Farmers Ins. Exchange v. Leonard
| Decision Date | 10 April 2003 |
| Docket Number | No. 03-01-00649-CV.,03-01-00649-CV. |
| Citation | 125 S.W.3d 55 |
| Parties | FARMERS INSURANCE EXCHANGE; Truck Insurance Exchange; Fire Insurance Exchange; Mid-Century Insurance Company; Mid-Century Insurance Company of Texas; Farmers New World Life Insurance Company; Farmers Texas County Mutual Insurance Company; Texas Farmers Insurance Company; and Farmers Group, Inc., Appellants, v. Michael LEONARD and Michael Sawyer on Behalf of Themselves and all Others Similarly Situated, Appellees. |
| Court | Texas Court of Appeals |
Thomas T. Rogers, Sean D. Jordan, Jackson Walker L.L.P., Austin, William T. Barker, Sonnenschein, Nath & Rosenthal, Chicago, IL, for appellants.
Bobby G. Pryor, Dana G. Bruce, Pryor & Bruce, Rockwall, Melanie Hunter, Robert Kalinke, Dean Boyd, Hunter, Kalinke & Boyd, Dallas, for appellees.
Before Justices KIDD, PATTERSON and PURYEAR.
After our opinion issued and before appellants filed their amended motion for rehearing, the Texas Supreme Court released its opinion in Schein v. Stromboe, 102 S.W.3d 675 (2002). Schein provided additional guidance on the appellate standards under which we are to review a class action certification by the trial court. Therefore, we will reexamine our opinion applying the principles enunciated in the Schein decision. Consequently, we grant the motion for rehearing, withdraw our judgment and opinion of August 30, 2002, and substitute the following therefor.
Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, Mid-Century Insurance Company of Texas, Farmers New World Life Insurance Company, Farmers Texas County Mutual Insurance Company, Texas Farmers Insurance Company, and Farmers Group, Inc. (collectively "Farmers"), bring this interlocutory appeal challenging the trial court's order certifying a class action. See Tex. Civ. Prac. & Rem.Code Ann. § 51.014(a)(3) (West Supp.2002). By four issues, Farmers contends that the trial court erred in certifying the class action brought by appellees, Michael Leonard and Michael Sawyer. Farmers contends that the class does not meet the requirements for class certification under rule 42 of the Texas Rules of Civil Procedure, and urges reversal and decertification. We will affirm the trial court's order.
This case involves a number of essentially unilateral bonus award contracts that Farmers gives its agents each year to reward them for meeting certain profitability and sales requirements. Although Farmers offers a number of award programs, only four distinct bonus programs are implicated in this dispute. The four bonus contracts, and the years in which Leonard and Sawyer claim Farmers breached the agreements, are the Underwriting Contract Value Bonus for 1995-1999, the Agency Profitability Bonus for 1995-1999, the Auto Retention Bonus for 1999, and the Life Performance Bonus for 1996-1999. Farmers sent these bonus contracts to 13,000 agents in twenty-nine states.
Because these contracts may change, Farmers explains the bonus programs in annual Achievement Award Brochures, Field Bulletins, and the Farmers Agent Guide. These written explanations contain the rules, eligibility criteria, and qualification requirements for each bonus award available that year. Each bonus is calculated by Farmers, based on an individual agent's sales and profitability. Accordingly, the written explanations for the bonus contracts notify the agents that "[p]roduction qualifications are based on official Company production records for the qualifying period for each award." Farmers also furnishes its agents with a copy of their individual production records so that they will be able to monitor their individual sales, production, and profitability, as determined by Farmers. Leonard and Sawyer claim that Farmers uniformly breached the four bonus contracts at issue by improperly calculating and awarding the bonuses due to the class members. Accordingly, Leonard and Sawyer filed this suit as a putative class action.1
After a six-day certification hearing, the trial court certified the class. Farmers appeals that decision and raises the following four issues for our consideration: (1) the trial court erred in determining that California's substantive law should apply in this case; (2) the decision to allow Leonard and Sawyer to represent multiple subclasses was an abuse of discretion; (3) the determination that Leonard and Sawyer are adequate representatives typical of the class was in error and amounts to an abuse of discretion; and (4) the requirements of rule 42(b)(4) have not been met because individual issues do not predominate, the class action is not superior to individual actions, and the proposed trial plan is unworkable.
In a class action, the trial court is charged with the duty of actively policing the proceedings and guarding the class interests. See General Motors Corp. v. Bloyed, 916 S.W.2d 949, 954 (Tex. 1996). Therefore, the trial court is afforded broad discretion in defining the class and determining whether to grant or deny a class certification. See Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 406 (Tex.2000). In making its class certification decision, the trial court can consider the pleadings and other material in the record, along with the evidence presented at the hearing. Employers Cas. Co. v. Texas Ass'n of Sch. Bds. Workers' Comp. Self-Ins. Fund, 886 S.W.2d 470, 474 (Tex.App.-Austin 1994, writ dism'd w.o.j.). The evidence on which a trial court bases its certification ruling need not be in a form necessary to be admissible at trial. See Texas Commerce Bank Nat'l Ass'n v. Wood, 994 S.W.2d 796, 801 (Tex.App.-Corpus Christi 1999, pet. dism'd w.o.j.); Microsoft Corp. v. Manning, 914 S.W.2d 602, 615 (Tex.App.-Texarkana 1995, writ dism'd). On appeal, we are limited to determining whether the trial court abused its discretion in ordering class certification; however, the appellate court is to apply a cautious approach to class certification. Southwestern Ref. Co., Inc. v. Bernal, 22 S.W.3d 425, 439 (Tex. 2000). "A trial court has discretion to rule on class certification issues, and some of its determinations-like those based on its assessment of the credibility of witnesses, for example-must be given the benefit of the doubt." Schein, 102 S.W.3d at 691 . However, the trial court's exercise of discretion is not to be supported by every presumption that can be made in its favor. As the Supreme Court observed in Schein, actual and not presumed conformance with the class certification rules is indispensable. Id. (citing Bernal, 22 S.W.3d at 439).
Although the standard of review, generally, for class certification decisions is an abuse of discretion, because Farmers challenges the trial court's choice of law determination, we must apply a different standard for that discrete issue. The determination of which state's law applies is a question of law for the court to decide. Torrington Co. v. Stutzman, 46 S.W.3d 829, 848 (Tex.2000). Therefore, we must review the trial court's decision to apply California law in this case de novo. See Minnesota Mining & Mfg. Co. v. Nishika Ltd., 955 S.W.2d 853, 856 (Tex.1996). But determining the state contacts to be considered by the court in making this legal determination involves a factual inquiry. Hughes Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 204 (Tex.2000). Texas courts apply the Restatement's "most significant relationship" test to decide choice of law issues. Torrington, 46 S.W.3d at 848; Restatement (Second) of Conflict of Laws § 6 (1971).
Our review of the record in this case supports the trial court's decision to apply California law and our conclusion that the trial court did not abuse its discretion in certifying the class. The trial court conducted a thorough certification hearing in which it went well beyond the parties' pleadings in order to examine each of the claims, defenses, and relevant facts, along with applicable substantive law of this case, to make a meaningful determination of the certification issues. The record before us indicates that the trial court conducted a rigorous analysis of all issues presented and arrived at a reasoned decision in certifying the class.
Texas rule 42, governing class actions, is patterned after its federal counterpart. Consequently, federal decisions and authorities interpreting current federal class action requirements are persuasive authority. Bernal 22 S.W.3d at 433. The class action serves as a mechanism to eliminate or reduce the threat of repetitive litigation, prevent inconsistent resolution of similar cases, and provide a means of redress for individual claims that are too small to make independent actions economically viable. See Ford Motor Co. v. Sheldon, 22 S.W.3d 444, 452 (Tex.2000). The principal purpose of the class action device is the efficiency and economy of litigation. See id. (). Thus, when properly used, a class action saves the court's and the parties' resources by allowing class-wide issues to be tried in an economical fashion. See id. at 452 (citing General Tel. Co. v. Falcon, 457 U.S. 147, 155, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)).
All class actions must satisfy the following four threshold requirements: (1) numerosity—the class is so numerous that joinder of all members is impracticable, (2) commonality—there are questions of law or fact common to the class, (3) typicality—the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) adequacy of representation—the representative parties will fairly and adequately protect the interests of the class. See Tex.R. Civ. P. 42(a); Bernal, 22 S.W.3d at 433. Additionally, class actions must satisfy at least one of four subdivisions of rule 42(b). Here, the trial court certified the class under rule 42(b)(4), which requires that...
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