Brooks v. Norwest Corp.

• Decision Date: 23 July 2004
• Docket Number: No. 23,423.,23,423.
• Citation: 136 N.M. 599,103 P.3d 39
• Parties: Elaina BROOKS, Lesley Donovan, Vikki and Mike Mayhew, individually and on behalf of all others similar situated, Plaintiffs-Appellants, v. NORWEST CORPORATION (n/k/a Wells Fargo & Co.); Norwest Services, Inc.; and Norwest Bank of New Mexico, N.A., Defendants-Appellees.
• Court: Court of Appeals of New Mexico

103 P.3d 39

136 N.M. 599

Elaina BROOKS, Lesley Donovan, Vikki and Mike Mayhew, individually and on behalf of all others similar situated, Plaintiffs-Appellants, v. NORWEST CORPORATION (n/k/a Wells Fargo & Co.); Norwest Services, Inc.; and Norwest Bank of New Mexico, N.A., Defendants-Appellees.

No. 23,423.

Court of Appeals of New Mexico.

July 23, 2004.

Certiorari Denied December 7, 2004.

Philip C. Gaddy, David J. Jaramillo, Albuquerque, NM, for Appellants.

W. Spencer Reid, Gary J. Van Luchene, Keleher & McLeod, P.A., Albuquerque, NM, for Appellees.

Certiorari Denied, No. 28,870, December 7, 2004.

OPINION

BUSTAMANTE, Judge.

{1} Plaintiffs appeal the district court's decision denying class certification under Rule 1-023 NMRA 2004. The appeal raises several issues, including the legal standards for determining whether a class definition is legally sufficient and the standards under which the predominance and superiority criteria of Rule 1-023(B)(3) are tested with regard to manageability. We also review the decision for substantial evidence. We affirm the district court.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

{2} Plaintiffs sued Defendants (Norwest) on behalf of themselves and others who have held checking accounts with Norwest Bank New Mexico (Norwest-NM) alleging violations of the Unfair Practices Act (UPA), NMSA 1978, § 57-12-3 (1971), breach of the covenant of good faith and fair dealing under the Uniform Commercial Code (U.C.C.), NMSA 1978, § 55-1-203 (1961), and breach of contract. While the initial complaint sought certification of a class covering only New Mexico residents, the First Amended Complaint (FAC) requested approval of a multistate class including members from twelve additional states. Defendants moved the district court for an order denying multistate class certification on March 24, 2000. Before that motion was heard, Plaintiffs filed their motion for class certification, requesting approval of three sub-classes: one sub-class for persons or entities in New Mexico and two sub-classes based on multistate membership. As a matter of efficiency, the district court heard oral arguments on the proposed multistate class certification first, and denied it on June 12, 2000. Perhaps with an eye to expediting matters, Plaintiffs declined the court's invitation for an evidentiary hearing on the motion for state class certification. Instead, the parties presented oral argument on the motion on August 30, 2000, submitting exhibits that consisted primarily of interrogatories, deposition excerpts, and documents obtained in discovery. A letter decision denying Plaintiffs' motion for state class certification was entered by the district court on July 26, 2002. On July 29, 2002, the district court entered an order and findings of fact and conclusions of law denying the multistate class, and a separate order with findings of fact and conclusions of law denying state class certification. Plaintiffs take their appeal solely from the order denying state class certification.

{3} In their motion, Plaintiffs sought certification of:

All persons and/or entities in New Mexico who have incurred insufficient funds or overdraft charges as a result of Norwest posting withdrawals in a highest dollar amount to lowest dollar amount sequence. The claims of these Class Members are based on violations of the New Mexico Unfair Trade Practices Act and breach of contract under common law and applicable U.C.C. provisions imposing obligations of good faith and fair dealing.

The factual basis for Plaintiffs' claims rests on the order in which checks are paid from a customer's account on a daily basis (posting order). There are several ways a bank can post checks, including for example, random order, order of presentation (the order checks are physically received on any given day), check number sequence, descending amount, and ascending amount. Plaintiffs allege that prior to September 1996, Norwest-NM posted checks in ascending order, from the lowest amount to the largest amount (low-high). Plaintiffs contend that in late 1994, after a review by a subsidiary, Norwest branches in various states began posting checks in descending order, from the highest amount to the lowest amount (high-low). It is undisputed that Norwest Bank-NM adopted the high-low policy in September 1996.

{4} According to Plaintiffs, Defendants' motive in adopting the high-low policy was not for legitimate business purposes but was driven solely by a desire to force more overdraft and insufficient fund (OD/NSF) events to generate more fees and increase revenues. Plaintiffs rely on Norwest documents that allegedly discuss the financial benefits and projected revenues that would result from posting checks high-low. Norwest's own internal memoranda sets forth the following comparison:

[Low to High] Posting Order [High to Low] Posting Order $10.00 (Pay) $60.00 (Pay) $25.00 (Pay) $50.00 (OD Notice) $25.00 (Pay) $40.00 (OD Notice) $40.00 (Pay) $25.00 (OD Notice) $50.00 (OD Notice) $10.00 (OD Notice) $60.00 (OD Notice) $10.00 (OD Notice)

Under this scenario, assuming a beginning account balance of $100, a customer would pay two OD/NSF fees for checks posted on the same day under a low-high posting order compared to five such fees under a high-low sequence. Plaintiffs assert that Norwest projected this new policy would increase revenues by over $18,000 per month, "a conservative 6% increase," at Norwest-NM alone. Plaintiffs' position is that Norwest breached its contract with customers by failing to post items for which there were sufficient funds available in a sequence that allowed the items to be paid, resulting in additional OD/NSF fees.

{5} The crux of Plaintiffs' statutory UPA and bad faith claims is that Norwest knowingly failed to disclose or adequately explain to its customers its decision to change the ordering policy, the reason for the new policy, or its consequences for the customer. Plaintiffs contend that when Norwest decided to implement the new method, customers were not notified of the new posting order and the deposit agreement did not reflect the change because Norwest wanted to avoid public criticism, adverse customer reactions, and potential lawsuits.

{6} Norwest's initial response is that it is lawful for them to post checks "in any order." NMSA 1978, § 55-4-303(b) (1992). It points out that the "no priority rule" is

justified because of the impossibility of stating a rule that would be fair in all cases, having in mind the almost infinite number of combinations of large and small checks in relation to the available balance on hand in the drawer's account; the possible methods of receipt; and other variables.

Id. official cmt. 7. The significance of this rule to Norwest's position appears to be two-fold: the first goes to the merits — notice is not required because any posting order is lawfully discretionary; and second, for purposes of certification, the Rule's official comment suggests that the effect of a posting order inherently varies from consumer to consumer, account to account. The latter supports Norwest's argument that Plaintiffs' class is too indefinite, individual issues of liability and damages predominate, and case management is impossible.

Standard of Review

{7} Within the confines of Rule 1-023, the district court has broad discretion whether or not to certify a class. Berry v. Federal Kemper Life Assurance Co., 2004-NMCA-116, 136 N.M. 454, 99 P.3d 1166. We decline Plaintiffs' invitation to apply a "less deferential standard" where the district court has denied certification. One circuit that applies a less deferential standard reasons that there is little difference between a review for abuse of discretion and a review for error, and that the judge's discretion is bounded by applicable rules of law or equity. Abrams v. Interco Inc., 719 F.2d 23, 28 (2d Cir.1983). In New Mexico, however, a district court abuses its discretion when it misapprehends the law or if the decision is not supported by substantial evidence. See N.M. Right to Choose/NARAL v. Johnson, 1999-NMSC-028, ¶¶ 6-7, 127 N.M. 654, 986 P.2d 450. Although a misapplication of the law is considered an abuse of discretion, our courts review de novo the initial decision of whether the correct legal standard has been applied. Id. ¶ 7. If the correct law has been applied to the facts, the district court's decision must be affirmed when it is supported by substantial evidence. See id. ¶ 8; Sims v. Sims, 1996-NMSC-078, ¶ 65, 122 N.M. 618, 930 P.2d 153 (stating that appellate courts review district court's findings of fact for substantial evidence; "[a]n abuse of discretion occurs when a ruling is clearly contrary to the logical conclusions demanded by the facts and circumstances of the case."). We find no need to deviate from this standard.

General Considerations

{8} We begin our analysis by noting that Rule 1-023(A) and, in particular (B)(3), are essentially identical to their federal counterparts. Hence, we can look to the federal law for guidance in determining the appropriate legal standards to apply to the Rule. See Pope v. Gap, Inc., 1998-NMCA-103, ¶ 10, 125 N.M. 376, 961 P.2d 1283.

{9} When assessing whether to certify a class action, the district court should bear in mind the twin objectives of the Rule. The core policy behind the Rule is to provide a forum for plaintiffs with small claims who otherwise would be without any practical remedy. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). At the same time, the district court must ensure that a class action is not only efficient, but that it is a fair method to all parties, including absent class members and defendants. Id. at 615, 117 S.Ct. 2231. Hence, the district court must engage in a rigorous analysis of whether the Rule's requirements have actually been met. Gen. Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160-61, 102 S.Ct....