Ritter, Laber and Associates v. Koch Oil, 990204.

• Decision Date: 21 January 2000
• Docket Number: No. 990204.,990204.
• Parties: RITTER, LABER AND ASSOCIATES, INC., Eugene A. Burdick, and Russell L. Kiker, Plaintiffs and Appellees, v. KOCH OIL, INC., A DIVISION OF KOCH INDUSTRIES, INC., and Charles Meduna, Defendants and Appellants.
• Court: North Dakota Supreme Court

605 N.W.2d 153

2000 ND 15

RITTER, LABER AND ASSOCIATES, INC., Eugene A. Burdick, and Russell L. Kiker, Plaintiffs and Appellees, v. KOCH OIL, INC., A DIVISION OF KOCH INDUSTRIES, INC., and Charles Meduna, Defendants and Appellants.

No. 990204.

Supreme Court of North Dakota.

January 21, 2000.

Rehearing Denied February 28, 2000.

Ronald H. McLean (argued), Serklund, Lundberg, Erickson, Marcil & McLean, Ltd., Fargo, ND, Marvin L. Kaiser, Kaiser Law Firm, Williston, ND, James J. Fetterly and Gary J. Gordon, Fetterly & Gordon, P.A., Minneapolis, MN, for plaintiffs and appellees.

John W. Morrison (argued) and Shane A. Hanson, Fleck, Mather & Strutz, Ltd., Bismarck, ND, J. Kory Parkhurst (appeared) and David H. Luce, Koch Industries, Inc., Wichita, KS, for defendants and appellant.

VANDE WALLE, Chief Justice.

[¶ 1] Koch Oil and Charles Meduna, Koch's North Dakota assistant chief gauger ("Koch"), appealed from an order certifying a class action brought by a class of persons represented by Ritter Laber and Associates, Eugene Burdick and Russell Kiker ("Ritter") under Rule 23 of the North Dakota Rules of Civil Procedure. We remand with instructions.

[¶ 2] The class consists of all persons and entities owning royalty interests and leasehold interests in wells from which Koch purchased or sold oil in the State of North Dakota between January 1975 through December 1988 where the oil was measured by hand gauging. The class is made up of approximately 6,000 unidentified, interest owners owning interests in approximately 2,300 wells in North Dakota. The class representatives allege Koch acquired more oil than it paid for due to inaccurate measurements. The class seeks recovery based on three claims: conversion, unjust enrichment and an accounting.

[¶ 3] This action was commenced in January 1996 in Stark County in the Southwest Judicial District of North Dakota. Koch removed the action to the United States District Court for the District of North Dakota. After conditionally certifying the matter as a class action, the federal court concluded it lacked jurisdiction and remanded the case to the state District Court for the Southwest Judicial District of North Dakota. The court granted the class's motion for certification on May 11, 1999. The primary issue on appeal is whether or not the district court abused its discretion in certifying the class action. An order certifying a class action under North Dakota Rule of Civil Procedure 23(b) is appealable. Werlinger v. Champion Healthcare Corp., 1999 ND 173, ¶ 6, 598 N.W.2d 820. Traditionally, we have construed Rule 23, N.D.R.Civ.P., as being very open and receptive toward class actions. Id. [¶ 4] The district court has broad discretion in deciding whether to certify a class action. Id. The district court's decision will not be overturned on appeal unless the court abuses its discretion. Id. A district court abuses its discretion if it acts in an unreasonable, arbitrary, or unconscionable manner. Id. A district court also abuses its discretion when its decision is not the product of a rational mental process leading to a reasoned decision, Narum v. Faxx Foods, Inc., 1999 ND 45, ¶ 29, 590 N.W.2d 454, and when it misinterprets or misapplies the law, Woodworth v. Chillemi, 1999 ND 43 ¶ 7, 590 N.W.2d 446.

[¶ 5] To certify a class action under Rule 23, N.D.R.Civ.P., four requirements must be met:

1. The class is so numerous or so constituted that joinder of all members, whether or not otherwise required or permitted, is impracticable;

2. There is a question of law or fact common to the class;

3. A class action should be permitted for the fair and efficient adjudication of the controversy; and

4. The representative parties fairly and adequately will protect the interests of the class.

Werlinger, at ¶ 8; N.D.R.Civ.P. 23.

[¶ 6] Koch challenges requirements two and three: whether there is a question of law or fact common to the class, and whether a class action should be permitted for the fair and efficient adjudication of the controversy. We review these two requirements for an abuse of discretion by the district court.

I. Commonality

[¶ 7] Koch argues the district abused its discretion in finding sufficient commonality because the class members have only a personal interest in recovery, not an interest common to the class. We explained in Werlinger that "[w]hen a question of law refers to standardized conduct by the defendants toward members of a proposed class, a common nucleus of operative facts is typically presented, and the commonality requirement is met." Id. at ¶ 16. "Individual differences in cases concerning treatment or damages do not defeat commonality." Id.

[¶ 8] The district court found common questions exist:

The claims of all the potential class members arise from the same alleged conduct by Koch.... There is a single type of transaction: the purchase of North Dakota crude oil at the well by Koch. There is also a single purchaser involved, Koch and a single commodity oil. All North Dakota Koch purchase practices were managed through one office located in Belfield, North Dakota.

[¶ 9] Indeed, the representatives, who represent persons and entities owning royalty interests and leasehold interests in wells only in North Dakota, allege Koch took more oil than it paid for in transactions at the well, in which hand-gauging was used to measure the oil purchased. The district court did not abuse its discretion in finding a question of law or fact common to the class.

II. Fair and Efficient Adjudication of the Controversy

[¶ 10] Rule 23(c)(1), N.D.R.Civ.P., lists thirteen factors the district court is to consider in determining whether the class action satisfies the fair and efficient adjudication requirement. The district court must weigh the competing factors and determine whether the class action will provide a fair and efficient adjudication of the controversy. Werlinger, at ¶ 26. No one factor predominates over the others. Id. at ¶ 56. Koch challenges six of the thirteen factors. Rule 23(c)(1)(A),(B),(C),(E),(G),(K).¹ Koch argues the district court incorrectly analyzed three factors. Rule 23(c)(1)(A),(B),(C). They argue the district court erred in making affirmative findings under three other factors. Rule 23(c)(1)(E),(G),(K).

[¶ 11] The district court made an affirmative finding on Rule 23(c)(1)(A), N.D.R.Civ.P.: "whether a joint or common interest exists among members of the class." The district court found affirmatively because class members have an interest in recovering against Koch and the class members have a common legal claim based on a common nucleus of fact.

[¶ 12] In Werlinger, the district court found the factor weighed in favor of certification because the plaintiffs relied on the same policies and practices of the same employer and its predecessors. Id. at ¶ 49. This decision was based on a misinterpretation of "`joint or common interest.'" We explained in Werlinger this factor is similar to the old "true" class action in which all plaintiffs must have a common and undivided interest in the subject matter of the suit. Id. at ¶ 50. Generally a common interest exists if one plaintiff's failure to collect would increase the recovery of the remaining plaintiffs or if the defendant's total liability does not depend on how the recovery of a claim is distributed among the class members. 5 James Wm. Moore et al., Moore's Federal Practice § 23.07[3][b][ii] (3d ed.1997).

[¶ 13] The district court did not have the benefit of Werlinger and found only that there was a common interest in recovery and a common nucleus of fact. Thus, the district court misapplied the law and we remand to the district court to reconsider its finding of a joint or common interest among the plaintiffs in light of Werlinger.

[¶ 14] The district court made an affirmative finding on Rule 23(c)(1)(B), N.D.R.Civ.P.: "whether the prosecution of separate actions by or against individual members of the class would create a risk of inconsistent or varying adjudications with respect to individual members of the class that would establish incompatible standards of conduct for a party opposing the class."

[¶ 15] "Generally, incompatible standards occur when the party opposing the class would be unable to comply with one judgment without violating the terms of another judgment." Werlinger, ¶ 54 (citing 5 Moore, supra, § 23.41[2][a]). In Werlinger, we concluded the district court abused its discretion in making an affirmative finding on this factor.

Here, the main premise of the district court's finding seems to be that results could differ among the plaintiffs if their claims were adjudicated individually. This is not a risk of incompatible standards. Generally, different results in actions for money damages do not qualify as incompatible standards....

Courts reason a defendant is not subject to incompatible standards merely through the risk of being found liable to some plaintiffs and not to others.

Id. at ¶ 55.

[¶ 16] The factor only applies to actions in which the nonclass party could be sued for different and incompatible affirmative relief, as opposed to actions seeking money damages. 5 Moore, supra, § 23.41[2][a]. In this case, the district court found affirmatively because multiple litigation may cause varying results as to money damages. As demonstrated above, this is not a suitable basis to find a risk of incompatible standards. The district court misapplied the law in so finding.

[¶ 17] The district court concluded Rule 23(c)(1)(C), N.D.R.Civ.P., weighed in favor of class certification for two reasons. First, litigation by named class representatives will have a substantial impact on parties who have an interest in the same oil wells as the class representatives. Second, other interest owners will be substantially impacted because Koch's acquisition of oil occurred throughout North Dakota. This factor turns on "whether adjudications with respect to individual members of...