The opinion
IN THE SUPREME COURT OF TEXAS
IN THE SUPREME COURT OF TEXAS
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No. 05-0748
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Southwestern Bell Telephone
Company,
Petitioner,
v.
Marketing on Hold Inc., d/b/a
Southwest Tariff Analyst,
Respondent
════════════════════════════════════════════════════
On Petition for Review from
the
Court of Appeals for the
Thirteenth District of Texas
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Argued March 22, 2007
Justice O’Neill , joined by
Chief Justice Jefferson and Justice Medina , dissenting.
The Court concludes that Marketing on Hold, doing business as Southwest
Tariff Analyst (STA), holds valid assignments of claims typical of the class,
has standing to assert its claims as a class member, is neither a stranger to
the litigation nor a class-action entrepreneur, and will not disrupt the
class-suit vehicle or distort the judicial process. Yet the Court decides STA is
not an adequate class representative based on the potential for hypothetical
conflicts that have no basis in the record. The Court states that it is not
deciding whether an assignee can ever be an adequate class representative, but
if STA doesn’t qualify it is hard to imagine who would. The assignors were
established STA business customers who relied on STA’s
superior knowledge about Southwestern Bell’s billing procedures, information
retrieval systems, and the tariffs that govern this highly regulated industry,
and no antagonism or conflict exists that would affect STA’s adequacy to represent the class. In my view, STA’s unique expertise gives it an ability superior to that
of any other class member to pursue this litigation as class representative and
supervise the activities of class counsel, as the trial court found. Because the
Court concludes otherwise, I respectfully dissent.
Southwestern Bell is assessed fees under various municipal ordinances in
order to compensate the cities enacting them for administering public
rights-of-way. The company is allowed to pass the fees through to its telephone
subscribers, but it is prohibited from making a profit from the charge. See, e.g. , Brownsville, Tex., Ordinance 95-1296, § 12 (July
18, 1995). STA provides auditing services of business telephone bills and
assists its customers in seeking refunds from telephone companies for improper
billing practices, in exchange for a percentage of the amount its customers
recover. In the course of auditing Southwestern Bell bills for its customers,
STA discovered that the company had improperly passed through municipal charges
for certain services relating to SmartTrunk , Digital
Loop and Hotel/Motel services. Each of these trademarks describe a service provided by Southwestern Bell to its
business customers. 1
STA had a number of customers who subscribed to some of these
Southwestern Bell services. 2 STA and those customers were class
members in another class action, Mireles v.
Southwestern Bell Telephone Company , in the 357th District Court of Cameron
County, which included most of Southwestern Bell’s residential and business
customers in Texas. When a pending cy pres settlement in Mireles threatened to release the claims of
its business customers and others similarly situated with no compensation, STA
informed its customers, who decided to assign their claims to STA. STA then
carved those claims out of the class settlement, preserving Southwestern Bell’s
business customers’ claims relating to SmartTrunk ,
Digital Loop and Hotel-Motel municipal charges, which are the subject of this
class-action suit.
After a four-day certification hearing the trial court determined that
the class satisfied the numerosity , commonality,
typicality, and adequacy of representation requirements of Rule 42(a) of the
Texas Rules of Civil Procedure, and that questions of law and fact common to the
class predominated over individual questions under Rule 42(b)(4). Tex. R. Civ. P. 42(b )( 4) (now Rule 42(b)(3)). The trial court also held that STA
had standing to proceed on behalf of the class and is a proper class
representative as the owner of its customers’ assigned claims. According to the
trial court’s findings, there was nothing improper about the methods by which
STA acquired the assignments, STA has been in the business of auditing
Southwestern Bell’s and other utilities’ bills for years, STA has knowledge and
expertise about Southwestern Bell’s billing procedures and information retrieval
systems which are not common knowledge or widely known to putative class
members, and STA’s knowledge and expertise give it a
superior ability to pursue this litigation and supervise the activities of class
counsel. The trial court also found that STA’s
interests are aligned with, and not antagonistic to, the putative class members.
The court of appeals affirmed the trial court’s certification order. 170 S.W.3d 814, 825 . It rejected Southwestern Bell’s portent
of the order opening the floodgates to entrepreneurial abuse in light of the
trial court’s findings that STA’s assignments came
from pre-existing customers, those customers had been members of the Mireles class action from which this suit derived,
and STA did not improperly solicit the assignments. Id. at
825 . The court of appeals, too, rejected Southwestern Bell’s claims that
STA’s interests conflict with
or are antagonistic to other class members. Id. at
826-27 . The Court today, however, concludes that STA’s interests conflict with those of the putative class
such that it cannot be an adequate class representative. The potential conflicts
the Court hypothesizes, however, are more imagined than real, and in any event
are insufficiently compelling to disqualify STA from representing the
class.
According to the Court, STA must have a lesser interest in making itself
and the class whole because it was “never personally aggrieved by Southwestern
Bell’s alleged overcharging and its maximum recovery is less than half the value
of any individual claim for damages.” 3 But neither of these circumstances
creates a conflict. By the assignments, which the Court acknowledges are
entirely valid, STA stands in the shoes of its customers, whose claims arise
from the same overbillings that give rise to the other
class members’ claims. Nor does STA’s smaller financial interest in the litigation affect
its ability to adequately represent the class. As other courts have noted, the
amount of a plaintiff's financial interest in the suit is not determinative of
its ability to represent the class adequately. See ,
e.g. , In re Cardizem , 200 F.R.D. 297,
306 (E.D. Mich. 2001); In re S. Cent. States Bakery Prods. , 86 F.R.D.
407, 418 (M.D. La. 1980). The Court theorizes that since STA never paid the
overcharges itself, it might have a greater incentive to settle more quickly
than other class members who paid the charges and might want more. However, any
incentive STA might have to minimize litigation expenses by settling early
appears to be no different from that any other class member would have, and
STA’s incentive to maximize recovery appears to be no
different either. Though the Court posits that STA might ultimately pursue
theories of relief more efficient for itself at the expense of absentee class
members, it does not speculate what those theories might be and none have been
asserted. Such speculative conflicts are far too tenuous to render STA
inadequate. The Court apparently believes the fact that STA was not directly
injured by Southwestern Bell’s conduct and merely holds an economic interest in
any recovery means that STA has a different set of priorities than other class
members. But in most, if not all, commercial class actions like this one the
members of the class are motivated by economic considerations. Here, STA
represents five class members, and thus, if anything,
is more cognizant of a greater number of economic interests than the typical
class representative would be. The evidence demonstrates that the claims
assigned to STA range from small to large, and supports the trial court’s
finding that STA has an interest in asserting the rights of all putative class
members.
Southwestern Bell contends STA’s thirty-percent
interest in recovered funds will make it more likely to disregard a settlement
paid for in coupons or credits. In support, Southwestern Bell points to an STA
employee’s testimony at the certification hearing that he was uncertain as to
whether a coupon settlement would be proper in this case. 4 Coupon settlements, however, have not
always been favored in our class-action jurisprudence. See , e.g., General Motors Corp. v. Bloyed , 916 S.W.2d 949, 956 (Tex. 1996). A
general expression of uncertainty on the hypothetical propriety of a future
coupon settlement does not diminish STA’s adequacy to
represent the class, especially when non-cash remedies were contemplated in the
assignments. STA’s assignments allow it to collect its
percentage from all recovered overcharges, whether recovered through refunds or
credits. Clearly non-cash remedies have not been ruled out, and the testimony of
STA’s employee does not indicate otherwise.
Southwestern Bell points to the fact that STA does not hold an assignment
from a customer who subscribed to Hotel/Motel services and thus has no incentive
to pursue such claims. However, it is highly unlikely that any potential class
representative would have a claim based on all three types of subscription
packages. The salient point is that the Hotel/Motel claims arise from the same
unauthorized course of conduct as the other class claims, and are brought under
the same statutory scheme with the same legal theories. Southwestern Bell has
not articulated how the interests or claims of Smart Trunk and Digital Loop
customers differ from or conflict with those of Hotel/Motel customers. See
Cardizem , 200 F.R.D. at
306 . As the trial court found, and the court of
appeals agreed, 170 S.W.3d 814, 827 , there is no evidence of any conflict
between the Hotel/Motel customers and other members of the class. Southwestern
Bell also contends its right to reallocate charges creates additional potential
for conflict. Southwestern Bell argues that while it will make a refund to
customers it overcharged, it has the right to
reapportion the fee to customers who it essentially undercharged. According to
Southwestern Bell, STA will have to make strategic decisions knowing some class
members are affected differently by reallocation. 5 Of course, this complaint is not unique
to STA and would apply equally to any other purported class representative. In
response, STA challenges whether this hypothetical reallocation could occur at
all since Southwestern Bell may only “ backbill ” a
customer for the six months prior to when the underbilling is discovered, and that period has passed.
See 16 Tex. Admin. Code § 26.27(a )( 3)(C)( i ). But even assuming some
reallocation would occur, STA presented expert testimony that any reallocation
would at most cause a minor reduction in the total amount due to a class member,
and that it is highly unlikely any class member would actually have an increase
in fees. 6 The expert also pointed to evidence that
Southwestern Bell collected substantially more from its customers than it paid
to the municipalities, making it unlikely an increase of fees would result from
reapportionment, particularly if Southwestern Bell’s overcollection exceeds the amount sought by the class. A
potential for conflict might exist if it were shown that reallocation would
result in a significantly reduced damages award for some customers and not
others. But Southwestern Bell has at most shown that in the case of a
hypothetical reallocation some customers might have their damages reduced by a
negligible amount compared to other customers, which is not enough to disqualify
STA as an adequate class representative.
Southwestern Bell also challenges whether STA and its representatives
have the qualifications, background, and interest to represent the class and
supervise class counsel, pointing to the testimony of an STA employee, Mike
Shelton, that “we’re here at the disposal of the
lawyers.” Tex. R. Civ. P.
42(a )( 4). However, quoted in full, Shelton’s statement
demonstrates that he is aware of his duty “[t]o vigorously represent the class,
to put their needs above ours, to – as we’re doing today, we’re here at the
disposal of the lawyers, at the disposal of the Court to vigorously pursue this
case and protect the class rights.” Southwestern Bell claims another employee,
Mark Wilder, lacks familiarity with the surrounding facts and legal theories.
However, Wilder possesses knowledge and expertise regarding the billing
procedures at issue in this case, which are not common knowledge nor widely
known to members of the putative class. The evidence supports the trial court’s
determination that STA is an appropriate class representative, and the testimony
of its employees does as well.
In sum, the speculative conflicts the Court and Southwestern Bell
hypothesize between STA and the other class members are too tenuous to render it
an inadequate class representative. Considering the absence of any realistic
potential for conflict or antagonism between STA and the class, together with
STA’s demonstrated superior expertise in the subject
matter of the litigation, I would hold that STA has satisfied the adequacy
requirement and affirm certification of the class. Because the Court concludes
otherwise, I respectfully dissent.
___________________________________
Harriet O’Neill
Justice
OPINION DELIVERED: February 19,
2010
1 The
Hotel/Motel service allows the hotel or motel to incur charges on a per-call
basis, thus allowing guests to receive and make local telephone calls charged to
the room. Digital Loop and Smart Trunk describe an interface that makes a single
connection with the telephone company that then provides the customer with
twenty-three channels for telephone communication.
2 The
customers are United Services Automobile Association (USAA), S & B
Engineers, Inc ./ S & B Engineers and Constructors,
Ltd., Petrocon Engineering, Inc., Riverway Bank, and Russell & Smith Ford, Inc.
3 The
customers assigned 100% of their claims to STA, but as part of the consideration
for the assignment STA agreed to pay the assignors 70% of any net proceeds
recovered and retain 30% for itself.
4 That
employee testified as follows:
Q: “And a coupon settlement would be proper in this case, as to
what STA should receive for 30 percent interest?”
A:
“I’m not certain.”
5
Southwestern Bell’s expert offered the following hypothetical example: if
the municipal fee is $9 million and Southwestern Bell had $100 million in
revenues, then Southwestern Bell would charge its customers a 9% municipal
charge to recoup the $9 million fee. A customer with a $100,000 bill would have
had a $9,000 municipal charge without reallocation. If, however, only $90
million in revenue was appropriately subject to these charges, Southwestern Bell
would then have to charge its customers a 10% municipal charge to recoup the $9
million fee. Under reallocation, if only $99,000 was taxable, then that customer
would have to pay a $9,900 municipal charge.
6 For
example, for USAA, a large customer-assignor, damages with reallocation would be
$2,560.67 and damages without reallocation would be $2,563.74. For Ridgeway
Bank, a small customer-assignor, damages with reallocation would be $99.66 and
damages without reallocation would be
$102.59.