Larner v. Wedbush Morgan Securities

Filed 7/13/06 Larner v. Wedbush Morgan Securities CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, John S. Meyer, Judge. Appeal dismissed.

Robert C. Larner, individually, and Robert C. Larner and Nancy M. Larner, as Trustees of the Larner Family Trust (together Larner) appeal the denial of their second motion for certification of a class action involving the sale of tax revenue anticipation notes by defendants Wedbush Morgan Securities, Inc. (Wedbush) and First Wall Street Corporation (First, together with Wedbush the Defendants). The Defendants seek to dismiss the appeal on the ground it is not properly before us because Larner failed to appeal an earlier order denying class certification of the same cause of action. We agree and dismiss this appeal.

FACTUAL AND PROCEDURAL BACKGROUND

In 2001, Wedbush or First sold Larner and other putative class members tax revenue anticipation notes issued by a charter school. The charter school defaulted on the notes, causing Larner and others to lose their entire original investment. Later audits revealed that the charter school had fraudulently overstated its student enrollment population and its anticipated revenue.

Larner originally filed this action as an individual, but later filed a first amended complaint, adding class allegations and alleging claims for fraud and concealment, negligent misrepresentation, negligence, breach of fiduciary duty and violations of Corporations Code section 25401 regarding the Defendants' sale of the notes. Larner moved for class certification of the entire action and in a tentative ruling, the trial court denied the motion finding that individual questions of law and fact predominated. At oral argument, Larner sought to either withdraw his motion or have it denied without prejudice, indicating he would seek leave to amend to allege a sole cause of action for negligence. After considering counsel's argument, the trial court confirmed its denial of the motion, but added that the denial was "without prejudice."

Larner then sought, and obtained, leave to file a second amended complaint deleting all claims except the negligence claim. After the trial court sustained the Defendants' demurrer to that claim with leave to amend, Larner filed a third amended complaint, again stating a single negligence cause of action. The first and third amended complaints both alleged that the class consisted of investors who purchased the notes from January 1, 2001, to the present, with the third amended complaint dividing the class into two groups based on which defendant sold the notes. Larner moved for class certification of the negligence claim, which the trial court denied, again finding that individual factual issues predominated. Larner appeals from this ruling.

DISCUSSION

The denial of certification to an entire class is an appealable order because it has the "death knell" effect of finally disposing of the entire class action (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 698-699) and this court is statutorily precluded from reviewing any decision or order from which an appeal might have been taken but was not. (Code Civ. Proc., § 906.) For example, in Guenter v. Lomas & Nettleton Co. (1983) 140 Cal.App.3d 460, 463 (Guenter), the trial court denied class certification without prejudice and struck the class allegations. Plaintiff then filed a second motion seeking class certification, which the trial court again denied. (Ibid.) Plaintiff's subsequent appeal of the order striking the class action allegations and the second order denying class certification was dismissed on the ground the plaintiff could have appealed the denial of the first class certification motion but did not do so. (Id. at pp. 464-465.)

Here, the trial court denied class certification as to all claims alleged in Larner's first amended complaint, including the negligence claim. Although this ruling was appealable (Linder v. Thrifty Oil Co., supra, 23 Cal.4th at p. 435), Larner did not file a notice of appeal and as a result the ruling is final and binding on him and this court. (Guenter, supra, 140 Cal.App.3d at p. 465.) The fact that the trial court labeled its ruling as "without prejudice" after hearing oral argument is irrelevant as the trial court cannot "preclude review of an otherwise appealable order by labeling it 'without prejudice.' [Citations.]" (In re Lauren P. (1996) 44 Cal.App.4th 763, 768.) Had the trial court believed that class certification of the negligence claim was proper, it could have granted the motion as to that claim only. (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 805-806 [class treatment limited to one of two claims].)

We reject Larner's suggestion that the first denial of class certification was not on the merits. On our own motion, we take judicial notice of the superior court file in this case and in particular of the minute order issued after oral argument indicating that the trial court confirmed its prior ruling denying the motion, but indicating that the denial was without prejudice. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) Regardless of its form, the first order denying class certification was an appealable final order and the trial court's willingness to give Larner a second bite at the apple does not change this fact. (Prince v. CLS Transportation, Inc. (2004) 118 Cal.App.4th 1320, 1322, fn. 2.) A leading California treatise on class actions warns of this exact situation, stating:

"California case law mandates that an order denying certification sounds the death knell for the matter and that the order must be appealed immediately. Plaintiffs who fail to appeal from such an order lose forever their right to attack it. California law does not allow relitigation of class certification once the denying order class becomes final. As long as the denial was based on the merits, it makes no difference whether the trial court rules 'without prejudice' or otherwise enters an order contemplating additional class certification.

". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

"On several occasions the author's firm has experienced a California trial court denying a motion for class certification 'without prejudice.' Be alert to the potential peril of allowing 60 days to pass after entry of such an order. An alert defendant will resist any subsequent effort to certify the class, citing the rules on finality and the failure to appeal the order. In such an event we ask the court to 'continue the hearing,' which keeps the hearing open and allows counsel to supplement the record as requested by the court. The court can explain in detail what evidentiary or legal deficiencies exist and, if possible, can be cured by plaintiffs." (Cohelan on Cal. Class Actions (2005 ed.) § 7:15.)

In light of our decision, First's request for judicial notice of an arbitration claim filed by a number of investors against the Defendants with the National Association of Securities Dealers is moot.

DISPOSITION

The appeal is dismissed. Respondents are entitled to their costs on appeal.

McINTYRE, J.

WE CONCUR:

NARES, Acting P. J.

McDONALD, J.

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