MICHAEL E. CULLEN v. STATE FARM MUTUAL AUTOMOBILE INSURANCE CO.
No. 95925
Court of Appeals of Ohio, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
December 22, 2011
[Cite as Cullen v. State Farm Mut. Auto. Ins. Co., 2011-Ohio-6621.]
FRANK D. CELEBREZZE, JR., J.
Civil Appeal from the Cuyahoga County Court of Common Pleas, Case No. CV-555183
JUDGMENT: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
BEFORE: Celebrezze, J., Stewart, P.J., and Sweeney, J.
RELEASED AND JOURNALIZED: December 22, 2011
Mark A. Johnson
Joseph Ezzie
Robert J. Tucker
Baker & Hostetler, L.L.P.
65 East State Street
Suite 2100
Columbus, Ohio 43215-4260
Michael K. Farrell
Baker & Hostetler, L.L.P.
3200 PNC Center
1900 East Ninth Street
Cleveland, Ohio 44114-3485
Robert Shultz
Heyl, Royster, Voelker & Allen, P.C.
Suite 100 Mark Twain Plaza III
P.O. Box 467
Edwardsville, Illinois 62025
ATTORNEYS FOR APPELLEE
W. Craig Bashein
John P. Hurst
Bashein & Bashein Co., L.P.A.
Terminal Tower, 35th Floor
50 Public Square
Cleveland, Ohio 44113-2216
Paul W. Flowers
Paul W. Flowers Co., L.P.A.
Terminal Tower, 35th Floor
50 Public Square
Cleveland, Ohio 44113
continued . . .
For National Association of Mutual Insurance Companies (“NAMIC“)
Anthony T. Eliseuson
Steven M. Levy
SNR Denton US, L.L.P.
233 South Wacker Drive
Suite 7800
Chicago, Illinois 60606
For Ohio Insurance Institute (“OII“)
Daniel J. Kelso
172 East State Street
Suite 201
Columbus, Ohio 43215-4321
FRANK D. CELEBREZZE, JR., J.:
{1} Appellant, State Farm Mutual Automobile Insurance Company (“State Farm“), challenges the trial court‘s September 29, 2010 order certifying a class of individuals and businesses allegedly harmed by State Farm when making “glass only” claims for damage to windshields that were repaired rather than replaced. State Farm argues that class certification is inappropriate. After a thorough review of the record and law, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.
I. Background
{2} Appellee, Michael Cullen, filed suit against State Farm on February 18, 2005 raising claims of breach of contract, bad faith, and breach of fiduciary duty. He sought monetary and declaratory relief as well as class certification. He submitted his
{3} On September 20, 2006, State Farm filed its motion for summary judgment. Due to several discovery irregularities, the proceedings dragged on until March 29, 2007, when the trial court denied State Farm‘s motion for summary judgment.
{4} After that, the trial court took up the class certification question and held a hearing on that motion on April 14, 2010. In his complaint and class certification motion, Cullen alleged that State Farm implemented a program to encourage windshield repair rather than replacement for qualifying windshield claims and never disclosed to claimants a benefit option under their policies of insurance. Prior to 1991, State Farm had a program to use a repair procedure to fix chipped or cracked windshields rather than replace them. In 1997, State Farm subcontracted the handling of glass-only damage claims1 to Lynx Services, L.L.C. (“Lynx“). According to Cullen, Lynx, in conjunction with State Farm, developed a script2 that representatives would use to steer claimants to select windshield repair, even for claimants with no deductible.3 However, the repair
{5} In 2003, Cullen called State Farm to report damage to his windshield caused by a stone. He was transferred to a Lynx agent and agreed to have his windshield repaired rather than replaced. To encourage claimants to take the repair option, State Farm waived the deductible so that windshields were repaired at no charge to the insured. A policy provision to that effect was added in 1998.4 Cullen alleges that the script used by Lynx did not set forth all the options claimants had, a violation of state insurance regulations. Specifically, he alleges that Lynx never disclosed a “pay-out” option where claimants could receive a check for the entire amount of the windshield, less the deductible, and then have the windshield repaired at their own expense. Cullen argues this is the only option that would have been chosen by an insured had their options been fully explained to them. He further alleges that State Farm saved a great deal of money by pushing repair rather than replacement for these claimants. State Farm‘s cost of a new windshield averaged $342, even after the deductible was subtracted; the cost of repair was often less than $50.
{6} Cullen asserts that there are some 100,000 people who filed glass-only claims during the class period who may have been affected by State Farm‘s non-disclosure of all available options under the policy.
{8} “All persons and business entities covered under an Ohio motor vehicle insurance policy issued by [State Farm] who made a ‘Glass Only’ physical damage comprehensive coverage claim on or after January 1, 1991 for cracked, chipped or damaged windshields and received a chemical filler or patch repair, or payment thereof, instead of a higher amount for actual cash value or replacement cost of the windshield. The lesser of the amount of the actual cash value or the replacement cost of the windshield for each claim must exceed the insured‘s applicable deductible.”
{9} The definition also included two subclasses5 — those who had claims administered by Lynx and those who did not. State Farm then timely filed the instant appeal, raising three errors.
II. Law and Analysis
A. Class Certification Under Civ.R. 23(B)(3)
{10} State Farm first argues that “[t]he trial court erred and abused its discretion by granting the motion of plaintiff-appellee for class certification under Rule 23(B)(3).” In Baughman v. State Farm Mut. Auto. Ins. Co., 88 Ohio St.3d 480, 2000-Ohio-397, 727 N.E.2d 1265, the Ohio Supreme Court reaffirmed that the standard of review to be applied for class action certification is that of an abuse of discretion. A trial court
{11} The class action is an invention of equity. Its purpose is to facilitate adjudication of disputes involving common issues between multiple parties in a single action. Planned Parenthood Assn. of Cincinnati, Inc. v. Project Jericho (1990), 52 Ohio St.3d 56, 62, 556 N.E.2d 157. The plaintiff bears the burden of establishing the right to a class action. Shaver v. Standard Oil Co. (1990), 68 Ohio App.3d 783, 589 N.E.2d 1348. Class certification in Ohio is based on Rule 23 of the Ohio Rules of Civil Procedure, which is identical to
{12} In Warner v. Waste Mgt., Inc. (1988), 36 Ohio St.3d 91, 521 N.E.2d 1091, the Ohio Supreme Court listed seven elements necessary for a class to be certified. In determining whether a class action is properly certified, the first step is to ascertain whether the threshold requirements of
{13} Four prerequisites are explicitly set forth in
{14} The four delineated prerequisites in
{15} Finally, the trial court must also find that one of the three
{16}
i. Predominance
{17} State Farm first argues that Cullen fails to meet the requirements for class certification under
{18} In order to satisfy the predominance requirement, Cullen must show that the common questions of law and fact represent a significant aspect of the class and are capable of resolution for all members of the class in a single adjudication. Shaver v. Standard Oil Co. at 799; Wal-Mart Stores, Inc. v. Dukes (2011), 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374.
{19} The mere assertion that common issues of law or fact predominate does not satisfy the express requirements under the rule. In Waldo v. N. Am. Van Lines, Inc. (W.D.Pa. 1984), 102 F.R.D. 807, the court stated: “[It] is not simply a matter of numbering the questions in the case, [labeling] them as common or diverse, and then counting up. It involves a sophisticated and necessarily judgmental appraisal of the future course of the litigation * * * .”
{20} Where the circumstances of each proposed class member need to be analyzed to prove the elements of the claim or defense, then individual issues would
{21} Here, if Cullen‘s theory of the case is believed, the use of a common plan to steer claimants to opt for repair rather than replacement or disclosure of a cash payment for the value of the glass, less deductible, is a significant class-wide issue.
{22} According to
{23} State Farm argues that no such “pay-out” option exists in the insurance contract. Cullen argues that State Farm‘s policies provide that it will “pay loss to your car * * * but only for the amount of each such loss in excess of the deductible amount, if any.” Cullen further alleges that loss is further defined to give State Farm the option to “settle a loss with [the claimant] in any of the following ways: * * * ‘pay the actual cash value’ of the property at the time of loss, ‘pay to repair’ the damaged property or part, or ‘pay to replace’ the property or part.”
{24} Although hotly contested by the parties, the contract may provide for a cash payment option, as Cullen argues, but that may be discretionary to be decided exclusively
{25} State Farm acknowledged that it never repaired a windshield without a claimant‘s consent. This would indicate that State Farm does not retain absolute discretion over this decision in practice. Further, State Farm employees acknowledged that this pay-out option has been utilized by customers in the past.7
{26} The Supreme Court stated that “[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’ [Gen. Telephone Co. of S.W. v. Falcon (1982), 457 U.S. 147,] 157. This does not mean merely that they have all suffered a violation of the same provision of law. * * * Their claims must depend upon a common contention * * * That common contention, moreover, must be of such a nature that it is capable of class wide resolution — which means that determination of its
{27} Part of State Farm‘s predominance argument boils down to difficulty in calculating damages and that some members of the class would have no damages. If included class members had no damages, this would be inappropriate because Cullen‘s cause of action for breach of contract requires a showing of damages-in-fact to succeed. Estate of Mikulski v. Centerior Energy Corp., Cuyahoga App. No. 94536, 2011-Ohio-696, ¶14 (“appellants must demonstrate that they were actually damaged as an element of their breach of contract and fraud claims“).
{28} The trial court narrowed the class definition to only include damaged individuals, and difficulty in calculating damages should not stand as a reason to avoid class certification. If the fact of damages can be shown with certainty in a class-wide manner, difficulty in calculating the amount is insufficient to avoid certification. Hoang v. E*Trade Group, Inc., 151 Ohio App.3d 363, 2003-Ohio-301, 784 N.E.2d 151, ¶20; Estate of Mikulski at ¶20.
{29} The trial court broke down the class further into two subclasses — those who had their claims handled by Lynx and those who did not.
{31} The existence of the Lynx script or “word track” offers evidence of class-wide treatment that can reasonably establish evidence of Cullen‘s claim. The trial court‘s certification of this subclass of putative class members was not an abuse of discretion.
{32} However, Lynx was not involved in claims filed before August 1997, and its script cannot be used for claims made before this period. Cullen‘s theory of the case is that cash-out payments that were a benefit under the policy were never disclosed.
{33} In Cope v. Metro. Life Ins. Co., 82 Ohio St.3d 426, 1998-Ohio-405, 696 N.E.2d 1001, the Ohio Supreme Court found that generalized evidence that proves or disproves an element of the claim obviates the need to examine individual issues of reliance. Id. at 436. In the case of claims submitted before 1997, Cullen argues that he only needs to show that State Farm had an obligation to restore the claimant‘s vehicle to preloss condition, and he purports to offer expert testimony to show that a windshield can never be repaired to restore it to preloss condition. The use of generalized evidence found in the common contract between the entire subclass and the testimony and findings of Cullen‘s experts provides a means of resolving a significant question of breach of
{34} State Farm argues that by placing a calculation of damages within the class definition, Cullen has created an impermissible “fail-safe class.” This “refers to a class definition that is improper because the members of the class cannot be known until a determination has been made as to the merits of the claim or the liability of the opposing party. Adashunas v. Negley (C.A.7, 1980), 626 F.2d 600, 603. Thus, a fail-safe class ‘put[s] the cart before the horse.‘” Mims v. Stewart Title Guar. Co. (N.D.Tex. 2008), 254 F.R.D. 482, 486. Here, that is not the case because a mathematical calculation to determine whether a given windshield replacement is more expensive than a given deductible can be accomplished without trying the issues of the case and can be done in a straight forward, mechanical manner.
{35} However, State Farm has identified a group of individuals whose inclusion in the class is inappropriate. It argues that approximately 990 putative class members had their windshields repaired and then later replaced after complaining to State Farm about the quality of the repair. These individuals are included in the class under the current definition, but would have no damages similar to the claims of the class because their windshields were replaced. Therefore, the class definition should be amended to exclude these putative class members.
ii. Manageability
{37} State Farm‘s records, in conjunction with available industry data, contain the necessary information to arrive at a reasonable estimation of damages for each putative class member and to determine class membership. Therefore, manageability is not so insurmountable that class certification should be denied.
{38} Further, while several iterations of insurance policies cover the class period, the language in those policies that impacts Cullen‘s claim is substantially similar. The existence of these different policies does not preclude class-wide treatment of the claims at issue.
iii. Superiority
{40} Here, as in Hamilton, “[n]o individual has attempted to institute a parallel action or to intervene in this action, and it is unlikely that any new suits will be filed given the relatively small individual recoveries and the massive duplication of time, effort, and expense that would be involved. While the class is numerically substantial, it is certainly not so large as to be unwieldy. Class action treatment would eliminate any potential danger of varying or inconsistent judgments, while providing a forum for the vindication of rights of groups of people who individually would be without effective strength to litigate their claims.” Id. at 80. Based on all these factors, class treatment is the superior method of resolving the present dispute.
B. Class Certification Under Civ.R. 23(B)(2)
{42} Under this provision, a plaintiff must show that the defendant‘s actions impact the entire class and that final injunctive or declaratory relief is appropriate.
{43} The trial court found, “it appears that the same practices which [Cullen] experienced are still ongoing. Declaratory and injunctive relief are thus potentially available remedies which can be issued on a class wide basis in the event that he prevails upon the merits of his claim.”
{44} Here, Cullen seeks declaratory relief under
{45} State Farm argues that the declaratory relief sought is incidental to monetary damages.
{47} In Marks v. C.P. Chem. Co., Inc. (1987), 31 Ohio St.3d 200, 203, 509 N.E.2d 1249, class certification was denied for individuals who had foam insulation with toxic formaldehyde levels sprayed into their homes. The plaintiffs sought future diagnostic testing for class members in addition to damages. The Ohio Supreme Court declined to certify the class under
{48} Recently, in Dukes, the Supreme Court found that
{49} However, “[a]s the Supreme Court of Ohio stated, ‘[d]isputes over whether the action is primarily for injunctive or declaratory relief rather than a monetary award neither promote the disposition of the case on the merits nor represent a useful expenditure of energy. Therefore, they should be avoided. If the
{51} Appellant‘s second assignment of error is overruled.
C. Failure to Conduct a Rigorous Analysis
{52} Finally, State Farm alleges that “[t]he trial court abused its discretion by failing to conduct the rigorous analysis of the requirements for class certification under Rule 23 required by Ohio law.”
{53} State Farm claims the trial court did not undertake its own rigorous analysis of the
{54} The trial court presided over a hearing where both sides presented evidence on whether the class should be certified in this case and asked salient questions of both
{55} However, the trial court‘s findings of fact and conclusions of law do go too far into the merits of the case. One statement in particular is possibly outcome determinative. The trial court states that a cash pay-out option was available and that State Farm failed to disclose that option. This goes to the heart of the merits of the case and is inappropriate at this point. Class certification does not address the merits of the claim. This is understandable given that both sides argued the merits during class certification and continue to do so in their briefs before this court.
III. Conclusion
{56} For claims handled using a common script or word track, the trial court did not err in certifying the class in this case. Individual questions do not predominate because the script used by Lynx and developed by State Farm establishes class-wide treatment under Cullen‘s theory that State Farm breached its contracts with insureds by dissuading individuals from replacing their windshields and not informing them of their option to receive a check for the value of the windshield less their deductible. For claims made prior to the use of a common script, Cullen argues that the policy language
{57} This cause is affirmed as to certification of a class action, but reversed as to the class definition and remanded to the trial court to redefine the class.
It is ordered that appellant and appellee share the costs herein taxed.
It is ordered that a special mandate issue out of this court directing the common pleas court to carry this judgment into execution.
The court finds there were reasonable grounds for this appeal.
A certified copy of this entry shall constitute the mandate pursuant to
FRANK D. CELEBREZZE, JR., JUDGE
JAMES J. SWEENEY, J., CONCURS;
MELODY J. STEWART, P.J., DISSENTS (WITH SEPARATE OPINION)
MELODY J. STEWART, P.J., DISSENTING:
I
{59}
{60} While I agree that Cullen‘s complaint presents a common question on the issue of whether State Farm had to offer glass-only claimants the cash value of a replacement windshield, that was merely a threshold question that did not resolve other, equally important, class-wide issues. In Wal-Mart Stores, Inc. v. Dukes (2011), 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374,9 the United States Supreme Court cautioned that it is “easy to misread” the commonality requirement of
{61} There is no dispute that the class certified by the court encompassed policyholders in three distinct time periods: (1) from 1991 to March 1998, State Farm had no windshield repair language in its automobile policies; (2) from April 1998 to August 2005, State Farm had policy language stating that it would waive any deductible for a glass-only claim if the policyholder agrees to have the windshield repaired; and (3)
{62} As in Dukes, this class encompassed far too many theories of recovery under a “common” question to present a unified class. Different policyholders were at times covered under different versions of the State Farm automobile policy. Over the 20-year period, policyholders could be determined to have suffered losses, if any, under multiple variations on the theme of “glass only” claims. Some policyholders may have had their windshields immediately replaced while others had their windshields repaired. For those who had their windshields repaired, some had their deductibles waived while others did not. Some policyholders may have expressly given permission for repair while others may not have given permission. And, of course, some policyholders were advised under the Lynx word track while others were not. While there may be an initial common question of State Farm‘s obligation to offer a cash payment in lieu of repair, the many permutations of the underlying claim do not present common issues sufficient to justify certification into a single class of policyholders.
II
{63} I likewise find that the court erred by concluding that the class it defined was manageable.
{64} “Manageability” encompasses “the whole range of practical problems that may render the class action format inappropriate for a particular suit.” Eisen, 417 U.S. at 164. In determining manageability, the court should consider the potential difficulties in
{65} The need for individualized damage assessments adversely affects the need for class certification. Broussard v. Meineke Discount Muffler Shops, Inc. (C.A.4, 1998), 155 F.3d 331, 342-343. However, individualized damages assessments are manageable when “variables are identifiable on a classwide basis and, when sorted, are capable of determining damages for individual policyowners ***.” In re Monumental Life Ins. Co. (C.A.5, 2004), 365 F.3d 408, 419.
{66} In Conclusion of Law No. 14, the court conceded that “the recovery due each class member will not be identical,” but found that fact alone did not warrant a finding that the class would be unmanageable. The court found that State Farm had a computer database and “the ability to employ computer analysis of those records.” See Conclusion of Law No. 12.
{67} In In re Bridgestone/Firestone, Inc. (C.A.7, 2002), 288 F.3d 1012, 1018-1021, the court of appeals reversed class certification because the plaintiffs’ alleged defective tire design class action would be unmanageable because tires were recalled at different times, they may have differed in their propensity to fail, some vehicles were resold, some owners alleged they were advised to underinflate their tires, and there were six tire models representing 67 different designs.
{69} The court‘s confidence in its ability to wade through the difficulties posed by variable issues relating to damages assessments based solely on the rather nebulous idea that computers can sort it out is, I believe, misplaced. For trial purposes, it would be extraordinarily difficult to present damages issues as raised in this case. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (C.A.3, 2001), 259 F.3d 154, 191 (finding
{70} A class action must represent the best “available method[ ] for the fair and efficient adjudication of the controversy.”