Opinion ID: 2636870
Heading Depth: 2
Heading Rank: 1

Heading: Merits of the Surcharge Cause of Action

Text: The Credit Card Act provides in relevant part: No retailer in any sales ... transaction with a consumer may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash.... A retailer may, however, offer discounts for the purpose of inducing payment by cash ... or other means not involving the use of a credit card, provided that the discount is offered to all prospective buyers. (§ 1748.1, subd. (a), italics added.) As the Court of Appeal observed below, there are no cases interpreting this provision. It is Linder's position, based upon the italicized language, that Thrifty has violated the Credit Card Act by failing to offer its cash discount at all of its gas stations. Conversely, Thrifty argues that each retail station must be viewed separately and that, so long as the cash discount is openly displayed and offered to all prospective buyers at the stations where it is available, it is immaterial that other stations offer no discount at all. Presented with these two opposing viewpoints, the trial court evidently rejected Linder's construction of the statute and denied certification in part on that basis. The Court of Appeal affirmed, finding that section 1748.1 suggests that, as a matter of law, Linder cannot prevail on her surcharge claim. [3] As indicated, certification may not be denied based upon improper criteria. ( Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at p. 470, 174 Cal.Rptr. 515, 629 P.2d 23; Caro v. Procter & Gamble Co., supra, 18 Cal.App.4th at p. 655, 22 Cal.Rptr.2d 419; cf. Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355, 361, 134 Cal.Rptr. 388, 556 P.2d 750.) Here, Linder contends both lower courts erroneously considered and prejudged the legal merits of the surcharge cause of action. She argues that where, as here, a cause of action presents a legal question of first impression, its sufficiency is appropriately addressed only at trial, or through a pleading such as a demurrer, [4] or on a dispositive pretrial motion for judgment on the pleadings, summary judgment or summary adjudication. Code of Civil Procedure section 382 is silent regarding the necessity or propriety of an inquiry into the legal merits of class claims during the certification process. While our opinions have identified various factors that are important to the certification decision, they have not addressed this particular subject directly. The Consumer Legal Remedies Act (§ 1750 et seq.) (CLRA) and rule 23 of the Federal Rules of Civil Procedure, (28 U.S.C.) (Rule 23) also authorize class actions, although neither is applicable here. In the past, however, we have looked to the procedures governing class actions under the CLRA and Rule 23 for guidance on novel certification issues. ( Civil Service Employees Ins. Co. v. Superior Court (1978) 22 Cal.3d 362, 376 & fn. 7, 149 Cal.Rptr. 360, 584 P.2d 497; see Vasquez, supra, 4 Cal.3d at pp. 820-821, 94 Cal. Rptr. 796, 484 P.2d 964.) We shall take another look today. The CLRA, which protects against unfair and deceptive business practices, provides that any consumer who suffers damage as a result of a proscribed practice may bring an action on behalf of himself or herself and other similarly situated consumers to recover damages or obtain other relief authorized by the act. (§§ 1760, 1770, 1780, 1781, subd. (a).) In contrast to Code of Civil Procedure section 382, the CLRA sets forth specific procedures regarding prerequisites to filing suit, permissible motions and notice to class members. (Civ.Code, §§ 1781, 1782.) As relevant to this case, the CLRA provides: The court shall permit the suit to be maintained on behalf of all members of the represented class if all of the following conditions exist: [¶] (1) It is impracticable to bring all members of the class before the court. [¶] (2) The questions of law or fact common to the class are substantially similar and predominate over the questions affecting the individual members, [¶] (3) The claims or defenses of the representative plaintiffs are typical of the claims or defenses of the class, [¶] (4) The representative plaintiffs will fairly and adequately protect the interests of the class. (§ 1781, subd. (b), italics added.) Nowhere does the CLRA purport to require a showing of potential success on the merits of the suit before certification may be ordered. [5] Although trial courts are authorized, upon a properly noticed motion, to determine that [t]he action is without merit or there is no defense thereto (§ 1781, subd. (c)(3)), that procedure appears independent of the procedure for certification (see § 1781, subd. (c)(1); but see Anthony v. General Motors Corp. (1973) 33 Cal.App.3d 699, 707, 109 Cal. Rptr. 254 [indicating to the contrary in an action not subject to the CLRA]). The procedures governing federal class actions under Rule 23 do not permit inquiries into the merits of class claims for relief. As relevant here, Rule 23 provides: As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits. (Rule 23(c)(1).) In Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 ( Eisen) , the United States Supreme Court explained that nothing in either the language or history of Rule 23 ... gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action. ( Eisen, supra, 417 U.S. at p. 177, 94 S.Ct. 2140.) Starting from that premise, the court determined that Rule 23 does not authorize a court to conduct a preliminary hearing on the merits of a suit in order to shift the cost of notice to absent class members from the plaintiff to the defendant. Although Eisen focused on notice costs, the high court expressed its agreement with Miller v. Mackey International, Inc. (5th Cir.1971) 452 F.2d 424 ( Miller) , a case specifically holding that a trial court could not consider the substantive merits of a claim for relief when passing on a motion for a class action. In Miller, the Fifth Circuit United States Court of Appeals emphasized that the propriety of a class action is basically a procedural question and that [a] suit may be a proper class action, conforming to Rule 23, and still be dismissed for failure to state a cause of action. (452 F.2d at p. 427.) The circuit court explained: Rule 23 delineates the scope of inquiry to be exercised by a district judge in passing on a class action motion. Nothing in that Rule indicates the necessity or the propriety of an inquiry into the merits. Indeed, there is absolutely no support in the history of Rule 23 or legal precedent for turning a motion under Rule 23 into a Rule 12 motion to dismiss or a Rule 56 motion for summary judgment by allowing the district judge to evaluate the possible merit of the plaintiffs claims at this stage of the proceedings. Failure to state a cause of action is entirely distinct from failure to state a class action. (452 F.2d at p. 428.) Agreeing with Miller, the United States Supreme Court concluded in Eisen: `In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.' ( Eisen, supra, 417 U.S. at p. 178, 94 S.Ct. 2140, quoting Miller, supra, 452 F.2d at p. 427.) Subsequent federal decisions have interpreted Eisen 's broad language as barring merit-based inquiries in the class certification process. [6] Like the foregoing authorities, we view the question of certification as essentially a procedural one that does not ask whether an action is legally or factually meritorious. Nonetheless, we remain mindful that if the class action is to prove a useful tool to the litigants and the court, trial courts must be accorded the flexibility to adopt innovative procedures, which will be fair to the litigants and expedient in serving the judicial process. ( Vasquez, supra, 4 Cal.3d at p. 821, 94 Cal.Rptr. 796, 484 P.2d 964; see Green v. Obledo (1981) 29 Cal.3d 126, 148, 172 Cal. Rptr. 206, 624 P.2d 256.) Here, Thrifty argues that a court's decision whether to certify a class  and thus put into motion all of the administrative and management effort and expense of certification  should be informed by an evaluation of the merits of the proposed class claims. Thrifty contends that, given the substantial burdens of class litigation, a trial court should have authority to deny certification if it finds that, viewing all evidentiary presumptions and disputed facts in the plaintiffs favor, the plaintiffs substantive theories and claims lack sufficient merit. We agree that the important interests of fairness and efficiency sometimes may be served better when class causes of action are screened for legal sufficiency before the matter of certification is decided. But nothing prevents a court from weeding out legally meritless suits prior to certification via a defendant's demurrer or pretrial motion. In fact, it is settled that courts are authorized to do so. (See Employment Development Dept. v. Superior Court (1981) 30 Cal.3d 256, 263-265, 178 Cal.Rptr. 612, 636 P.2d 575; Civil Service Employees Ins. Co. v. Superior Court, supra, 22 Cal.3d at pp. 373-374, 149 Cal.Rptr. 360, 584 P.2d 497; cf. § 1781, subd. (c)(3).) [7] When the substantive theories and claims of a proposed class suit are alleged to be without legal or factual merit, the interests of fairness and efficiency are furthered when the contention is resolved in the context of a formal pleading (demurrer) or motion (judgment on the pleadings, summary judgment, or summary adjudication) that affords proper notice and employs clear standards. Were we to condone merit-based challenges as part and parcel of the certification process, similar procedural protections would be necessary to ensure that an otherwise certifiable class is not unfairly denied the opportunity to proceed on legitimate claims. Substantial discovery also may be required if plaintiffs are expected to make meaningful presentations on the merits. All of that is likely to render the certification process more protracted and cumbersome, even if, as Thrifty suggests, trial courts were prohibited from resolving factual disputes. [8] Such complications hardly seem necessary when procedures already exist for early merit challenges. Thrifty argues a trial court should have flexibility to consider the likely invalidity of the plaintiffs causes of action because of the substantial economic and administrative burdens that approval of class certification would entail. Thrifty also emphasizes that the denial of certification, unlike the granting of dispositive pretrial motions, does not terminate the substantive right of any party or prospective party to pursue an individual claim. We are not persuaded by Thrifty's suggestion that the traditional criteria and factors for assessing the propriety of certification are inadequate to screen out nonbeneficial class actions. As Miller indicated in the context of Rule 23, the traditional requirements are difficult to meet and represent meaningful obstacles to inappropriate class suits. ( Miller, supra, 452 F.2d at p. 429.) Thrifty's other point also fails to persuade. While the mere denial of certification does not, as a legal matter, terminate the right of any plaintiff to pursue claims on an individual basis, it is likely to have that net effect when there has been injury of insufficient size to warrant individual action. But even assuming the denial of certification does not end an action, Thrifty's proposal virtually assures that courts would be asked to decide repetitious challenges regarding the legal sufficiency of an action, e.g., at the pleading stage through a demurrer, at the certification stage, and yet again with regard to the plaintiffs individual action. Judicial economy and efficiency would not be served under such an approach. Thrifty next relies upon Matter of Rhone-Poulenc Rorer Inc. (7th Cir.1995) 51 F.3d 1293 ( Rhone-Poulenc), certiorari denied (1995) 516 U.S. 867, 116 S.Ct. 184, 133 L.Ed.2d 122, and Castano v. American Tobacco Co. (5th Cir.1996) 84 F.3d 734 ( Castano ) to argue that certification of untested legal claims creates insurmountable pressure on the defendants to settle, even when the probability of an adverse judgment on the merits is low. For that reason, Thrifty contends, the novelty of a claim for relief should weigh heavily against certification and the trial court's order denying certification of the surcharge cause of action should be upheld. Rhone-Poulenc and Castano involved claims for relief that were very different from those presented here. In those cases, putative class members sought substantial damages for personal injuries allegedly resulting from the defendants' commission of massive, nationwide torts. ( Rhone-Poulenc, supra, 51 F.3d 1293 [negligence pertaining to hemophiliacs infected by the AIDS virus]; Castano, supra, 84 F.3d 734 [tobacco companies sued for fraud, negligent misrepresentation, infliction of emotional distress, breach of warranty, strict products liability].) In the portions of the decisions cited by Thrifty, the appellate courts were troubled that the aggregation of individual claims threatened ruinous liability for the defendants on the potential vagaries of one jury. ( Rhone-Poulenc, supra, 51 F.3d at p. 1298 [$25 billion or more in potential liability]; Castano, supra, 84 F.3d at p. 746[[t]he risk of facing an all-or-nothing verdict presents too high a risk, even when the probability of an adverse judgment is low].) And because the actions required application of the laws of all 50 states, the courts also were concerned that state law variances might swamp any common issues. ( Castano, supra, 84 F.3d at pp. 741-744; see Rhone-Poulenc, supra, 51 F.3d at pp. 1300-1302.) In stark contrast, while Linder's surcharge claim may be novel, it turns on the interpretation of a single California statute and does not involve potentially ruinous liability. Indeed, the argument here is that any class recovery would be minimal. In short, the concerns aired in Rhone-Poulenc and Castano are not implicated here. Finally, Thrifty argues we should follow the lead of several Courts of Appeal that found certification inappropriate after assessing the merits of the class claims. ( American Suzuki Motor Corp. v. Superior Court (1995) 37 Cal.App.4th 1291, 44 Cal.Rptr.2d 526 [plaintiffs could not maintain class action for breach of implied warranty of merchantability where no personal injury or property damage was alleged and evidence showed that the vast majority of the products remained fit for their ordinary purpose.]; Kaye v. Mount La Jolla Homeowners Assn. (1988) 204 Cal. App.3d 1476, 252 Cal.Rptr. 67 [plaintiffs could not possibly prevail against a proposed defendant class on their theory of vicarious liability]; Collins v. Safeway Stores, Inc. (1986) 187 Cal.App.3d 62, 231 Cal.Rptr. 638 [class members unable to prove loss or harm resulting from purchase of the defendant's eggs].) For the reasons previously expressed, we are not convinced that certification should be conditioned upon a showing that class claims for relief are likely to prevail. Thrifty does not argue that demurrers or early dispositive motions in those cases could not effectively have accomplished the same results. Nonetheless, in keeping with the principle that trial courts should be afforded flexibility in dealing with class actions ( Vasquez, supra, 4 Cal.3d at p. 821, 94 Cal.Rptr. 796, 484 P.2d 964; see Green v. Obledo, supra, 29 Cal.3d at p. 148, 172 Cal.Rptr. 206, 624 P.2d 256), we do not foreclose the possibility that, in the exceptional case where the defense has no other reasonable pretrial means to challenge the merits of a claim to be asserted by a proposed class, the trial court may, after giving the parties notice and an opportunity to brief the merits question, refuse class certification because the claim lacks merit as a matter of law. Furthermore, we see nothing to prevent a court from considering the legal sufficiency of claims when ruling on certification where both sides jointly request such action. Nothing we say today is intended to preclude a court from scrutinizing a proposed class cause of action to determine whether, assuming its merit, it is suitable for resolution on a classwide basis. Indeed, issues affecting the merits of a case may be enmeshed with class action requirements, such as whether substantially similar questions are common to the class and predominate over individual questions or whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses. (See Caro v. Procter & Gamble Co., supra, 18 Cal. App.4th at p. 656, 22 Cal.Rptr.2d 419; see also Coopers & Lybrand v. Livesay (1978) 437 U.S. 463, 469, fn. 12, 98 S.Ct. 2454, 57 L.Ed.2d 351.) Moreover, although we recognize that defendants may mount precertification challenges on the merits, we do not suggest they necessarily are entitled to a merit determination before a ruling on certification. As before, trial courts retain broad discretion to conduct the proceedings in an orderly and just manner. In closing, we observe our holding is consistent with the weight of authority in other jurisdictions. Not only does federal law generally bar preliminary merit assessments for certification purposes, but a significant number of our sister states impose similar restrictions. (E.g., Black Hawk Oil Co. v. Exxon Corp. (Okla.1998) 969 P.2d 337, 343; Tilley v. Pacesetter Corp. (1998) 333 S.C. 33, 508 S.E.2d 16, 21; Direct Ins. Company v. Lane (1997) 328 Ark. 476, 944 S.W.2d 528, 531-532; Vignaroli v. Blue Cross of Iowa (Iowa 1985) 360 N.W.2d 741, 745; Ojalvo v. Bd. of Trustees of Ohio State (1984) 12 Ohio St.3d 230, 466 N.E.2d 875, 877-878; Wash. Ed. Ass'n v. Shelton School Dist. No. 309 (1980) 93 Wash.2d 783, 613 P.2d 769, 773; Texas Commerce Bank Nat. Ass'n v. Wood (Tex. CT.App.1999) 994 S.W.2d 796, 802.) Several other states have court rules that allow separate merit determinations prior to certification, but not the sort of preliminary merit screening advocated by Thrifty. (E.g., Mich. Court Rules, rule 3.501(D)(3) [decision on a motion for judgment or partial judgment may precede decision on certification]; Or. Rules Civ. Proc., rule 32, subsec. C(2) (1994) [class certification decisions may be postponed until after determination of the validity or applicability of a challenged statute, law, administrative interpretation or regulation].)