Denton Cnty. Elec. Coop. v. Hackett

• Decision Date: 10 May 2012
• Docket Number: NO. 02-09-00425-CV,02-09-00425-CV
• Parties: DENTON COUNTY ELECTRIC COOPERATIVE, INC. D/B/A COSERV ELECTRIC APPELLANT AND APPELLEE v. NICOLE HACKETT, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED APPELLEE AND APPELLANT
• Court: Texas Court of Appeals

DENTON COUNTY ELECTRIC COOPERATIVE,

INC. D/B/A COSERV ELECTRIC APPELLANT AND APPELLEE

v.NICOLE HACKETT, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED APPELLEE AND APPELLANT

NO. 02-09-00425-CV

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

DELIVERED: May 10, 2012

FROM THE 16TH DISTRICT COURT OF DENTON COUNTY

OPINION

I. Introduction

In this interlocutory appeal,¹ Appellant Denton County Electric Cooperative, Inc. d/b/a CoServ Electric (CoServ) raises six issues, complaining that the trial court erred by certifying this case as a class action. We vacate the trial court'sclass certification order and remand the case to the trial court for further proceedings.²

II. Factual and Procedural History

The underlying issue in this class certification appeal involves the rights of members of an electric cooperative and the statutory, fiduciary, and contractual duties, if any, owed by the cooperative to its members.

A. The Parties

CoServ is a member-owned, nonprofit electric cooperative formed under the Texas Electric Cooperative Corporation Act (ECCA). See Tex. Util. Code Ann. §§ 161.001-.254 (West 2007). It has approximately 135,000 members, comprised of a diverse socio-economic and demographic group of residential users as well as commercial and public users.

Appellee Nicole Hackett is a CoServ member. Mark Glover and Janice Brady, also CoServ members, are parties in the proceeding below. Glover is a former CoServ director, and Brady unsuccessfully campaigned in June 2008 for election to CoServ's board.

B. The Litigation

In 2008, a CoServ member complained about receiving a robo-call from Brady on his unlisted phone number during Brady's election campaign. CoServ investigated, and Brady admitted that she possessed members' personalinformation but refused to disclose her source. In February 2009, Glover admitted that he had provided Brady with the members' personal information.

Brady filed a class action suit against CoServ in February 2009, alleging, among other things, that CoServ breached its fiduciary duty by undermining the cooperative's democratic process in its refusal to make its members' contact information available to nonincumbents running for election to CoServ's board of directors. CoServ removed the suit to federal court³ and initiated the instant suit in state court against Glover, alleging that Glover had released "CoServ's confidential and proprietary information" in violation of CoServ's policy to protect its members' personal information (Policy No. 310)⁴ and had made an unauthorized release of confidential real estate information. CoServ's claims against Glover included breach of fiduciary duty, misappropriation of trade secrets, and conversion of CoServ's property, conspiracy to commit these acts, and breach of his 2005 and 2008 directorship agreements.⁵

Glover filed a counter-petition on his own behalf and on behalf of a class consisting of "[a]ll current members of Denton County Electric Cooperative, Inc. entitled to vote in board elections," excluding the trial court judge, CoServ, and its officers, employees, and directors other than Glover.⁶ He alleged that CoServ failed to provide its members with open meetings, open records, and fair voting for board elections by failing to disclose information about CoServ to the members, and that CoServ had subverted the election process in favor of incumbent directors. Glover contended that the entrenched "old guard" board was nearly the same as the board that had driven CoServ into bankruptcy in 2002 and that "continue[d] to put management interests ahead of the interests of the members to whom it owe[d] a fiduciary duty."

Brady filed a petition in intervention, seeking a declaratory judgment that CoServ had a duty to provide challengers with all voter lists and other information available to incumbent directors; that CoServ's member contact information is not confidential, a trade secret, or otherwise privileged from disclosure to other members; that Policy No. 310 violates state law; that providing memberinformation to a person running for election to the board of directors conforms with state law and does not violate a board member's fiduciary duties; and that CoServ member information is not CoServ's property.

The trial court denied CoServ's motion to strike Brady's petition in intervention or, in the alternative, to stay Brady's lawsuit based on Brady's similar suit formerly pending in the federal court. CoServ subsequently filed an amended petition against Glover and an original verified petition against Brady, alleging trade secret misappropriation, conversion, and "conspiracy/aiding and abetting" by Glover and Brady and breach of fiduciary duty and breach of contract by Glover.

Brady filed an amended petition and Hackett combined her original petition in intervention with Brady's amended petition. They referred to themselves collectively as "Class Plaintiffs," defined the voting subclass, listed their common questions of law and fact for the class, and made claims for breach of fiduciary duty, statutory duties, and contract, as well as for conversion, oppression, and fraudulent concealment.

CoServ complained that Hackett and Brady lacked standing and argued that Brady, Hackett, and Glover were inadequate class representatives, that there were irreconcilable conflicts among the members of the putative class, that a class action was not the superior method of adjudicating the dispute, and that common questions did not predominate over individual issues.

Brady and Hackett filed Brady's second amended petition and Hackett's first amended petition in intervention on August 31, 2009, the same day that the trial court began the five-day hearing on class certification. Their new petitions omitted the claim for breach of statutory duties. Nonetheless, on November 6, 2009, the trial court signed an order certifying the class under rule of civil procedure 42(b)(2) that included the statutory duties claim as an issue.

The order set out the following:

IT IS ORDERED, ADJUDGED AND DECREED that the Voting Subclass is comprised of:

All persons who or entities that currently are members of Denton County Electric Cooperative, Inc. d/b/a CoServ Electric ("CoServ"); but excluding CoServ, any and all CoServ affiliates, officers, directors, and employees of CoServ, members of this Court, the attorneys in this case, and members of the immediate families of any of the excluded individuals.

In determining to certify the Voting Subclass, the Court makes the following findings:

1. The Voting Subclass is comprised of approximately 135,000 members. Joinder of each of them individually is impracticable.

2. There are multiple questions of law and fact that are common to the Voting Subclass. Some of them include:

Whether the CoServ bylaws and/or policies relating to governance, director elections, and voting constitute enforceable contracts between CoServ and the Voting Subclass;

• Whether CoServ materially breached its contractual relationship(s) relating to governance, director elections, and voting with the Voting Subclass;

• Whether CoServ is a fiduciary of the Voting Subclass;

• Whether CoServ breached its fiduciary duty to the Voting Subclass;Whether CoServ has a statutory duty to the Voting Subclass vis-à-vis governance, director elections, and voting procedures;

• Whether CoServ breached its statutory duty to the Voting Subclass in connection with the cooperative's governance, director elections, and voting procedures;

• Whether CoServ's Policy 310 as currently interpreted by CoServ violates voting sub-class members' rights [of] access to members' information for use in connection with CoServ's Board of Director Elections and other proper cooperative purposes;

• Whether CoServ's policies and practices fall short of providing the access to its books and records to which the Voting Subclass members are entitled;

• Whether CoServ's practice of providing vote tallies to management and board members during CoServ Board Elections violates CoServ's obligation to maintain democratic control over the cooperative;

• Whether CoServ violated its own policies regarding voting, balloting, vote counting, etc. in a manner that violates its obligation to provide democratic operation of CoServ to its members;

• Whether CoServ's practice of allowing unequal access to member information violates its obligation to provide democratic operation of CoServ to its members;

• Whether the CoServ election practices are fair and/or democratic;

• Whether the CoServ election policies as written and/or applied are fair and/or democratic;

• Whether CoServ's polices as written and/or its practices of interim appointment of directors are fair and/or democratic;

• Whether CoServ's policies as written and/or its practices wrongfully delegate decision making and/or control of CoServ to management rather than the democratically elected Board of Directors;

• Whether the Voting Subclass is entitled to a judicial determination of the legal and equitable obligations owed by CoServ to its members as alleged.

4. The claims of Nicole Hackett are typical of those of the Voting Subclass. Nicole Hackett is a current CoServ member and has standing. All class members of the Voting Subclass are CoServ members and thus are impacted if CoServ does not operate democratically or its election policies and/or practices are unfair to its members. Any claims related to these issues are typical within the Voting Subclass. There are no conflicts between Nicole Hackett and the other members of the Voting Subclass.

5. Nicole Hackett is an adequate Voting Subclass representative. She is a CoServ member who has demonstrated that she will represent the Voting Subclass members' interests and advocate for the best interests of the class. She understands and accepts her fiduciary role as to the class, as well as her proper relationship with class counsel. She has demonstrated an adequate understanding of the Voting Subclass claims. She will (and

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