Southwestern Bell v. Marketing On Hold

• Decision Date: 04 August 2005
• Docket Number: No. 13-03-287-CV.,13-03-287-CV.
• Citation: 170 S.W.3d 814
• Parties: SOUTHWESTERN BELL TELEPHONE COMPANY, Appellant, v. MARKETING ON HOLD, INC. d/b/a Southwest Tariff Analyst, Appellee.
• Court: Texas Supreme Court

170 S.W.3d 814

SOUTHWESTERN BELL TELEPHONE COMPANY, Appellant, v. MARKETING ON HOLD, INC. d/b/a Southwest Tariff Analyst, Appellee.

No. 13-03-287-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

August 4, 2005.

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Christopher D. Kratovil, Robert E. Davis, Weston Clark Loegering, Hughes & Luce, LLP, Kirsten M. Castaneda, Locke, Liddell & Sapp, Dallas, Javier Aguilar, Geoffrey Amsel, Cynthia F. Malone, San Antonio, Mike A. Hatchell, Molly H. Hatchell, Christopher Dove, Locke, Liddell & Sapp, LLP, Austin, Tracey Ellison, John W. Kelly, Jr., Bellaire, Ruben R. Pena, Law Office of Ruben R. Pena, P.C., Harlingen, for appellant.

J. Marcus Hill, Hill & Hill, Thomas Bray, Russell T. Lloyd, John M. O'quinn, O'quinn & Laminack, Houston, Manuel M. Vela, Vela & Vela, Harlingen, Ernesto Gamez, Jr., Law Office of Ernesto Gamez, Jr., Brownsville, for appellee.

Before Justices YANEZ, CASTILLO and GARZA.

OPINION

Opinion by Justice CASTILLO.

This interlocutory appeal is brought, pursuant to Texas Civil Practice and Remedies Code section § 51.014(a)(3),¹ from the trial court's order of May 6, 2003, certifying a class. We affirm.

I. Background

The underlying class action is brought on behalf of customers of Southwestern Bell Telephone, L.P. ("Southwestern Bell") for improper pass-through and collection of certain fees. The fees are initially assessed against Southwestern Bell under various city ordinances to compensate the cities for costs of administering public rights-of-way. The ordinances recognize Southwestern Bell's authority to pass the fees through to its telephone subscribers, but provide that Southwestern Bell is neither to profit nor to sustain any loss therefrom. The class charges that some fees were improperly "passed through" or charged to subscribers of certain services, specifically SmartTrunk, Digital Loop, and Hotel/Motel measured service (all designed for different classes of business customers).

Marketing on Hold, Inc., d/b/a Southwestern Tariff Analyst ("STA") is a company that audits its customers' telephone bills and represents them in seeking refunds from the service provider. In the course of those audits, STA discovered the improper charges. Some of STA's customers assigned their claims to STA,² and STA then brought the underlying suit in its own name, seeking to be identified as class representative for nearly 7,000 customers.³ STA itself was never a subscriber to the services in issue and never paid any of the disputed fees.

The trial court held a four-day hearing on the issue of class certification. All parties were represented at the hearing and significant volumes of evidence were introduced and reviewed. The parties were given the opportunity to file additional and supplemental briefs, which the trial court reviewed and considered. The court issued a 28-page order on May 6, 2003, certifying the class. The class was defined to include subscribers to the services identified above, who "made payment(s) to Southwestern Bell. . . ." The trial court found that the requisites of rule 42(a), numerosity, commonality, typicality and adequacy of representation, were satisfied. TEX. R. CIV. P. 42(a). Extensive discussion in the order is directed to the suitability of STA as a class representative. The court found STA to be a proper representative by virtue of its ownership of the assigned claims.⁴ The court found no conflicts of interest between the representative and the class, or between sub-classes.

The court also reviewed evidence and found that, under rule 42(b)(4) (TEX. R. CIV. P. 42(b)), questions of law and fact common to the members of the class predominated over any questions affecting only individual members, and that the class action was superior to other available methods to adjudicate the controversy. The trial court noted damages derived solely from economic injury, and found that evidence of those damages is susceptible to class-wide proof because billing practices of Southwestern Bell are consistent from customer to customer. The trial court further noted:

Plaintiff [STA] is not seeking either consequential damages or punitive damages but is seeking economic damages in the form of a refund of the alleged overcharge. The collection of an overcharge, if any, can be determined by reference to the billing records . . .

With respect to the claim of unjust enrichment, the trial court observed that a party must demonstrate that another obtained a benefit through fraud, duress or the taking of an undue advantage, but that plaintiff did not allege any fraud or duress. Therefore, the question of the taking of an undue advantage is a common issue which can be answered the same for all members of the class. The trial court also addressed the claim of breach of express warranty, finding that (1) Southwestern Bell presents its bills for services in substantially the same form to all its customers, including class members; (2) each bill contains a separate charge for municipal charges; (3) the bills, on their face, constitute representations that the bills are true and accurate; and (4) no independent inquiry is required into what representations were relied upon by each class member because the representation is uniform to all members of the class.⁵ The trial court proceeded to review in detail its rationale for concluding that class certification was proper in the face of the challenges raised in this appeal.

II. Issues on Appeal

Southwestern Bell urges that the certification of the class was improper because the prerequisites of rule 42 of the Texas Rules of Civil Procedure have not been satisfied. Southwestern Bell (1) challenges the class representative's standing as well as its ability to adequately represent the class; (2) challenges the predominance of common questions where (a) causes of action include the element of reliance, and (b) assessment of damages will require individualized review of customer bills and other records; and (3) contends that inherent conflicts of interest exist between (a) the class representative and class members, and (b) sub-groups of the class.

III. Standard of Review

Our review of an interlocutory appeal from a class certification order is limited to determining whether the trial court's order constituted an abuse of discretion. Ford Motor Co. v. Ocanas, 138 S.W.3d 447, 451 (Tex.App.-Corpus Christi 2004, no pet.); see also Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 690-91 (Tex.2002). In reviewing a trial court's decision under an abuse of discretion standard, we must determine whether the trial court acted without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985). The exercise of discretion is within the sole province of the trial court, and an appellate court may not substitute its discretion for that of the trial judge. Johnson v. Fourth Ct.App., 700 S.W.2d 916, 918 (Tex.1985). Rather, an abuse of discretion occurs only when the trial court reaches a decision that is "so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Id. at 917.

Although we discuss the propriety of the class certification in light of the claims asserted by the named plaintiffs, we in no way evaluate the merits of these claims. See Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex.2000) ("Deciding the merits of the suit in order to determine its maintainability as a class action is not appropriate.").

The trial court must conduct a "rigorous analysis" to determine whether certification requirements have been met. Southwestern Ref. Co. v. Bernal, 22 S.W.3d 425, 435 (Tex.2000). This rigorous analysis includes indicating how the claims will likely be tried so that conformity with rule 42 can be meaningfully evaluated. Schein, 102 S.W.3d at 690. Courts are to "go beyond the pleadings" and understand the "claims, defenses, relevant facts, and applicable substantive law" when determining whether the requirements of certification should be met. Bernal, 22 S.W.3d at 435.

Typically, under this standard of review, the appellate court must indulge every presumption favorable to the trial court's ruling. Fidelity and Guar. Life Ins. Co. v. Pina, 165 S.W.3d 416, 422 (Tex.App.-Corpus Christi 2005, no pet. h.)⁶ (citing Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 29 (Tex.App.-Houston [1st Dist.] 2000, pet dism'd w.o.j.)). On certification issues, however, the appellate court is not bound by this presumption and must independently determine whether the requirements of rule 42 have been fully satisfied. Pina, 165 S.W.3d at 422; Ocanas, 138 S.W.3d at 451; see also Schein, 102 S.W.3d at 691; Bernal, 22 S.W.3d at 435 (determining that actual compliance with rule 42 "must be demonstrated; it cannot be presumed").

IV. Rule 42

Under rule 42(a), every class action must satisfy four threshold requirements: numerosity, commonality, typicality, and adequacy of representation. See TEX.R. CIV. P. 42(a). In addition, a proposed class action must also satisfy at least one of the subparts of rule 42(b). See TEX. R. CIV. P 42(b). The trial court certified the class under rule 42(b)(4),⁷ which permits class actions to be maintained when common questions of law or fact predominate and a class action is superior to other forms of adjudication. See id.

V. Analysis

After reviewing the record, we conclude that the trial court conducted the requisite "rigorous analysis," demonstrated in the detailed order which included its findings of fact and conclusions of law. We now review the challenged issues, applying the abuse of discretion standard, to independently determine whether the requirements of rule 42 have been fully satisfied, i.e., demonstrated and not presumed. See Ocanas, 138 S.W.3d at 451; see also Schein, 102 S.W.3d at 691; Bernal, 22 S.W.3d at 435.

A. The Class Representative

Southwestern Bell challenges the typicality of STA as...