CULLEN, APPELLEE, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, APPELLANT.
No. 2012-0535
Supreme Court of Ohio
Submitted February 26, 2013—Decided November 5, 2013
137 Ohio St.3d 373, 2013-Ohio-4733
O‘DONNELL, J.
{¶ 1} State Farm Mutual Automobile Insurance Company appeals from a judgment of the Eighth District Court of Appeals affirming class certification of claims brought by Michael Cullen alleging that State Farm failed to disclose all benefits available to policyholders who made claims for damaged windshields. This case clarifies the standards to apply when an appellate court reviews certification of a class action pursuant to
{¶ 2} A class action is an exception to the general rule that litigation is conducted by and on behalf of the named parties only, and therefore, to justify a departure from this rule, the representative of the putative class is required to affirmatively demonstrate that each requirement of
{¶ 3} Here, the appellate court affirmed certification of the class pursuant to
Facts and Procedural History
{¶ 4} In 2003, Michael Cullen contacted his automobile insurance carrier, State Farm, to report damage to the windshield of his car. After speaking with his agent, Cullen spoke to a representative from Lynx Services, L.L.C., a company that began handling windshield claims for State Farm in 1996. As a result of that conversation, Twinsburg Glass & Mirror repaired his windshield.
{¶ 5} In 2005, Cullen sued State Farm, requesting class certification and a declaratory judgment that State Farm‘s practices were illegal and violated obligations owed by fiduciaries pursuant to Ohio law. In addition, Cullen asserted claims for breach of contract, bad faith, and breach of fiduciary duty and sought compensatory and punitive damages. The complaint defined the class to include all State Farm policyholders on or after February 18, 1990, and alleged that State Farm had denied them full payment on windshield claims because, instead of replacing windshields, it repaired some windshields with a chemical compound that it knew or should have known was “only temporary, not entirely translucent, and incapable of restoring the windshield to its preaccident condi
{¶ 6} The trial court held a hearing on the certification issue. Although Cullen could not remember speaking to a representative of Lynx or whether he had been offered the choice of replacing his windshield or receiving the cash value of a new windshield, less his deductible, he asserted that State Farm agents and representatives failed to disclose to policyholders making “glass-only” claims that the policies contained a benefit referred to as the “cash-out” option. According to Cullen, although the State Farm policy promised its insureds the option of receiving a cash payment of the replacement cost of the windshield, less any deductible, it prepared a script for representatives to induce policyholders to repair their windshields without disclosing the cash-out option. State Farm referred to the outline it provided to its agents and representatives handling glass-only claims as a “word track,” arguing that it gave them discretion to respond to questions asked by insureds.
{¶ 7} The trial court concluded that Cullen and the class satisfied the requirements of
The Court is sufficiently convinced that Plaintiffs’ claims for relief are founded squarely upon standardized policies and practices which had been adopted and employed by State Farm throughout Ohio on a systematic basis during the Class Period. Given that the maximum individual recoveries will be relatively modest, separate lawsuits are not realistic. And it is doubtful that the Ohio judicial system could afford full and fair relief to thousands of aggrieved insureds on a case-by-case basis. A class action is thus the most preferable and superior method for adjudicating the common questions of law and fact, which the Court concludes, predominate over any individual questions which may exist.
{¶ 8} The trial court defined the class as follows:
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.
The trial court further divided the class into two subclasses: those insureds who had their claims administered by Lynx and those who did not.
{¶ 9} State Farm appealed, and the Eighth District Court of Appeals affirmed the order certifying the class pursuant to
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 simplifies the case to a showing that the policy in question required State Farm to restore vehicles to their preloss condition and that a windshield repair cannot do so. The theory, while dubious, does provide a means to resolve the case on a class-wide basis for these members. Therefore, the trial court did not err in certifying this class. However, the class definition must be restricted to exclude those who had their windshields replaced after repair.
2011-Ohio-6621, 970 N.E.2d 1043, at ¶ 56.
{¶ 10} We accepted State Farm‘s discretionary appeal regarding the class certification and the standards that apply to a review of an order certifying a class pursuant to
{¶ 11} A class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only,” Califano v. Yamasaki, 442 U.S. 682, 700-701, 99 S.Ct. 2545, 61 L.Ed.2d 176 (1979), and “[t]o come within the exception, a party seeking to maintain a class action ‘must affirmatively demonstrate his compliance’ with Rule 23,” Comcast Corp. v. Behrend, ___ U.S. ___, 133 S.Ct. 1426, 1432, 185 L.Ed.2d 515 (2013), quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, 131 S.Ct. 2541, 2551-2552, 180 L.Ed.2d 374 (2011).
{¶ 12}
“(1) an identifiable class must exist and the definition of the class must be unambiguous; (2) the named representatives must be members of the class; (3) the class must be so numerous that joinder of all members is impracticable; (4) there must be questions of law or fact common to the class; (5) the claims or defenses of the representative parties must be typical of the claims or defenses of the class; (6) the representative parties must fairly and adequately protect the interests of the class; and (7) one of the three
Civ.R. 23(B) requirements must be met.”
Stammco, L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St.3d 91, 2010-Ohio-1042, 926 N.E.2d 292, at ¶ 6, quoting Hamilton v. Ohio Sav. Bank, 82 Ohio St.3d 67, 71, 694 N.E.2d 442 (1998), citing
{¶ 13} This appeal does not challenge the determination of the trial court that Cullen and the class met the requirements of
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(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.
{¶ 14} Because
The Rigorous Analysis of the Trial Court
{¶ 15} In Comcast, 133 S.Ct. at 1432, 185 L.Ed.2d 515, quoting Wal-Mart, 131 S.Ct. at 2551-2552, 180 L.Ed.2d 374, the court stated that
{¶ 17} In Ojalvo v. Bd. of Trustees of Ohio State Univ., 12 Ohio St.3d 230, 233, 466 N.E.2d 875 (1984), we stated, “Class action certification does not go to the merits of the action.” (Emphasis sic.) However, deciding whether a claimant meets the burden for class certification pursuant to
{¶ 18} In Comcast, the Supreme Court reiterated that “it ‘may be necessary for the court to probe behind the pleadings before coming to rest on the certification question,’ and that certification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.‘” Comcast, 133 S.Ct. at 1432, 185 L.Ed.2d 515, quoting Wal-Mart, 131 S.Ct. at 2541, quoting Gen. Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160-161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). The court noted that “[t]he same analytical principles govern Rule 23(b)” and explained that “[s]uch an analysis will frequently entail ‘overlap’ with the merits of the plaintiff‘s underlying claim” because “““class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff‘s cause of action.““” Comcast at 1432, quoting Wal-Mart at 2551, quoting Gen. Tel. Co. of the Southwest at 160.
Standard of Review
{¶ 19} “A trial judge has broad discretion in determining whether a class action may be maintained and that determination will not be disturbed absent a showing of an abuse of discretion.” Marks, 31 Ohio St.3d 200, 509 N.E.2d 1249, syllabus;
{¶ 20} However, as we clarified in Eastley v. Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517, “[i]n a civil case, in which the burden of persuasion is only by a preponderance of the evidence, rather than beyond a reasonable doubt, evidence must still exist on each element (sufficiency) and the evidence on each element must satisfy the burden of persuasion (weight).” Id. at ¶ 19.
Certification of the Class
Civ.R. 23(B)(2)
{¶ 21}
applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.
(Emphasis sic.) 131 S.Ct. at 2557.
{¶ 22} For these reasons, certification depends on “what type of relief is primarily sought, so where the injunctive relief is merely incidental to the primary claim for money damages,
{¶ 24} Furthermore, Hamilton is distinguishable from this case on its facts. There, the class sought to enjoin the practice of overcharging interest and misamortizing loans. We concluded that without injunctive or declaratory relief, the class would not be able to recover for ongoing injuries caused to each class member by continuing practices. In contrast, the proposed Cullen class seeks a declaration “establishing that State Farm‘s practices as herein described are illegal and/or violative of the terms of the standard policies and the obligations owed by fiduciaries under Ohio law,” as well as one “establishing the damages and remedies that are due to them.” This does not allege that any ongoing practice continues to injure all class members, some of whom, like Cullen himself, are no longer State Farm policyholders and could not be injured by future actions taken by State Farm. And for any current policyholders to be harmed by this practice, they necessarily would have to suffer another damaged windshield that State Farm repaired rather than replaced.
{¶ 25} As the Supreme Court explained in Wal-Mart, “The key to the (b)(2) class is ‘the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.‘” (Emphasis added.) 131 S.Ct. at 2557, 180 L.Ed.2d 374, quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L.Rev. 97, 132 (2009). In this case, claimants have not demonstrated that all class members would benefit from the declaratory relief sought because, for example, some of the class members are not currently policyholders.
{¶ 26} The appellate court also relied on Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir.1998), for the proposition that certification of a class pursuant to
{¶ 27} Even if
{¶ 28} Accordingly, Cullen‘s action seeking a declaration that State Farm‘s practices are illegal and violated fiduciary obligations merely lays a foundation for a subsequent individual determination of liability and does not satisfy the requirements for class certification pursuant to
Civ.R. 23(B)(3)
{¶ 29} Certification pursuant to
{¶ 30} “For common questions of law or fact to predominate, it is not sufficient that such questions merely exist; rather, they must present a significant aspect of the case. Furthermore, they must be capable of resolution for all members in a single adjudication.” Marks, 31 Ohio St.3d at 204, 509 N.E.2d 1249. “To meet
{¶ 31} Rather than determining that Cullen proved compliance with
{¶ 32} Similarly, when deciding whether the pre-1997 policies obligated State Farm to restore the claimant‘s vehicle to preloss condition and whether expert testimony could establish that repair of a windshield will never return it to preloss condition, the appellate court declined to consider the merits of the claim—even though the court described this theory of recovery as “dubious“—but presumed that this theory “provide[s] a means to resolve the case on a class-wide basis for these members.” Id. at ¶ 56.
{¶ 33} Most importantly, the crux of Cullen‘s class action is that the insurance policies at issue provided policyholders with the option of a cash payment in lieu of repair or replacement of the windshield, but the appellate court did not determine whether the policies provided any such benefit, deciding that “[t]his 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.” Id. at ¶ 55. The appellate court further noted, “The trial court examined these issues and determined that Cullen has raised a colorable claim sufficient to satisfy the
{¶ 34} A colorable claim does not satisfy the requirements of
{¶ 35} Further, the appellate court did not even consider whether any of State Farm‘s defenses to liability raise individualized issues not susceptible of generalized proof. For example, State Farm asserts that it is not liable if an individual class member knowingly chose windshield repair—but individual consent and knowledge cannot be proven with common evidence. And if a windshield repair could return a vehicle to preloss condition—a question that neither the trial nor the appellate court resolved—State Farm‘s liability would be subject to individual examinations of each vehicle, not common questions.
{¶ 36} Rather than remand this matter to the court of appeals to consider these issues, our review of the record reveals that individual issues overwhelm the questions common to the class, and the trial court therefore abused its discretion in certifying the class action.
{¶ 37} First, this putative class action is premised on State Farm‘s alleged failure to disclose policy benefits through Lynx by using a script to steer insureds toward windshield repair. However, the class includes claims made beginning in 1991, even though Lynx began administering claims in 1997, and prior to that time individual State Farm agents handled windshield claims. But even after Lynx began to administer claims, policyholders had various individual, unscripted conversations with Lynx representatives, insurance agents, and repair-shop personnel, and there is no common proof of what any individual policyholder knew when consenting to windshield repair. Determining whether State Farm breached any obligations to insureds necessarily entails an individualized inquiry into each of these communications.
{¶ 38} Second, different versions of the policy covered putative class members on claims that span a period greater than 20 years. The policy in effect from 1991 to March 31, 1998, stated that State Farm would “pay for loss” to the policyholder‘s vehicle and that it had the right to settle the loss by paying the actual cash value of the property at the time of the loss, as determined by agreement or appraisal. State Farm could also pay to repair or replace the damaged property, and the policy limited its liability to the lower of the actual cash value or the costs to repair or replace the property. But even if, as Cullen contends, this language allowed class members to elect to receive the actual cash value of the windshield, the policy provides that “[a]ctual cash value is determined by the market value, age and condition at the time the loss occurred. Any deductible amount that applies is then subtracted.” Significant individual ques-
{¶ 39} Policies issued between April 1, 1998, and August 31, 2005, contained the same language as the prior policies, but they also stated: “If we offer to pay for repair of the damaged windshield glass instead of replacement of the windshield and you agree to have such repair made, we will pay the full cost of repairing the windshield regardless of your deductible.” Thus, in addition to the individual questions regarding the actual cash value of the windshield compared to the costs of its repair or replacement, this version of the policy introduces new individualized questions concerning whether the policyholder knowingly chose and consented to repair in exchange for State Farm‘s waiver of the deductible.
{¶ 40} State Farm later removed the deductible waiver for windshield repairs from subsequent policies, but individual questions regarding the actual cash value of a particular windshield and the costs to repair or replace it remain under this third variation of the policy.
{¶ 41} Third, the covered automobile, and therefore the value of the windshield compared to the cost of repairing or replacing it, varied. Multiple replacement windshields were available to glass shops over the decades-long period that the proposed class spans, and the costs of these windshields and the materials and labor needed to install them differed. State Farm adjusted the price it would pay based on the “market designation” assigned to each county, and these designations changed over time. The features of the covered windshield, such as tinting and rain sensors, also affected value and replacement cost. Thus, the costs to repair or replace a particular windshield varied by make, model, and year of the covered vehicle and by time and place of repair.
{¶ 42} Fourth, expert testimony presented in this case does not provide common proof that repairs failed to return all windshields to preloss condition. Cullen proffered the opinion of Craig Carmody that “[w]indshield repair fails to restore the windshield glass to an acceptable condition in terms of appearance and functionality in all cases.” But Carmody claimed to have examined only 17 to 22 repaired windshields, and it does not appear that his theories on glass repair have been thoroughly tested, peer-reviewed, evaluated for rate of error (including sampling error), or generally accepted in the scientific community. See generally Terry v. Caputo, 115 Ohio St.3d 351, 2007-Ohio-5023, 875 N.E.2d 72, ¶ 24-25, citing Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). However, even if the trial court found Carmody qualified as an expert witness and his theories scientifically reliable, his opinion that a repair fails to restore the windshield to preloss condition does not establish that common questions predominate.
{¶ 44} Thus, Carmody acknowledged “the huge variation that occurs in any repair, even in controlled conditions.” And notably, in examining Cullen‘s windshield with a microscope, Carmody could not determine that the repair had failed or that the crack had spread, and his assertions that a repaired windshield could delaminate and spall did not apply to Cullen‘s windshield, because the one-tenth-inch chip in it had not penetrated the PVB interlayer.
{¶ 45} Carmody also criticized a repaired windshield as not being as transparent as new glass. But he acknowledged that the transparency of repaired glass could “depend on the repair” and could be affected by real-world conditions, such as windshield-wiper abrasion and exposure to UV light and chemicals in the air. He also agreed that repair can restore transparency to windshield damage, and he did not know whether tests had shown that repairs can restore windshields to the transparency required by safety standards.
{¶ 46} Cullen‘s other proffered expert, Gary Derian, admitted that he had no expertise in windshield repair and relied on Carmody‘s glass analysis in forming his opinion that repairing a windshield failed to restore it to preloss condition, both aesthetically and from a safety standpoint. But he acknowledged that determining whether the resin in a repaired windshield had degraded and failed required individually examining that windshield and that performance varied based on the type of resin used and conditions such as “temperature, humidity, cleanliness, preparation.” When asked “whether or not the color of a resin changes over time,” Derian indicated that a change could not be assumed: “One would want to inspect and determine how much in cases of that, that particular [resin].” And when asked how he would decide whether a repaired windshield violated established standards, Derian responded, “[I]t would have to be done on a car by car basis with an automobile engineer present at each repair.”
{¶ 48} Thus, this expert testimony raises more individual questions than it resolves, and deciding whether State Farm breached any duty to restore policyholders’ windshields to preloss condition will require an individual inspection of each class member‘s windshield to determine the preloss and postrepair conditions, and these individualized issues necessarily predominate over any questions common to the class.
{¶ 49} Our analysis conforms with Avery v. State Farm Mut. Auto. Ins. Co., 216 Ill.2d 100, 138, 296 Ill.Dec. 448, 835 N.E.2d 801 (2005), where the Supreme Court of Illinois considered a claim for breach of contract that depended on restoring an automobile to its preloss condition and held that “[a] necessary first step in making this showing would be to examine each class member‘s vehicle to determine its preloss condition.” It further explained that “the determination of the preloss condition of each subclass member‘s vehicle would require the individual examination of hundreds of thousands, if not millions, of vehicles. Undoubtedly, these examinations would overwhelm any question common to the subclass, rendering it impossible for such questions to predominate.” Id. For this reason, the court concluded, “a claim for breach of the preloss condition promise cannot be maintained as a class action.” Id.
{¶ 50} In sum, the determination of preloss and postrepair condition, the preloss value and the costs to repair or replace a particular windshield, and the individual knowledge and consent of each class claimant entail inspection of tens of thousands of automobiles and an individualized assessment of the damages each class member sustained, if any. For these reasons, this action does not satisfy the predominance requirement of
Conclusion
{¶ 51} Review of the certification of a class action requires the appellate court to determine whether the trial court conducted a rigorous analysis that resolved all relevant factual disputes and found by a preponderance of the evidence that the requirements of
{¶ 53} Accordingly, we reverse the judgment of the appellate court and remand this matter to the trial court for further proceedings consistent with this opinion.
O‘CONNOR, C.J., and KENNEDY and MCFARLAND, JJ., concur.
Judgment reversed and cause remanded.
LANZINGER, J., concurs in paragraph three of the syllabus and in the judgment.
PFEIFER and O‘NEILL, JJ., dissent.
MATTHEW W. MCFARLAND, J., of the Fourth Appellate District, sitting for FRENCH, J.
O‘NEILL, J., dissenting.
{¶ 54} This is not a difficult class to define, and this case represents a perfect opportunity to breathe life into class actions in Ohio. Class actions promote judicial economy and allow resolution of issues that are economically unsolvable via individual actions. It goes without saying that one lawsuit that resolves one question is preferable to one thousand lawsuits on the same question. For the following reasons, I must respectfully dissent.
{¶ 55} The majority‘s analysis fails to differentiate between the factual showing that plaintiffs must make to be entitled to class certification and the factual showing that plaintiffs must make to survive a motion for summary judgment. While it may be difficult to separate them in some cases, here it is not.
{¶ 57} The majority first faults the appellate court for failing to determine whether the policies in fact provided the option of a cash payout in lieu of repair or replacement of the windshield, and then faults the trial court for its decision that “‘Cullen has raised a colorable claim sufficient to satisfy the
{¶ 58} And ironically, the appellate court noted that the trial court had gone too far into the facts of the case at the certification stage by finding that “a cash-payout option was available and that State Farm failed to disclose that option.” 2011-Ohio-6621, 970 N.E.2d 1043, at ¶ 55. In its rush to end this litigation, the majority faults the appellate court for failing to do something that it had no duty to do under our prior cases, and something that the trial court did in fact do, at State Farm‘s request. The majority has reached the opposite conclusion from that of the trial court on this factual issue, but the different perspectives are readily explained. The majority of this court did not have the benefit of the ten-hour certification hearing that the trial court did. That is precisely why we generally defer to the findings of trial courts.
{¶ 59} Our review in these matters is for an abuse of discretion. Such an abuse does not exist in this case. The class certification of the trial court was not
PFEIFER, J., concurs in the foregoing opinion.
Bashein & Bashein Co., L.P.A., W. Craig Bashein, and John P. Hurst; and Paul W. Flowers Co., L.P.A., and Paul W. Flowers, for appellee.
Baker & Hostetler, L.L.P., Mark A. Johnson, Joseph E. Ezzie, Robert J. Tucker, and Michael K. Farrell, for appellant.
Carpenter, Lipps & Leland, L.L.P., Michael H. Carpenter, and Katheryn M. Lloyd, urging reversal for amici curiae Nationwide Property and Casualty Insurance Company, Nationwide Mutual Fire Insurance Company, Nationwide Mutual Insurance Company, Nationwide Insurance Company of America, Nationwide Assurance Company, and Nationwide General Insurance Company.
Thompson Hine, L.L.P., and Stephen J. Butler; and Severson & Werson and Jan T. Chilton, urging reversal for amicus curiae American Financial Services Association.
Thompson Hine, L.L.P., Elizabeth B. Wright, Brian A. Troyer, and Stephanie M. Chmiel, urging reversal for amici curiae Washington Legal Foundation and Ohio Chemistry Technology Council.
Vorys, Sater, Seymour & Pease, L.L.P., Philip F. Downey, Robert N. Webner, and Robert J. Krummen, urging reversal for amici curiae Grange Indemnity Insurance Company and Grange Mutual Casualty Company.
Vorys, Sater, Seymour & Pease, L.L.P., Thomas E. Szykowny, and Michael Thomas, urging reversal for amicus curiae National Association of Mutual Insurance Companies and Ohio Insurance Institute.
Bricker & Eckler, L.L.P., Kurtis A. Tunnell, and Anne Marie Sferra; and Shook, Hardy & Bacon, L.L.P., Victor E. Schwartz, Mark A. Behrens, and Cary Silverman, urging reversal for amicus curiae Ohio Alliance for Civil Justice.
Shook, Hardy & Bacon, L.L.P., Victor E. Schwartz, Mark A. Behrens, and Cary Silverman, urging reversal for amici curiae Ohio Chamber of Commerce, Ohio Alliance for Civil Justice, Chamber of Commerce of the United States of America, and American Tort Reform Association.