Comes v. Microsoft Corp.

• Citation: 696 N.W.2d 318
• Decision Date: 13 May 2005
• Docket Number: No. 03-1703.,03-1703.
• Parties: Joe COMES and Riley Paint, Inc., an Iowa Corporation, Appellees, v. MICROSOFT CORPORATION, a Washington Corporation, Appellant.
• Court: Iowa Supreme Court

696 N.W.2d 318

Joe COMES and Riley Paint, Inc., an Iowa Corporation, Appellees, v. MICROSOFT CORPORATION, a Washington Corporation, Appellant.

No. 03-1703.

Supreme Court of Iowa.

May 13, 2005.

Edward W. Remsburg of Ahlers & Cooney, P.C., Des Moines, David B. Tulchin and Joseph E. Neuhaus of Sullivan & Cromwell LLP, New York, New York, Thomas W. Burt, Richard Wallis, and Steven J. Aeschbacher of Microsoft Corporation, Redmond, Washington, and Charles B. Casper of Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, Pennsylvania, for appellant.

Roxanne Barton Conlin of Roxanne Conlin & Associates, P.C., Des Moines, and Richard M. Hagstrom of Zelle, Hofmann, Voelbel, Mason & Gette LLP, Minneapolis, Minnesota, for appellees.

LARSON, Justice.

The plaintiffs in this antitrust case have been certified by the district court to represent two classes of purchasers of Microsoft products. See Iowa Rs. Civ. P. 1.261-1.279. Microsoft appealed, claiming the plaintiffs have not established the prerequisites for class certification. We affirm.

I. Facts and Prior Proceedings.

This suit was brought against Microsoft Corporation for violating the provisions of the Iowa competition law, Iowa Code §§ 553.4, 553.5 (1997). The plaintiffs, on behalf of themselves and the classes they seek to represent, claim that Microsoft engaged in monopolistic practices from 1994 to 2001—specifically that Microsoft artificially inflated the cost of its products, including licenses for its operating systems software and its applications software. This is the second time this case has been before this court. See Comes v. Microsoft Corp., 646 N.W.2d 440 (Iowa 2002)

[hereinafter Comes I]. The facts were set out fully in Comes I, and we need not repeat them in detail here.

The proposed classes have two named plaintiffs, Joe Comes and Riley Paint, Inc. Both plaintiffs purchased computers with preinstalled Microsoft operating systems and applications software. The named plaintiffs represent a class of "indirect purchasers" of Microsoft products. "Indirect purchasers" means parties to whom Microsoft did not directly sell its products, but who ultimately obtained the products through the stream of commerce. In Comes I we held, on a divided vote, that indirect purchasers may maintain an antitrust suit against Microsoft. Comes I, 646 N.W.2d at 451. That issue is not before us on this appeal.

Plaintiffs' contention is that Microsoft overcharged the direct purchasers, and those purchasers in turn passed on the overcharges to the ultimate buyers. The plaintiffs initiated this action to recoup the overcharges on behalf of all Iowa end purchasers of Microsoft operating systems and applications software. Two indirect purchaser classes were approved by the court: an operating-systems software class and an applications software class.

II. Standard of Review.

A district court's decision on class certification is reviewed for abuse of discretion. Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 44 (Iowa 2003). Our class-action rules are remedial in nature and should be liberally construed to favor the maintenance of class actions. Lucas v. Pioneer, Inc., 256 N.W.2d 167, 175 (Iowa 1977).

[The class-action rule] continues to have as its objectives the efficient resolution of the claims or liabilities of many individuals in a single action, the elimination of repetitious litigation and possibly inconsistent adjudications involving common questions, related events, or requests for similar relief, and the establishment of an effective procedure for those whose economic position is such that it is unrealistic to expect them to seek to vindicate their rights in separate lawsuits.

7A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1754, at 49 (2d ed.1986) [hereinafter Wright]. After a class has been certified, the district court may decertify it if circumstances so require. Vos, 667 N.W.2d at 46.

III. General Requirements for Class Certification.

Members of a class may sue or be sued on behalf of their class if both of these are shown:

(1) The class is so numerous or so constituted that joinder of all members, whether or not otherwise required or permitted, is impracticable.

(2) There is a question of law or fact common to the class.

Iowa R. Civ. P. 1.261.

Before certifying a class, a court must make these specific findings:

a. The requirements of rule 1.261 have been met.

b. A class action should be permitted for the fair and efficient adjudication of the controversy.

c. The representative parties fairly and adequately will protect the interests of the class.

Iowa R. Civ. P. 1.262(2). Microsoft does not contest the court's findings regarding element (a), but it does challenge its findings on (b) (fair and efficient adjudication) and (c) (fair and adequate representation).

A. The fair and efficient administration of justice. As noted, rule 1.262(2)(b) requires the court to find that a class action will promote a fair and efficient adjudication of the controversy. Rule 1.263(1), in turn, provides "a number of criteria the district court should consider in determining whether the prerequisite of rule 1.262(2)(b)... has been met." Vos, 667 N.W.2d at 45. Thirteen factors under rule 1.263(1) are to be considered by the court, but Microsoft challenges the court's findings on only four:

1. "Whether common questions of law or fact predominate over any questions affecting only individual members," Iowa R. Civ. P. 1.263(1)(e);

2. "[w]hether a class action offers the most appropriate means of adjudicating the claims and defenses," id. 1.263(1)(g);

3. "[w]hether management of the class action poses unusual difficulties," id. 1.263(1)(k); and

4. "[w]hether a joint or common interest exists among members of the class," id. 1.263(1)(a).

"The factors in rule 1.263(1) center on two broad considerations: achieving judicial economy by encouraging class litigation while preserving, as much as possible, the rights of litigants—both those presently in court and those who are only potential litigants." Luttenegger v. Conseco Fin. Serv. Corp., 671 N.W.2d 425, 437 (Iowa 2003) (internal quotations omitted); accord Vos, 667 N.W.2d at 45

; Stone v. Pirelli Armstrong Tire Corp., 497 N.W.2d 843, 846 (Iowa 1993); Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 744 (Iowa 1985). "The rule does not require the district court to assign weight to any of the criteria listed ... [n]or does the rule require the court to make written findings as to each factor. . . ." Vos, 667 N.W.2d at 45; accord City of Dubuque v. Iowa Trust, 519 N.W.2d 786, 793 (Iowa 1994); Martin v. Amana Refrigeration, Inc., 435 N.W.2d 364, 369 (Iowa 1989). We will affirm the district court's decision if it "weigh[s] and consider[s] the factors and come[s] to a reasoned conclusion as to whether a class action should be permitted for a fair adjudication of the controversy." Luttenegger, 671 N.W.2d at 437; accord Martin, 435 N.W.2d at 369 ("[T]he court carefully considered all of the factors and then made a finding that a class action provided the best means for a fair and efficient adjudication of the controversy. Whether or not we agree with the decision arrived at by the trial court is not the issue. The issue is one of abuse of discretion."); Vignaroli, 360 N.W.2d at 744 ("The district court's ruling in this case reflects its consideration of those criteria.... The only question remaining for us is whether the trial court abused its discretion in making the favorable findings with regard to the class action certification.").

The North Dakota Supreme Court, in applying class-action rules similar to ours, has said:

"In most cases some of the thirteen factors [regarding the fair-and-efficient-administration-of-justice test] will weigh against certification and some will weigh in favor. It is for the trial court, employing its broad discretion, to weigh the competing factors and determine whether a class action will provide a fair and efficient adjudication of the controversy. Thus, even if [defendant] is correct in its assertion four of the factors weigh against certification, that does not preclude the court from certifying the class action if, in its opinion, those factors are outweighed by other factors supporting certification."

Howe v. Microsoft Corp., 656 N.W.2d 285, 289 (N.D.2003) (quoting Peterson v. Dougherty Dawkins, Inc., 583 N.W.2d 626, 629 (N.D.1998)). With these general principles in mind, we address Microsoft's specific challenges to the court's findings on the criteria listed in rule 1.263.

1. Predominance of common questions of law or fact. Microsoft argues that the trial court abused its discretion in finding that common questions of law and fact predominate over individual issues under rule 1.263(1)(e). It contends a showing of predominance is a condition precedent to certification, but we disagree; this is only one of thirteen factors to be considered. In this case, the plaintiffs must prove that Microsoft violated the Iowa Competition Law, see Iowa Code § 553.5, and this violation caused class members to suffer identifiable harm and damages, see id. § 553.12.

Microsoft argues that:

On a motion for class certification in an antitrust action, the pivotal elements are impact and damages to the class members. Under well-established law, plaintiffs must demonstrate at the time class certification is sought that they have devised a viable method that can show, through common proof, that each class member suffered impact and the amount of damages each sustained.

(Emphasis added.) Microsoft made the same argument to the North Dakota Supreme Court, which rejected it, saying:

We have never suggested a class plaintiff must show there will be common proof on each element of the claim. Rather, we have repeatedly noted that the existence of individual issues is not necessarily fatal to class certification.

Howe, 656 N.W.2d at 289. Further, in Luttenegger, we s...