Opposition Brief — Granberry v. Islay Investments

No. 99-806

—

Ones ae eee .

Supreme Court of the United States

¢

LISA GRANBERRY, COSETTI JORDAN, ALICE

GLASSPOOL, CHRISTOPHER GLASSPOOL, on behalf

of themselves and all others similarly situated,

Petitioners,

V.

ISLAY INVESTMENTS, a California Partnership,

MARVIN TREVILLIAN,

Respondents.

+

On Petition For A Writ Of Certiorari

To The Supreme Court Of California

¢

BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

«

DIANE M. MaATrTSsINGER ANTONIO R. ROMASANTA

Counsel of Record State Bar No. 31535

State Bar No. 96826 800 Garden St., Ste. K

800 Presidio Ave. Santa Barbara, CA 93101

Santa Barbara, CA 93101 (805) 564-3306

(805) 560-8808 Marcus CRAHAN, JR.

Betty L. JEPPESEN State Bar No. 27717

State Bar No. 100947 830 Woodland Dr.

800 Garden St., Ste. K Santa Barbara, CA 93108

Santa Barbara, CA 93101 (805) 969-7458

(805) 963-8621

Counsel for Responde: *s

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

ANSWERS TO QUESTIONS PRESENTED

1. In a class action by tenants against their former

landlord for the return of a security deposit less offsets

for unpaid rent, cleaning and repairs (Cal. Civ. Code sec.

1950.5), the trial court had jurisdiction over the entire

cause where:

a. the entire cause (i.e., security less offsets)

was certified as a class action and the trial court expressly

found, inter alia, that the named plaintiffs could ade-

quately represent the class as to all issues;

b. the original class notice advised absent class

members that the resolution of “security less offsets” was

at issue and that petitioners’ counsel would represent

them;

c. the California Supreme Court directed that

the offsets be allowed under the equitable principle that

either party to a transaction involving mutual debts and

credits can strike a balance holding himself owing or

entitled only to the net difference (Cal. Code of Civ. Proc.

sec. 431.70;

d. the trial court utilized the device of split

trials —- an evidentiary hearing as to class-wide issues and

an individualized claims process, with a second class

notice advising absent class members of their right to

make a claim and a provision for individual hearings in

accordance with California Small Claims procedures; and

e. no offsets were adjudicated against any

absent class member. The trial court considered offsets

against non-claiming class members for the sole purpose

ii

ANSWERS TO QUESTIONS PRESENTED - Continued

of calculating the amount made available for the class to

determine attorneys’ fees (Cal. Code of Civ. Proc. sec.

384).

2. An order for the reversion of unclaimed class

funds to defendants is proper where, as here:

a. the California Legislature has preserved the

trial court’s equitable discretion with respect to the dispo-

sition of unclaimed class funds (Cal. Code of Civ. Proc.

sec. 384);

b. the case arises out of respondents’ good faith

misinterpretation of a California statute which the Cali-

fornia appellate court held “teeters on the brink of unin-

telligibility”;

c. under California law, unclaimed security

does not belong to the tenant; to the extent that the

security exceeds the offsets, the sum is a debt owed by

the landlord to the tenant;

d. the amount ordered to revert to respondents

was theoretical, because respondents suffered a $1.4 mil-

lion net loss on the program found to involve a security.

That $1.4 million, plus all of the security, was spent for

the benefit of the class, to remedy defaults in rent, and to

pay for cleaning and repairs;

e. the second class notice specifically advised

the absent class members that, if they did not make a

claim, their right to a refund would be extinguished.

lil

TABLE OF CONTENTS

Page

ANSWERS TO QUESTIONS PRESENTED .......... i

Nae te oe ooo a ios 6 io noe oS ka eo a iii

ROR SIP PR RAED oo. Son 6 680s ove cn owe bob awk Vv

THERE ARE NO GROUNDS FOR ISSUANCE OF A

UES hee aa ee PS veo es Fee Re 1

A. There is No Party With Standing to Present the

NE rs ord PA ed Ce ee neds Pe Oho eke. 1

B. Petitioners Did Not Preserve Their Claims for

this Court’s Review in Any Event ............. 1

C. There is no Federal Question.................. 3

1. California Civil Code section 1950.5........ 3

2. California Code of Civil Procedure section

By Sherpa ae ES HR Fe al a eA cl a Be eR 5

3. California Code of Civil Procedure section

Mh hes Pe ae Woes ko ioe da Cocke c hls 5

THERE WAS NO ERROR IN ANY EVENT......... 6

The Nature of the Case, the Class Certification and

Sie NPRINNE GAROD DUOIOI ss 6 ics i vanicedceeebucce-s 7

The Opinion of the California Supreme Court -

Granberry v. Islay Investments, 9 Cal.4th 738 (1995) 13

Formulation of Class-Wide and Individual Claims

Procedures, and the Second Class Notice ........ 14

The Evidentiary Hearing on Class-Wide Issues... 17

iv

TABLE OF CONTENTS - Continued

The Individual Claims Process................... 18

Petitioners Conceded the Trial Court’s Discretion

to Order a Claims-Made Remedy, i.e., Reversion of

the Unclaimed Residue to Respondents.......... 20

The Opinion of the Court of Appeal (Pet. App.

39-57) and the Supreme Court’s Denial of

BONE ok ic oie ie bacon ake Pee ae 23

EL EA OIE bic 4K a.dn 30d a Sea wheca e aks ce 24

APPENDIX

Declaration re: Mailing of Notice to Class (With

UNIO) ss Xs ie nis b cde s eateeeraaeece ences App. 1

California Code of Civil Procedure section

oS

TABLE OF AUTHORITIES

Page

Cases

Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274,

EF Dea BO AE: ced on ck s Punk cs we ce boos 5

Bing v. Roadway Express, Inc., 485 F.2d 441 (5th Cir.,

RPCOL GEN MNBAA Sik s Kido agian 54 da mawk ch ebiee ke, 19

Block v. Major League Baseball, 65 Cal.App.4th 538

RRND Ss hee Seg c heen cebass ip ees chee eee 2

Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct.

480, G2 LB id O76 CG so eee ae 22

California v. A.R.C., 490 U.S. 93, 109 S.Ct. 1661, 104

oe ee Sea pee pape ne Far Pal, eo apn 16

Camden I Condominium Association, Inc. v. Duntkle,

POW Rise foe (hae Gi 2908 oak cea cas cs 23

Deposit Guaranty National Bank v. Roper, 445 U.S.

326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980).......... 6

Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 40

L.Ed.2d 732, 94 S.Ct. 2140 (1974)............ 2, 10, 16

Epstein v. MCA, Inc., 126 F.3d 1235 (9th Cir., 1997) ..... 1

Exxon Corp. v. Eagerton, 462 U.S. 176, 103 S.Ct.

4290, 76: L.BG.26: 497: (1963). 06 oii. ee eecee ch uuaes 3, 4

Granberry v. Islay Investments, 9 Cal.4th 738 (1995). . .passim

Granberry v. Islay Investments, 161 Cal.App.3d 382

CAPO Ss Fok bh veod y Sey¥ ap Sue W ie AOS olen CaCEN Se cae 3 7, 8,9

Green v. Obledo, 29 Cal.3d 126 (1981)................. 6

Green v. Wolf Corporation, 406 F.2d 291 (1968)........ 19

vi

TABLE OF AUTHORITIES - Continued

Page

Honeyman v. Hanan, 302 U.S. 375, 58 S.Ct. 273, 82

L.Ed. 582 CORRES in a os akan non deaeene casumekaenes S)

In re Cement and Concrete Antitrust Litigation, 817

F.2d 1435 (9th Ciz., 19067) «occ is occas cndccsadesians 16

Korens v. R. W. Zuken, 212 Cal.App.3d 1054 (1989) ..4, 22

Kruger v. Wells Fargo Bank, 11 Cal.3d 352 (1974)...... 5

Landmark Communications, Inc. v. Virginia, 435 U.S.

829, 98 S.Ct. 1535, 56 L.Ed.2d 1 (1978)............. 3

Loeb v. Trustees of Columbia Twp., 179 U.S. 472, 21

S.Ct. 174, 45 L.Ed. ZOO CRP cis is es ee ek se 2

Markowitz v. Ikemoto, 159 Cal.App.2d 242 (1958) ..... 18

Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 77

L.Ed.2d 180, 103.S.Ct.. 2706 (3903) ovens cou) dns 10

Mullane v. Central Hanover Bank & Trust Co., 339

U.S. 306, 94 L.Ed. 865, 70 S.Ct. 652 (1950) ........ 10

Mutual Life Ins. Co. v. McGrew, 188 U.S. 291, 23

S.Ct. 375, 47 Laid: 400 CiGRG ass cinch es eis

O’Brien v. Skinner, 414 U.S. 524, 94 S.Ct. 740, 38

L.Ed.28 7OQ (197). . 3 eer ee ee es 3

Ortiz v. Fibreboard Corp., __ U.S. __, 119 S.Ct.

2295, 146 1B 2e8 FES Ci vkkacocksasscivin ake 11

Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 86

L.Ed.2d 688, 105 S.Ct. 2965 (1985) ....1, 2, 11, 16, 23

Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555,

100 S.Ct. 2814, 65 L.Ed.2d 973 (1980) .............. 2

Se eee

Vil

TABLE OF AUTHORITIES - Continued

Scammon v. Kimball, 92 U.S. 362, 23 L.Ed. 483

SRT 5 ieee ae kk ER a a 4

Shump v. Balka, 574 F.2d 1341 (10th Cir., 1978)....18, 19

Six Mexican Workers v. Arizona Citrus Growers, 904

Pimee Be CPO CIE TIO wise ne cos se eet eekiree 23

Societe Generale De Banque v. Touche Ross & Co., 729

me Ge AU MAE NOON sic 000 ha ie akc Ku de O% oa 23

State v. Levi Strauss and Company, 41 Cal.3d 460

RE be pixie Puta Sr EEAWE Hades FAbEs Aleka abs 14

Tulsa Collection Services v. Pope, 485 U.S. 470, 99

L.Ed.2d 565, 108 S.Ct. 1340 (1988) ............. 10, 11

Williams v. MGM-Pathe Communications Co., 129

Woe See CHER, SOF eos Aes hoes o25 bres Fees: 23

Wilson v. Southwest Airlines, Inc., 880 F.2d 807 (5th

CS MPT yet e 5s es Fake eee cel hAe tans 22, 23

Zablocki v. Redhail, 434 U.S. 374, 98 S.Ct. 673, 54

Sse EI CAPR ca ho 60s ¥ i oes sie bas Speedo ceie 1

STATUTES

Be BTU oo 5b hide he hk Bb RK bk ws 1

California Civil Code section 1950.5............. passim

California Code of Civil Procedure section 384...14, 20

California Code of Civil Procedure section 382...... 24

California Code of Civil Procedure section 431.70..... 5

California Code of Civil Procedure section

c+ RRR ESE aan ap coe a NN eg Ma aN > ta, 20

Toh

, = a rtp e

PA ROI NC. x PEE

THERE ARE NO GROUNDS

FOR ISSUANCE OF A WRIT OF CERTIORARI

Petitioners invoke this Court’s jurisdiction under 28

USC section 1257(a). They apparently claim a “title, right,

privilege or immunity . . . specially set up or claimed

under the Constitution.” There are no grounds for issu-

ance of a Writ of Certiorari for the following reasons:

A. There is No Party With Standing to Present the

Writ. Federal standing “requires an allegation of a pre-

sent or immediate injury in fact, where the party request-

ing standing has ‘alleged such a personal stake in the

outcome of the controversy as to assure that concrete

adverseness which sharpens the presentation of issues.’ ”

Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 805, 86

L.Ed.2d 688, 641-642, 105 S.Ct. 2965 (1985). The named

plaintiffs have no standing because the offsets against

them exceeded the amount of their security. The class

claimants are not before the Court; they have all been

paid and none has appealed. The only party with argu-

able standing to challenge the adequacy of his or her

representation in this action would be an absent class

member who does not wish to be bound by the class

action judgment. However, it is well settled that such a

challenge is made in a subsequent attack on the judg-

ment, and not in this proceeding. Zablocki v. Redhail, 434

U.S. 374, 378, fn. 6, 98 S.Ct. 673, 54 L.Ed.2d 618 (1978);

Epstein v. MCA, Inc., 126 F.3d 1235, 1244-1245 (9th Cir.,

1997).

B. Petitioners Did Not Preserve Their Claims for

this Court’s Review in Any Event. As the California

Court of Appeal found (Pet. App. 44), petitioners con-

ceded the trial court’s jurisdiction to resolve the question

of security less offsets on several occasions. Moreover,

after remand from the California Supreme Court, peti-

tioners conceded the trial court’s discretion to order

reversion. Therefore, the issues presented by petitioners

were not timely raised and not preserved for this Court’s

review. Richmond Newspapers, Inc. v. Virginia, 448 U.S. 555,

100 S.Ct. 2814, 2820, fn. 4, 65 L.Ed.2d 973 (1980); Mutual

Life Ins. Co. v. McGrew, 188 U.S. 291, 308, 23 S.Ct. 375, 47

L.Ed. 480 (1903).

PF ne ee ea *

Furthermore, the due process required for jurisdic-

tion over absent class members involves (a) the best

practicable notice (which should describe the action and

the plaintiffs’ rights in it), (b) a provision for absent class

members to opt out, and (c) the requisite finding that the

named plaintiff adequately represents the interests of the

class. Phillips Petroleum Co. v. Shutts, supra, 472 U.S. 797,

811-812. The requirements of Phillips were met in this

case. Certification orders are appealable orders in Califor-

nia (see, e.g., Block v. Major League Baseball, 65 Cal.App.4th ;

538 (1998)); petitioners did not appeal. Therefore, peti-

tioners’ challenge to jurisdiction was not timely raised or

preserved for this Court’s review. Loeb v. Trustees of

Columbia Twp., 179 U.S. 472, 481, 45 L.Ed. 280, 21 S.Ct. 174

(1900); Mutual Life Ins. Co. v. McGrew, supra, 188 U.S. 291,

308.

ee

Finally, the original class notice, mailed and pub-

lished per Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 40

L.Ed.2d 732, 746-747, 94 S.Ct. 2140 (1974), advised the

absent class members that they would be represented by

petitioners’ counsel (App. 1, 6). The California Supreme

ee ee ee

Court took heed of that notice and found, as a factual

matter, that petitioners’ contentions regarding “lack of

notice [were] unavailing” (Granberry v. Islay Investments, 9

Cal.4th 738, 749 (Pet. App. 15) (1995)). Petitioners’ coun-

sel represented the absent class members throughout the

proceeding and, at the conclusion of the case, took fees

for that representation pursuant to the class notice.

For all these reasons, petitioners have not preserved

their claims for this Court’s review.

C. There is no Federal Question.! Throughout this

case, the California Courts have construed California stat-

utes in accordance with their California legislative his-

tory. This Court has long held that “it is not our function

to construe a state statute contrary to the construction

given it by the highest court of a State.” O’Brien v. Skin-

ner, 414 U.S. 524, 94 S.Ct. 740, 744, 38 L.Ed.2d 702 (1974);

Landmark Communications, Inc. v. Virginia, 435 U.S. 829, 98

S.Ct. 1535, 1541, fn. 9, 56 L.Ed.2d 1 (1978).

1. California Civil Code section 1950.5 (Pet.

App. 83-86). This statute governs the relationship

between landlords and tenants in California with respect

to security deposits. In pertinent part, the statute requires

1 The California Courts did not decide any of petitioners’

alleged federal questions. When “the highest state court has

failed to pass upon a federal question, it will be assumed that

the omission was due to want of proper presentation in the state

courts, unless the aggrieved party in this Court can

affirmatively show the contrary.” Exxon Corp. v. Eagerton, 462

U.S. 176, 103 S.Ct. 2296, 2300-2301, fn. 3, 76 L.Ed.2d 497 (1983).

Petitioners have not made the requisite showing.

a landlord to return the security deposit within a speci-

fied time after the termination of a tenancy, and to pro-

vide a written accounting of any portion retained as

compensation for unpaid rent, repairs and cleaning (Civ.

Code sec. 1950.5, subd. (f)). The California Supreme

Court granted review in Granberry v. Islay Investments,

supra, 9 Cal.4th 738 to determine “whether a landlord

who in good faith fails to comply with the requirements

of [section 1950.5] may nevertheless recover damages for

unpaid rent, repairs, and cleaning in a subsequent judi-

cial proceeding” (Ibid., 9 Cal.4th at p. 741 (Pet. App. 2)).

The resolution of the issue turned on an analysis of

the legislative history of section 1950.5 (Ibid., 9 Cal.4th at

pp. 744-749 (Pet. App. 7-16)). Federal courts defer to state

courts’ analysis of state legislative history. Exxon Corp. v.

Eagerton, supra, 103 S.Ct. 2296, 2301, fn. 3. The resolution

of the question also turned on the California Supreme

Court’s conclusion that a defensive setoff is not a sepa-

rate claim, but is instead founded on the equitable princi-

ple that “either party to a transaction involving mutual

debts and credits can strike a balance, holding himself

owing or entitled only to the net difference” (Ibid., 9

Cal.4th at p. 744 (Pet. App. 6)).?

Within the statutory matrix of section 1950.5, the

Legislature created a debtor-creditor relationship

between landlord and tenant with respect to the security.

Korens v. R. W. Zuken, 212 Cal.App.3d 1054 (1989). There-

fore, the resolution of a defensive setoff between landlord

2 This Court has recognized similar principles. See, e.g.,

Scammon v. Kimball, 92 U.S. 362, 367, 23 L.Ed. 483, 485 (1875).

2° See

and tenant does not constitute a “taking” of the tenant's

property.

2. California Code of Civil Procedure section

431.70 (App. 11). The California Supreme Court con-

firmed that this statute simply provides a procedure for

the assertion of equitable offsets (Ibid., 9 Cal.4th at p. 744

(Pet. App. 7)). “The Federal Constitution does not under-

take to control the power of a state to determine by what

process legal rights may be asserted or legal obligations

be enforced ... ” Honeyman v. Hanan, 302 U.S. 375, 378, 58

S.Ct. 273, 82 L.Ed. 312 (1937). Moreover, and in any event,

the assertion of a private offset, even if granted by the

Legislature, does not constitute state action for the pur-

pose of the Fourteenth Amendment to the United States

Constitution. Kruger v. Wells Fargo Bank, 11 Cal.3d 352,

357 (1974).3

3. California Code of Civil Procedure section

384 (Pet. App. 87-88). This statute provides guidance for

the exercise of broad discretion by trial courts with

respect to the disposition of unclaimed residue in class

actions. Granberry v. Islay Investments, supra, 9 Cal.4th at

pp. 750-751 (Pet. App. 18). The California Supreme Court

rejected petitioners’ claim that this statute, in conjunction

with the California Unclaimed Property Law (Cal. Code

of Civ. Proc. sec. 1500, et seq.), mandated escheat of

unclaimed residue in all class actions.

3 See, Bank of Marin v. England, 385 U.S. 99, 101, 87 S.Ct. 274,

17 L.Ed.2d 197, 200 (1966), noting that the relationship between

a debtor and creditor is founded upon contract and therefore

not a state action.

The trial court, contrary to petitioners’ drum beat

throughout their petition, did not “adjudicate” any off-

sets against any absent class members; only those class

members who made a claim had their offsets individually

adjudicated pursuant to an administrative procedure

painstakingly established after several hearings.

,

vv

THERE WAS NO ERROR IN ANY EVENT

California courts follow federal precedent and pro-

cedure in class actions. Green v. Obledo, 29 Cal.3d 126, 146

(1981). In this case, the California courts followed the

principle set forth by this Court in Deposit Guaranty

National Bank v. Roper, 445 U.S. 326, 333, 100 S.Ct. 1166, 63

L.Ed.2d 427 (1980): a class action right is a “procedural

right only, ancillary to the litigation of substantive

claims.” Therefore, when the California Supreme Court

held that a good faith landlord did not forfeit offsets for

failure to timely comply with the accounting require-

ments of Civil Code section 1950.5, the California

Supreme Court preserved respondents’ right to assert

those offsets, even though the form of the action was a

class action.* The following abbreviated explanation of

this lengthy litigation conclusively demonstrates that

there was no error.

* “Class actions are provided only as a means *» enforce

substantive law. Altering the substantive law to accommodate

procedure would be to confuse the means with the ends - to

sacrifice the goal for the going.” Granberry, supra, 9 Cal.4th at p.

749 (Pet. App. 16).

7

The Nature of the Case, the Class Certification and the

Original Class Notice

The rental agreements for this class did not provide -

for a security deposit. The disputed sums were received

as rent under a rent discount program, in which tenants

elected to pay their rent daily, weekly, bi-weekly, or

monthly. Depending upon the option which the tenant

chose, the rent for the second and subsequent months

might be more or less than the first month (Exh. 279C

(JAII 6412)).5

In 1981, petitioners’ attorneys solicited the named

plaintiffs as class representatives and alleged that, in

those cases where the tenant’s election resulted in a lesser

rent for the second and subsequent months, the differen-

tial constituted a “security” within the meaning of Cali-

fornia Civil Code section 1950.5 (Pet. App. 83-86). The

statute, which the California Court of Appeal found “tee-

ters on the brink of unintelligibility”® (Granberry v. Islay

Investments, 161 Cal.App.3d 382, 388 (1984)), provided

fertile ground for the litigation - now in its 19th year.

Petitioners’ complaint acknowledged respondents’

right to offset under Civil Code section 1950.5. In

5 Rent discount programs were not uncommon in

California at the time. The California Legislative Counsel

commented: “[I]nsofar as a landlord is not prohibited from

imposing a de-escalating rent structure, we are of the opinion

that a landlord may lawfully charge a greater amount for the

first month’s rent than for succeeding months” (JAI (AB 3721)).

6 Section 1950.5 defines “security” as “ ... any payment,

fee, deposit or charge, including, but not limited to, an advance

payment of rent, used or to be used for any purpose, including,

but not limited to, any of the following [rent, repair of damage,

cleaning, etc.].” (Pet. App. 83.)

petitioners’ motion for class certification, they stated:

“[respondents} will have an obligation to refund such

surcharges to each tenant less only those deductions,

otherwise proper, which defendants now may take

according to Civil Code section 1950.5(e)” (JAI 223). Over

respondents’ opposition,” the case was certified as a class

action. The trial court found: (a) the “action involves a

question of common or general interest,” (b) “common

and similar issues of fact and law predominate over

issues which must be tried on an individual basis,” (c)

“{ajll of the plaintiffs are members of the class and their

claims are representative of the claims of the unnamed

members of the class,” (d) “[t]he plaintiffs are able to

fairly and adequately represent and protect the interests

of all class members” (JAI 1009-1011, emphasis added).

Petitioners have never challenged the certification

order.

In 1982, the trial court granted summary judgment

for respondents, finding that the “first month’s rental

charged by Islay was ‘rent’ in fact as well as in name”

(JAI 1026). However, in 1984, the California Court of

Appeal reversed, holding that the question of whether

funds constitute “security,” as that term is defined by

7 Respondents opposed certification (JAI 907). After

remand from Granberry v. Islay Investments, supra, 161

Cal.App.3d 384, respondents moved to decertify the class

because separate hearings would be required for each class

member (JAI 1170-1211, 1192-1197). Petitioners opposed,

claiming that both security and offsets could be determined on a

class-wide basis (JAI 1348-1356). Respondents’ motion was

denied and the class remained certified.

OR remem

co aneaneerene:. wenemmemmenaneE ene” OEE

SPRITE CERNE RAISE SENS

eke nian eee her er

section 1950.5, involves a question of fact. Granberry v.

Islay Investments, supra, 161 Cal.App.3d at p. 388.

On remand, the trial court granted respondents leave

to amend their answer to allege offsets for unpaid rent,

repair, and cleaning in the event a jury were to find that

the disputed sum was a security. With the exception of

named plaintiff Granberry, against whom judgment was

entered on a cross-complaint, the offsets remained in the

case only as an affirmative defense.

As the Court of Appeal found (Pet., App. 44), peti-

tioners conceded the trial court’s jurisdiction over the

affirmative defense of offsets throughout the proceed-

ings. In fact, in one of those concessions, petitioners

suggested the very procedure which the trial court ulti-

mately adopted to resolve the offsets:

“Quashing service of the cross-complaints

. will not divest the Court of jurisdiction to

determine the viability of the affirmative

defenses alleged in Islay’s answer to the Second

Amended Complaint. This Court can determine

the viability of such setoff claims in the context

of the class action, and, should the court find

that some of those set-off claims can be asserted

and are viable, devise an appropriate method to

resolve the individual fact issues relevant to a

determination of the amount, if any, owed by

Islay to each individual absent class member.”

JAI 2397-2398.

In accordance with the complaint, the answer, the

certification order, and petitioners’ concessions, the origi-

nal class notice (App. 1-10) advised the class that any

refund they might be entitled to recover “must be

10

reduced by the amount of any unpaid rent, costs reason-

ably necessary to clean and repair damage you caused to

the apartment, in excess of ordinary wear and tear.” The

notice also advised the class that, if they did not request

to be excluded, they would be represented by petitioners’

counsel (App. 1, 5-6).

The original notice was published and mailed to

each class member for whom petitioners had an address.®

Petitioners never challenged the adequacy of the notice in

the California courts.

There is no support, in law or logic, for petitioners’

claim that “actual notice” to each member of this class

was required. The “elementary and fundamental require-

ment of due process” is “notice reasonably calculated,

under al! the circumstances, to apprise interested parties

of the pendency of the action and afford them an oppor-

tunity to present their objections.” Mullane v. Central

Hanover Bank & Trust Co., 339 U.S. 306, 314, 94 L.Ed. 865,

70 S.Ct. 652 (1950). In class actions, publication and mail-

ing to all class members whose addresses can be ascer-

tained is the “best notice practicable.” Eisen v. Carlisle &

Jacquelin, supra, 417 U.S. 156, 40 L.Ed.2d 732, 746-747,

citing Mullane.?

8 The original notice was mailed to 5,438 class members

whose addresses could be ascertained; 3,682 (or 68%) of the first

notices were received (JAI 1892-1893).

9 In Mullane, this Court specifically held that published

notice was constitutionally sufficient for beneficiaries whose

interests or whose whereabouts could not be ascertained. In

Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 77 L.Ed.2d 180,

103 S.Ct. 2706 (1983) and Tulsa Collection Services v. Pope, 485

11

The order for certification, and the notice to the class,

established the trial court’s jurisdiction over absent class

members. Phillips Petroleum Co. v. Shutts, supra, 472 U.S.

797, 811-812.1°

In 1988 and 1989, at a cost in excess of $160,000,

respondents itemized the damages for each tenancy in

the class and provided the information to petitioners’

counsel during discovery. The information was not pro-

vided to individual class members because respondents

were restrained from any and all contact with class mem-

bers about the subject matter of the litigation (JAII

4795-4797).

Shortly before trial in 1990, the trial court dismissed

respondents’ affirmative defense of offsets. That is the

ruling which the California Supreme Court later reversed

(Granberry v. Islay Investments, supra, 9 Cal.4th 738 (Pet.

App. 1-38)).

When the case was tried in 1990, the jury was pro-

vided copies of portions of the statute but was not

informed that the court had forfeited respondents’ offsets

U.S. 470, 490, 99 L.Ed.2d 565, 108 S.Ct. 1340 (1988), this Court

held published notice insufficient only because the names and

addresses of parties were known or reasonably capable of

ascertainment.

10 This case is readily distinguishable from Ortiz v.

Fibreboard Corp., __ U.S. __, 119 S.Ct. 2295, 144 L.Ed.2d 715

(1999), which involved the conditions for certifying a

mandatory settlement class on a limited fund theory. In Ortiz,

the due process rights of the absent class members were

implicated because the trial court did not protect the

“potentially conflicting interests” of various categories of

claimants to the limited fund (Ibid., 119 S.Ct. at p. 2308).

12

(JAI 3955, 3981-3982, 3989). The class representatives tes-

tified: (a) they had no complaints about the rent discount

program; (b) they were not misled; (c) they did not expect

any accounting or refund when they vacated their apart-

ments because they did not believe they had paid a

security. Similarly, respondents testified that they treated

the disputed sum as rent for all purposes. All rents were

deposited into Islay’s general account (subject to income

and other taxes), from which respondents paid the costs

of operation, including cleaning and damage repair. (JAII

5914.8-5914.9).

After a 23-day jury trial and 4 days of deliberation,

the jury found (by vote of 9 to 3) that respondents had

taken a “security” within the meaning of section 1950.5.

The finding confirmed the problem with Civil Code sec-

tion 1950.5 — a transaction can involve a “security” even

though a landlord thinks he took only rent, and even

though the tenants believe they paid only rent. In 2

hours, the jury found that respondents had not acted in

bad faith.

Based on the jury’s findings, the trial court ordered

respondents to refund the jury-found security to each

class member who made a claim (JAI 4296-4297). All

parties appealed. So far as is pertinent here, the Court of

Appeal (2d Civ. No. B057796; 23 Cal.Rptr.2d 420 (1993))

reversed the trial court’s forfeiture of respondents’ off-

sets. The California Supreme Court granted review.

13

The Opinion of the California Supreme Court -

Granberry v. Islay Investments, 9 Cal.4th 738 (1995)

In Granberry v. Islay Investments, 9 Cal.4th 738 (Pet.

App. 1-38) (1995), the California Supreme Court held

that, under the statutory scheme enacted by the Califor-

nia Legislature in Civil Code section 1950.5, good faith

landlords are entitled to claim equitable offsets against a

security deposit —- even within the procedural context of a

class action (Id., 9 Cal.4th at p. 743 (Pet. App. 2)). The

California Supreme Court rejected petitioners’ character-

ization of the offsets as distinct from the security and also

rejected petitioners’ claim that the resolution of offsets

against absent class members would involve a “default”

judgment. The Court held that Civil Code section 1950.5

gives the tenant the right only to the “remaining portion”

of the security (i.e., the “net difference” after deduction

of offsets). Granberry, supra, 9 Cal.4th at p. 744 (Pet. App.

6). The California Supreme Court directed the trial court

to conduct an evidentiary hearing, at which respondents

would be required to prove that they suffered damages

for unpaid rent, cleaning and repairs and that the amount

they claimed was reasonable (Granberry, supra, 9 Cal.4th

at pp. 749-750 (Pet. App. 16)).

The California Supreme Court also rejected specific

arguments by petitioners and by amicus curiae California

Attorney General that, as a matter of law, the trial court

was required to create a fund and was required to dispose

of any residue by either fluid recovery or escheat. The

Court construed both the California Unclaimed Property

Law (Cal. Code of Civ. Proc. secs. 1500, et seq.) and

California Code of Civil Procedure section 384, and con-

firmed that the California Legislature intended to, and

14

did, preserve the trial court’s equitable discretion with

respect to the disposition of unclaimed residue in class

actions."!

The California Supreme Court rejected petitioners’

characterization of section 384 as a substantive statute

which divests the trial court of equitable discretion, and

confirmed that section 384 is a procedural statute, which

simply requires trial courts to make certain findings with

respect to unpaid residuals in class actions (Id., 9 Cal.4th |

at p. 751 (Pet. App. 19)). In light of the California |

Supreme Court’s allowance of respondents’ offsets, the

trial court was directed to “reconsider” its choice of rem-

edy after the evidentiary hearing (Ibid., at p. 751 (Pet.

App. 19)).

Formulation of Class-Wide and Individual Claims Pro-

cedures, and the Second Class Notice

On remand, following the directives of the California

Supreme Court (Granberry, 9 Cal.4th 738, 750-752 (Pet.

App. 19)), the trial court shaped a two-part procedure: (1)

an evidentiary hearing to resolve the class-wide issues

with respect to offsets and equitable defenses, and (2) an

individualized claims process, to be conducted in accor-

dance with California Small Claims procedures.

The trial court also formulated a second notice for the

class (Pet. App. 79-82), to inform absent class members of

the status of the litigation and the upcoming proceedings.

1! In California, escheat is the “last resort” in class actions.

State v. Levi Strauss and Company, 41 Cal.3d 460, 475 (1986).

aiid

15

As the California Court of Appeal held, there was no

abuse of discretion (Pet. App. 48-49).

The second notice advised the absent class members

of the status of the litigation and reminded them that any

refund they might be entitled to recover was subject to

offsets. The notice stated the date of the evidentiary

hearing, and also advised. the class of the claims pro-

cedure which they were required to follow if they desired

a refund. The claim form was attached to the notice, and

the notice stated:

“IF YOU FAIL TO MAKE A TIMELY CLAIM

ACCORDING TO THE INSTRUCTIONS PRO-

VIDED IN THIS NOTICE, YOU WILL HAVE NO

FURTHER RIGHT OR CLAIM TO RECOVER

FROM ANYONE IN THIS CLASS ACTION.”

Pet. App. 81.

Respondents paid to have petitioners’ mailing list

updated through a national service (JAII 5064-5066).

Notices and claims forms were mailed to 5,386 class

members (JAII 5067-5068, 5085-5086).!2 The notice was

also published once-weekly for three consecutive weeks

in newspapers in Santa Barbara and surrounding coun-

ties, where respondents’ properties were located (JAII

5075-5087, JAI] 5079-5081, JAII 5082-5083). The trial court

increased the duration of publication and expanded the

12 The national service updated 5,386 of the original 5,438

addresses and the Mailing House mailed 5,386 notices. From

that mailing, 3337 notices (62%) were returned (RT 514).

Therefore, of the 2,049 class members who presumptively

received the second notice, only 76 (3.7%) were sufficiently

interested to file claims (Exhs. 296 and 297).

16

geographical coverage for the second notice to reach ten-

ants who might have moved while the litigation was

pending (JAI 1598-1600, 1892-1893).

The notice was not required to advise each individual

class member of the specific amount of the offsets

claimed against him or her, just as it was not required to

advise each class member of the specific amount of his or

her security.!5 A class action notice need only describe the

general nature of the action and the plaintiffs’ rights in it

(see, e.g., Phillips Petroleum Co. v. Shutts, supra, 472 U.S.

797, 811-812; see, also, In re Cement and Concrete Antitrust

Litigation (9th Cir., 1987) 817 F.2d 1435, 1440-1441 (no due

process violation where notice of settlement failed to

advise absent class members that trial court had ordered

offsets against their share).!4

Until the present Petition for Writ of Certiorari, peti-

tioners never challenged the class notice as inadequate

under Eisen. Instead, petitioners’ complaints about notice

have always been designed to deprive respondents of

their right to assert offsets. As petitioners’ counsel stated

at the hearing after remand: “We could have put a 15-

13 California Civil Code section 1950.5 does not provide for

“notice” in the context of Constitutional due process. The

statute simply requires an “itemized statement” of the

disposition of the security (sec. 1950.5, subd. (e)) (Pet. App. 84).

Moreover, in a class action, “actual notice” to absent class

members is not required. The test is whether the trial court

provided the “best notice practicable” to apprize interested

parties of the pendency of the action. Eisen v. Carlisle & Jacquelin,

supra, 417 U.S. 156.

14 Overruled on other grounds in California v. A.R.C., 490

U.S. 93, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989).

17

second spot in the Super Bowl, but you know, I don’t

know what to suggest from the [petitioners’] point of

view. It’s just too long and too far away to ever give

notice ...” (RTII 66). The claim is specious. Jurisdiction,

once gained, cannot be lost.

The Evidentiary Hearing on Class-Wide Issues

The evidentiary hearing on class-wide issues was

presented over four days. Petitioners’ characterization of

the hearing as an “adjudication” of offsets against non-

appearing absent class members (Pet., p. 10) is false. It

was stipulated that the scope of the hearing was limited

to respondents’ prima facie proof of o‘fsets and peti-

tioners’ class-wide equitable defenses. Petitioners’ coun-

sel vigorously represented the class with respect to those

issues.

Respondents established their prima facie offsets

through the uncontroverted testimony of their operations

manager and a real estate expert. The expert added indi-

rect turnover costs, which had been omitted, to arrive at

the actual damages for each individual tenancy (Exh. 287;

RTII 287-292). He then adjusted the costs for ordinary

wear and tear for each individual tenancy, considering

the duration of each tenancy (RTII 286, 288-289). Based on

this uncontrovertec evidence, the trial court found that

respondents “proved by a preponderance of the evidence

that they suffered damages for unpaid rent, repairs and

cleaning and that the amount thereof was reasonable”

(JAII 6199-6200). The California Court of Appeal affirmed

(Pet. App. 46-48).

18

The trial court also found that respondents’ damages

were proximately caused by the tenant class members.'5

During the pertinent time period, respondents’ busi-

ness practice was to bring each unit to “as near as new”

condition as possible wher each tenant vacated. The class

members’ rental agreements required them to notify the

resident inanager if the unit was not in that condition.

Based on this evidence, the trial court specifically

found, inter alia, in the aggregate, as a result of the 9,240

tenant turnovers during the period at issue, after adjust-

ment for ordinary wear and tear, respondents suffered

$1,411,000 in damages in excess of the total amount of the

security (JAII 5914.3-5914.4). That $1.4 million in dam-

ages, plus all of the jury-found security, was spent for the

benefit of the class for unpaid rent and for cleaning and

repairs. The California Court of Appeal affirmed (Pet.

App. 43).

The Individual Claims Process

It is well within the trial court’s discretion to utilize a

claims procedure in a class action to process claims and

determine individual damages.’ Federal courts often uti-

lize the “sensible device” of split trials — liability issues

1S Under California law, where property is renovated prior

to inception of tenancy and surrendered in damaged condition,

the lessor has made a prima facie case that the tenant caused

damage. Markowitz v. Ikemoto, 159 Cal.App.2d 242, 246 (1958).

16 The claims procedure in this case was similar to that

utilized in Shump v. Balka, 574 F.2d 1341, 1346 (10th Cir., 1978), a

class action for the return of “maintenance fees” under a federal

statute which provided that rent for public housing tenants

19

are determined on a class-wide basis and individual dam-

ages are resolved during a claims process (see, e.g., Green

v. Wolf Corporation, 406 F.2d 291, 301 (1968); Bing v. Road-

way Express, Inc., 485 F.2d 441, 447-448 (5th Cir., 1973)).

The individualized claims process in this case -

which petitioners failed to discuss - was conducted in

accordance with California Small Claims Court pro-

cedures, facilitated by a claims officer and a retired judge

acting as referee. For those claimants against whom

respondents claimed offsets, respondents provided an

itemization of the damages for unpaid rent, cleaning and

repairs. Copies of supporting documentation (i.e.,

invoices, bills, etc.) were provided to the claimant on

request (Exhs. 296, 297). If the claimant objected to any of

the costs, he or she could request an individual hearing

before the referee. In those individual hearings, respon-

dents were required to prove their individualized offsets

by a preponderance of the evidence.

The procedures adopted by the trial court to resolve

the offsets and equitable defenses were well within the

trial court’s discretion. The California Court of Appeal so

held (Pet. App. 48-49).

could not exceed 25% of their income. In Shump, pursuant to a

settlement agreement, refunds were sent to the tenants, first

reducing each tenant’s settlement by his or her delinquent

rentals and costs of repair. The tenants were then given 90 days

to challenge the amount returned to them. In this case, the

claimants were given an opportunity to contest respondents’

offsets before any money was distributed.

20

Petitioners Conceded the Trial Court’s Discretion to

Order a Claims-Made Remedy, i.e., Reversion of the

Unclaimed Residue to Respondents

Petitioners’ claim of error with respect to the disposi-

tion of the unclaimed residue is flawed, not only by their

concession of the trial court’s discretion to order that

remedy, but because the substantive law is to the con-

trary.

In Granberry, supra, 9 Cal.4th 738 (Pet. App. 1-38), the

California Supreme Court considered petitioners’ chal-

lenges to the trial court’s power to order the reversion of

unclaimed funds to respondents. Any federal constitu-

tional challenge should have been raised at that time -

petitioners did not do so. Instead, petitioners urged a

construction of California Code of Civil Procedure section

384 and the California Unclaimed Property Law (Code of

Civ. Proc. sec. 1500, et seq) which would bar reversion.

The California Supreme Court rejected the argument, and

directed the trial court to utilize section 384 as guidance

to shape the remedy on remand. The California Supreme

Court specifically held that the California Legislature had

preserved the trial courts’ equitable discretion (Granberry,

supra, 9 Cal 4th at pp. 750-751 (Pet. App. 18-19)).

On remand, petitioners’ counsel conceded that the

trial court had discretion to again order a claims-made

remedy (RT II, 757):

“THE COURT: So you believe that the Court

has discretion, but under the facts of this case it

would be an abuse of discretion to allow the

money to go back to the defendant. Is that your

position?

21

[Petitioners’ Counsel]: I think that that’s the

fairest reading of the Supreme Court decision,

that they have not come down and said you

don’t have the discretion. . . . ” (RTIi 757).

Therefore, the only question before the trial court was

whether the claims-made remedy was fair on the facts. _

The uncontroverted evidence was that, on a class-

wide basis, from April, 1978 to September, 1984, respon-

dents collected security in the total amount of $1,418,559

($976,559 as “rent differential” and $442,000 as “security

deposits”). Of the $442,000 which respondents had taken

under the security deposit program, $348,000 had already

been returned. Thus, the net revenue was $1,072,000 (JAII

5914.3). During the same period, respondents’ total costs,

adjusted for ordinary wear and tear, were $2,484,000.

Therefore, while the rent discount program was in place,

respondents suffered a net loss of $1.4 million (JAII

5914.3).

Respondents’ net loss represents money actually spent

for the benefit of the absent class members for unpaid rent,

cleaning and damages - the trial court specifically found

no unjust enrichment (JAII 5914.14). The trial court also

specifically found that “disgorgement” or escheat would

improperly penalize respondents for their good faith mis-

interpretation of an uncertain statute, particularly since

there was nothing to “disgorge” or “escheat” (JAII

6122-6123, 6201, 6208). The California Court of Appeal

affirmed (Pet. App. 49).

Under these circumstances, petitioners’ claim that the

claims-made remedy constituted a “taking” without due

process is entirely without merit for numerous reasons:

22

First, there was no taking, because there was nothing

to take — all of the security, plus $1.4 million, had been

spent for the benefit of the class.

Second, as noted above, the security does not

“belong” to the tenant in any event. Under California law,

there is a debtor-creditor relationship between landlord

and tenant with respect to the security. Korens v. R. W.

Zuken, supra, 212 Cal.App.3d 1054.

Third, nothing occurred “without due process”

because the requisite notices were given to the class.

Finally, the state court’s order of reversion is consis-

tent with federal law.’” See, e.g., Wilson v. Southwest Air-

lines, Inc., 880 F.2d 807 (5th Cir. 1989), where the court

found that it was more appropriate to return a portion of

the unclaimed residue of a Title VII fund to the defendant

than to order cy pres.’* The court based its ruling on the

compensatory purpose of Title VII, noting that the dis-

puted hiring policy “was not a product of invidious dis-

crimination but represented a market decision that the

17 In Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62

L.Ed.2d 676 (1980), cited by petitioners, this Court held that

absent class members have an equitable interest in any fund

created by the action for the purpose of responsibility for

attorneys’ fees. This Court recognized Boeing’s right to the

unclaimed funds if the absent class members failed to make a

claim (Ibid., 44 U.S. at p. 482).

18 In this case, cy pres had already been achieved because

more money had been spent on the tenancies (i.e., $1.4 million)

than comprised the theoretical net residue ($750,000).

23

airlines believed in good faith to be legal, but found out

to the contrary” (Id., 880 F.2d 807, 815, emphasis added).

See, also, Williams v. MGM-Pathe Communications Co., 129

F.3d 1026 (9th Cir., 1997), Camden I Condominium Associa-

tion, Inc. v. Dunkle, 946 F.2d 768 (11th Cir., 1991), and

Societe Generale De Banque v. Touche Ross & Co., 729 F.2d

628 (9th Cir., 1983) (all involving reversion or payback of

unclaimed settlement funds to defendants.)}9

The Opinion of the Court of Appeal (Pet. App. 39-57)

and the Supreme Court’s Denial of Review

In light of the procedural history set forth above, it is

not surprising that the California Court of Appeal

affirmed the trial court’s rulings. The appellate court

found jurisdiction over the class under Phillips Petroleum

Co. v. Shutts, supra, 472 U.S. 797, and also found, as a

matter of fact, that petitioners “acknowledged that the

trial court has jurisdiction” to resolve the affirmative

defense of offset (Pet. App. 44). The Court also found no

abuse of discretion with respect to the claims made rem-

edy (Pet. App. 49).

The California Supreme Court properly denied

review because it had already decided all of the rules of

19 In Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d

1301 (9th Cir. 1990), cited by petitioners, the Ninth Circuit first

acknowledged the trial court’s “broad discretionary powers in

shaping equitable decrees for distributing unclaimed class

action funds,” but found reversion not an available option

because (a) the objective of the Farm Labor Contractor

Registration Act is deterrence in all cases, (b) defendant made

no effort whatsoever to comply with the law (Id., 904 F.2d at pp.

1303-1304, 1307, 1309).

24

California law and statutory interpretation applicable to

the case and because the California Court of Appeal had

properly found that the trial court lawfully exercised the

discretion conferred upon it to resolve the remaining

issues in the case.

CONCLUSION

“The class action is a product of the court of equity -

codified in section 382 of the Code of Civil Procedure. It

rests on considerations of necessity and convenience,

adopted to prevent a failure of justice.” Granberry, supra, 9

Cal.4th 738, 750 (Pet. App. 18). There was no error here.

Petitioners selected a class action as the procedural

vehicle by which to litigate their claims. They described

the class as broadly as possible in order to maximize their

potential recovery. They pleaded respondents’ right to

claim offsets, insisted that the trial court had jurisdiction

to resolve all the issues, and argued that they could

adequately represent the class with respect to all issues.

Yet, once the California Supreme Court found that

respondents were entitled to claim offsets, petitioners

abandoned their prior position, and began to apply class

action law only to their claim of “security” and not to

respondents’ defensive claim of offsets. The California

Courts properly rejected that approach. There are no

25

grounds ~ and there is no cause — for this Court to review

the matter.

Diane M. MArTSINGER

State Bar No. 96826

800 Presidio Ave.

Santa Barbara, CA 93101

(805) 560-8808

Berry L. Jeppesen

State Bar No. 100947

800 Garden St., Ste. K

Santa Barbara, CA 93101

(805) 963-8621

Counsel for Respondents

Respectfully submitted,

ANTONIO R. ROMASANTA

State Bar No. 31535

800 Garden St.

Santa Barbara, CA 93101

(805) 564-3306

Marcus CRrAHAn, Jr.

State Bar No. 27717

830 Woodland Dr.

Santa Barbara, CA 93108

(805) 969-7458

App. 1

APPENDIX

DAVID H. SCHWARTZ

HILL, SCHWARTZ, STENSON

A Law Corporation

722 Montgomery Street

San Francisco, California 94111

Telephone: (415) 398-2434

ERNEST L. GRAVES

WILLARD HASTINGS, JR.

LEGAL DEFENSE CENTER, INC.

906 Garden Street

Santa Barbara, CA 93101

Telephone: (805) 966-2244

Attorneys for Plaintiffs

(All papers should be served

at the San Francisco Address)

IN THE SUPERIOR COURT OF THE

STATE OF CALIFORNIA IN AND FOR

THE COUNTY OF SANTA BARBARA

LISA GRANBERRY,

et al.

NO. 136428

DECLARATION RE:

MAILING OF NOTICE

TO CLASS

Plaintiffs,

V.

ISLAY INVESTMENTS,

et al.

Defendants.

me ee ee ee ee ee ee ee ee eee”

I, Morris C. Klein, declare:

1. I am the Chief Executive Officer of Direct Mail

Marketing Services, Inc., and my business address is 144

App. 2

Townsend Street, San Francisco, California 94107. I am

over the age of eighteen years and not a party to the

within entitled action, and if called as a witness could

and would testify competently thereto.

2. Direct Mail Marketing Services, Inc., was pro-

vided with approximately 8,000 to 9,000 forms of which

Exhibit “A”, attached hereto, is representative. Direct

Mail Marketing Services, Inc., supervised the transcrip-

tion of forwarding addresses from those forms. There

were 5,438 forms that contained forwarding addresses.

3. For each forwarding address a copy of the Notice

To Class, Exhibit “B”, attached hereto, was addressed to

the persons at the address on the service list, attached

hereto as Exhibit “C”.

4. On December 28, 1987, I caused the attached

Notice To Class to be deposited in the United States mail

at San Francisco, enclosed in a sealed envelope, with

postage thereon fully pre-paid, addressed as shown on

the attached service list.

I, Morris C. Klein, declare under penalty of perjury

that the foregoing is true and correct.

Executed on January 12, 1988, at San Francisco, Cali-

fornia.

/s/ Morris C. Klein

MORRIS C. KLEIN

Le ee

App. 3

EXHIBIT A

ISLAY INFORMATION FORM

CONTRACT NUMBER

CONTRACT DATE __/__/__

TENNANT #1

First Name

Last Name

Forwarding Address

TENNANT #2

First Name

Last Name

Forwarding Address

TENNANT #3

First Name

Last Name

Forwarding Address

APARTMENT NAME

UNIT NO.___

ny ee

VACATED __/__/

FIRST MONTHS RENT

App. 4

SECOND MONTHS RENT ___

HHHHHHEHHH HAART AR HAAR RRRRRHH RRR ARBRE HH HH

DAMAGE Yes _ No _

EXCESSIVE CLEANING TIME Yes _ No

FURNITURE

DAMAGE

COMMENTS

CLEANER’S NAME

CL. TIME

EXHIBIT B

IN THE SUPERIOR COURT OF THE

STATE OF CALIFORNIA

IN AND FOR THE COUNTY OF SANTA BARBARA

LISA GRANBERRY, ) NO. 136428

et al., ) NOTICE TO CLASS

Plaintiffs,

Vv.

ISLAY INVESTMENTS,

et al.,

Defendants.

i

App. 5

TO ALL PRESENT AND PAST TENANTS OF RESI-

DENTIAL APARTMENTS MANAGED BY ISLAY

INVESTMENTS:

If you currently reside in an apartment managed by

Islay Investments or if you vacated an apartment man-

aged by Islay Investments on or after September 27, 1978,

and paid a higher amount of rent for the first month (or

31 days) of the tenancy than for the second and subse-

quent months, so long as you paid on a monthly basis;

YOU ARE HEREBY NOTIFIED that a class action law-

suit is pending on your behalf in the Santa Barbara Supe-

rior Court.

In the lawsuit, the Plaintiffs have alleged that the

Defendant, Islay Investments, has charged its tenants a

nonrefundable security deposit in the form of a surcharge

on the first month’s rent. Plaintiffs allege that each time

Defendants charged a higher amount for the first months’

rent than for the second and subsequent months. Defen-

dants violated various provisions of California Civil Code

Section 1950.5.

Defendants contend that the entire amount charged

and collected for the first month (or 31 days) of any

tenancy at a building managed by Islay Investments was

solely for the tenant’s use and occupancy of the premises

and therefore, constituted rent, and was not any form of

“security” or other refundable fee or charge. Defendants

also contend that any refund you might be entitled to

recover must be reduced by the amount of any unpaid

rent, costs reasonably necessary to clean and repair dam-

age you caused to the apartment, in excess of ordinary

App. 6

wear and tear, and that such sum could exceed the

amount of any refund or damages you might receive.

YOU ARE FURTHER NOTIFIED that this lawsuit

seeks from Defendant Islay Investments an accounting of

the nonrefundable alleged security deposits, interest on

the alleged security held or disbursement of profits made

on the alleged security held, and punitive damages not to

exceed the sum of $200.00 per violation of Civil Code

Section 1950.5(h). In addition Plaintiffs seek a court order

declaring that defendants’ rent surcharge is a nonrefund-

able security deposit which is prohib'ted by Civil Code

Section 1950.5. Plaintiffs’ attorneys estimate that reason-

able attorneys fees and costs will total 25% or less of the

total aggregate recovery, which fees and costs will be

deducted from any recovery.

YOU ARE FURTHER NOTIFIED that you may be

excluded as a participant in this class action lawsuit by

submitting a written request on the attached form to:

Santa Barbara Superior Court

Clerk, Department 1

1100 Anacapa Street

Santa Barbara, California 93102

If you are a member of the above described class of

persons and do not submit a written request to be

excluded you will be represented by Plaintiffs’ counsel

and will be bound by any judgment in the action whether

it be favorable or unfavorable. If you do not wish to be

represented by Plaintiffs’ counsel you may intervene in

this action through counsel of your own choosing.

THIS NOTICE IS NOT TO BE UNDERSTOOD AS

ANY EXPRESSION OF ANY OPINION BY THIS

App. 7

COURT AS TO THE MERITS OF ANY OF THE

CLAIMS OR DEFENSES ASSERTED BY EITHER SIDE

IN THIS LITIGATION. THIS NOTICE IS SENT FOR

THE SOLE PURPOSE OF INFORMING YOU OF THE

PENDENCY OF THIS LITIGATION SO THAT YOU

MAY DECIDE WHAT STEPS YOU DESIRE TO TAKE

IN RELATION TO THIS LITIGATION.

Plaintiffs are represented by:

David H. Schwartz

Hill, Schwartz, Stenson

A Law Corporation

722 Montgomery Street,

San Francisco, CA

94111-2172

(415) 398-2434

Willard Hastings, Jr.

Legal Defense Center, Inc.

906 Garden Street

Santa Barbara, CA 93101

(805) 966-2244

Defendants are represented by:

Marcus Crahan, Jr.

Crahan, Javelera,

Ver Halen & Aull

1000 Wilshire Boulevard,

Suite 1650

Los Angeles, California

90017

Antonio R. Romasanta

Goux & Romasanta

831 State Street,

Suite 32

Santa Barbara, California

93101

App. 8

Betty L. Jeppesen

800 Garden Street

Santa Barbara, California

93101

Anyone may examine the file in this action in the

office of the Clerk for the Superior Court at 1100 Anacapa

Street, Santa Barbara, California.

DO NOT CALL THE COURT!

Dated: August 10, 1987

RONALD C. STEVENS,

SUPERIOR COURT JUDGE

The undersigned requests to be excluded from the

Plaintiff class that has been certified in this action.

Dated: , 1987.

Signature

Please Print:

Your name:

Your address: (Street)

(City)

(State)

(Zip Code)

App. 9

PROOF OF SERVICE BY MAIL

I, the undersigned, say:

I am a citizen of the United States and a resident of

the State of California. I am over the age of eighteen years

and not a party to the within entitled action; my business

address is 722 Montgomery Street, San Francisco, CA

94111.

On January 13, 1988, I served the within: DECLARA-

TION RE: MAILING OF NOTICE TO CLASS (the actual

service list being submitted only to the court, 191 pages

of addresses), on the interested parties in said action, by

depositing in the United States mail at San Francisco, true

copies thereof enclosed in a sealed envelope:

MARCUS CRAHAN, JR., ESQ.

Crahan, Javelera, et al.

1000 Wilshire Blvd., Suite 1650

Los Angeles, California 90017

ANTHONY R. ROMASANTA, ESQ.

Goux & Romasanta

831 State Street, Suite 32

Santa Barbara, CA 93101

BETTY L. JEPPESEN

800 Garden St.

Santa Barbara, CA 93101

WILLARD HASTINGS, ESQ.

Legal Defense Center

906 Garden St.

Santa Barbara, CA 93901

I, Debra M. Swann, declare under penalty of perjury

that the foregoing is true and correct.

App. 10

Executed on January 13, 1988, at San Francisco, Cali-

fornia.

/s/ Debra M. Swann

DEBRA M. SWANN

App. 11

California Code of Civil Procedure Section 431.70

Where cross-demands for money have existed

between persons at any point in time when neither

demand was barred by the statute of limitations, and an

action is thereafter commenced by one such person, the

other person may assert in the answer the defense of

payment in that the two demands are compensated so far

as they equal each other, notwithstanding that an inde-

pendent action asserting the person’s claim weuld at the

time of filing the answer be barred by the statute of

limitations. If the cross-demand would otherwise be

barred by the statute of limitations, the relief accorded

under this section shall not exceed the value of the relief

granted to the other party. The defense provided by this

section is not available if the cross-demand is barred for

failure to assert it in a prior action under Section 426.30.

Neither person can be deprived of the benefits of this

section by the assignment or death of the other. For the

purposes of this section, a money judgment is a “demand

for money” and, as applied to a money judgment, the

demand is barred by the statute of limitations when

enforcement of the judgment is barred under Chapter 3

(commencing with Section 683.010) of Division 1 of Title

9.