California Trial Court Properly Applied Collateral Estoppel Principles in Ruling on Demurrer to Class Action Allegations Because Denial of Class Certification in Separate Lawsuit Binds Absent Putative Members of Class
Plaintiffs’ lawyer filed three class action complaints against May Department Stores in various California superior courts that alleged, in part, class action claims for failure to pay overtime to area sales managers: the 1997 Gorman case filed in Los Angeles; the 1999 Duran case filed in San Bernardino; and the 2003 Alvarez case filed in Los Angeles. Alvarez v. May Dept. Stores Co., ___ Cal.App.4th ___, 49 Cal.Rptr.3d 892, 2006 WL 2874907 (Cal.App. October 11, 2006) [Slip Opn., at 3-4.]. In the Alvarez lawsuit, defense attorneys demurred to the class action allegations on the ground of collateral estoppel; the trial court agreed that the doctrine applied and sustained the demurrer to the class action claims without leave to amend. Plaintiffs argued on appeal “that the doctrine of collateral estoppel is inapplicable to an order denying class certification in another lawsuit brought by other plaintiffs because absent putative class members are not bound prior to the certification of a class”; the appellate court rejected this argument and affirmed. Id., at 2.
The appellate court briefly summarized the history of the Gorman and Duran litigation, explaining that the trial court denied class action status in Gorman because “plaintiffs had failed to demonstrate a community of interest or an ascertainable class and that the proposed class representatives were unsuitable because they had unsatisfactory employment histories,” Alvarez, at 3, and that trial court order denying class action status in Duran was affirmed on appeal because the interests of the class members were dissimilar and “[c]ommon questions of fact could not predominate,” id., at 4. In Alvarez, defendant demurred “on the grounds that an order denying class certification of the same class was issued in Duran and thus [plaintiffs] were barred from relitigating the issue under the doctrine of collateral estoppel.” Id.
Preliminarily, the Court of Appeal quickly disposed of the claim that class certification issues may not be resolved by demurrer, holding that “[t]rial courts properly and routinely decide the issue of class certification on demurrer.” Alvarez, at 5-6 (italics added).
The appellate court then explained that collateral estoppel “prevents relitigation of issues previously argued and resolved in a prior proceeding,” Alvarez, at 8, and summarized California law governing this doctrine as follows:
In order to apply this principle: (1) the issue must be identical to that decided in the prior proceeding; (2) the issue must have been actually litigated in the prior proceeding; (3) the issue must have been necessarily decided in the prior proceeding; (4) the decision must have been final and on the merits; and (5) preclusion must be sought against a person who was a party or in privity with a party to the prior proceeding.
The issue, then, turned on the nature of the “right at issue” – and the Court of Appeal defined that “right” as the right to proceed as a class action plaintiff. Alvarez, at 8. The Court agreed with defense attorneys that, under California law, the right to prosecute a class action or to serve as a class represented is not a protected property right. Id., at 9. The Court explained, “We conclude that there is a distinction between using a prior ruling to bar a litigant from receiving a hearing on the merits and applying a prior decision to prevent a litigant from proceeding as a class representative.” Id., at 9-10. Moreover, at least one federal decision squarely held that an earlier ruling precluding class certification was binding on subsequent actions. Id., at 11 (citing In re Bridgestone/Firestone, Inc., Tires Products, 333 F.3d 763 (7th Cir. 2003). In that case, the Seventh Circuit held that “Absent class members are bound provided that the named representatives and their lawyers furnished adequate representation, which they did.” Id. (quoting Bridgestone/Firestone, at 769).
The California appellate court held that collateral estoppel properly applied in this case because the only difference between the Duran and Alvarez lawsuits was “the name of the representative plaintiff.” Alvarez, at 13. The Court summarized its reasoning at page 12 as follows:
The Duran complaint and the [Alvarez complaint] allege respondent engaged in the same general misconduct concerning the same policies and procedures. Both complaints allege the misconduct took place during approximately the same time period. The parties sought certification of the same class of employees. In fact, in the trial court, appellants conceded that the class in the Duran action included, by definition, appellants. The Duran plaintiffs and appellants sought class certification using the same attorneys and there is no allegation that the representation provided to the plaintiffs in Duran was inadequate. Although the causes of action are not identical, the principle of collateral estoppel does not depend on the legal theory used but the primary right asserted. . . . The primary right asserted in each case was the right to litigate claims in a class action lawsuit.
Finally, the Court of Appeal noted that plaintiffs’ lawyer had filed yet another putative class action, this time in California Superior Court for Orange County, “seeking to certify the same class.” Alvarez, at 16 n.3. Further, “When appellants’ counsel was asked in oral argument when the string of unsuccessful lawsuits would end, his answer in essence was – when the pursuit is no longer economically feasible.” Id., at 16. The Court disagreed:
Put simply, if appellants are correct, every motion denying class certification could be relitigated until the desired result was reached. The losing class plaintiff could merely insert the name of a different individual to be the potential class representative.