Clark v. Farmers Ins. Exchange

Decision Date21 October 2004
Docket NumberNo. 04CA1593.,04CA1593.
Citation117 P.3d 26
PartiesSandra CLARK, on behalf of herself and all others similarly situated, Plaintiff-Appellant, v. FARMERS INSURANCE EXCHANGE, an insurer and owner of Mid-Century Insurance Company, and Mid-Century Insurance Company, a California corporation, Defendants-Appellees.
CourtColorado Supreme Court

The Carey Law Firm, Robert B. Carey, Leif Garrison, L. Dan Rector, Colorado Springs, Colorado; Todd Travis, P.C., Todd

Travis, Englewood, Colorado, for Plaintiff-Appellant.

Davis, Graham & Stubbs, LLP, Thomas P. Johnson, Andrea Wang, Denver, Colorado, for Defendants-Appellees.


Plaintiff, Sandra Clark, on behalf of herself and all others similarly situated, has requested that we exercise our discretion pursuant to C.R.C.P. 23(f) and § 13-20-901(1), C.R.S. 2004, and accept an interlocutory appeal of the trial court's order denying class certification in her action against defendants, Farmers Insurance Exchange and Mid-Century Insurance Company (Farmers). Clark also requests that we stay the trial court proceedings during the pendency of the appeal. We dismiss the appeal without prejudice and determine the motion for stay is moot.

Beginning in May 2002, Farmers offered its no-fault automobile insurance customers the option of purchasing personal injury protection benefits at a reduced rate, provided that the customers agreed to use in-network health care providers through a preferred provider organization (PPO). For customers purchasing PPO coverage, Farmers imposed a $3,000 deductible when the insured used out-of-network health care providers. Later, Farmers began requiring PPO insureds using out-of-network providers to prove that they actually had paid the required deductible before it would pay any amount above that deductible. Farmers adopted the proof of payment requirement to avoid out-of-network providers who would absorb the $3,000 deductible themselves or "waive" the insured's obligation to pay that amount.

The Colorado Department of Insurance (DOI) initially approved the proof-of-payment requirement. However, on October 14, 2003, the DOI changed its position and concluded that the practice violated the provisions for prompt payment of benefits under the former No-Fault Act, § 10-4-701, et seq. (repealed in 2003). The DOI thereafter directed Farmers to pay any outstanding claims for which the fact and amount of the deductible had been shown, even if the deductible had not been paid. Farmers complied with the directive.

In the meantime, Clark, who is a Farmers PPO insured, had selected out-of-network health care treatment following an injury she sustained in an automobile accident. As it had with other PPO insureds, Farmers initially required Clark to pay, and prove that she had paid, the $3,000 deductible amount before Farmers would pay incurred health care expenses, but following the DOI directive, Farmers paid her outstanding claims.

Clark filed a complaint against Farmers, asserting that it wrongfully had required her and other Farmers PPO insureds to provide proof of actual payment to a provider before they would honor bills in amounts above the deductible amount. In her complaint, filed in October 2003, she sought to have the matter proceed as a class action.

Farmers filed a motion to deny class certification, which the trial court granted on July 30, 2004. The court noted that trial was set for November 29, 2004 and that C.R.C.P. 26 disclosures would soon be due. Further, it rejected Clark's contention that only she could bring the class certification issue before the court. It also rejected Clark's assertion that the motion was premature because discovery had not been completed, reviewed all documents and pleadings in the court's file, and held that Clark had not sustained her burden of showing that a class action should be certified.

Specifically, the court found that Clark had not provided any evidence of the class size, other than a suggestion that it might contain "at a minimum thousands." Farmers, however, presented evidence that the putative class contained only thirty-one similarly situated claimants. Therefore, the court found that Clark had failed to show that the class was so numerous that joinder of all parties was impractical. The court also found that Clark had failed to show that any damages suffered by other class members were similar to the damages she had suffered.

Clark then filed this application for interlocutory review of the trial court's denial of class certification pursuant to C.R.C.P. 23(f) and § 13-20-901(1).

We reject Clark's request to pursue an interlocutory appeal of the trial court's order denying class certification.

The decision whether to certify a class action lies within the discretion of the trial court and will not be disturbed unless it is clearly erroneous and an abuse of discretion. Friends of Chamber Music v. City & County of Denver, 696 P.2d 309, 317 (Colo.1985). An abuse of discretion occurs only when the trial court's decision is manifestly arbitrary, unreasonable, or unfair, Hock v. New York Life Ins. Co., 876 P.2d 1242 (Colo.1994), or the court applies incorrect legal standards. See Kuhn v. State Dep't of Revenue, 817 P.2d 101 (Colo.1991).

Section 13-20-901(1) was adopted by the General Assembly effective July 1, 2003. It provides:

A court of appeals may, in its discretion, permit an interlocutory appeal of a district court's order that grants or denies class action certification under court rule so long as application is made to the court of appeals within ten days after entry of the district court's order.

Section 13-20-901(1) has not yet been interpreted by any Colorado court. However, the statute is substantially similar to Fed.R.Civ.P. 23(f), which provides that a federal court of appeals has discretion to "permit an appeal from an order of a district court granting or denying class action certification under this rule if application is made to it within ten days after entry of the order." Therefore, cases applying the federal rule are instructive. See State v. Buckley Powder Co., 945 P.2d 841 (Colo.1997); Higley v. Kidder, Peabody & Co., 920 P.2d 884 (Colo.App.1996).

The advisory committee notes to the federal rule state that federal courts of appeal have unfettered discretion in authorizing interlocutory appeals of such orders, noting that permission is most likely to be granted when (1) the certification decision turns on a novel or unsettled question of law, or (2) as a practical matter, the decision on certification is likely dispositive of the litigation.

Numerous federal circuits and some state courts have addressed the standards that should be employed in exercising the discretion granted. The parties assert, and we agree, that the cases have adopted similar lists of factors for the appellate court to consider. We perceive that the five-factor test outlined in Prado-Steiman ex rel. Prado v. Bush, 221 F.3d 1266 (11th Cir.2000), is the most inclusive and helpful in determining how to exercise our discretion.

The first factor, commonly known as the "death knell" factor, asks whether the trial court's ruling is likely dispositive of the litigation because either it effectively prevents the plaintiff from continuing to pursue the matter in that the stakes are too low, or it places the defendant in such a position that it would experience irresistible pressure to settle.

The second factor is described as the substantial weakness factor. When applying this factor, we evaluate whether the appellant has shown that the trial court's class certification decision likely constitutes an abuse of discretion.

Third, courts should consider whether allowing the appeal will permit resolution of an unsettled legal issue that is important to the particular litigation, as well as important in itself.

Fourth, courts should consider the nature and status of the litigation before the trial court. The propriety of granting or denying class certification, as well as the proper scope of any class that has been certified, may change significantly as new facts are uncovered through discovery. Similarly, a limited or insufficient record may adversely affect the appellate court's ability to evaluate fully and fairly the class certification decision. Moreover, a trial court's ruling on dispositive motions or a motion to add new class representatives, parties, or claims may significantly redefine the issues in the case and thereby affect the scope of or need for a class. Accordingly, a court may consider the status of discovery, the pendency of relevant motions, and the length of time the matter already has been pending.

Fifth, courts should consider the likelihood that future events could make immediate appellate review more or less appropriate. Such considerations may include settlement negotiations or a change in the financial status of a party, such as a bankruptcy filing. If the case is likely to be one of a series of related actions, then early resolution of a dispute about the propriety of certifying a class may facilitate the disposition of future claims. Also significant is whether the trial court has indicated that it views its class certification decision as conditional or subject to revision. See also Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154 (3d Cir.2001); Lienhart v. Dryvit Sys., Inc., 255 F.3d 138 (4th Cir.2001); Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288 (1st Cir.2000); Gordon v. Microsoft Corp., 645 N.W.2d 393 (Minn.2002); Salcido v. Farmers Ins. Exch., 134 N.M. 797, 82 P.3d 968 (N.M.Ct.App.2003).

These factors are guideposts and are not exclusive, nor is any one necessarily determinative. See In re Lorazepam & Clorazepate Antitrust Litig., 289 F.3d 98 (D.C.Cir.2002); Gordon v. Microsoft Corp., supra. Special compelling circumstances may exist that require a different result apart from application of the listed factors alone....

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