Tuesday, February 16, 2010

California choice of law in class action on Canopy Financial

Given all the attention to Canopy Financial in the recent posting, and then the relative paucity of content, some explanation is in order. In the course of transferring my license from Wisconsin to California, I’ve been heads-down in the law of the Golden State. In case you were wondering about the rationale for those “choice of law” provisions in contracts, here’s a quick note on how class action lawsuit procedure would work differently under California rules for a case like Canopy. It appears that a class of California accountholders, rather than all the accountholders nationwide, would be the most likely approach to succeed. Under California class action law, the court can make the defendant pay for the notification that goes out to all the accountholders. Under other rules, a single representative class member must pay those fees (although they could be fronted by the law firm).

Primer on choice of class action procedure

Yes, that’s right, the specific court in which the trial is heard makes a difference. While California Courts will generally enforce a contractual choice of law if he state whose law was has an interest in the parties’ controversy, if the state’s interests are materially greater than the interests of the state whose law was contractually chosen by the parties, California State law applies. Brack v. Omni Loan Company, CA Court of Appeal - 4th District, No. D049198, July 16, 2008.

The best point of comparison for California class action procedures is Federal Rules of Civil Procedure (FRCP).  Corporate defendants tend to remove their cases to federal court, and federal courts apply Federal Civil Procedure. Assuming that the suit is brought in California on the basis of Canopy’s negligence, removal to federal court is possible if the amount in controversy (aggregated among class members) exceeds $75,000 and the corporation is not a citizen of California. Federal Courts are required to apply state law on substantive matters, but the FRCP trumps state procedural law, even on matters even as

It is worth noting that the Class Action Fairness Act of 2005 (CAFA) does provide an alternate means for obtaining or losing federal court jurisdiction. CAFA attempts to ensure that where class members are the primary defendants are citizens of the same state, the case will be heard in state court. The reverse is also true – if the class contains defendants from multiple states, they may sue in federal court.

FRCP requirements

1.      Numerosity
2.      Commonality
3.      Typicality
4.      Representative is adequate

Where money damages are being sought, it must also be shown that common questions of law and fact predominate over individual questions among class members, and that class action is the superior method for handling the dispute.

Once the class is “certified” on these bases, and counsel are appointed for the class, the court must send out a notice to all identifiable class members. This gets expensive, especially since it must be paid for by the representative.  Compare this with the California requirements, below, where the court may decide to make the defendant pay for the cost of the notice.

California class action

In California, a class action requires both an ascertainable class and a well-defined community of interest. At first, these sound like the same thing. A “community of interest”, however, is further defined as a determination of whether

1)      Common claims predominate
2)      Representative is adequate
3)      Class will result in substantial benefit to the parties and the court

Well, 2/3 of those factors are the same as under FRCP. The big difference, in my cynical view, is that individual notice to potential members of the class is not required, and the court can make the defendant pay for any notice that the court does require.

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