Copyright 2007 Daily Journal Corp. Reprinted and/or posted with permission. This file cannot be downloaded from this page. The Daily Journal's definition of reprint and posting permission does not include the downloading, copying by third parties or any other type of transmission of any posted articles.
The "rule against one-way intervention" requires trial courts to decide class action issues before addressing the substantive merits of a case. Grounded in due process principles, the rule is designed to ensure that affected parties are bound before deciding the merits. Aptly put, the rule protects defendants from "being pecked to death by ducks. One plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevailed; then everyone else would ride on that single success." Premier Electrical Construction Co. v. National Electrical Contractors Assn., Inc. (7th Cir. 1987) 814 F.2d 358, 362.
The policy underlying the rule is one of fairness. Putative class members should not benefit from a favorable merits decision without subjecting themselves to the binding effect of an unfavorable one. Without the rule, class members could reserve their decision to become part of the class until the validity of the cause asserted by the named plaintiffs has been determined. The rule also protects absent class members who have not been given the opportunity to opt out from being bound by unfavorable merits determinations. One-way intervention would also waste resources while rendering the minority - and thus presumptively inaccurate - result the binding one.
In the federal courts, the rule against one-way intervention was codified in 1966 by the amendments to Rule 23 of the Federal Rules of Civil Procedure to provide that class issues are determined "as soon as practicable after the commencement of an action brought as a class action . . . ." See Fed. Rule Civ. Proc. 23(c)(1). Once a class action is certified and notice and opportunity to opt-out is given to the class, class members either become nonparties to the suit and ineligible to participate in a recovery, or they become full members who must abide by the final judgment, whether favorable or adverse.
California courts first adopted the rule in 1974 in Home Sav. & Loan Assn. v. Sup. Ct. (1974) 42 Cal.App.3d 1006, and thereafter refined it in a line of cases leading to the Supreme Court's formal adoption of the rule in Green v. Obledo (1981) 29 Cal.3d 126. Reasoning that the rule applied with equal force to protect plaintiffs, the Green court held that, absent a showing of changed circumstances, a defendant who acquiesced in class certification could not later move for decertification after an unfavorable merits ruling was issued against it.
Recently, the California Supreme Court clarified and strengthened the rule against one-way intervention by holding that absent special circumstances, trial courts lack discretion to adjudicate merits issues prior to class certification. Fireside Bank v. Sup. Ct. of Santa Clara County, 40 Cal. 4th 1069 (2007).
In Fireside, a financing company filed suit for a deficiency judgment against a car buyer after she defaulted on her payments. The buyer moved for judgment on the pleadings under the Rees-Levering Motor Vehicle Sales and Finance Act (Civ. Code §§ 2981-2984.4) on grounds that the seller's underlying notice of intent to sell the car after repossession was defective. Then, after learning through discovery that almost 3,000 other borrowers were served with inaccurate notices, she filed a class action cross-complaint for unfair business practices.
At the hearing on the buyer's motion for class certification and motion for judgment on the pleadings, the company argued that any merits ruling should be delayed until class issues were resolved. The trial court nonetheless granted the motion and certified the buyer's cross-complaint as a class action. In affirming, the Court of Appeals reasoned that trial courts retain broad discretion to manage the order of proceedings, and that the rule against one-way intervention embodied nothing more than a "weak general preference" for deciding class issues first.
The Supreme Court reversed. It reasoned that, by ruling on the motion for judgment on the pleadings before notice had been given to the class, the trial court impermissibly provided class members with an opportunity for one-way intervention. Indeed, the ruling squarely resolved the central issue in the buyer's (and the putative class') claims against the company - whether the underlying notices of intent to sell were defective - thereby allowing potential class members to claim the spoils. Moreover, there was no compelling justification to warrant the trial court's departure from established procedure. Finding an abuse of discretion, the Supreme Court vacated the trial court's order granting the motion for judgment on the pleadings.
The Fireside decision has several important implications for class action lawyers and litigants. Initially, the rule against one-way intervention applies to any substantive decision, regardless of form or party. Thus, in determining the range of motions that implicate the rules governing one-way intervention, the relevant question is not the type of motion or which party is bringing it, but whether a given ruling will create the risk of one-way intervention.
In deciding this question, trial courts will now use a sliding scale to consider: (1) the degree to which the given motion poses one-way intervention problems, and (2) the compelling justifications proffered by the moving party for deciding the given motion notwithstanding the unresolved class issues. As the Court explained, "[t]he greater the concerns, the more compelling the countervailing justification must be."
In Fireside, for example, the buyer's motion for judgment on the pleadings clearly posed the risk of one-way intervention. An order denying the motion prior to certification and class notice would have denied the company the benefit of class-wide res judicata. An order granting it would have effectively eliminated any incentive for potential class members receiving notice of the action to opt out. Further, no compelling reason justified the trial court's premature merits decision.
Conversely, where a motion does not seek to defeat a cause on the merits or does not address a legal issue potentially applicable to all class members, the danger of one-way intervention is significantly diminished. Thus, motions which leave open the possibility that either side might prevail on the claim present minimal prejudice to the opposing party.
For example, had the buyer in Fireside argued that the company's complaint was uncertain or failed to allege sufficient facts, little prejudice would have resulted from a ruling either for or against. The argument would not undermine the company's claim altogether, as it simply would challenge the precision with which the claim was pled.
Notably, motions for temporary restraining orders and/or preliminary injunctions are exempted from the rule against one-way intervention even though these motions, by definition, implicate merits issues. See Code Civ. Proc. 527. By now providing that such motions may be brought "whether or not the class has been certified," Section 527 ensures that parties are afforded the protections of immediate injunctive relief notwithstanding the existence of one-way intervention concerns.
Fireside and its preceding line of cases also illustrate that parties should always be mindful of one-way intervention concerns, as traps for the unwary abound.
First, a defendant must take affirmative steps to preserve the protection against one-way intervention. A defendant can waive the rule by either failing to make a timely Home Savings objection to merits motions, or by itself seeking resolution of the merits before certification. The rule against one-way intervention also provides defense lawyers with a tactical incentive to oppose any pre-certification motion on grounds that it goes to the merits. A ruling over the objection may serve to invalidate on appeal a later order certifying the class. Fireside.
Second, plaintiffs should move for certification before bringing a merits motion. In the absence of a defense waiver, proceeding first on the merits may bar the trial court from considering a certification motion unless the plaintiff can demonstrate changed circumstances or other good cause. A plaintiff may avoid the bar by submitting newly discovered evidence or establishing that the defendant obstructed discovery that would have supported class certification. Cf. Cal. Rules of Court, rule 3.764(b); Fireside.
Third, plaintiffs may successfully resist post-merits motions for decertification by objecting that the motion is not based on changed circumstances. This objection should be particularly well-received where the arguments in support of decertification are based on circumstances or evidence available before the merits motion was decided. Green.
Ultimately, while Fireside restricts the trial court's ability to adjudicate the merits of a class action before deciding certification and notice issues, the decision leaves the trial court with discretion to depart from this order where there is a compelling justification. Indeed, the remedy fashioned in Fireside reaffirms the long-standing principle that class actions are creatures of equity and that equitable considerations therefore govern their administration.
Fireside illustrates this overriding principle well. Although the buyer had moved for both class certification and a ruling on the merits, the Supreme Court nonetheless held that she could proceed with her class action lawsuit given the existence of good cause and changed circumstances. The buyer did not learn of the potential for a class action until after she filed her motion for judgment on the pleadings and, significantly, had no reason to withdraw her motion because the trial court had assured the parties at the hearing that it would not make a substantive ruling until the class issues were resolved. Accordingly, the Fireside court upheld the trial court's order granting class certification.
In short, class action lawyers should always keep equitable principles in mind when addressing one-way intervention concerns.
The articles on our Website include some of the publications and papers authored by our attorneys, both before and after they joined our firm. The content of these articles should not be taken as legal advice.