Southwestern Bell v. MARKETING ON HOLD

• Decision Date: 19 February 2010
• Docket Number: No. 05-0748.,05-0748.
• Citation: 308 SW 3d 909
• Parties: SOUTHWESTERN BELL TELEPHONE COMPANY, Petitioner, v. MARKETING ON HOLD INC., d/b/a Southwest Tariff Analyst, Respondent.
• Court: Texas Supreme Court

308 SW 3d 909

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

No. 05-0748.

Supreme Court of Texas.

Argued March 22, 2007.

Decided February 19, 2010.

Rehearing Denied May 7, 2010.

Mike A. Hatchell, Molly H. Hatchell, Locke Lord Bissell & Liddell, LLP, Austin, Christopher Benjamin Dove, Locke Lord Bissell & Liddell, LLP, Houston, Kirsten M. Castaneda, Locke Lord Bissell & Liddell, LLP, Weston C. Loegering, Hughes & Luce, LLP, Christopher D. Kratovil, K & L Gates LLP, Dallas, Cynthia F. Malone, Richard M. Parr, San Antonio, for Petitioner.

John M. O'Quinn, Russell T. Lloyd, Jonathan Scott Stoger, The O'Quinn Law Firm, Thomas Bray, J. Marcus Hill, Hill & Hill, P.C., David W. Holman, The Holman Law Firm, P.C., Houston, Manuel M. Vela, Harlingen, Ernesto Gamez Jr., Brownsville, for Respondent.

Justice WAINWRIGHT delivered the opinion of the Court in which Justice HECHT, Justice GREEN, Justice JOHNSON, and Justice WILLETT joined.

In this interlocutory appeal of a trial court's class certification order, the class representative obtained assignments of claims that the defendant telephone company improperly charged some of its business customers certain municipal fees. The court of appeals affirmed the statewide class certification. 170 S.W.3d 814, 829. We conclude that the assignments are valid and provide standing, that the class representative's claims are typical of the other class members' claims, and that common questions of law or fact predominate. However, because the putative class representative failed to establish that it adequately represents the class, we reverse the judgment of the court of appeals and decertify the class.

I. Factual and Procedural Background

Southwestern Bell Telephone Company (Southwestern Bell) provides telephone service packages to its business customers.¹ To compensate municipalities for maintaining public rights-of-way for telephone services, municipalities assess an annual fee against Southwestern Bell under various "Specified Annual Payment," or "SAP" ordinances. See, e.g., Brownsville, Tex., Ordinance 95-1296, § 12 (July 18, 1995). The ordinances authorize Southwestern Bell to charge its customers a proportionate share of the fee, provided that Southwestern Bell does not profit from the charge. Id.

Marketing on Hold, d/b/a Southwestern Tariff Analyst (STA), provides auditing services of business telephone bills and assists its customers in seeking adjustments from telephone companies for improper billing practices. In the course of auditing several Southwestern Bell telephone bills for its customers, STA discovered that Southwestern Bell assessed municipal fees for services STA claims were exempted by the ordinances from 1991 to 1998. STA entered into assignment agreements with five of its customers² in consideration of ten dollars per assignment. The assignments further provide that the customer-assignors would receive seventy percent and STA retain thirty percent of any recovery from Southwestern Bell that STA obtains. STA subsequently filed a class suit, as named plaintiff, against Southwestern Bell and sought to be designated the class representative for approximately 6,900 of Southwestern Bell business customers. STA asserted claims for breach of contract, unjust enrichment, breach of express warranty for services, and negligence per se for illegally charging municipal fees. STA neither subscribed to Southwestern Bell's telephone service packages at issue in the proposed class, nor paid any of the disputed fees at issue.

The trial court conducted a four-day certification hearing and issued a twenty-eight page order certifying the class. The class is defined as:

All persons and entities or their assignees who made payment(s) to Southwestern Bell Telephone Company for charges which were characterized in Southwestern Bell's bill or statement as a "municipal charge" or "municipal surcharge" or "municipal fee," or similar designation (hereinafter collectively referred to as a "municipal charge"), at a time when the customer's service charge upon which such "municipal charge" was imposed, was provided in a municipality located in the State of Texas having an SAP ordinance....

and all or part of the such so-called "municipal charge" ... was based upon customer service charges made by SWBT for services included in the SmartTrunk, Digital Loop, and Hotel/Motel subscription packages.³

The trial court found that the class satisfied the numerosity, commonality, typicality, and adequacy of representation requirements of rule 42(a) of the Texas Rules of Civil Procedure and that questions of law or fact common to the class predominated over individual questions under then-rule 42(b)(4) (now rule 42(b)(3)). The trial court also found that STA had standing to proceed on behalf of the class and was a proper class representative as the owner of assigned claims.

Southwestern Bell appealed the trial court's interlocutory certification order, and the court of appeals affirmed. See TEX. CIV. PRAC. & REM.CODE § 51.014(a)(3). Southwestern Bell subsequently petitioned this Court, complaining that the court of appeals erred in affirming the class certification order. Specifically, Southwestern Bell challenges: (1) STA's standing and its ability to represent the class adequately; (2) whether STA's claims are typical of the class; and (3) the predominance of common questions where several claims allegedly require individualized proof of reliance and the assessment of damages requires individualized review of customer bills and other records. We granted Southwestern Bell's petition and review the trial court's class certification under an abuse of discretion standard. Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 691 (Tex.2002).

II. Standing

Southwestern Bell argues that the assignments under which STA claims standing are void as a matter of law and public policy, and, therefore, STA has no standing to sue or ability to serve as the class representative. "Before Rule 42's requirements are considered, a named plaintiff must first satisfy the threshold requirement of individual standing at the time suit is filed, without regard to the class claims." M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 710 (Tex.2001).

"The requirement in this State that a plaintiff have standing to assert a claim derives from the Texas Constitution's separation of powers among the departments of government, which denies the judiciary authority to decide issues in the abstract, and from the Open Courts provision, which provides court access only to a `person for an injury done him.'" DaimlerChrysler v. Inman, 252 S.W.3d 299, 304 (Tex.2008) (quoting TEX. CONST. art. 1, § 13). We have held that this requirement applies equally to class actions; therefore, the class representative must be a member of the class and have individual standing to sue. M.D. Anderson, 52 S.W.3d at 710-11.

Southwestern Bell does not argue that the assignments were invalid due to the absence of the legal precepts necessary to create a binding contractual assignment— meeting of the minds and consideration. Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227, 228 (Tex.1986). Instead, Southwestern Bell claims STA's assignments are contractually invalid as contrary to the SAP ordinances and as against public policy. We address those arguments in turn.

The municipal ordinances contain "anti-assignment" clauses that bar the assignment of "any right that accrues from the ordinance," including the claims asserted by STA in this case.⁴See, e.g., Brownsville, Tex., Ordinance 95-1296, § 13 (July 18, 1995).⁵ The clauses preclude Southwestern Bell from assigning to any other entity its "rights or privileges," defined in the ordinance as the "right and privilege to USE the public RIGHTS-OF-WAY." Id. §§ 13, 1. The plain language of the anti-assignment clauses preclude assignment of use of the rights-of-way, not assignment of claims for damages for improper charges. Moreover, the anti-assignment clauses bar only Southwestern Bell from assigning, not the customers of STA or of Southwestern Bell. The anti-assignment clauses do not prevent Southwestern Bell's customers from assigning claims for these overcharges.

Because STA holds contractually valid assignments, STA steps into the shoes of the claim-holders and is considered under the law to have suffered the same injury as the assignors and have the same ability to pursue the claims. Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 572 (Tex.2001); see also Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 773, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000).

Southwestern Bell also argues that the assignments should be invalidated on public policy grounds. Southwestern Bell contends that allowing an assignee to purchase the right to serve as the class representative will result in "entrepreneurial class actions," or the commercial marketing of class representation. Because this would undermine the purpose of the class action device, Southwestern Bell argues, the Court should hold that the assignments are void as a matter of public policy. We analyze this issue under our common law of assignability of claims.

The assignability of a cause of action is generally freely permitted, but assignments may be invalidated on public policy grounds. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 & n. 11 (Tex. 2004) ("As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy."); State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 707-19 (Tex.1996) (listing cases invalidating assignments); RESTATEMENT (SECOND) OF CONTRACTS § 317(2)(b) (1981) ("A contractual right can be assigned unless ... the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy."); see also Cordes & Co. Fin. Servs., Inc. v. A.G....