Opinion
A144105
09-28-2017
AMY LYNNE BAILLIE et al., Plaintiffs and Appellants, v. PROCESSING SOLUTIONS, LLC et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. JCCP004688)
This is one of several related appeals in a representative action brought by plaintiffs Amy Lynn Baillie and Kathrine Rosas against various individuals and corporate entities allegedly involved in illegal internet payday loan practices. Plaintiff Baillie initially filed this lawsuit in May 2007 on behalf of "[a]ll persons . . . who . . . entered into Instant Cash Agreements with Defendant Lenders" by means of the "same standard form agreement." Plaintiff asserts causes of action for usury and/or unconscionable lending and violation of the Business and Professions Code section 17200 et seq. Several named defendants have been dismissed from or otherwise resolved this litigation. Respondents Processing Solutions, LLC (PSL), First East, Inc. (First East), and InstantCashUSA, Inc. (ICU), remain, as do several other defendants not involved in this particular appeal, which involves a court order denying plaintiffs' motions for class certification and for further discovery on class-related issues.
For reasons discussed below, we reverse the challenged order and remand this matter to the trial court for further proceedings in light of a recent California Supreme Court decision, People v. Miami Nation Enterprises (2016) 2 Cal.5th 222 (MNE). In MNE, a separate, but related case, the Commissioner of the Department of Corporations sued defendants Miami Tribe of Oklahoma and Santee Sioux Nation, as well as several associated tribal business entities, for essentially the same illegal lending practices alleged herein. After granting the Commissioner's petition for review, the high court held, inter alia, that the doctrine of tribal sovereign immunity does not shield these defendants from liability, much less from otherwise mandatory disclosure obligations. Because our appeal likewise implicates the trial court's application of the tribal sovereign immunity doctrine, we obtained supplemental briefing from the parties on the relevance of the California Supreme Court's recent holding. Having now considered the entire record on appeal, including the parties' original and supplemental briefing, we conclude the appropriate remedy is for the trial court to reconsider the underlying issues, and in particular the issue of whether plaintiffs are entitled to further discovery, in light of the MNE decision.
The Miami Tribe of Oklahoma has been dismissed as a party in all three of these internet cases: A139147, A144105, and A141201.
In MNE, the Commissioner of the Department of Corporations sued many of the same tribal entities named in our lawsuit, alleging violations of the California Deferred Deposit Transaction Law that included making deferred deposit loans without a license, issuing loans in excess of the $300 statutory maximum, charging borrowers unlawful fees, and violating the Commissioner's desist and refrain orders. (2 Cal.5th at pp. 230-231.)
FACTUAL AND PROCEDURAL BACKGROUND
Given this is one of several related appeals in this representative action, in the name of judicial efficiency, we limit our account of the factual and procedural background to that which is relevant to the legal issues at hand.
After filing the original complaint on May 22, 2007, plaintiff Baillie filed the first amended complaint in August 2007 against respondents PSL and ICU, as well as several other corporate entities involved in marketing short-term loans over the internet, processing loan applications, and/or servicing these loans. These named defendants included corporate entities Accounts Receivable Management of Florida Inc. (ARM), Rio Resources and MTE Financial Services, Inc. (MTE). Respondent First East was subsequently added as a defendant, as were individuals Charles Hallinan and Thomas Assenzio, the joint owners of respondents PSL and First East, upon the filing of the third amended complaint in November 2010.
Hallinan was also sole owner of defendant USFastCash, which is not a party to this appeal.
The third amended complaint — the operative complaint on appeal (hereinafter, Complaint) — asserts causes of action for: (1) usury and/or unconscionable lending under Civil Code § 1916.12-3(b) ; (2) injunctive relief and restitution under Business & Professions Code §§17200 et seq. (hereinafter, section 17200); (3) violation of § 17200; (4) unjust enrichment; and (5) an accounting. According to the Complaint, Baillie obtained a $300 loan from "USFastCash" on or about July 2, 2006, as evidenced by a Note identifying as the lender defendant MTE, doing business as ("dba") ICU. Plaintiff Rosas, in turn, obtained a $300 loan from defendant Rio Resources on or about June 19, 2006, as well as a $300 loan from ICU on or about November 3, 2006.
Civil Code section 1916.12-3, subdivision (b), provides in relevant part: "Any person who willfully makes or negotiates, for himself or another, a loan of money, . . . and who directly or indirectly charges, contracts for, or receives with respect to any such loan any interest or charge of any nature, the value of which is in excess of that allowed by law, is guilty of loan-sharking, a felony
Respondent PSL is a Delaware company that, until late 2008 or 2009, acted as a loan servicing company for defendant MTE dba ICU. PSL assisted MTE in marketing loans over the internet and processed loan applications submitted online to MTE. According to the record in this case, MTE appears to have dissolved in or about December 2011, and its counsel withdrew in March 2012.
In paragraph 65 of the Complaint, the putative class to be represented by plaintiffs is defined as follows: "All persons (as defined above) who are residents of the State of California and entered into Instant Cash Agreements with Defendant Lenders [MTE, PSL, instantcashloantillpayday.com, ICU, First East, Fast Funding The Company, Inc., and Rio Resources] and may have been a recipient of a collection Notice from Defendant [ARM], formerly known as United Legal Corporation. Specifically excluded from the plaintiff class are the defendants herein; officers, directors, or employees of any defendants; any entity in which any defendant has a controlling interest; affiliates, legal representatives, attorneys, heirs, or assigns of any defendants; and any federal, state, or local governmental entity, and any judge, justice or judicial officer presiding over this matter and the members of their immediate families and judicial staffs."
On February 11, 2015, as part of a settlement agreement reached by the parties, the trial court certified a 1,762 member class of known individuals located in California who were victims of collection efforts by former defendant ARM after becoming delinquent on internet loans owed to one or more of the defendant lenders. Relevant here, the members of the ARM settlement class constitute a subset of the proposed class defined in paragraph 65 of the Complaint.
On August 8, 2013, plaintiffs filed their motion for class certification. However, on April 2, 2014, the trial court issued an interim order staying consideration of this motion pending resolution of the appeal filed by now former defendant Assenzio, which challenged the trial court's denial of his motion to compel arbitration and stay the proceedings. On July 24, 2014, we reversed the trial court's order in Assenzio and remanded the matter. The trial court thereafter entered a new order granting Assenzio's motion and dismissing him from the lawsuit. (Baillie v. Assenzio (June 30, 2014) 2014 Cal.App.Unpub. LEXIS 4716 (A139144).)
On October 14, 2016, we affirmed a trial court order dismissing defendant Hallinan from the case for lack of personal jurisdiction. (Rosas v. Hallinan (October 14, 2016) 2016 Cal.App.Unpub. LEXIS 7726 (A139936).)
Plaintiffs thereafter submitted evidence in support of their class certification motion that included the following. Documents produced by respondents reflect that Baillie entered into a loan agreement over the internet in 2006 by means of a standardized loan "Note" with an annual interest rate of 1.216.667 percent that identified as the lender defendant MTE doing business as ICU. Plaintiff Rosas submitted evidence that she entered into two such internet loans in the amount of $300, the first in June 2006 with Rio Resources (not a respondent), and the second in November 2006 with respondent ICU.
Linda Edwards, office manager for respondent PSL, attested in a sworn declaration that PSL processed and serviced loans for defendant MTE, and that she personally oversaw PSL's processing and servicing of loans for ICU, First East, and Rio Resources. According to Edwards' declaration: "MTE utilized a standard form 'Loan Note Disclosure' (the 'Note') during the time period from 2003 until 2009 when PSL was processing and servicing [MTE's loans]. The loans were available to individual borrowers through the internet. [¶] . . . The 'Note,' attached as Exhibit A to the Third Amended Complaint in this action is an example of the Note to which all borrowers agreed." Edwards also attested that the borrowers made loan payments to the particular defendant lender identified on his or her Note when PSL caused their checking accounts to be debited.
According to Edwards, from 2003 until 2008, "the terms of the Note remained the same for each loan." During this time period, PSL had access to MTE's computer database with the borrowers' loan applications containing information such as the borrowers' names, addresses, bank account information, and amounts paid on their loans. However, because the loan applications were maintained only in electronic format on MTE's database, PSL lost access to this information when it stopped processing loans for MTE at the end of 2008.
As plaintiffs point out, other evidence in the record indicates at least some of the records described by Edwards remained available through at least January 2009after this lawsuit was filed - as evidenced by defendants' production of a copy of plaintiff Baillie's Note in January 2009.
In addition to Edwards' declaration, plaintiffs submitted deposition testimony from former defendant Assenzio, in which he explained the money for the loans did not come from MTE, the tribal entity, but rather from the corporate entities that he and Hallinan jointly or individually owned, including Rio Resources and respondents First East and ICU. Specifically, the loan money came from corporate investments made by Assenzio, Hallinan, and Hallinan's daughter, Carolyn, as well as by their corporations First East, ICU and Rio Resources. Defendant Scott Tucker, in turn, would set the interest rate for the loans.
According to Assenzio's testimony, loan payments received from California borrowers would go into a single bank account (the "MTE Intercept account") rather than bank accounts held by the individual lenders. PSL's role included paying out the loan proceeds to the individual lenders, as well as to MTE, after charging the lenders for certain operating expenses, including collection and advertising costs (the latter of which, according to Assenzio, totaled over $400,000 per month). After PSL subtracted out these business costs, it would distribute the net revenues, first to defendant lenders (in an amount totaling up to 90 to 95 percent of net revenues), and then the remainder to MTE. PSL, Assenzio explained, was set up to be a "break-even company" rather than to make a profit.
Assenzio testified that he and his wife would use their personal credit cards to pay defendant lenders' significant advertising costs each month, and would thereafter be reimbursed by defendant lenders ("the corporate dba's").
On December 5, 2014, following a contested hearing, the trial court issued a final order denying plaintiffs' motion for class certification, as well as their preliminary motion to conduct further discovery prior to a ruling on class certification. The court explained in its order that, while at first glance, this sort of consumer protection lawsuit would "typically fit neatly into a class action model for resolution," there were "insurmountable" challenges to using the class model in this case given certain "unique aspects." According to the court: "High on this list [of insurmountable challenges] [is] the need to define an ascertainable class . . . ." In addition, the court noted that plaintiffs had ignored its earlier warning that they needed to address in their motion the impact on their claims of Assenzio's dismissal from the case after prevailing on his motion to compel arbitration, given that they had alleged respondents are merely Assenzio's "alter egos."
With respect to plaintiffs' position on "the unavailability of records from which putative class members can be identified" - to wit, that defendants have intentionally or negligently destroyed such records -the trial court questioned: "Even if plaintiffs were able to obtain a finding in their favor on spoilation, what form of relief and/or sanctions would be available that could possibly advance the goal of identifying putative class members, let alone arriving at an appropriate remedy?"
Finally, the court brushed aside plaintiffs' argument in supplemental briefing that, because defendants chose to "comingle" in a single account the funds from the MTE loan program, each defendant should be deemed to have loaned a portion of the principal received by each individual borrower, explaining: "Even if this theory had any supporting decisional authority . . . , it would still leave unanswered the question of how the borrowers who Plaintiffs seek to represent would ever be identified."
Thus, based upon this reasoning, the trial court ruled against plaintiffs' motions and set a hearing date for defendants' anticipated motion for summary judgment. Plaintiffs' timely notice of appeal followed.
DISCUSSION
"Originally creatures of equity, class actions have been statutorily embraced by the Legislature whenever 'the question [in a case] is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .' (Code Civ. Proc., § 382; see [citations].) Drawing on the language of Code of Civil Procedure section 382 and federal precedent, we have articulated clear requirements for the certification of a class. The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives. (Code Civ. Proc., § 382; [citations].) 'In turn, the "community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class." ' [Citation]." (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021 [Brinker].)
"On review of a class certification order, an appellate court's inquiry is narrowly circumscribed. 'The decision to certify a class rests squarely within the discretion of the trial court, and we afford that decision great deference on appeal, reversing only for a manifest abuse of discretion: "Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification." [Citation.] A certification order generally will not be disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal assumptions. [Citations.]' ([Citation]; see also Hamwi v. Citinational-Buckeye Inv. Co. (1977) 72 Cal.App.3d 462, 472 ['So long as [the trial] court applies proper criteria and its action is founded on a rational basis, its ruling must be upheld.'].) Predominance is a factual question; accordingly, the trial court's finding that common issues predominate generally is reviewed for substantial evidence. [Citation.] We must '[p]resum[e] in favor of the certification order . . . the existence of every fact the trial court could reasonably deduce from the record . . . .' [Citation.]" (Brinker, supra, 53 Cal.4th at p. 1022.)
Moreover, with respect to the trial court's related order to deny plaintiffs' motion for further discovery, the general standard of review for discovery rulings is, again, abuse of discretion. (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 733.) In this context, "[t]he appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason." (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.) "Where there is a [legal] basis for the trial court's ruling and it is supported by the evidence, a reviewing court will not substitute its opinion for that of the trial court." (Lipton v. Superior Court (1996) 48 Cal.App.4th 1599, 1612.)
Here, as discussed above, the trial court found plaintiffs failed to meet the standard for class certification for three main reasons: they (1) failed to identify an ascertainable class, (2) failed to explain how adequate notice could be provided to such a class, and (3) failed to demonstrate the feasibility of ordering restitution for individual members of such class. More specifically, with respect to the ascertainability and notice issues, the trial court expressed "substantial concerns about the manner in which Plaintiffs have chosen to define the putative class and in particular of how the putative class members will be identified." With respect to the restitution issue, the court pointed to plaintiffs' failure to explain how the overall size of a class recovery fund could be ascertained given the record before it.
Despite the trial court's focus on the lack of available information regarding the key issues of identifying a class of victims and ordering class-wide restitution when refusing to grant plaintiffs' certification motion, it nonetheless denied plaintiffs' threshold request to conduct additional discovery on class-related issues prior to any ruling. As the court explained, it found "highly problematic . . . [plaintiffs'] position on the unavailability of records from which putative class members can be identified. Plaintiffs' discussion of cases involving spoliation of evidence raises more questions than it answers. . . . Plaintiffs fail to explain, however, how a trier of fact could possibly determine the overall size of a class recovery fund, let alone how such a fund could possibly be distributed, if there is no evidence available from any source upon which to base these determinations." For reasons that will become clear — mainly, the issuance of the California Supreme Court's decision in MNE, which has dramatically changed the discovery landscape for cases, like this one, involving sovereign tribal entities — we conclude the trial court's ruling requires reconsideration on remand.
To begin with, the record underlying the class certification motion is not in dispute. Generally speaking, "at the certification stage the court is not to examine the merits of the case" (Stephens v. Montgomery Ward & Co., Inc. (1987) 193 Cal.App.3d 411, 418), and the Complaint's allegations must be presumed true. (La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864, 869.) However, courts also recognize that, "sometimes, it may be necessary . . . to probe behind the pleadings before coming to rest on the certification question." (General Tel. Co. of the Southwest v. Falcon (1982) 457 U.S. 147, 160.)
Here, the proposed class includes California residents who entered into allegedly usurious payday loan agreements via the internet with one or more defendant lenders between 2003 and around 2009. Plaintiffs acknowledge identifying information, including name, address, and loan information, for each individual borrower has not been discovered. However, plaintiffs insist this circumstance is due to defendants' conduct, including their alleged destruction of records, as well as to the barriers to access to the records in the possession of defendant/tribal entity MTE (which appears to no longer exist). As Edwards, PSL's office manager, attested, from about 2003 through at least 2008, PSL had access to records with information regarding the allegedly usurious loans, including information submitted on the loan applications such as the borrowers' names, addresses, bank account information, and the amounts of money collected on each loan. However, the loan applications were maintained in electronic format on MTE's database and, as a result, PSL lost access to this information when it stopped processing loans for MTE at the end of 2008.
We grant plaintiffs' request for judicial notice, dated November 20, 2015, of certain court records indicating that the trial court in this case certified for purposes of settlement one subset of the proposed class identified in paragraph 65 of this Complaint: to wit, the approximately 1,762 member ARM settlement class. Plaintiffs' request for judicial notice filed September 12, 2017 is denied as irrelevant in light of our decision to remand this matter to the trial court for further proceedings.
Plaintiffs further insist that, if the putative class is in fact certified, class members can submit their own bank records reflecting amounts debited from their accounts as repayment on defendants' usurious loans, as well as any other records they may have reflecting their loan terms or payments. In so arguing, plaintiffs rely on Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, a case involving taxicab passengers overcharged for taxi services in Los Angeles in which the California Supreme Court reversed a trial court's denial of a class certification motion. In so ruling, the high court rejected the defendants' argument (similar to here) that the plaintiffs failed to prove the existence of an ascertainable class, explaining that the key issue for purposes of class certification is whether there is a community of interests among class members rather than whether individual class members will ultimately be able to prove damages: "If the existence of an ascertainable class has been shown, there is no need to identify its individual members in order to bind all members by the judgment. The fact that the class members are unidentifiable at this point will not preclude a complete determination of the issues affecting the class." (Daar v. Yellow Cab Co., supra, 67 Cal.2d at p. 706 [Daar].)
Rejecting an argument by Yellow Cab, similar to defendants' argument here, that plaintiffs failed to demonstrate how class damages would be calculated and distributed, the California Supreme Court explained that, "[p]resumably an accounting in the suit at bench will determine the total amount of the alleged overcharges; any judgment will be binding on all the users of taxicabs within the prior four years. However, no one may recover his separate damages until he comes forward, identifies himself and proves the amount thereof." (Daar, supra, 67 Cal.2d at p. 706.)
According to plaintiffs, the trial court in this case went afoul of Daar when denying their motion for class certification because, like the trial court in Daar, it focused too narrowly on whether individual class members would be able to prove their right to restitution rather than on the community of interests among class members (including their common California residency and execution of a standard note with one or more defendants). (See Marler v. E.M. Johansing, LLC (2011) 199 Cal.App.4th 1450, 1460-1461 [concluding "objective characteristics and common transactional facts" existed that made identification of class members possible in a fraud case involving residents of a senior citizens mobile home park and the park owners].) Moreover, plaintiffs insist that, to the extent the trial court found the evidence supporting their motion insufficient to prove the existence of an ascertainable class, they should be "entitled to determine whether the Corporate Defendants have engaged in the spoliation of evidence, or have testified inaccurately as to their access to evidence . . . . This discovery is essential before any decision is made regarding the class certification." (Italics added.) We agree with plaintiffs' latter point.
First, as the trial court acknowledged in its order, this is just the sort of consumer protection lawsuit that would "typically fit neatly into a class action model for resolution." There is no serious dispute in this case that there are numerous and significant common questions of fact and law. As set forth in plaintiffs' briefs, these common questions include whether respondents were engaged in lending activities that were usurious or unconscionable under California law, whether they breached their obligation of good faith and fair dealing to plaintiffs and other members of the public, and whether they committed acts of unfair competition within the meaning of section 17200 by charging loans in excess of 700 percent interest per annum. There are also common questions regarding the borrowers' right to recovery, including whether class members are entitled to restitution or other forms of relief. (See Civ. Code, §§ 3345, 1916.12-3, subd. (b).) And there is unchallenged evidence in the record that the borrowers executed a standard form "Loan Note Disclosure," at least during the period from 2003 until 2008 or 2009 when PSL was processing and servicing loans for MTE. Finally, there is evidence the borrowers' loan repayments were comingled in a single bank account, the net revenue from which was subsequently paid out to individual lender defendants. While respondents contend that individual interest rates may have varied among borrowers, as plaintiffs point out, assuming for the sake of argument this fact is relevant to a motion for class certification, to ultimately prove usury under California law plaintiffs need only demonstrate defendants charged interest rates in excess of 10 percent. (Civ. Code, § 1916.12-3; Cal. Const. Art. XV, § 1.)
" '[T]hat each class member might be required ultimately to justify an individual claim does not necessarily preclude maintenance of a class action.' [Citation.] Predominance is a comparative concept, and 'the necessity for class members to individually establish eligibility and damages does not mean individual fact questions predominate.' " (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 334.)
We simply note for the record that, to the extent the trial court denied certification on the ground that the proposed class was overinclusive, we agree with plaintiffs the preferred approach in this State is to permit a plaintiff to modify the class definition before denying certification: " '[C]lass certification should not be denied on overbreadth grounds when the class definition is only slightly overinclusive.' [Citation.] In such cases, this is 'not a bar to class certification,' as those improperly included may be placed in a subclass or dismissed from the case. [Citation.] [¶] [Moreover,] [o]verbreadth may be cured by modifying the class definitions, adding a more precise description of the [proposed class] or using subclasses. . . . (See, e.g., Clothesrigger, Inc. v. GTE Corp. (1987) 191 Cal.App.3d 605, 617 ['all persons nationwide subscribing to Sprint since January 1, 1981, who were charged for one or more unanswered long distance calls. Plainly such class is ascertainable.'].)" (Marler v. E.M. Johansing, LLC, supra, 199 Cal.App.4th at p. 1461 [trial court erred by denying plaintiffs' motion for certification rather than allowing them to amend the class definitions].) As explained by our appellate colleagues in the Second District, Division Six: "Drafting class descriptions is not an easy task. Amendments are permitted so that class cases may proceed on their merits. . . . ' "[I]f necessary to preserve the case as a class action, the court itself can and should redefine the class where the evidence before it shows such a redefined class would be ascertainable." ' [Citation.] 'As it is the court's duty to certify an identifiable and ascertainable class, the court is not limited . . . to the class description contained in plaintiff's complaint.' [Citation.] Plaintiffs should be given the opportunity on remand to amend the class descriptions." (Marler v. E.M. Johansing, LLC, supra, 199 Cal.App.4th at p. 1462.)
Under these circumstances, the "insurmountable" challenges identified by the trial court in denying plaintiffs' motion instead relate primarily to the lack of available information regarding the identity of the class of victims and the money, if any, owed by any particular defendant to these victims. The trial court's frustration with this lack of information is reflected in the following colloquy between court and counsel at the contested March 25, 2014 hearing: "THE COURT: Well, then address [plaintiffs' counsel's] other point, and let's take is as a hypothetical. I'm not asking you to admit that your client did something.
For example, the trial court condemns plaintiffs in its order for "fail[ing] to explain . . . how a trier of fact could possibly determine the overall size of a class recovery fund, let alone how such a fund could possibly be distributed, if there is no evidence available from any source upon which to base these determinations." (Italics added.)
"If you have a case where plaintiff brings a class action and the ascertainability issues comes up, and the defendant comes in and says: 'Gee, we had records that showed all of that, and two days after the complaint was filed, we were served, and my client had a bonfire and burned it all.' . . . I'm trying to deal with the legal issue of what does a Court do [sic] in that situation if a plaintiff has a righteous case, and there is a serious ascertainability and notice issue that is totally of the defendants' making, and I've been thinking about that, and I don't have an answer. [¶] . . . I'm not asking you at this point to defend your client's conduct. I'm just saying what rule of law should I look to to deal with that. Obviously, I can deal with it on a factual basis that did or did not happen, but what rule of law applies? "[RESPONDENTS' COUNSEL]: Purely in the hypothetical sense, and of course, I physically can't let the hypothetical go without saying that my client didn't destroy [the records], but in the hypothetical circumstance, I would start by asking whether the plaintiffs had done everything that they could possibly do to determine whether that information exists on this earth, and in this circumstance, at least according to the information that has been submitted from defendants, it may still exist on the tribal land in the tribe server, something like that. Have they done anything to retrieve it? Go to MTE and file a petition in tribal court or whatever the procedural mechanism would be. . . . [D]oesn't that at least have to be the start? It might be - and the Court is laughing - it might be that they are not going to get anywhere." (Italics added.)
Thus, close examination of this record reflects the unique circumstances of this case alluded to by the trial court in the challenged order stem to a large degree from the fact that MTE, the now-defunct entity at the heart of the allegedly unlawful lending operation, has been labeled a sovereign tribal entity and, thus, that plaintiffs have not been able to obtain evidence from MTE relating to class certification issues, including whether a class of victims exists in California that entered into usurious loans over the internet with one or more defendants. However, as noted above, after briefing in this appeal, the California Supreme Court issued its decision in MNE. Reversing a lower court order that granted the specially appearing defendants' motion to quash service for lack of jurisdiction and dismissing the case on the basis of tribal sovereign immunity, the high court ultimately adopted a new standard for determining when a tribal entity is entitled to such immunity based upon five (individually nondispositive) factors: (1) method of creation, (2) tribal intent, (3) purpose, (4) control, and (5) financial relationship. (2 Cal.5th at p. 236.) The California Supreme Court also clarified for the first time that "a tribally affiliated entity claiming immunity bears the burden of proving by a preponderance of the evidence that it is an arm of the tribe." (MNE, supra, 2 Cal.5th at p. 244.) Finally, with respect to the type of proof required to meet this burden, the high court emphasized the importance of having in the record functional evidence relating to how the tribal entity actually operates, and not just formal evidence relating to the entity's underlying organizational or control structure. (See id. at pp. 252-253.) As explained by the court, "until the entity has proven it should be treated as an extension of the tribe, it is no more entitled to a presumption of immunity than any other party." (Id. at p. 244.)
As set forth in greater detail in our concurrently filed opinion, Baillie v. Tucker, A141201, in MNE, the California Supreme Court reviewed a decision by the Second District Court of Appeal to affirm a court order granting the specially appearing defendants' motion to quash service for lack of jurisdiction and dismissing the case on the ground that the defendants were immune from suit as sovereign tribal entities. (MNE, supra, 2 Cal.5th at pp. 239-244.) Reversing, the California Supreme Court concluded the lower courts had misapplied the doctrine of tribal sovereign immunity before laying out a new state standard for determining when a tribal entity is entitled to such immunity. (Id. at pp. 230-231.)
This new standard represents a modified version of the standard set forth in Breakthrough Management Group, Inc. v. Chukchansi Gold Casino & Resort (10 Cir. 2010) 629 F.3d 1173 (Breakthrough). (MNE, supra, 2 Cal.5th at p. 244.) According to the high court, "[these factors] properly account for the understanding that tribal immunity is both 'an inherent part of the concept of sovereignty' and ' "necessary to promote the federal policies of tribal self-determination, economic development, and cultural autonomy." ' [Citation.]" (Ibid.)
After applying this new legal standard, the California Supreme Court ultimately concluded in MNE that "[t]he record reveals a nominally close relationship between SFS and the Santee Sioux, and between MNE Services and the Miami Tribe. But it contains scant evidence that either tribe actually controls, oversees, or significantly benefits from the underlying business operations of the online lenders. On the record before us, which both parties contend is undisputed, we are unable to conclude that defendants have carried their burden of showing that a denial of immunity would appreciably impair either tribe's economic development, cultural autonomy, or self-governance." (MNE, supra, 2 Cal.5th at p. 251.) The trial court's judgment of dismissal was thus reversed and the matter was remanded for further proceedings. (Ibid.)
With this new standard firmly in mind, we conclude remand is likewise necessary in this case so that the trial court may reconsider plaintiffs' threshold motion for further discovery, prior to ruling on the class certification issue, in the absence of any doubt as to whether plaintiffs are legally entitled to potentially relevant documents actually or constructively possessed by MTE. While appellate courts do indeed give deference to the trial court's findings of fact in denying class certification, where, as here, the trial court's ruling is based on " 'incorrect legal assumptions' " our review must be "de novo." (Cho v. Seagate Technology Holdings, Inc. (2009) 177 Cal.App.4th 734, 745.)
And while, as respondents point out, the trial court did not expressly rely on the doctrine of tribal sovereign immunity when denying plaintiffs' motions but, rather, pointed to genuine concerns regarding the superiority of the class device, we nonetheless believe remand is necessary in light of the California Supreme Court's ruling in MNE for at least two significant reasons. First, as we have already discussed at length, the record reflects the trial court's primary concern was the insufficiency of plaintiffs' evidence regarding the existence of an ascertainable class and the means by which to provide class-wide notice and relief. Clearly, this insufficiency is a direct result of plaintiffs' inability throughout this lawsuit to obtain discovery from defendants relating to the MTE loan program. Once the shield of tribal sovereign immunity as a basis for withholding evidence is lifted, the trial court will have a clearer picture of what evidence may be available, as well as what evidence, if any, defendants have (lawfully or unlawfully) destroyed. Absent such discovery, however, we harbor serious reservations as to whether the trial court has appropriately considered the available evidence relating to the issues of ascertainability and notice — the primary bases for its court's discretionary decision not to certify this class.
Respondents counter that MTE is a defunct entity and, thus, no longer party to this lawsuit. The challenged order explains in relevant part: "[Respondents] attempted on more than one occasion to obtain dismissal from the Baillie case based on the argument that [MTE] was an 'indispensable party' and that MTE was entitled to the protection of sovereign immunity. The record reflects that MTE is no longer in existence. (See order dated January 13, 2012 - Motion to Seal Record Dropped.) Most recently, [respondents'] Motion to Dismiss for Nonjoinder of Indispensable Party was denied on October 3, 2013."
This portion of the challenged order makes clear to this court that MTE's status - as a corporate entity and as a tribal entity - has been, and continues to be, a point of contention in this litigation. Yet there is little in the record on appeal that sheds light on this issue. Neither party has identified any evidence for purposes of this appeal that sufficiently answers for this court the vital questions of what has happened to MTE and, more importantly, what has become of any relevant documents previously or currently under its control (including those withheld from discovery by defendants on the basis of sovereign immunity). As noted above, in its October 3, 2013 order, the trial court declined to dismiss this case for "Nonjoinder of Indispensable Party," which was based on the fact of MTE's dissolution. At the same time, respondents continue to rely on MTE's status to justify their failure to comply with plaintiffs' discovery requests, arguing in Respondents' Brief: "MTE, as the lender, maintained a database with the borrowers' personal information, to which PSL had access only until approximately the time it ceased doing business." The interplay of MTE's corporate and tribal status and the availability of evidence in this case merely strengthens our conviction that remand is the appropriate course of action.
Second, we hasten to add that public policy requires California courts to approach class certification from a position of favor rather than reluctance. As the California Supreme Court explained decades ago: "[T]his state has a public policy which encourages the use of the class action device . . . ." (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 473.) "Frequently numerous consumers are exposed to the same dubious practice by the same seller so that proof of the prevalence of the practice as to one consumer would provide proof for all. Individual actions by each of the defrauded consumers are often impracticable because the amount of individual recovery would be insufficient to justify bringing a separate action; thus an unscrupulous seller retains the benefits of its wrongful conduct. A class action by consumers produces several salutary by-products, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance to the judicial process of the burden of multiple litigation involving identical claims. The benefit to the parties and the courts would, in many circumstances, be substantial." (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 156 (overruled on other grounds in McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, 964), quoting Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808. Accord Blue Chip Stamps v. Superior Court (1976) 18 Cal.3d 381, 387 (conc. opn. of Tobriner, J. ["A company which wrongfully exacts a dollar from each of millions of customers will reap a handsome profit; the class action is often the only effective way to halt and redress such exploitation. [Citations.] The problems which arise in the management of a class action involving numerous small claims do not justify a judicial policy that would permit the defendant to retain the benefits of its wrongful conduct and to continue that conduct with impunity"].)
Thus, when we consider the trial court's order and reasoning from this policy perspective and in light of MNE, we conclude the most prudent course of action is to remand this matter to ensure any decision to certify or not certify plaintiffs' class is based on a proper record and understanding of the governing law. (See, e.g., Brinker, supra, 53 Cal.4th at p. 1022 [" 'As a general rule if the defendant's liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages' "]; Marler v. E.M. Johansing, LLC, supra, 199 Cal.App.4th at p. 1462 [" 'it is the court's duty to certify an identifiable and ascertainable class' "].)
Lastly, in reaching this conclusion, we briefly address the concern raised in the trial court's order that plaintiffs failed to adequately address the impact on their claims of Assenzio's dismissal from the case given that they have alleged respondents are mere "alter egos" of Assenzio and have argued that "any individuality or separateness of Assenzio and Defendant Lenders have not ever, and do not now exist." As noted in our earlier decision, Baillie v. Assenzio, "[t]he third amended complaint alleged that [Assenzio] 'owned, controlled, managed, and/or directed defendants [PSL], First East. . . , MTE Financial Services, Inc., Instantcashloantillpayday.com, [ICU], and Rio Resources.' Claims were thus raised against appellant based upon a theory of 'piercing the corporate veil.' " (2014 Cal.App.Unpub. LEXIS 4716 at p. *3.) On appeal, respondents seize upon this issue as a basis for affirming the challenged order, insisting: "Even if liability on the usury and 17200 claims could be determined commonly which [respondents] dispute, the court cannot resolve, commonly or otherwise, Plaintiffs' claim that Assenzio is the alter ego of the corporate Defendants and other non-party, named defendants. Those issues would have to be determined in individual arbitration."
We reject this argument as a basis for affirming the trial court's order. Indeed, neither the trial court nor respondents have adequately explained why proceeding with plaintiffs' claims against respondents in Assenzio's absence would be legally impermissible or inappropriate. To the contrary, the law is quite clear: "The concept of vicarious liability has no application to actions brought under the unfair business practices act. While [the corporation] can, of course, be held liable for violations of sections 17200 and 17500 by its employees (see Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 358 . . . ; Chern v. Bank of America (1976) 15 Cal.3d 866 . . . ), [the alleged alter ego's] individual liability must be predicated on his personal participation in the unlawful practices." (People v. Toomey (1984) 157 Cal.App.3d 1, 14.) In other words, the alter ego allegations in the Complaint identified a common law basis for holding Assenzio personally liable for the unfair loan practices committed by the corporations he owned and controlled based on his own participation in the loan operation. However, that Assenzio has been dismissed from the case and cannot be held personally liable on this theory does not necessarily undermine the remaining allegations in the Complaint that are addressed to the corporations themselves. (Ibid.) To the contrary, those allegations remain valid at this juncture. (See Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1343 ["The essence of the alter ego doctrine is that justice be done"].)
Thus, because the trial court denied plaintiffs' motion for further discovery on the issue of class certification prior to the California Supreme Court's adoption of the definitive standard for determining whether a tribal entity is in fact entitled to sovereign immunity, we conclude the order must be reconsidered. We therefore reverse and remand the matter for further proceedings in light of this new controlling authority.
We add to the opinions discussed herein our conclusion that the MNE decision should apply retroactively on remand, particularly in light of the considerations of fairness and the public policy encouraging use of the class action device, which are implicated herein. (Bearden v. U.S. Borax, Inc. (2006) 138 Cal.App.4th 429, 442-443 ["As a general rule, judicial decisions are given retroactive effect, even if they represent a clear change in the law. [Citation.] The exception is when considerations of fairness and public policy are so compelling in a particular case that, on balance, they outweigh the considerations that underlie the basic rule"]. See also Woods v. Young (1991) 53 Cal.3d 315, 330 ["Particular considerations relevant to the retroactivity determination include the reasonableness of the parties' reliance on the former rule, the nature of the change as substantive or procedural, retroactivity's effect on the administration of justice, and the purposes to be served by the new rule. [Citations.]"].)
DISPOSITION
The December 2014 order denying plaintiffs' motion for class certification and related motion for further discovery is reversed and the matter remanded for further proceedings in light of the California Supreme Court decision in People v. Miami Nation Enterprises (2016) 2 Cal.5th 222, as well as the opinions discussed herein. / / / / / / / / /
/s/_________
Jenkins, J. We concur: /s/_________
Pollak, Acting P. J. /s/_________
Siggins, J.