Compaq Computer Corp. v. Lapray, No. 02-0705.

• Court: Supreme Court of Texas
• Writing for the Court: Jefferson
• Citation: 135 S.W.3d 657
• Decision Date: 07 May 2004
• Docket Number: No. 02-0705.
• Parties: COMPAQ COMPUTER CORPORATION, Petitioner, v. Hal LAPRAY, et al., Respondents.

135 S.W.3d 657 COMPAQ COMPUTER CORPORATION, Petitioner,
v.
Hal LAPRAY, et al., Respondents. No. 02-0705. Supreme Court of Texas. Argued October 15, 2003. Decided May 7, 2004.

[135 S.W.3d 660]

James J. Scheske, Akin Gump Strauss Hauer & Feld LLP, Austin, for Amicus Curiae Emachines, Inc.

Roger Higgins, Thompson Coe Cousins and Irons, Dallas, for Amicus Curiae National Association of Independence.

Lynne Liberato, Haynes and Boone, LLP, Houston, for Amicus Curiae Packard Bell Nec, Inc., et al.

Sara Murray, Langley & Banack, Inc., San Antonio, for Amicus Curiae Texas Association of Business.

Luther H. Soules III, Soules & Wallace, San Antonio, for Amicus Curiae Civil Justice League.

David Bates, Gardere Wynne Sewell, LLP, Houston, for Amicus Curiae Texas The American Chemistry Council.

William A. Worthington, Strasburger & Price, Houston, for Amicus Curiae The Product Liability Advisory.

Tanner T. Hunt Jr., Wells Peyton Greenberg & Hunt, Beaumont, Peter M. Stone, Paul Hastings Janofsky & Walker, LLP, Costa Mesa, CA, for Amicus Curiae Trigem Computer, Inc.

Ruth G. Malinas, Ball & Weed, P.C., San Antonio, for Amicus Curiae United Services Automobile Ass'n.

James J. Lee, Vinson & Elkins, L.L.P., Dallas, Gene M. Williams, Mehaffy & Weber, Beaumont, Michael Holston, John Schultz, Drinker Biddle & Reath, Philadelphia, PA, for other interested parties.

David J. Beck, Alistair B. Dawson, David M. Gunn, Anne Pike, Beck Redden & Secrest, L.L.P., Houston, Carl Allen Parker, Parker & Parks, L.L.P., Port Arthur, Robert Q. Keith, Keith & Weber, Johnson City, Sheila Birnbaum, Barbara Wrubel, J. Russell Jackson, Skadden Arps Slate Meagher & Flom, LLP, New York, NY, for Petitioner.

[135 S.W.3d 661]

Wayne Reaud, The Reaud Law Firm, Beaumont, for Respondent Hal Lapray.

Jack Carroll, D. Allan Jones, Gilbert I. "Buddy" Low, Gary Neale Reger, Orgain Bell & Tucker, L.L.P., Charles K. Kebodeaux, Law Office of Keith Kebodeaux, Larry De-Wayne Layfield, Law Office of L. DeWayne Layfield, Hubert Oxford III, Benckenstein & Oxford, L.L.P., Beaumont, Charles M. Silver, Austin, for Respondent Tracy D. Wilson, Jr.

Justice JEFFERSON delivered the opinion of the Court.

Plaintiffs Hal Lapray, Tracy D. Wilson, Jr., and Alisha Seale Owens, on behalf of themselves and all others similarly situated, sued Compaq Computer Corporation alleging that Compaq sold them computers containing defective floppy disk controllers ("FDCs"). The trial court certified a nationwide class under Rule 42(b)(2) and (b)(3)¹, Tex.R. Civ. P., and the court of appeals affirmed. For the reasons set forth below, we reverse the court of appeals' judgment and remand this case to the trial court for further proceedings consistent with this opinion.

I Factual Background

Plaintiffs allege that the affected computers, some thirty-seven models of Compaq Presario computers, contain defective FDCs. FDCs control the transfer of data (broken down into individual characters called "bytes") between a computer's memory and a floppy disk. Plaintiffs claim that, in certain circumstances, computer system "latencies"² can lead the FDC to fail to identify that data has been written incorrectly to the floppy disk—a condition called an "underreported underrun"—resulting in the loss of a byte of data. The plaintiffs allege that the FDCs failed to meet industry standards adopted by Compaq and that Compaq identified the FDC problem as a "failure" of a "main feature" but elected to sell the computers anyway. Plaintiffs assert that the defective FDCs breached Compaq's limited warranty, which promised that the computers would be free from defects in materials or workmanship under normal use during the warranty period and that Compaq would repair or replace defective parts.

Lapray et al. sued Compaq, first in federal court then, after the federal court dismissed the claims without prejudice³, in

135 S.W.3d 662

the 60th judicial district court in Jefferson County. Having abandoned their other causes of action, the plaintiffs allege only that Compaq breached its express warranty. The plaintiffs seek a declaration that (i) Compaq breached its express warranty, (ii) Compaq breached its obligation to repair, replace, or refund, (iii) the FDC defect is covered by Compaq's express warranty, and (iv) class members have a right to seek relief under the warranty. In the alternative, they seek damages, either in the form of a refund, the difference in value between a computer without the FDC defect and the computer as purchased, or damages for breach of the duty to repair or replace. Plaintiffs explicitly disclaim consequential damages from loss or corruption of data.

After a hearing on the plaintiffs' motion for class certification, the trial court certified a national class consisting of some 1.8 million computer buyers, including:

All residents and citizens of the United States, other than those excluded below, who purchased from Compaq or from an authorized Compaq reseller any Compaq computer model that contains a SiS 6801 or ITE 8661 FDC, which are identified as being Presario desktop model numbers 2266, 2275, 2281, 2285V, 2286, 2412ES, 2416ES, 5070, 5184, 5185, 5301, 5304, 5304b, 5340, 5345, 5360, 5365, 5410, 5440, 5441, 5451, 5452, 5460, 5461, 5465, and 5710, Presario laptop model numbers 17XL2, 17XL266, 17XL274, 17XL264, 17XL266, 17XL260, 17XL261, 17XL262, 17XL275, 17XL265, and 1700T[CTO].

The following persons are excluded from the class:

All government entities, bodies and agencies of any character, federal, state, or local, and their employees (in that capacity only); the presiding judge(s) and other court personnel, the Named Defendants and their employees.

Finding that the requirements of both Rule 42(b)(2) and (b)(3) were met, the trial court certified the class under both subsections. Additionally, the trial court concluded that it would "likely" apply Texas law to all class members' claims but deferred a final choice-of-law determination. The lengthy certification order includes findings of fact and conclusions of law, as well as a trial plan for the (b)(3) claims.

The court of appeals affirmed the trial court's certification order. 79 S.W.3d 779, 794. The court analyzed the trial court's certification of a (b)(2) class and held that declaratory relief was appropriate. The court of appeals then concluded that "[b]ecause the trial court certified the class under Rule 42(b)(2), and only alternatively certified the class under Rule 42(b)[ (3) ], and having found the trial court did not abuse its discretion in certifying a (b)(3) [sic] class, it is unnecessary to address issues five and six challenging the requirements of predominance and superiority." Id. at 791.

II Jurisdiction

Because this is an interlocutory appeal from an order certifying a class action and there was no dissent in the court of appeals, this Court has jurisdiction only when the court of appeals "holds differently from a prior decision of another court of appeals or of the supreme court." TEX. GOVT CODE §§ 22.225(b)(3), (c), 22.001(a)(2).⁴ Compaq argues that the

135 S.W.3d 663

court of appeals' failure to analyze predominance and superiority conflicts with Southwestern Refining Co. v. Bernal, 22 S.W.3d 425 (Tex.2000). We agree.

In Bernal, we held that "[c]ourts must perform a `rigorous analysis' before ruling on class certification to determine whether all prerequisites to certification have been met." Id. at 435 (emphasis added). Rule 42(b)(3) requires that the trial court find that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and a class action is superior to other available methods for the fair and efficient adjudication of the controversy." TEX.R. CIV. P. 42(b)(3) (emphasis added). Predominance and superiority analyses are vital to a determination of whether to certify a (b)(3) class. Indeed, predominance is "one of the most stringent prerequisites to class certification." Bernal, 22 S.W.3d at 433.

The court of appeals stated that "the trial court certified the class under Rule 42(b)(2), and only alternatively certified the class under Rule 42(b)[ (3) ], and having found the trial court did not abuse its discretion in certifying a (b)(3) [sic] class, it is unnecessary to address issues five and six challenging the requirements of predominance and superiority."⁵ 79 S.W.3d at 791. Thus, the court of appeals addressed only the (b)(2) issues but then affirmed the trial court's order (which certified both (b)(2) and (b)(3) classes) in its entirety. Id. at 794. The effect of the court of appeals' decision is to affirm the (b)(3) class without reviewing predominance and superiority. The class would be entitled to seek damages under the (b)(3) certification—as affirmed by the court of appeals— without any court ever having rigorously analyzed predominance and superiority. This directly conflicts with Bernal—a conflict that is apparent from the face of the court of appeals' opinion—and would operate to overrule it had the opinion issued from our court. See Coastal Corp. v. Garza, 979 S.W.2d 318, 319-20 (Tex.1998); Hill v. Miller, 714 S.W.2d 313, 315 (Tex. 1986). Accordingly, we have jurisdiction over this interlocutory appeal.

III (b)(2) versus (b)(3) Class Actions

The parties devote much energy and attention to whether this class properly falls under subsection (b)(2) or (b)(3) of rule 42, Tex.R. Civ. P. Compaq argues that the breach of warranty declaratory judgment claim is merely a predicate to a claim for damages and an attempt to "shoehorn" a damages claim into a (b)(2) claim for declaratory relief. Plaintiffs respond that

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(b)(2) certification is proper because they have disclaimed consequential damages and primarily seek a declaration that the FDC is defective and falls within Compaq's limited warranty.

Rule 42(b)(2) provides that:

An action may be maintained as a class action if the...