Northrup v. Southwestern Bell Telephone Co.

• Decision Date: 14 June 2001
• Docket Number: No. 13-00-377-CV.,13-00-377-CV.
• Citation: 72 S.W.3d 1
• Parties: Michael NORTHRUP and Homer Max Wiesen, Appellants, v. SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Appellees.
• Court: Texas Court of Appeals

72 S.W.3d 1

Michael NORTHRUP and Homer Max Wiesen, Appellants, v. SOUTHWESTERN BELL TELEPHONE COMPANY, et al., Appellees.

No. 13-00-377-CV.

Court of Appeals of Texas, Corpus Christi.

June 14, 2001.

Homer Max Wiesen, Denton, Michael Northrup, Dallas, for appellants.

Bobby M. Rubarts, David J. Schenck, Kevin J. Franta, Robert E. Davis, Hughes & Luce, Jeffrey M. Tillotson, Lynn Tillotson & Pinker, John T. Cox, III, Russell J. DePalma, Dallas, David F. Brown, Austin, Jorge C. Rangel, Rangel Law Firm, Corpus Christi, Michael R. Cowen, Brownsville, for appellees.

Before Justices DORSEY, RODRIGUEZ, and SEERDEN¹.

OPINION ON REHEARING

DORSEY, Justice.

Michael Northrup and Homer Max Wiesen appeal an order of the 357th District Court of Cameron County which certified a class action and approved the final settlement of its claims. In an unpublished opinion dated December 21, 2000, this Court dismissed their appeal for want of jurisdiction. After this Court dismissed their claims, appellants filed a motion for rehearing, a motion for rehearing en banc, and a motion to publish. After reconsideration, we vacate our previous opinion, reinstate the appeal, and substitute the following opinion.

I. FACTS

In mid-1998, Jose Mireles and Harry Noble, on behalf of themselves and all others similarly situated, filed a lawsuit alleging a class action against Southwestern Bell Telephone Company (SWBT). The class consisted of SWBT customers who were charged a particular type of fee on their SWBT bill called a "municipal charge."² The class plaintiffs alleged that SWBT was not authorized to make this charge and/or that SWBT overcharged its customers for it. As both Mireles and Noble were residents of Cameron County, the lawsuit was filed there.³

Substantial discovery was exchanged between the parties, and, a year and a half after the lawsuit was filed, the parties entered into an agreement that would settle the class action. They filed the agreement with the court, and asked for its approval. In this agreement, the parties "stipulated" to the conditional certification of the class and to appointment of Mireles and Genuchi as representatives of the class. The parties also stipulated to the designation of five attorneys as counsel for the class.⁴

Mireles and Genuchi moved the court to approve the preliminary settlement, and on December 16, 1999, the trial court signed an order granting its preliminary approval. In this order, the trial court "conditionally certified" the action to proceed as a class action and preliminarily approved the settlement. The order appointed the attorneys requested by the plaintiffs, and approved of the form of notice that would be delivered to all class members. The order also set a hearing to hear evidence on the fairness of the settlement.

The actual terms of the proposed settlement were complex. No part of the settlement funds would be paid directly to the class members. Rather, SWBT would pay ten million dollars into a settlement benefits fund, with three million dollars to be in the form of cash and seven million dollars in the form of "service credits." The "service credits" portion of the settlement could be "offset" by SWBT by any or all of the following: (a) costs of providing notice to the class members, up to $1,250,000.00; (b) costs of payment of an administrator; and/or (c) attorneys' fees paid by SWBT up to $2,000,000. SWBT would be responsible for the costs of notice and for class counsel's fees. Any remainder of the seven million dollar fund would be applied with the other portion of the settlement toward funding for the Texas Telecommunications Infrastructure Fund Board (TIFB).

The three million dollar cash portion of the settlement would be paid in the form of two separate grants. One, in the amount of two million dollars would be used or distributed by the TIFB for salaries of regional Web Librarians for the Texas Internet Collaborative Community Networks.⁵ The other million dollars would be given as a grant to the TIFB for "local advertising of websites or for training of users of Web Librarians for the collaborative community networks."

While the parties filed the full text of the proposed settlement agreement with the court, the notice that was actually sent to the class members contained only a summary of the settlement terms. The notice also stated that the attorneys for the class would be seeking up to two million dollars in fees, an amount equal to twenty percent of the "total benefit provided to the class."

The notice advised the class members that they had four options. Each class member could: (1) remain a class member and become bound by the final judgment; (2) retain private counsel at his own expense; (3) request exclusion from the class and not become bound by any judgment; or (4) object to the settlement. Any class member objecting to the proposed settlement was required to file his objection and any supporting papers with the court by a certain date. The objection was required to include a written statement of the objector's position and grounds therefore and copies of any supporting papers, briefs, or other documents. The notice further provided that any member of the settlement class who intended to appear personally or through separate counsel to object to the settlement must file a Notice of Intention to Appear. Any class member failing to file objections in the time and manner prescribed would be "forever foreclosed from raising any objection to such matters."

A handful of class members filed objections, including appellants Northrup and Wiesen.⁶ The hearing took place as scheduled, and the trial court, ultimately, entered an order that approved the certification of the class, approved the settlement of the class action, and approved the two million dollars requested in attorney's fees. The only objectors that appeared at the hearing were Southwestern Tariff Analysts, a company in the business of auditing phone bills, and the Texas Equal Justice Foundation. Their objections were resolved prior to the actual hearing on the fairness of the settlement. All objections to the settlement were overruled in the final judgment.

Northrup and Wiesen appealed the order approving the settlement to this Court. The class representatives and SWBT filed motions to dismiss the appeal, contending that because appellants did not intervene in the class action suit prior to final judgment, they lacked standing to appeal the judgment.⁷ This Court agreed, and dismissed the appeal for want of jurisdiction. We have reconsidered the matter, and announce that in class action cases where the "settlement class" device is used—i.e., where the class is certified simultaneously with or subsequent to the settlement of the class action—pre-settlement intervention is not required in order for an unnamed class member to have standing to appeal.

II. ANALYSIS

The issue in this case is whether Northrup and Wiesen were required to formally intervene in the lawsuit in order to have standing to appeal the order approving its settlement. We believe that unique aspects of Texas procedure require that if the settlement class device is used, an unnamed class member should not be required to have formally intervened in the lawsuit to have standing to appeal the settlement. A brief discussion of the competing interests at play in class action litigation and the procedural mechanisms currently in place illuminates the jurisprudential significance of this issue and our reasoning for refusing to adopt the intervention requirement in settlement class cases.

A. CLASS ACTION PROCEDURES IN GENERAL

Class actions are allowed by both the Texas and the federal rules, and have their roots in ancient courts of equity. See TEX. R. CIV. P. 42; FED. R. CIV. P. 23; Ford Motor Co. v. Sheldon, 22 S.W.3d 444, 452 (Tex.2000); see generally Stephen C. Yeazell, The Past and Future of Defendant and Settlement Classes in Collective Litigation, 39 ARIZ. L. REV. 687 (1997) (tracing history of class action). Under both sets of rules, a lawsuit is allowed to proceed as a class action when the claims of numerous parties are similar enough that they can be adequately adjudicated with a single party, or a small number of parties, prosecuting the lawsuit as representatives of all the class members as a whole. See TEX. R. CIV. P. 42; FED. R. CIV. P. 23. The purpose for providing the class action device is to grant meaningful recompense to groups of injured parties whose injuries would be too small to make it cost-effective to prosecute them individually. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); General Motors Corp. v. Bloyed, 916 S.W.2d 949, 952-53 (Tex. 1996). As the Texas Supreme Court has recently observed, "[w]hen properly applied the class action device is unquestionably a valuable tool in protecting the rights of our citizens." Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425, 439 (Tex.2000).

Though the class action device provides benefits to both the class plaintiffs and the defendants, the form is also plagued by congenital difficulties. Accord Bloyed, 916 S.W.2d at 952-55.⁸ Inherent conflicts of interest are created. See id. The class representative is vested with broad authority to determine the fate of all the unnamed class members' claims. See id. Upon settlement, the largest payment many times will go to the lawyers who represent the class because the individual claims are likely to be small. See id. Of course, the class defendants have every incentive to maximize the scope of the class and minimize the amount of the settlement as they stand to gain mass relief from potential liability. See id. Thus, a situation is created where the class counsel's interests may appear to be more closely aligned with that of the defendants' than with that of the class members. See id.; see also Issacharoff, Class Action Conflicts, supra n. 7 at 813-15. For this reason,...