Lon Smith & Associates, Inc. and A-1 Systems, Inc., D/B/A Lon Smith Roofing and Construction v. Joe Key and Stacci Key
2017 Tex. App. LEXIS 7365
| Tex. App. | 2017Background
- Homeowners Joe and Stacci Key signed a standard-form roofing contract with Lon Smith Roofing & Construction (LSRC/A-1) after hail damage; contract included an "Acceptance and Agreement" clause promising LSRC would "pursue homeowner[s'] best interest" and negotiate with insurers.
- The Keys paid insurance proceeds to LSRC; LSRC later sued for the remaining balance; the Keys sued LSRC (Sept. 2013) seeking declaratory relief (that the contract is illegal/void under Tex. Ins. Code ch. 4102), DTPA damages, and other claims.
- The trial court certified a class of Texas residents (contracts dated June 11, 2003–present containing the clause) and certified three claims: (1) declaratory judgment, (2) DTPA §17.50(a)(3) (unconscionability), and (3) DTPA §17.50(a)(4) (violation of Tex. Ins. Code ch. 541).
- LSRC appealed the interlocutory class-certification order, arguing the trial court misapplied substantive law and that class prerequisites under Tex. R. Civ. P. 42 were not met (numerosity, commonality, typicality, adequacy, predominance, superiority).
- The court reviewed whether the trial court performed the Rule 42 "rigorous analysis," examined overlaps with the merits as necessary, and evaluated whether class-wide proof could resolve the central legal issues.
Issues
| Issue | Plaintiff's Argument (Keys) | Defendant's Argument (LSRC) | Held |
|---|---|---|---|
| 1) Can contracts be declared void and class-certified for declaratory relief under Tex. Ins. Code ch. 4102? | The clause rendered contracts illegal because LSRC acted/held itself out as an unlicensed public insurance adjuster; class members can rescind and recover payments. | §4102.207 makes contracts merely voidable (not per se void), so declaratory relief and class treatment are improper. | Held: The contracts are void as to LSRC under common-law public-policy principles and §4102.207 codifies the insured’s option to void; declaratory-judgment class certification affirmed. |
| 2) Does the DTPA §17.50(a)(4) claim (violation of Ins. Code ch. 541) support class treatment? | LSRC’s promise to negotiate with insurers while unlicensed is an unfair/deceptive practice in the business of insurance (chapter 541) and is subject to class-wide proof. | A ch. 4102 violation is not necessarily a ch. 541 violation; merits preclude class treatment. | Held: Trial court adequately analyzed the law; DTPA §17.50(a)(4) class certification affirmed. |
| 3) Does the DTPA §17.50(a)(3) unconscionability claim satisfy commonality/predominance for class treatment? | The contract’s statutory illegality renders it unconscionable as a matter of public policy, supporting class treatment. | Unconscionability requires individualized proof of each consumer’s knowledge, ability, experience, or capacity — defeating commonality/predominance. | Held: DTPA unconscionability claim requires individualized inquiries and cannot be proven class-wide; certification of §17.50(a)(3) reversed and decertified. |
| 4) Were Rule 42(a) and 42(b)(3) requirements (numerosity, typicality, adequacy, predominance, superiority) met for the remaining certified claims? | Keys: >3,000 putative class members, identical contractual language, damages calculable from LSRC’s records, class action superior and manageable. | LSRC: statute-of-limitations, individualized damages/offsets (value of roofs installed), and other individualized issues defeat predominance and superiority. | Held: Court found numerosity, typicality, and adequacy satisfied; limitations and damages issues present common questions or are objectively calculated from LSRC records; predominance and superiority for declaratory claim and §17.50(a)(4) satisfied; certification affirmed for those claims. |
Key Cases Cited
- Reyelts v. Cross, 968 F. Supp. 2d 835 (N.D. Tex. 2013) (federal decision holding identical LSRC contract illegal/unenforceable and awarding DTPA and restitution relief)
- Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455 (2013) (class-certification need not prove every element; common questions must predominate)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (rigorous analysis and distinction between common and individualized questions for class certification)
- Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) (class cohesion and aggregation-enabling issues govern certification under Rule 23 analogs)
- Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442 (2016) (permitting class-wide proof where common evidence can answer central issues despite individualized damages)
- Cruz v. Andrews Restoration, Inc., 364 S.W.3d 817 (Tex. 2012) (DTPA restoration discussed with respect to mutual restitution doctrine)
- State Farm Mut. Auto. Ins. Co. v. Lopez, 156 S.W.3d 550 (Tex. 2004) (class certification inappropriate where certification order failed to identify specific causes or controlling substantive issues)