KAGAN v. GIBRALTAR SAVINGS AND LOAN ASSOCIATION (1982)

STATEMENT OF THE CASE

This is an appeal from a judgment granting respondent, Gibraltar Savings and Loan Association's (hereinafter “respondent”) “Motion for Determination That the Action is Without Merit” pursuant to California Civil Code section 1781, subsection (c)(3) ¹ .

STATEMENT OF FACTS

Sometime prior to April 9, 1979, Eleanor M. Kagan (hereinafter “appellant”) became interested in establishing an Individual Retirement Account (hereinafter referred to as an “IRA account”).   Appellant sought a financial institution that would not charge any fees for administering the said account.   From newspaper advertisements, appellant learned that respondent was offering IRA accounts at no charge.   Prior to establishing her IRA account, appellant inquired of representatives of respondent whether the IRA account would be managed without a fee chargeable to the account participant.   Appellant was assured that no management fees would be charged.   In addition, prior to establishing her IRA account, appellant obtained and read an advertising circular published and distributed by respondent.   The circular described the mechanics and benefits of respondent's IRA plan and made the following representation:

“No commissions.   No establishment fees.   No management fees.”

On April 9, 1979 appellant opened up an IRA account in the approximate sum of $400 with respondent.

In November of 1979, appellant received from respondent, a form letter informing all of respondent's IRA account participants that $7.50 would be deducted from each IRA account.   Of this amount, $7 was to be remitted to Union Bank as Trustee of the plan and fifty cents to the sponsor of the plan, the California Savings and Loan League.   According to this letter, the $7.50 fee was needed to support the required legal, fiduciary and sponsorship functions which are necessary to maintain a current IRA plan.

In 1976, 1977 and 1978, respondent had elected voluntarily to absorb this $7.50 trustee and sponsor fee payable in each of these calendar years.   Informational letters were sent by respondent to IRA participants on July 20, 1977, and on June 29, 1978.   In each of these letters, respondent advised its IRA account holders that it had elected to absorb the $7.50 trustee fee.

Appellant was incensed by the November 1979 letter.   She called respondent soon thereafter to discuss the contents of the letter.   She spoke with respondent's consumer affairs person, Dee Gee Wilkerson.   Appellant informed Ms. Wilkerson of respondent's representations that no fees would be charged against her IRA account and appellant's reliance upon those representations.   She further informed Ms. Wilkerson that she felt she had been defrauded.   Ms. Wilkerson told appellant she would check into the matter for her.

Approximately one week later, Ms. Wilkerson called appellant and informed her that respondent had done a survey and discovered that only three other institutions did not charge a fee, and they therefore decided that respondent would charge a fee.   Appellant indicated to Ms. Wilkerson her surprise regarding respondent's complete turnabout.

After an unsatisfactory exchange of letters, on June 2, 1980 appellant's attorneys mailed to respondent a notice specifying claimed violations under the Consumer Legal Remedies Act, California Civil Code section 1780, et seq. (hereinafter “Act”) and demanding rectification of these violations.   On June 24, 1980, respondent, in reply to this notice voluntarily agreed (1) to remove from its branch offices all copies of the brochure which states that respondent makes no charge to establish the plan or commissions or management fees;  (2) to reimburse Benjamin Kagan, appellant's husband, for $15 charged to him for trustee's fees during the years 1979 and 1980, and (3) to make no charges for trustee's fees from appellant's account.   Appellant on July 31, 1980, filed the instant lawsuit.   On December 15, 1980, respondent by memorandum sealed appellant's account and directed that no trustee's fees should be paid from it.

After conducting discovery on appellant's claims, respondent moved in April 1981 for a determination under section 1781, subsection (c)(3) that the action was without merit on the ground appellant did not assert that any fee had been imposed on her IRA account nor that she had suffered any legally cognizable injury under the Consumers Legal Remedies Act.   In addition, respondent argued that appellant had no standing to represent any purported class of persons who had suffered actual damages under the Act, since a named plaintiff in a representative suit must be a member of the class he purports to represent.   The motion argued in the alternative that the lawsuit lacked merit since the fee complained of was not a “Management Fee,” “Establishment Fee” or “Commission” but rather a $7.50 charge, $7 of which is remitted to the trustee of the plan and $.50 to the sponsor of the plan, the California Savings and Loan League.   The respondent contended that the said charge supported the required legal, fiduciary and sponsorship functions which are necessary to maintain the current plan but did not constitute any commission or fee to respondent.

At the hearing on the motion, the court below ruled that appellant had not suffered any injury nor sustained any damage or loss cognizable under the Consumers Legal Remedies Act and dismissed the suit on the ground that it lacked merit under section 1781, subsection (c)(3).   The court found it unnecessary to reach the alternative ground for the motion urged by respondent.

On appeal it is undisputed that, in response to appellant's claims that the Act had been violated (and before this suit was filed) respondent voluntarily agreed (1) to remove from its branch offices all copies of the brochure stating that Gibraltar makes no charge to establish the plan or commission or management fees;  (2) to reimburse appellant's husband, Benjamin Kagan, for $15 charged to him for trustee's fees during the years 1979 and 1980;  and (3) not to charge appellant's account for trustee's fees.   Appellant also admits that respondent has sealed her account and directed that no trustee's fees should be paid from it.

On June 1, 1981, a hearing was held in the trial court on respondent's motion.   The trial court granted the motion and, on June 22, 1981, executed the judgment.   This timely appeal followed.

I

ABSENT ANY DAMAGES APPELLANT LACKS STANDING TO BRING AN ACTION PURSUANT TO THE CONSUMERS LEGAL REMEDIES ACT

 Section 1770 enumerates a number of “unfair methods of competition and unfair or deceptive acts or practices” which, when committed by a person in a consumer transaction, are declared to be unlawful.   The remedies available to a consumer victimized by one of these practices are set forth in section 1780:

“(a) Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against such person to recover or obtain any of the following:

(1) Actual damages, but in no case shall the total award of damages in a class action be less than three hundred dollars ($300).

(2) An order enjoining such methods, acts, or practices.

(3) Punitive damages.

(4) Any other relief which the court deems proper.”

Section 1780 makes it clear that a consumer must suffer some damages in order to have standing to sue under the Act.   Further, pursuant to section 1782, no action for damages may be brought unless, at least 30 days or more prior to its commencement, the consumer notifies the person alleged to have committed the unlawful practice and demands that “such person correct, repair, replace or otherwise rectify the goods or services alleged to be in violation of Section 1770.”

The record in the instant case discloses that appellant's attorneys mailed to respondent on June 2, 1980, notice specifying the claimed violations under the Act.   On June 24, 1980, respondent, in reply to this notice voluntarily agreed:  (1) to remove from its branch offices all copies of the offending brochure;  (2) to reimburse appellant's husband for $15 charged to him for trustee's fees;  and (3) to make no charges for trustee's fees from appellant's account.   We conclude that appellant has received every benefit she expected when she opened her IRA account and now cannot be said to have suffered any loss or injury in establishing the said account.   In addition, the Act in question contemplates that if the appropriate correction or remedy is made, and as a result the consumer suffers no injury, the consumer may not sue for damages.  (Section 1782, subsection (b).)  “The clear intent of the act is to provide and facilitate precomplaint settlements of consumer actions wherever possible and to establish a limited period during which such settlement may be accomplished.”  (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 41, 124 Cal.Rptr. 852.)   Here, after respondent made the rectification, appellant incurred no loss and therefore was unable to allege any loss, injury or damage in her complaint.

II

APPELLANT LACKS STANDING TO REPRESENT THE PURPORTED CLASS

 In her complaint, appellant purports to bring this suit as a class action.   It appears that the class is defined in paragraph 12 of her complaint as persons who were induced to establish IRA accounts with respondent on account of its allegedly false advertising and concealment of the policy to determine whether to charge a management fee on an annual basis according to administrative costs.   We have concluded that appellant is not entitled to bring this suit on her own behalf and further conclude that no action may be brought by appellant on behalf of persons who have already purportedly suffered some damages from imposition of the management fee policy.   Without regard to the existence or composition of any such class, it is established as a matter of law that appellant has no standing to represent the class since she herself is not now and never was a member.   In brief, appellant, who has no standing to sue on her own behalf, may not bootstrap herself into standing by purporting to represent a class of injured persons.

 It has been uniformly held that a plaintiff seeking to maintain a class action must be a member of the class he or she claims to represent.  (Parker v. Bowron (1953) 40 Cal.2d 344, 254 P.2d 6;  Alvarez v. Wiley (1977) 71 Cal.App.3d 599, 139 Cal.Rptr. 550.)   This condition stems from fundamental principles concerning representative suits.   The court in La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864 at page 875, 489 P.2d 1113 stated:

“The requirement that the representative be a member of the class derives from the principle that joinder of plaintiffs in a class action should consist of those sharing ‘a well-defined “community of interest” in the questions of law and fact involved’․”

In Chern v. Bank of America (1976) 15 Cal.3d 866, 127 Cal.Rptr. 110, 544 P.2d 1310, the California Supreme Court affirmed the grant of summary judgment in favor of defendant where the plaintiff attempted to bring a class suit challenging defendant's practice of calculating annual interest rates on a 360 day cycle.   It was undisputed that the named representative had not been misled by the practice when she negotiated her loan although there were potential class members who may have been.   The court held:

“Because we conclude that summary judgment is appropriate against plaintiff on her breach of contract claim, the class action count alleging a similar claim must be dismissed for want of a proper representative.”  (Chern v. Bank of America, supra, 15 Cal.3d at 874, 127 Cal.Rptr. 110, 544 P.2d 1310.)

Similarly, in the case of Payne v. United California Bank (1972) 23 Cal.App.3d 850, 100 Cal.Rptr. 672, the appellate court upheld a judgment dismissing a class claim brought on behalf of all persons who were alleged to have been fraudulently induced to purchase vacuum cleaners through the use of installment sales contracts financed by the bank's participation in the Master Charge system.   The court noted that none of the class representatives had purchased a vacuum cleaner so financed and held:

“Plaintiffs cannot give themselves standing to use [sic] by purporting to represent a class of which they are not a member ․”  (Payne v. United California Bank, supra, 23 Cal.App.3d at 860, 100 Cal.Rptr. 672.)

Finally, in the case of Parker v. Bowron, supra, 40 Cal.2d 344, 254 P.2d 6, the Supreme Court upheld a lower court judgment dismissing a class complaint brought on behalf of all city employees employed by the City of Los Angeles.   The action was brought by a non-employee who sought to compel the city to fix the wages of certain employees at a rate at least equal to that prevailing for comparable positions in private industry.   It was held on page 353, on page 10 of 254 P.2d of Parker as follows:

“No facts have been alleged to bring Parker within this well established rule regarding class suits․  There can be no ‘common or general interest’ in the subject matter of the controversy ․ between Parker, who is not employed by the city, and city employees.   Parker cannot give himself standing to sue by purporting to represent a class of which he is not a member.”

Furthermore, courts have repeatedly held that where, as in this instance, the named representative was never a member of the proposed class, dismissal of the class claim is required.  (Parker v. Bowron, supra, 40 Cal.2d 344 at 353, 254 P.2d 6.   See also:  Chern v. Bank of America, supra, 15 Cal.3d at 874–75, 127 Cal.Rptr. 110, 544 P.2d 1310;  Payne v. United California Bank, supra, 23 Cal.App.3d at 859, 100 Cal.Rptr. 672;  Fox v. Federated Department Stores, Inc. (1979) 94 Cal.App.3d 867, 886, 156 Cal.Rptr. 893.)

It is instructive to note that in Payne the court dismissed the class claims despite plaintiffs' contention that they should be given an opportunity to amend to add a new plaintiff that suitably represented the class:

“[P]laintiffs asserted that La Sala v. American Sav. & Loan Assn., ․ held that they should have been given an opportunity to amend to add a new plaintiff that suitably represented the class.   We think, however, that La Sala is clearly distinguishable on its facts.   There, unlike the instant case, the plaintiffs were at the commencement of the action proper representatives of the class.   Accordingly, at that time they became fiduciaries for the entire class.   Further, the Supreme Court in La Sala [5 Cal.3d] at page 875 [489 P.2d 1113] stated the principle on which we here rely:  ‘The cases uniformly hold that a plaintiff seeking to maintain a class action must be a member of the class he claims to represent.’ ”  (Payne v. United California Bank, supra, 23 Cal.App.3d 850, 860, fn. 7, 100 Cal.Rptr. 672.)

Accordingly, there is no basis to provide appellant an opportunity to amend the present complaint to name a new class representative.

Since we have concluded that appellant is not a member of any class which would have a right to relief under the Act, we agree with the trial court's dismissal pursuant to section 1781, subsection (c)(3) that the within action is without merit.

 Appellant now argues for the first time on appeal that the trial court was prohibited from determining the merits of appellant's case prior to adjudication of the class action issues she raised in the complaint.   We disagree.  Section 1781, subsection (c) provides:

“(c) If notice of the time and place of the hearing is served upon the other parties at least 10 days prior thereto, the court shall hold a hearing, upon motion of any party to the action which is supported by affidavit of any person or persons having knowledge of the facts, to determine if any of the following apply to the action:

“(1) A class action pursuant to subdivision (b) is proper.

“(2) Published notice pursuant to subdivision (d) is necessary to adjudicate the claims of the class.

“(3) The action is without merit or there is no defense to the action․”  (Emphasis added.)

Thus, there is no indication in section 1781 itself that a determination about the propriety of a class action must be made before any determination that there is no merit to the action.   In fact, the statute plainly contemplates that a motion for a determination that the action is without merit might be made before any adjudication of the class issues or the necessity of notice.   This seems reasonable since it does not make sense to determine the propriety of a class action if the claims of the named plaintiff are without merit.

Contrary to appellant's contention, there is no case support for the proposition that it is improper to rule that a purported class action is without merit prior to determination of class issues.   In Home Sav. & Loan Assn. v. Superior Court (1976) 54 Cal.App.3d 208, 126 Cal.Rptr. 511, plaintiffs moved for a summary judgment and partial summary judgment seeking a declaration that defendant's late payment charges were void.   Defendants sought a writ prohibiting the trial court from adjudicating issues by means of summary judgment and from granting preliminary injunctive relief prior to certification and notification of various alleged classes.   On review the court agreed, holding that this was unfair to defendant:

“Prior to final determination of any substantive issue in a class action defendant has the right to know the full potential consequences and liability that may attach to the determination.   More is involved than adequacy of counsel ․, in that notice to the class assures freedom of action to other members of the class, who prior to adjudication of the cause on the merits are entitled to an opportunity to pursue their interests as they think best and enter the litigation as parties if they desire․

“We find no anomaly in allowing litigants, either defendants or plaintiffs, to pursue adjudication of legal issues in an individual action without certification of the class.   Such adjudication will bind an individual plaintiff, it may bind the defendant in similar actions on the principle of collateral estoppel, but it will not bind absent members of the class․  If a defendant chooses to run the risk of collateral estoppel on an unfavorable judgment, it is defendant's right to due process that it hazards, not someone else's.”  (Home Sav. & Loan Assn. v. Superior Court, supra, 54 Cal.App.3d 208, 212, 126 Cal.Rptr. 511.)

Home Savings was not decided under section 1781.   However, the said case stands for the proposition that a defendant may be protected from having the substantive issues determined against him prior to consideration of the class issues.   The rationale is avoiding one-way intervention whereby absentee members may opt out of the class if the determination is adverse to the named plaintiff but take advantage of class membership if plaintiff prevails.   A subsequent Supreme Court opinion has explained the Home Savings opinion.   Thus in Civil Service Employees Ins. Co. v. Superior Court (1978) 22 Cal.3d 362, 149 Cal.Rptr. 360, 584 P.2d 497, the Court noted:

“As we explained in Pacific Land Research, in arriving at this conclusion the Home decisions reasoned that ‘unless a decision on the merits is postponed until after the class issues are decided, a defendant is subject to “one-way intervention,” which would allow potential class members to elect whether to join in the action depending upon the outcome of the decision on the merits.’  (Id.)  The Home decisions considered this consequence fundamentally unfair to defendants, noting that while a defendant would be bound by an adverse ruling under collateral estoppel principles, the defendant would not necessarily gain a commensurate victory if it prevailed, since the ruling in its favor would not be binding on class members who had no notice of the proceeding.”  (Civil Service Employees Ins. Co. v. Superior Court, supra, 22 Cal.3d 362, 372, 149 Cal.Rptr. 360, 584 P.2d 497.)

A determination that appellant's suit has no merit, prior to consideration of class issues, poses no problem here.   The ruling requested was only that appellant's claim was without merit since she lacks standing to sue under the Act, a threshold issue not going to the merits of the underlying claim.

III

APPELLANT IS PRECLUDED FROM MAINTAINING AN ACTION FOR DECLARATORY RELIEF PURSUANT TO SECTION 1780 ET SEQ.

 Appellant contends that she may properly maintain the within action pursuant to the Act as one for declaratory relief.   We disagree.

 The structure of the Act is inconsistent with a claim for declaratory relief.   Moreover, not even a declaratory relief action may be brought unless there is an actual controversy between the parties and some potential harm to a plaintiff in the future.

Section 1780 expressly contemplates actual and punitive damages as well as injunctive relief under the Act.   Significantly, it omits any reference to declaratory relief.   Nor would it be consistent with the policies and purposes of the Act to permit declaratory relief actions.   First, section 1760 states as the underlying purposes of the Act, not only to protect consumers, but “to provide efficient and economical procedures to secure such protection.”   Thus, the right to bring an action under the Act is circumscribed in several respects.   One of these is that only the consumer “who suffers any damages” is permitted to bring suit.  (§ 1780, subparagraph (a).)   Thus, the plain language of the statute requires a present injury or loss.   A declaratory relief action, on the other hand, requires a present controversy and only a threatened injury or harm.   Permitting declaratory relief under the Act would contravene the clear and unambiguous terms of the statute.   Since the language is clear, there can be no room for interpretation, and effect must be given to the plain meaning of the Act.  (Outboard Marine Corp. v. Superior Court, supra, 52 Cal.App.3d 30 at page 40, 124 Cal.Rptr. 852.)

Moreover, it would be anomalous to permit declaratory relief under a statutory scheme such as the one here.   Section 1782 requires pre-complaint notification of a claim of unlawful practice under section 1770, as previously stated, and also provides that no action for damages may be maintained where the appropriate timely correction or remedy is given, or agreed to be given, after receipt of the notice.   Section 1784 also favors informal resolution of disputes by prohibiting damage rewards where the violation was not intentional and appropriate timely correction or other remedy is made.   These provisions are consistent with the mandate that one bringing suit under the Act must have suffered some damages.

 The fundamental basis of an action for declaratory relief is the existence of an actual, present controversy over a proper subject.  (3 Witkin, Cal. Procedure (2d Ed.) section 716 at p. 2338.)   In this instance, it is undisputed that appellant's IRA account has not been charged any trustee's fee and that respondent has sealed her account and directed that no such fee be deducted from it.   As a result, there is no present controversy between these parties as to the legality of charging appellant's account for a trustee's fee, nor can there be any future controversy on this specific subject as between appellant and respondent.

In addition, appellant has no standing to maintain an action for declaratory relief pursuant to Code of Civil Procedure section 1060 since there is no real or actual controversy as between this appellant and respondent.

Finally, as noted earlier in our opinion, the case of La Sala v. American Sav. & Loan Assn., supra, 5 Cal.3d 864, 489 P.2d 1113 can clearly be distinguished from the instant case.   At the commencement of the lawsuit in La Sala, the plaintiff was a representative member of the class he was seeking to represent.   The plaintiff in La Sala obtained, on an individual basis, the relief he was seeking.   The trial court in La Sala thereupon ruled that there was no individual plaintiff remaining who was qualified to represent the class, and, without prior notice to the class, dismissed the litigation without prejudice.   The Supreme Court reversed.   The court in La Sala, supra, on page 871, 489 P.2d 1113 stated:

“When a plaintiff sues on behalf of a class, he assumes a fiduciary obligation to the members of the class, surrendering any right to compromise the group action in return for an individual gain.   Even if the named plaintiff receives all the benefits that he seeks in the complaint, such success does not divest him of the duty to continue the action for the benefit of others similarly situated.”

As previously stated, the facts in the instant case are distinguishable from La Sala.   In the present case we have concluded that appellant incurred no loss, injury or damage and was therefore not entitled to bring or maintain an action pursuant to section 1780 et seq.   She was not a representative member of any class and therefore cannot bring or maintain any action for declaratory relief in her individual or representative capacity.

DISPOSITION

The judgment granting respondent's “Motion for Determination That the Action is Without Merit” pursuant to section 1781, subsection (c)(3) is affirmed.   The said judgment of dismissal is proper pursuant to section 1781, subsection (c)(3) as opposed to California Code of Civil Procedure section 437c since the within action was originally, however erroneously, commenced pursuant to section 1781, subsection (a).   The judgment is affirmed.

FOOTNOTES

FOOTNOTE.  

1.   Unless otherwise stated, all code references are to the Civil Code.

TEVRIZIAN *, Associate Justice. FN* Assigned by the Chairperson of the Judicial Council.

KINGSLEY, Acting P. J., and AMERIAN, J., concur.