M.D. Anderson Cancer Center v. Novak

• Decision Date: 14 June 2001
• Docket Number: Nos. 1,No. 00-0643,s. 1,00-0643
• Citation: 52 S.W.3d 704
• Parties: (Tex. 2001) The M.D. Anderson Cancer Center, John Mendelsohn, M.D., and John Doesthrough 10, Petitioners v. Henry J. Novak, individually and as class representative, Respondent
• Court: Texas Supreme Court

Page 704

52 S.W.3d 704 (Tex. 2001)

The M.D. Anderson Cancer Center, John Mendelsohn, M.D., and John Does Nos. 1 through 10, Petitioners v. Henry J. Novak, individually and as class representative, Respondent

No. 00-0643

Supreme Court of Texas.

Argued March 7, 2001.

Decided June 14, 2001

On Petition for Review from the Court of Appeals for the Third District of Texas

Justice Owen delivered the opinion of the Court.

We are asked to decide whether the plaintiff in this case has standing to pursue his individual claims and if not, whether he may nevertheless maintain a class-action suit on behalf of injured class members who do have standing. The court of appeals concluded that the named plaintiff's lack of individual standing to bring suit did not, in and of itself, disqualify him from acting as class representative, but rather was a "relevant factor in judging whether he should properly represent the class." 50 S.W.3d 512. We hold that the plaintiff has no standing to bring claims as an individual and that a named plaintiff's lack of individual standing at the time a class action suit is filed deprives the court of subject matter jurisdiction over the plaintiff's individual claims and over his claims on behalf of the class. Accordingly, we reverse the court of appeals' judgment in part and render judgment dismissing the suit for want of jurisdiction.

I

Henry Novak, an attorney, received a form letter from the M.D. Anderson Cancer Center soliciting donations. The letter was signed by John Mendelsohn, president of M.D. Anderson, and stated that "well over 50% of people with cancer who are cared for at The University of Texas M.D. Anderson Cancer Center return home cured." Although Novak did not contribute any money in response to the letter, he sued M.D. Anderson, Mendelsohn, and ten other defendants identified only as John Does one through ten, contending that the cure-rate representation was false and that the defendants had conspired to fraudulently induce the recipients of the letter to contribute money. Novak brought suit both in his individual capacity and as representative of the class of persons to whom M.D. Anderson mailed its 1998 annual fund-raising letter. Specifically, Novak requested a declaratory judgment: (1) that the defendants' conduct violated sections 371 (conspiracy to commit offense against or to defraud the United States) and 1341 (mail fraud) of Title 18 of the United States Code; (2) that the defendants acted outside the course and scope of their employment; and (3) that the contributions received in response to the solicitation letter were obtained by false and fraudulent means and must be refunded. Novak further requested injunctive relief enjoining the defendants from disseminating the cancer cure-rate representation and ordering Mendelsohn to return contributions made in response to the letter.

The defendants removed the case to federal court based on Novak's asserted violations of federal statutes. In federal court, Novak admitted that he was not attempting to state a cause of action under a federal statute, but was simply attempting "to prove that the defendants had committed each of the judicially recognized elements of a mail fraud violation in order to establish a prima facie tort for fraud," thereby entitling him to injunctive relief. The federal court remanded the case to state court, with all parties agreeing that there were no private federal causes of action under sections 371 and 1341 of Title 18 of the United States Code.

The defendants then moved to dismiss for lack of jurisdiction in state district court on the basis that Novak lacked standing to sue and on sovereign immunity grounds. The trial court granted the motion without specifying the grounds and rendered a final judgment dismissing the suit. On appeal, the Third Court of Appeals concluded that Novak's request for a permanent injunction prohibiting the defendants from disseminating the cure rate would require an advisory opinion because there was no allegation that the defendants were threatening to do so and that the trial court properly dismissed that claim for want of jurisdiction. 50 S.W.3d at 518. With regard to Novak's request for a mandatory injunction compelling Mendelsohn to return the contributions, the court of appeals concluded that Novak and the other uninjured class members lacked standing, but that those persons who contributed in reliance on the letter did have standing to sue for declaratory relief and for a mandatory injunction compelling a refund. Id. at 518.

Although it concluded that Novak lacked individual standing, the court of appeals held that the trial court erred in dismissing the class claims for declaratory relief and a mandatory injunction requiring a refund. It reasoned that Novak's lack of standing did not disqualify him from acting as class representative but instead was simply "a relevant factor in judging whether he should properly represent the class." Id. at 518. The court then reversed the trial court's judgment "insofar as it dismisses for want of jurisdiction Novak's suit on behalf of a class of persons who paid money in reliance upon the allegedly fraudulent statement contained in the letter of January 1998, and the claims of such class members for declaratory and injunctive relief requiring a return of their money." Id. at 518. The court remanded those claims to the trial court and affirmed the remainder of the judgment. Id. at 519.

We granted M.D. Anderson's petition for review, which challenges the court of appeals' judgment remanding Novak's suit on behalf of class members. We first consider Novak's contention that the court of appeals' judgment should be affirmed on the independent basis that he does have standing to pursue his individual claims and therefore has standing to represent the class.

II

Novak contends that he has standing to pursue his claims in an individual capacity and therefore as a class representative because mail fraud does not require an actual injury. He asserts that we should therefore affirm the court of appeals' judgment remanding his claims on behalf of the class.

Novak asserts that "a controversy arises in the mail fraud context at the point [in] time when the perpetrator uses the mail system in furtherance of a scheme to defraud the recipient" and thus "no injury to the recipient is necessary for the offense to be completed and for the controversy to mature." However, the cases on which Novak relies are federal criminal prosecutions for mail fraud. See, e.g., United States v. D'Amato, 39 F.3d 1249 (2d Cir. 1994). As Novak admits, the federal mail fraud statutes do not create a private cause of action, and both the civil RICO statute (codified at 18 U.S.C. § 1961, et seq.) and Texas common-law fraud require actual injury. See Bell v. Health-Mor, Inc., 549 F.2d 342, 346 (5th Cir. 1977) (holding that there is no private cause of action under the federal mail fraud statutes); Summit Props., Inc. v. Hoechst Celanese Corp., 214 F.3d 556, 559 (5th Cir. 2000) (holding that the civil RICO statute requires a showing that the plaintiff suffered injury); DeSantis v. Wackenhut, 793 S.W.2d 670, 688 (Tex. 1990) (holding that common-law fraud requires a showing that the plaintiff suffered injury). As stated by the United States Court of Appeals for the Fifth Circuit in Summit Properties: "[T]he government can punish unsuccessful schemes to defraud because the underlying mail fraud violation does not require reliance, but a civil plaintiff 'faces an additional hurdle' and must show an injury caused 'by reason of' the violation." 214 F.3d at 559.

Even if Novak was an intended victim of a "completed" mail fraud for purposes of governmental prosecution, he was not actually defrauded. His lack of any actual or threatened injury prevents him from being "personally aggrieved" such that he has any personal stake in the litigation. See Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 661 (Tex. 1996) ("A plaintiff has standing when it is personally aggrieved."); In the Interest of B.I.V., 923 S.W.2d 573, 574 (Tex. 1996) ("To establish standing, a person must show a personal stake in the controversy."). Therefore, Novak lacks standing as an individual regardless of the fact that his claims for declaratory judgment are predicated on the federal mail fraud statutes. We turn to the question of whether Novak may nevertheless pursue a class action.

III

The requirement of standing is implicit in the Texas Constitution's open courts provision, which contemplates access to the courts only for those litigants suffering an injury. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 444 (Tex. 1993). Standing is a prerequisite to subject-matter jurisdiction, and subject-matter jurisdiction is essential to a court's power to decide a case. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 553-54 (Tex. 2000). "[S]tanding focuses on the question of who may bring an action." Patterson v. Planned Parenthood, 971 S.W.2d 439, 442 (Tex. 1998). In contrast, whether a plaintiff would be an appropriate class representative is determined by Rule 42's requirements that the representative's claims be typical of the class and that the representative will fairly and adequately protect the interests of the class. Tex. R. Civ. P. 42(a).

We must decide whether, in a class action context, a named plaintiff's lack of individual standing at the time suit is filed precludes the trial court's exercise of subject matter jurisdiction over the class claims or whether, as the court of appeals concluded, it is simply a factor to consider in deciding whether the named plaintiff would be a proper class representative. Although this is an issue of first impression for this Court, the United States Supreme Court has rejected the court of appeals' approach and has embraced the rule that a plaintiff who lacks individual standing when suit is filed cannot maintain a...