*1 Partnership favor, Agree- Jiles’s breach of Jiles’s preserve sufficient to Wilson, City Therefore, ment. See Keller v. 168 rendition point. applica- under (Tex.2005). 802, 823, 827 precedent S.W.3d There- ble from Supreme Court of fore, Texas, legally the evidence is insufficient to preserved Jiles right his to rendi- jury’s damages finding. Ac- support tion of a take-nothing judgment regarding cordingly, this court should sustain Jiles’s these issues. Accordingly, this court second issue to that extent. should sustain in part Jiles’s first and sec- issues,
ond reverse the trial court’s judg- Conclusion ment, judgment and render that appel- not, lees take nothing. Because it does I Today, imposes this court on a limited respectfully dissent. partner highest duty recognized under upon majority’s law based “combi- analysis nation of relationships” under fiduciary relationship
which a arises from per- defendant’s associations third
sons rather than from the defendant’s rela-
tionship or with the dealings plaintiff. analysis contrary
This to Texas law and “fiduciary duty by results in association.” DENTON COUNTY ELECTRIC COOP unsettling, especial- The court’s decision is ERATIVE, INC. CoServ Elec d/b/a ly in a context. oper- business Businesses tric, Appellant Appellee, upon expectation ate based the reasonable recognize separat- courts will the lines ing corporations, partnerships, limited HACKETT, Individually Nicole and on When, case, legal persons. other as in this similarly situated, behalf of others ignored, those lines are expecta- settled Appellee Appellant. high tions are frustrated. Given the hur- No. 02-09-00425-CV. dle under Texas law for the imposition of a fiduciary duty, no member of the business Texas, of Appeals Court community expect fiduciary would to owe a Fort Worth. duty to one person upon based that mem- May 2012.
ber’s relationships dealings or with anoth- Rehearing July person, unprecedented er and it is for the Overruled today. court to so hold legally evidence is insufficient to (1)
support a finding relationship that a
trust and confidence existed between Jiles (2) Partnership,
and the Limited or any damages
Judith sustained amount of
resulting from Jiles’s breach of the Part-
nership Agreement, Corpo- that the any damages
ration sustained amount of from
resulting Jiles’s breach of the Part-
nership Agreement. The substance
Jiles’s motion for new an trial includes
express request judgment for rendition of *3 Florence,
Craig B. Mark Bayer, W. Randy Obenhaus, D. Stacy Gordon and R. LLP, Wynne Dallas, TX, Gardere Sewell for Appellant/Cross-Appellee. Benolken, Gretchen A. Benolken & Ev- erett, P.C., Burke, Wood, Sam B. Thacker P.C., Denton, TX, & Weatherly, Appel- lee/Cross-Appellant. GARDNER, WALKER,
PANEL: McCOY,JJ.
OPINION McCOY, BOB Justice.
I. Introduction In interlocutory appeal,1 Appellant this Denton County Cooperative, Electric Inc. (CoServ) CoServ Electric raises six d/b/a issues, complaining that the trial court by certifying erred this case as a class action. We vacate trial court’s class certification order and remand the case to the trial court proceedings.2 for further 1. disposition regard See Tex. Civ. Prac. & Rem.Code Because of our 51.014(a)(3) (West issues, Supp.2011). 2008 & CoServ's we do reach Nicole not February In History her source. to disclose Procedural
II. Factual Bra- provided he had admitted that Glover certifi- in this class underlying issue informa- personal members’ dy with the mem- rights involves appeal cation tion. cooperative and an electric bers of duties, fiduciary, and contractual statutory, against Brady filed a class action suit mem- to its any, if owed among February alleging, CoServ bers. fi- breached its things, other that CoServ by undermining coopera- duciary duty A. The Parties *4 in its refusal process tive’s democratic member-owned, nonprofit ais CoServ contact information make its members’ Tex- under the cooperative formed electric running for available to nonincumbents Act Corporation Cooperative as Electric board of directors. election to CoServ’s (ECCA). Tex. See UtiLCode to federal court3 removed the suit CoServ 2007). (West ap- It has §§ 161.001-.254 court initiated the instant suit state and 135,000 members, comprised proximately Glover, that Glover had alleging against and demo- of a diverse socio-economic pro- and released “CoServ’s confidential well residential users as group of graphic in violation of Co- prietary information” public and users. as commercial per- members’ policy protect its Serv’s a Hackett CoServ Appellee Nicole 310)4 No. and (Policy information sonal Brady, and Janice member. Mark Glover release of confi- had made an unauthorized members, in the parties also CoServ dential real estate information. CoServ’s a former Glover is Co- proceeding below. included breach of against claims Glover director, Brady unsuccessfully and Serv duty, misappropriation of trade fiduciary for election to campaigned in June 2008 secrets, prop- and conversion of CoServ’s CoServ’s board. acts, and erty, conspiracy to commit these directorship and 2008 breach of his 2005 Litigation B. The agreements.5 complained In a member CoServ counter-petition on his Glover filed a Brady from on receiving about a robo-call of a class consist- own behalf and on behalf during Brady’s phone unlisted number his members of Denton ing of current “[a]ll investigated, campaign. election CoServ Inc. entitled County Cooperative, Electric possessed that she Brady and admitted elections,” excluding the refused to vote in board information but personal members’ trademark, secret, program, or other regarding process, the trial Hackett’s three issues information, appointment of class legally protectable court’s decisions on confidential Tex.R.App. owned, See P. counsel and bifurcation. thing protected or in confidentiali- or contract, 47.1. Cooperative.” ty by Inc., Co-op., Brady Cnty. Elec. 3. See v. Denton copy alleged requested a 5.CoServ that Glover 4:09-CV-130, WL at *7 No. (E.D.Tex. personal while of the members' information 28, 2009) (remanding Sept. case to running against an incumbent director he was court). state gave in- challenger. Glover the a The board provides Policy that information No. was re- with restrictions. Glover formation corporate a nature will that is of confidential detailed in- and then asked for more elected membership, provided such as not be 2005 and 2006 on voters in the formation telephone names addresses "[t]he analyze "un- he could it to elections so that members, past current” or numbers and/or why.” voting who is derstand "[a]ny a trade information which constitutes CoServ, officers, Brady and its judge, fiduciary duty trial court and breach of than employees, and directors other Glo- breach of contract Glover. alleged
ver.6 He that CoServ failed to Brady filed an amended petition and provide open meetings, its members with Hackett combined her original petition in records, open voting and fair for board intervention Brady’s amended peti- by failing elections to disclose information They tion. referred to themselves collec- members, about CoServ to the and that Plaintiffs,” tively as “Class defined the vot- process had subverted the election CoServ subclass, ing listed their common questions in favor of incumbent directors. Glover class, of law and fact for the and made guard” contended the entrenched “old claims for breach of fiduciary duty, statu- nearly board was the same as the board duties, contract, tory as well as for bankruptcy that had driven into CoServ conversion, oppression, and fraudulent put manage- 2002 and that “continue[d] concealment. ment interests ahead of the interests of fiduciary the members to whom it owe[d] complained CoServ that Hackett and *5 duty.” Brady standing lacked argued that Hackett, Brady, and Glover were inade- intervention, in Brady petition filed a quate representatives, class that there seeking declaratory judgment that Co- were among irreconcilable conflicts the duty provide challengers Serv had a class, putative members the that a class with all voter lists and other information superior action was not the method of directors; available to incumbent that Co- adjudicating the dispute, and that common Serv’s member contact information is not questions predominate did not over indi- confidential, secret, a trade or otherwise vidual issues. privileged from disclosure to other mem- bers; Policy that No. 310 violates state Brady Brady’s and Hackett filed second law; providing that member information to petition amended and Hackett’s first a person running for election to the board petition amended in intervention on Au- of directors conforms with state law and gust day the same that the trial does not violate a board member’s fiducia- began five-day hearing court the on class duties; ry and that CoServ member infor- petitions certification. Their new omitted property. mation is not CoServ’s statutory the claim for breach duties. .of
The trial court denied motion CoServ’s Nonetheless, on November the to strike Brady’s petition intervention signed certifying trial court an order or, alternative, stay Brady’s law- 42(b)(2) procedure class under rule of civil Brady’s formerly suit based on similar suit that statutory included the duties claim as pending in the federal court. sub- CoServ an issue. sequently petition filed an amended following: The order set out the
against original pe- Glover and an verified ORDERED, against Brady, tition IT alleging trade secret IS ADJUDGED AND conversion, misappropriation, Voting and “con- that the Subclass is DECREED spiracy/aiding abetting” by comprised Glover and of: herein,” equity alleged 6. Glover an also sued on behalf of lawful acts but because the subclass, certify current and trial did not this and no "[a]ll former members court subclass— who have revolving equity capital appeals the denial of certification as furnished one class, part by equity pertinent been taken in this not has whole or subclass is 'discounting' program CoServ’s or other un- to our resolution here. members’ voting lates sub-class entities who or persons All to members’ infor- rights access [of] of Denton members currently are for use in connection mation Inc. Cooperative, County Electric d/b/a Elec- Board of Director CoServ’s (“CoServ”); but ex- Electric CoServ proper cooperative and other tions CoServ, all any and CoServ cluding purposes; directors, officers, affiliates, and em- (cid:127) CoServ, policies prac- of this CoServ’s members Whether ployees the ac- case, providing tices fall short of Court, attorneys in this and records to cess to its books families of the immediate members of Voting Subclass members which individuals. the excluded any of entitled; certify Voting determining to In (cid:127) practice pro- Whether CoServ’s Subclass, following makes Court management vote tallies to viding findings: during CoServ and board members Voting comprised Subclass is 1. The Elections violates CoServ’s' Board 135,000 members. Join- approximately to maintain democratic obligation im- individually them of each of der cooperative; control over the practicable. (cid:127) own Whether CoServ violated its multiple questions of law 2. There are regarding voting, balloting, policies Voting that are common and fact etc. in a manner that counting, vote of them include: Subclass. Some obligation provide violates its (cid:127) *6 bylaws the CoServ Whether and/or operation of to democratic CoServ relating governance, to di- policies members; its elections, voting and consti- rector (cid:127) practice of allow- Whether CoServ’s contracts between tute enforceable to member infor- ing unequal access Subclass; Voting the CoServ and obligation pro- mation violates its to (cid:127) materially breach- Whether CoServ operation vide democratic CoServ re- relationship(s) ed its contractual members; to its elec- lating governance, to director (cid:127) prac- the CoServ election Whether tions, Voting with the voting democratic; are fair tices and/or Subclass; (cid:127) poli- the election Whether CoServ (cid:127) fiduciary is a of the Whether CoServ are applied cies as written and/or Subclass; Voting democratic; fair and/or (cid:127) its fidu- breached Whether CoServ (cid:127) polices Whether as written CoServ’s Subclass; Voting ciary duty to the ap- of interim practices its and/or (cid:127) statutory has a Whether CoServ pointment of directors fair duty Voting the Subclass vis-a-vis to democratic; and/or elections, and governance, director (cid:127) as writ- policies Whether CoServ’s voting procedures; practices wrongfully ten its and/or (cid:127) breached its statu- Whether CoServ making delegate decision and/or
tory duty Voting Subclass management control of CoServ the cooperative’s connection with democratically than the elect- rather elections, Directors; governance, director ed Board of voting procedures; (cid:127) Voting the Subclass is enti- Whether (cid:127) judicial cur- Policy 310 as tled to a determination Whether CoServ’s legal equitable obligations
rently interpreted by vio- CoServ owed CoServ to its members as members to member contact informa- alleged. tion in the context of cooperative di-
rector elections and other information of cooperative regarding governance its 4. The claims of Nicole Hackett are practices. and business typical Voting of those of the Subclass.
Nicole Hackett is a current CoServ standing. member and has All class Representative Class seeks at least Voting members of Subclass are Co- following regarding declarations Co- Serv are impacted members and thus if governance practices Serv’s on behalf of operate democratically CoServ does not voting subclass: policies practices its election and/or (1) Policy CoServ’s currently 310 as in- Any are unfair to its members. claims terpreted by CoServ violates Voting related to these are typical issues within Subclass rights members’ access Voting Subclass. There are no con- members[’] information for use in con- flicts between Nicole Hackett and the nection with Coserv’s Board of Director Voting other members of the Subclass. proper Elections and other 5. Nicole Hackett an adequate Vot- purposes; ing representative. Subclass She is a (2) policies practices CoServ’s fall CoServ member who has demonstrated short of the access to its books and will represent Voting she Sub- records to which the Voting Subclass class members’ interests and advocate entitled; members are best interests of the class. She accepts fiduciary understands and her class, role as to the as well proper as her practice CoServ’s un- allowing relationship with class counsel. She has equal access to member information vio- an adequate demonstrated understand- obligation provide lates its democratic ing Voting Subclass claims. She members; operation of CoServ to its *7 (and has) participated
will in settlement discussion, and previously attended (19) statutory duty CoServ has a to the court ordered mediation. She has re- Voting governance, Subclass vis-a-vis di- adequate tained class counsel. elections, voting procedures; rector and The order also set out the declarations and sought by representative the class before statutory duty CoServ breached its stating that the entitlement to the declara- Voting gover- to the Subclass vis-á-vis tory, injunctive, sought by and other relief nance, elections, director voting pro- and the Voting Subclass could be determined cedures. by the law applying to the facts common to class, including entire the following: The trial court in that it indicated its order below, specifically As described more would determine whether corporate Texas governance statutes and law Representative alleged ap- Class has common seeking declaratory, injunctive plied entity chapter claims to an formed under and other relief regarding rights certain 161 of the utilities code.7 7. The parties try Voting class certification order also included a in this case by first, statement the trial court that it intended to prejudice Subclass case in order to avoid Voting bifurcate the However, Subclass claims "from Voting Subclass.” in the any by other claims counterclaims made hearing, CoServ the class certification petition a second amended
Hackett filed signed the trial court after complaint intervention that it does on raised the same day and one before the certification order “many proposed of decla- appeal, [the] interlocutory of this filed its notice CoServ were not order] rations the certification [in which she petition, In her new appeal. file at the supported by pleadings on individually representa- and as class filed 7-8, 11, example, For Declarations time. Subclass, set Voting Hackett tive of plead- supported and 13-20 are not injunctive declaratory out claims on file at the time of the ings that were relief, of fiduciary duty, breach breach Here, we are concerned hearing.” class contract, She and fraudulent concealment. as set only with Declarations 19 breach of statu- also renewed the claim for in our recitation of the facts. out above attorney’s sought fees.8 tory duties class approval Hackett moved for rule, an amended general As a notice, granted. which the trial court original pleading. pleading supersedes the issues set out the class notice common Rhodes, 02-08-00420-CV, v. No. See Conn in the class certifi- parallel those included (Tex.App.-Fort at *3 2009 WL appealed order. CoServ then cation (mem. op.) Aug. pet.) no Worth on Hackett’s motion for trial court’s order trial plan. class certification and Tex.R. P. and Sheerin v. (citing Civ. (Tex.App- Corp., Exxon III. Class Certification writ) (op. on Houston [1st Dist.] issue, In its fourth contends that CoServ rule, party may this reh’g)). Under the trial court misunderstood or failed to voluntarily by omitting claims dismiss underlying the law the substan- consider Id.; pleading. them from the amended see therefore tive claims made Hackett and P’ship, Regents FKM Ltd. v. Bd. faulty on granted class certification based Sys., Houston Univ. of assumptions. dispositive. This issue is (Tex.2008) an amended (noting However, it, may before we reach we must voluntary pleading effects a dismissal determine whether CoServ is correct plead not included in the amended claims part of its third issue in which it And, practice ing). generally, under civil trial argues that the trial court’s order and 51.014, section we con and remedies code plan satisfy Refining do not Southwestern file at the time pleading sider the live on Bernal, (Tex.2000), Co. S.W.3d inter appealable the trial court entered its decla- proposed because the order recites *8 locutory order. Tex. Prac. & See Civ. by supported rations are not 51.014; City Arling Rem.Code Hackett’s pleadings on some of substantive (Tex. Randall, 896, v. 301 S.W.3d 906 ton claims. denied) (set 2009, pet. Worth
App.-Fort Pleading A. Live live on ting pleading out claims from the city’s the trial court denied the file when At the hearing proposed on the order, Presbyte- plea jurisdiction); class two after see also certification months order, plan and which she now com- trial attached to the the trial court trial court denied However, provision regarding lined out the bifurcation. plains appeal. in her as not- about above, because we vacate the trial court’s ed Additionally, 8. filed a for Hackett motion order, reach the class certification we do not leave to allow class counsel associate presents appeal. Hackett in her See issues any purposes appellate for outside counsel Tex.R.App. P. 47.1. certification, relating work which the class
773 Smith, Cmty. Hosp. Denton v. 314 has no rian contract with its members via its 508, (Tex.App.-Fort 511 Worth bylaws; S.W.3d oppression claim; is not a viable (setting out claims from live pet.) and it no statutory owes duties to its mem- pleading hearing at the time of the second bers under the Hackett responds ECCA. dismiss). hospital’s on the motion to contractual, that CoServ owes statutory, fiduciary duties to its members and August day On the first that she has abandoned her claim op- hearing, Brady class certification pression. Brady’s pe- Hackett filed second amended petition
tition and Hackett’s first amended 1. Standard of Review in intervention. This document constitut- ed the live pleading when the trial court Rule of civil procedure gov 42 issued its certification order. class erns class actions in Texas. See Tex.R. a claim pleading specific did not include for Civ. P. 42. We review the trial court’s duties, statutory breach of unlike the im- certification for an abuse of discretion. mediately July filed in preceding pleading Hold, Sw. Bell Tel. Marketing Co. v. on However, pleading the new still set Inc., (Tex.2010). 308 S.W.3d forth the facts that are the basis of the However, we do so indulging “without ev claim, statutory breach of duties and it is ery presumption in favor of the trial five-day clear from the record of the hear- court’s Stonebridge decision.” Ins. v. Life ing Brady on and Hackett’s class certifica- Pitts, (Tex.2007) statutory tion motion that breach of duties Schein, Stromboe, (citing Henry Inc. v. an upon they sought was issue which re- (Tex.2002), Bernal, S.W.3d equivalent lief—the being “by tried con- 439). 434-35, S.W.3d at “Actual conform See, e.g., sent.” Tex.R. P. 67 (stating Civ. ance with Rule 42 indispensable, is by that when issues not plead- raised compliance with the rule must be demon ings are tried con- express implied strated, presumed.” not Id. at 205. parties, they sent of the shall be treated in all if respects they ruling as had been raised Prior to on a motion for Therefore, certification, class pleadings). perform we overrule this courts must portion of “rigorous analysis” CoServ’s third issue.9 to determine whether all prerequisites to certification have been B. Law Substantive met, approach and a cautious to class issue, Bernal, specifically In its fourth certification is essential. CoServ 435; see complains improperly Compaq Comput that the trial court S.W.3d also Corp. Lapray, certified the er v. significant class based on a (Tex.2004) misunderstanding of the law it (applying because Bernal to rule 42(b)(2) members; certifications). fiduciary duty owes no to its it It improper See, long hearing proposed legal 9. Not after the e.g., on the substantive issues later. Davis Hemphill, class certification order and before CoServ (Tex.Civ.App.- 243 S.W. *9 1922, writ) (stat- interlocutory appeal, (op. reh’g) filed its notice of this Fort Worth no on Brady petition, ing and Hackett amended their that it would be a act useless on the re-adding statutory part judgment just the breach of duties court's claim. to reverse the be- Therefore, it would be a useless act on our cause the trial court committed a technical time); part overruling to reverse the class certification on in order error a motion for further Duke, 20, merely this basis Tex.Civ.App. because the trial court com- see also Wheeler v. 909, 23, 1902, writ) by signing (Tyler mitted a technical error a flawed 67 S.W. no ("[A] subsequently order that required perform now matches the filed court never is a act.”). pleading, only to have to review the same vain useless code and sections organizations how the business certify knowing a class without code tried, and 161.072 of the utilities likely will be and to 161.070 can and claims by- duties under must and contractual CoServ’s analysis, a the court proper make claims, defenses, portions The first of these claims the relevant laws. understand statutory interpreta- of present question law to a applicable substantive facts and determination of the tion. meaningful make a Bernal, 22 at issues. S.W.3d certification statutory general provi When a 435, a class action is (explaining that special statutory pro conflicts with a sion device intended to advance procedural a vision, construed, provisions both shall be economy by trying togeth claims
judicial
both;
if the
give
if
effect to
but
possible,
lend themselves
to collective
er
that
irreconcilable,
special provi
conflict is
and is not meant to alter
treatment
exceptions.
prevails absent certain
sion
proof, right
jury
of
to a
parties’ burdens
Servs., L.L.C.,
Mgmt.
v.
Chesser
LifeCare
trial,
prerequisites
or the substantive
(Tex.App.-Fort
Worth
356 S.W.3d
v.
recovery);
Corp.
also Exxon Mobil
see
pet.); see also Tex. Gov’t Code
(Tex.2009) (stat
Gill,
311.026(b)(West 2005)
(stating
Ann.
that
that the substantive law must be tak
ing
prevails
excep
as an
special provision
determining
en into consideration
general provision
tion to the
unless the
can meet the
purported
whether the
class
the later enactment
general provision is
42);
prerequisites
certification
under rule
general
that the
and the manifest intent is
Hankins, 111
Grp.
Pac. Res.
Union
prevail).
provision
(Tex.2003)
(stating
that
S.W.3d
initially
note
that section 2.010 of the
We
Yzaguirre
“[b]y choosing
delay analysis
organizations
“[a]
business
code states
Resources, Inc.,
KCS
[v
.
corporation may
orga
not be
nonprofit
stage
litiga
until ‘another
]
registered
nized or
under this code to con
tion,’
appeals ignored appli
court of
(1) engage
to:
duct its affairs
this state
law
cable substantive
crucial to under
coop
...
operate
in or
as a
rural electric
defenses,”
standing the claims and
corporation.”
Orgs.Code
erative
Tex. Bus.
that the substantive law in Yza-
requiring
(West 2011)
2.010(1)
(setting
§Ann.
out a
“in
guirre be taken into considei’ation
de
associations);
see also
list
purported
whether
class
termining
(1998),
Att’y
Op.
Tex.
Gen.
No. DM-479
prerequisites”).
can meet the certification
*2 (noting
available at 1998 WL
a class has been certified based on
When
Corpora
that since
the Non-Profit
law,
misunderstanding of the
significant
expressly
Act
excluded from its
tion
has
appropriate
remand to the trial court is
cooperatives organized
par
for
application
the effect on
may
so that
it
determine
purposes,
including
ticular
rural electric
for
certification.
requirements
class
cooperatives, because each one of the ex
Gill,
(vacating
a person who is not a member of the
1528b,
we held that former article
section
association);
Safety
Tex. Health &
Code
36 of the ECCA10
not control because
did
(West 2010)
§
(stating
301.003
it
purport
regulate
height
did not
of
eligible
creating
hospital
institutions
a
safety
transmission lines or contain
meas
laundry cooperative
may
association
file
stated,
any
of
ures
sort.
Id. We
“It is not
incorporation
articles of
under the state’s
(West
law),
reasonable to
general
suppose
Legislature
§
that the
corporation
301.033
2010)
by the enactment
(stating
eligible
quoted
institutions cre-
of the above
Sec
a
ating
coop-
exempt corporations
miscellaneous health-related
tion 36 intended to
may
erative association
prepare
organized
general
and file
under said statute from
1528b,
added),
(emphasis
repealed by
May
Article
section 36 of the revised
Act of
8, 1997,
R.S.,
predecessor
Leg.,
§
civil statutes
was
to section
75th
ch.
stated,
complete
Utility
161.005 and
Act
"This
Tex. Gen. Laws
1018. The Public
controlling.
provisions
Regulatory
itself
repealed
and shall be
Act
the second sentence
1528b,
any
except
provid-
other law this State
as
article
section 36. Cent. Power &
Act,
Tex.,
apply
corporation
ed in this
Light
shall not
to a
Co. v. Pub. Util. Comm'n
(Tex. 1983)
organized,
process
organization,
(holding
or in
under
S.W.2d
that a
30, 1937,
Leg.,
legislature
Act." Act
prevent
legislatures
this
of Mar.
45th
cannot
future
R.S.,
statute).
amending
repealing
ch.
1937 Tex. Gen. Laws
from
*11
right
member’s
to
for a
provides
the kind which
regulations of
safety
or
police
1436a,
See Tex. Bus.
l.11
books and records.
inspect
section
for”
article
provided
22.152-.154, .158,
§§
Lone
Elec.
.351.
Rothwell v.
Ann.
Orgs.Code
Id. But see
Wolf
(Tex.
Inc.,
Co-op.,
However,
161.060
utilities code section
n.r.e.)
1969, writ ref'd
Civ.App.-Eastland
liable for a
that a member is not
provides
corporations act
business
(stating that the
except for
cooperative
of an electric
debt
inapplicable
were
amendments
and its
(1)
the member
a debt contracted between
of em
regard to breach
the ECCA with
(2) an amount not
the
or
and
the
contract
issue because
ployment
mem-
amount of the
unpaid
exceed the
addressing
provision
specific
had a
ECCA
Tex. Bus.
Compare
fee.
membership
ber’s
expressly
act
de
the other
the issue and
22.152,
§
Tex.
Ann.
with
Util.
Orgs.Code
co-ops apply
not
clared that it did
§
And utilities code
Ann.
161.060.
Code
only if the
apply
provided that
it would
for an annual
provides
161.067
section
excepted
applying
statute
special
Orgs.Code
Bus.
meeting. Compare Tex.
co-ops
corporations
domestic
—con
—like
22.153,
Ann.
§
Tex.
Ann.
with
Util.Code
regard to some
provisions
tained
and when an
(stating
§
where
161.067
in the business
provided
matters
for
meeting
its
cooperative will hold
electric
act).
corporations
may
special
call a
setting out who
Electric,
not a
Tri-County
this is
Unlike
members).
utili-
light
In
of
meeting of the
injury
involving standards
personal
suit
161.005,
provides
which
ties code section
construction,
and maintenance
operation,
in itself and
complete
that
ECCA
a. Electric Brault, Equity F. Financing Coopera- tives: Advantageous Federal Securities ruling, attorney In a 1998 letter Treatment, Law and Tax 21 Willamette general “coop- reviewed what constitutes a (1985). 225, Specifically, L.Rev. 226 “a these corporation erative” and described it as principles, called the “Rochdale Princi- organized purpose or association for the services, ples,” are the gain principles guided without that “have providing economic itself, the formation of cooperative to shareholders members who businesses it,” defining throughout own and control with the char- the world and serve as the being obliged identifying acteristic of to distribute net essential characteristics of co- proceeds operative Brault, to its members in the form of organizations.” business patronage refunds or dividends amounts Willamette L.Rev. at 226. The Roch- by Principles determined the use made the mem dale open membership; control; bers of the association facilities. Tex. democratic limited return on (1998), Att’y No. Op. capital; Gen. DM-479 avail member use of new savings for services, able at *1 (citing development, 1998 WL at common and distri- Grocers, States, refunds; Ltd. v. patronage United United bution of cooperative (N.D.Ca.1960), education; F.Supp. aff'd, cooperation among cooper- (9th Cir.1962), F.2d 634 and Roswell Ma atives.12 Id. Merrill, gill & Allen H. The Taxable In In comparing cooperatives corpora- Cooperatives, come 49 Mich. L.Rev. tions, (1950)). Additional characteristics typical consider the structure of a that distinguish cooperatives from other corporation. business business structures include “the features wishing Persons to become equity voting; of democratic control and distribu participants corporation buy in a stock. tion of economic benefits on an basis equal gives right This stock the owners the or proportionate use made of association directors, generally elect on the basis of facilities; capital; limited return on and of the number of shares owned. Share transaction of business with their own ownership equity partic- also entitles the Id.; members.” see also United States v. ipants earnings pro to share in on a rata Corp.,
Miss.
Chem.
U.S.
agreement among
basis. Absent
(ob
S.Ct.
Supreme Court *13 will be considered are mining ownership capital when “stock” limited. Fourth, security. to a who use the producers coop- be substantially opera- erative finance its generally do not share Cooperatives tion. First, coopera- these characteristics. may may or not issue “stock” to tives litany This of attributes makes for members; in a equity participation them traditional, ready comparison with the forms. In co-op many can take different In for-profit corporate form. the case of addition, may be re- while members corporation, gen- a shareholder-owners “membership quired buy to some sort share, erally per meaning have one vote joining a condition to the interest” as voting rights proportion- are held a cooperative, majority the traditional ately equity to each shareholder’s invest- equity comes from re- cooperative’s addition, enterprise. ment in the In a rather than patronage tained dividends equity typically shareholder’s interest is Finally, external “investment.” even acquired through investment in the purchased,
where is its function “stock” (and itself, may although stock the stock typically only give members the will) hopefully appreciate value. The right co-op’s to use the services and may recouped through investment be voting It not determine facilities. does upon appreciat- or sale of the dividends rights right profits or the share open ed stock on the market. Most venture, any. Cooperatives the if from redeemable, stock is not nor is redemp- generally per on a one-vote operate way in which typical tion the the value of basis, regardless member of the relative an in corporate investment stock is real- of the members or the num- investment therefore, In a general, ized. stockhold- membership ber of interests shares generally er’s income is based on stock Similarly, although owned. members right the ownership, as is stockholder’s generally voting rights in equal have participate upon in distributions dis- cooperative, member income is based on solution are liquidation. shares patronage equity ownership. rather than transferable, generally freely unless the upon Distributions dissolution also agreed shareholders have limit this patronage based on rather than the Moreover, right. generally there is proportionate capital members’ invest- requirement that the owners of a busi- addition, membership rights, ment. In corporation corporation’s ness “use” denominated, usually however are not products. facilities or freely typically transferable and do not have potential appreciation. Thus, none of the essential attributes evaluating In of a form of business fit characteristics cooperative, corporate it been that: the traditional model. This has said explains why fact some commentators
Any a cooperative definition of must complained “viewing co-op- have account for four operationally-unique corporation erative as a distorts its true First, cooperative principles. cooper- ordinary an corporation nature because democratically atives are owned and may operate exist and from its own de- producers controlled who use Second, power base whereas a co-opera- tached coopera- their services. body apart tive tive cannot exist from a pro- distributes its net income to in proportion people ducers to their use of who are its members.” Goforth, Application R. the Fed- the regulation Carol and management of the co- Equity Laws to operative’s eral Securities Interests affairs that is consistent with Agricul- in Traditional and Value-Added incorporation). articles of And its Cooperatives, tural 6 Drake L. Agrie. J. business and affairs are managed by a (citations omitted). directors, board of each of whom “must be a member of cooperative.” Id. b. The ECCA 161.071(a). Each present member at a The ECCA defines a “member” “a as meeting of the membership of an electric *14 person membership admitted to in the cooperative is entitled to one vote on each cooperative provided by electric as Section matter submitted to a vote at meeting, the 161.065.” Tex. Ann. Util.Code although bylaws may the provide for vot- 161.002(5); § Rep. see also Jim Cooper, ing by proxy by § or mail. Id. 161.070. Co-operatives: Electric From Neiu Deal to Although very there is little case law inter- Bad Harv. Legis. Deal? 45 J. on preting chapter it appears that its (2008) (“Electric co-ops by are owned their emphasis cooperatives all —as —lies customers, who are called ‘members’ of the member participation and ownership. co-op due to their dual role as custom-
er/owner.”). Comparison Section 161.065 states that a c. person eligible is to become a member if ECCA, In comparison to the the busi- structure, he dwelling, appa- or she has a organizations ness require code does not ratus, point delivery or of at which he or nonprofit’s board of directors to be com- she not receive central does station service posed of nonprofit’s the members. Com- from another source and in an area where pare Tex. Orgs.Code § Bus. Ann. 22.203 cooperative provide is authorized to (stating that a required director is not (1) energy, electric and he or she uses or be a member unless the certificate of for- agrees energy to use electric or facili- bylaw mation or a imposes require- that ties, supplies, equipment, or fur- services ment), with Tex. Ann. Util.Code cooperative nished dwelling, 161.071(a) § (stating that each director structure, apparatus, point delivery, or of must be a member cooperative). of the or an incorporator cooperative. is of the organizations business code also sets 161.065(a). § Tex. UtiLCode Ann. Mem- procedures out to amend the certificate of bership cooperative an electric is not corporation formation of a “with members transferable, and a membership certificate having voting rights” and of one that has in an electric cooperative exempt from no members or has members with vot- Sky 161.063, §§ the Texas Blue Law.13Id. ing rights, Tex. Ann. Orgs.Code Bus. .065(c). 22.105, .107, §§ provides and it that each member, provides class,
The ECCA that an electric regardless co- is entitled to operative operate shall profit without to its one vote on each matter submitted to a members, members, but it also a statutory corporation’s contains vote of the “except distribution scheme to return revenue to to the extent voting rights that (c)-(d). 161.059(a), § limited, members. Id. The members of a enlarged, class are cooperative’s bylaws regulate manage or denied the certificate of formation § its affairs. See id. unlike (stating bylaws corporation,” 161.064 of the the one- bylaws may member, any provision contain one-vote provision the ECCA. Daccach, Sky regulates 13. The Texas Blue Law the sale Ins. Co. Am. v. (Tex.2007). of securities in and from the state. Citizens code, as 22.160(a), organizations the business with Tex. sions of § Util. Compare id. legislature fact that the deliber- well as the §Ann. 161.070. Code only ately incorporate specific chose to two provisions There are two ECCA organizations of the business provisions incorporate portions specifically ECCA, we conclude that the code into the See Tex. code. organizations business elec- provide not intend to legislature did .121(10). 161.078, In §§ Ann. UtiLCode members with the same tric 161.078, in- specifically the ECCA section organizations out in business rights set business corporates provisions 22.154, 22.158, 22.351. code sections to mandato- pertaining code organizations 161.078, §§ Tex. Ann. Compare Util.Code indemnification, ad- ry permissive 161.121(10) spe- (deliberately incorporating in- liability expenses, vancement of organizations of business provisions cific (incorporating surance. See id. 161.078 code), Agrie. with Tex. Code of the revised former article 1396-2.22A 51.002, 52.004, 55.003; §§ Tex. Health & *15 statutes, found in business or- civil now 301.003, .033; §§ Tex. Safety Ann. Code 8.051-.052, sections ganizations code 162.079; § Ann. also First Util.Code see .151-.152, 8.101-.105, provide that & Loan Ass’n Twin Falls v. Fed. Sav. of indemnify cooperative may an electric Co., E. Mut. Elec. 112 Idaho 735 End indemnity insurance in the provide (Idaho Ct.App.1987) 1077-78 P.2d and to the same extent as same manner (stating Legislature evidently that “[o]ur under the busi- nonprofit corporation type that this of service has determined code). In section organizations ness nonprof- provider unregulated, private, [an 161.121(10), specifically incor ECCA typically cooperative], it electric which of the Non-Profit porates provisions is group a limited of customers and serves general Corporation pertaining Act to its themselves, mer- by owned the customers for powers “any power, to exercise other intrusion”); degree public its a lesser cooperative organized, which the in Hunerjager Membership v. Dixie Elec. purposes that cluding other or additional Corp., (La.Ct.App.) 434 So.2d 591 nonmembers, either benefit members and (concluding member-plaintiffs had no affiliates, described in directly through or statutory right cooper- to examine electric A, 2.01, Texas Non-Profit Section Article although there ative’s records because (Article 1396-2.01, Act Ver Corporation provisions were for records exami- specific Statutes).” Id. non’s Texas Civil Corporation in the Business Law nations 161.121(10) (incorporating provisions § Law, there Corporation and Non-Profit organizations now found in business code Coopera- were no sections in the Electric 22.051); Co-op., section Hilco Elec. examination of rec- regarding tive Law (stating at 77 that the. en S.W.3d ECCA by membership and the Electric ords titles an electric to create and Cooperative provide Law did not that the for-profit company necessary, own a “if nonprofit corporate law was business or convenient, to effectuate appropriate provisions), to its writ de- supplementary permitted purposes: rural [ECCA’s] (La.1983). nied, Rectifying So.2d like those list purposes electrification or this situation is a task best suited for the 1396-2.01(A) ed in article of the Non Therefore, legislature. por- we sustain the Act”). [Corporation] Profit pertaining fourth issue tion of CoServ’s coop- statutory Based on the nature of the electric duties claim under the breach specific organizations erative and the differences set out business code sections 22.154,22.158, compared provi- in the as and 22.351. ECCA Statutory under the statutory provision, d. Duties ECCA duty our is to ascer tain the drafters’ intent.” Brown v. De La Hackett also contends Co- Cruz, (Tex.2004) (cit 156 S.W.3d statutory Serv owes and breached duties Int'l, ing Rocor Inc. v. Nat’l Union Fire members under utilities code sec its PA, Pittsburgh, Ins. Co. 77 S.W.3d argues tions 161.070 and 161.072. CoServ (Tex.2002)). express that the does not confer an ECCA Hackett, giving private right of action on 161.070, Section “Voting by entitled standing her no to sue under the ECCA. Members,” states, “Each present member meeting at a of the members is entitled to Standing prerequisite is a one vote on each matter submitted to a adequacy requirement suit before rule 42’s vote meeting. at the The bylaws may may be M.D. Anderson considered. See provide voting proxy or mail.” Novak, Cancer Ctr. v. Tex. (emphasis Util.Code 161.070 (Tex.2001) (stating plain that a named added). 161.072, Section entitled “Election standing tiffs lack of individual the time Directors; Vacancies,” provides as fol- subject the court of deprives suit is filed lows: jurisdiction plaintiffs matter over the indi claims on
vidual
and claims
behalf of the
(a) The incorporators of an electric co-
class);
DaimlerChrysler Corp.
see also
operative named in the articles of
(Tex.2008)
Inman,
incorporation shall serve as directors
*16
(“For standing,
plaintiff
person
a
must be
until the first annual meeting of the
ally aggrieved;
injury
alleged
his
must be
members, and until their successors
particularized,
concrete and
actual or im
are elected
qualify.
Subse-
minent,
hypothetical.”).
plaintiff
not
A
has
quently, the directors shall be elect-
standing
bring
legal
to
suit if she has a
by
ed
the members at each annual
right that has been breached. Nobles v.
meeting
provided
or as
by
otherwise
Marcus,
923,
(Tex.1976);
533 S.W.2d
927
bylaws.
Oak,
McDaniel v. Town Double
No. 02-
(b)
vacancy
A
on the board shall be
(Tex.
10-00452-CV,
662367, at
2012 WL
*3
provided by
bylaws.
filled as
A
h.)
Mar.1, 2012,
App.-Fort
pet.
Worth
no
n person
vacancy
selected to fill a
(mem. op.).
legal
a
Without a breach of
regular
serves until the next
election
right belonging
plaintiff,
to the
no cause of
of directors.
action
or can accrue to
plaintiffs
arises
added).
(emphasis
Id.
161.072
Nobles,
benefit.
effect on cation). sidered,” State Auto. Ins. Farm Mut. Co. 550, (Tex.2004), Lopez, v. 156 S.W.3d 557
WALKER,
dissenting opinion.
filed
J.
a
explained,
our sister court in
has
as
Austin
WALKER, Justice, dissenting.
procedur-
SUE
not
Lopez does
create a new
means
courts
appellate
al
which
can
agree
I
with the
respectfully
I
dissent.
the
adjudicate
dispositive
merits of
is-
duty to
the trial court had a
majority that
jurisdic-
not
their
sues
otherwise within
claims,
law,
the substantive
understand
Instead,
it
tion to consider.
envisions
the
determining
whether
and defenses
adjudicated
issues
that such
should be
certification
class can meet the
purported
instance,
court
the trial
in the first
under Texas Rule of Civil
prerequisites
through
procedural
the
established
42,
agree
but I
with the
Procedure
cannot
mechanisms under our rules —such as
the
majority’s holding dispositive of
—
jurisdiction,
pleas
summary-judg-
to the
breach-of-statutory-duties
class’s
motions,
exceptions—
special
ment
breaeh-of-fiduciary-duties
the
claims—that
than
substantively
rather
what are
applicable
the
trial court misunderstood
proceedings
the same
initiated at the
we do not
that to be true
law when
know
appellate
Lopez,
level.
156 S.W.3d
on the record before us.
Cf.
based
(declining
viability
at 557
to reach
issues
the
determining
propriety of a class
In
remanding
trial court could
so
ad-
action,
the
question
is not whether
plea
jurisdiction
pending
dress
action or
plaintiffs have stated a cause of
exceptions).
special
merits,
solely
on the
but
prevail
will
Furthermore,
concept
viability
requirements
of rule 42 have
whether
from
Lopez
addressed
emanates
Jacquelin,
met. Eisen v.
&
been
Carlisle
that,
requirement
core
before certifica-
177,
2152,
156,
2140,
94
40
417 U.S.
S.Ct.
tion,
perform “rigorous
trial courts
(1974);
Gloor,
L.Ed.2d 732
v.
618
Garcia
analysis” to determine whether rule 42’s
(5th
denied,
Cir.1980),
267
cert.
F.2d
Bernal,
requirements
are met.
22
L.Ed.2d
449 U.S.
S.Ct.
meaningful
S.W.3d at 435. To “make a
Gill,
(1981);1
Corp.
Exxon
v.
Mobil
determination of the certification is-
(Tex.2009) (“
124,126
‘Deciding
Peake,
sues,”
trial
the merits of
suit in order to determine
must
disputes affecting
courts
resolve
maintainability
...
its
as a class action
underlying
law prior
substantive
”)
appropriate.’
(quoting
not
Intratex Gas
hardly
certification because “courts can
(Tex.
Beeson,
v.
S.W.3d
Co.
claims,
applica-
evaluate
defenses or
2000)). “Viability”
requirement
is not a
law without
knowing
ble
what
law
certification
rule 42. Clark
for class
under
is.”
(Tex.
Strayhorn,
S.W.3d
*19
denied,
App.-Austin, petdenied), cert.
549
Parks &
v.
Dep’t Dearing,
Texas
Wildlife
ble merit of the plaintiffs claims at this reasons, For these I would Ap- overrule the stage proceedings.”). of pellant’s fourth issue and address its re- Here, in interlocutory appeal this maining issues. order, trial court’s class certification majority lengthy analysis delves into a interplay between the Texas Electric (ECCA)
Cooperative Corporation Act
chapter Organi of the Texas Business ultimately
zations Code and determines improperly
that the trial court certified
class based on a misunderstanding of the
However,
law.
the trial court did not dis
CHAMBLESS, Appellant,
Ben
in
certifying
cuss these statutes
its order
class,
they
nor were
discussed at the
hearing on the certification.
do not
We
Texas, Appellee.
STATE
know if the trial court
misconstrued
No. 03-10-00305-CR.
Gill,
misapplied
applicable law. Cf.
tification argument address
policyholders’ claims on merits should be
dismissed when trial court identify did not
specific of action causes to be decided nor they
indicate how would be tried or sub
stantive issues that would control their fact,
disposition). In in its certifying order class, the trial court found that com
mon questions class include
“[wjhether statutory duty has a CoServ Voting governance, Subclass vis-a-vis elections, voting procedures.”
director *20 Moreover,
[Emphasis majori added.]
ty’s holding viability reaches claims,
class’s a matter best addressed