Vanderbilt Mortg. & Finance, Inc. v. Posey, 06-04-00013-CV.

Citation146 S.W.3d 302
Decision Date09 September 2004
Docket NumberNo. 06-04-00013-CV.,06-04-00013-CV.
PartiesVANDERBILT MORTGAGE & FINANCE, INC., Appellant, v. Michael POSEY, et uxor, Appellees.
CourtCourt of Appeals of Texas
146 S.W.3d 302
Michael POSEY, et uxor, Appellees.
No. 06-04-00013-CV.
Court of Appeals of Texas, Texarkana.
Submitted July 28, 2004.
Decided September 9, 2004.

Appeal from the 6th Judicial District Court, Fannin County, Jim D. Lovett, J.

[146 S.W.3d 308]

C. Ed Harrell Jr., Hughes, Watters & Askanase, LLP, Houston, for appellant.

Michael T. Maher, Dallas, David C. Turner Jr., Jana Turner, Turner & Turner, LLP, Bonham, for appellees.



Opinion by Justice CARTER.

The dispute in this case involves alleged misrepresentations made by Vanderbilt Mortgage & Finance, Inc., concerning

146 S.W.3d 309

mortgages on manufactured homes. Michael and Betty Posey, Texas residents, sued individually and on behalf of a class composed of members from forty-four states. The Poseys alleged numerous deceptive trade practices under the Tennessee Consumer Protection Act (TCPA), including that Vanderbilt misrepresented the amount of interest due on the mortgage secured by their mobile home located in Texas and misrepresented when insurance escrow payments could be collected under the contract. See TENN.CODE ANN. § 47-18-101, et seq. (LEXIS through 2003 legislation). The district court granted the motion to certify the class pursuant to Texas Rule of Civil Procedure 42(b)(4), but denied the motion to certify the class pursuant to Texas Rule of Civil Procedure 42(b)(2). Vanderbilt brought this interlocutory appeal of the certification of the class. In their cross-appeal, the Poseys challenge the trial court's denial of certification under Rule 42(b)(2). We hold that the trial court failed to conduct a sufficiently extensive choice of law analysis and that the trial court erred in certifying the class because the Poseys did not meet their burden of proving there are common issues. We affirm in part, reverse in part, and remand the case to the trial court for further proceedings consistent with this opinion.

Factual Background

The Poseys purchased a manufactured home and financed that purchase by an installment sales contract. The Poseys are Texas residents and reside in Fannin County, Texas. They signed the contract February 5, 1999, at a mobile home dealership located in Denison, Texas. The installment sales contract obligated the Poseys to make 240 monthly payments and financed the purchase price for the manufactured home, certain of its contents, certain services, and thirty-six months of property insurance covering the manufactured home and its contents. The Poseys' contract provides: "[t]his contract is subject in whole or in part to Texas law...."1 The contract specified the index rate and the margin2 the Poseys were obligated to pay. The initial interest rate was 10.74 percent per year. After the purchase, the contract was assigned to Vanderbilt. Vanderbilt is a Tennessee corporation, and its headquarters are located in Tennessee.

In 2001, the Poseys received an annual notice representing that, beginning with the May 1, 2001, payment, their interest rate had been adjusted to 12.74 percent and stating that they were obligated to begin making escrow payments. The Poseys contend the contract only authorized an interest rate of 10.875 percent and that the escrow payments were not due until on or about March 1, 2002. When they purchased their home, the Poseys signed a document entitled "Initial Escrow Account Statement," which stated the Poseys were not obligated to pay into the insurance escrow until sixty days before their current policy expired. In 2002, the Poseys received another letter which they allege contained further misrepresentations. The annual notices consisted of unsigned form letters bearing the salutation "Dear Customer," and the particularized data

146 S.W.3d 310

was typed into blanks in the letters. Vanderbilt contends the interest rate was higher than the rate the Poseys contend was authorized because the contract contained a "variable rate carryover provision." Vanderbilt claims the contract allows it to carry over the amount of any rate change which was not applied in the prior annual adjustment due to the one percent cap on interest rate increases. Shortly before the filing of this suit, the Poseys obtained modification of the contract, fixing their interest rate at 10.99 percent per annum.

Vanderbilt services the mortgages on thousands of manufactured houses. As of November 25, 2002, Vanderbilt serviced mortgages on over 150,000 installment sales contracts, with an aggregate dollar amount of almost five billion dollars. Customary servicing obligations include collecting and recording payments, communicating with obligors, investigating payment delinquencies, providing billing and tax records to obligors, and maintaining internal records with respect to each contract. Vanderbilt also calculates distributions to the beneficial owners of the mortgages and provides related data processing and reporting services. The majority of these installment sales contracts and loan agreements were purchased from dealers indirectly owned by Clayton Homes, Incorporated. Most of these installment sales contracts are secured by security interests in the manufactured homes and/or by liens on the real estate on which the related manufactured homes are located. Since 1989, Vanderbilt has originated variable rate installment contracts. In the 1999 fiscal year, Vanderbilt serviced approximately 11,594 variable rate contracts.

The trial court held a class certification hearing December 29, 2003. In an order signed December 31, 2003, the trial court found that the Poseys had met the requirements of Rule 42(a) and (b)(4), and certified a class under Rule 42(b)(4). In the order, the trial court concluded that Tennessee law applied to the transaction and explained how the discovery would be conducted, the trial court's procedures for mediation, and that a special master would be appointed. No findings of fact or conclusions of law were entered or requested.

Vanderbilt raises five issues on appeal. It contends the trial court erred in certifying a class without consideration and analysis of the laws of the forty-four states implicated by the residences of putative class members, in applying the TCPA to all claims, by certifying the class under Rule 42(b)(4) because no common issues exist or predominate, by certifying a class with the Poseys as representatives because they are neither typical nor adequate class representatives, and in certifying a class because a class action is not a superior method for trying these claims. The Poseys raise three issues on cross-appeal. They argue the trial court erred in denying injunctive relief under the TCPA, in reading into the statute words, terms, and conditions not in the statute, and erred in refusing to certify a class under Rule 42(b)(2).

Standard of Review

We review the decision of the trial court in certifying or refusing to certify the class for abuse of discretion. Bailey v. Kemper Cas. Ins. Co., 83 S.W.3d 840, 847 (Tex.App.-Texarkana 2002, pet. dism'd w.o.j.); W. Teleservices, Inc. v. Carney, 37 S.W.3d 36, 40 (Tex.App.-San Antonio 2000, no pet.). The trial court abuses its discretion when it does not properly apply the law to the undisputed facts, when it acts arbitrarily or unreasonably, or when its ruling is based on factual assertions unsupported by the record. Alford Chevrolet-Geo

146 S.W.3d 311

v. Jones, 91 S.W.3d 396, 399-400 (Tex. App.-Texarkana 2002, pet. denied).

Vanderbilt argues that Bernal changed the standard of review to a higher standard than abuse of discretion. See Southwestern Ref. Co. v. Bernal, 22 S.W.3d 425, 435 (Tex.2000). Bernal cannot be reasonably interpreted to change the standard of review. The Texas Supreme Court in Bernal urged that a cautious approach to class certification is essential and rejected the "approach of certify now and worry later." Id. The court held that the trial court must conduct a "rigorous analysis" of whether the certification requirements have been met before ruling on class certification, but reaffirmed we should review the trial court's decision based on an abuse of discretion. Id. The Corpus Christi court of appeals has explicitly rejected the argument that Bernal created a more stringent review. Snyder Communications v. Magana, 94 S.W.3d 213, 223-27 (Tex.App.-Corpus Christi 2002, no pet.), rev'd on other grounds, No. 03-0036, 142 S.W.3d 295, 2004 Tex. LEXIS 739 (Tex. June 25, 2004). Our sister court relied on federal caselaw, which has long required federal district courts to conduct a "rigorous analysis" into whether the prerequisites of Rule 23 are met before certifying a class. Id. at 224; see FED.R.CIV.P. 23. Federal appellate courts have held that "the term `rigorous analysis' does not mean that a reviewing court must apply a less deferential standard of review than abuse of discretion, but rather that the trial court must exercise its discretion within the framework of the rule." Snyder, 94 S.W.3d at 224; see FED.R.CIV.P. 23; Gulf Oil Co. v. Bernard, 452 U.S. 89, 100, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). The Texas Supreme Court noted in Bernal that Texas Rule of Civil Procedure 42 is patterned after Federal Rule of Civil Procedure 23 and that federal decisions and authorities interpreting current federal class action requirements are persuasive authority. Bernal, 22 S.W.3d at 433; see Ford Motor Co. v. Sheldon, 22 S.W.3d 444, 452 (Tex.2000). We agree with our sister court that Bernal's use of the term "rigorous analysis" instructs us to review the certification under an abuse of discretion standard, provided that the trial court exercised its discretion within the framework of the rule.

Certification of a Class

Under Rule 42 of the Texas Rules of Civil Procedure, all class actions must satisfy the following four threshold requirements: (1) the class is so numerous that joinder of all members is...

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