Ballard v Martin

• Decision Date: 05 July 2002
• Docket Number: 01-1185
• Citation: 79 S.W.3d 838
• Parties: TERESA BALLARD, et al., and STEPHEN CAIN, et al., APPELLANTS, VS. SHEILA MARTIN, et al., and WESTARK FINANCIAL CONSULTANTS OF JONESBORO, INC., et al., APPELLEES,SUPREME COURT OF ARKANSAS Opinion Delivered
• Court: Arkansas Supreme Court

TERESA BALLARD, et al., and STEPHEN CAIN, et al., APPELLANTS VS SHEILA MARTIN, et al., and WESTARK FINANCIAL CONSULTANTS OF JONESBORO, INC., et al., APPELLEES

No. 01-1185

SUPREME COURT OF ARKANSAS

Opinion Delivered July 5, 2002

APPEAL FROM THE CRAIGHEAD COUNTY CIRCUIT COURT, NO. CIV 2000-0669, HON. DAVID N. LASER, JUDGE

ROBERT L. BROWN, Associate Justice

This is a check-cashing case that presents the issue of whether a class-action settlement was fair and adequate. The appellants are two groups of intervenors, Teresa Ballard et al. and Stephen Cain et al. (collectively referred to as Ballard and Cain). The appellees are Sheila Martin and Jimmie Sue Spencer, individually and on behalf of the class (collectively referred to as Martin), who represent the original class of plaintiffs in this litigation, as well as Westark Financial Consultants of Jonesboro, Inc. (Westark), together with eighteen other check-cashing businesses which voluntarily submitted to the jurisdiction of the Craighead County Circuit Court as defendants as part of Martin's amended motion for class certification (collectively referred to as Westark defendants). Westark and the other eighteen check-cashing businesses will be referred to jointly as "Westark appellees."

On appeal, Ballard and Cain challenge the fairness and adequacy of the class settlement between Martin and the Westark defendants. Ballard and Cain raise three additional points: (1) the adequacy of Martin, and class counsel to represent the interests of the class; (2) whether the trial court adequately enforced subpoenas against the Westark appellees; and (3) whether the notice to potential class members was adequate.

On December 8, 2000, Martin, both individually and on behalf of a class, filed the complaint against Westark in Craighead County Circuit Court. According to the complaint, each potential class member had engaged in deferred-presentment check-cashing with Westark. The typical deferred-presentment transaction allowed the customer to write a check for the cash amount exchanged plus a "service charge," which the check-casher would defer cashing until the customer's "payday." On payday, the customer was instructed to pick up the held check in exchange for cash in the face amount of the check. The customer could defer payment by writing a second check for the amount owed, the original service charge, and the new service charge. Martin alleged that these service charges were interest and that Westark had engaged in usurious lending practices in violation of Arkansas Constitution Article 19, section 13. She sought damages on that basis and alleged that the class met the requirements of Rule 23 of the Arkansas Rules of Civil Procedure. On January 8, 2001, she also moved for class certification.

Following the filing of the complaint, Martin commenced discovery. Through one set of interrogatories and requests for production propounded by Martin, information about the arbitration provisions in the customer contracts was elicited. Martin did request limited information relating to Westark's financial condition. However, it is unclear from the record whether Martin ever received this information. The class was later estimated to include approximately 18,500 members. On April 26, 2001, Martin filed an amended motion for class certification in which the Westark defendants were added as parties defendant. Martin also filed a second amended complaint that same date with the Westark defendants listed as parties defendant.

Sometime in mid-to-late April 2001, Martin and the Westark appellees reached a settlement agreement. On April 30, 2001, the trial court entered an order certifying the class pursuant to Ark. R. Civ. P. 23, adopting the settlement, and requiring notice to the class by publication in the Arkansas Democrat-Gazette and by individual notices to be mailed no later than May 14, 2001. In the settlement, the eighteen Westark defendants agreed to submit to the jurisdiction of the Craighead County Circuit Court with Westark for purposes of settling all claims against them. The settlement was as follows: the nineteen check-cashing businesses would deposit $605,000 into a settlement pool. $435,000 of this amount would be used to purchase Series E bonds totaling $870,000 to pay the claims of aggrieved customers at a rate of one and one-half times any fees paid by those customers.¹ Claims exceeding the face amount of the bonds would not be paid. This settlement amount would be subject to set-off for any outstanding balance due the defendant check-casher for cash advanced and unpaid. The settlement amount, if any remained after the set-off, would be paid to the customer in the form of a Series E savings bond. The savings bonds were worth one-half of their face value until their maturity in sixteen years, and the class member was required to wait six months to cash the bond for the initial one-half value. Class counsel for Martin would immediately receive a fee of $170,000.

The settlement agreement further provided that the Westark appellees would continue to operate their businesses for the next ninety days after the date of the settlement in order to collect any outstanding checks. The settlement provided additionally that if any appellate court ruled that the service charges associated with these transactions were not usurious, then the defendants would be free to operate in any legal manner. The final "opt-out date" for nonparticipation in the class or settlement was fixed at August 15, 2001.

After this order was entered, notice was given to the class members together with the conditions of the proposed settlement. Martin accomplished notice by placing an advertisement in the Arkansas Democrat-Gazette newspaper on May 21, 2001. Class counsel also mailed an individual notification to each potential class member by standard mail on May 16, 2001.²

Two groups of objectors moved to intervene after receiving notice. The Ballard group of objectors involved five members and the Cain group of objectors involved twelve members. The Ballard objectors filed a motion to intervene on May 25, 2001. On that same date, they issued subpoenas for the financial records of the Westark appellees. The Cain objectors filed their motion to intervene on June 1, 2001. The trial court granted both motions to intervene on June 1, 2001, at the beginning of the fairness hearing on the proposed settlement.

At the fairness hearing, the trial court allowed the Martin class as well as the Westark appellees to put on evidence supporting the settlement. The Martin class presented the testimony of Martin herself, as well as the testimony of Chris Lawson, a partner at the law firm of Friday, Eldredge, & Clark in Little Rock. As class representative, Martin testified that she had been kept abreast of the litigation and had approved the settlement.³ On cross-examination, she admitted to a lack of knowledge about some of the details of the litigation and the settlement agreement. For his part, Lawson testified that he was involved in class actions against check-cashing firms, and that he would advise any clients affected by the proposed settlement to remain in the settlement and not opt out.

The Westark defendants presented the testimony of one witness, Jeff Forsey, who testified in his capacity as the chief executive officer of fourteen of the Westark appellees and as custodian of financial documents for all nineteen Westark appellees. Forsey did not bring all of the subpoenaed financial documents with him but did appear in person at the fairness hearing. The Ballard intervenors moved to enforce the subpoenas, and the Westark defendants moved to quash them. The trial court ruled that Forsey's personal appearance and his partial production of financial records satisfied the subpoenas, considering how abbreviated the time was that the Westark defendants had to respond to the subpoenas.

On the stand, Forsey testified that the decision to enter into the settlement with the Martin class was a cost/benefit business decision for the Westark appellees. He further testified that the reason that they chose savings bonds as the method of payment was in hope that the settlement would foster "a different perspective on money" among the low-income class members. He added that the businesses he represented at the hearing would have difficulty producing the $605,000 to fund the settlement. On cross-examination, Forsey testified to the financial condition of the Westark appellees. Among other things, he testified that the receipts of the Westark appellees during the ninety-day period after approval of the settlement could exceed the settlement amount of $605,000.

On August 7, 2001, the trial court entered its final order approving the settlement. Ballard and Cain now appeal that order.

I. Fairness of the Settlement

Ballard and Cain first assert that the trial court abused its discretion when it approved the class settlement because the settlement was not fair, reasonable, and adequate. They urge this court, in measuring the fairness of the settlement, to adopt the Eighth Circuit Court of Appeal's standards set out in Grunin v. Int'l House of Pancakes, 513 F.2d 114 (8th Cir. 1975). In Grunin, the Eighth Circuit adopted four factors to assist in assessing whether a class settlement is fair and adequate. Those four factors are listed below, with the first factor being the primary measure of fairness and the remaining three being secondary to the first:

(1) the strength of the case for the plaintiffs on the merits, balanced against the amount offered in the settlement;

(2) the defendant's overall financial condition and ability to pay;

(3) the complexity, length, and expense of further litigation; and

(4) the amount of opposition to the settlement.

Grunin, 513 F.2d at 124 (citing West Virginia v. Chas. Pfizer & Co., 440 F.2d 1085 (2d Cir. 1971); City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)...