“‘[T]he office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the ‘metho[d]’ best suited to adjudication of the controversy ‘fairly and efficiently.’”
How later courts described this case
- “‘[T]he office of a Rule 23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the ‘metho[d]’ best suited to adjudication of the controversy ‘fairly and efficiently.’”
Written by the judges who cited it.
The opinion
[Cite as Stammco, L.L.C., v. United Tel. Co. of Ohio, 136 Ohio St.3d 231, 2013-Ohio-3019.]
STAMMCO, L.L.C., ET AL., APPELLEES, v. UNITED TELEPHONE COMPANY OF
OHIO ET AL., APPELLANTS.
[Cite as Stammco, L.L.C. v. United Tel. Co. of Ohio,
136 Ohio St.3d 231, 2013-Ohio-3019.]
Class actions—Consideration of issues relevant to both certification of class and
merits of claim—Predominance requirement—Overbreadth of class
definition.
(No. 2012-0169—Submitted February 6, 2013—Decided July 16, 2013.)
APPEAL from the Court of Appeals for Fulton County, No. 11-F-003,
2011-Ohio-6503.
____________________
SYLLABUS OF THE COURT
At the certification stage in a class-action lawsuit, a trial court must undertake a
rigorous analysis, which may include probing the underlying merits of the
plaintiff’s claim, but only for the purpose of determining whether the
plaintiff has satisfied the prerequisites of Civ.R. 23. (Wal-Mart Stores,
Inc. v. Dukes, 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and
Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ___, 133
S.Ct. 1184, 185 L.Ed.2d 308 (2013), followed.)
____________________
KENNEDY, J.
I. Introduction
{¶ 1} In this opinion, we address a single proposition of law of
appellants, United Telephone Company of Ohio (“UTO”) and Sprint
Corporation.1
1. Plaintiffs’ amended complaint named Sprint Corporation and United Telephone Company of
Ohio, doing business as Sprint, as the defendants. Since May 17, 2006, UTO is no longer
SUPREME COURT OF OHIO
{¶ 2} UTO appeals from a judgment of the Sixth District Court of
Appeals holding that the trial court abused its discretion in denying certification
of plaintiffs’ class-action lawsuit. We accepted for review the following
proposition of law: “A trial court does not abuse its discretion by evaluating the
merits of the plaintiffs’ claims when denying class certification.”
{¶ 3} We hold that a trial court must conduct a rigorous analysis, which
may include probing the merits of plaintiffs’ claims, to ensure that the
prerequisites of Civ.R. 23 are satisfied. Even though the trial court’s
consideration of the merits here was improper, its order denying certification of
the class was correct because plaintiffs’ proposed amended class does not satisfy
the prerequisites of Civ.R. 23. Therefore, we reverse the judgment of the court of
appeals and reinstate the order of the trial court that rejected plaintiffs’ amended
class definition, which in effect decertifies plaintiffs’ class-action lawsuit.
II. Facts
{¶ 4} In 2005, Stammco, L.L.C., a limited-liability company, and
Stammco’s owners, Kent and Carrie Stamm, on behalf of other similarly situated
telephone customers, filed a complaint seeking to certify a class-action lawsuit
against UTO.
{¶ 5} UTO provided plaintiffs with local and long-distance phone
service. In their amended complaint, plaintiffs alleged that their phone bills from
UTO also contained unauthorized charges from third parties, as part of a practice
known as “cramming.” Plaintiffs’ amended complaint alleged three theories of
liability: (1) negligent billing, (2) “breach of the duty of good faith and fair
dealing implied in contract,” and (3) unjust enrichment. Plaintiffs sought
affiliated with Sprint. Sprint remains a party and has filed briefs and motions jointly with UTO.
Because only UTO’s business practices are at issue, we refer throughout this opinion to UTO only.
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injunctive relief and compensatory damages. Plaintiffs proposed the following
class definition:
All individuals, businesses or other entities in the State of
Ohio who are or who were within the past four years, subscribers
to local telephone service from United Telephone Company of
Ohio d.b.a. Sprint and who were billed for charges on their local
telephone bills by Sprint on behalf of third parties without their
permission. Excluded from this class are defendants, their
affiliates (including parents, subsidiaries, predecessors, successors,
and any other entity or its affiliate which has a controlling interest),
their current, former, and future employees, officers, directors,
partners, members, indemnities [sic], agents, attorneys and
employees and their assigns and successors.
{¶ 6} The trial court certified the class as defined. UTO appealed. The
court of appeals affirmed the trial court’s judgment certifying the class, but only
under Civ.R. 23(B)(3). Stammco, L.L.C. v. United Tel. Co. of Ohio, 6th Dist. No.
F-07-024, 2008-Ohio-3845, ¶ 66-67.
{¶ 7} On appeal, we held that the class definition failed to readily
identify prospective class members because (1) it was unclear whether class
members were expected to give UTO or the third parties authorization to bill, or
whether the third parties were expected to obtain authorization from class
members, (2) it was unclear in the phrase “their permission” whom the word
“their” referred to, and (3) it was unclear how authorization would occur.
Stammco, L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St.3d 91, 2010-Ohio-1042,
926 N.E.2d 292, ¶ 10 (“Stammco I”). We also held that the class was not readily
identifiable, because individualized determinations would be needed as to
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“whether and how each prospective class member had authorized third-party
charges on his or her phone bill” and the identification of class members would
require “more than a reasonable effort.” Id. at ¶ 11.
{¶ 8} Accordingly, we reversed the judgment of the court of appeals and
remanded the cause to the trial court to “redefine the class on remand.” Id. at
¶ 12. However, we noted that we did not reach UTO’s arguments that the class
was a fail-safe class,2 that individualized issues predominated in the class, that the
class was unmanageable, and that the class was not suitable for the issues in the
case. Id. at ¶ 13.
{¶ 9} On remand, plaintiffs proffered the following amended class
definition:
All individuals, businesses or other entities in the State of
Ohio who are or who were within the period four years prior to the
initiation of this lawsuit to the present, subscribers to local
telephone service from United Telephone Company of Ohio d.b.a.
Sprint and/or any successor company providing that same service,
and who were billed for third party charges as to which Sprint had
no prior authorization from the customer in writing or by a method
acceptable to Sprint sufficient for Sprint to verify that the customer
had agreed to such charge. Excluded from the class are those
customers who subscribed to and provided authorization for long
2. A fail safe class definition is one in which the putative class is defined by
reference to the merits of the claim. See Messner v. Northshore Univ.
HealthSystem, 669 F.3d 802, 826 (7th Cir.2012); Manual for Complex Litigation
(Fourth) § 21.222 (2004). It requires a court to rule on the merits of the claim at
the class-certification stage in order to tell who was included in the class. Id.
“Such a class definition is improper because a class member either wins or, by
virtue of losing, is defined out of the class and is therefore not bound by the
judgment.” Messner, 669 F.3d at 826.
Melton ex rel. Dutton v. Carolina Power & Light Co., 283 F.R.D. 280, 288 (D.S.C.2012).
4
January Term, 2013
distance services from a provider of toll services that were billed
on the customers’ local telephone bills. Also excluded from this
class are defendants, their affiliates (including parents,
subsidiaries, predecessors, successors, former and future
employees, officers, directors, partners, members, indemnities
[sic], agents, attorneys and employees and their assigns and
successors).
{¶ 10} After the hearing, the trial court issued a decision that stated: (1)
“[T]he ‘class definition,’ as submitted by the Plaintiffs is a prohibited ‘fail-safe
class,’ ” (2) “Plaintiff’s [sic] action has been brought against the ‘local exchange
carrier,’ rather than the culprit ‘third party provider,’ ” and (3) “The action
proposes to impose a ‘duty’ upon the Defendant Carrier, that is not required of
them, according to the status of current legislation and case law.” Consequently,
the court held: “[T]he Plaintiffs have not met their burden of establishing, by a
preponderance of the evidence, that a ‘class certification,’ is a proper one,” and it
denied the plaintiffs’ amended motion for class certification.
{¶ 11} Plaintiffs appealed. The court of appeals held that the amended
class definition addressed the ambiguities in the class definition as found by this
court. Specifically, the court of appeals stated:
The amended class now defines to whom permission is to be
granted: appellee, whose permission was required: the customer,
and the manner [in which] the permission was to be granted: in
writing or an alternative method by which appellee could verify
agreement. The amended definition deletes any reference to
customers who receive unauthorized charges. In our view, the
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amended language satisfies the specific concerns of the court in its
mandate for remand.
2011-Ohio-6503, ¶ 39.
{¶ 12} The court held that the amended class definition did not set forth a
fail-safe class, because the amended class definition did not rely upon a
determination of liability. Id. at ¶ 42-46.
{¶ 13} Finally, the court of appeals addressed the trial court’s conclusion
that UTO had no duty to ensure that third-party charges that it was billing to its
customers were authorized and its conclusion that the third parties who were
initiating the charges were the real culprits. The court of appeals held that “both
rationales are improper incursions into the merits of this case.” Id. at ¶ 49.
{¶ 14} The court of appeals concluded: “Since two of the three reasons
the trial court articulated for denying the class are improper considerations of the
merits and the third reason is inapplicable as a matter of law, we must conclude
that the trial court abused its discretion in denying class certification.” Id. at ¶ 50.
The court of appeals reversed the judgment of the trial court and remanded for
further proceedings consistent with its decision.
{¶ 15} We denied UTO’s discretionary appeal. 131 Ohio St.3d 1511,
2012-Ohio-1710, 965 N.E.2d 311. However, we granted UTO’s motion to
reconsider. 132 Ohio St.3d 1425, 2012-Ohio-2729, 969 N.E.2d 272.
{¶ 16} UTO argues that Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94
S.Ct. 2140, 40 L.Ed.2d 732 (1974), and Ojalvo v. Ohio State Univ. Bd. of
Trustees, 12 Ohio St.3d 230, 466 N.E.2d 875 (1984), have been misunderstood by
courts, including the court of appeals herein, as prohibiting courts from
considering the underlying merits of the plaintiffs’ claims in a class-action suit for
the purpose of deciding whether the requirements of certification of the class have
been satisfied. UTO argues that the recent decision in Wal-Mart Stores, Inc. v.
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January Term, 2013
Dukes, 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), has clarified that
courts may probe the merits in determining whether certification is proper under
Civ.R. 23. Thus, UTO argues that the court of appeals erred in holding that the
trial court abused its discretion when it considered the merits of plaintiffs’ claims.
{¶ 17} The plaintiffs agree that courts may consider the underlying merits
of a class action for purposes of determining whether the certification
requirements are satisfied. However, plaintiffs argue that the court of appeals did
not err in reversing the trial court’s order, because the trial court improperly
rejected plaintiffs’ proposed amended class definition.
III. Analysis
A. Civ.R. 23 Requirements
{¶ 18} We begin our analysis by reviewing the requirements for certifying
a class-action lawsuit. The Ohio Rules of Civil Procedure are modeled after the
Federal Rules of Civil Procedure, which were adopted in 1938 and have been
amended several times. Consequently, federal law interpreting a federal rule,
while not controlling, is persuasive authority in interpreting a similar Ohio rule.
Myers v. Toledo, 110 Ohio St.3d 218, 2006-Ohio-4353, 852 N.E.2d 1176, ¶ 18.
“Since the Ohio rule is identical to Fed.R.Civ.P. 23, with the exception of Civ.R.
23(F) which is not involved in the discussion here, federal authority is an
appropriate aid to interpretation of the Ohio rule.” Marks v. C.P. Chem. Co., Inc.,
31 Ohio St.3d 200, 201, 509 N.E.2d 1249 (1987).
{¶ 19} Pursuant to Civ.R. 23, plaintiffs must establish seven prerequisites
in order to certify a class action: (1) an identifiable and unambiguous class must
exist, (2) the named representatives of the class must be class members, (3) the
class must be so numerous that joinder of all members of the class is impractical,
(4) there must be questions of law or fact that are common to the class, (5) the
claims or defenses of the representative parties must be typical of the claims and
defenses of the members of the class, (6) the representative parties must fairly and
7
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adequately protect the interests of the class, and (7) one of the three requirements
of Civ.R. 23(B) must be satisfied. Warner v. Waste Mgt., Inc., 36 Ohio St.3d 91,
94-96, 521 N.E.2d 1091 (1988).
{¶ 20} If the court determines that the proposed class satisfies the first six
prerequisites of Civ.R. 23(A), it must then determine whether a class action is
maintainable under at least one of the three subsections in Civ.R. 23(B). Warner
at 94.
{¶ 21} Under Civ.R. 23(B)(1)(a), a class action is maintainable “if
separate actions would create a risk of inconsistent or varying adjudications with
respect to individual members of the class that would establish incompatible
standards of conduct for the party opposing the class,” and subsection (B)(1)(b)
“will permit certification if separate actions would create a risk of adjudications
that would as a practical matter be dispositive of the claims of non-parties or
substantially impair or impede their ability to protect their interests.” Id. at 95.
{¶ 22} Under Civ.R. 23(B)(2), a class action is maintainable if “its
primary application [is] injunctive relief.” Id.
{¶ 23} And finally, under Civ.R. 23(B)(3), a class action is maintainable if
the plaintiff is seeking damages and the court makes two findings: “that the
common questions predominate over questions affecting only individual members
and that a class action is superior to other available methods for the fair and
efficient adjudication of the controversy.” Id. at 96.
{¶ 24} “The failure to meet any one of these prerequisites will defeat a
request for class certification * * *.” Schmidt v. Avco Corp., 15 Ohio St.3d 310,
313, 473 N.E.2d 822 (1984).
{¶ 25} “A trial judge has broad discretion in determining whether a class
action may be maintained and that determination will not be disturbed absent a
showing of an abuse of discretion.” Marks v. C.P. Chem. Co., 31 Ohio St.3d at
201, 509 N.E.2d 1249. “Abuse of discretion has been defined as more than an
8
January Term, 2013
error of law or judgment; it implies an attitude on the part of the trial court that is
unreasonable, arbitrary, or unconscionable.” Id., citing Ojalvo, 12 Ohio St.3d at
232, 466 N.E.2d 875. “A finding of abuse of discretion, particularly if the trial
court has refused to certify, should be made cautiously.” Marks v. C.P. Chem.
Co. at 201.
B. Certification of a Class-Action Lawsuit Requires a Rigorous Analysis of
Plaintiffs’ Claims to Ensure Compliance with Civ.R. 23
{¶ 26} At the certification stage in a class-action lawsuit, courts must
determine whether plaintiffs’ putative class complies with the requirements of
Civ.R. 23. UTO argues that Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct.
2140, 40 L.Ed.2d 732, has caused confusion as to whether courts can consider the
underlying merits of the plaintiffs’ claim in a class-action suit.
{¶ 27} Eisen involved a class-action lawsuit alleging violations of
antitrust and securities laws with a putative class of six million members. After
certifying the class, the district court considered which party would more likely
prevail on the merits, in order to determine who should bear the cost of notifying
class members.
{¶ 28} On appeal, the United States Supreme Court held that the district
court had erred in considering which party was likely to prevail on the merits for
the purpose of deciding which party should bear the cost of notification in a class-
action lawsuit. Id. at 177. The court reasoned that there was “nothing in either
the language or history of Rule 23 that gives a court any authority to conduct a
preliminary inquiry into the merits of a suit in order to determine whether it may
be maintained as a class action.” Id. The court further reasoned that an inquiry
into the merits would give the plaintiff “a determination on the merits of the
claims advanced on behalf of the class without any assurance that a class action
may be maintained.” Id.
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{¶ 29} In Wal-Mart v. Dukes, 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d
374, the court stated that Eisen had sometimes been interpreted as prohibiting a
court from conducting an inquiry into the merits of the case “in order to determine
whether it may be maintained as a class action.” Id. at 2552, fn. 6. Dukes held
that Eisen’s prohibition against considering the underlying merits in a class action
was limited to its facts, i.e., it is improper for a court to consider which party will
prevail on the merits for the purpose of deciding which party must bear the cost of
notification in a class-action lawsuit. Id.
{¶ 30} Dukes held that “Rule 23 does not set forth a mere pleading
standard.” Id. at 2551. Dukes reaffirmed that a trial court needs to conduct a
rigorous analysis to ensure that the prerequisites of Civ.R. 23 are satisfied. Id.,
citing Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 160-161, 102 S.Ct.
2364, 72 L.Ed.2d 740 (1982). The court went on to state: “A party seeking class
certification must affirmatively demonstrate his compliance with the Rule—that
is, he must be prepared to prove that there are in fact sufficiently numerous
parties, common questions of law or fact, etc.” (Emphasis sic.) Dukes at 2551.
The court elaborated: “Frequently that ‘rigorous analysis’ will entail some overlap
with the merits of the plaintiff’s underlying claim. * * * ‘ “[T]he class
determination generally involves considerations that are enmeshed in the factual
and legal issues comprising the plaintiff’s cause of action.” ’ ” Id. at 2551-2552,
quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 469, 98 S.Ct. 2454, 57
L.Ed.2d 351 (1978).
{¶ 31} In Dukes, past and present female employees alleged that Wal-
Mart discriminated against women by denying them promotions and pay equal to
men’s. The plaintiffs’ theory was that Wal-Mart’s “strong and uniform ‘corporate
culture’ permits bias against women to infect * * * the discretionary
decisionmaking of each one of Wal-Mart’s thousands of managers—thereby
making every woman at the company the victim of one common discriminatory
10
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practice.” (Emphasis added.) Dukes, 564 U.S. ___, 131 S.Ct. at 2548, 180
L.Ed.2d 374. In support of their claims, plaintiffs submitted statistical evidence
about pay and promotion disparities between men and women, anecdotal reports
of discrimination, and testimony from a sociologist, who analyzed Wal-Mart’s
“ ‘culture’ and personnel practices and concluded that the company was
‘vulnerable’ to gender discrimination.” Id. at 2549.
{¶ 32} The court held that the commonality requirement in Fed.R.Civ.P.
23(a)(2) was the crux of the case. Id. at 2550-2551. The court further held that
raising common questions is not enough. Rather, the requirement is to “ ‘generate
common answers apt to drive the resolution of the litigation.’ ” (Emphasis sic.)
Id. at 2551, quoting Nagareda, Class Certification in the Age of Aggregate Proof,
84 N.Y.U.L.Rev. 97, 132 (2009). The court held that the commonality
requirement of Fed.R.Civ.P. 23 overlapped with plaintiffs’ “contention that Wal-
Mart engages in a pattern or practice of discrimination.” (Emphasis sic.) Id. at
2552. The court recognized that in resolving a discrimination claim, the reason
for the employment decision is critical. Id. The court in Dukes reasoned that
because plaintiffs’ complaint involved thousands of employment decisions by
Wal-Mart, plaintiffs would have to prove a common theory why Wal-Mart
discriminated against them. The court stated: “ ‘[W]hether 0.5 percent or 95
percent of the employment decisions at Wal-Mart might be determined by
stereotyped thinking’ is the essential question on which [plaintiffs’] theory of
commonality depends.” Dukes at 2554, quoting a decision of the district court in
the same case, Dukes v. Wal-Mart, Inc., 222 F.R.D. 189, 192 (N.D.Cal.2004).
The court found no “convincing proof of a companywide discriminatory pay and
promotion policy, [and] concluded that [the plaintiffs] have not established the
existence of any common question.” (Emphasis added.) Dukes at 2556-2557.
{¶ 33} However, a trial court’s consideration of the underlying merits of a
plaintiff’s claim at the certification stage is not unfettered. “[T]he office of a Rule
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23(b)(3) certification ruling is not to adjudicate the case; rather, it is to select the
‘metho[d]’ best suited to adjudication of the controversy ‘fairly and efficiently.’ ”
Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ___, 133 S.Ct.
1184, 1191, 185 L.Ed.2d 308 (2013). Amgen confirmed that the rigorous analysis
at the certification stage “may ‘entail some overlap with the merits of plaintiff’s
underlying claim’ ” but stated: “Rule 23 grants courts no license to engage in free-
ranging merits inquiries at the certification stage. Merits questions may be
considered to the extent—but only to the extent—that they are relevant to
determining whether the Rule 23 prerequisites for class certification are satisfied.”
Id. at 1194-1195, quoting Dukes at 2551.
{¶ 34} In Amgen, plaintiff alleged that it purchased Amgen stock based on
misrepresentations and lost money when the misrepresentations were uncovered
and the price of the stock fell. The plaintiff, using the “fraud-on-the-market
theory,” filed a section 10b-5 securities-fraud action.3 Amgen at 1190. The claim
required the plaintiff to prove that Amgen had made a materially misleading
statement to the public regarding the sale of its stock. Plaintiff sought to certify
its complaint as a class-action lawsuit.
{¶ 35} The question before the court was whether the predominance
requirements in Civ.R. 23(B)(3) required plaintiff merely to plead that Amgen’s
misrepresentations materially affected the price of Amgen’s stock, or whether
plaintiff was required to prove the materiality requirement. Id. at 1195.
3. Securities and Exchange Commission Rule 10b-5, 17 C.F.R. 240.10b-5, provides that it is
unlawful for a person to make material misrepresentations “[i]n connection with the purchase or
sale of any security.” See also Basic, Inc. v. Levinson, 485 U.S. 224, 231, 108 S.Ct. 978, 99
L.Ed.2d 194 (1988). In order to recover damages under Rule 10b-5, the plaintiff must prove (1) a
material misrepresentation or omission by the defendant, (2) scienter, (3) a connection between the
misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the
misrepresentation or omission, (5) economic loss, and (6) loss causation. The “fraud-on-the-
market” theory permits certain Rule 10b–5 plaintiffs to invoke a rebuttable presumption of
reliance on material misrepresentations made to the general public. Amgen, 568 U.S. ___, 133
S.Ct. at 1192, 185 L.Ed.2d 308.
12
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{¶ 36} The court held that the “pivotal inquiry is whether proof of
materiality is needed to ensure that questions of law or fact common to the class
will ‘predominate over any questions affecting only individual members’ as the
litigation progresses.” (Emphasis sic.) Id. at 1195.
{¶ 37} The court found that the plaintiffs did not need to prove materiality
at the certification stage for two reasons. First, the court recognized that
materiality is an objective question that can be answered by “ ‘the significance of
an omitted or misrepresented fact to a reasonable investor.’ ” Id. at 1195, quoting
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 445, 96 S.Ct. 2126, 48
L.Ed.2d 757 (1976). Thus, proof of materiality is common to all the class
members. Id. at 1196.
{¶ 38} Second, the court determined:
[T]here is no risk whatever that a failure of proof on the common
question of materiality will result in individual questions
predominating. Because materiality is an essential element of a
10b-5 claim, * * * [plaintiff’s] failure to present sufficient
evidence of materiality to defeat a summary judgment motion or to
prevail at trial would not cause individual reliance questions to
overwhelm the questions common to the class. Instead, the failure
of proof on the element of materiality would end the case for one
and for all; no claim would remain in which individual reliance
issues could potentially predominate.
Amgen, 568 U.S. ___, 133 S.Ct. at 1196, 185 L.Ed.2d 308.
{¶ 39} The court concluded:
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[Plaintiff was] not required to prove the materiality of Amgen’s
alleged misrepresentations and omissions at the class-certification
stage. This is not a case in which the asserted problem—i.e., that
the plaintiff class cannot prove materiality—“exhibits some fatal
dissimilarity” among class members that would make use of the
class-action device inefficient or unfair. Nagareda, Class
Certification in the Age of Aggregate Proof, 84 N.Y.U.L.Rev. 97,
107 (2009). Instead, what Amgen alleges is “a fatal similarity—[an
alleged] failure of proof as to an element of the plaintiffs’ cause of
action.” Ibid. Such a contention is properly addressed at trial or in
a ruling on a summary-judgment motion. The allegation should not
be resolved in deciding whether to certify a proposed class.
Id. at 1197.
{¶ 40} To the extent that Eisen has caused confusion, Dukes and Amgen
have clarified that at the class-certification stage, trial courts may probe the
underlying merits of an action, but only for the purpose of determining whether
the plaintiff has satisfied the prerequisites of Fed.R.Civ.P. 23. See also Comcast
Corp. v. Behrend, ___ U.S. ___, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013).
{¶ 41} Contrary to UTO’s assertion, our decision in Ojalvo, 12 Ohio St.3d
230, 466 N.E.2d 875, is consistent with Dukes and Amgen. In Ojalvo, the plaintiff
filed a class-action lawsuit in the Court of Claims alleging that he and several
thousand other employees of the Ohio State University had not been fully
compensated pursuant to their written contracts. The Court of Claims denied
certification for several reasons, including that there was “no certainty that a
common issue of breach of three to six thousand contracts probably exists.”
Ojalvo at 233. The court of appeals affirmed.
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{¶ 42} In Ojalvo, we held that the Court of Claims had abused its
discretion in denying certification of the class. We held: “[I]t appears that the
Court of Claims was not reviewing the propriety of class certification but was
attempting, contrary to the applicable law, to reach the merits of the claim. Class
action certification does not go to the merits of the action.” (Emphasis sic.)
Ojalvo, 12 Ohio St.3d at 233, 466 N.E.2d 875, citing Eisen, 417 U.S. at 177, 94
S.Ct. 2140, 40 L.Ed.2d 732. The court further commented:
The [Court of Claims’] resolution of the narrow issue of
commonality by the conclusion that the breach probably does not
exist is unreasonable since no arguments were made, nor need
have been made, with respect to the actual merits of the case
beyond the necessity of establishing the validity of certification
under Civ.R. 23. See Eisen v. Carlisle & Jacquelin * * *.
Id. at 233.
{¶ 43} It is important to recognize precisely what Ojalvo held and what it
did not hold. Ojalvo held that the Court of Claims improperly decided the case on
the underlying merits, i.e., that there was no certainty that a breach probably
existed. Ojalvo did not hold that a court is prohibited from probing the merits of a
plaintiff’s claims to determine whether class certification is proper under Civ.R.
23. In Ojalvo, we cited Eisen only for the proposition that a court cannot decide
the case on the merits at the certification stage. Id. at 233. Ojalvo is consistent
with Dukes and Amgen to the extent that a trial court may probe the underlying
merits of the plaintiff’s claim in order to determine whether the prerequisites for
class certification are satisfied under Civ.R. 23.
{¶ 44} Accordingly, we hold that at the certification stage in a class-action
lawsuit, a trial court must undertake a rigorous analysis, which may include
15
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probing the underlying merits of the plaintiff’s claim, but only for the purpose of
determining whether the plaintiff has satisfied the prerequisites of Civ.R. 23.
C. Stammco I and the Proceedings on Remand
{¶ 45} In Stammco I, we held that the class as originally certified by the
trial court was not readily identifiable for several reasons, including that the trial
court would have to undertake individualized determinations to ascertain whether
and how each prospective class member had authorized third-party charges on his
or her bill and that doing so would require “more than a reasonable effort.” 125
Ohio St.3d 91, 2010-Ohio-1042, 926 N.E.2d 292, at ¶ 11. We reversed the
judgment of the court of appeals and remanded the cause to the trial court.
{¶ 46} On remand, plaintiffs submitted an amended class definition. At a
hearing, the parties presented arguments for and against certification. An
important issue addressed by both parties was the need for individualized
determinations to ascertain which third-party-provider charges were authorized
and which were not authorized.
{¶ 47} With regard to the issue of individualized determinations of claims,
plaintiffs’ counsel argued: “It’s simple. Despite—despite protestations of [UTO],
we can do what they suggest on page eight of their Brief. ‘Create a new
specialized computer program.’ We can do that. You’ve got the tapes, we got the
technology.”
{¶ 48} In opposition, UTO asserted that there was no computer that could
identify which charges were authorized and which were not authorized. UTO
argued that the amended class did not address the problems identified by this
court in Stammco I. UTO asserted that resolving which charges were authorized
was an issue that would require individualized determinations and individual
testimony. UTO claimed that case law holds that cramming cases are not suitable
for class-action lawsuits for just this reason. UTO argued that the need for
individualized determinations means that this case is not suitable for a class-
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action lawsuit, because the class cannot be identified without more than a
reasonable effort and because common issues do not predominate.
{¶ 49} The trial court rejected plaintiffs’ amended class definition, finding
that (1) the proposed class was a fail-safe class, (2) the real culprits were the third-
party service providers, and (3) UTO had no duty to ensure that charges by the
third-party service providers were authorized.
{¶ 50} The court of appeals reversed the trial court’s order, holding that
the trial court had abused its discretion because (1) the proposed amended class
clarified the ambiguities identified by this court in Stammco I, (2) the amended
class was not a fail-safe class, and (3) the determination that UTO was not liable
was an impermissible decision based on the merits.
{¶ 51} The trial court did err in basing its rejection of plaintiffs’ amended
class definition on the determination that they would ultimately lose on the merits.
Nevertheless, based on the proposed amended class definition, the evidence in
this case, the certification requirements of Civ.R. 23, and the applicable case law
on cramming, we hold that the trial court’s order rejecting the amended class
definition was correct. We have consistently held that a reviewing court should
not reverse a correct judgment merely because it is based on erroneous reasons.
E.g., Joyce v. Gen. Motors Corp., 49 Ohio St.3d 93, 96, 551 N.E.2d 172 (1990).
{¶ 52} In Stammco I, we made clear that the need for individualized
determinations to sort out which third-party-provider charges were authorized was
an issue to be considered on remand. Stammco I, 125 Ohio St.3d 91, 2010-Ohio-
1042, 926 N.E.2d 292, ¶ 13. On this second appeal, we now recognize that the
need for individualized determinations is dispositive in concluding that the class
does not comport with Civ.R. 23. Remanding this case for further consideration
of the class action merely to reach an inevitable result would result in additional,
unnecessary delay in a case that is more than eight years old. Instead, we exercise
our discretionary authority to decide the class-certification question. See Apel v.
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Katz, 83 Ohio St.3d 11, 697 N.E.2d 600 (1998) (rather than remand issues to be
resolved by the lower courts, we chose to decide the issues in this court based on
the briefs filed therein).
D. Plaintiffs’ Proposed Amended Class Does Not Satisfy Civ.R. 23
1. The Proposed Amended Class Is Overly Broad
{¶ 53} “If * * * a class is defined so broadly as to include a great number
of members who for some reason could not have been harmed by the defendant’s
allegedly unlawful conduct, the class is defined too broadly to permit
certification.” Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 824
(7th Cir.2012).
{¶ 54} The original proposed class included those “who were billed for
charges on their local telephone bills by Sprint on behalf of third parties without
their permission.” As we held in Stammco I, the class as originally certified was
not readily identifiable without expending more than a reasonable effort, because
the trial court would have to determine individually whether and how each
prospective class member had authorized third-party charges on his or her phone
bill.
{¶ 55} In response, the plaintiffs proposed the following amended class
definition: “All individuals, businesses or other entities * * * who were billed for
third party charges as to which [UTO] had no prior authorization from the
customer in writing or by a method acceptable to [UTO] sufficient for [UTO] to
verify that the customer had agreed to such charge.”
{¶ 56} The proposed amended class seemingly cures the problem that the
class was not readily identifiable. However, upon further review, the proposed
amended class is too broad. UTO has no records regarding which charges are
authorized and which are not. Under the proposed amended class, every person
who was billed a third-party charge for which UTO had no prior authorization is
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January Term, 2013
now a class member even if the third-party charge was proper. Therefore, the
proposed amended class is overbroad and is not a proper class.
2. Issues Common to Class Members Do Not Predominate
[I]n determining whether common questions of law or fact
predominate over individual issues, it is not sufficient that common
questions merely exist; rather, the common questions must
represent a significant aspect of the case and they must be able to
be resolved for all members of the class in a single adjudication.
(Emphasis added.) Schmidt v. Avco Corp., 15 Ohio St.3d at 313, 473 N.E.2d 822.
{¶ 57} In other class-action lawsuits that have alleged cramming, courts
have held that the evidence necessary to determine whether third-party-service-
provider charges are authorized requires individualized determinations, which
cause the class to fail the predominance requirement of Civ.R. 23(B)(3). Brown
v. SBC Communications, Inc., S.D.Ill. No. 05-cv-777-JPG, 2009 WL 260770, *3
(Feb. 4, 2009) (“the Court will need to make individual determinations as to
whether each proposed class member authorized the charges for which he was
billed by defendants. The result will be multiple mini-trials, each requiring
individual proofs”); Lady Di’s, Inc. v. Enhanced Servs. Billing, Inc., 654 F.3d
728, 738 (7th Cir.2011) (customers’ individual transactions would need to be
examined to consider whether the claims for unjust enrichment or the statutory
claim for deception were proven, which does not comply with Fed.R.Civ.P.
23(b)(3)); Midland Pizza, L.L.C. v. Southwestern Bell Tel. Co., 277 F.R.D. 637,
641-642 (D.Kan.2011) (“the injury at issue here is individualized: whether each
class member was billed for, and paid for, unauthorized charges on his or her
telephone bill. And if the charges were authorized, individual questions of fact
exist as to whether that authorization was valid. Common questions of law or fact
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do not predominate over questions affecting only individual members. Defendant
is correct that no common proof is possible to demonstrate injury for all class
members, because to determine whether or not a charge was authorized will
require individualized proof”); Stern v. Cingular Wireless Corp., C.D.Cal. No.
CV 05-8842 CAS, 2009 WL 481657, *8 (Feb. 23, 2009) (“one cannot determine
what services were crammed without taking the deposition of each class member
to determine what services he or she authorized”).
{¶ 58} While these cases are distinguishable in some respects from the
instant case, they are persuasive to the extent that determining whether third-
party-provider claims are authorized requires individualized determinations as to
each member of the class that make certification of a class inappropriate under
Civ.R. 23(B)(3) because common issues do not predominate. Unlike failure to
prove materiality at the certification stage in Amgen, failure to offer evidence in a
cramming case that is sufficient to prove that third-party charges are unauthorized
on a classwide basis will cause individual questions to overwhelm the questions
common to class members.
{¶ 59} UTO contracts with third-party service providers to deliver charges
from the third-party service providers to the end users via UTO’s phone bill.
UTO admits that its customers dispute some of the third-party-service-provider
charges but also asserts that many of these charges arise from services that are
knowingly ordered by UTO’s customers, and that these charges are never
disputed. UTO asserts that if a customer disputes third-party-service-provider
charges, it will credit the customer’s bill for the purpose of maintaining good will.
{¶ 60} However, UTO does not routinely receive, have, or maintain any
records of the end users’ requests for or authorization or receipt of any specific
third-party services. The third-party providers have that information, and UTO
merely delivers the third-party service provider’s bill to the end user. UTO
asserts that if it had to investigate questions of complaints about the third-party
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January Term, 2013
charges, it would have to contact the clearinghouse or third-party service provider
to obtain the relevant information to resolve the dispute. UTO does not possess
the information necessary to determine whether third-party charges are authorized
by end users.
{¶ 61} Nevertheless, at oral argument, plaintiffs maintained that the trial
court can devise a formula that will indicate which third parties are responsible
for unauthorized charges. Plaintiffs submit that a database maintained by UTO
can be used to determine which third-party charges are authorized and which are
not. The database reflects adjustments that UTO made for its customers each
month. Plaintiffs claim that the number of adjustments made each month can
identify unauthorized charges from third-party providers. Plaintiffs argue that a
threshold could be established that would indicate when a third party was
charging an unauthorized charge. Plaintiffs suggest a 4 percent complaint level,
but they suggest that the court would set the proper threshold complaint level.
{¶ 62} A summary of the database in the record has seven columns, and
each column appears to contain numerical data for a 42-month period. Three of
the columns have the following headings: “Carrier Issued Adjustments,”
“Defendant Issued Adjustments,” and “Total Adjustments.” The database does
not identify why the adjustments were made. UTO asserts that adjustments are
made for any number of reasons, including to correct mistakes or clerical errors.
{¶ 63} In sum, we hold that the database provides no probative evidence
that would assist in identifying unauthorized charges from third-party providers
that appear on the phone bills from UTO each month.
{¶ 64} The class representative’s case illustrates why individualized
determinations would predominate if this case were certified as a class action.
Plaintiff Kent Stamm, owner of the Pop Shop, disputed a third-party charge for a
service from Bizopia that was billed to him on his UTO phone bill. He called
Bizopia to dispute the charge. Bizopia refused to reverse the charge, claiming
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that it was authorized by Frank Smith, who was an employee of the Pop Shop.
Bizopia claimed to have a voice recording of Smith’s authorization for the
service, and it faxed a purported confirmation of the charge to Stamm. Stamm
sent several e-mails to Bizopia complaining about the charges. Stamm requested
that Bizopia provide him a copy of the voice authorization from the third-party
charge from Stamm’s employee Frank Smith. Bizopia refused to provide a
recording, but offered to play the audio verification over the phone. Bizopia
canceled Stamm’s account with Bizopia, but indicated that the charges would
remain. Stamm’s situation is illustrative of the need for individualized
determinations to ascertain whether third-party charges to UTO customers were
authorized that make this case inappropriate for resolution though a class-action
complaint.
{¶ 65} Unauthorized third-party charges are better resolved on an
individual basis with the third party or UTO. UTO’s phone bills identify third-
party charges, the entity responsible for the charge, and a toll-free number for
billing inquiries. Moreover, UTO claims that it has a policy of removing third-
party charges for the purpose of maintaining good will with its clients. Finally,
for larger charges or where the charge cannot be resolved over the phone, small-
claims court is also an option.
{¶ 66} Accordingly, because ascertaining whether third-party charges are
authorized will require individualized determinations, common issues do not
predominate.
IV. Conclusion
{¶ 67} Plaintiffs’ amended class definition is overbroad and fails to satisfy
the predominance requirement of Civ.R. 23(B)(3). Accordingly, we reverse the
judgment of the court of appeals and reinstate the order of the trial court that
overruled plaintiffs’ motion to amend the class, which in effect decertifies the
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January Term, 2013
plaintiffs’ class action. We remand the cause to the trial court for proceedings not
precluded by the denial of class certification.
Judgment reversed,
class decertified,
and cause remanded.
O’CONNOR, C.J., and O’DONNELL, LANZINGER, and FRENCH, JJ., concur.
PFEIFER and O’NEILL, JJ., dissent.
____________________
PFEIFER, J., dissenting.
{¶ 68} I dissent and would affirm the decision of the court of appeals. I
also dissented in Stammco, L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St.3d 91,
2010-Ohio-1042, 926 N.E.2d 292; the majority in that case remanded the case to
the trial court to redefine the class. That was, it turns out, a fool’s errand. The
majority decides today that the class is not capable of definition.
{¶ 69} That “inevitable result,” majority opinion at ¶ 52, allows the
majority to ignore the fact that this court, after having originally denied
jurisdiction in this matter, reconsidered that decision and allowed jurisdiction on
just one of the appellants’ propositions of law. 132 Ohio St.3d 1425, 2012-Ohio-
2729, 969 N.E.2d 272. That proposition of law reads:
Wal-Mart v. Dukes rejects Ojalvo’s interpretation of Eisen:
A trial court does not abuse its discretion by evaluating the merits
of the plaintiffs’ claims when denying class certification.
The majority ultimately agreed with the appellate court that the trial court had
“err[ed] in basing its rejection of plaintiffs’ amended class definition on the
determination that they would ultimately lose on the merits.” Majority opinion at
¶ 51. That should have ended this appeal.
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{¶ 70} But the majority cites Apel v. Katz, 83 Ohio St.3d 11, 16, 697
N.E.2d 600 (1998), in holding that this court has “discretionary authority to
decide the class-certification question.” Majority opinion at ¶ 52. The majority
characterizes Apel as involving a situation where, “rather than remand issues to be
resolved by the lower courts, we chose to decide the issues in this court based on
the briefs filed therein.” Id. Apel concerned a dispute between neighbors over a
roadway easement, and the dispute had dragged through the courts for nine years.
Both parties in Apel argued that the court of appeals had erred by failing to
address issues that had not been made moot by the issue the court did decide. So
this court decided those issues.
{¶ 71} This case is not about an error by the court of appeals in
determining whether issues were moot. And here, this court itself limited the
issues it was willing to consider. But ultimately, as in the two times it has
reconsidered its decision to deny jurisdiction to the appellants in this case, this
court changed its mind.
{¶ 72} This court’s decision today fits with the recent jurisprudence of the
United States Supreme Court, “a Court bent on diminishing the usefulness of Rule
23.” Am. Express. Co. v. Italian Colors Restaurant, ___ U.S. ___, 133 S.Ct. 2304,
2320, 186 L.Ed.2d 417 (2013) (Kagan, J., dissenting). As a practical matter, Ohio
citizens who suffer small, individual damages as a result of a business’s serial bad
conduct are without a meaningful remedy unless they can convince the Ohio
attorney general to get interested in their cases. This court is well on its way to
consigning class actions in Ohio to the dustbin of legal history, joining workplace
intentional torts. What is the next step in diminishing the role of courts?
O’NEILL, J., concurs in the foregoing opinion.
____________________
Murray & Murray Co., L.P.A., Dennis E. Murray Sr., and Donna J. Evans,
for appellees.
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January Term, 2013
Baker & Hostetler, L.L.P., Michael K. Farrell, John B. Lewis, and Karl
Fanter, for appellants.
Linda S. Woggon, urging reversal for amicus curiae, Ohio Chamber of
Commerce.
________________________
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