LON SMITH & ASSOCIATES, INC. and A-1 Systems, Inc., d/b/a Lon Smith Roofing and Construction, Appellants v. Joe KEY and Stacci Key, Appellees
NO. 02-15-00328-CV
Court of Appeals of Texas, Fort Worth.
DELIVERED: August 3, 2017
531 S.W.3d 321
ATTORNEY FOR APPELLEE: H. DUSTIN FILLMORE, III, CHARLES W. FILLMORE, THE FILLMORE LAW FIRM, L.L.P., FORT WORTH, TX, MARSHALL M. SEARCY, JR., BILL WARREN, MATTHEW D. STAYTON, DAVID. H. GARZA, KELLY HART & HALLMAN LLP, FORT WORTH, TX,
PANEL: LIVINGSTON, C.J.; WALKER and MEIER, JJ.
OPINION
SUE WALKER, JUSTICE
I. INTRODUCTION
This is an interlocutory appeal from an order certifying a class action.1 Appellants Lon Smith & Associates, Inc. and A-1 Systems, Inc., d/b/a Lon Smith Roofing and Construction2 raise five issues claiming that the trial court erred by certifying a class because various class-certification requirements of
II. FACTUAL BACKGROUND, EXISTING LEGAL LANDSCAPE, AND CERTIFICATION HEARING AND ORDER
A. The Keys’ Lawsuit
A May 2011 hailstorm damaged the roof of the Keys’ residence. The Keys notified their homeowners’ insurance carrier of the damage, and Joe signed a contract with A-1 for the installation of a new roof with a total price of $33,769.50. Stacci did not sign
[t]his Agreement is for FULL SCOPE OF INSURANCE ESTIMATE AND UPGRADES and is subject to insurance company approval. By signing this agreement homeowner authorizes Lon Smith Roofing and Construction (“LSRC“) to pursue homeowners[‘] best interest for all repairs, at a price agreeable to the insurance company and LSRC. The final price agreed to between the insurance company and LSRC shall be the final contract price.
A-1 installed the new roof. The Keys paid their homeowners’ insurance proceeds of $18,926.69 to A-1, leaving a balance on the $33,769.50 amount. To collect the amount A-1 claimed that the Keys owed, A-1 filed suit against Joe in a justice court and obtained a default judgment. Joe subsequently challenged the default judgment and obtained a June 23, 2015 judgment setting it aside as void. A-1 appealed the June 23, 2015 judgment to the county court at law. See
Meanwhile, in September 2013, the Keys sued LSRC, asserting that the Acceptance and Agreement provision in the contract with A-1, which did business collectively with Associates, violated
Based on the alleged illegality of LSRC‘s agreement under section 4102.051, the Keys pleaded a claim for declaratory relief—to declare the agreement with LSRC illegal, void, and unenforceable and to declare, consequently, that they and other class members are “entitled to a judgment restoring all monies paid to [LSRC] under the illegal contract” pursuant to the statutory remedy provided by section 4102.207(b). See
In due course, the Keys obtained class certification of their declaratory-judgment claim and their DTPA claims under sections 17.50(a)(3) (Unconscionability) and 17.50(a)(4) (Violation of Chapter 541 of the
B. Chapter 4102 of the Texas Insurance Code
The Texas Legislature enacted chapter 4102 of the
Chapter 4102 exрressly prohibits a “person” from acting as a public insurance adjuster in Texas without a license. See
C. The Reyelts Opinion
In addition to
In the Reyelts case, the Reyeltses signed a contract with LSRC.10 Id. at 839. The Reyeltses’ contract with LSRC, like the contract signed by Joe, contained the provision quoted above. See id. The Reyeltses alleged, and Magistrate Judge Cureton found, that the inclusion of the Acceptance and Agreement provision in the contract rendered it “illegal, vоid[,] and unenforceable” as violative of
In Reyelts, Magistrate Judge Cureton also determined that LSRC had “engaged in an unconscionable action or course of action as prohibited by section 17.50(a)(3) of the DTPA.” 968 F. Supp. 2d at 844. He found that LSRC had used an “agreement that was and is illegal and violative of Chapter 4102 of the Texas Insurance Code [and] constituted an act or practice in violation of Chapter 541 of the Texas Insurance Code and, thus, a violation of section 17.50(a)(4) of the DTPA.” Id. Magistrate Judge Cureton found that LSRC committed such wrongful conduct knowingly and intentionally and ultimately signed a judgment awarding the Reyeltses their economic damages, mental anguish damages, a trebling of the economic damages, court costs, and reasonable and necessary attorney‘s fees. Id. at 845.
D. Class-Certification Requisites12
All class actions must satisfy the four threshold requirements contained in
E. The Class-Certification Hearing
At the hearing on the Keys’ motion for class certification, both the Keys and LSRC presented evidence. Joe Key testified that he had signed the contract with LSRC. Joe testified that Thomas Kirkpatrick, an A-1 salesman and estimator, said
In support of their motion for class certification, the Keys admitted into evidence the deposition of David Cox, the corporate representative for A-1, and the exhibits attached to Cox‘s deposition. Cox‘s deposition and the attached exhibits established that since 2003, A-1 has utilized a standard form contract containing the Acceptance and Agreement provision, which the Keys and thousands of others have signed. Included in the Keys’ evidence was A-1‘s admission, in response to the Keys’ requests for admission, that A-1 was not and never had been a licensed public insurance adjuster.
In their brief in support of their motion for class certification, the Keys explained,
The issue here is simple—given the existence of thousands of standardized form contracts that have been held by multiple courts to be “illegal, void, and unenforceable,” is it more appropriate for the claims arising from the illegal contract to be adjudicated in one big lawsuit or in thousands of smaller lawsuits scattered around the State? The answer is clear—this case should be certified to proceed as a class.
At the class-certification hearing, LSRC proffered no livе testimony but obtained admission of nineteen exhibits.13 Twelve of LSRC‘s nineteen exhibits related to, or were documents filed in, the Reyelts case. LSRC‘s exhibits O and P are the “Memorandum Opinion and Order and Findings of Fact And Conclusions of Law” and the final judgment against LSRC, respectively, that were signed by Magistrate Judge Cureton in the Reyelts case.
F. The Class-Certification Order
The trial court signed a twenty-two page “Order Certifying Class Action with Trial Plan.” The trial court found that the Keys had met their burden of establishing the class-certification requirements of rule 42(a), 42(b)(3), 42(b)(2), and 42(b)(1)(A).
The class-certification order appointed the Keys to represent a class defined as follows:
All Texas residents who from June 11, 2003 through the present signed agreements with [LSRC] that included the following provision, or language substan
tially similar to the following provision: “This Agreement is for FULL SCOPE OF INSURANCE ESTIMATE AND UPGRADES and is subject to insurance company approval. By signing this agreement homeowner authorizes Lon Smith Roofing and Construction (“LSRC“) to pursue homeowners[‘] best interest for all repairs, at a price agreeable to the insurance company and LSRC. The final price agreed to between the insurance company and LSRC shall be the final contract price.”
The order certified three claims for class treatment: “(a) Plaintiffs’ declaratory judgment claim, (b) Plaintiffs’ DTPA claim based on Section 17.50(a)(3) (Unconscionability), and (c) Plaintiffs’ DTPA claim based on Section 17.50(a)(4) (Violation of Chapter 541 of the Texas Insurance Code).”
The class-certification order set forth the trial court‘s findings of fact and conclusions of law that the Keys had met their burden of establishing all four requirements of rule 42(a) and three subdivisions of rule 42(b)—42(b)(3), 42(b)(2), and 42(b)(1)(A). The order certified the class alternatively under each of these subsections of rule 42(b); provided for notice and opt-out provisions for each of the classes certified alternatively under rule 42(b)(3), 42(b)(2), and 42(b)(1)(A); appointed class counsel; and set forth a trial plan.
III. STANDARD OF REVIEW
We review a class-certification order for an abuse of discretion. Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 696 (Tex. 2008); Compaq Comput. Corp. v. Laрray, 135 S.W.3d 657, 671 (Tex. 2004). A trial court abuses its discretion if it acts arbitrarily, unreasonably, or without reference to any guiding principles. Bowden, 247 S.W.3d at 696. We do not indulge every presumption in the trial court‘s favor, however, “as compliance with class action requirements must be demonstrated rather than presumed.” Id. (citing Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 691 (Tex. 2002)). “Courts must perform a ‘rigorous analysis’ before ruling on class certification to determine whether all prerequisites have been met.” Bernal, 22 S.W.3d at 435. Appellate courts have traditionally construed this directive to require trial courts to, among other things, look “beyond the pleadings . . . as a court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” Id. at 435 (quoting Castano v. Am. Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996)).
IV. THE TRIAL COURT‘S UNDERSTANDING OF THE SUBSTANTIVE LAW CONCERNING THE CERTIFIED CLAIMS
LSRC‘s first issue asserts that “the trial court misunderstood or failed to consider the law underlying the substantive claims at issue.” LSRC complains that the trial court failed to properly analyze the substantive law concerning chapter 4102 of the insurance code, concerning the DTPA unconscionability claim, and concerning the DTPA violation-of-chapter-541-of-the-insurance-code claim and that the trial court‘s misunderstanding of the substantive law “resulted in the wrongful certification of a cause of action that does not exist.” LSRC argues in its brief and reply brief that the trial court “improperly refused[] to analyze the dispositive issue of whether any putative class member can state viable claims.” In response, the Keys contend that these arguments are prohibited “merits-based attacks” disguised as “misunderstanding of the law” contentions.
Trial courts do not certify class actions based upon the probability of success on the merits, and in determining the
A. Putative Class Members Can State Viable Claims
In part of its first issue, LSRC argues that the trial court “improperly refused[] to analyze the dispositive issue of whether any putative class member can state viable claims” by failing to conduct a hearing on LSRC‘s motion for summary judgment prior to the class-certification hearing.15 And the evidence presented to the trial court at the class-certification hearing—including the “Memorandum Opinion and Order and Findings of Fact,” the judgment, and other documents from the Reyelts case—show that putative class members can state viable claims. Magistrate Judge Cureton made a conclusion of law in the Reyelts case that the very same contractual provision that forms the basis of the Keys’ claims here made LSRC‘s contract with the Reyeltses “illegal, void[,] and unenforceable” and awarded DTPA damages to the Reyeltses based on facts substantially identical to those forming the basis of the Keys’ claims and the claims certified in the class-certification order. And the order granting partial summary judgment for the plaintiffs in the Spracklen case was also presented to the trial court, reflecting that Judge Cosby had declared a similar provision included in a roofing-repair contract to be “illegal, void[,] and unenforceable.” Indeed, at the hearing on a motion to compel, LSRC‘s counsel agreed that the form contract signed by Joe Key had in fact been declared illegal but argued that LSRC disagreed and did not think it was illegal. Given the evidence presented to the trial court, some of it by LSRC, concerning the
Reyelts and Spracklen cases, we cannot agree with LSRC‘s contentions in its first issue that no putative class member can state a viable claim.16 We overrule this portion of LSRC‘s first issue.
B. The Declaratory Judgment Claim
LSRC also asserts under its first issue that the trial court “misunderstood the law related to the Keys’ claim for declaratory relief.” LSRC argues that “[a]ssuming arguendo that by using the Agreement LSRC acted as or held itself out as a public insurance adjuster, and that LSRC did not have the proper license or certificate, doing so could not render the contract illegal, void, or unenforceable, which is the entire underlying basis of the request for declaratory judgment.” LSRC asserts that
Under the Uniform Declaratory Judgments Act, a person interested under a written contract may have determined a question of construction or validity arising under the contract and obtain a declaration of rights. See
Because parties to a contract are presumed to be knowledgeable of the law, including public-safety laws, courts will generally leave parties to an illegal contract as they find them. See Plumlee v. Paddock, 832 S.W.2d 757, 759 (Tex. App.—Fort Worth 1992, writ denied). That is, courts are no more likely to aid one attempting to enforce such a contract than they are disposed in favor of the party who uses the illegality to avoid liability. Id. But an exception exists to this general common-law rule—that courts will not exercise equitable powers to aid parties to an illegal contract—when the parties are not in pari delicto and it is the least culpable party that is seeking relief. See, e.g., Oakes v. Guarantee Ins. Co., 573 S.W.2d 899, 902 (Tex. Civ. App.—Eastland 1978, writ ref‘d n.r.e.) (citing Am. Nat‘l Ins. Co. v. Tabor, 111 Tex. 155, 161, 230 S.W. 397, 400 (1921)). The exception is particularly applied when the illegality of the transaction depends on the existence of peculiar facts known to the defendant but unknown to the plaintiff and whеn the plaintiff had no intention of violating the law. Id. Thus, “where a person sues for services rendered another in an occupation which is illegal, unless the employer is duly licensed to carry it on, which he is not, such person may recover unless he knew that the employer had no license, for while he is bound to know that the employer must have a license to make the business legal, his mistake as to his having such license is a mistake of fact and not of law.” Id.
Texas‘s regulation of the business of and licensing of public insurance adjusters is based on the policy of protecting the public. See, e.g.,
LSRC argues that its сontracts cannot be declared void per se because section 4102 makes them only voidable at the option of the insured. See
Also under its first issue, LSRC argues that, in fact, it never acted as or held itself out as a public insurance adjuster. LSRC points to an Insurance Commissioner Bulletin authorizing roofing companies to “discuss the amount of damage to the consumer‘s home, the appropriate replacement, and reasonable cost of replacement with the insurance company.”21 The same Bulletin, however, provides that a roofing company may not “advocate on behalf of a consumer” or “discuss insurance policy coverages and exclusions.” See Tex. Dep‘t Ins. Comm‘r Bulletin B-0017-12. As set forth above, the LSRC Acceptance and Agreement provision provided:
This Agreement is for FULL SCOPE OF INSURANCE ESTIMATE AND UPGRADES and is subject to insurance company approval. By signing this agreement homeowner authorizes Lon Smith Roofing and Construction (“LSRC“) to pursue homeowner[s‘] best interest for all repairs, at a price agreeable to the insurance company and LSRC. The final price agreed to between the insurance company and LSRC shall be the final contract price.
To the extent LSRC аsserts that it never acted or held itself out as a public insurance adjuster because LSRC merely agreed to “discuss the amount of damage to the consumer‘s home, the appropriate replacement, and reasonable cost of replacement with the insurance company” but did not agree to “advocate on behalf of a consumer” or “discuss insurance policy coverages and exclusions[,]” we cannot agree. By the express terms of the contractual provision set forth above, LSRC agreed to “pursue homeowners[‘] best interest” and to reach an agreement with the insurance company for the final roofing contract price—“[t]he final price agreed to between the insurance company and LSRC shall be the final contract price.” By contracting to “pursue homeowners[‘] best interest” and to reach a settlement with the Keys’ insurance company, LSRC explicitly agreed to “advocate on behalf of a consumer [the Keys]“—which is conduct prohibited by the same Insurance Commission Bulletin that LSRC claims authorized its conduct. See generally
LSRC also argues that the trial court misunderstood the law of collateral estoppel and res judicata concerning Magistrate
C. The DTPA Section 17.50(a)(4) (Violation of Chapter 541 of the Texas Insurance Code) Claim
Also within its first issue, LSRC complains that the trial court “did not vigorously analyze the DTPA section 17.50(a)(4) claim.” LSRC asserts that a violation of
The Keys pleaded the following in their petition for class certification:
Of critical importance to Plaintiffs, [LSRC]‘s form contracts, including the “Agreement” executed by Plaintiffs, expressly provided that [LSRC] would act on Plaintiffs’ behalf in negotiating for and effecting the settlement of Plaintiffs’ claim with their insurance carrier and that [LSRC] would do so with Plaintiffs’ “best interest” in view.
. . . .
What Plaintiffs did not know and what [LSRC] never told them was that at the time [LSRC] had Plaintiffs sign the “Agreement,” [LSRC] could not legally provide the insurance claims negotiation services that it was promising because [LSRC] lacked the requisite license to provide such services. As Lon Smith was well aware, the Texas Insurance Code has provided since 2003 that “a person may not act as a public insurance adjuster in this state or hold himself or herself out to be a public insurance adjuster in this state unless the person holds a license of certificate issued by the commissioner under Section 4102.053, 4102.054, or 4102.069.” See
Tex. Ins. Code § 4102.051(a) (Emphasis added).. . . .
46. [LSRC]‘s conduct, as outlined above, violated multiple provisions of the DTPA, including, but not necessarily limited to, the following:
. . . .
h. Section 17.50(a)(4), by use and employment of an agreement that was and is illegal and violative of Chapter 4102 of the Texas Insurance Code, which constituted an act or practice in violation of Chapter 541 of the insurance code.23
Looking beyond the pleadings at the substantive law, DTPA section 17.50(a)(4) authorizes a consumer to maintain an action for restitution damages when a person‘s use or employment of an act or practice in violation of chapter 541 of the insurance code is a producing cause of such damages. See
The purpose of chapter 541 is to regulate trade practices in the business of insurance by defining practices that are unfair or deceptive and prohibiting those practices. See
The conduct of a person acting as an insurance adjuster may violate chapter 541 of the insurance code. See id.
Because LSRC contraсtually promised that it would pursue the Keys’ best interest in negotiating an agreement with the Keys’ insurance company and that LSRC‘s negotiated contract price would be agreed to by the Keys’ insurance company—acts that under
We overrule the portion of LSRC‘s first issue complaining that the trial court misunderstood the law concerning the Keys’ DTPA section 17.50(a)(4) (Violation of
D. The DTPA Section 17.50(a)(3) (Unconscionability) Claim
In portions of LSRC‘s first and second issues, LSRC complains that “[i]ndividual issues would predominate with respect to the class‘s unconscionability claim pursuant to DTPA section 17.50(a)(3)” and that the DTPA unconscionability claim lacks
The DTPA provides that a consumer may maintain an action in which an unconscionable action or course of action by any person constitutes a producing cause of economic damages. See
The Keys assert that that “[n]o factual circumstance can rescue a contract that expressly violates Texas public policy from being found unconscionable.” Accordingly, the Keys argue that because the legislature determines public policy through the statutes it passes24 and because LSRC‘s form contract violates a statute—various provisions of
Here, as in Ryan, Wall, and Peltier, individual issues concerning each class-member consumer‘s knowledge, ability, experience, or capacity is required to establish the unconscionable-act-or-course-of-action element of a DTPA unconscionability claim.26 Ryan, 477 S.W.3d at 913-14; Wall, 176 S.W.3d at 105-06; Peltier, 51 S.W.3d at 623-24. Because this primary element of a DTPA unconscionability claim requires individualized proof concerning each class member, we hold that the trial court failed to conduct a rigorous analysis of the substantive law surrounding a DTPA unconscionability claim—specifically the unconscionable-act-or-course-of-action element. Because the unconscionable-act-or-course-of-action element of DTPA unconscionability claims is not subject to class-wide proof here, we hold that the trial court abused its discretion by certifying this claim for class treatment. We sustain the portion of LSRC‘s second issue complaining that the DTPA unconscionability claims were improperly certified because they “involve highly individualized inquiries that are not appropriate for resolution by a class action.”27
V. THE CHALLENGED REQUISITES OF RULE 42(a) ARE SATISFIED
In its fourth issue, LSRC complains that the Keys failed to satisfy their burden of proving rule 42(a)‘s requirements of numerosity, typicality, and adequacy of representation.
A. Numerosity
LSRC complains that the Keys failed to establish numerosity because LSRC‘s contracts—with the approximately 3,000 persons falling within the certification order‘s class definition—were voidable, not void, and because the Keys failed to prove how many of those persons pursued actions to void the contract or had homeowners’ insurance.
Numerosity is not based on numbers alone; rather, the test is whether joinder of all members is practicable in view of the size of the class and includes such factors as judicial economy, the nature of the action, geographical location of class members, and the likelihood that class members would be unable to prosecute individual lawsuits. Graebel/Hous. Movers, Inc. v. Chastain, 26 S.W.3d 24, 29, 32 (Tex. App.—Houston [1st Dist.] 2000, pet. dism‘d w.o.j.) (citing Weatherly v. Deloitte & Touche, 905 S.W.2d 642, 653 (Tex. App.—Houston [14th Dist.] 1995, writ dism‘d w.o.j.)); Rainbow Grp., Ltd. v. Johnson, 990 S.W.2d 351, 357 (Tex. App.—Austin 1999, pet. dism‘d w.o.j.).
The record before us confirms that the Keys met their burden to establish numerosity. LSRC conceded in the trial court that it had maintained copies of all contracts signed by consumers with LSRC. And LSRC entered a signed stipulation in the trial court stating that “A-1 stipulates that at least 500 customers have entered into each standard form of residential roofing contract that A-1 has utilized in its business between 2010 and the present.” The Keys attached to their request for class certification a copy of each of the six form contracts utilized by LSRC between 2010 and the present, and each of the six contracts contains the identical Acceptance and Agreement provision contained in the Keys’ contract. If each of the six residential roofing contracts used sequentially by LSRC since 2010 was signed by at least 500 customers, 500 customers per six con-
The certification order defines the class as limited to Texas residents who from June 2003 to the present signed one of the six agreements with LSRC containing the Acceptance and Agreement provision, constituting in excess of 3,000 putative class members. After examining the numerosity factors set forth above—joinder of all 3,000 plus class members is not practicable in view of the size of the class, judicial economy is served by a class action, the nature of the declaratory-judgment and the DTPA violation-of-chapter-541-of-the-insurance-code claims makes them amenable to class action litigation, the geographical location of the class members is Texas, and the likelihood that class members would be unable to prosecute individual lawsuits because most do not know of the existence of the causes of action accruing to them as a result of LSRC‘s unlicensed-public-adjuster status—all weigh in favor of class certification. The Keys satisfied rule 42(a)‘s numerosity requirement. See, e.g., Durrett v. John Deere Co., 150 F.R.D. 555, 557 (N.D. Tex. 1993) (“Because the estimate of potential class members ranges as high as 14,000, the Court has no difficulty concluding that a class certified in this cause would satisfy the numerosity requirement“); Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1038 (5th Cir. 1981) (recognizing that in determining numerosity, courts must consider “the geographical dispersion of the class, the ease with which class members may be identified, the nature of the action, and the size of each plaintiff‘s claim“); Phillips v. J. Legis. Comm., 637 F.2d 1014, 1022 (5th Cir. 1981) (recognizing that in determining numerosity, “[t]he proper focus is not on numbers alone, but on whether joinder of all members is practicable in view of the numerosity of the class and all other relevant factors“), cert. denied, 456 U.S. 960 (1982).
B. Typicality
The test for typicality is not demanding. See, e.g., Ryan, 477 S.W.3d at 908. Typicality requires that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Bernal, 22 S.W.3d at 433. A class representative must be part of the class and must possess the same interest and suffer the same injury as the class members. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982). Although the named representatives need not suffer precisely the same injury as the other class members, there must be a nexus between the injury suffered by the representatives and the injury suffered by the other members of the class. Spera v. Fleming, Hovenkamp & Grayson, P.C., 4 S.W.3d 805, 812 (Tex. App.—Houston [14th Dist.] 1999, no pet.). To be typical, the class representatives’ claims must also be based on the same legal theory.
LSRC argues that the Keys’ claims are not typical of the class because (1) the contracts are not illegal; (2) LSRC may elect to enforce an arbitration clause in the contracts; (3) Stacci did not sign the contract with LSRC; (4) many of the LSRC contracts had substantially similar clauses, not identical clauses; (5) the Keys failed to prove how many class members had homeowners’ insurance; and (6) mental anguish damages were not sought on behalf of the class members under the DTPA claims. We address each of these contentions by LSRC. For the reasons set forth below, we determine LSRC‘s challenges to the trial court‘s typicality finding to be without merit.
First, the contracts are illegal, as set forth in section IV.B. above. Second,
The record before us establishes that the Keys met their burden of establishing typicality.
C. Adequacy of Representation
The adequacy-of-representation requirement “tend[s] to merge” with the commonality and typicality requirements that “serve as guideposts for determining whether ... maintenance of a class action is economical and whether the named plaintiff‘s claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.” Falcon, 457 U.S. at 157 n.13. “[A] class representative must be part of the class and ‘possess the same interest and suffer the same injury’ as the class members.” E. Tex. Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 403 (1977)
The Keys met their burden of establishing that they will fairly and adequately protect the interests of the class. The Keys proved that they share with other class members the same declaratory-judgment and DTPA (Violation of Chapter 541 of the Texas Insurance Code) claims based on identical contractual provisions set forth in a contract with LSRC. No antagonistic interests exist among class members nor has LSRC asserted any specific antagonistic interests between class members. See Farmers Ins. Exch. v. Leonard, 125 S.W.3d 55, 66 (Tex. App.—Austin 2003, pet. denied); see also Adams v. Reagan, 791 S.W.2d 284, 291 (Tex. App.—Fort Worth 1990, no writ) (recognizing that “[t]he primary issue to be considered in whether ‘the representative parties will fairly and adequately protect the interest of the class’ is a determination of whether any antagonism exists between the interests of the plаintiffs and those of the remainder of the class“).
The Keys have retained counsel with class-action experience in other cases, which was acknowledged by LSRC during the class-certification hearing. The Keys’ retained counsel appealed the Riemer case to the Texas Supreme Court along with the same counsel who successfully prosecuted the same causes of action against LSRC in the Reyelts case. See generally Riemer v. State, 392 S.W.3d 635, 641 (Tex. 2013) (reversing trial court and court of appeals for denying class certification based on lack of rule 42(a)(4) adequacy and noting, “to the extent Mr. Johnson‘s relatives disagree with the propriety of the litigation, the class representative, or the class representative‘s counsel, they may utilize Rule 42‘s procedures for opting out of the class“). The record reflects that the Keys have a sufficient interest in, and nexus with, the class to insure vigorous and tenacious prosecution—through the experienced class counsel they retained—of the class declaratory-judgment and the DTPA violation-of-chapter-541-of-the-insurance-code claims. See, e.g., Durrett, 150 F.R.D. at 558.
To the extent LSRC complains that the Keys are not adequate class representatives because of their “willingness to [forgo] mental anguish damages” on behalf of the class, the Texas Supreme Court has rejected this contention. See Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 697 (Tex. 2008) (rejecting contention that class representative‘s abandonment of some claims to achieve commonality makes the representative inadequate because such a holding would require class representatives to assert every possible claim for each individual class member, which would almost always defeat typicality and predominance requirements). As set forth below, in connection with the superiority analysis, the lack of individual lawsuits against LSRC and the likelihood that any insureds suffering mental anguish damages, like the Reyeltses and the Keys, would have already pursued individual lawsuits supports not only the trial court‘s
We overrule LSRC‘s fourth issue and conclude that the Keys met their burden of establishing rule 42(a)‘s requirements of numerosity, typicality, and adequacy of representation.
VI. SATISFACTION OF RULE 42(b)
The trial court found that the Keys had satisfied their burden to prove certification of the class claims under rule 42(b)(3), (b)(2), and (b)(1)(A) and certified the class claims alternatively under these subsections of rule 42(b). In its second issue, LSRC challenges the trial court‘s certification of the class under rule 42(b)(3), specifically attacking predominance and superiority.30 In its third issue, LSRC challenges the trial court‘s certification of the class under rule 42(b)(2) and 42(b)(1).
A. The Requirements of Rule 42(b)(3) Are Satisfied
To certify a class under
1. Predominance
To establish predominance, a plaintiff seeking class certification is not required to prove that each and every element of her claim is susceptible to class-wide proof. Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 468 (2013).
Determining whether legal issues common to the class predominate also requires that the court inquire how the case will be tried. O‘Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 737-38 (5th Cir. 2003). “This entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class.” Id.
LSRC argues that predominance is not satisfied for two reasons: because LSRC will assert a statute-of-limitations defense against some proposed class members that will require individual factual inquiries concerning each plaintiff and because “the calculation of damages requires individualized inquiry.” We address these two challenges by LSRC to
a. LSRC‘s Statute-of-Limitations Defense Is a Common Issue with Common Answers
LSRC makes a one-sentence attack on predominance based on LSRC‘s statute-of-limitations defense:
The Keys also failed to articulate how individual issues can be addressed fairly to allow LSRC the opportunity to adequately and vigorously present their viable claims or defenses, such as their statute-of-limitations defense, or their right to an offset for the value of the roof installed on each potential class member‘s home, and this failure is fatal to class certification.
LSRC‘s statute-of-limitations argument is addressed here; its damages arguments regarding predominance are addressed in subsection VI.A.1.b.
The predominance of individual issues necessary to decide an affirmative defense, such as a statute-of-limitations defense, may preclude class certification. In re Monumental Life Ins. Co., 365 F.3d 408, 420 (5th Cir. 2004), cert. denied, 543 U.S. 870 (2004); see O‘Connor v. Boeing N. Am., Inc., 197 F.R.D. 404, 414 (C.D. Cal. 2000) (explaining that when a statute-of-limitations defense “raises substantial individual questions that vary among class members,” such questions may defeat predominance); see also
Limitations defenses generally present common questions, rather than individual ones, because a limitations de-31fense‘s merits rest on two facts: (1) the date on which the statute of limitations accrued and (2) the date on which the action was filed. See, e.g., Abraham v. WPX Prod. Prods., LLC, 317 F.R.D. 169, 229 n.33 (D.N.M. 2016). Fact (2) is a common issue in virtually every class action because the entire class gets credit for the filing date of the class-action petition.
Here, the Keys’ arguments to rebut LSRC‘s limitations defense point to common questions of law that may be resolved on a class-wide basis. The Keys explain that they
sought class certification on September 30, 2014. Contract claims carry a four-year limitations period, while DTPA claims carry a two-year limitation[s] period. Thus, no limitations issues exist for contracts entered after September 30, 2010 and September 30, 2012, respectively, for those claims. Because the class is limited to Texas residents, all these limitations periods will apply equally to all class members.
...
Here, there is no evidence that any of the class members were unaware that they signed the form contracts at issue and thereby failed to discover the facts
Based on this analysis, facts (1) and (2) relevant to LSRC‘s limitations defense are common, class-wide issues subject to common, class-wide answers. Here, fact (2)—the date on which the action was filed—is the same for all class members: September 30, 2014. Fact (1)—the dаte on which the statute of limitations accrued—is likewise the same for all class members subject to the affirmative defense of limitations.32 That is, fact (1) will be decided as to the declaratory-judgment-action class members who signed contracts with LSRC prior to September 30, 2010, and as to the DTPA violation-of-chapter-541-of-the-insurance-code-claim class members who signed contracts with LSRC prior to September 30, 2012, on a class-wide basis. The trial court will determine the legal issue of whether or not the time period for seeking a declaratory judgment declaring the LSRC contract void as to LSRC expired and the legal issue of whether or not the time period for bringing a DTPA (Violation of Chapter 541 of the Texas Insurance Code) claim expired, and those legal determinations will apply uniformly to all class members whose claims are subject to LSRC‘s limitations defense. Consequently, a class-wide proceeding here will generate common answers to LSRC‘s statute-of-limitations defense that will drive the resolution of this litigation. See Tait, 289 F.R.D. at 486 (upholding class certification as satisfying rule 23(b)(3) predominance requirement because plaintiffs’ arguments to rebut defendant‘s statute-of-limitations defense raised common questions of law susceptible to common proof and common answers). Accordingly, we overrule the one-sentence contention set forth under LSRC‘s second issue that challenges predominance as applied to its statute-of-limitations defense. See, e.g., Monumental Life Ins. Co., 365 F.3d at 420; Williams, 529 F.2d at 1388; Castro, 256 F.R.D. at 542-43.
b. Calculation of Damages Will Depend on Objective Criteria—LSRC‘s Records—and Will Not Require Testimony
Class certification may be inappropriate when individualized damage determinations predominate over common issues. See O‘Sullivan, 319 F.3d at 744-45 (“Where the plaintiffs’ damages claims focus almost entirely on facts and issues specific to individuals rather than the class as a whole, the potential exists that the class action may degenerate in practice into multiple lawsuits separately triеd.“). But generally, individualized damage calculations will not preclude a finding of predominance, see Tyson Foods, Inc., 136 S. Ct. at 1045, so long as individual damages may be readily calculated from a defendant‘s records. See, e.g., Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013) (allowing class certification when individualized damages could be readily calculated from defendant‘s computerized payroll records); Arreola v. Godinez, 546 F.3d 788, 801 (7th Cir. 2008) (recognizing that “the need for individual damages determinations does not, in and of itself, require denial of [a] motion for certification” under rule 23(b)(3)); Allapattah Servs., Inc. v. Exxon Corp., 333 F.3d 1248, 1261 (11th Cir. 2003) (“[N]umerous courts have recognized that the presence of individualized damages issues does not prevent a finding that the common issues in
The Keys pleaded that “[b]ecause of [LSRC‘s] violation of Chapter 4102 of the Insurance Code, Plaintiffs and members of the class are entitled to a judgment restoring all monies paid to [LSRC] under the illegal contract, as ruled in the Reyelts Action.” At the class-certification hearing, the Keys introduced into evidence the deposition of A-1 corporate representative David Cox. Cox testified in his deposition that A-1 maintained paper copies of all of its contracts; each contract was assigned a job number, which was a letter followed by a number between one and one thousand; for example, A 0001, A 0002, to A 1000 followed by B 0001, B 0002, etc. Cox said that the A‘s and B‘s had been destroyed but that “the C‘s forward are ... still back there [in the storage area at the office].” Exhibit 10 attached to Cox‘s deposition is an A-1 contract labeled with job number H0687 that appears to have been signed on May 5, 1999, for a total price of $5,934. The class-certification order provides that “[w]ith respect to damages, the issue is economic and objective. The jury will be asked to return monies paid by or on behalf of the class members. The amount of these monies may be reasonably obtained from [LSRC‘s] records.”
Thus, the Keys proved that through the time-sequential job numbers assigned to each of LSRC‘s contracts with putative class members from a point certain in time (i.е., from whatever point in time suit is timely based on the application, if any, of LSRC‘s statute-of-limitations affirmative defense to the certified class claims for declaratory-judgment and DTPA section 17.50(a)(4) (Violation of Chapter 541 of the Texas Insurance Code) claims), the damages of each class member may be established solely by reference to the amount of LSRC‘s contract with that class member. See Sw. Bell Tel. Co. v. Mktg. on Hold Inc., 308 S.W.3d 909, 923-24 (Tex. 2010) (holding that trial court did not abuse its discretion by determining predominance was not defeated by differing amount of damages each class member would be entitled to when calculations could be computed from defendant‘s records).
LSRC asserts that even if this is true—so that every class member is entitled to statutory disgorgement from LSRC of all monies paid to LSRC under that class member‘s contract—LSRC nonetheless is entitled to an offset under every contract for the value of the roof it installed. Relying on Cruz v. Andrews Restoration, Inc., 364 S.W.3d 817 (Tex. 2012), LSRC claims DTPA restoration damages necessarily encompass the common-law right of mutual restitution, entitling LSRC to an offset.33 See
We begin with the text of
(a) Any contract for services regulated by this chapter that is entered into by an insured with a person who is in violation of Section 4102.051 may be voided at the option of the insured.
(b) If a contract is voided under this section, the insured is not liable for the payment of any past services rendered, or future services to be rendered, by the violating person under that contract or otherwise.
Examining the plain language of section 4102.207(b)‘s statutory disgorgement provision, no words or phrases are utilized that could be construed as contemplating inclusion of the common-law doctrine of mutual restitution. Cf. Morton v. Nguyen, 412 S.W.3d 506, 509-12 (Tex. 2013) (holding statutory property code remedy of “cancellation and rescission” contemplated inclusion of the common-law requirement of mutual restitution); Cruz, 364 S.W.3d at 825-26 (explaining DTPA remedy of restoration “provides a prevailing consumer the option of unwinding the transaction, returning the parties to the status quo ante” and therefore contemplates mutual restitution). Unlike the property code provision in Morton and the DTPA restoration provision in Cruz, the insurance code provision here does not include any language contemplating mutual restitution. See
Looking to the entirety of chapter 4102, the legislature‘s enactment of the following provisions applicable to licensed public insurance adjusters demonstrates that the disgorgement provisions of
The trial court here found—albeit in connection with its analysis of rule 42(a)(2)‘s commonality requirement—that “[a] related common issue is the manner in which the class member‘s relief shall be calculated; specifically, whether using such illegаl language ultimately requires Defendants to disgorge all monies received under the class members’ contracts.” This issue is central to the validity of each putative class member‘s damage claim, and it can be resolved “in one stroke,” justifying class treatment. Dukes, 564 U.S. at 350; see Amchem Prods., Inc., 521 U.S. at 623. Because the right of every class member (who does not opt out of the class action) to recover damages or to not recover damages may be resolved in one stroke, and because the Keys proved that the amount of each class member‘s damages, if any, is calculable from LSRC‘s records; that LSRC still possesses such records; and that such records are maintained sequentially in order of the year and date the LSRC contract was signed, we hold the fact that the amount of damage, if any, awardable to each individual class member will vary according to the amount of that class member‘s contract with LSRC does not defeat predominance. That is, the common question of whether class members are entitled to statutory disgorgement of monies paid pursuant to the LSRC contract “predominate[s] over any questions affecting only individual [class] members.” See Amgen Inc., 568 U.S. at 468.
We hold that the trial court did not abuse its discretion by determining that the common, aggregation-enabling declaratory-judgment claim; the DTPA (Violation
2. Superiority
LSRC raises four challenges to the trial court‘s superiority finding under
Superiority exists when “the benefits of class-wide resolution of common issues outweigh any difficulties that may arise in the management of the class.” Union Pac. Res. Grp., Inc. v. Hankins, 51 S.W.3d 741, 754 (Tex. App.—El Paso 2001), rev‘d on other grounds, 111 S.W.3d 69 (Tex. 2003); Chastain, 26 S.W.3d at 34. In determining whether a class action is superior, the trial court may consider the following factors: (1) whether class members will benefit from the discovery that has already been completed, thereby eliminating duplication of effort; (2) whether the trial court has already spent substantial time and effort becoming familiar with the issues of the case, which weighs favorably for a fair and expeditious result; and (3) whether class members have an interest in resolving common issues by class action. Hankins, 51 S.W.3d at 754-55; Chastain, 26 S.W.3d at 35.
The class-certification order explained:
The Court further finds that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. In support of this finding, the Court finds that the question of the interest of members of each class in individually controlling the prosecution of separate actions favors certification of each class because, under the record presented, it is simply not practical for the normal, individual class member to prosecute this case individually, and there is no evidence of an interest in individuals prosecuting this case individually. Indeed, it appears from the opinion in Reyelts and the facts of this case that the parties’ respective claims against Defendants were not raised individually until Defendants had taken action to enforce their contracts against them.
This same fact also supports the Court‘s finding that the extent and nature of any litigation concerning the controversy already commenced by or against members of the classes favors certification because no party has identified other litigation brought by members of the classes as individual actions other than the claims brought, and already resolved, by Beatrice Reyelts and the claims brought by the Named Plaintiffs in this case. This dеarth of claims also establishes the lack of any persuasive evidence that potential class members would want to prosecute their own actions in light of the financial resources necessary to prosecute such a claim.
The Court further finds that the desirability or undesirability of concentrating the litigation of the claims in this forum favors certification of the classes because it would be wasteful to duplicate
them in multiple actions[,] and this Court (and the parties and their counsel) has already invested a great deal of time and study.
In support of these findings regarding Rule 42(b)(3), the Court additionally refers to the findings stated in § 5.3 and the trial plan located in § 6, both of which are incorporated by reference as part of the basis on which the Court finds the (b)(3) requirements are satisfied.
The Court further finds that the difficulties likely to be encountered in the management of the classes favors certification of the classes because the issues that will require most of the effort of the Court and parties will be resolved by class-wide evidence.
The Court will order notice to the class and will grant class members the right to opt-out, as more particularly described in § 7.
Contrary to LSRC‘s contention, the trial court‘s superiority analysis here, as set forth in the class-certification order and quoted above, is very different from the cursory superiority analysis conducted by the trial court in Schein. See 102 S.W.3d at 699 (holding inadequate the trial court‘s single-sentence superiority analysis that stated, “[i]n light of the amount any individual Plaintiff could recover in this case and the fact that Plaintiffs are owners and operators of small businesses, the Court finds that the economics of pursuing their claims individually would not be feasible for the members of both the DOS and Windows subclasses“). Concerning LSRC‘s complaint that the Keys “failed to address superiority,” the Keys’ extensive brief in support of class certification specifically addressed and explained how and why
Concerning LSRC‘s contention that the Keys’ decision not to pursue mental-anguish damages on behalf of the class defeats superiority, no requirement exists that the Keys pursue every claim that they possess on behalf of the class.38 And no rule precludes the Keys from deciding not to pursue de minimis damage claims on behalf of the class. See Bowden, 247 S.W.3d at 697. Moreover, any potential class members having allegedly suffered mental-anguish damages by virtue of their dealings with LSRC would have known of LSRC‘s mental-anguish-causing conduct and likely would have pursued their own claims, as the Reyeltses did. If few class members have filed individual suits, a court may conclude that the members do not possess strong interests in controlling
B. LSRC Agreed to the Trial Court‘s Consideration of Rule 42(b)(1) and Rule 42(b)(2) Certification
LSRC‘s third issue is “[w]hether class certification under Rules 42(b)(1) and (b)(2) should be reversed when (a) there is no pleading to support the request under either rule, (b) there is no risk of competing judgments necessary for a (b)(1) class, (c) the class is seeking individualized non-monetary claims inappropriate for a (b)(2) class, and (d) there is no or insufficient evidence of cohesiveness required for a (b)(2) class.”40 The Keys argue that LSRC waived its pleading complaint concerning
On the record at the class-certification hearing, LSRC pointed out that the Keys’ motion for class certification requested certification under only
C. The Requirements of Rule 42(b)(2) Are Satisfied; the Rule 42(b)(2) Class Is Indistinguishable from the Rule 42(b)(3) Class
Here, the trial court certified the class alternatively under
We overrule the portion of LSRC‘s third issue challenging class certification under
D. Rule 42(b)(1)(A) Certification Is Unnecessary
Because we have held that the trial court did not abuse its discretion by certifying the class declaratory-judgment and DTPA (Violation of Chapter 541 of the Texas Insurance Code) claims for class treatment under
VII. MISCELLANEOUS COMPLAINT
In one sentence in its fifth issue LSRC complains that “[t]he class certification order is also defective because it fails to include jury instructions. Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1279 n.20 (11th Cir. 2009).” But neither the text of the Vega opinion nor the text of footnote 20 supports this contention.42 We overrule LSRC‘s fifth issue.
VIII. CONCLUSION
Having sustained the portions of LSRC‘s first, second, and third issues challenging class certification of the Keys’ DTPA section 17.50(a)(3) (Unconscionability) claim, we reverse that portion of the trial court‘s class certification order and remand the cause to the trial court with instructions to decertify the DTPA section 17.50(a)(3) (Unconscionability) claim. Having overruled the remaining portions of LSRC‘s first and third issues, having overruled LSRC‘s fourth and fifth issues, and having determined that we need not address the portions of LSRC‘s third issue challenging class certification under
Notes
[LSRC]‘s frivolous argument that an arbitration clause undermines typicality fails for several reasons. First, the record fails to support [LSRC]‘s suggestion that an arbitration clause even existed in any form contract. [LSRC] produced six form contracts—five of those form contracts were one page and did not contain any arbitration clause. [2 CR 455-60]. The sixth form contract was followed by two extra terms and conditions pages not included in the other five form contracts—one of those terms and conditions pages contained an arbitration clause, and the other did not. [2 CR 461-62]. [LSRC]‘s counsel admitted on the record that both of those terms and conditions pages could not be part of the same form contract. [2 CR 416 (“So only one of those could be part of the [sixth] contract.“)]. [A-1]‘s corporate representative agreed it would be “impossible” for both terms and conditions sheets to be a part of the sixth form contract. [Id.]. Neither [LSRC], nor [their] counsel, however, ever indicated that the terms and conditions page containing the arbitration clause was part of the sixth form contract. [Id.].