Superior Court of San Mateo County, No. CIV436164, Robert D. Foiles, Judge. Super. Ct. No. CIV 436164)
The opinion of the court was delivered by: Bruiniers, J.
CERTIFIED FOR PUBLICATION
Plaintiffs alleged that the defendant wireless telephone companies (collectively, Defendants)*fn1 made material misrepresentations to the consuming public as to the actual number of usable (i.e., conversational) airtime minutes in advertised subscriber rate plans.*fn2 The trial court sustained Defendants' demurrer to the class action allegations of the fifth amended complaint without leave to amend, relying in part on Knapp v. AT&T Wireless Services, Inc. (2011) 195 Cal.App.4th 932, 944 (Knapp), involving similar allegations. We reverse as to dismissal of Plaintiffs' equitable claims under the unfair competition law (UCL; Bus. & Prof. Code, § 17200 et seq.),*fn3 and otherwise affirm.
Plaintiffs'*fn4 complaint, originally filed in December 2003, challenged Defendants' disclosures of the practice of billing for airtime in full minute increments, with partial minutes of use rounded up.*fn5 Plaintiffs alleged that Defendants' advertisements and other promotional materials misrepresented or inadequately disclosed this rounding up policy, in violation of the UCL and the false advertising law (§ 17500 et seq.). Plaintiffs filed their fifth amended complaint (FAC) in this action in approximately February 2011. The first three causes of action of the FAC assert claims under the UCL. The first cause of action claims unlawful business practices, the second cause of action alleges unfair business practices, and the third cause of action sets forth a claim for fraudulent business practices. The fourth cause of action claims fraud by Defendants. The fifth cause of action asserts a claim for the violation of the Consumer's Legal Remedies Act (CLRA; Civ. Code, § 1750 et seq.) Plaintiffs sought to represent a class composed of "all consumers who have subscribed to a term contract for wireless telephone service in California from one or more of the Defendants herein, at any time from and after January 1, 1999 until the present time." Plaintiffs requested damages, restitution, and injunctive relief.
Defendants demurred to the class allegations of the FAC on the ground that there was no reasonable probability Plaintiffs could certify a class following the decision in Knapp, and that Plaintiffs were collaterally estopped from doing so. Defendants requested judicial notice of portions of the papers Plaintiffs had filed in support of their motion for leave to file the FAC, of trial court pleadings filed in Ball, of the then unpublished appellate decision in Knapp, and of the operative trial court pleading at issue in Knapp. Plaintiffs also filed a request seeking judicial notice of prior pleadings in the instant case, certain trial court pleadings in Ball, and a declaration filed on behalf of Cingular Wireless in the Alameda County Superior Court in coordination proceedings seeking to compel arbitration (Cellphone Termination Fee Cases, JCCP No. 4332).
A hearing on the demurrer was held on June 17, 2011. The court granted the unopposed requests for judicial notice of both parties. The demurrer of the Defendants to the class allegations of the FAC was sustained without leave to amend.*fn6 Citing Knapp, the trial court concluded that "there is no reasonable possibility that Plaintiffs can establish a community of interest among the potential class members and that individual issues predominate over common questions of law and fact."
The court entered its order after hearing on July 1, 2011. A timely notice of appeal was filed on July 13, 2011.*fn7
Plaintiffs contend that the trial court erred in making a determination of class sufficiency at the pleading stage, and in its reliance on Knapp, which Plaintiffs insist is a case involving the policies, practices and procedures of a completely separate entity in the marketing and sale of rate and service plans.
We first note our standard of review in this circumstance. We do not consider here the denial of a motion for class certification. In that instance, " '[b]ecause 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. . . . [Accordingly,] a trial court ruling supported by substantial evidence generally will not be disturbed "unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]" [citation]. . . . "Any valid pertinent reason stated will be sufficient to uphold the order." ' [Citations.]" (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327.)
"On review from an order sustaining a demurrer, 'we examine the complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory, such facts being assumed true for this purpose. [Citations.]' [Citation.] We may also consider matters that have been judicially noticed. [Citations.]" (Committee For Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.) " '[W]hen the allegations of the complaint contradict or are inconsistent with such facts, we accept the latter and reject the former. [Citations.]' [Citation.] We give the same precedence to facts evident from exhibits attached to the pleading. [Citations.]" (Hill v. Roll Internat. Corp. (2011) 195 Cal.App.4th 1295, 1300.)
If denying class certification, the trial court must state at least one valid reason for denying the motion. (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 440, 435-436 (Linder).) If a demurrer is sustained, we exercise our independent judgment on whether a cause of action has been stated as a matter of law, regardless of reasons stated by the trial court. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 111.) We affirm if the trial court's decision was correct on any theory. (Gutierrez v. California Commerce Club, Inc. (2010) 187 Cal.App.4th 969, 975-976 (Gutierrez).)
When a demurrer is sustained without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Leave to amend should not be granted where amendment would be futile. (Newell v. State Farm General Ins. Co. (2004) 118 Cal.App.4th 1094, 1100 (Newell).)
"The plaintiff 'bears the burden of demonstrating that the trial court erroneously sustained the demurrer as a matter of law' and 'must show the complaint alleges facts sufficient to establish every element of [the] cause of action.' [Citation.]" (Sui v. Price (2011) 196 Cal.App.4th 933, 938.)
A. Disposition of Class Actions on Demurrer
The decision whether a case is suitable to proceed as a class action ordinarily is made on a motion for class certification. But our Supreme Court found it "settled" that courts are authorized "to weed out" legally meritless class action suits prior to certification by demurrer or pretrial motion. (Linder, supra, 23 Cal.4th at p. 440.) "When the substantive theories and claims of a proposed class suit are alleged to be without legal or factual merit, the interests of fairness and efficiency are furthered when the contention is resolved in the context of a formal pleading (demurrer) or motion (judgment on the pleadings, summary judgment, or summary adjudication) that affords proper notice and employs clear standards." (Ibid.) However, a court may decide the question by "sustaining a demurrer to the class action allegations of a complaint only if it concludes as a matter of law that, assuming the truth of the factual allegations in the complaint, there is no reasonable possibility that the requirements for class certification will be satisfied. [Citations.]" (Bridgeford v. Pacific Health Corp. (2012) 202 Cal.App.4th 1034, 1041-1042; Gutierrez, supra, 187 Cal.App.4th at p. 975.)
There is a divergence in intermediate appellate authority on the level of scrutiny to be given to demurrer rulings on class action pleadings, particularly to those sustaining a demurrer. In this District, we have said that "[C]courts have routinely decided the issue of class certification on demurrer, sustaining demurrers without leave to amend where it is clear that there is no reasonable possibility that the plaintiffs could establish a community of interest among the potential class members and that individual issues predominate over common questions of law and fact. [Citations.]" (Clausing v. San Francisco Unified School Dist. (1990)221 Cal.App.3d 1224, 1234 (Clausing); accord, Silva v. Block (1996) 49 Cal.App.4th 345, 349.) Demurrers may serve "as a screening mechanism for improperly pleaded class action allegations." (TJX Companies, Inc. v. Superior Court (2001) 87 Cal.App.4th 747, 752-753; see also Alvarez v. May Dept. Stores Co. (2006) 143 Cal.App.4th 1223, 1231-1232 ["may be proper at the pleading stage to strike class allegations if the face of the complaint and other matters subject to judicial notice reveal the invalidity of the class allegations"]; Newell, supra, 118 Cal.App.4th at pp. 1101-1102 ["[w]hen class certification is challenged by demurrer, 'the trial court must determine whether "there is a 'reasonable possibility' plaintiffs can plead a prima facie community of interest among class members" ' "]; Canon U.S.A., Inc. v. Superior Court (1998) 68 Cal.App.4th 1, 5 ["where the invalidity of the class allegations is revealed on the face of the complaint, and/or by matters subject to judicial notice, the class issue may be properly disposed of by demurrer or motion to strike"]; Pinnacle Holdings, Inc. v. Simon (1995) 31 Cal.App.4th 1430, 1435 ["[b]efore a hearing may be held on the propriety of a class action, the complaint must contain sufficient allegations of class interest or the pleading is vulnerable to a general demurrer"]; Brown v. Regents of University of California (1984) 151 Cal.App.3d 982, 989 ["policy considerations which justify class actions equally compel the dismissal of . . . inappropriate actions at the pleading stage"].)
Some courts have stated broadly that "it is only in mass tort actions (or other actions equally unsuited to class action treatment) that class suitability can and should be determined at the pleading stage. In other cases, particularly those involving wage and hour claims, class suitability should not be determined by demurrer."*fn8 (Prince, supra, 118 Cal.App.4th at p. 1325, fn. omitted; see also Gutierrez , supra, 187 Cal.App.4th at pp. 979-980 ["well established principle" that " 'only in mass tort actions . . . [should] class suitability . . . be determined at the pleading stage' "]; accord Tarkington v. California Unemployment Ins. Appeals Bd. (2009) 172 Cal.App.4th 1494, 1512 (Tarkington).) These cases have concluded that there is a policy disfavoring the determination of class suitability issues at the pleading stage. (Prince, at p. 1325; Gutierrez, at p. 976; Tarkington, at p. 1510; see also Blakemore v. Superior Court (2005) 129 Cal.App.4th 36, 59; Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 487-488 (Arce).) We believe such statements are perhaps too broad. These decisions, directly or indirectly, rely on Beckstead v. Superior Court (1971) 21 Cal.App.3d 780 (Beckstead) for the proposition that our Supreme Court "has expressed its disfavor with this practice as applied to class action suits" and "has mandated that a candidate complaint for class action consideration, if at all possible, be allowed to survive the pleading stages of litigation." (Beckstead, at pp. 782-783.) Beckstead cited four Supreme Court decisions in support of this conclusion: La Sala v. American Sav. & Loan Assn. (1971) 5 Cal.3d 864 (La Sala); Vasquez v. Superior Court (1971) 4 Cal.3d 800 (Vasquez); Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93 (Jones); and Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695 (Daar). We are unable to find any such rule articulated in the cited cases.
In La Sala, supra, 5 Cal.3d at p. 868, the trial court dismissed a borrowers' class action against the lending bank on the grounds that the named plaintiffs no longer represented the class by virtue of a waiver by the lender of a challenged acceleration clause in the lender's deed of trust. The Supreme Court reversed, holding that the plaintiffs had to be afforded an opportunity to amend their pleading to cure the defect, and that the nature of the claims presented did not preclude maintenance of the suit as a class action. (Id. at pp. 868-869.) The Court said nothing about the propriety of demurrer in these circumstances. In Vasquez, the trial court sustained demurrers to the class action aspect of a claim of in consumer installment sales contracts. In doing so, the trial court "made it clear that it was not concerned with the sufficiency of the particular allegations to assert a class action but, rather, that in its view a class action for fraud may not be maintained by consumers." (Vasquez, supra, 4 Cal.3d at pp. 805-806, fn. omitted.) The Supreme Court disagreed on this issue because "plaintiffs may be able to demonstrate a community of interest as to the elements of their claim of fraud" and concluded that the trial court erred in finding that that class allegations were insufficient. (Id. at p. 815.) Vasquez did discuss possible procedures which a trial court could utilize in assessing whether plaintiffs could actually demonstrate that the action meets class requirements, including hearing procedures under Civil Code section 1781 and Federal Rules of Civil Procedure, rule 23. (Vasquez, at pp. 820-821.) The Court also observed that these examples were "intended to be illustrative and not exhaustive." (Id. at p. 821) Jones was an action by a minority stockholder in a savings and loan association. The Supreme Court reversed the trial court's grant of demurrers without leave to amend on the plaintiff's nonclass fiduciary and derivative causes of action. (Jones, supra, 1 Cal.3d at pp. 101, 115.) The defendants filed a cross-appeal of the trial court's order overruling certain grounds for demurrer, including class action allegations. (Id. at p. 119.) While finding the contested rulings interlocutory and non-appealable, the Supreme Court "deem[ed] it appropriate to comment on defendants' contentions" since the issues might arise again on appeal from a final judgment. (Ibid.) The Supreme Court simply observed that "[i]t is apparent that the requisite community of interest exists among the minority shareholders of the Association and that the class is readily ascertainable. The demurrer was properly overruled." (Id. at p. 121.) Finally, in Daar the Supreme Court again reversed a trial court order sustaining a demurrer without leave to amend, concluding, on review of the pleadings that each count of the complaint showed the existence of an ascertainable class and a well defined community interest in the questions of law and fact and that, "accordingly, the complaint and each count thereof sets forth sufficient facts to establish a class action." (Daar, supra, 67 Cal.2d at p. 717.) Contrary to Beckstead's characterization, in none of these cases did the Supreme Court "express disfavor" with use of demurrer to challenge the sufficiency of class allegation, nor did the Court "mandate" that a complaint for class action be allowed to survive the pleading stages of litigation "if at all possible." In each instance, the Court simply found the pleading allegations sufficient to survive demurrer.
Continued reliance on Beckstead's questionable conclusion that consideration of the sufficiency of class action allegations by demurrer is disfavored seems especially difficult to reconcile with the Supreme Court's far more recent statement that "nothing prevents a court from weeding out legally meritless suits prior to certification via a defendant's demurrer or pretrial motion. In fact, it is settled that courts are authorized to do so. [Citations.] [¶] When the substantive theories and claims of a proposed class suit are alleged to be without legal or factual merit, the interests of fairness and efficiency are furthered when the contention is resolved in the context of a formal pleading (demurrer) or ...