The Restoration of Eggert by Hernandez v. Restoration Hardware

California Code of Civil Procedure section 902 provides that “[a]ny party aggrieved” may appeal a judgment. For the past half century, courts and commentators have regarded settlement objectors as “aggrieved” parties with standing to appeal. See Trotsky v. Los Angeles Fed. Sav. & Loan Assn., 48 Cal. App. 3d 134, 139-40 (1975). This practice essentially tracked federal appellate procedure and appeared non-controversial; indeed, few would have foreseen this precedent would be overturned in favor of an even older, seemingly-forgotten precedent (see Eggert v. Pac. States S. & L. Co., 20 Cal. 2d 199 (1942)) by the California Supreme Court in Hernandez v. Restoration Hardware, Inc., No. S233983 (Jan. 29, 2018) (slip op. available here) (holding that unnamed class members may not appeal a class judgment, settlement, or attorney fees award unless they intervene in the action or move to vacate the judgment).

In Restoration Hardware, the plaintiffs in a class action alleged that the home furnishings store violated the Song-Beverly Credit Card Act by requesting and recording customer zip codes. After years of litigation, the court certified the class, and ordered the parties to notify class members that they had the option to remain in the certified class and be bound by the judgment, or to exclude themselves from the class and not be bound to the judgment. The notice also advised class members they had the option of appearing through counsel if they wished to remain in the class. In response, class member Francesca Muller appeared through her counsel, Lawrence W. Schonbrun (who also represented the objector in Laffitte v. Robert Half Intern. Inc., 1 Cal. 5th 480 (2016)). After a bench trial, the court awarded the class over $36 million in penalties and ordered the parties to meet and confer regarding an appropriate claims process to distribute the award to the class. The parties stipulated to treat the award as a common fund that included class member payments and any attorneys’ fees, costs, class representative enhancements, and administrative costs associated with administering the claims process. The plaintiffs then moved for attorneys’ fees equal to 25% of the total judgment recovered for the class. At the hearing, Muller (who was served with the moving papers) objected to the attorneys’ fees sought by class counsel. The court overruled her objection and entered a judgment that tracked the parties’ proposed claims procedure. Muller appealed.

Citing Eggert, the plaintiffs argued that Muller lacked standing to appeal because she had neither moved to intervene nor to vacate the judgment. Muller argued that Eggert should be disregarded because it was decided before the 1966 revisions to rule 23 of the Federal Rules of Civil Procedure—persuasive authority in modern California class action jurisprudence (see, e.g., Arias v. Superior Court, 46 Cal. 4th 969, 989 (2009)). She also relied on Trotsky and its progeny to support her contention that class members gain standing to appeal by objecting. The Court of Appeal disagreed and ruled that it was bound to follow Eggert, and that neither Trotsky, Consumer Cause, Inc., nor Wershba made any attempt to reconcile their opinions with Eggert.

On appeal to the California Supreme Court, Muller once again argued that she had standing to appeal under Trotsky, and that California law should be updated to mirror Rule 23 and federal appellate practice, which generally permit class member objectors to appeal. The state Supreme Court disagreed, finding that, first, the right to appeal judgments in state civil actions, including class actions, is entirely statutory, and, pursuant to California Code of Civil Procedure section 902 and Eggert, unnamed class members may only become parties of record to class actions by making a timely complaint in intervention before final judgment or by filing a motion to set aside and vacate the class judgment under section 663. Second, Trotsky’s failure to address section 902’s requirements for the right to appeal a settlement, or to distinguish or otherwise reconcile its holding with Eggert, renders the opinion unpersuasive. Third, California state common law, legislation, and procedural rules of court differ significantly from the federal common law and procedural rules, and California’s legislature has chosen to continue Eggert’s rule despite changes in federal class action rules.

In addition to the above rulings, the California Supreme Court also cited several policy reasons for upholding Eggert, including the public policy in favor of discouraging professional objectors: “Meritless objections can disrupt settlements by requiring class counsel to expend resources fighting appeals, and, more importantly, delaying the point at which settlements become final. These . . . professional objectors, are thought to harm the class members whose interests they claim to protect. . . . .  [B]y feeding off the fees earned by class counsel who took the risk of suing defendants on a purely contingent basis, . . . professional objectors create a disincentive for class counsel to take on such risky matters.” Slip op. at 15 (internal citations omitted).

This is the first of the state high court’s opinions to use the term “professional objector,” and its use suggests that the court is now taking proactive measures to curb the abuse of class action procedures by serial objectors, who have been, for too long, exploiting their appellate rights under Trotsky to extort generous side settlements.

Authored by:
Eduardo Santos, Senior Counsel
CAPSTONE LAW APC