Texas Commerce Bank N.A. v. Wood et al

Decision Date20 May 1999
CourtTexas Court of Appeals

On appeal from the 94th District Court of Nueces County, Texas. [Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Before Justices Dorsey, Chavez, and Rodriguez


Opinion by Justice Chavez

We withdraw our opinion of February 11, 1999, and substitute this opinion in its place.

This is an interlocutory appeal1 from the certification of a class action brought by persons with ties to certain trust accounts against Texas Commerce Bank and various other entities2 involved in the transfer of those trusts to new fiduciaries. We affirm the certification order.

In 1993 Texas Commerce Bank purchased Ameritrust, a company which served as trustee for trust accounts. Ameritrust did business in four Texas cities where Texas Commerce did not wish to continue operations: Corpus Christi, Waco, Wichita Falls, and Sherman. On March 9, 1994 Texas Commerce organized four national banks, one in each of the four cities, and transferred the fiduciary responsibility for the trust accounts in each city to the newly formed bank in that city.3 The next day Texas Commerce sent letters to the appellees informing them of the substitution of these newly formed trust companies as fiduciaries for their accounts and advising them of their right to file a petition "in the appropriate court" if they "disagree[d] with this change." Shortly thereafter the new banks in Corpus Christi, Waco, and Wichita Falls were sold to three Norwest Companies, and the bank in Sherman was sold to Alliance Trust Company. The change in fiduciary status became effective June 10, 1994.

On May 21, 1996 the plaintiffs filed a petition alleging that they should have been informed that Texas Commerce stood to profit from the 1994 transfer of the trust accounts, and that it had conflicts of interest in the transaction. The petition further argued that independent counsel should have been appointed to represent the interests of the trust beneficiaries, and that any proceeds from the sale of the trust accounts properly belonged to the trusts themselves, not to Texas Commerce as trustee. The petition asserted causes of action for fraud, conversion, breach of fiduciary duty, breach of the duty of good faith and fair dealing, negligence, and deceptive trade practices. On July 7, 1998 the trial court certified the plaintiffs as a class in an action against all the named defendants except Alliance. Texas Commerce and the Norwest defendants appealed the certification of the suit against them, and the plaintiffs appealed the trial court's refusal to include Alliance among the defendants named in the certification order.4

The appellants contend that the trial court improperly certified the class against them because: (1) they complied fully with the Substitute Fiduciary Act;5 (2) the plaintiffs' claims are pre-empted by ERISA;6 (3) the plaintiffs have failed to demonstrate the typicality, representativeness, and commonality required by rules 42(a)(2) and 42(a)(3); and (4) none of the requirements of rule 42(b) have been satisfied. They also allege that the trial court erred in (5) failing to identify the issues that are common to the claims asserted by the members of the class, and (6) not permitting them to be heard before signing a written order that varied from the ruling the court had announced orally. Finally, they contend (7) the trial court acted arbitrarily and abused its discretion in certifying the class for the trusts in Corpus Christi, Waco, and Wichita Falls, while excluding the Sherman trusts from the class.

The plaintiff has the burden in the trial court of establishing the right to proceed as a class. Clements v. LULAC, 800 S.W.2d 948, 952 (Tex. App.--Corpus Christi 1990, no writ). Although the plaintiff carries the burden of proof, the plaintiff is not required to make an extensive evidentiary showing in support of its motion. Id. The right to proceed as a class may be established by "materials" which need not meet all the requirements of evidence that would be admissible at trial. Rio Grande Valley Gas v. City of Pharr, 962 S.W.2d 631, 640 (Tex. App.--Corpus Christi 1997, pet. dism'd w.o.j.). On appeal the reviewing court must view the evidence in the light most favorable to the trial court's ruling and indulge every presumption in favor of that ruling. FirstCollect, Inc. v. Armstrong, 976 S.W.2d 294, 299 (Tex. App.--Corpus Christi 1998, pet. dism'd w.o.j.); Health & Tennis Corp. of Am. v. Jackson, 928 S.W.2d 583, 587 (Tex. App.-San Antonio 1996, writ dism'd w.o.j.); Vinson v. Texas Commerce Nat'l Bank, 880 S.W.2d 820, 823 (Tex. App.-Dallas 1994, no writ); Dresser Indus., Inc. v. Snell, 847 S.W.2d 367, 371-72 (Tex. App.-El Paso 1993, no writ). We reverse the order of the trial court only upon a showing that the trial court abused its discretion. General Motors Corp. v. Bloyed, 916 S.W.2d 949, 955 (Tex. 1996). The trial court abuses its discretion only when it fails to properly apply the law to undisputed facts, when it acts arbitrarily or unreasonably, or when its ruling is based on factual assertions not supported by material in the record. Methodist Hosps. of Dallas v. Tall, 972 S.W.2d 894, 898 (Tex. App.--Corpus Christi 1998, no pet.).

A member of a class may sue or be sued as a representative party of the class if the following requirements of rule 42(a) are satisfied:

1) the class is so numerous that joinder of all members is impractical;

2)there are questions of law or fact common to the class;

3) the claims or defenses of the representative party are typical of the claims or defenses of the class; and

4) the representative party will fairly and adequately protect the interests of the class.

TEX. R. CIV. P. 42(a). In addition, at least one requirement of rule 42(b) must be met before a class action may be maintained. See TEX. R. CIV. P. 42(b).

When certification is sought and decided at an early phase of the litigation, before supporting facts have been fully developed, trial courts should favor certification. Health & Tennis Corp. of Am., 928 S.W.2d at 587; Microsoft Corp. v. Manning, 914 S.W.2d 602, 607 (Tex. App.--Texarkana 1995, writ dism'd); Dresser Indus., Inc., 847 S.W.2d at 376; Clements, 800 S.W.2d at 952; Life Ins. Co. of the S.W. v. Brister, 722 S.W.2d 764, 774-75 (Tex. App.--Fort Worth 1986, no writ). This is due in part to the fact that the certification order is always subject to later modification if circumstances require. Microsoft, 914 S.W.2d at 607. Under rule 42(c)(1), the trial court may alter, amend, or withdraw class certification at any time before final judgment, or order the naming of additional parties to insure adequate representation. TEX. R. CIV. P. 42(c)(1).

Rule 42 is patterned after the federal class action rule, and the federal decisions and authorities interpreting it are persuasive. Amerada Hess Corp. v. Garza, 973 S.W.2d 667, 674 (Tex. App.--Corpus Christi 1996, writ dism'd); see FED. R. CIV. P. 23.

ERISA and the Substitute Fiduciary Act

Appellants argue that the trial court should not have certified the class because the plaintiffs' claims are pre-empted by ERISA and because the transfers were conducted in accordance with the Substitute Fiduciary Act. These arguments are misplaced. In determining the propriety of a class action, the question is not whether the plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of the class certification rule have been met. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 179, 94 S.Ct. 2140, 2153 (1974); accord Amerada Hess, 973 S.W.2d at 679. Therefore, we find no merit in these issues relevant to our review of the class certification.

Rule 42(a)(2) and 42(b)(4)

Appellants' first challenge under rule 42 is that the plaintiffs have failed to show questions of law or fact common to the class. However, the "commonality" requirement of rule 42(a)(2) is "subsumed under" the more stringent requirement of rule 42(b)(4) that common questions of law or fact predominate over questions involving individual members. See Amchem Prods., Inc. v. Windsor, --- U.S. ----, ----, 117 S.Ct. 2231, 2243, 138 L.Ed.2d 689 (1997) (construing analogous requirements under Federal Rule of Civil Procedure 23); Rio Grande Valley Gas, 962 S.W.2d at 642. Because appellants have raised issues on appeal concerning both rule 42(a)(2) and rule 42(b)(4), we will consider only appellants' challenge under the more stringent rule 42(b)(4).7

Appellants argue that several issues in this case will require evaluation on an individual basis and cannot be adequately addressed in a class action. These issues are: (1) whether the effect of establishing an independent counsel will vary with each individual in the class as the needs and interests of the individuals vary, (2) whether the notice provided by Texas Commerce was adequate, as some will require more information than others, (3) whether the transfer caused the individual beneficiaries a "material detriment" sufficient to satisfy the requirements of the Substitute Fiduciary Act, (4) whether the individual plaintiffs can show reliance on the defendants' alleged fraud, (5) whether limitations would apply differently for the different plaintiffs, (6) whether certain categories of trust beneficiaries have the power to change the designation of the fiduciary for their trust, and whether this power prevents them from having any justiciable claim in this case, and (7) whether the trust beneficiaries in the different cities received different degrees of notice, which would...

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