GARRETT v. COAST FEDERAL SAVINGS AND LOAN ASSOCIATION (1982)

The case at bench has been once before the Supreme Court of California (Garrett v. Coast & So. Fed. Sav. & Loan Ass'n (1973) 9 Cal.3d 731, 108 Cal.Rptr. 845, 511 P.2d 1197—‘Garrett I”;  and twice before this court (2 Civ. 48477 ¹ & 2 Civ. 52905—unpublished).   This appeal is from the judgment ultimately granted after trial.

We are here given over 700 pages of briefs, together with two extensive requests that we take ‘judicial notice” of a number of cases from other jurisdictions.   A great part of the briefs is devoted to contentions, by both sides, that opposing counsel was guilty of improper conduct—a dispute which we respectfully decline to referee.   Coast's briefs attack the judgment for a long laundry list of alleged erroneous procedural rulings by the trial court and also attack the judgment on grounds going seriously to the underlying issues.   The procedural issues can best be understood in light of our conclusion as to the major issues.

The present class action attacks the provisions in notes securing loans by Coast which imposed a ‘late” charge measured by a percentage of the unpaid balance due at the time an installment payment became delinquent.   A demurrer to a complaint based on that theory was sustained and, on appeal, the Supreme Court, in Garrett I, held that a cause of action was stated because the provision amounted to an invalid liquidated damage clause.   Coast then answered and the case went to trial, resulting in a judgment for plaintiffs which is here attacked.

I

 Coast here contends, as it did in the trial court, that the provision here attacked was valid because Coast is a federally chartered association and the federal agency having jurisdiction over such associations has, by regulation, approved the provision herein involved.

That contention is without merit for several reasons.   Coast now relies chiefly on the decision of the United States Supreme Court in Fidelity Federal Savings and Loan Association v. De La Cuesta (1982) 458 U.S. 141, 102 S.Ct. 3014, 73 L.Ed.2d 664.   That reliance is misplaced.

(1) De La Cuesta concerned the validity of a provision in a loan agreement making the loan immediately payable if the property securing it was sold—the so-called “due-on-sale” clause.   The Supreme Court upheld such a provision on the ground that, in light of the current economic conditions, such a clause was necessary in order to preserve the financial integrity of federally chartered associations.   No such justification for the provision herein before us appears.   The financial impact in De La Cuesta was shown by evidence that, without such a clause, federally chartered associations could not resell their loans and, thus, secure new capital with which to make new loans at the present high interest rates.   Nothing in the record before us shows that any such market restriction exists as to loans that satisfy the ruling in Garrett I.   In fact, respondents call to our attention a practice by at least one of the potential purchasers actually to refuse to buy loans with the provisions herein involved.

(2) The regulation on late charges on which Coast here relies was not adopted until 1976.   The loans herein involved were made prior to that date.   Coast argues that De La Cuesta approved a retroactive application of the due-on-sale regulation.   However, the opinion does not support the broad retroactivity thus urged on us.   The Supreme Court carefully pointed out that the Board's due-on-sale regulation had been adopted prior to the date when our Supreme Court decided Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 148 Cal.Rptr. 379, 582 P.2d 970, and that such clauses had not been illegal in California prior to that decision.   Here, however, Garrett I was decided in 1973, three years before the late charge regulation on which Coast now relies was adopted.

II

 In Garrett I, the Supreme Court held that, even though the provision it had involved was invalid, Coast could, lawfully, impose a late charge measured by (1) the interest on a delayed installment based on the amount of that installment for the period of the delay in payment;  and (2) perhaps a charge reasonably reflecting the actual administrative costs to Coast of dealing with a delayed payment.   The effect of various rulings by the trial court, here attacked by Coast, was to cast on Coast the obligation to provide data showing all late charges imposed by it and involved in this case, together with the dates involved, and to prove any offsets against those charges, measured by the Supreme Court's statement.   In 2 Civ. 52905, Coast sought a writ to set aside that ruling.   The petition was denied, the court saying, ‘The petition is denied for failure to state facts sufficient to justify the relief sought.”   That decision has long since become final.   Unlike cases where an appellate court denied a petition for a writ, in the exercise of its discretion, on the ground that extraordinary interlocutory relief is not necessary, a decision denying a petition for a writ based on the merits of the petition becomes the law of the case, binding on all subsequent proceedings.   (Pigeon Point Ranch, Inc. v. Perot (1963) 59 Cal.2d 227, 28 Cal.Rptr. 865, 379 P.2d 321.)   It follows that Coast's contention here made is no longer cognizable.

III

Originally plaintiffs had demanded jury trial;  when, near the close of the five-year period, the case ultimately came on for trial, plaintiffs withdrew their demand.   Coast then sought to exercise their right to demand a jury trial.   After hearings in the trial court, Coast's demand was rejected.   In 2d Civ. 52905, Coast, in addition to its prayer for relief from the burden of proof issue above discussed, also sought relief from the denial of jury trial.   As we have said above, the denial on its merits of the petition is now the law of the case.

IV

As we have said above, the case had taken a slow course in the trial court after remand from the Supreme Court.   Shortly before the time limit of section 583 was to run, plaintiffs sought a trial setting, which was granted.   Trial was held under that ruling and one of the plaintiffs testified briefly.   The trial was then continued for several months.   Coast's attack on that procedure was recently rejected by the Supreme Court in Hartman v. Santamarina (1982) 30 Cal.3d 762, 180 Cal.Rptr. 337, 639 P.2d 979.

 Coast also contends that its motion to dismiss made under subdivision (a) of section 583 of the Code of Civil Procedure—the two year provision—was improperly denied because plaintiffs had unduly delayed in bringing the case on for trial.   The record before us shows that neither side had been in any hurry to try the case.   We cannot say that the trial court abused its discretion in denying the motion.

V

 Coast contends that the case was improperly certified as a class action.   As we read its briefs, that contention is in two parts:  (1) that there was not the necessary community of interest;  and (2) that proper notice was not sent to the alleged class members.   We reject both contentions.  (1) There were several thousand members of the class, each interested in recovering illegal payments and each interested in the adjudication of setoffs.   Coast's own records show the amount recoverable by each class member, once the measure of such recovery is determined.  (2) Coast provided plaintiffs with its own list of potential class members, and plaintiffs sent the notices prescribed by the trial court to that list.   The notice provision is primarily for the benefit of Coast in making it possible for potential class members to “opt out” of the case.   If Coast's list was incomplete either as to names or addresses, that is the fault of Coast of which it cannot here complain.

VI

 Coast contends that the trial court erred in including in the class plaintiffs who had paid late charges prior to the date of Garrett I.   The contention is frivolous.   The trial court properly limited recovery to payments made within the four-year statute of limitations.   The ruling in Garrett I was, as to all plaintiffs not so excludable, clearly retroactive.

VII

 Shortly before the date for trial, plaintiffs sought to ascertain the names of any expert witness that Coast might wish to call with reference to its claimed offsets.   After some skirmishing, Coast furnished the names of three witnesses, stating that it had not yet decided whether any of them would be called.   Depositions of the named persons were taken at an agreed date, but Coast successfully objected to any informative answers on the ground of work privilege.   When, several months later, it became apparent that Coast was about to call these persons as witnesses, the trial court, on motion of plaintiffs, issued an order barring Coast from presenting any expert testimony on the setoff issues.   As a result, no evidence at all on that issue was presented by Coast.   We see no error.

In a case somewhat analogous to the case at bench (Sanders v. Superior Court (1973) 34 Cal.App.3d 270, 109 Cal.Rptr. 770), the court said, at page 279, 109 Cal.Rptr. 770:  “We hold that, upon a showing of good cause made at an appropriate stage of the proceedings, e.g., the pretrial hearing at which time discovery is presumably complete, the case at issue and ready for trial setting, a party may be required to elect whether or not to call the expert as a witness and to disclose such election to his adversary.   If he elects to do so, the opposing party shall be granted a reasonable time thereafter within which to conduct appropriate additional discovery directed at securing the desired information.”   The trial court properly relied on that statement.   Here Coast, at the depositions, prevented plaintiffs from obtaining information from the experts by relying on the work product privilege.   That reliance was valid if, but only if, the experts were not to be called as witnesses at trial.   By invoking it, Coast elected not to use them as witnesses.   As stated in Sanders, a change in any pretrial decision of counsel over whether to call an expert at trial may be made not later than the time the case is set for trial.   Any change of mind, and an election to call an expert not disclosed (as here) until three months after trial had begun was far beyond any permissible period for such change of mind.

VIII

 The judgments as entered, and herein appealed from, made a lengthy provision for the payment of the monies for which Coast was found liable.   Coast here attacks various provisions of the procedure therein set forth.

(1) At the beginning of the proceedings in the trial court, Coast sent out its own notices to potential class members.   Those notices contained language warning the persons so notified that, if they did not “opt out” they would be subject, individually, to liability for Coast's attorney fees and expenses if the action should fail.   Numerous ‘opt out” replies were received.   The trial court properly held that those notices were void as unduly coercive and directed that the responses be disregarded.   Eventually, as above discussed, plaintiffs sent out their own notices.   Recognizing the practical problems that resulted from Coast's improper notices, the judgment calls for the trustees of the fund created by the judgment to send out a second group of notices.   Based on an elaborate provision for presently ascertaining the members of the class represented by plaintiff, those notices called, in effect, for filing with the trustees, a statement of any late charges due.   Since the judgment carefully defined the members of the protected class, and excluded, among others, persons who had paid off their loans and persons whose underlying deeds of trust had been foreclosed, Coast was adequately protected by the procedure prescribed in the judgment against most of the chances of mistake of which it here complains.

Coast objects to the provisions in the judgment of a provision making the named plaintiffs co-trustees of the payment fund.   We can see no error.   Administration of the fund is placed in the corporate co-trustee.

 The judgment provides that any monies in the payment account not identified by Coast itself as proper payees or not claimed under the prescribed new notices, escheat to the State of California.   We agree with Coast that there is no authority for such escheat.   If, at the end of the procedure for paying amounts due, there should remain undistributable monies in the payment account, Coast is entitled to receive them.   We modify the judgment in respect to that provision.

THE CROSS–APPEAL

 Plaintiffs sought, and the trial court denied, an amended complaint to include two groups of persons.   We see no error.

(1) Certain borrowers, after the action was filed, had paid late charges under the provision held in Garrett I to be void.   We agree with Coast that such persons had, by their conduct, waived claims under Garrett I.

(2) In 1969, certain persons had filed a class action against three lending associations.   That action was dismissed because the pleadings did not show the existence of an ‘ascertainable class.”   The dismissal was affirmed in Cooper v. American Sav. & Loan Ass'n (1976) 55 Cal.App.3d 274, 127 Cal.Rptr. 579.   Plaintiffs sought, and were denied, leave to file an amended complaint including those persons among the class herein involved even though their claims, if any, were barred by the statute of limitations applicable herein.   Plaintiffs base their contention on American Pipe & Construction Co. v. Utah (1974) 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713.   However, in that case, the defendant was the same as the defendant in the later class action.   Here, Coast was not such a defendant.   We are aware of the decision in Appleton Elect. Co. v. Graves Truck Line, Inc. (7th Cir. 1980) 635 F.2d 603, which rejected that distinction.   We cannot agree with Appleton.   It is one thing to toll the statute of limitations against a party to a former action;  but a defendant not a party to the former action has no reason to assume that, on a second attempt, it will be included as one from whom relief is sought.

In addition, plaintiffs have filed what they call a ‘protective cross-appeal” with reference to the measure of setoff to which Coast is entitled.   We have said above that, under Garrett I, Coast was entitled to a setoff for its administrative expenses, but that Coast was properly denied such setoff here because, through its own action, it had failed to prove any such administrative expense.   The cross-appeal is, thus, moot as to the issue therein argued.

The judgment is modified by deleting paragraph 21 of the judgment (appearing in lines 8 through 13 on page 20 thereof), and by inserting in paragraph 20 of the said judgment, in line 3 on said page, the words ‘payment fund or” to precede the word ‘administrative” in said line.   As so modified, the judgment is affirmed.   Neither party shall recover costs in this court.

FOOTNOTES

1.   Case 2d Civ. 48477 involved an issue relating to the propriety of the firm of Irell & Manella representing plaintiffs in this action.   Although Coast's briefs here complain of our ruling in that case, the issue which we there decided is no longer material to, or involved in, this appeal.

KINGSLEY, Associate Justice.

WOODS, P. J., and TEVRIZIAN,* J., concur.