Lon Smith & Assocs., Inc. v. Key
| Decision Date | 03 August 2017 |
| Docket Number | NO. 02-15-00328-CV.,02-15-00328-CV. |
| Citation | 527 S.W.3d 604 |
| Parties | LON SMITH & ASSOCIATES, INC. and A-1 Systems, Inc., d/b/a Lon Smith Roofing and Construction, Appellants v. Joe KEY and Stacci Key, Appellees |
| Court | Texas Court of Appeals |
ATTORNEY FOR APPELLANT: ROBERT WIEGAND, STEWART WIEGAND & OWENS PC, DALLAS, TX, SHAWN M. MCCASKILL, GODWIN PC, DALLAS, TX.
ATTORNEY FOR APPELLEE: H. DUSTIN FILLMORE, III, CHARLES W. FILLMORE, THE FILLMORE LAW FIRM, L.L.P., FORT WORTH, TX, MARSHALL M. SEARCY, JR., BILL WARREN, MATTHEW D. STAYTON, DAVID. H. GARZA, KELLY HART & HALLMAN LLP, FORT WORTH, TX.
PANEL: LIVINGSTON, C.J.; WALKER and MEIER, JJ.
This is an interlocutory appeal from an order certifying a class action.1 Appellants Lon Smith & Associates, Inc. and A-1 Systems, Inc., d/b/a Lon Smith Roofing and Construction2 raise five issues claiming that the trial court erred by certifying a class because various class-certification requirements of Texas Rule of Civil Procedure 42 were not met.3 For the reasons set forth below, we will affirm that portion of the trial court's October 15, 2015 "Order Certifying Class Action with Trial Plan" that certifies for class treatment Joe and Stacci Keys' declaratory-judgment claim and the Keys' Deceptive Trade Practices Act (DTPA) claim based on section 17.50(a)(4) (); we will reverse the portion of the trial court's October 15, 2015 "Order Certifying Class Action with Trial Plan" that certifies for class treatment the Keys' DTPA claim based on section 17.50(a)(3)4 (Unconscionability); and we will remand this cause to the trial court: (1) with instructions to decertify the DTPA section 17.50(a)(3) (Unconscionability) claim, and (2) for further class proceedings.
A-1 installed the new roof. The Keys paid their homeowners' insurance proceeds of $18,926.69 to A-1, leaving a balance on the $33,769.50 amount. To collect the amount A-1 claimed that the Keys owed, A-1 filed suit against Joe in a justice court and obtained a default judgment. Joe subsequently challenged the default judgment and obtained a June 23, 2015 judgment setting it aside as void. A-1 appealed the June 23, 2015 judgment to the county court at law. See Tex. R. Civ. P. 506.1.
Meanwhile, in September 2013, the Keys sued LSRC, asserting that the Acceptance and Agreement provision in the contract with A-1, which did business collectively with Associates, violated Texas Insurance Code section 4102.051's prohibition against a corporation acting or holding itself out as a public insurance adjuster in the absence of a license. See Tex. Ins. Code Ann. § 4102.051(a) (West Supp. 2016). Accordingly, the Keys claimed the agreement was illegal, void, and unenforceable. See id. § 4102.207(a), (b) (West 2009) ().
Based on the alleged illegality of LSRC's agreement under section 4102.051, the Keys pleaded a claim for declaratory relief—to declare the agreement with LSRC illegal, void, and unenforceable and to declare, consequently, that they and other class members are "entitled to a judgment restoring all monies paid to [LSRC] under the illegal contract" pursuant to the statutory remedy provided by section 4102.207(b). See Tex. Ins. Code Ann. §§ 4102.051, .207(b); Tex. Civ. Prac. & Rem. Code Ann. §§ 37.002, .011 (West 2015). The Keys also pleaded causes of action for damages based on DTPA violations, fraud, violations of the Texas Debt Collection Practices Act, and fraudulent use of court records.
In due course, the Keys obtained class certification of their declaratory-judgment claim and their DTPA claims under sections 17.50(a)(3) (Unconscionability) and 17.50(a)(4) ().5
The Texas Legislature enacted chapter 4102 of the Texas Insurance Code effective September 1, 2005. See Act of May 24, 2005, 79th Leg., R.S., ch. 728, § 11.082(a), 2005 Tex. Gen. Laws 2259, 2259–72 (codified at Tex. Ins. Code Ann. §§ 4102.001 –.208). Chapter 4102 is a comprehensive licensing statute regulating public insurance adjusters. See Tex. Ins. Code Ann. §§ 4102.001 –.208 (West 2009 & Supp. 2016). According to an amicus brief tendered in this case by the National Association of Public Insurance Adjusters and the Texas Association of Insurance Adjusters, forty-five states plus the District of Columbia have enacted such statutes.6
Chapter 4102 expressly prohibits a "person" from acting as a public insurance adjuster in Texas without a license. See Tex. Ins. Code Ann. § 4102.051(a) (). The term "person" is defined as including a corporation. Id. § 4102.001(2). And a "public insurance adjuster" is "a person who, for direct, indirect, or any other compensation ... acts on behalf of an insured in negotiating for or effecting the settlement of a claim or claims" while acting as a public insurance adjuster and "also includes advertising, soliciting business, and holding oneself out to the public as an adjuster of claims." Id. § 4102.001(3)(A)(i), (ii). A licensed public insurance adjuster is expressly prohibited from participating directly or indirectly in the reconstruction, repair, or restoration of damaged property that is the subject of a claim adjusted by the license holder; acting as a public insurance adjuster and a contractor on the same claim is a statutorily-defined conflict of interest. Id. § 4102.158(a)(1).7 Any contract for services regulated by chapter 4102 that is entered into by an insured with a person in violation of the chapter's licensing requirements "may be voided at the option of the insured." Id. § 4102.207(a). If a contract is so voided, "the insured is not liable for the payment of any past services rendered, or future services to be rendered, by the violating person under that contract or otherwise." Id.
In addition to Texas Insurance Code chapter 4102, the legal landscape forming the basis of the Keys' motion for class certification includes a federal court case, Reyelts v. Cross , 968 F.Supp.2d 835 (N.D. Tex. 2013), aff'd , 566 Fed.Appx. 316 (5th Cir. 2014).8 The Keys cited and relied upon the Reyelts case in their pleadings and in their motion for class certification.9
In the Reyelts case, the Reyeltses signed a contract with LSRC.10 Id. at 839. The Reyeltses' contract with LSRC, like the contract signed by Joe, contained the provision quoted above. See id. The Reyeltses alleged, and Magistrate Judge Cureton found, that the inclusion of the Acceptance and Agreement provision in the contract rendered it "illegal, void [,] and unenforceable" as violative of Texas Insurance Code chapter 4012 and that the Reyeltses were not liable for payment of any past or future services rendered under the agreement. See id. at 843–44 ; see also Tex. Ins. Code Ann. §§ 4102.206(a), .207(a), (b).11
In Reyelts , Magistrate Judge Cureton also determined that LSRC had "engaged in an unconscionable action or course of action as prohibited by section 17.50(a)(3) of the DTPA." 968 F.Supp.2d at 844. He found that LSRC had used an "agreement that was and is illegal and violative of Chapter 4102 of the Texas Insurance Code [and] constituted an act or practice in violation of Chapter 541 of the Texas Insurance Code and, thus, a violation of section 17.50(a)(4) of the DTPA." Id. Magistrate Judge Cureton found that LSRC committed such wrongful conduct knowingly and intentionally and ultimately signed a judgment awarding the Reyeltses their economic damages, mental anguish damages, a trebling of the economic damages, court costs, and reasonable and necessary attorney's fees. Id. at 845.
All class actions must satisfy the four threshold requirements contained in Texas Rule of Civil Procedure 42(a) : (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"). Tex. R. Civ. P. 42(a)(1)–(4) ; see Bernal , 22 S.W.3d at 433. In addition to the subsection (a) prerequisites, class actions also must satisfy at least one of the subdivisions of rule 42(b). See Tex. R. Civ. P. 42(b) (); Bernal , 22 S.W.3d at 433. The plaintiffs, here the Keys, bore the burden of establishing each of the requisites for class certification. See, e.g. , Bailey v. Kemper Cas. Ins. Co. , 83 S.W.3d 840, 847 (Tex. App.—Texarkana 2002, pet. dism'd w.o.j.).
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