Klagues v. Maintenance Engineering

• Citation: 2002 ND 59,643 N.W.2d 45
• Decision Date: 16 April 2002
• Docket Number: No. 20010213.,20010213.
• Parties: Lance KLAGUES and Don Hall, on behalf of themselves and others similarly situated, Plaintiffs and Appellees, v. MAINTENANCE ENGINEERING, a division of LTG, Ltd., Defendant and Appellant.
• Court: United States State Supreme Court of North Dakota

643 N.W.2d 45

2002 ND 59

Lance KLAGUES and Don Hall, on behalf of themselves and others similarly situated, Plaintiffs and Appellees, v. MAINTENANCE ENGINEERING, a division of LTG, Ltd., Defendant and Appellant.

No. 20010213.

Supreme Court of North Dakota.

April 16, 2002.

Stephen W. Plambeck (appeared) and Daniel J. Crothers (argued) of Nilles, Hansen & Davies, Ltd., for defendant and appellant.

Stacey E. Tjon (appeared) and Mike Miller (appeared) of Solberg, Stewart, Miller, Johnson, Tjon & Kennelly, Ltd., Fargo, and Ronald S. Goldser (argued) of Zimmerman Reed, P.L.L.P., Minneapolis, MN, for plaintiffs and appellees.

NEUMANN, Justice.

[¶ 1] Maintenance Engineering ("Maintenance") appeals from the trial court's order granting class certification under Rule 23, N.D.R.Civ.P., and denying its motion for summary judgment on the claims of breach of contract and an accounting. We remand the class certification order with instructions. We conclude the trial court improvidently granted certification under Rule 54(b), N.D.R.Civ.P., of the denial of summary judgment, and therefore we dismiss that part of the appeal.¹

I

[¶ 2] Maintenance Engineering, a North Dakota company, sells commercial lighting products throughout the United States using independent contractors as sales representatives. Maintenance recruits sales representatives nationally to sell their products. Lance Klagues and Don Hall contracted with Maintenance becoming independent contractors to sell Maintenance products. Klagues and Hall allege they were to receive six checks equaling the total commission on each sale made. One commission check was to be issued immediately, one after twelve weeks, and one on the anniversary of the sale for four consecutive years. Maintenance's sales contracts created four categories of sales representatives: active, exempt, inactive, and terminated. Maintenance contends the contract was structured so commissions were paid only if the sales representative remains an "active" representative under Maintenance's classification system. Maintenance asserts there was only one commission check, the remaining checks were considered bonus checks if the sales representative continued to meet sales standards. Klagues and Hall allege they were led to believe the commissions vested at the moment of sale, but the payment was deferred. Klagues and Hall contend they were not informed of the "active" requirement to receive all of the commission checks.

[¶ 3] Klagues and Hall fell below the active status and did not receive the commissions they believed they were entitled to under the contract. Klagues and Hall both requested that they be terminated, but Maintenance refused. Under the contract, termination would require that any money owed to a sales representative would be due and owing.

[¶ 4] On September 20, 2000, Klagues and Hall sued Maintenance for breach of contract, fraud, and an accounting. Maintenance counterclaimed alleging Klagues and Hall were overpaid and moved for summary judgment to dismiss Klagues and Hall's claims. Klagues and Hall moved for class certification on May 22, 2001. On July 12, 2001, the trial court heard arguments on Maintenance's motion for summary judgment and on class certification. The trial court granted the summary judgment dismissing the fraud claim, but denied Maintenance's remaining motions. On August 2, 2001, the trial court issued an order certifying the case as a class action. In September 2001, the trial court granted Rule 54(b) certification and partial judgment was entered denying Maintenance's motion for summary judgment. Maintenance appeals.

II

[¶ 5] Maintenance argues the trial court erred in granting class certification under Rule 23, N.D.R.Civ.P. Maintenance contends the trial court erred in concluding this action required class certification for a fair and efficient adjudication.

[¶ 6] A trial court has broad discretion in determining whether to certify a class action under Rule 23, N.D.R.Civ.P. Ritter, Laber & Associates v. Koch Oil, 2001 ND 56, ¶ 5, 623 N.W.2d 424 ("Koch II"). The trial court's decision to certify a class action will not be overturned on appeal unless the court abuses its discretion. Werlinger v. Champion Healthcare Corp., 1999 ND 173, ¶ 6, 598 N.W.2d 820. A trial court abuses its discretion if it acts in an unreasonable, arbitrary, or unconscionable manner. Ritter, Laber & Associates v. Koch Oil, 2000 ND 15, ¶ 4, 605 N.W.2d 153 ("Koch I"). A trial court also abuses its discretion when its decision is not the product of a rational mental process, or when it misinterprets or misapplies the law. Id.

[¶ 7] To certify a class action under N.D.R.Civ.P. 23, the trial court must find that four essential requirements are satisfied:

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;

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

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

Werlinger, 1999 ND 173, ¶ 8, 598 N.W.2d 820. The trial court found the requirements of N.D.R.Civ.P. 23 were satisfied, and it certified the case as a class action.

[¶ 8] Maintenance argues the trial court erred in concluding this controversy required class certification for a fair and efficient adjudication. Rule 23(c)(1), N.D.R.Civ.P., lists thirteen factors the trial court is to consider in determining whether the class action satisfies the fair and efficient adjudication requirement. Koch I, 2000 ND 15, ¶ 10, 605 N.W.2d 153. The trial court must weigh the competing factors, and no one factor predominates over the others. Koch II, 2001 ND 56, ¶ 7, 623 N.W.2d 424.

A

[¶ 9] Maintenance argues the trial court erred in concluding the joint or common interest factor under N.D.R.Civ.P. 23(c)(1)(A) was satisfied. Maintenance contends the trial court erroneously equated the joint and common interest factor with the commonality test under Rule 23(a)(2). Maintenance claims the class members do not have a joint and common interest, absent interpretation of their contracts as a matter of law. Maintenance suggests its liability, if any, depends on the facts and circumstances unique to each contract, including: a determination of the amount of bonuses Maintenance allegedly failed to pay; a determination of the actual intent of the contracting parties, considering the particular circumstances existing at the time each separately executed contract was made; and a determination of whether there is an offset or counterclaim for overpayment by Maintenance.

[¶ 10] The trial court found a joint and common interest existed among class members under N.D.R.Civ.P. 23(c)(1)(A). The trial court stated, "class members allege that [Maintenance] has impermissibly retained commissions owed to them on the basis of the same contract language applicable to the entire class." We believe the trial court misapplied the law and we remand to the trial court to reconsider its findings.

[¶ 11] The joint and common interest factor in N.D.R.Civ.P. 23(c)(1)(A) is similar to the old "true" class action in which all class members must have a common and undivided interest in the subject matter of the suit. See Werlinger, 1999 ND 173, ¶ 50, 598 N.W.2d 820; Koch I, 2000 ND 15, ¶ 12, 605 N.W.2d 153. Generally, a common interest exists if one class member's failure to collect would increase the recovery of the remaining members, or if the defendant's total liability does not depend on how the recovery of the claim is distributed among the class members. Koch I, at ¶ 12 (citing 5 James Wm. Moore et al., Moore's Federal Practice § 23.07[3][b][ii] (3d ed.1997)). A joint and common interest under N.D.R.Civ.P. 23(c)(1)(A) is not the same as a common question of law or fact under N.D.R.Civ.P. 23(c)(1)(E). Koch II, 2001 ND 56, ¶ 16, 623 N.W.2d 424.

[¶ 12] Here the joint and common interest the trial court found is a common question of fact or law. A joint and common interest under N.D.R.Civ.P. 23(c)(1)(A) is not satisfied by merely showing a common interest in recovery or a common nucleus of facts. Koch I, 2000 ND 15, ¶ 13, 605 N.W.2d 153. There is no indication in the record that the failure of one potential class member to collect from Maintenance would increase the recovery of the other class members. On the contrary, each potential class member has an individualized amount they claim is owed to them, based on Maintenance's alleged breach of contract. Under the facts presented in this case, we believe the trial court erred in finding a joint and common interest existed under N.D.R.Civ.P. 23(c)(1)(A).

B

[¶ 13] Maintenance also argues the trial court erred in finding N.D.R.Civ.P. 23(c)(1)(B) weighed in favor of class certification because of a risk of inconsistent or varying adjudications if certification was denied. Rule 23(c)(1)(B), N.D.R.Civ.P., provides:

(B) whether the prosecution of separate actions by or against individual members of the class would create a risk of inconsistent or varying adjudications with respect to individual members of the class that would establish incompatible standards of conduct for a party opposing the class.

Generally, incompatible standards under N.D.R.Civ.P. 23(c)(1)(B) occur when the party opposing the class certification would be unable to comply with one judgment without violating the terms of another judgment. Werlinger, 1999 ND 173, ¶ 50, 598 N.W.2d 820 (citing James Wm. Moore et al., Moore's Federal Practice § 23.41[2][a] (3rd ed.1997)). Werlinger involved a similar type of claim, in which employees sued for wages they believed were improperly withheld by their employer. In Werlinger, we explained:

Here, the main premise of the district court's finding seems to be that results could differ among the many plaintiffs if their claims were adjudicated

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