Trapp v. Madera Pacific, Inc.

• Decision Date: 25 June 1986
• Docket Number: No. 15096,15096
• Parties: William V. TRAPP, Ron Beaumont, Ken Northrup, Jim Salwei, Ann Wainwright, Gary Ferguson, Dwayne D. Semerad, Valdean Fuelling, Mark Balding, Robert J. Rensvold, Doug Brown, and Doug Logen, Individually and on behalf of all other persons similarly situated, Plaintiffs and Appellees. v. MADERA PACIFIC, INC., Forest Products Distributors, Inc., Distributive Management Services, Inc., and RFS, Inc., Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 558

390 N.W.2d 558

William V. TRAPP, Ron Beaumont, Ken Northrup, Jim Salwei Ann Wainwright, Gary Ferguson, Dwayne D. Semerad, Valdean Fuelling, Mark Balding, Robert J. Rensvold, Doug Brown, and Doug Logen, Individually and on behalf of all other persons similarly situated, Plaintiffs and Appellees. v. MADERA PACIFIC, INC., Forest Products Distributors, Inc. Distributive Management Services, Inc., and RFS Inc., Defendants and Appellants.

No. 15096.

Supreme Court of South Dakota.

Argued April 21, 1986.

Decided June 25, 1986.

Robert L. Varilek, Rapid City, for plaintiffs and appellees.

Michael M. Hickey, Bangs, McCullen, Butler, Foye & Simmons, Rapid City, for defendants and appellants.

SABERS, Justice.

Employer appeals from trial court's certification of class action and award of bonus to employees on summary judgment. We reverse and remand.

Statement of Facts

This is a class action brought by the current and former employees (employees) of Madera Pacific, Inc. (Madera), and its subsidiaries. The employees brought suit against Madera for its refusal to pay them a bonus equal to 3% of their respective earnings as stated in Madera's employee manual. The trial court granted employees a partial summary judgment and ordered Madera to pay them the total sum of $59,012.61.

Madera is a Delaware corporation engaged in the wholesale lumber and construction supply business. It operates in South Dakota and neighboring states. Madera and its subsidiaries operate on a fiscal year basis from December 1 to November 30.

At the Madera Board of Directors meeting on November 20, 1979, there was discussion of an employee benefit plan. Management pointed out that they had promised the employees some type of pension plan by December of that year. On February 15, 1980, the Board of Directors approved a pension plan. The minutes of the February 15th meeting included the following:

It was submitted to the Board that we offer the employees a Pension Plan and it was recommended that this plan be an IRA payable 60 days after year-end at the rate of 3% of the employee's compensation for the preceding fiscal year, subject to limitations and qualifications ...

Following some discussion, the pension plan as proposed passed unanimously by motion.

On March 1, 1980, Madera issued an employee manual that included Section XII entitled "Individual Retirement Accounts (IRAs)," which provided:

Madera Pacific, Inc. has received Board of Director approval for, and is in the process of, finalizing an Individual IRA program.

Known facts of the program are:

(1) A contribution equal to 3% of total compensation will be made to an employee's individual account within sixty (60) days of the close of the corporate fiscal year--November 30.

(2) This program will be retroactive to the fiscal year beginning December 1, 1979.

Further details will be issued at a later date.

On December 10, 1980, Madera issued a letter to "All Employees" announcing the implementation of an annual bonus plan effective December 1, 1979, and following the close of the corporate fiscal year. The payment was to be equal to 3% of compensation, paid within 60 days after the close of the fiscal year, and with the recommendation that it be used as a contribution to an individual retirement account.

On April 17, 1981, certain additions and modifications were made to the employee manual. Among them was a modification amending the former Section XII concerning IRAs, to the identical language of the December 10, 1980, letter.

On August 10, 1981, Madera's managing officers distributed a memo to all employees advising them that all personnel policies, benefits and rules were under review and subject to change as financial conditions warranted. This memo specifically stated that, "[I]t appears doubtful that a bonus will be paid at the end of the fiscal year, pursuant to Section XII of the Employee Manual. This matter will be reviewed again as the economic climate improves."

The original supply of employee manuals was exhausted in July of 1981, and no new manuals were prepared or issued. Madera's approval of an IRA Pension Plan on February 15, 1980, has never been reviewed, modified, rescinded or otherwise acted upon by the Board of Directors. No bonuses have been paid other than the one for the fiscal year ending November 30, 1980.

A hearing on the employees' motion to certify this matter as a class action was held on April 9, 1984. The trial court granted employees' motion for a class action and an order was filed on April 23, 1984.

1. WAS CLASS ACTION CERTIFICATION APPROPRIATE?

Madera argues that the trial court failed to apply the requisite criteria to certify this matter as a class action. In accordance with SDCL 15-6-23(a), one or more members of a class may sue or be sued as representative parties on behalf of all only if:

(1) the class is so numerous that joinder of all members is impracticable,

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

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class,

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

Our statute is identical to the comparable provision set forth in Rule 23 of the Federal Rules of Civil Procedure. Therefore, class actions are maintainable if the prerequisites of SDCL 15-6-23(a) are satisfied, and:

(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;

(D) the difficulties likely to be encountered in the management of a class action.

SDCL 15-6-23(b).

Class actions serve an important function in our judicial system. By establishing a technique whereby the claims of many individuals can be resolved at the same time, the class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 560 (2nd Cir.1968). In deciding whether to allow a class action, a primary determination to be made is whether the class action is superior to, and not just as good as, other available methods for handling the controversy, and such a determination lies in an area where the trial court's discretion is paramount. Rutledge v. Electric Hose & Rubber Company, 511 F.2d 668, 673 (9th Cir.1975). The burden lies with the party seeking certification to demonstrate that the criteria of Rule 23 have been met. Carr v. New York Stock Exchange, Inc., 414 F.Supp. 1292, 1304 (N.D.Cal.1976).

The named representatives were required to meet all of the requirements set forth in SDCL 15-6-23(a), and also fall within one of the subsections of SDCL 15-6-23(b), in order for this class suit to be actionable. See: Eisen, 391 F.2d at 561. It is now recognized that the failure of any one of the threshold requirements destroys the alleged class action. Rutledge, 511 F.2d at 673. On review of an order denying or granting a motion to maintain a class, the lower court may be reversed only for an abuse of discretion. See: Weiss v. York Hospital, 745 F.2d 786, 807 (3rd Cir.1984), cert denied, --- U.S. ----, 105 S.Ct. 1777, 84 L.Ed.2d 836 (1985).

(i) Numerosity

The first requirement is that the class be so numerous that joinder of all members is impracticable. While employees initially estimated the class to contain approximately 150 members, in reality, it consisted of 136 people; of these, 68 people excluded themselves, 15 affirmatively opted into the class, and 53 were automatically included. The evidence reflects that the majority of these individuals were known through Madera personnel records, and resided in the Rapid City area. Thus, Madera argues that joinder could have been effected with minimal effort and inconvenience. Although the Carr case indicates: "[W]here the number of class members is at best fairly small (i.e., approximately 100), plaintiffs must demonstrate additional reasons why joinder is impracticable[,]" 414 F.Supp. at 1304, we cannot conclude it constitutes an abuse of discretion here.

(ii) Commonality

SDCL 15-6-23(a)(2) requires that there be questions of law or fact common to the class. However, not all questions of law or fact raised need be in common. See: Weiss, 745 F.2d at 808-809. This requirement is concerned with whether or not the particular issues in an action are individual in nature, and therefore, must be decided on a case-by-case basis. Gordon v. Aetna Life Insurance Co., 467 F.2d 717, 720 (D.C.Cir.1971).

Madera asserts that the pivotal issue concerned here is the employment relationship between each individual employee and the company. Claiming that each of these relationships was unique, Madera states that not all of the named employees received an employee manual which contained the disputed bonus language; that certain of the employees were orally advised that no bonus would be paid, see: Westlake v. Abrams, 565 F.Supp. 1330, 1344 (N.D.Ga.1983) [Class action inappropriate where inherent questions of a highly individualized nature, such as oral misrepresentation, are present.]; that certain employees were hired during late 1982 and would never have been covered, or hired in reliance upon the policies described in the manual. (Madera states that these latter employees were hired under the...