Filed 1/31/20 Wilmot v. First American Title Co. CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

ELIZABETH WILMOT,

Plaintiff and Appellant,

v.

FIRST AMERICAN TITLE CO.,

Defendant and Respondent.

B289375

(Los Angeles County

Super. Ct. No. BC370141)

APPEAL from an order of the Superior Court of Los Angeles County, Maren E. Nelson, Judge. Affirmed in part, reversed in part, and remanded.

Kralowec Law, Kimberly A. Kralowec; Friedman|Rubin, Richard H. Friedman; Shernoff Bidart Echeverria, Michael J. Bidart and Steven Messner; The Ehrlich Law Firm, Jeffrey I. Ehrlich; The Bernheim Law Firm, Steven J. Bernheim and Nazo S. Semerjan, for Plaintiff and Appellant.

Dentons US, Ronald D. Kent, Joel D. Siegel, Susan M. Walker, and Paul M. Kakuske, for Defendant and Respondent.

Plaintiff and appellant Elizabeth Wilmot (Wilmot) sued defendant and respondent First American Title Company (First American), alleging causes of action predicated on fraud-based and non-fraud theories of liability. The overall gist of the suit is that First American consumers were wrongly charged an escrow fee, dubbed a “loan tie-in fee,” because First American had not filed a rate for that fee with the Department of Insurance as required by law. Wilmot moved to certify her lawsuit as a class action, but the trial court denied the motion because the court believed common questions did not predominate among the putative class, because Wilmot was not typical of the class and not an adequate representative, and because class-wide adjudication would be unmanageable. We consider two principal questions in this appeal: (1) is there substantial evidence the reliance element of the fraud-based claims cannot be established by common proof; and (2) for the non-fraud claims, specifically Wilmot’s unfair competition cause of action, did the trial court correctly find class adjudication would be unmanageable in light of a likely defense to liability.

I. BACKGROUND

A. First American and Wilmot

First American is an underwritten title company that provides escrow services. As an underwritten title company, First American is required to file a “schedule of rates” with the Insurance Commissioner. (Ins. Code, § 12401.1; see also § 20.) “‘Rates’” include “the charge or charges . . . made to the public by . . . an underwritten title company . . . for all services it performs in transacting the business of title insurance.” (§ 12340.7.)

The “‘business of title insurance’” includes “the handling of any escrow, settlement or closing” in conjunction with the issuance or contemplated issuance of a title policy. (§ 12340.3, subd. (c).) Under the Insurance Code, including section 12401.1, First American is prohibited from “charg[ing] for any title policy or service in connection with the business of title insurance, except in accordance with rate filings.” (§ 12414.27.) Escrow companies that are not entities regulated by the Insurance Code, on the other hand, are not required to file rates. (Fin. Code,

§§ 17000-17703.)

First American must also comply with the Real Estate Settlement Procedures Act of 1974, which, as pertinent here, “regulates the settlement process for certain residential real estate loan transactions,” and “require[s] the use of a standard disclosure form at the time of settlement, or closing, that is known as an ‘HUD-1 form.’” (Washington Mutual Bank v. Superior Court (1999) 75 Cal.App.4th 773, 776; see also 12 U.S.C. § 2603(a); 24 C.F.R. § 3500.8 [ver. effective Aug. 9, 1994 to Jan. 16, 2009].)

Wilmot purchased a home in 2004. The sellers chose First American as the escrow agent. Wilmot did not know why First American was chosen, and did not ask her real estate agent what escrow company he thought she should use. Wilmot’s HUD-1 statement reflects Wilmot paid a $125 “Loan Tie-in Fee” to First American. When Wilmot purchased her home, First American’s effective schedule of fees included filed rates for three escrow related services: overnight mail, special messenger, and wire transfer. First American did not have a filed rate for a loan tie-in fee.

In early 2005, First American filed a revised schedule of fees with the Department of Insurance (DOI) that added new escrow-related fees including an electronic document download fee, a document preparation fee, and a “concurrent junior mortgage escrow” fee. Those rates became effective on April 18 of that same year. The following year, DOI examined First American’s market conduct and concluded the company had incorrectly applied its filed rates by, among other things, charging unfiled loan tie-in fees between $75 and $150 in certain escrow transactions. In response, in February 2007, First American filed an amended schedule of fees that listed a $150 loan tie-in fee as an escrow-related service. The amended schedule became effective April 2, 2007.

B. This Action

Wilmot and her co-plaintiff Jason Munro filed the original complaint in this action in April 2007. Eventually, after several demurrers, Wilmot and Munro filed a Third Amended Complaint (the operative complaint) alleging seven causes of action: breach of fiduciary duty, fraud and deceit, constructive fraud, unjust enrichment, violation of the Consumers Legal Remedies Act (Civ. Code, § 1750 et seq. (CLRA)), violation of the Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq. (UCL)), and negligent misrepresentation.

The operative complaint alleges plaintiffs sought to represent a class of persons who paid for title insurance or title escrow services provided by First American or its affiliates. As relevant for our purposes, it specifically alleges plaintiffs sought to represent a class of consumers who were charged a loan tie-in fee prior to April 2, 2007 (the date the added filed rate for a loan tie-in fee became effective).

The operative complaint further alleges First American violated provisions of the Insurance Code, committed fraud, and breached fiduciary duties by charging loan tie-in fees in connection with escrow transactions before it had filed a loan tie-in fee rate with DOI. According to the operative complaint, First American knew it could not charge a loan tie-in fee without first filing a rate for it, failed to disclose the material fact that it was not lawfully entitled to charge the fee, and represented the fee was legitimate by charging the fee and listing it on the HUD-1 forms provided to parties at closing of a real estate sale.

The operative complaint alleged Wilmot did not discover facts relating to the allegedly improper fees until around March 2007, when she spoke to an attorney regarding her title transaction. Wilmot’s complaint alleged that had she and the putative class members known the true facts, they would not have paid the loan tie-in fee.

C. Initial Certification Briefing and Hearing

1. The motion for class certification

Wilmot moved to certify a class defined as “‘[a]ll persons in California residential transactions who in a [First American] escrow paid all or part of a loan tie-in fee from January 1, 2003 to April 1, 2007, inclusive.’” She contended she was an adequate representative, the proposed class was sufficiently numerous (First American charged loan tie-in fees in 119,150 escrow transactions during the class period), and she was typical of all other putative class members. She further argued the class was ascertainable because First American was required to, and did, document the fees it charged buyers and sellers (including on the mandated HUD-1 forms) and First American’s database, the “FAST system,” contained information regarding the loan fees charged in a given transaction. Relatedly, Wilmot maintained her theories of liability were amenable to common proof because there was one narrow, well-defined issue—whether First American was permitted to charge the loan tie-in fee— and “[a] trial plan manageability showing [was] not required in a case like this” because it turned on a single central question of liability (with the remaining question of how much First American collected on the loan tie-in fee being information First American possessed).

In addition to these assertions about the lawsuit’s amenability to class treatment generally, Wilmot’s class certification motion also discussed the appropriateness of class certification as to each cause of action individually. Wilmot argued her UCL unfair and unlawful prong claims were amenable to class treatment because the theory of recovery was that Wilmot expended money due to First American’s unlawful practice of charging an unlawful fee and there was no arguably countervailing benefit to imposing an illegal charge. She argued the fraud, constructive fraud, UCL fraud, and breach of fiduciary duty claims were amenable to class treatment because putative class members’ reliance on the alleged omissions could be presumed based on the materiality of the statements. She further argued that even without that presumption, reliance was demonstrated by the “obvious fact” that no consumer would voluntarily pay a higher rate than required. The CLRA claim was suitable for class treatment, Wilmot argued, because reliance could similarly be presumed from the materiality of the misrepresentation or omission. And as for the unjust enrichment claim, Wilmot contended it would be easy to calculate how much First American received from the unjustly imposed fee.

2. First American’s opposition

First American opposed the certification motion on multiple grounds. First, it argued Wilmot was not an adequate class representative because she did not understand the basis for her claims. Next, First American argued Wilmot lacked standing because she would have paid the same loan tie-in fee whether or not the rate was filed, and whether or not Wilmot used First American or an unregulated escrow agent.

More important for our purposes, First American argued the putative class was overly broad because it included individuals whose HUD-1 settlement statements listed a “‘loan tie-in fee’” that was, in actuality, a fee charged pursuant to a separately filed rate. As an example, First American cited to evidence regarding a transaction involving James Muehling, a former putative class representative in a coordinated case that similarly alleged First American had improperly charged loan tie-in fees. First American’s evidence in that case demonstrated Muehling’s HUD-1 listed a $100 loan tie-in fee, and that by the time Muehling’s real estate transaction closed, First American had filed a “‘Junior Concurrent Mortgage Rate’” with DOI. Though Muehling’s fee was denominated a loan tie-in fee, First American contended the fee it charged Muehling had actually been done for work properly compensated by the junior concurrent mortgage rate fee. First American filed a motion for summary judgment in the Muehling matter on this ground, i.e., that the listed charge was mistakenly categorized, and Muehling voluntarily dismissed his case.

First American also contended individual issues, not common issues, predominated among the putative class. Regarding Wilmot’s misrepresentation claims, First American argued individualized issues predominated because the issue of materiality (a necessary predicate for an inference of class-wide reliance) was not amenable to common proof. Specifically, First American contended the materiality of the alleged misrepresentations (that the loan tie-in fee was a proper charge pursuant to a filed rate) would vary among class members. Regarding her UCL claim, First American argued Wilmot had not established a class-wide injury caused by First American’s actions. And regarding the breach of fiduciary duty cause of action, First American argued Wilmot had not articulated how First American had violated any fiduciary duty. First American also contended individual issues predominated because some putative class members’ claims would be barred by the applicable three-year statute of limitations for fraud claims absent a showing the delayed discovery rule applied—and that the facts related to when and how class members were put on inquiry notice or learned of the pertinent facts would vary for each class member.

First American also generally contended a class trial was “unworkable and unmanageable” for the same reasons it argued individualized issues predominated.

3. Pertinent evidence

The documentary evidence submitted in connection with the certification briefing included First American’s responses to special interrogatories. One interrogatory asked First American to “[s]tate the total number of California residential transactions in which [First American] charged a loan tie-in fee, for each year during the period January 1, 2000 through March 28, 2007.” First American, after asserting standard objections, responded by providing a chart that it represented included all responsive data. As pertinent to the putative class, the chart identified the number of loan tie-in fees charged during 2003 (30,463), 2004 (34,203), 2005 (30,059), 2006 (21,659), and the identified portion of 2007 (2,766). The record also contains First American’s verified response to a request for admission, in which First American stated it had not filed a loan tie-in fee rate with the Department of Insurance before February 2007.

Also among the evidence submitted was deposition testimony from Wilmot, Munro (Wilmot’s co-plaintiff), Wilmot’s real estate agent, the First American agent who handled Muehling’s escrow transaction, and James Dufficy, former regulatory counsel for First American. Wilmot testified she could not say why First American was chosen for her transaction, and did not recall ever objecting to the use of First American. Munro stated he had not told the seller in his real estate transaction that he would prefer to use an escrow company other than First American. Wilmot’s real estate agent testified he had not sought to negotiate who the escrow servicer would be because it was a seller’s market and he felt the seller was going to choose. The person who handled Muehling’s escrow transaction testified she had charged Muehling a “loan tie-in” fee because she was told to charge one any time she was processing a second loan package for a concurrent second escrow. Dufficy testified loan tie-in fees and concurrent junior mortgage escrow fees are the same thing in a refinance transaction.

The evidence submitted in connection with class certification also included declarations from current and former First American employees, all of which were intended to establish that records showing the assessment of a loan tie-in fee could be incorrect and the actual work done could have been more appropriately characterized as work to be compensated by one of First American’s other fees for which there was a filed rate (i.e., the electronic document download, document preparation, and concurrent junior mortgage escrow fees).

Jean O’Neill, the First American escrow officer who worked on Wilmot’s purchase, stated she could and would have charged a concurrent junior escrow fee if Wilmot’s transaction had occurred in 2005 after the rate had been filed. She also stated an electronic download fee might have been warranted, but she could not determine that from the available records and was not sure if the work performed in the escrow and charged as the loan tie-in fee included that service.

Kathy Stephens, a senior escrow advisor at First American, also submitted a declaration. Stephens stated the decision to charge a particular fee in a particular escrow transaction is made on a transaction-specific basis by individual escrow officers or the parties to the transactions. The escrow-related fees are entered into the FAST system by individual escrow officers or their assistants, and the entries are used to generate the HUD-1 Settlement Statements and Closing Disclosures, among other things. Fees entered into the system are done by freeform typing by the person inputting the entry.

As Stephens explained it, “[t]he terminology used to refer to fees for escrow related services may vary depending on the person who is making the particular fee entry into the computer system.” She was aware of no coordinated practice or training prior to 2007 that mandated escrow officers use certain verbiage or reference rate manual sections when entering fee descriptions into FAST. She stated individual officers often used terminology that would be familiar to the lenders, borrowers, buyers, and sellers who would be reviewing the settlement statements. According to Stephens, escrow personnel often use the term “loan tie-in” to refer to charges for extra work associated with processing a concurrent additional loan in connection with a sale or refinance transaction, also known as a “[c]oncurrent junior mortgage escrow” service.

Dufficy’s declaration explained California escrow companies began charging loan tie-in fees in the 1990s after lenders began passing work they had traditionally done along to escrow companies. Escrow companies began charging various fees for the related work, but there was no uniform name for the fee. One name was “loan tie-in fee,” but other fees for such work included the “document processing fee,” a “concurrent junior mortgage escrow fee,” and a “document download fee.” Dufficy’s declaration also discussed the DOI’s 2004 market conduct exam and 2006 report.

First American also submitted the results of a survey conducted by Linda Golden, a professor at the University of Texas at Austin, in connection with its argument that the fraudulent misrepresentations and concealment alleged by Wilmot regarding the loan tie-in fees were immaterial and did not induce reliance. According to the survey results, 44 percent of respondents patronized their escrow company because someone else chose it for them, and another 18 percent chose it because someone else had recommended it. 72 percent of respondents had not compared the escrow fee amounts charged by different escrow companies before deciding which one to use. Survey respondents were also asked whether they would choose to pay a $125 loan tie-in fee charged by an escrow company that had not yet filed the fee with the State of California or to pay a $150 fee charged with a company that had filed with the state. 42.8 percent said they would choose the $125 fee, 32.8 percent said they would choose the $150 fee, and 24.5 percent stated they were uncertain.

Wilmot responded to the Golden survey by submitting a declaration from Dennis Aigner, an Emeritus Professor of Management and Economics at the University of California at Irvine. Aigner criticized the Golden survey on a number of grounds, concluded it was problematic from a statistical perspective, and opined it shed no light on Wilmot’s allegation that First American could not lawfully charge the loan tie-in fee during the class period.

4. Wilmot’s objections to evidence

Wilmot objected to certain evidence First American submitted in opposition to her motion for class certification.

She objected to three statements in Kathy Stephens’ declaration regarding the practices of First American escrow officers, arguing they lacked foundation, were inadmissible, or were irrelevant. All three objections were overruled.

Wilmot also objected, on grounds of lack of personal knowledge, lack of foundation, and hearsay, to 11 statements in James Dufficy’s declaration about California escrow practice, the tasks that comprise loan tie-in services, DOI’s market conduct exam of First American and First American’s response. The trial court overruled all the objections.

Finally, Wilmot objected to two statements in Jean O’Neill’s declaration: O’Neill’s statement that she could and would have charged a concurrent junior escrow fee had Wilmot’s transaction occurred after the rate for that fee was filed and her statement that an electronic download fee might have been warranted. Wilmot argued the statements were speculation, hearsay, and lacked foundation, but the trial court overruled the objections.

5. The initial certification hearing

At a hearing to decide her motion for class certification, Wilmot argued First American was capable of identifying the putative class members who had actually been charged a loan tie-in fee. The court asked Wilmot how the class could be ascertained without going through individual files. Wilmot argued the class was “the people who were charged the loan tie-in fee.” The court then stated “we don’t know who they are, because the label doesn’t determine who they are.” Wilmot replied First American knew who the class members were because it “identified the number of people.” The court then asked if the number was people “[t]hat have that word used or that were actually charged the fee?” Wilmot responded it was people “[t]hat were charged the fee.”

After hearing argument from both sides, the trial court told the parties it believed there were serious manageability issues with the class and asked Wilmot to file a brief explaining exactly how they were going to manage the case. Specifically, the court asked Wilmot’s attorneys to address how they would deal with proposed class members for whom statute of limitations issues could pose a problem, how anticipated fraud defenses would be managed, how they would ascertain who was in the class, and how they were going to establish whether there was any class-wide injury at all.

D. Supplemental Briefing and the Continued Certification Hearing

1. Wilmot’s supplemental brief

The supplemental brief Wilmot submitted at the trial court’s request argued First American had not offered competent evidence of unmanageability and therefore had not overcome the presumption of manageability that she believed applied based on Ninth Circuit authority. Wilmot contended the statute of limitations issues were manageable because First American failed to offer competent evidence that any class members earlier knew of a reason they should sue, the delayed discovery issue was subject to common proof, and even if the court decided individualized inquiries would be needed to determine the date on which a class member had reason to suspect an unlawful charge, the court could establish subclasses after trial, each conforming to the express limitations period for each cause of action upon which Wilmot prevailed. Specifically, Wilmot contended the court could divide the class into three subclasses, if necessary: a class for those whose transactions closed prior to April 25, 2003, and whose claims would be barred; a class for those whose transactions closed between April 26, 2003, and April 25, 2004, who could recover under the UCL, unjust enrichment, and breach of fiduciary duty causes of action; and a class for those whose transactions closed between April 26, 2004, and April 1, 2007, who could recover under all causes of action.

Wilmot also contended First American’s anticipated fraud defenses were manageable in a class-wide trial. She asserted the breach of fiduciary duty, CLRA, UCL, and unjust enrichment causes of action did not involve reliance issues because proof of individualized reliance was not necessary under the UCL or CLRA, the breach of fiduciary duty cause of action did not involve fraud, and the unjust enrichment cause of action was partially based on a statutory violation rather than common law fraud. She further argued First American must use class-wide evidence to rebut the presumption of class-wide reliance, and that sort of rebuttal would not cause a manageability problem.

Wilmot further argued, as to the identified manageability issues, that First American had not put forward evidence demonstrating that other filed rates were for part or all of the loan tie-in service, and that Wilmot could oppose the “other rates” defense with class-wide evidence. Wilmot further contended that even if a manual review of escrow files were necessary, First American had a duty to perform such a review because it had a legal obligation to maintain records. Importantly, Wilmot also maintained that as to First American’s anticipated defense that fees could have been mistakenly denominated loan tie-in fees when really they were fees for work done pursuant to one of its other filed rates, the court could avoid the problem by certifying one or more subclasses. Specifically, as to any class members who closed escrow before April 18, 2005, First American’s anticipated defense was not applicable because none of the three fees First American identified as possible substitutes for a mistakenly labeled loan tie-in fee had a rate on file with DOI until that date.

2. Wilmot’s trial plan

Though the trial court had not requested one, Wilmot also submitted a proposed trial plan. As to the statute of limitations issue, Wilmot stated if the trial court found a reasonably prudent First American customer should have had suspicious he or she was being charged a fee without a DOI rate on file, the court could divide the class into three “statute of limitations” subclasses, one of which would be barred by the statute of limitations for all claims, one of which would be barred for the claims with three-year statute of limitations, and one of which could recover under all claims.

As to the reliance issue in the fraud-based causes of action, Wilmot argued she had presented evidence sufficient to trigger a presumption or inference of reliance. Wilmot further argued that if any class were certified based on the fraud-based causes of action, First American would be permitted to present rebuttal evidence at trial—though the trial court would first be asked to determine whether or not the evidence could properly be generalized to the class as a whole.

Finally, as to First American’s anticipated mistaken fee labeling defense and its effect on the proposed class, Wilmot argued the trier of fact could make three class-wide determinations, one for each rate First American contended it was permitted to charge in place of the loan tie-in fee in certain circumstances. Wilmot further argued that if the trier of fact determined one or more of the other three filed rates could serve as the basis for a charged fee, the court could divide the putative class into two rate subclasses, one subclass that was not affected by any of the three rates, and one that was. As to the latter, the court could conduct a post-trial evidentiary hearing to determine both whether a manual review of files was necessary to determine what if any rates applied to the particular transaction and whether First American should bear the burden of paying for such a review. If the court found the class should bear that burden, the cost could be deducted on a pro rata basis from class members’ recoveries.

3. First American’s supplemental response

First American filed a brief in response to Wilmot’s submissions. As pertinent here, First American again contended Wilmot’s fraud claims were unmanageable, arguing Wilmot was not entitled to a class-wide inference of reliance and that even if the court found such an inference was proper, First American had a due process right to rebut the inference with individualized evidence from class members. It argued Wilmot had not demonstrated either the class or any subclasses were ascertainable because the presence of a loan tie-in fee on a HUD-1 did not mean a loan tie-in fee, as opposed to a fee for a properly filed rate, had been charged. First American also contended the individualized inquiries required to resolve the statute of limitations-related discovery rule issue were unmanageable because they necessitated an inquiry into each class member’s particular experiences.

4. Wilmot’s reply

Wilmot filed a reply to First American’s response. Wilmot argued, among other things, a disputed, class-wide issue existed as to whether First American could lawfully apply the document preparation, electronic document download, or concurrent junior mortgage escrow fees to loan tie-in services. Wilmot contended the putative class members whose transactions closed after the other three rates were filed could be electronically identified, and their transactions could be examined after trial to identify whether they were subject to the rates.

Wilmot also submitted a supplemental reply declaration from Gordon Rausser, a professor at the University of California at Berkeley. Rausser reviewed and analyzed data produced by First American, including data from the class period regarding transactions that include fees described as “loan tie-in” fees. From this analysis, Rausser segmented the putative class in various ways to demonstrate the number of transactions in which a loan tie-in fee was charged before First American filed its rates for document preparation, electronic download, and junior concurrent mortgage fees.

Rausser identified 73,137 transactions that closed prior to April 18, 2005 (the date on which the filed rates for the other three fees became effective) in which First American had charged a loan tie-in fee. He represented 6,553 of those transactions closed before April 25, 2003. Rausser also identified the number of transactions in which the loan tie-in fee and at least one of the other fees identified by First American were charged—including 840 transactions in which all four fees identified in this litigation (loan tie-in, document preparation, electronic document download, and concurrent junior mortgage fees) were charged.

E. The Trial Court Denies Certification

In a written ruling on the class certification motion, the trial court concluded Wilmot satisfied the ascertainability and numerosity requirements to maintain a class action. As to ascertainability, the court acknowledged First American’s argument that the class definition was overinclusive and would give notice to putative class members who were not charged an unfiled fee. However, the court concluded this overbreadth was not a ground for denying certification because individuals identified as putative class members could later be excluded after liability was established.

The court found, however, that Wilmot had not shown there was a well-defined community of interest among the proposed class that would justify proceeding with litigation on a class-wide basis. The court gave several reasons, which were couched in terms of concerns regarding predominance and manageability.

First, the court found liability could not be determined simply by reference to the HUD-1 statements because First American could use, and apparently had used, the term “loan tie-in fee” to refer to both filed and unfiled rates. The court concluded the common question, stated in the abstract, of whether First American was permitted to charge the unfiled loan tie-in fee would, in actuality, require an individualized inquiry into the reasons each fee was charged in each transaction and an examination of the rates in question at the time of the charge to determine whether the rate was properly filed. The court concluded a manual analysis of the files would be necessary to determine whether or not a party was in the class. The court believed, in light of the thousands of escrow transactions at issue, the common question was not amenable to a common answer, common issues did not predominate, and there was no reasonable way to manage First American’s anticipated defense.

Second, the trial court found, as to the claims based on fraud, deceit, and constructive fraud (including breach of fiduciary duty, unjust enrichment, and the CLRA and UCL violations), there could be no presumption of reliance that would facilitate class adjudication because materiality varied. The trial court recognized Wilmot’s theory was that the fraud and misrepresentation claims could be uniformly tried because the HUD-1 statements all contained the same implied misrepresentation and there was thus a legal presumption of reliance. But the court found Wilmot had not demonstrated the existence of a common material statement or omission. The evidence demonstrated loan tie-in fees were charged by both regulated and unregulated escrow companies, and the court found that in order for the fact to be material, Wilmot would need to prove individual class members used First American because it was regulated by DOI, as opposed to an unregulated escrow company that could have charged the same or a greater fee. The evidence before the court, however, demonstrated potential class members chose their escrow agents for a variety of reasons, none of which depended on the escrow agent’s regulated status. As a result, the court concluded the evidence did not establish the omission was material to all class members, and there could thus be no presumption of reliance. Instead, individual inquiries would be required as to the fraud claims and those based on fraud theories.

Third, the trial court also found Wilmot was neither typical of the class nor an adequate class representative because she is subject to the unique defense that her claims are time-barred. Wilmot’s real estate transaction closed on January 30, 2004, and her lawsuit was filed on April 26, 2007. According to the trial court, all of the claims in the operative complaint other than the UCL claim were subject to three-year statutes of limitations. The trial court noted that because the pleading showed on its face that the claims were time-barred, Wilmot had an obligation to plead and prove delayed discovery. The court concluded that even assuming Wilmot could successfully prove delayed discovery, her proof would be individual to her, and would not suffice as to other class members whose claims would be barred absent successful proof of delayed discovery. The court noted that based on the statistics provided by Rausser, this meant a significant portion of the class was subject to individualized inquiry regarding whether their non-UCL claims were time-barred.

II. DISCUSSION

The trial court did not abuse its discretion by declining to certify Wilmot’s fraud-based causes of action for class treatment. Substantial evidence supports its determination that common issues did not predominate among the putative class as to those claims because proving the materiality of, and reliance on, the alleged misrepresentations or omissions would require individualized inquiries unsuitable for common proof.

The trial court’s certification ruling regarding Wilmot’s UCL claim, on the other hand, is defective. Wilmot’s UCL theory of liability—that First American violated the unfair or unlawful prong of the UCL by charging a loan tie-in fee when it did not have a rate filed for that fee—is quite amenable to common proof. First American’s responses to discovery requests—including the HUD-1 forms that “tru[ly] and accurate[ly]” report fees charged to customers—would suffice to carry Wilmot’s burden to establish First American charged the putative class loan tie-in fees, and it would be easy to establish at a class action trial that First American did not have a rate filed for the loan tie-in fee during the class period. To be sure, First American has a defense that would have to be managed in a class-wide trial, that a manual file review of an escrow transaction may reveal the loan tie-in fee label was wrongly applied, and there is support in the record for the trial court’s determination that manageability concerns are too great for some segment of the proposed class for that reason. But there is a substantial portion of the putative class for whom First American cannot mount this anticipated defense. We therefore hold the trial court abused its discretion by declining to certify a subclass that would not pose manageability concerns, and we remand to the trial court to permit it to define the precise contours of this subclass (or subclasses).

A. Standard of Review and Class Action Principles

A plaintiff may proceed by way of a class action “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” (Code Civ. Proc., § 382.) Our Supreme Court has “articulated clear requirements for the certification of a class. The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives. . . . ‘[T]he “community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.”’ [Citation.]” (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021 (Brinker).)

“‘“The decision to certify a class rests squarely within the discretion of the trial court, and we afford that decision great deference on appeal, reversing only for a manifest abuse of discretion . . . .” (Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 967-968 (Noel).) We review the entire record to determine whether the trial “court’s conclusion was based upon proper criteria and substantial evidence.” (Caro v. Procter & Gamble Co. (1993) 18 Cal.App.4th 644, 656 (Caro).) “The denial of certification to an entire class is an appealable order [citations], but in the absence of other error, 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]’ [citations.]” (Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435-436.) “‘[W]here a certification order turns on inferences to be drawn from the facts, ‘“‘the reviewing court has no authority to substitute its decision for that of the trial court.’”’ [Citations.]” (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 328 (Sav-On).)

“‘The certification question is “essentially a procedural one that does not ask whether an action is legally or factually meritorious.”’” (Brinker, supra, 53 Cal.4th at p. 1023.) “As the focus in a certification dispute is on what type of questions—common or individual—are likely to arise in the action, rather than on the merits of the case [citations], in determining whether there is substantial evidence to support a trial court’s certification order, we consider whether the theory of recovery advanced by the proponents of certification is, as an analytical matter, likely to prove amenable to class treatment. [Citations.] ‘Reviewing courts consistently look to the allegations of the complaint and the declarations of attorneys representing the plaintiff class to resolve this question.’” (Sav-On, supra, 34 Cal.4th 319 at p. 327.)

B. The Trial Court Did Not Abuse Its Discretion by Declining to Certify the Fraud-Based Causes of Action for Class Resolution

Reliance is a necessary element of a claim for fraud, constructive fraud, or violation of the CLRA. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239 [fraud]; Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14 [constructive fraud]; Cohen v. DIRECTV, Inc. (2009) 178 Cal.App.4th 966, 980 [CLRA].) In the class action context, an inference of reliance arises as to the entire class “when the same material misrepresentations have actually been communicated to each member of a class.” (Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1095.) One of the predicate requirements to draw this inference is a showing that the representation made was material. (Ibid.; see also Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 977 [“a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material”]; Occidental Land, Inc. v. Superior Court of Orange County (1976) 18 Cal.3d 355, 363 [inference arises “if a material false representation was made to persons whose acts thereafter were consistent with reliance upon the representation”]; Vasquez v. Superior Court (1971) 4 Cal.3d 800, 814 [inference arises “if the trial court finds material misrepresentations were made to the class members”].) Materiality is also a necessary element of a cause of action for breach of fiduciary duty based on fraud. (Siegel v. Fidelity Nat. Title Ins. Co. (1996) 46 Cal.App.4th 1181, 1193-1194 [an escrow agent “has ‘a fiduciary duty “to communicate to his principal knowledge acquired in the course of his agency with respect to material facts which might affect the principal’s decision as to a pending transaction”’”].)

“‘“A misrepresentation of fact is material if it induced the plaintiff to alter his position to his detriment. [Citation.] Stated in terms of reliance, materiality means that without the misrepresentation, the plaintiff would not have acted as he did. [Citation.] . . .” [Citation.]’ [Citation.]” (Caro, supra, 18 Cal.App.4th at p. 668.) In the context of a consumer fraud case, an omission is deemed material if a reasonable consumer “‘“would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question . . . .”’” (Steroid Hormone Product Cases (2010) 181 Cal.App.4th 145, 157.) Materiality is ordinarily a question of fact for the jury. (Ibid.) However, at the class certification stage, “if the issue of materiality . . . is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action.” (In re Vioxx Class Cases (2009) 180 Cal.App.4th 116, 129 (In re Vioxx).)

The trial court concluded materiality is a matter that would vary among class members and is not subject to common proof. Substantial evidence supports that conclusion. As the trial court noted, Wilmot’s theory is that First American impliedly represented the loan tie-in fees were properly (or legally) charged, or concealed what it contends is the contrary truth of the matter. Of course, the premise of Wilmot’s theory is that First American was not, in fact, legally allowed to charge that fee because it had not filed a rate for the fee with DOI. First American demonstrated that while regulated escrow companies must charge only rates filed with DOI, no such restrictions are placed on unregulated, independent escrow companies. Thus, in order for the fact to be material, as the trial court stated, Wilmot would have to show “the fact of regulation was a reason the consumer elected to use” First American as opposed to an unregulated escrow company. Though Wilmot did not need to prove materiality at the class certification stage, she did need to “offer some means of proving materiality and reliance by a reasonable consumer on a classwide basis.” (Kosta v. Del Monte Foods, Inc. (N.D.Cal. 2015) 308 F.R.D. 217, 225.)

Substantial evidence in the record indicates putative class members chose their particular escrow agent for a variety of reasons. The survey conducted by Golden demonstrated home buyers use a particular escrow agent because someone else chose the escrow company, it was recommended to them, they had worked with or heard of the company before, or the company was conveniently located. Neither Wilmot nor her co-plaintiff Munro made the choice to use First American as their escrow agent. Additionally, neither Wilmot, her real estate agent, nor Munro testified they chose First American even in part because it was regulated or required to only charge fees in accordance with filed rates.

This evidence is significant because it tends to undermine Wilmot’s theory that materiality could be proven on a class-wide basis, but even more significant is the evidence that is absent in the record. Wilmot offered no means by which a jury could determine a reasonable consumer would have opted not to do business with First American because it was charging a fee for which it did not (allegedly) have a filed rate. She provided no testimony, declaration, or survey evidence to support her contention that proof of the materiality element would not be beset with individualized inquiries. Because Wilmot offered little if any evidence, much less common evidence, as to what putative class members would find material, substantial evidence supports the trial court’s conclusion that no class-wide inference of materiality could be drawn. (In re Vioxx, supra, 180 Cal.App.4th at p. 133 [mere argument that “‘there can be nothing more material than an increased risk of death’” was not sufficient to provide basis for finding materiality classwide where evidence indicated risks were not material “for all patients”].)

Wilmot’s primary rejoinder is that the information that it was illegal for First American to charge the loan tie-in fee was per se material to reasonable consumers “because it pertains to price.” While this statement might suffice to save such a claim on demurrer, more is needed at the class certification stage. Wilmot cites a small number of mostly out-of-state cases to support her contention that anything pertaining to price is material. But none of the cited cases holds price is material in the abstract, and they are not persuasive here, in light of the evidence presented by First American. (Occidental Land, Inc. v. Superior Court of Orange County, supra, 18 Cal.3d at p. 363; Gutierrez v. Wells Fargo Bank (9th Cir. 2012) 704 F.3d 712, 729; Coleman v. Commonwealth Land Title Ins. Co. (E.D.Pa. 2010) 684 F.Supp.2d 595, 616; Catholic Health Care West v. US Foodserv. (2d Cir. 2013) 729 F.3d 108, 120.)

Wilmot also incorrectly argues the trial court made numerous errors in evaluating materiality and reliance. She contends the trial court ignored her theory of recovery when concluding materiality presented individualized questions because she believes the trial court focused on whether the absence of a filed loan tie-in fee rate might be material rather than Wilmot’s true theory of materiality and reliance: that First American failed to disclose it was prohibited from charging the tie-in fees. This contention fails because no discussion of the prohibition against charging the fees can be complete without reference to the reason they could not be charged, i.e., that no rate was filed.

Next, Wilmot argues the certification ruling misapplied the objective reasonable person standard on the fraud-based claims because the trial court stated the evidence did not establish “that the claimed omission was material as to all class members.” We do not read the trial court’s order to either state or suggest the court denied class certification because it thought materiality was an inherently individualized inquiry. Rather, the court concluded, based on the evidence before it, individualized inquiries would be necessary to determine materiality. Evidence that a misrepresentation is not material for all class members may support a conclusion that the materiality of a misrepresentation is a matter on which individual issues prevail over common issues. (In re Vioxx, supra, 180 Cal.App.4th at p. 134 [evidence indicating Vioxx did not present an increased risk of death or similar cardiovascular risks for all patients supported conclusion that individual issues predominated].)

Wilmot also takes issue with certain statements made in the trial court’s order. She argues the trial court resolved the materiality question in First American’s favor by holding the concealed information was not material. It did not. Rather, the trial court concluded the evidence did not establish the claimed omission was material as to all class members (such that materiality could be established by common proof). It did not purport to conclude the omission was immaterial to any putative class members. Wilmot also contends the trial court erred by concluding materiality can only be shown in one “‘required’” way. Contrary to Wilmot’s contention, the trial court’s order recognized that for a fact to be material, it would have to be shown that the fact of regulation was “a” reason the consumer chose to use First American, not the only reason.

Finally, Wilmot mounts various challenges to the trial court’s alternative rationale regarding the rebuttable nature of any presumption of reliance. Because we affirm solely on the trial court’s primary predominance finding, we need not address that aspect of the court’s ruling.

C. The Trial Court Abused Its Discretion by Not Certifying a UCL Subclass

1. Common issues predominate as to the UCL claims premised on First American’s non-fraud conduct

While discussing the predominance aspect of the community of interest requirement, our Supreme Court has recognized “‘“[a]s a general rule”’ that ‘“if the defendant’s liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.’” [Citations.] Relatedly, ‘[i]n certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.’ [Citation.] Finally, other considerations relevant to certification ‘include the probability that each class member will come forward ultimately to prove his or her separate claim to a portion of the total recovery and whether the class approach would actually serve to deter and redress alleged wrongdoing.’ [Citation.]” (Noel, supra, 7 Cal.5th at p. 968.)

The trial court concluded common issues do not predominate because the presence of a “loan tie-in fee” on a class member’s HUD-1 was not dispositive of liability since the term could be, and in one or two instances had been, used to refer to charges for work covered by both filed and unfiled rates. As a result, the court concluded, there would have to be an inquiry into the reasons the fee was charged to class members, and an examination of the filed rates at the time of the charge. It is true that there may well need to be such an inquiry, but not as it relates to the burden of proof Wilmot would bear on the merits of her UCL unlawfulness claim. She could carry that burden with common proof alone.

“‘The UCL’s unlawful prong “‘“borrows” violations of other laws and treats them as unlawful practices’ that the unfair competition law makes independently actionable. [Citation.]” [Citation.]’ [Citation.] Furthermore, even if a business practice is not unlawful, it may violate the UCL if it is deemed ‘unfair’ as that term has been defined by the pertinent case law.” (Two Jinn, Inc. v. Government Payment Service, Inc. (2015) 233 Cal.App.4th 1321, 1336-1337.) In order to prove her conduct-based UCL claim, Wilmot must be able to demonstrate by common proof that First American violated another law or engaged in an “unfair” business practice. In other words, Wilmot must provide common evidence that First American charged loan tie-in fees when it did not have a filed rate for such services.

The record demonstrates there is ample common evidence Wilmot could present to prove her UCL claim. The HUD-1 forms generated by First American indicate whether customers were charged a fee denominated a “loan tie-in” fee, whether the fee was paid to First American, and the amount of the fee. Each HUD-1 form also contains a representation that the HUD-1 is “a true and accurate account of this transaction.” First American, as the settling agent, was required to sign that representation and attest to the accuracy of the fees. This is easily presented common evidence that the fees were charged.

Wilmot also provided evidence demonstrating that the individuals who were charged those fees are readily identifiable. First American submitted discovery responses in this litigation identifying the number of loan tie-in fees that were charged during each year of the class period. And Wilmot demonstrated the individuals who were charged those fees (and had those fees listed on their HUD-1 forms) could be identified through First American’s electronic FAST database.

There is also common evidence that First American did not have a rate filed for a loan tie-in fee during the class period. First American submitted verified responses to requests for admission stating it “did not file a loan tie-in fee rate with the California Department of Insurance . . . before February 2007” and that its “Schedule of Fees did not include a rate for a loan tie-in fee effective prior to March 23, 2007.” The record contains not only documents reflecting when First American filed the rate, but also correspondence between First American and the DOI regarding the necessity of filing that rate. This is all common evidence on which Wilmot could rely in proving her conduct-based UCL claims. That the evidence also demonstrated escrow officers had a degree of freedom in determining whether to label a fee a “loan tie-in” fee versus a “concurrent junior escrow” or other fee goes not to Wilmot’s ability to prove liability, but to the manageability of First American’s defenses.

2. At least one UCL subclass should have been certified

While predominance is a “major” factor in class actions, “it is not the only consideration.” (Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 28 (Duran).) Rather, “[i]n certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.” (Id. at pp. 28-29.)

As a result, our Supreme Court has instructed that “[t]rial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class. If the court makes a reasoned, informed decision about manageability at the certification stage, the litigants can plan accordingly and the court will have less need to intervene later to control the proceedings.” (Duran, supra, 59 Cal.4th at p. 29.) Additionally, “[i]f statistical evidence will comprise part of the proof on class action claims, the court should consider at the certification stage whether a trial plan has been developed to address its use.” (Id. at p. 31.)

The trial court concluded a class action trial would not be manageable in large part because it found liability could not be established as to any cause of action simply because class members were charged a fee labeled “loan tie-in” on their HUD-1s. Rather, the court believed a manual analysis of thousands of files would be required to examine why the fee was charged. Substantial evidence supports this determination—but only to a point.

There is evidence First American had no company-wide policy guidance regarding the charging of particular fees during the class period. Rather, the decision to charge a fee in a given escrow transaction was made by the escrow agent involved, perhaps with some supervisorial input, on a transaction-specific basis. Thus, when entering fees into the FAST system prior to 2007, the terminology used could vary depending on the person entering the data and whether a certain term was familiar to the parties to the transaction. Though Wilmot interprets this to mean the language used to identify a fee might vary slightly, that is not the only reasonable inference one could draw. To the contrary, the evidence permits an inference that the individual entering fee into First American’s system could choose to call it a “loan tie-in” fee, or could choose to use an entirely different label for the fee, like “concurrent junior mortgage escrow.” There is also evidence that escrow officers often used the terms “loan tie-in” and “concurrent junior escrow” to refer to the same services and that First American had filed rates for the concurrent junior mortgage escrow, document preparation, and electronic document download fees during part of the class period. Based on this evidence, there is adequate support for the trial court’s conclusion that a case-by-case manual file review would be necessary in some cases to determine whether a First American customer had actually been charged an unfiled loan tie-in fee rather than a properly filed fee. In other words, in the hundreds if not thousands of cases where it is possible the “loan tie-in” fee label for a charge to a First American customer was mistakenly applied, substantial evidence supports the trial court’s determination that class-wide adjudication would be unmanageable.

The problem, however, is that there are subclasses among the overarching putative class where it is not possible the “loan tie-in” label for a charged fee was mistakenly applied. The putative class period stretches from January 1, 2003, to April 1, 2007. But until April 18, 2005, First American did not have filed rates for any of the other fees First American has identified as the possibly correct candidates for a mistakenly labeled loan tie-in charge, i.e., the concurrent junior mortgage escrow fee, the document download fee, or the document preparation services fee. Thus, any class members who were charged a “loan tie-in” fee prior to April 18, 2005, could not have been properly charged that fee, even under First American’s theory.

The defense manageability issues identified by the trial court cannot affect this subclass of First American escrow transactions, which are calculated to be 73,137 transactions. Nor can manageability issues arise as to 840 transactions that closed on or after April 18, 2005, in which all three of the fees identified by First American were charged in addition to a loan tie-in fee. In these transactions, there is no possibility that a fee was mistakenly charged for loan tie-in services when the work done was really for one of the other filed-rate fees. A substantial portion of the putative class is therefore unaffected by the court’s primary manageability finding.

First American does not challenge these conclusions on the merits. Its sole rejoinder is that Wilmot forfeited the particular subclass theories just discussed. First American does concede Wilmot proposed “myriad subclasses” in seeking certification below, but the company contends Wilmot never proposed a specific subclass with these parameters to the trial court.

To be sure, Wilmot would have done better to highlight more prominently below the subclass arguments she now emphasizes. But our review of the record—particularly Wilmot’s supplemental brief in support of class certification of a loan tie-in class and her “Special Trial Plan Addressing Defenses Raised by [First American]”—indicates at least the pre-April 18, 2005, subclass we have identified was sufficiently raised to avoid forfeiture of the issue on appeal. We accordingly hold the trial court abused its discretion by not certifying a subclass of consumers whose transactions could not have been mislabeled as involving a loan tie-in fee. (Osborne v. Subaru of America, Inc. (1988) 198 Cal.App.3d 646, 653 [“[T]he trial court has an obligation to consider the use of subclasses and other innovative procedural tools proposed by a party to certify a manageable class . . .”].)

As a result, we will remand the matter and direct the trial court to certify an unlawful and unfair UCL subclass of comprised at least of those transactions we have identified that obviously cannot be impacted by First American’s anticipated mistaken labeling defense and Duran manageability issues. We leave it to the trial court to define the precise contours of the subclass(es) to be certified, as it may determine there are other segments of the overall putative class that similarly do not present intractable manageability issues. At the same time, in the course of evaluating the contours of the specific subclass or subclasses it certifies, if the court determines individualized issues would render some subset of the subclass unmanageable (due, for example, to a delayed discovery issue that may apply to class members whose transactions closed between January 1, 2003, and April 25, 2003), it may adjust the composition of the subclass(es) to be certified as necessary.

D. Wilmot Has Not Demonstrated the Trial Court’s Orders Overruling Her Evidentiary Objections Were Prejudicial

Wilmot’s opening brief argues the trial court abused its discretion by overruling her objections to portions of the Dufficy and O’Neill declarations. We review a trial court’s ruling on the admissibility of evidence for abuse of discretion. (San Lorenzo Valley Community Advocates for Responsible Education v. San Lorenzo Valley Unified School Dist. (2006) 139 Cal.App.4th 1356, 1419.)

An order or judgment cannot be reversed based on the erroneous admission of evidence unless the appellant shows that there was a miscarriage of justice. (Evid. Code, § 353, subd. (b); Cal. Const., art. VI, § 13.) “In civil cases, a miscarriage of justice should be declared only when the reviewing court, after an examination of the entire cause, including the evidence, is of the opinion that it is reasonably probable that a result more favorable to the appealing party would have been reached in the absence of the error.” (Huffman v. Interstate Brands Corp. (2004) 121 Cal.App.4th 679, 692.)

Wilmot’s challenge to O’Neill’s declaration on appeal is narrow. She argues O’Neill’s statements “about what she would have done if Wilmot’s transaction had closed 15 months later” were inadmissible. We agree the small portion of her declaration that recited actions she would have taken under different circumstances was speculative and should not have been admitted. (Evid. Code, § 800.) But the remainder of her declaration, namely, her statements that she could have charged Wilmot a concurrent junior escrow fee and that she could not ascertain from her review of the records whether an electronic download fee was called for, are neither challenged on appeal nor speculative in nature. The error here, small as it was, is harmless.

Wilmot also argues the trial court erred by overruling her objection to Dufficy’s statements in his declaration “about how other escrow companies supposedly labeled their fees in the 1990s and 2000s” as lacking foundation, lacking personal knowledge, and constituting hearsay. Again, Wilmot’s assertion on appeal is narrower than the challenge she mounted in the trial court. We need not determine whether Dufficy’s statements about how other escrow companies labeled their fees were properly admitted because, to the extent we have affirmed the trial court’s ruling, we have done so without considering them. No prejudice could have resulted from the consideration of Dufficy’s challenged statements.

DISPOSITION

The order denying class certification is reversed and the matter is remanded to the trial court for further proceedings consistent with this opinion. Wilmot shall recover her costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

BAKER, Acting P. J.

We concur:

MOOR, J.

KIM, J.