City of San Benito v. Rio Grande Valley Gas Company

Decision Date26 June 2003
Docket NumberNo. 02-0038.,02-0038.
Citation109 S.W.3d 750
PartiesCITY OF SAN BENITO, ET AL., PETITIONERS, v. RIO GRANDE VALLEY GAS COMPANY, AND SOUTHERN UNION COMPANY D/B/A SOUTHERN UNION GAS COMPANY, RESPONDENTS.
CourtTexas Supreme Court

CHIEF JUSTICE PHILLIPS delivered the opinion of the Court.

JUSTICE ENOCH did not participate.

Thomas R. Phillips Chief Justice

This class action was brought on behalf of an alleged class of eighty south Texas cities for recovery of franchise fees allegedly owed to them. A number of Texas cities, including the petitioners herein, tried to opt out of the class. Some were successful, but the trial court denied the requests of the seven cities petitioning here and signed a final judgment approving settlement. We must decide whether an unnamed class member must intervene in the trial court in order to appeal its overruled objections to a class settlement and whether a city must hold an open meeting to authorize its attorney to opt out of a class action. The court of appeals denied appellate relief because the cities failed to intervene in the trial court and also denied mandamus relief because the trial court did not abuse its discretion in refusing the cities' requests to opt out. 63 S.W.3d 19. We conclude that an unnamed class member is not required to intervene in order to appeal its objections to a class settlement or its opt-out requests. Thus, the cities are parties for purposes of this appeal. We further conclude that the cities could authorize their attorneys to opt out of the litigation without formal action in an open meeting. Accordingly, we reverse the court of appeals' judgment and render judgment that six cities successfully opted out of the class and one did not. Because these issues are dispositive, we do not reach the remaining issue of whether the settlement was fair.

I

The cities of Mercedes and Weslaco are the named class representatives in a class action for franchise fees against Rio Grande Valley Gas Company and its successor in interest, Southern Union Gas Company (hereinafter collectively referred to as "the gas companies"). The trial court defined the class as follows:

All Texas municipal corporations, municipalities, cities, towns, or villages (hereinafter referred to as "municipalities"), excluding the cities of Edinburg and McAllen, that have, or have had, existing or expired municipal franchise fee ordinances or agreements with Rio Grande Valley Gas Company or Southern Union Gas Company (hereinafter referred to collectively as the "LDC") and where the municipalities were entitled to a franchise fee or payment based on a percentage of the LDC's gross income derived from natural gas sales, and where there has not been the execution of any effective releases of the entire claims alleged in this litigation.

The trial court authorized class notices to the 80 cities that fell within this definition on June 24, 1996, providing an opt-out deadline of August 1, 1996, barely five weeks later.

Before receiving notice, the cities of San Benito, Palmview, Alton, La Villa, Port Isabel, and Edcouch (hereinafter "the six cities") each contracted with Texas Municipal Technical Consultants, Inc. ("TMTCI") to determine if franchise fees were owed by the gas companies. Under these contracts, TMTCI had authority to "audit[] and make[] a determination that uncollected compensation is due and owing to cit[ies]" and to "employ legal counsel of its choice . . . to represent cit[ies] in enforcing any claim through necessary litigation." TMTCI hired Ramon Garcia of Edinburg to represent each of the cities. After the cities received the class notice, Garcia filed opt-out notices on their behalf before the August optout deadline.

After the August deadline, the cities of San Benito, Alton, Palmview, and La Villa ratified attorney Garcia's actions in open meetings. The cities of Edcouch and Port Isabel never ratified the opt-out requests in an open meeting. After a hearing some months later, the trial court ruled that none of the petitioner cities had properly opted out.

On December 14, 2000, class counsel sent notice of a proposed class settlement, providing that the class members could file written objections to the settlement by January 31, 2001. The six cities filed a joint motion objecting to the settlement and a joint motion to reconsider their opt-out requests. The trial court held a settlement fairness hearing after which it approved the class settlement and rendered final judgment.

Class counsel filed a motion to withdraw as counsel for the city of Pharr, stating at the hearing on the opt-out requests that Pharr had hired Ramon Garcia to represent its interests. However, nothing in the record reflects that Pharr filed an opt-out notice at any time or raised any objection to the settlement.

All seven cities appealed to the court of appeals and sought mandamus relief from both the court of appeals and this Court.1 We dismissed the petition for writ of mandamus. The court of appeals considered both the appeal and mandamus in a consolidated opinion.

The court of appeals dismissed the appeal for want of jurisdiction, 63 S.W.3d at 24-25, and also denied mandamus relief. Id. at 30-31. It held that the trial court did not abuse its discretion in refusing the opt-out requests, because the requests of the six cities had not previously been authorized in an open meeting, the subsequent ratifications were ineffective, and the city of Pharr had made no attempt to opt out. Id.

II

We must first decide if the court of appeals had jurisdiction to hear this appeal. The court below held that because the cities failed to intervene formally in the trial court, they lacked standing to appeal the trial court's judgment. 63 S.W.3d at 24-25. Thus, it dismissed the case for lack of subject matter jurisdiction. Id. After the court of appeals' decision was issued, the United States Supreme Court held in Devlin v. Scardelletti, 536 U.S. 1 (2002), that unnamed class members are not required to intervene in order to appeal a trial court's judgment approving a class settlement. We follow the Supreme Court's decision in Devlin.

In Devlin, an unnamed class member objected to the class settlement at the fairness hearing, but did not successfully intervene in the proceedings. Id. at 8-9. The Supreme Court held that an unnamed class member's failure to intervene does not implicate standing. Id. at 6. Rather, it concluded that the real issue is whether or not the class member is a "party" for purposes of appeal. Id. at 7.

The Supreme Court observed that the right to appeal is not restricted to a case's named parties. Id. at 12 (citing Blossom v. Milwaukee & Chicago R.R., 68 U.S. 655 (1864); Hinckley v. Gilman, Clinton, & Springfield R.R., 94 U.S. 467 (1877); United States Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76 (1988)). The "label `party' does not indicate an absolute characteristic, but rather a conclusion about the applicability of various procedural rules that may differ based on context." Id. at 10. Thus, the procedural rules governing class actions sometimes require unnamed parties to be treated as parties or nonparties in order to ease the administration of class litigation. The Court listed as an example the treatment of unnamed class members as parties for statute of limitations purposes but as nonparties for diversity purposes. Id. However, the most important consideration was that the unnamed class members would be bound by the class settlement. Id. Thus, noted the Court:

[i]t is this feature of class action litigation that requires that class members be allowed to appeal the approval of a settlement when they have objected at the fairness hearing. To hold otherwise would deprive nonnamed class members of the power to preserve their own interests in a settlement that will ultimately bind them, despite their expressed objections before the trial court.

Id. The unnamed class member in Devlin was a "party" for purposes of the appeal.

Under Texas jurisprudence, an appeal can generally only be brought by a named party to the suit. Motor Vehicle Bd. of the Tex. Dep't of Transp. v. El Paso Indep. Auto. Dealers Ass'n, 1 S.W.3d 108, 110 (Tex. 1999). However, the doctrine of virtual representation is an exception to the general rule. Id. (citing Gunn v. Cavanaugh, 391 S.W.2d 723, 725 (Tex. 1965)). An appellant is a deemed party under virtual representation when: "(1) it is bound by the judgment; (2) its privity of estate, title, or interest appears from the record; and (3) there is an identity of interest between the appellant and a party to the judgment." Id. We have deemed unnamed class members to be parties under this doctrine. See Robertson v. Blackwell Zinc Co., 390 S.W.2d 472, 472 (Tex. 1965).2 Our virtual representation doctrine is thus quite similar to the United States Supreme Court's rule in Devlin. We agree with the Court's analysis that the most important consideration is whether the appellant is bound by the judgment. See Grohn v. Marquardt, 487 S.W.2d 214, 217 (Tex. Civ. App.—San Antonio 1972, writ ref'd n.r.e.) ("When a nonparty is allowed to challenge a judgment, the decision to allow him the right to appeal is grounded on the fact that, because of the doctrine of representation, he is bound by the judgment."). Because the unnamed class members here would be bound to the judgment approving the settlement, they should be considered "parties" for purposes of appeal.

The gas companies attempt to distinguish Devlin on the basis that the cities here were certified as a class prior to settlement, whereas Devlin involved a settlement class. See Northrup v. Southwestern Bell Tel. Co., 72 S.W.3d 1, 10 (Tex. App.—Corpus Christi 2001, pet. denied) (stating that "imposition of the intervention requirement is appropriate in...

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