Clothesrigger, Inc. v. GTE Corp.

191 Cal. App. 3d 605, 236 Cal. Rptr. 605, 1987 Cal. App. LEXIS 1631

• Court: California Court of Appeal
• Decided: April 28, 1987
• Docket: D004758
• Status: Published

Opinions

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] OPINION

Plaintiff Clothesrigger, Inc. appeals an order denying its motion to modify the class definition to certify a nationwide plaintiff class and deeming moot its motion to amend its complaint. We find the superior court did not proceed as required by law in denying Clothesrigger's motion to modify the class. We reverse and remand to the superior court with directions to decide Clothesrigger's motions according to applicable law and proper criteria.

I In January 1984 Clothesrigger filed a class action complaint for compensatory damages, punitive damages and injunction against defendants GTE Corporation, GTE Sprint Communications Corporation, Southern Pacific Company and Southern Pacific Communications Co. Clothesrigger's complaint alleges causes of action for fraud, negligent misrepresentation and unfair business practices, asserting defendants charge subscribers to their Sprint long distance telephone system for certain unanswered long distance calls without disclosure. The complaint also alleges Clothesrigger seeks to represent a class numbering in the thousands ". . . composed of all residents of California who subscribed to the long distance telephone service provided by defendants known as Sprint since January 1, 1981, and were charged for one or more long distance calls which were not answered."

In March 1985 after considering the parties' declarations and counsel's argument, the superior court granted Clothesrigger's motion to certify the case to ". . . be maintained as a class action on behalf of all residents of California who subscribed to the long distance service known as Sprint since January 1, 1981 and who were charged for one or more long distance calls using the Sprint service, which were not answered."

In December 1985 Clothesrigger moved to modify the definition of the certified class to include all Sprint subscribers nationwide since January 1981 who were charged for an unanswered call. Later Clothesrigger filed a motion to amend its complaint to allege Clothesrigger sought to represent such nationwide class "composed of over a million persons."

In May 1986, after hearing, the superior court denied Clothesrigger's motions. The court stated: "When you consider the totality of the circumstances of this case, I just do not consider a national class to be suitable in this type of case. I mean, you have got your class action for the citizens of California. . . .

"[T]here was a recent case out of the 2nd district [Riley v.Fitzgerald (1986) 178 Cal.App.3d 871 (223 Cal.Rptr. 889)] where they had that business of the Texas people, and the 2nd district said, `Well, look. We are not going to take care of these people in Texas.' I guess what I am telling you is that I have got enough problems in California without worrying about all the citizens of Florida, Kansas and Dokerville, South Dakota, and everything.

"I just have considered the totality of the circumstances of this case, and I do not consider a national class action to be suitable in this case. I have denied it on the merits. . . .

"[T]he amendment becomes moot because I faced the issue on the merits, . . .

". . . . . . . . . . . . . . . . . . . .

"It just seems to me, when I look at the total picture as they did in the case out of Kansas [Phillips Petroleum Co. v.Shutts (1985) 472 U.S. 797 (86 L.Ed.2d 628, 105 S.Ct. 2965)], it just does not make sense to try to bring in the other 49 states into this action."

Referring to Riley v. Fitzgerald, supra, 178 Cal.App.3d 871, the court also said ". . . it seems to me California has no interest in providing residents of other states greater protection than their home states provide. I mean, why should California take it upon itself to be the savior of the other 49 states of the union? . . ."

The court entered an order denying Clothesrigger's motion for modification of class definition and deeming moot Clothesrigger's motion for leave to amend its complaint. Clothesrigger appeals.

II As in every appellate matter, the threshold issue here is the proper standard of review. The hierarchical process and respective roles of the trial and appellate courts involve more than ceremony. (1) Generally appropriate appellate deference to the trial court will be accomplished by affirming a correct trial court order even though the trial court may have given the wrong reason for its actions. (Davey v. Southern Pacific Co. (1897)116 Cal. 325, 329 [48 P. 117].) Defendants contend that rule must be applied here since ". . . the role of this Court is not to review the record to determine whether it would have decided the issue differently but, rather, simply to ascertain whether the Superior Court had any rational basis for what it did," citingDeYoung v. Del Mar Thoroughbred Club (1984) 159 Cal.App.3d 858, 863 [206 Cal.Rptr. 28], as exemplifying the rule. Defendants are in error. Their reliance on DeYoung is also erroneous.DeYoung merely repeats the frequently quoted substantial evidence rule of Crawford v. Southern Pacific Co. (1935)3 Cal.2d 427, 429 [45 P.2d 183]. That rule has nothing to do with the standard of review in this case.

"There are several situations in which the reasons for the trial court's decision are either required by statute or, though not required, may have a significant effect on the determination of the appeal." (9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 262, p. 269.) These nonstatutory situations involve issues where the appellate focus is on the means used by the trial court. The right result is an inadequate substitute for an incorrect process. Thus the appellate scrutiny should be on the reasons expressed by the trial court in the context of counsel's arguments, not merely whether the trial court reached a result which can be justified by implication.

Code of Civil Procedure section 382 authorizes a class action suit ". . . 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 party seeking certification as a class representative must establish the existence of an ascertainable class and a well-defined community of interest among the class members. [Citation.] The community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. (See Civ. Code, § 1781, subds. (b)(2)-(4).)" (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470 [174 Cal.Rptr. 515, 629 P.2d 23].)

(2) "Reviewing courts consistently look to the allegations of the complaint and the declarations of attorneys representing the plaintiff class to determine if the class is ascertainable and has a well-defined community of interest. [Citations.]" (Lazar v. Hertz Corp. (1983) 143 Cal.App.3d 128, 134 [191 Cal.Rptr. 849] .) Although the trial court has great discretion with regard to class certification, its ruling may be reversed where, as here, the court made erroneous legal assumptions or used improper criteria. (Id. at pp. 133-134, citing Richmond v. DartIndustries, Inc., supra, 29 Cal.3d at p. 470.) In denying Clothesrigger's motion to modify the certified class definition, the superior court did not engage in the analysis required underPhillips Petroleum Co. v. Shutts, supra, 472 U.S. 797, California law regarding class actions and California choice of law rules. Our focus on correct process requires us to reverse even though there may be substantial evidence to support the court's order.

III (3) A state may constitutionally exercise jurisdiction over the claims of nonresident plaintiffs in a nationwide class action case where the named plaintiff adequately represents the absent class members' interests and the members of the plaintiff class are given adequate notice, the opportunity to be heard and the opportunity to remove themselves from the class. (PhillipsPetroleum Co. v. Shutts, supra, 472 U.S. at pp. 811-812 [86 L.Ed.2d at pp. 641-642].) To apply its law constitutionally to the claims of nonresident class members, the forum state must have a "`significant contact or aggregation of contacts' to the claims asserted by each member of the plaintiff class, contacts `creating state interests', in order to ensure that the choice of [forum] law is not arbitrary or unfair." (Id. at pp. 821-822 [86 L.Ed.2d at p. 648].)

(4a) Defendants contend applying California law to the claims of nonresident plaintiffs would be unconstitutional underPhillips. Clothesrigger contends applying California law would be constitutional because California has a constitutionally sufficient aggregation of contacts with the claims of nonresident plaintiffs consisting of the facts defendants do business in California, defendant Southern Pacific Corporation's principal offices are in California, a significant number of Sprint subscribers are California residents, and defendant GTE Sprint Communications Corporation's employees and agents who prepare advertising and promotional literature for the Sprint service are located in California and thus the alleged fraudulent misrepresentations forming the basis of the claim of every Sprint subscriber nationwide emanated from California.

(5) In denying Clothesrigger's motion, the superior court did not expressly find application of California law to the claims of nonresident plaintiffs would be unconstitutional. Nothing in the court's findings suggests the court considered whether California has significant contacts with Sprint subscribers nationwide or otherwise purported to engage in a constitutional analysis underPhillips. Indeed, referring to Phillips, the court simply said it did ". . . not make sense to try to bring in the other 49 states into this action."

(4b) If we interpret the court's ruling as containing an implied finding applying California law to the claims of nonresident plaintiffs would be unconstitutional, such implied finding would not be supported by this record. The facts asserted by Clothesrigger at this stage of the proceeding, if true, would appear to constitute a sufficient aggregation of contacts underPhillips to permit applying California law to the claims of nonresident plaintiffs.

IV (6a) In denying Clothesrigger's motion to modify the certified class definition, the superior court stated it considered a nationwide class to be unsuitable under the "totalty [sic] of the circumstances of this case." The only such circumstance specified by the court was the fact plaintiffs from the other 49 states might be involved in the lawsuit if a nationwide class were certified. The court said it had enough problems without worrying about nonresident plaintiffs and California had no interest in becoming the "savior" of the other 49 states. Although the court did not expressly find common questions of law would not predominate or a nationwide class action would be unmanageable, it appears the court considered Clothesrigger's motion fatally defective because including plaintiffs from the other 49 states would necessitate applying other states' laws and result in an unmanageable lawsuit. However, in making its ruling, the court did not engage in the analysis required under California choice of law rules.

(7) "Analysis of a choice of law question proceeds in three steps: (1) determination of whether the potentially concerned states have different laws, (2) consideration of whether each of the states has an interest in having its law applied to the case, and (3) if the laws are different and each has an interest in having its law applied (a `true' conflict), selection of which state's law to apply by determining which state's interests would be more impaired if its policy were subordinated to the policy of the other state. [Citations.]" (North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902, 905 [225 Cal.Rptr. 877], citing Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 320 [128 Cal.Rptr. 215, 546 P.2d 719] and Hurtado v. SuperiorCourt (1974) 11 Cal.3d 574, 580-581 [114 Cal.Rptr. 106,522 P.2d 666].)

Clothesrigger had the burden to prove common issues of law would predominate. Clothesrigger attempted to meet such burden by showing California law would likely apply to the claims of nonresident plaintiffs. Clothesrigger contended application of California law to such claims was constitutional under Phillips and compelled by California choice of law rules. Clothesrigger asserted California's interest in deterring fraudulent conduct by businesses headquartered within its borders and protecting consumers from fraudulent misrepresentations emanating from California would override any possible interest of any other state in application of its own laws to its residents' claims.

(8) "[G]enerally speaking the forum will apply its own rule of decision unless a party litigant timely invokes the law of a foreign state. In such event he must demonstrate that the latter rule of decision will further the interest of the foreign state and therefore that it is an appropriate one for the forum to apply to the case before it. [Citations.]" (Hurtado v.Superior Court, supra, 11 Cal.3d at p. 581.) Opposing Clothesrigger's motion, defendants contended other states' fraud laws differed from California's as to standard of proof, measure of damages, availability of punitive damages and statute of limitations. Defendants asserted California's interests were subordinate to other states' interests in uniform predictable application of their laws and in controlling competition and practices of common carriers doing business within their borders.

(6b) In denying Clothesrigger's motion, the court did not make an express finding California law was not likely to apply to the claims of nonresident plaintiffs. Instead, the court referred to its desire to avoid involving the other 49 states and avoid having California assume the role of protector of the rights of nonresident plaintiffs. Although the precise rationale for the court's decision is unclear, the court's comments show its ruling was not in accord with applicable California choice of law rules.

If the superior court's comments are interpreted to mean the court chose not to engage in any choice of law analysis, then the court failed to exercise its discretion properly in determining whether common issues of law predominated. The court's comments may also be interpreted to mean the court felt California law should not apply to claims of nonresident plaintiffs even if California choice of law rules mandated such application. Although the court may properly state its disagreement with such well-established choice of law rules, it may not decline to follow them.

If we assume the court in fact attempted to apply California choice of law rules, we may interpret the court's comments as reflecting a finding California law would not apply to any nonresident plaintiffs and thus a nationwide class action would be unmanageable. However, such findings would not be supported by the reasoned choice of law analysis required under California law. Further, the court's comments express a misapprehension of applicable law and mistaken reliance on Riley v. Fitzgerald,supra, 178 Cal.App.3d 871. Thus, denial of Clothesrigger's motion was based upon improper criteria and erroneous legal assumptions.

Clothesrigger asserted the fraudulent misrepresentations and unfair business practices forming the basis of the claim of each member of the proposed nationwide class emanated from California. Clothesrigger identified California's fraud deterrence and consumer protection interests in applying its law to the claims of nonresident plaintiffs. Under certain facts California may have an important interest in applying its law to punish and deter the alleged wrongful conduct. (Hurtado v. SuperiorCourt, supra, 11 Cal.3d at p. 583.) Conversely, that interest may be minimal and outweighed by other states' interests. However, in denying Clothesrigger's motion, the court did not identify any proper reason California law would not likely apply to nonresident plaintiffs.

The superior court did not determine whether a true conflict existed between California's interests and those of any other state and, if so, which state's law should apply under the "comparative impairment" approach. (Bernhard v. Harrah's Club,supra, 16 Cal.3d at p. 320.) Indeed, although defendants asserted other states' laws differed from California's, the court did not analyze the possible interests of California and other states. The court did not identify any interest any other state might have in application of its own law to plaintiffs residing there. Neither did the court find any other state had any interest overriding California's interests. Instead, the court apparently assumed California law was not likely to apply and other states' laws would apply merely because a nationwide class would include residents of other states. (9) Further, the court simply erred in stating California has no interest in providing nonresident plaintiffs greater protection than their home states provide. California's more favorable laws may properly apply to benefit nonresident plaintiffs when their home states have no identifiable interest in denying such persons full recovery. (Hurtado v. SuperiorCourt, supra, 11 Cal.3d at pp. 580-581, 586-587.)

To the extent the court's reference to Riley v. Fitzgerald,supra, 178 Cal.App.3d 871, may constitute an implied finding other states have interests overriding California's, the court's reliance on Riley is misplaced. Riley is distinguishable. The appellate court in Riley upheld the application of Texas law to claims against California defendants for wrongful acts committed in California. The appellate court engaged in a reasoned "comparative impairment" choice of law analysis not undertaken here: "Arguable California interests are prevention of fraud by California residents and corporations against foreign residents and corporations or vindication of foreign claims. Texas has an interest in controlling actions, rights and liabilities of its domestic corporations and in the uniform regulation of affairs of business corporations created under the authority of Texas statutes. . . . We do not believe that California has greater interest in providing Texas residents — former shareholders in a dissolved Texas corporation — greater protection than Texas would afford them. . . ." (Id. at p. 877.) Riley involved the unique issue not present here of the survival of a cause of action by the assignees of a dissolved out-of-state corporation's assets for damages to the corporation. Moreover, the comparative impairment analysis was not necessary to the decision in Riley because, as the appellate court noted, the parties stipulated in the trial court to application of Texas law and under California corporate law the effect of a corporate dissolution depends on the law of the corporation's domicile.

V (10a), (11a) Defendants contend the court could habve properly found the proposed nationwide class was not ascertainable and the matter did not involve predominant common factual issues. Nothing in the court's findings suggests the court based its ruling upon these grounds. Further, were we to conclude the court made implied findings on these issues favoring defendants, such implied findings would not be supported by this record. The fact defendants' customer lists and monthly billing statements may not disclose which Sprint subscribers were charged for unanswered calls does not make the proposed nationwide class unascertainable or implicate predominant individual factual issues.

(10b) The proposed class is defined as all persons nationwide subscribing to Sprint since January 1, 1981, who were charged for one or more unanswered long distance calls. Plainly such class is ascertainable. Individual subscribers know whether they were charged for unanswered calls and must prove they were so charged. No individual may recover separate damages until he comes forward, identifies himself as a class member and proves the amount of his damages. The necessity for class members to prove their own damages does not mean the class is not ascertainable. In Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 706 [63 Cal.Rptr. 724, 433 P.2d 732], the California Supreme Court stated: "Defendant apparently fails to distinguish between the necessity of establishing the existence of an ascertainable class and the necessity of identifying the individual members of such class as a prerequisite to a class suit. If the existence of an ascertainable class has been shown, there is no need to identify its individual members in order to bind all members by the judgment. The fact that the class members are unidentifiable at this point will not preclude a complete determination of the issues affecting the class. Presumably an accounting in the suit at bench will determine the total amount of the alleged overcharges; any judgment will be binding on all the users of taxicabs within the prior four years. However, no one may recover his separate damages until he comes forward, identifies himself and proves the amount thereof."

(11b) Further, the necessity for class members to prove their own damages does not mean individual fact questions predominate. In Lazar v. Hertz Corp., supra, 143 Cal.App.3d at page 140, reversing a trial court finding individual issues predominated, we stated: "The record readily lends itself to inferences, speculations and observations as to potential problems in discovery, trial, individual damages of class members, difficulties in computation of individual overcharges, complexities of the refueling charge procedures, variances in prevailing gasoline prices as to times and places and reliance by individual members on the alleged Hertz' representations. Such problems so speculated upon are not fatal to class certification. [Citation.] . . ."

VI (12) Defendants contend the superior court properly found a nationwide class action would be unmanageable. Although the court did not make an express finding of unmanageability, the court's comments suggest an implied finding a nationwide class action would be unmanageable because plaintiffs from the other 49 states would be involved. However, such implied finding would be based on the unanalyzed and erroneous assumption other states' laws would necessarily apply merely because the nationwide class would include plaintiffs from other states. Further, the mere size of the proposed class numbering over a million persons does not make a nationwide class action unmanageable. In Lazar v. Hertz Corp., supra, 143 Cal.App.3d 128, this court approved a class action where potential class members numbered 5 million.

VII Defendants contend denial of Clothesrigger's motion to modify the certified class definition was proper because the matters at issue here are also the subject of pending administrative proceedings and lawsuits in federal courts and other states' courts.

Under Federal Rules of Civil Procedure, rule 23(b)(3) (28 U.S.C.), the court may certify a class action if it finds ". . . a class action is superior to other available methods for the fair and efficient adjudication of the controversy. . . ." A matter pertinent to such finding is ". . . the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; . . ." (Rule 23(b)(3)(B).) Although California courts have referred to the federal rules in considering class action criteria (Lazar v. Hertz Corp.,supra, 143 Cal.App.3d at p. 143), we are aware of no California case where the pendency of another action was used as ground to deny certification.

In denying Clothesrigger's motion, the superior court did not base its ruling on the ground other actions were pending nor did it find a nationwide class action would not be superior to such other potential remedies. Further, we decline to infer such an implied finding on this record. Should the parties wish to pursue this issue, upon remand they may brief the appropriateness of applying rule 23(b) in this case. If the trial court finds rule 23(b) may properly apply, the court should identify how the pendency of other lawsuits or administrative proceedings will interfere with a nationwide class action in this case or make other appropriate findings.

VIII After denying Clothesrigger's motion to modify the certified class definition, the superior court deemed moot Clothesrigger's motion to amend its complaint. (13) A favorable ruling on a motion to amend should logically precede consideration of a motion to certify a class first described in the proposed amendment.

Upon remand the superior court should first decide Clothesrigger's motion to amend the complaint, keeping in mind the policy of liberality in permitting amendments. If the court grants Clothesrigger leave to amend its complaint, the court should then decide Clothesrigger's motion to modify in accord with this opinion.

(14) In deciding the motion to modify, the court should determine whether California law may constitutionally apply to the claims of proposed nationwide class members not residents of California. If the court determines application of California law would be constitutional, the court should determine whether California law will likely apply under California choice of law rules. If the court determines California law will likely apply, the court should certify the nationwide class if it finds all other requirements for certification are satisfied.

If the court determines California law may not apply to claims of all nationwide class members, the court should exercise its discretion in deciding whether to certify the nationwide class. In exercising its discretion, the court should consider the degree of complexity arising from the need to apply other states' laws. The court may decline to certify the nationwide class if it determines such complexity results in common legal questions not predominating or makes nationwide class litigation unmanageable. The court may certify the nationwide class despite such complexity if it determines the legal questions are sufficiently similar to be manageable and all other requirements for certification are satisfied.

IX (15) With respect to future proceedings, we refer to our comments in Lazar v. Hertz Corp., supra, 143 Cal.App.3d at page 144: "The trial court retains jurisdiction throughout the proceedings concerning class certification. `Our decisions clearly contemplate the possibility of successive motions concerning certification. In Vasquez, we recognized that the courts should retain flexibility in the trial of a class action, for "even after an initial determination of the propriety of such an action the trial court may discover subsequently that it is not appropriate." Vasquez authorized the courts to utilize the procedures in rule 23 of the Federal Rules of Civil Procedure, and observed that a certification order issued under rule 23 "may be conditional and may be altered or amended before a decision on the merits." (Vasquez v. Supreme [sic] Court, supra,4 Cal.3d 800, 821.)' (Occidental Land, Inc. v. Superior Court,supra, 18 Cal.3d at p. 360.)"

DISPOSITION The order denying modification of class definition and deeming moot the motion to amend the complaint is reversed. The matter is remanded to the superior court for further proceedings in accord with this opinion. Appellant to have costs on appeal.

Wiener, J., concurred.