Wage Law

In July, we discussed a landlord-tenant case with a very novel class certification twist (Justices: Are You Serious?). In Ortiz v. Lyon Management Group, Inc., the defendant won a summary judgment motion, before hearing any class certification motion was heard. Hoping to apply res judicata to any similar future claims by any putative class members, the defendant moved for certification, seeking to force the vanquished plaintiff to serve as an unwilling class representative on a doomed claim, and to serve a notice to class members informing them that: (i) there was a class action pending; (ii) they already lost; and (iii) they were not going to be permitted to opt out of it. The tenant appealed the summary judgment, and the landlord appealed the post-MSJ denial of the defense's motion for class certification. How novel was the theory?

"Despite 50-plus pages of exhaustively researched briefing covering 30 years of federal and California class action jurisprudence, defendant cannot cite a single case in which a defendant obtained class certification after first obtaining summary judgment against the named plaintiff’s individual claim."

As most observers expected, the post-MSJ class certification denial was upheld.

We hold defendant could not obtain class certification after the court decided the merits of plaintiff’s individual claim. As a general procedural rule, class certification should be determined before the merits are adjudicated. And as a general substantive rule, a precertification decision on the merits against a named plaintiff does not bind absent class members. The court did not abuse its discretion by holding defendant to these general rules.

It's a curious opinion, which begins its discussion with a comparison of certain California statutes with monotremes (e.g., the duck-billed platypus or the spiny anteater), and pivots, seven and a half pages into its analysis, with a transitional paragraph the reads, simply: "Enter the platypus." The part of the opinion that matters to wage and hour lawyers who defend or prosecute class actions begins on page 15 of the slip opinion.

"May a defendant obtain certification of a plaintiff’s class after it has obtained a favorable ruling on the merits of the named plaintiff’s individual claim? The parties cite no case in which a defendant has even tried this tactic. Lacking direct guidance, we turn to the general rule governing the timing of class certification and apply it to this unprecedented context."

Defendant's tactic conflicted with the general “Home Savings” rule requiring courts to determine class certification before adjudicating the merits, for both procedural and substantive reasons.

First, the procedure allows so-called ‘one-way intervention,’ a procedure under which potential members of the class can reserve their decision to become part of the class until the validity of the cause asserted by the named plaintiffs on behalf of the class has been determined. The California Supreme Court adopted the Home Savings rule in Green v. Obledo (1981) 29 Cal.3d 126, expanding it to protect plaintiffs against postmerits class decertification. It noted, “Although this rule has thus far been applied only for the benefit of defendants, no reason appears why plaintiffs should not also enjoy its benefits . . . .” Thus, it required class certification be decided before the merits “whether the motion to certify or decertify be made by the plaintiff or the defendant.” It left only a narrow exception to postmerits decertification where a party could show “changed circumstances making continued class action treatment improper.” Here, like in Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, "[t]he record suggests no practical reason why defendant could not have moved for class certification sooner, other than to maximize its strategic advantage."

Lyon argued that this rule shouldn't apply because this case presented issues that could make this a “mandatory” class action posing no risk of one-way intervention because absent class members cannot opt out of a "mandatory" class action. Without determining whether the case was a "mandatory" class action, the court affirmed the denial.

[E]ven if the Home Savings rule does not necessarily apply here as a matter of law, the court still could choose to apply it to maximize efficiency without abusing its broad discretion to structure this case. Either way, we affirm.

Substantively, the denial was appropriate because “failure to require notification of the class before a decision on the merits prevents a binding adjudication against the class because members of the class who were not notified are not barred by the determination in the defendant’s favor since they were not parties.” As the court noted, this consistent judicial warning to defendants seeking precertification summary judgment must mean something. After all, it would be meaningless to warn defendants that winning summary judgment before class certification will not bind class members, if defendants could simply move for class certification after obtaining summary judgment.

They can't.

You can download the full opinion in Ortiz v. Lyon Management Group, Inc. here in pdf or word format.