Severson Wins Important Class Action Decision:
California Supreme Court Reaffirms Rule Against One-Way Intervention

(Last updated May 14, 2006)

In a class action, the trial court should decide whether a class is proper and, if so, order class notice before ruling on the substantive merits of the action. In Fireside Bank v. Superior Court (Apr. 16, 2007; No. S139171) __ Cal.4th __, the California Supreme Court strongly reaffirmed this rule.

The rule is important for defendants because if merits are decided first, class members can choose whether to opt out of the action already knowing if they have won or lost. They will join if the early merits decision is in their favor, but not if the defendant won.

This sort of “one-way intervention” leaves a defendant open to “being pecked to death by ducks.” One plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevails; then all the remaining class members could join in that single success.

In order to prevent this unfairness, merits ordinarily must not be decided until after class issues are resolved and class notice is sent. While not lacking any discretion in the matter, trial courts may not decide merits first absent a compelling justification or changed circumstances.

So long as a ruling affects the merits of the class claims in a way that would create a risk of one-way intervention, it must be postponed until after class certification. So a ruling on a class member’s individual claim or defense must be postponed as well if it shows how the trial court is likely to resolve the class claims. Also, it is no excuse that some merits issues (such as affirmative defenses) remain unresolved, if the ruling impacts the principal issue(s) in the case and poses a risk of one-way intervention.

If the plaintiff obtains a merits ruling before moving for class certification, it must demonstrate changed circumstances to justify its belated motion for class certification. Absent a showing of changed circumstances, the trial court may not consider the class certification motion; absent a further finding of a compelling justification, it may not grant it. By prematurely seeking a merits ruling, the plaintiff forfeits the opportunity to have a class certified.

Jan T. Chilton of Severson & Werson represented the successful defendant, Fireside Bank, on appeal and before the California Supreme Court. Please contact Mr. Chilton ((901) 684-1231; jtc@severson.com) for more information or with questions.