Camenisch v. Umpqua Bank

• Court: District Court, N.D. California
• Decided: June 25, 2024
• Docket: 5:20-cv-05905
• Status: Unknown

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SHELA CAMENISCH, et al., 10 Case No. 20-cv-05905-RS Plaintiffs, 11 v. ORDER RE CHOICE OF LAW AND 12 PREJUDGMENT INTEREST CLAIM UMPQUA BANK, 13 Defendant. 14

15 16 The factual and procedural background of this action has been set out in prior orders and 17 will not be recounted here. Defendant now moves for (1) a determination that California law 18 cannot be applied to the claims of at least some of the plaintiff class members who currently reside 19 in other states or in foreign countries, and that therefore partial decertification is warranted, and 20 (2) summary judgment that plaintiffs will not be entitled to prejudgment interest even if they 21 prevail on the merits of their claims.1 Both motions will be denied.

22 23 24 25 26 1 Umpqua also seeks a ruling that plaintiffs are not entitled to damages arising from any pre-2007 27 investments. Plaintiffs have disclaimed any intent to pursue such damages and will be held to that 1 A. Choice of law 2 1. Background 3 In its opposition to plaintiffs’ class certification motion Umpqua asserted plaintiffs 4 shoulder an initial burden to show California law could appropriately be applied to the claims of 5 all class members, and Umpqua argued plaintiffs had made no effort even to address that issue. 6 Indeed, under California’s choice of law rules, which apply in this diversity action, the class action 7 proponent bears the initial burden to show that California has “‘significant contact or significant 8 aggregation of contacts’ to the claims of each class member.” Mazza v. Am. Honda Motor Co., 9 666 F.3d 581, 589 (9th Cir. 2012) (quoting Washington Mutual Bank v. Superior Court, 24 Cal.4th 10 906, 921 (Cal. 2001). This is necessary to ensure application of California law to all the class 11 members’ claims is constitutional. Id. at 589-90. Umpqua was also correct that plaintiffs’ moving 12 papers in support of class certification had not expressly addressed the point. 13 There was, however, little need for plaintiffs to spell it out. Their moving papers plainly 14 described the basic circumstances here—a real estate investment scheme involving properties in 15 Marin County, conducted in and from Marin County, with the alleged aiding and abetting by the 16 Umpqua’s Novato branch and its employees, in Marin County. Unlike Mazza and other consumer 17 cases where the issue is whether California consumer protection laws are properly applied to retail 18 sales nationwide, the connection of California to all of the class members’ claims was self-evident. 19 Moreover, even in Mazza itself, it was uncontested that California had adequate contacts to 20 the claims to satisfy the initial step simply because, “Honda’s corporate headquarters, the 21 advertising agency that produced the allegedly fraudulent misrepresentations, and one fifth of the 22 proposed class members are located in California.” Mazza, 666 F.3d at 590. There can be no real 23 dispute that the facts in this case are sufficient to make application of California law to the entire 24 class constitutional. 25 At the next step of the analysis, the burden shifts to the party opposing class certification 26 “to demonstrate ‘that foreign law, rather than California law, should apply to class claims.’” Id. 27 (citing Washington Mutual, 24 Cal.4th at 921). The order granting class certification concluded 1 Umpqua had not met its burden on that point, but left open the possibility that the issue could be 2 revisited at a later point, and the class narrowed to exclude plaintiffs living in at least some non- 3 California jurisdictions. Umpqua now seeks such an order. 4 5 2. Burden allocation 6 As noted, once the constitutionality of applying California law to all class members is 7 resolved, it becomes defendants’ burden to show doing so is not permissible under choice-of-law 8 rules. Umpqua repeatedly confuses the burdens, citing to specific passages in Mazza and 9 Washington Mutual without recognizing the particular issue those courts were considering in the 10 cited portions of the opinions. 11 In one instance, Umpqua insists the order granting class certification “inverted the choice- 12 of-law burdens.” To support that assertion, Umpqua quotes language in Washington Mutual 13 finding that the lower courts had erred in that instance by placing the burden on the defendant to 14 “demonstrate dispositive conflicts between California law and the law of other states.” As the 15 cited passage makes clear, however, it was only error to put that burden on defendant where the 16 claims were subject to enforceable contractual choice-of-law provisions. 17 Umpqua’s quote correctly included the court’s language “the party challenging 18 certification is not required to make such a showing . . . .” Had Umpqua included the rest of the 19 sentence, which it chose to omit with ellipses, the actual holding would have been apparent. 20 “[T]he the party challenging certification is not required to make such a showing when the claims 21 of putative class members must, by virtue of an advance consent, be resolved under the laws of 22 other states.” 24 Cal.4th at 928. The court further explained, “when an enforceable choice-of-law 23 agreement is involved, the burden rests upon the party seeking nationwide class certification to 24 identify any variations of applicable state law and to meaningfully demonstrate how a trial on the 25 class causes of action can be conducted fairly and efficiently in light of those variations.” Id.2 26

27 2 Here, Umpqua acknowledges that some class members claims are subject to California choice- of-law provisions in the documents they executed in connection with their investments. Umpqua 1 In other words, if it has already been determined that the law of more than one state must 2 be applied, then the plaintiff must show that a class action can nonetheless be maintained. Nothing 3 in the cited passage undermines the clear teaching elsewhere in Washington Mutual and in Mazza 4 that—absent contractual choice of law provisions—defendants have the burden of showing 5 material differences in foreign law preclude application of forum law to the entire class, under the 6 applicable choice-of-law rules. The class certification order did not “invert” the burdens. 7 In another instance, Umpqua follows a citation to Washington Mutual with a parenthetical 8 stating “it is the plaintiff’s burden to prove there are no choice-of-law issues,” which clearly 9 mischaracterizes the holding of the case. In yet another place, Umpqua quotes a statement in 10 Washington Mutual that “the court cannot accept ‘on faith’ an assertion that variations in state 11 laws relevant to the case do not exist or are insignificant; rather, the party seeking certification 12 must affirmatively demonstrate the accuracy of the assertion.” 24 Cal.4th at 924. While Umpqua 13 quotes the language accurately, it has missed the context. The court was discussing the 14 determination of whether a class action applying the law of multiple states is manageable, a 15 question that does not arise unless and until the defendant has met its burden to show the forum 16 law cannot be applied to all class members. 17 In short, plaintiffs have the burden to show it would be constitutional to apply California 18 law to all class members—a burden they have satisfied. Were Umpqua to succeed in showing 19 California law should not be applied to class members residing in one or more particular states or 20 foreign country, the class certification would simply be limited to exclude those jurisdictions. 21 Because plaintiffs have not suggested this matter should proceed with subclasses for differing 22 jurisdictions, the burden would not shift back to them to show that doing so would be feasible. 23 Accordingly, the remaining burdens are now all on Umpqua. 24 25

26 does not seek invalidation of those provisions even with respect to any such class members who 27 reside outside California. 1 3. Analysis 2 The Mazza decision represents the most definitive explication of current Ninth Circuit 3 choice of law rules in the context of class actions. It explains that “California law may only be 4 used on a classwide basis if ‘the interests of other states are not found to outweigh California’s 5 interest in having its law applied.’” Id. at 590 (citing Washington Mutual, 24 Cal.4th at 921. 6 A three-step governmental interest test is applied to determine whether the interests of 7 other states outweigh California’s interest:

8 First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular 9 issue in question is the same or different.

10 Second, if there is a difference, the court examines each jurisdiction’s interest in the application of its own law under the 11 circumstances of the particular case to determine whether a true conflict exists. 12 Third, if the court finds that there is a true conflict, it 13 carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law to 14 determine which state’s interest would be more impaired if its policy 15 were subordinated to the policy of the other state, and then ultimately applies the law of the state whose interest would be more 16 impaired if its law were not applied. 17 Id. 18 Here, plaintiffs effectively concede there are material differences between California law 19 and that of at least some of the other states in which class members reside, and that some of those 20 differences could be outcome dispositive. Plaintiffs focus instead on arguing Umpqua has not 21 shown any such other state (or country) has a legitimate governmental interest in applying its own 22 law that outweighs California’s interest in applying its law under these circumstances. 23 Plaintiffs’ decision not to contest that there may be at least some jurisdictions with material 24 differences in law is appropriate, and this order will likewise assume the existence of such. It must 25 be noted, however, that Umpqua has not met its burden to show the scope of the relief to which it 26 would be entitled even if had shown the competing governmental interests preclude application of 27 California law to all class members’ claims. Umpqua’s motion asserts that of the 1,217 class 1 members, 311 presently live outside of California, spread among 39 different states, the District of 2 Columbia, and eight foreign countries. Umpqua has also provided a lengthy description of various 3 differences in law among the jurisdictions, acknowledging that some of them are substantially 4 similar to California, and that at least one (Arizona) appears to present fewer barriers to recovery 5 than does California. 6 Umpqua’s showing is deficient, however, because it has presented no reason that the 7 present domicile of any class member is relevant to the analysis. See Huynh v. Chase Manhattan 8 Bank, 465 F.3d 992, 1001–02 (9th Cir. 2006) (“California ‘courts have consistently declined to 9 recognize after-acquired residence as a source of governmental interest on the grounds that 10 consideration of this factor would encourage forum shopping.’” (citing McGhee v. Arabian Am. 11 Oil Co., 871 F.2d 1412, 1422 (9th Cir. 1989). 12 Although plaintiffs’ own briefing at the time of class certification acknowledged that some 13 small percentage of class members resided out of state at the time they made their investments, the 14 record is insufficient to determine which particular class members—and jurisdictions—would 15 thereby be implicated and relevant for potentially applying foreign law. It is at least theoretically 16 possible that no class members lived in any of the jurisdictions with material differences in law, at 17 the time they made the investments. 18 Again assuming, however, that there were class members living in one or more 19 jurisdictions with materially different law when the investments were made, or at some other point 20 in time relevant to the analysis, Umpqua has not met its burden to show that the governmental 21 interests of any such jurisdiction would outweigh California’s interests such that California law 22 cannot properly be applied to the entire class. 23 Unlike Mazza and similar cases, this is a matter involving conduct almost exclusively 24 within California.3 The Mazza court recognized “each state’s valid interest in shielding out-of- 25

26 3 Umpqua has not provided any explanation or evidence regarding the circumstances under which 27 PFI obtained investments from a small number of people living outside of California. There is no indication that PFI undertook any deliberate efforts to advertise or otherwise market its services 1 state businesses from what the state may consider to be excessive litigation” and therefore rejected 2 an argument that another state could have no interest in “denying its citizens recovery under 3 California’s potentially more comprehensive consumer protection laws.” 666 F.3d at 592. The 4 point, however, was that “each state has an interest in setting the appropriate level of liability for 5 companies conducting business within its territory.” Id. (emphasis added). Regardless of how PFI 6 may have managed to obtain a few out-of-state investors, there is simply no basis to conclude it 7 was “conducting business” in any state (or foreign country) under circumstances giving that 8 jurisdiction a compelling interest in setting the appropriate level or criteria of liability either for 9 PFI directly or Umpqua derivatively. 10 In contrast, California’s compelling interest in regulating the conduct at issue here (of PFI 11 and of Umpqua) is manifest, even to the extent a few of the class members may have been residing 12 elsewhere when they sent their investments to California, and the wrongs occurred. Umpqua’s 13 motion for partial decertification must be denied. 14 15 B. Prejudgment interest 16 By prior order, Umpqua was relieved from presumptive limit of one summary judgment 17 motion per party to the extent it was permitted to seek a ruling that plaintiffs are precluded from 18 recovering prejudgment interest in this action. Umpqua contends that under the doctrines of 19 collateral estoppel and or judicial estoppel plaintiffs cannot now recover prejudgment interest from 20 Umpqua because they gave up their right to recover prejudgment interest from PFI itself in the 21 bankruptcy proceedings. 22 Umpqua may be correct that its liability, derivative in nature, cannot exceed the liability of 23 PFI itself. See Ponce v. Tractor Supply Co., 29 Cal. App. 3d 500, 505 (1972) (“[A] party 24 secondarily liable is entitled to the benefits of a prior judgment or ruling in favor of the primary 25 tortfeasor.”). It has not shown, however, that the bankruptcy proceedings give rise to either 26

27 out of state. 1 collateral estoppel or judicial estoppel on this issue. 2 For collateral estoppel to apply, three essential conditions must be met: “(1) the issue 3 necessarily decided at the previous proceeding is identical to the one which is sought to be 4 relitigated; (2) the first proceeding ended with a final judgment on the merits; and (3) the party 5 against whom collateral estoppel is asserted was a party or in privity with a party at the first 6 proceeding.” Hydranautics v. FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000). “The doctrine of 7 judicial estoppel precludes a party from taking inconsistent positions in separate judicial 8 proceedings.” Swahn Grp., Inc. v. Segal, 183 Cal. App. 4th 831, 841 (2010). In determining 9 whether judicial estoppel applies, courts look to three factors: (1) “a party’s later position must be 10 ‘clearly inconsistent’ with its earlier position”; (2) “whether the party has succeeded in persuading 11 a court to accept that party’s earlier position, so that judicial acceptance of an inconsistent position 12 in a later proceeding would create ‘the perception that either the first or the second court was 13 misled’”; and (3) “whether the party seeking to assert an inconsistent position would derive an 14 unfair advantage or impose an unfair detriment on the opposing party if not estopped.” New 15 Hampshire v. Maine, 532 U.S. 742, 750-51 (2001). 16 In PFI’s bankruptcy, investors were classed as either “net winners” or “net losers.” Net 17 winners were those who had already, prior to the bankruptcy, recovered the principal amount of 18 their investments and some additional sums. Net losers had not received return of their principal. 19 By definition, the class members in this action were all “net losers.” 20 In the context of a Ponzi scheme, the “netting rule” refers to the concept “that to the extent 21 innocent investors have received payments in excess of the amounts of principal that they 22 originally invested, those payments are avoidable as fraudulent transfers[.]” Donell v. Kowell, 533 23 F.3d 762, 770 (9th Cir. 2008). The policy rationale is that “[t]he ‘winners’ in the Ponzi scheme, 24 even if innocent of any fraud themselves, should not be permitted to ‘enjoy an advantage over 25 later investors sucked into the Ponzi scheme who were not so lucky.’” Id. (citation omitted). 26 Umpqua contends that under the settlement agreement approved by the bankruptcy court, 27 the distributions made to “net winners” in excess of their principle investments were “clawed 1 back” as preferential transfers. The only allowed claims for all investors were “Investor 2 Restitution” claims, which were limited to the “total Outstanding Principal Amount minus the 3 Prepetition Distribution.” Thus, Umpqua contends, “interest was not allowed under the bankruptcy 4 plan, and class members agreed that, as to PFI, they would recover the principal amount on their 5 investment.” 6 Umpqua contends class members deliberately forfeited their right to recover interest from 7 PFI in exchange for the right to share in the increase in the bankruptcy estate that resulted from the 8 “claw back” of the interest previously paid out to the “net winners.” Plaintiffs, however, have 9 shown that the bankruptcy settlement actually called for recovery of interest if and when investors 10 received full return of their principal investments. Although the bankruptcy estate ultimately 11 proved far too small to permit such payouts, it cannot be said that there was a determination in the 12 bankruptcy proceeding, applicable here through collateral estoppel or judicial estoppel, that 13 plaintiffs’ claims against PFI for interest were invalid or barred. 14 Umpqua insists the fact that plaintiffs could have recovered interest in the bankruptcy had 15 the estate been large enough is irrelevant because as a factual matter such claims were never 16 allowed and paid, whereas the “claw back” of what the net winners had received in excess of their 17 principal investments did take place, to the benefit of plaintiffs. Umpqua argues this means the net 18 winners were precluded from recovering interest, and plaintiffs must be as well. The claw back 19 from net winners, however, did not preclude them from seeking interest should the estate prove 20 large enough. 21 Umpqua’s basic argument is the bankruptcy settlement must be seen as denying interest to 22 all investors. It is more appropriate to characterize it merely as requiring that all investors receive 23 return of their principal in full before recovering interest from the bankruptcy estate. While the 24 estate proved too small to pay all principal and interest, plaintiffs are not estopped from pursuing 25 prejudgment interest claims in this action.

26 27 1 IT IS SO ORDERED. 2 3 Dated: June 25, 2024 4 RICHARD SEEBORG 5 Chief United States District Judge 6 7 8 9 10 11 a 12

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