London v. Green Acres Trust
| Citation | 159 Ariz. 136,765 P.2d 538 |
| Decision Date | 30 June 1988 |
| Docket Number | CA-CIV,No. 1,1 |
| Parties | May LONDON, Arthur W. Yoder and Cecil M. Yoder, Howard C. Minnick, and Beatrice Minnick, and Rose Marie Jones, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, Cross Appellants, v. GREEN ACRES TRUST, an Arizona corporation; Lisle Hawkins; L. David Hawkins; Green Acres Memorial Gardens, an Arizona corporation; Pueblo Sereno, Inc., an Arizona corporation; Philip D. Hawkins; William H. Hawkins; Ruth Hawkins; Lorlie Hawkins; Nancy P. Hawkins; and Orrie N. Hawkins, Defendants-Appellants, Cross Appellees. 9034. |
| Court | Court of Appeals of Arizona |
This is an appeal and cross-appeal from the judgment for the appellees (plaintiffs) in a class action, which began more than ten years ago.
On March 8, 1976, plaintiffs filed a class action, alleging that defendants sold funeral services, merchandise, burial plots, and a series of unregistered 20 year debentures through unregistered securities sales people under the guise and pretext that they were selling prepaid funeral plans. Purchasers were required to complete certain standard forms, which reinforced the impression that they were buying "paid up" funeral plans. These included a vital statistics form and a letter of instruction. Plaintiffs also alleged that defendants concealed pertinent information or made misrepresentations that led members of the class to believe that they were guaranteed a complete funeral at an agreed price.
After an extensive pretrial procedural history the matter came to trial before the court on January 17, 1983. The trial court entered its findings of fact, conclusions of law, and decision on August 10, 1983. These findings were reduced to formal findings of fact, conclusions of law and judgment, signed and entered on December 19, 1984. This judgment, however, required defendants to file an accounting regarding all class members entitled to relief and the amount of money paid by such class members to defendants. Although the judgment provided for costs and attorney's fees in favor of plaintiffs, it did not establish the amount of either. The parties thereafter continued to conduct extensive oral and written arguments regarding these two remaining issues. On February 18, 1986, the court entered its supplemental judgment resolving the accounting, the costs and plaintiffs' attorney's fees, thereby making final all issues and clearing the way for this appeal. Defendants raise nine issues for review, while plaintiffs raise only one on cross-appeal.
The following is a summary of the findings of fact made by the trial court. For more than six years, sales personnel of defendants, Green Acres Trust and Green Acres Memorial Gardens, sold "debentures," which purportedly could be redeemed for funeral merchandise and services from Green Acres Trust and/or cemetery merchandise and services from Green Acres Memorial Gardens upon the purchaser's death. Both Green Acres Memorial Gardens and Green Acres Trust had the same principal shareholder and president, Lisle Hawkins. Although not exempt from registration, the unlicensed sales personnel sold unregistered "Green Acres Trust Debentures" in denominations of $250. In essence, defendants' sales personnel were selling prepaid funeral plans in violation of A.R.S. § 44-1721 et seq. (Current version at A.R.S. § 32-1391 et seq.)
In the sale of these debentures, sales personnel made certain representations, which included that the debentures were being issued by a trust, that the trust would be managed by trustees, and that the funds would be held by a nonprofit corporation. Additionally, sales personnel failed to disclose material facts pertinent to a decision whether to purchase the debentures. These included the fact that Green Acres Trust was not a nonprofit corporation but rather a subchapter S corporation, owned and operated by and for the benefit of the Hawkins family, and that defendants used debenture funds to make substantial unsecured, undocumented, non-interest bearing loans.
In late 1975, the attorney general's consumer fraud division brought an action against defendants pursuant to the Consumer Fraud Act, contending that defendants had made fraudulent misrepresentations and omissions in connection with their sale of debentures. The complaint charged defendants with deceptively leading purchasers to believe that they were buying pre-arranged funeral plans. Purchasers believed the plan entitled them to funeral or cemetery merchandise and services at a set, prepaid price. Instead, defendants were actually selling debentures, which did not obligate defendants to perform any funeral or burial service and did not fix the price for such services. After agreeing to purchase a "plan," defendants' sales people advised the purchasers that they would receive documents memoralizing the agreements. In actuality, the purchasers signed subscription agreements for the purchase of unregistered, unsecured debentures, paying 4 percent return on their investments.
The following issues are raised on appeal:
I. Class Action Issues
A. Whether class action certification is proper;
B. Whether the court can create and/or expand the original class;
C. Whether the legal representation of the class was adequate;
D. Whether the court provided the necessary notice to class members.
II. Duplicative Lawsuits
Have appellants been subjected to duplicative lawsuits seeking the same relief?
III. Statute of Limitations
IV. Burden of Proof
V. Election of Remedies
VI. Award of Attorneys' Fees
VII. Cross-Appeal
The appellees, in a cross-appeal, question whether the trial court abused its discretion in awarding their counsel only $40,000 in attorneys' fees.
Defendants raise certain issues specifically related to class action litigation.
A. Class Action Certification
In deciding whether a class action should be maintained, the trial court must consider whether the action meets the requirements of Rule 23, Arizona Rules of Civil Procedure:
1. The class is so numerous that joinder of all members is impractical (numerosity);
2. There are questions of law and fact common to the class (commonality);
3. The claims or defenses of representative parties are typical of the claims or defenses of the class (typicality); and
4. The representative parties will fairly and adequately protect the interest of the class (adequacy of representation).
Additionally, the court must determine whether the action falls within one of the three categories of class suits provided for by rule 23(b). Here, the court in its order of October 6, 1976, certified plaintiffs' suit as a rule 23(b)(3) class action; therefore, the court determined that "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that class action is superior to other available methods for the fair and efficient adjudication of the controversy...." Rule 23(b)(3).
A. Certification
Defendants maintain on appeal, as they did during the entire course of this litigation, that the original certification and continued certification was improper. They argue that certification was improper because the court failed to hold an evidentiary hearing regarding the superiority of class action treatment or the qualification of the representative plaintiffs or their counsel.
While it is true that the record does not reflect a formal evidentiary hearing prior to certification, we cannot agree that this invalidates the certification. Nothing in rule 23 nor in Arizona case law that discusses class actions requires a court to make a specific evidentiary finding. See Godbey v. Roosevelt School Dist., 131 Ariz. 13, 638 P.2d 235 (App.1981); Lennon v. First Nat'l Bank, 21 Ariz.App. 306, 518 P.2d 1230 (1974). Most courts generally agree that there is no absolute requirement that a preliminary hearing be held to determine the maintainability of a class action. Lewis v. Heckler, 752 F.2d 555 (11th Cir.1985); 7A Wright, Miller & Kane, Federal Practice & Procedure § 1785 at 111 (1986 ed.) and cases cited therein. Pleadings and other pretrial materials may provide the trial court with sufficient information to make its determination.
While there may be no absolute right to have an evidentiary hearing, there are situations when a hearing is appropriate. Morrison v. Booth, 730 F.2d 642 (11th Cir.1984); International Woodworkers of Am. v. Georgia-Pacific Corp., 568 F.2d 64 (8th Cir.1977). One federal court determined that reversal of certification based solely on the contention that the trial court failed to conduct an evidentiary hearing was appropriate only if such a hearing could have affected appellant's rights. Falcon v. General Telephone Co., 626 F.2d 369 (5th Cir.1980), vacated on other grounds, 450 U.S. 1036, 101 S.Ct. 1752, 68 L.Ed.2d 234 (1981). In Falcon, the Fifth Circuit noted that such an impairment of rights can occur only when a court makes a decision to deny certification without hearing. 626 F.2d at 374. Only then can a party demonstrate that a substantial issue as to certification existed and that he was denied an opportunity to litigate it. Id.; see also Morrison v. Booth, 730 F.2d at 643 (...
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