Class action majority rejected

This week the California Supreme Court ruled that class action objectors must first intervene, rather than simply object, before having standing to appeal a class action settlement or judgment. Hernandez v. Restoration Hardware, Inc., 2018 DJDAR 998 (Jan. 19, 2018). The court rejected the invitation to revisit its prior 75-year-old decision in Eggert v. Pac. States S. & L. Co., 20 Cal. 2d 199 (1942), on the issue and align California with the majority of courts, including the U.S. Supreme Court, that hold that objectors need not formally intervene to obtain appellate standing. While the decision assists in vetting frivolous objections, it is not likely to have a significant practical impact on class action practice. Assuming the objector is a member of the class and has standing to object, the objector stills has enough interest to intervene, supporting the notion that there is little value in requiring a formal intervention motion.

In Hernandez, the plaintiff sued Restoration Hardware alleging that it violated California's Song-Beverly Credit Card Act, Civil Code Section 1747.08, by improperly requesting and recording customers' ZIP codes during credit card purchases at Restoration Hardware's California retail stores. After certifying the case as a class action and following a bench trial, the court rendered a $36 million judgment against Restoration Hardware. After trial, the parties agreed to treat the total award as a common fund inclusive of attorney fees and costs, and Restoration Hardware agreed not to oppose class counsel's request for a fee award equal to 25 percent of the total judgment.

An unnamed class member, Francesca Muller, who previously entered an appearance through her attorney, but did not move to intervene, responded to the fee motion. Muller did not to object to the amount of fees, but rather sought clarification regarding whether the class would receive notice of, and have the right to appear and comment on, the fee application. The trial court rejected Muller's position and granted the fee motion in full; Muller appealed.

The Court of Appeal dismissed for lack of standing, holding that Muller was not a "party," as required for standing under Code of Civil Procedure Section 902. In reaching its decision, the appellate court relied on Eggert, which, like Hernandez, involved an appeal by class members, who were not parties of record, to a fee award in a case litigated to judgment. Finding Eggert controlling, the Court of Appeal held that, under Section 902, Muller was required to have been both a "party" of record and "aggrieved" by the judgment, in order to have standing to appeal. Simply objecting to the fee award after trial was not sufficient.

When review was granted, it was believed the Supreme Court intended to address Eggert -- a decision reached before most class action jurisprudence existed -- and the long-standing line of California appellate cases that, at least in the class action settlement context, had adopted the rule endorsed by federal courts. Apparently, the Supreme Court had the exact opposite motivation, endorsing the Eggert rule as "sound guidance" and finding no persuasive reason to reconsider the rule, "much less depart from it." In the court's view, the Legislature has chosen to follow Eggert (by requiring unnamed class members to opt out of a class, timely intervene or move to vacate the class judgment) despite the intervening 75 years of changes to federal class action jurisprudence. Nor did the court see a need to carve out a class settlement exception to Eggert because requiring intervention first does not discourage meritorious appeals and continuing the process "under a bright-line" promotes judicial economy by providing clear notice of the objector's "intent" to challenge the judgment or settlement.

In the end, the most likely impact is to impose additional work for the trial court and parties as part of the settlement approval process. An objector who is a member of the class and has standing to object will have enough of an interest to intervene or move to vacate the class judgment under Code of Civil Procedure Section 663 (as suggested by the court), thereby gaining "party" status with the right to appeal. Requiring intervention is a perfunctory procedural step that ultimately provides the same value as formally objecting to a settlement. Indeed, as suggested by Justice Goodwin Liu in his concurring opinion, the same justifications underlying the court's decision to endorse the Eggert rule also support reasons why the Legislature should revisit the rule: (1) a rule requiring objectors to appear and object at a final fairness hearing "is similarly clear and orderly"; and (2) an objection, like intervention, provides notice to the parties of the nature of the objection and creates an appellate record.

While Hernandez sends a message that frivolous objections are disfavored, whether the decision has any practical impact in thwarting those objections will have to be seen. Ultimately, the Hernandez decision highlights a distinction without a (practical) difference between California and federal law.