Beck v. City of Rapid City

• Decision Date: 14 August 2002
• Docket Number: No. 21960.,21960.
• Citation: 650 N.W.2d 520,2002 SD 104
• Parties: Loren BECK and John and Jane Doe 1-50, Plaintiffs and Appellees, v. CITY OF RAPID CITY, Defendant and Appellant.
• Court: South Dakota Supreme Court

650 N.W.2d 520

2002 SD 104

Loren BECK and John and Jane Doe 1-50, Plaintiffs and Appellees, v. CITY OF RAPID CITY, Defendant and Appellant.

No. 21960.

Supreme Court of South Dakota.

Argued April 24, 2002.

Decided August 14, 2002.

Courtney R. Clayborne of Johnson, Eisland, Huffman & Clayborne, Rapid City, for plaintiff and appellees.

Adam Altman, Assistant City Attorney, Rapid City, for defendant and appellant.

AMUNDSON, Justice.

[¶ 1.] Loren Beck and John and Jane Doe 1-50 (Beck), Plaintiff/Appellee, moved the circuit court for class certification in a class action suit brought against the City of Rapid City (City), Defendant/Appellant. The circuit court granted certification of the class. City appeals. We remand for reexamination by the circuit court.

FACTS

[¶ 2.] A lawsuit by Beck against City stemmed from our decision in City of Rapid City v. Anderson, 2000 SD 77, 612 N.W.2d 289. In that case we determined that the annexation of property encompassing "the Rapid City Airport [Airport] was invalid because of the lack of contiguity between Rapid City and the annexed airport." Id. at ¶ 15. Prior to June 14, 2000, City had been collecting sales tax from the businesses operating at the Airport. Beck filed a complaint on July 18, 2000, alleging he had wrongfully been paying sales tax during the time of the subsequently determined wrongful annexation. Beck also alleged that he represented the class of consumers who had been wronged by the tax, and he, on behalf of himself and those similarly situated, sought a refund of all sales tax proceeds paid to City, as well as attorney's fees, interest and costs.

[¶ 3.] About six months after Beck filed suit, City set up a procedure whereby those who paid city tax during the time of annexation of the subject property could receive a refund. City also passed Ordinance 3640, which appropriated $250,000 to refund money to those who provided proper documentation that they paid sales tax within the annexed property.¹ City then posted notice of the available refunds at the Airport and retail establishments in the Airport.

[¶ 4.] On March 26, 2001, Beck filed a motion to certify the class. The circuit court granted the motion, and appointed Beck to serve as the class representative for those who paid retail sales or service tax to City on the wrongfully annexed property that encompassed the Airport. City appeals, raising the following issue:

Whether the trial court erred by certifying the class.

STANDARD OF REVIEW

[¶ 5.] We have previously held that the standard of review for class action certification is the abuse of discretion standard. Swanson v. Sioux Valley Empire Elec. Ass'n 535 N.W.2d 755, 759 (S.D.1995) (citing Trapp v. Madera Pacific, Inc., 390 N.W.2d 558, 562 (S.D.1986)).

DECISION

[¶ 6.] The memorandum decision issued by the trial court granted class certification, stating that the requirements for certification are present and that alternative methods of recovery are not superior to the class action lawsuit. City argues the administrative procedure set up, which would permit those entitled to obtain refunds to apply to City for such refunds, is superior to the class action suit, thereby denigrating the need for a class action suit. It argues that under its method, it would be easier for claimants to prove their right to a refund, and that the less formal method of proof is superior to the class action.² City further claims the administrative remedy provided by City would provide for instant payment, whereas the class action claimants would have to await the close of litigation and exhaustion of appeals. Finally, City contends the class action would require trial on the merits, where submitting a claim directly to City would ensure, with certainty, the claimant would recover.

[¶ 7.] Our Legislature has enumerated several pre-requisites for class actions. See SDCL 15-6-23(a);³ SDCL 15-6-23(b).⁴ Of these statutory requirements, City only disputes the circuit court's finding that the class action is superior to City's administrative remedy pursuant to SDCL 15-6-23(a)(3). We have previously stated that "[i]n deciding whether to allow a class action, a primary determination to be made is whether the class action is superior to, and not just as good as, other available methods for handling the controversy, and such a determination lies in an area where the trial court's discretion is paramount." Trapp, 390 N.W.2d at 560. We have further held that the party requesting certification of the class has the burden of proving that the statutory requirements for a class action have been met. See id. We have not, however, had the opportunity to discuss or expound on the requirement that the class action class be "superior to other available methods for the fair and efficient adjudication of the controversy." SDCL 15-6-23(b)(3).

[¶ 8.] In considering the superiority issue, we consider the interests of the class members, litigation already commenced by class members, whether it is desirable to litigate in one forum and management involved with the class. Id. Also, other courts in analyzing this issue consider the amount of potential damages to individual class members. The Minnesota District Court stated the following:

Unfortunately, this [c]ourt's experience with class actions involving class members whose financial circumstances make it difficult to ascertain their identities or their present whereabouts convinces this [c]ourt that a class action is not a superior vehicle to provide an appropriate remedy in this situation. The [c]ourt anticipates tremendous difficulty and only limited success in notifying perspective class members of the class action and their rights to opt out and recover a potentially greater damage award under the [Fair Debt Collection Practices Act] if they proceed individually. The Court also anticipates difficulty in ensuring that class members who do not opt out actually receive their damage awards. It is the [c]ourt[']s experience that the benefits of such a class action would inure, if at all, to class counsel and the designated recipients of class finds that the Court is unable to distribute to class members. Thus, the Court finds that presentation of individualized claims in separate proceedings would be superior to the vehicle of a class action.

Sonmore v. CheckRite Recovery Serv., Inc., 206 F.R.D. 257, 266 (D.Minn.2001) (denying motion for class certification).

[¶ 9.] A litany of cases from California courts have upheld and expanded upon the same proposition presented in Sonmore. In Blue Chip Stamps v. Superior Court, the California Superior Court stated the following:

When potential recovery to the individual is small and when substantial time and expense would be consumed in distribution, the purported class member is unlikely to receive any appreciable benefit. The damage action being unmanageable and without substantial benefit to class members it must then be dismissed. And, when the individual's interests are no longer served by group action, the principal—if not the sole—beneficiary then becomes the class action attorney. To allow this is "to sacrifice the goal for the going," burdening if not abusing our crowded courts with actions lacking proper purpose.

18 Cal.3d 381, 134 Cal.Rptr. 393, 556 P.2d 755, 758 (1976) (internal citations omitted). The Blue Chip Stamps court directed the lower court to vacate the order certifying the class and to dismiss the class action. Id. at 756. In Caro v. Procter & Gamble Co., the court cited Blue Chip Stamps approvingly and found that where class members would receive miniscule amounts of damages and the court's burden was not eased by the class action, no certification would be granted. 18 Cal.App.4th 644, 22 Cal.Rptr.2d 419, 426-27 (1993) (addressing denial of class certification in suit for false representation of the characteristics of orange juice products). Caro affirmed the trial court's denial of class certification because of the lack of substantial benefit to the litigants involved. Id. at 424-25.

[¶ 10.] Next, in Linder v. Thrifty Oil Company, the California Supreme Court analyzed a trial court's denial of class certification and expanded on the significance placed on small damage amounts by stating that the trial court has an obligation to deter and redress wrongdoing, in spite of small damage claims. 23 Cal.4th 429, 97 Cal.Rptr.2d 179, 2 P.3d 27, 38 (2000). The Linder court explained that the "problems which arise in the management of a class action involving numerous small claims do not justify a judicial policy that would permit the defendant to retain the benefits of its wrongful conduct and continue that conduct with impunity." Id. Linder further explained:

While the potential amount of each individual recovery is a significant factor in weighing the benefits of a class action, it is not the only factor requiring consideration.... Moreover, the Court of Appeals assumed that substantial time and expense would be required to provide legally adequate notice to class members, even though the trial court had yet to take evidence and rule on the matter. Accordingly, without intimating any view on the matter, we find it appropriate to leave this issue to the trial court for reexamination.

Id. at 39. Thus, the Linder court remanded so that the trial court could determine whether the class certification was appropriate when placing the proper emphasis on benefits other than financial recovery. Id. at 40.

[¶ 11.] These cases make it clear that small damage amounts are considered, but are not the sole determining factor when looking at the superiority of a class action in comparison to other methods of resolution. Courts also consider factors like judicial efficiency and manageability of the group involved. Williamson v. Sanofi Winthrop Pharm., Inc., 347 Ark. 89, 60 S.W.3d 428, 435 (2001) (affirming the denial of class certification and stating the "superiority requirement is...