Morgan v. Deere Credit, Inc.

• Decision Date: 11 August 1994
• Docket Number: No. C14-93-01017-CV,C14-93-01017-CV
• Citation: 889 S.W.2d 360
• Parties: Shirley Y. MORGAN, et al., Appellants, v. DEERE CREDIT, INC. and Deere & Company, Successor to John Deere Company, Appellees. (14th Dist.)
• Court: Texas Court of Appeals

Page 360

889 S.W.2d 360

Shirley Y. MORGAN, et al., Appellants, v. DEERE CREDIT, INC. and Deere & Company, Successor to John

Deere Company, Appellees.

No. C14-93-01017-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

Aug. 11, 1994.

Rehearing Overruled Sept. 22, 1994.

Grant Gealy, George W. Vie, Houston, for appellants.

Kenneth R. Valka, Todd F. Barth, Claudia D. Christian, Lisa H. Pennington, Staci F. Spalding, Houston, Keith M. Jensen, J. Michael Liles, Fort Worth, for appellees.

Before ROBERTSON, CANNON and DRAUGHN, JJ.

OPINION

ROBERTSON, Justice.

This interlocutory appeal is from the certification of a mandatory class under Rule 42(b) of the Texas Rules of Civil Procedure, sought by appellees, Deere Credit, Inc., and Deere & Company, Successor to John Deere Company ("Deere"). See TEX.CIV.PRAC. & REM.CODE ANN. § 51.014(3) (Vernon Supp.1994). Appellants, Shirley Y. Morgan and a class of persons similarly situated, contend in five points of error that the trial court abused its discretion. We affirm.

The underlying suit concerns the claims of Texas residents who entered financing agreements with Deere to purchase boats or recreational vehicles ("RV's"). About 15,000 Texas residents purchased Deere's RV's and boats between February 1988 and December 1991 and financed them through Deere. In its standardized loan contract forms, Deere failed to use the statutorily required typographic style on its choice of law clauses. See TEX.BUS. & COM.CODE ANN. § 35.53 (Vernon Supp.1994). ¹ Each contract stated the law of Iowa, Deere's home state, governed the transaction, but the clause was not printed in boldface type. Upon discovering this omission, in January 1992 Deere sent "cure" letters to over 10,000 Texas residents who had obtained financing through these contracts, informing them that their contracts may not have complied with Texas law. Deere gave them the option to ratify the Iowa choice of law provision. Many of these consumers with whom Deere had contracted began asserting claims that Texas law applies and the contracts violate the Texas Consumer Credit Code. See TEX.REV.CIV.STAT.ANN. art. 5069-1.02--8.06 (Vernon 1987 & Supp.1994). The residents alleged Deere violated Texas usury laws, which require certain lenders to be licensed and regulated by the Texas Consumer Credit Commissioner. Without the license, lenders are prohibited from charging interest rates of more than 10 percent, as Deere did in making these loans. See TEX.REV.CIV.STAT.ANN. art. 5069-1.04(n)(1) (Vernon Supp.1994). ² In addition to the common law and statutory usury causes of action, some of the residents also alleged Deere violated the Texas Deceptive Trade Practices Act. See TEX.BUS. & COM.CODE ANN. §§ 17.41-.63 (Vernon 1987 & Supp.1994). In response to these claims, Deere brought this declaratory judgment action on February 20, 1992, seeking to determine its rights and obligations under the agreements. The residents named in this suit counterclaimed attempting to avoid their contractual obligations and recover penalties from Deere. See, e.g., TEX.REV.CIV.STAT.ANN. art. 5069-8.03 (Vernon 1987) (total forfeiture of principal and interest paid or due); TEX.REV.CIV.STAT.ANN. art. 5069-8.01(b) (Vernon 1987) (forfeiture of double the interest provided for in the contract up to $4,000).

The previous day, February 19, 1992, Russell Durrett, raising essentially the same contentions as the residents in this suit, filed suit against Deere in state court in Dallas County, Texas (the "Durrett " action). Similar suits were filed in both state and federal courts around the state, and the claims of other residents were consolidated in the Durrett action. Deere removed the Durrett action to federal court and filed a motion to certify a mandatory class of all the plaintiffs. Durrett filed a cross-motion for certification of an "opt-out" class. On November 6, 1992, the United States District Court for the Northern District of Texas certified an "opt-out" class. The class included all Texas residents who financed the purchase of an RV or boat through Deere between February 19, 1988 and December 1, 1991. The plaintiffs had the right, however, to receive notice and to exclude themselves from the class, and therefore from the results, favorable or not, of the action's judgment or settlement, as provided in federal rule 23(c)(2). FED.R.CIV.P. 23(c)(2). The court entered a Memorandum Opinion and Order on August 20, 1993. See Durrett v. John Deere Co., 150 F.R.D. 555 (N.D.Tex.1993). Pursuant to 28 U.S.C. § 1292(b), Deere filed an application for an interlocutory appeal, which was certified by the district court; however, the Fifth Circuit denied Deere's application on September 28, 1993.

The federal court certified the cause as a non-mandatory or opt-out class action under Rule 23(b)(3) of the federal rules of civil procedure. 150 F.R.D. at 563. Rule 23(b)(3) is the identical counterpart to our Rule 42(b)(4), and both provide that an action may be maintained as a class action if:

the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.

TEX.R.CIV.P. 42(b)(4); FED.R.CIV.P. 23(b)(3). Only members of classes certified under rule 23(b)(3) or 42(b)(4) are granted the absolute right to opt out and pursue individual claims.

On June 3, 1993, after the opt-out class had been certified in federal court but before the denial of that appeal, Deere moved in this suit in state court for certification of a mandatory class comprised of all individuals who opt out of Durrett. After a hearing on July 19, 1993, the court certified a mandatory class under Rules 42(b)(1)(A), 42(b)(1)(B) and 42(b)(2) of the Texas Rules of Civil Procedure, by order dated October 12, 1993, composed of:

[A]ll persons who, on or after February 19, 1988 and prior to December, 1991, and while he or she was a Texas resident, entered into an agreement with John Deere Company for financing the purchase of a boat or recreational vehicle, primarily for personal, family or household use, and who opts out or has opted out of the class action in Russell E. Durrett, Individually and on Behalf of All Those Similarly Situated v. John Deere Company and Deere Credit, Inc., pending under Cause No. 3-93CV0375-X in the United States District Court for the Northern District of Texas.

At the time of the hearing, the class was composed of approximately 550 members. Findings of fact and conclusions of law were requested, but none were filed. There is no dispute on appeal that the four prerequisites for class certification under rule 42(a) have been met. The issues in this case instead center on the trial court's determination of the category of class to be maintained under rule (42)(b).

Our rules 42(b)(1)(A), 42(b)(1)(B), and 42(b)(2), the rules cited by the court below in establishing a mandatory class, are the identical counterparts to federal Rules 23(b)(1)(A), 23(b)(1)(B), and 23(b)(2). These rules provide:

(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

(1) the prosecution of separate actions by or against individual members of the class would create a risk of

(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or

(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or

(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole....

TEX.R.CIV.P. 42(b)(1), (2); FED.R.CIV.P. 23(b)(1), (2). Because rule 42 is patterned after federal rule 23, federal decisions are persuasive in interpreting the Texas rule. Ball v. Farm & Home Sav. Ass'n, 747 S.W.2d 420, 422-23 (Tex.App.--Fort Worth 1988, writ denied); Smith v. Lewis, 578 S.W.2d 169, 172 (Tex.Civ.App.--Houston [14th Dist.] 1979, writ ref'd n.r.e.).

At the hearing, Deere's counsel admitted it sought a mandatory class so that it could obtain the benefit of the limitation on damages provided in the Consumer Credit Code. Article 5069-8.04(b) provides "the total recovery ... in any class action or series of class actions arising out of the same failure to comply by the same person shall not be more than the lesser of $100,000 or five percent of the net worth of the person." TEX.REV.CIV.STAT.ANN. art. 5069-8.04(b) (Vernon 1987). Deere also argued at the hearing that certification of a mandatory class would act to stay the various state actions until a decision was reached in the appeal of the federal class certification.

At the certification stage, class proponents generally are not required to make an extensive evidentiary showing in support of a motion for class certification. Life Ins. Co. of the Southwest v. Brister, 722 S.W.2d 764, 773 (Tex.App.--Fort Worth 1986, no writ). Under Rule 42(c)(1), like its federal counterpart, the trial court may alter, amend, or withdraw...