In Schermer v. Tatum, 245 Cal. App. 4th 912 (2016), the California Court of Appeal affirmed two important principles for class actions in California: (1) to have a community of interest, there must be a wrong that is truly common to all members, and (2) class certification can be defeated on demurrer. Applying these principles, the Schermer court dealt the defendants a resounding victory by holding that the trial court properly sustained the defendants' demurrer to the class allegations without leave to amend.
Background. Schermer was a putative class action on behalf of residents of 18 different mobilehome parks allegedly owned or operated by the defendants. The plaintiffs alleged that the defendants subjected them (and the putative class) to uniform unconscionable lease agreements and leasing practices, which caused them to lose money and pay excess rent.
Trial Court Sustains Demurrer. After successful demurrers to the class allegations in the original and first amended complaint, the defendants demurred again to the class allegations in four causes of action in the second amended complaint: (1) unfair business practices, (2) breach of the covenant of quiet enjoyment, (3) breach of the duty of good faith and fair dealing, and (4) fraud and deceit. This time, the trial court sustained the demurrer without leave to amend.
Appeal Court Affirms. The Court of Appeal issued a strong affirmance on the ground that the lower court had correctly concluded that there was no reasonable possibility the plaintiffs could demonstrate a community of interest. To show a community of interest, a plaintiff must prove that common questions of law or fact predominate. The complaint must also allege facts showing a reasonable possibility that the plaintiff can satisfy predominance. If it doesn't, California law allows the court to dismiss the class allegations on a demurrer (or motion to strike).
The Schermer court did just that. The court began with the axiom that, in ruling on a demurrer, a court considers as true all material or ultimate facts properly alleged, but does not consider contentions, deductions, or factual conclusions. The Schermer plaintiffs' central allegations—that a uniform policy and procedure was used in every lease transaction over a four-year period, in each of the eighteen mobilehome parks—fell into the latter category and thus were not assumed to be true.
Furthermore, even if the defendants had used similar lease agreements in each of the 18 parks, individual issues would still predominate because: (1) the alleged unconscionable policies and procedures mainly "arose out of one-on-one interactions between different defendants . . . and each plaintiff and putative class member in each of the 18 mobilehome parks"; (2) these interactions involved the negotiation, execution, and enforcement of each lease agreement; (3) the plaintiffs alleged at least eight different unconscionable leasing practices in connection with this conduct; and (4) several of these practices involved facts specific to the individual lease negotiation (for example, whether the residents signed the lease under duress or received all related documents at the time of execution).
Individual issues also predominated as to the class members' right to recovery. The case involved 18 different parks in 16 different cities, and 8 of the parks were in cities with rent control ordinances. Thus, the requested relief—restitution of excess rents and disgorgement of ill-gotten profits—would require a factual showing of the fair market value for rents in each park (and possibly for specific spaces in each park) at each time during the four-year class period. This meant that recovery would be unique not only as to each plaintiff and putative class member, but also as to each park.
In short, the complaint was rife with issues requiring individual determination as to both liability and recovery. This was fatal to the class allegations in each of the four causes of action. And it also convinced the Court of Appeal that there was no reasonable chance the plaintiffs could amend to cure this problem. Thus, the Court of Appeal affirmed the decision not to allow leave to amend.
Takeaway. Schermer is an arrow in the quiver of any defendant seeking an early end to class allegations in California, and a warning to plaintiffs who presume that common issues can be shown simply by their say-so. A community of interest requires a truly common wrong supported by allegations of actual fact—not mere conclusions. In this case, the defendants challenged the class allegations on demurrer. A motion to strike the class allegations is probably the more commonly used vehicle for such a challenge, and the reasoning in Schermer appears equally applicable to such a motion.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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