Stammco, L.L.C. v. United Tel. Co. of Ohio

• Decision Date: 16 July 2013
• Docket Number: No. 2012–0169.,2012–0169.
• Parties: STAMMCO, L.L.C., et al., Appellees, v. UNITED TELEPHONE COMPANY OF OHIO et al., Appellants.
• Court: Ohio Supreme Court

136 Ohio St.3d 231

994 N.E.2d 408

STAMMCO, L.L.C., et al., Appellees,

v.UNITED TELEPHONE COMPANY OF OHIO et al., Appellants.

No. 2012–0169.

Supreme Court of Ohio.

Submitted Feb. 6, 2013.

Decided July 16, 2013.

Syllabus of the Court

At the certification stage in a class-action lawsuit, a trial court must undertake a rigorous analysis, which may include probing the underlying merits of the plaintiff's claim, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Civ.R. 23. (Wal–Mart Stores, Inc. v. Dukes, 564 U.S. ––––, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ––––, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013), followed.)

Murray & Murray Co., L.P.A., Dennis E. Murray Sr., and Donna J. Evans, Sandusky, for appellees.

Baker & Hostetler, L.L.P., Michael K. Farrell, John B. Lewis, and Karl Fanter, Cleveland, for appellants.

Linda S. Woggon, urging reversal for amicus curiae, Ohio Chamber of Commerce.

KENNEDY, J.

I. Introduction

[Ohio St.3d 232]{¶ 1} In this opinion, we address a single proposition of law by appellants, United Telephone Company of Ohio (“UTO”) and Sprint Corporation.¹

{¶ 2} UTO appeals from a judgment of the Sixth District Court of Appeals holding that the trial court abused its discretion in denying certification of plaintiffs' class-action lawsuit. We accepted for review the following proposition of law: “A trial court does not abuse its discretion by evaluating the merits of the plaintiffs' claims when denying class certification.”

{¶ 3} We hold that a trial court must conduct a rigorous analysis, which may include probing the merits of plaintiffs' claims, to ensure that the prerequisites of Civ.R. 23 are satisfied. Even though the trial court's consideration of the merits here was improper, its order denying certification of the class was correct because plaintiffs' proposed amended class does not satisfy the prerequisites of Civ.R. 23. Therefore, we reverse the judgment of the court of appeals and reinstate the order of the trial court that rejected plaintiffs' amended class definition, which in effect decertifies plaintiffs' class-action lawsuit.

II. Facts

{¶ 4} In 2005, Stammco, L.L.C., a limited-liability company, and Stammco's owners, Kent and Carrie Stamm, on behalf of other similarly situated telephone customers, filed a complaint seeking to certify a class-action lawsuit against UTO.

{¶ 5} UTO provided plaintiffs with local and long-distance phone service. In their amended complaint, plaintiffs alleged that their phone bills from UTO also contained unauthorized charges from third parties, as part of a practice known as “cramming.” Plaintiffs' amended complaint alleged three theories of liability: (1) negligent billing, (2) “breach of the duty of good faith and fair dealing implied in contract,” and (3) unjust enrichment. Plaintiffs sought injunctive relief and compensatory damages. Plaintiffs proposed the following class definition:

[Ohio St.3d 233]All individuals, businesses or other entities in the State of Ohio who are or who were within the past four years, subscribers to local telephone service from United Telephone Company of Ohio d.b.a. Sprint and who were billed for charges on their local telephone bills by Sprint on behalf of third parties without their permission. Excluded from this class are defendants, their affiliates (including parents, subsidiaries, predecessors, successors, and any other entity or its affiliate which has a controlling interest), their current, former, and future employees, officers, directors, partners, members, indemnities [sic], agents, attorneys and employees and their assigns and successors.

{¶ 6} The trial court certified the class as defined. UTO appealed. The court of appeals affirmed the trial court's judgment certifying the class, but only under Civ.R. 23(B)(3). Stammco, L.L.C. v. United Tel. Co. of Ohio, 6th Dist. No. F–07–024, 2008-Ohio-3845, 2008 WL 2939455, ¶ 66–67.

{¶ 7} On appeal, we held that the class definition failed to readily identify prospective class members because (1) it was unclear whether class members were expected to give UTO or the third parties authorization to bill, or whether the third parties were expected to obtain authorization from class members, (2) it was unclear in the phrase “their permission” whom the word “their” referred to, and (3) it was unclear how authorization would occur. Stammco, L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St.3d 91, 2010-Ohio-1042, 926 N.E.2d 292, ¶ 10 (“ Stammco I ”). We also held that the class was not readily identifiable, because individualized determinations would be needed as to “whether and how each prospective class member had authorized third-party charges on his or her phone bill” and the identification of class members would require “more than a reasonable effort.” Id. at ¶ 11.

{¶ 8} Accordingly, we reversed the judgment of the court of appeals and remanded the cause to the trial court to “redefine the class on remand.” Id. at ¶ 12. However, we noted that we did not reach UTO's arguments that the class was a fail-safe class,² that individualized issues predominated in the class, that the [Ohio St.3d 234]class was unmanageable, and that the class was not suitable for the issues in the case. Id. at ¶ 13.

{¶ 9} On remand, plaintiffs proffered the following amended class definition:

All individuals, businesses or other entities in the State of Ohio who are or who were within the period four years prior to the initiation of this lawsuit to the present, subscribers to local telephone service from United Telephone Company of Ohio d.b.a. Sprint and/or any successor company providing that same service, and who were billed for third party charges as to which Sprint had no prior authorization from the customer in writing or by a method acceptable to Sprint sufficient for Sprint to verify that the customer had agreed to such charge. Excluded from the class are those customers who subscribed to and provided authorization for long distance services from a provider of toll services that were billed on the customers' local telephone bills. Also excluded from this class are defendants, their affiliates (including parents, subsidiaries, predecessors, successors, former and future employees, officers, directors, partners, members, indemnities [sic], agents, attorneys and employees and their assigns and successors).

{¶ 10} After the hearing, the trial court issued a decision that stated: (1) “[T]he ‘class definition,’ as submitted by the Plaintiffs is a prohibited ‘fail-safe class,’ ” (2) “Plaintiff's [sic] action has been brought against the ‘local exchange carrier,’ rather than the culprit ‘third party provider,’ ” and (3) “The action proposes to impose a ‘duty’ upon the Defendant Carrier, that is not required of them, according to the status of current legislation and case law.” Consequently, the court held: “[T]he Plaintiffs have not met their burden of establishing, by a preponderance of the evidence, that a ‘class certification,’ is a proper one,” and it denied the plaintiffs' amended motion for class certification.

{¶ 11} Plaintiffs appealed. The court of appeals held that the amended class definition addressed the ambiguities in the class definition as found by this court. Specifically, the court of appeals stated:

The amended class now defines to whom permission is to be granted: appellee, whose permission was required: the customer, and the manner [in which] the permission was to be granted: in writing or an alternative method by which appellee could verify agreement. The amended definition deletes any reference to customers who receive unauthorized charges. In our view, the amended language satisfies the specific concerns of the court in its mandate for remand.

[Ohio St.3d 235]2011-Ohio-6503, 2011 WL 6352306, ¶ 39.

{¶ 12} The court held that the amended class definition did not set forth a fail-safe class, because the amended class definition did not rely upon a determination of liability. Id. at ¶ 42–46.

{¶ 13} Finally, the court of appeals addressed the trial court's conclusion that UTO had no duty to ensure that third-party charges that it was billing to its customers were authorized and its conclusion that the third parties who were initiating the charges were the real culprits. The court of appeals held that “both rationales are improper incursions into the merits of this case.” Id. at ¶ 49.

{¶ 14} The court of appeals concluded: “Since two of the three reasons the trial court articulated for denying the class are improper considerations of the merits and the third reason is inapplicable as a matter of law, we must conclude that the trial court abused its discretion in denying class certification.” Id. at ¶ 50. The court of appeals reversed the judgment of the trial court and remanded for further proceedings consistent with its decision.

{¶ 15} We denied UTO's discretionary appeal. 131 Ohio St.3d 1511, 2012-Ohio-1710, 965 N.E.2d 311. However, we granted UTO's motion to reconsider. 132 Ohio St.3d 1425, 2012-Ohio-2729, 969 N.E.2d 272.

{¶ 16} UTO argues that Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), and Ojalvo v. Ohio State Univ. Bd. of Trustees, 12 Ohio St.3d 230, 466 N.E.2d 875 (1984), have been misunderstood by courts, including the court of appeals herein, as prohibiting courts from considering the underlying merits of the plaintiffs' claims in a class-action suit for the purpose of deciding whether the requirements of certification of the class have been satisfied. UTO argues that the recent decision in Wal–Mart Stores, Inc. v. Dukes, 564 U.S. ––––, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), has clarified that courts may probe the merits in determining whether certification is proper under Civ.R. 23. Thus, UTO argues that the court of appeals erred in holding that the trial court abused its discretion when it considered the...