerable ways in which economic injury from unfair competition may be shown." Id. at 323. For example, a plaintiff who has been "deprived of money or property to which he or she has a cognizable claim" demonstrates economic injury. Id. 
Plaintiff's section 17200 claims meet this broad standard. Plaintiff has alleged the payment of interest on loans at usurious rates, and Defendants do not seek dismissal of Plaintiff's usury claims. California law allows under certain circumstances treble recovery of such interest payments without reference to whether the interest payments made exceeded principal received. See Cal.Civ.Code § 1916-3.  
Accordingly, Plaintiff's usury cause of action contains facts that show a deprivation of money to which Plaintiff has a cognizable claim, independent of the fact that Plaintiff may have retained more money in principal than he paid in wrongful interest. Thus, Plaintiff has standing under § 17204, and Defendants' motions to dismiss the eighth cause of action are DENIED.
See Hamana, 2011 U.S. Dist. LEXIS 26944, at 10-11.

Tuesday, March 1, 2011

California Supreme Court Concludes Death Knell Doctrine Limited to Orders Terminating Class’ Claims Where Individual Claims Persist: In re Baycol Cases I and II

On February 28, 2011, the California Supreme Court concluded that a court of appeal erred by applying the “death knell doctrine” to dismiss the class component of an appeal that was taken subsequent to judgment, rather than the order sustaining a demurrer, when the demurrer simultaneously sustained both the class’ and the named plaintiff’s claims in their entirety. See In re Baycol Cases I and II, __ Cal.4th __ (2011). As held by the Court, “where an order sustains a demurrer as to both class and individual claims, appeal lies from the subsequent entry of final judgment, not the order.” Slip Opinion, at 10. “[T]he [death knell] doctrine comes into play for class claims only when an order ‘is tantamount to a dismissal of the action as to all members of the class other than plaintiff.’” Slip Opinion, at 11.