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examining proposed class representative's individual standing on interlocutory appeal from class certification order because plaintiff's individual standing is a “prerequisite to class certification”
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No. 13-05-202-CV
Memorandum Opinion Delivered and Filed March 23, 2006.
On Appeal from the 332nd District Court of Hidalgo County, Texas.
Before Chief Justice VALDEZ and Justices CASTILLO and GARZA.
MEMORANDUM OPINION
Appellant, Magic Valley Electric Cooperative, appeals from the order of the trial court granting class certification to appellee, the City of Edcouch, Texas. Magic Valley argues that (1) the trial court erred by holding that the City of Edcouch has standing to bring a class action, (2) the City of Edcouch has failed to satisfy the rule 42(a) requirements of class certification, and (3) the City has failed to satisfy the rule 42(b) requirements of class certification. We affirm.
I. Background
The City of Edcouch filed a class action lawsuit against Magic Valley, alleging that various statutory franchise fees paid by Magic Valley to the City were systematically under-calculated. The City brought the suit on behalf of itself and 26 other municipalities in south Texas served by Magic Valley. The trial court certified the proposed class after a hearing, and Magic Valley filed this interlocutory appeal.
II. Standing
By its first issue on appeal, Magic Valley asserts that the City lacked standing to bring a class action, as the City could not prove that it even had a contract regarding the provision of electricity with Magic Valley.
A proposed class representative must establish standing to sue as a prerequisite to class certification. See M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 710 (Tex. 2001). A plaintiff has standing to bring suit if it has a legal right that has been breached. HUD v. Nueces County Appraisal Dist., 875 S.W.2d 377, 379 (Tex.App.-Corpus Christi 1994, no writ). Without a breach of a legal right belonging to a plaintiff, no cause of action arises or can accrue to the plaintiff's benefit. Id. We review a plaintiff's standing de novo. Tex. DOT v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004).
Although Magic Valley contends that the City lacks standing because it does not have a written contract with Magic Valley, and therefore has no ability to claim a breach of any legal right arising from a contract for electricity, we disagree. The elements of a valid contract are (1) an offer, (2) an acceptance, (3) a meeting of the minds, (4) each party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex.App.-Houston [1st Dist.] 2002, pet. denied). There is no absolute requirement that a contract be written to be enforceable; instead, in determining the existence of an oral contract, the court looks to the communications between the parties and to the acts and circumstances surrounding those communications. Id.
In this case, it was undisputed that for years, Magic Valley made payments to the City, denominated in Magic Valley's own records as payments for "franchise tax." It is also undisputed that Magic Valley provided electricity to retail customers residing within the City. Thus, it is clear from the circumstances surrounding the interactions of these parties that the court could properly imply the existence of an oral, valid agreement between the City and Edcouch. See id. Magic Valley's first issue on appeal is overruled.
III. Rule 42(a)
By its second issue on appeal, Magic Valley argues that the City failed to meet any of the requirements for class certification. Our review of an interlocutory appeal from a class certification order is limited to determining whether the trial court's order constituted an abuse of discretion. Fidelity Guar. Life Ins. Co. v. Pina, 165 S.W.3d 416, 422 (Tex.App.-Corpus Christi 2005, no pet.); see also Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 690-91 (Tex. 2002); Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex. 2000) ("Deciding the merits of the suit in order to determine its maintainability as a class action is not appropriate.").
Typically under this standard of review, the appellate court must indulge every presumption favorable to the trial court's ruling. See Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 29 (Tex.App.-Houston [1st Dist.] 2000, pet dism'd w.o.j.). On certification issues, however, the appellate court is not bound by this presumption and must independently determine whether the requirements of rule 42 have been fully satisfied. See Fidelity Guar. Life Ins., 165 S.W.3d at 422; see also Henry Schein, 102 S.W.3d at 691; Southwestern Ref. Co. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000) (determining that actual compliance with rule 42 "must be demonstrated; it cannot be presumed").
Under rule 42(a), every motion for certification as a class action must satisfy four threshold requirements: numerosity, commonality, typicality, and adequacy of representation. See Tex. R. Civ. P. 42(a).
A. Numerosity
Magic Valley raises the rule 42(a) element of numerosity and argues that it has not been adequately established by the City.
To satisfy the numerosity requirement, the proposed class must be so numerous that joinder of all members is impractical. Tex. R. Civ. P. 42(a)(1). "Impractical" does not mean impossible. Chevron U.S.A., Inc. v. Kennedy, 808 S.W.2d 159, 161 (Tex.App.-El Paso 1991, writ dism'd w.o.j.). That it may be possible to join all the remaining class members as individual plaintiffs does not mean that it is practical to do so. Furthermore, this determination is not based on numbers alone. Weatherly v. Deloitte Touche, 905 S.W.2d 642, 653 (Tex.App.-Houston [14th Dist.] 1995, writ dism'd w.o.j.). Rather, the test is whether joinder of all members is practicable in view of the size of the class and such factors as judicial economy, the nature of the action, geographical locations of class members, and the likelihood that class members would be unable to prosecute individual lawsuits. Id.
There is no exact number of class members that is considered too small to qualify under the numerosity requirement. In fact, proposed classes of sixty-six members, see National Gypsum Co. v. Kirbyville Indep. Sch. Dist., 770 S.W.2d 621, 621 (Tex.App.-Beaumont 1989, writ dism'd w.o.j.), twenty members, see Chevron U.S.A., Inc., 808 S.W.2d at 161, and even seven members have been certified by courts in the past. See Weaver v. Reagen, 701 F. Supp. 717 (W.D. Mo. 1988), aff'd, 886 F.2d 194 (8th Cir. 1989).
Here, the proposed class consists of twenty-seven municipalities spread throughout three counties in South Texas. The three counties are contiguous and cover almost 4,000 square miles (roughly twice the size of the state of Delaware). See Sun Coast Res. v. Cooper, 967 S.W.2d 525, 532 (Tex.App.-Houston [1st Dist.] 1998, pet. dism'd w.o.j.) (finding a class of potential plaintiffs located within 100 miles of a town to be numerous). The City of Edcouch argued in its motion to certify the class that repeated litigation of the common issues in twenty-seven separate actions would be grossly inefficient, costly, and a waste of judicial resources, and furthermore, that joinder is impracticable in this case because it is highly improbable that smaller class members would prosecute their individual claims due to their limited resources.
We conclude that this evidence suffices to satisfy the requirements of numerosity, in that the proposed class consists of many members dispersed throughout a wide geographical region that could not be effectively joined in a non-class-action setting. See Weatherly, 905 S.W.2d at 653. As this Court has previously held, "Class proponents generally are not required to make an extensive evidentiary showing in support of a motion for class certification. The trial court may base its decision on the pleadings or other material in the record." Clements v. League of United Latin Am. Citizens, 800 S.W.2d 948, 951 (Tex.App.-Corpus Christi 1990, no writ); see also Graebel/Houston Movers, Inc., 26 S.W.3d at 29; Spera v. Fleming, Hovenkamp Grayson, P.C., 4 S.W.3d 805, 810 (Tex.App.-Houston [14th Dist.] 1999, no pet.). Here, the record includes the pleadings from the City of Edcouch, a supplemental brief filed asserting the need for certification as a class action, and evidence submitted by Magic Valley showing the various cities involved and the fees assessed to these cities. Magic Valley also complains in its response to the City's motion for class certification that the cost of properly calculating damages could potentially exceed the total value of any damages awarded; if this is indeed the case, then certainly having to calculate damages in twenty-seven separate lawsuits would be even more prohibitively expensive and a waste of resources.
We conclude, therefore, that the City has met the "numerosity" prong of rule 42(a).
B. Typicality
Magic Valley next contends that the City failed to meet the "typicality" requirement of class representatives, and therefore the trial court erred in granting the motion for class certification.
Rule 42(a) requires the putative class representative to demonstrate its typicality — that is, that the claims or defenses of class representatives are typical of the claims or defenses of the class. Rainbow Group, Ltd. v. Johnson, 990 S.W.2d 351, 356 (Tex.App.-Austin 1999, pet. dism'd w.o.j.). To be typical of the class, the named plaintiff must possess the same interest and suffer the same injury as the rest of the class. Weatherly, 905 S.W.2d at 653. Its claims must arise from the same event or course of conduct giving rise to the claims of the other class members and must be based on the same legal theory. Id. The presence of even an arguable defense peculiar to a subset of the putative class members destroys typicality. Id.; see Monsanto Co. v. Davis, 97 S.W.3d 642, 646 (Tex.App.-Waco 2002, pet. denied).
Magic Valley focuses exclusively on the question of whether the City could demonstrate that it possessed the same interests as the other members of the proposed class, given that the City had not produced a written copy of its contract for services with Magic Valley. However, as noted in our discussion of standing, there is no requirement that contracts be written; the cities without written contracts could nonetheless establish the existence of an oral or implied contract with Magic Valley at trial, especially considering that the evidence from Magic Valley itself demonstrates that the cities involved did in fact all receive payments from Magic Valley which were denominated as franchise taxes. Given that the City is alleging that all cities involved were underpaid for the same reasons, it is clear that the City and any other cities without written contracts would have sustained the same type of injury as those cities that had written agreements.
The City has effectively demonstrated that its claims are typical of the claims of all class members, and it has the same interests and has suffered the same injury as the other members of the class. The City has therefore satisfied the typicality element of rule 42(a).
C. Commonality
Magic Valley also disputes that commonality has been established. In order to satisfy the "commonality" requirement of rule 42(a), a plaintiff must demonstrate that there are questions of law or fact common to the class. See Tex. R. Civ. P. 42(a). While the threshold for commonality is not high, it does require at least one issue of law or fact inhere in the complaints of all class members. Union Pac. Res. Group v. Hankins, 111 S.W.3d 69, 74 (Tex. 2003). A common issue must also be applicable to the class as a whole and be subject to generalized proof. See id. Class certification will not be prevented merely because damages must be determined separately for each class member. Hi-Lo Auto Supply, L.P. v. Beresky, 986 S.W.2d 382, 387 (Tex.App.-Beaumont 1999, no pet.).
Magic Valley contends that common issues do not predominate over individual issues because damages will have to be determined individually for each municipality. It cites Samuelson v. United Healthcare of Tex., 79 S.W.3d 706, 711-12 (Tex.App.-Fort Worth 2002, no pet.), in support of its argument regarding damages. However, in Samuelson, the trial court found a lack of commonality existed because of the following circumstances:
[A] class action jury would have to marshal complex evidence applicable to thousands of physician health care providers and their medical associations, including many individual physicians who moved between the associations during the relevant time; . . . it would require an unreasonable amount of time and expense to assemble the information needed to determine the liability and damage issues for thousands of physicians; and . . . because of mergers with different health care companies in the Dallas/Fort Worth region, appellees would have to search computer systems with different databases to obtain information on how physicians have been paid for the last four years.
Id.
Here, Magic Valley's own financial representative, John Cizler, noted in his deposition testimony that there was a single computer program that handles all necessary calculations uniformly for all cities served by the company. If the City's claim is certified as a class action and if the class prevails at trial, Magic Valley would be required to recalculate payments it had previously made. As each city has a uniform two or four percent rate applicable to the total profits made within its boundaries, and the changes made in Magic Valley's calculations would be applied equally to all the cities affected, this does not appear to be a task that would destroy the commonality of the various cities' claims. See Hi-Lo Auto Supply, 986 S.W.2d at 387. The element of commonality has been established.
D. Adequacy
Magic Valley last asserts that the City has failed to establish the element of adequacy. This final requirement of rule 42(a) focuses on the class representative and counsel. See Tex. R. Civ. P. 42(a). The adequacy requirement consists of two elements: (1) it must appear that the representatives, through their attorneys, will vigorously prosecute the class claims; and (2) there must be an absence of antagonism or conflict between the representative's interests and those of the class members. Sun Coast Res., 967 S.W.2d at 538. Factors affecting this determination include the following: (1) counsel's adequacy, (2) potential conflicts of interest, (3) the plaintiff's personal integrity, (4) the representative's familiarity with the litigation and his belief in the grievance's legitimacy, (5) whether the class is unmanageable, based on geographical limitations, and (6) whether the plaintiff can afford to finance the class action. See id.; see also Enron Oil Gas Co. v. Joffrion, 116 S.W.3d 215, 220 (Tex.App.-Tyler 2003, no pet.).
Here, Magic Valley does not challenge on appeal the adequacy of counsel and whether plaintiff can afford to finance the class action as its representative. There are also no challenges to the integrity of the City of Edcouch as plaintiff. Magic Valley, however, does vigorously contend that the City is insufficiently familiar with the other class members and their potential claims to serve as representative of the class, and that there are insurmountable conflicts of interest between the City and other cities.
The Edcouch city manager testified that she was familiar with the litigation, that the suit against Magic Valley had been approved by the city council, and that she knew of no potential conflicts that could arise between the City and the other cities involved. She also testified that she was unaware of the identity of all the other affected cities. She testified that prior to the certification hearing, she had met with counsel for the City but had not taken any depositions related to this matter.
Magic Valley contends that her ignorance about the other class members as well as the details of the litigation itself demonstrates her inadequacy. We disagree, as there is no requirement that the representative know in advance all the members of the class; classes with "unidentified," "potential," or "absent" members have all been certified in previous cases. See, e.g., Tana Oil Gas Corp. v. Bates, 978 S.W.2d 735, 743-44 (Tex.App.-Austin 1998, no pet.); Sun Coast Res., 967 SW.2d at 536-37; Glassell v. Ellis, 956 S.W.2d 676, 687 (Tex.App.-Texarkana 1997, pet. dism'd w.o.j.) ("the class does not have to be so ascertainable that every potential member can be specifically identified at the commencement of the action."). Furthermore, as all the potential class members have been identified through discovery, class counsel is now fully aware of the identity and the potential claims of the other class members. Also, while the representative's knowledge of the litigation is one factor considered in determining adequacy, see Union Pac. Res. Group, Inc. v. Hankins, 51 S.W.3d 741, 752 (Tex.App.-El Paso 2001, no pet.), case law requires only a representative "who will provide his personal knowledge of the facts underlying the complaint." Forsyth v. Lake LBJ Inv. Corp., 903 S.W.2d 146, 152 (Tex.App.-Austin 1995, writ dism'd w.o.j.); see also Entex v. City of Pearland, 990 S.W.2d 904, 916 (Tex.App.-Houston [14th Dist.] 1999, no pet.). To adequately represent the class, "it must appear that the representatives, through their attorneys, will vigorously prosecute the class claims." Intratex Gas. Co. v. Beeson, 960 S.W.2d 389, 398 (Tex.App.-Houston [1st Dist.] 1998), rev'd on other grounds, 22 S.W.3d 398 (Tex. 2000) (emphasis added); see also Weatherly, 905 S.W.2d at 652. The city manager did demonstrate her personal knowledge of the facts underlying the City's complaint when testifying at the certification hearing, and she also discussed the actions undertaken by class counsel on the City's behalf. Thus, we conclude that the class representative is sufficiently familiar with the subject of the litigation to act as representative.
Magic Valley also contends that there are substantial conflicts between the proposed class members and the City therefore cannot adequately represent these conflicting interests. A conflict that goes to the very subject matter of the litigation will defeat a party's claim of representative status. Forsyth, 903 S.W.2d at 151. Class certification may be denied if there is a possibility of significant disagreement within the proposed class. See id. However, intra-class conflict must be actual, not merely speculative. Farmers Ins. Exch. v. Leonard, 125 S.W.3d 55, 67 (Tex.App.-Austin 2003, pet. denied); Employers Cas. Co. v. Tex. Ass'n of Sch. Bds. Workers' Comp. Self-Ins. Fund, 886 S.W.2d 470, 476 (Tex.App.-Austin 1994, writ dism'd w.o.j.).
Magic Valley first argues that there would be a conflict between those cities with written contracts and those cities without written contracts. All cities involved, however, can attest to having written, oral, or implied contracts with Magic Valley, and the company paid the complained-of franchise fees in the same way to all members of the proposed class, regardless of whether the contracts were written, oral, or implied. Magic Valley also argues that the underlying litigation has no merit, citing an amendment to the utilities code passed in 1999. See TEX. UTIL. CODE ANN. § 33.008(b) (Vernon Supp. 2005). Therefore, according to Magic Valley, some members of the proposed class will "obviously" not wish to participate. However, it is not for this Court to consider the relative merits, if any, of the underlying litigation at this stage, see Intratex Gas Co., 22 S.W.3d at 404, but rather to look for evidence of actual conflicts of interest between class members. See Farmers Ins. Exch., 125 S.W.3d at 67. Beyond its speculation of reluctance on the part of some of the cities, Magic Valley has not provided such evidence.
The element of adequacy, in addition to all other required elements, has been established. We accordingly overrule Magic Valley's issue regarding the requirements of rule 42(a).
IV. Rule 42(b)
By its third issue on appeal, Magic Valley argues that the trial court erred in holding that the City had satisfied rule 42(b)(3), which requires that common issues of law or fact predominate over questions affecting individual members of the class and that a class action be the superior method of adjudication. See Tex.R.App.P. 42(b)(3).
The purpose of the predominance requirement is to prevent class action litigation when the sheer complexity and diversity of the individual issues would overwhelm or confuse a jury or severely compromise a party's ability to present viable claims or defenses. See Bernal, 22 S.W.3d at 434. When addressing predominance, the court should specifically look to whether common or individual issues will be the object of most of the efforts of the litigants and the court. BMG Direct Mktg. v. Peake, No. 03-0547, 2005 Tex. LEXIS 846, at *38-39 (Tex. Nov. 18, 2005). Importantly, courts must identify the substantive issues that will control the litigation in order to discern which issues will predominate. Id. at *39.
On appeal, Magic Valley focuses, as it did with regard to the issue of commonality, on the problems related to the calculation of damages. However, predominance is intended to focus on the individuality of substantive issues; here, there is a single substantive question that must be addressed by the court (i.e., whether Magic Valley miscalculated the municipal franchise fee by failing to take into consideration all fees that account for gross revenues). Should the class prevail at trial, each city included in the proposed class would receive a different amount of damages, as each city has a different number of Magic Valley users; however, the underlying issue would be resolved in exactly the same way for each class member. Thus, despite the likelihood of differing amounts of damages ultimately awarded to each city should the class prevail, the issue of predominance is nonetheless satisfied.
The rule 42(b)(3) element of superiority requires that a class action be superior to other available methods for the fair and efficient adjudication of the controversy. See Tex. R. Civ. P. 42(b)(3); Henry Schein, Inc., 102 S.W.3d at 699. Here, the only alternative suggested by Magic Valley in lieu of certification of the class action is joinder of all plaintiffs. However, the inadequacies of joinder in this instance have already been discussed. In this case, the individual class members will avoid duplication of their efforts and costs in retaining counsel and conducting discovery, as well as the management difficulties that could arise through joinder of so many separate sovereign entities. Furthermore, repeated litigation of the same issue in twenty-seven separate actions would be grossly inefficient, costly, and a waste of judicial resources, and the costs of litigation could deter the smaller class members from attempting to prosecute their individual claims due to their limited economic resources.
We overrule Magic Valley's third issue on appeal.
V. Conclusion
We affirm the judgment of the trial court.
DISSENTING MEMORANDUM OPINION
Appellant, Magic Valley Electric Cooperative ("Magic Valley"), brings this interlocutory appeal from an order certifying a class, pursuant to section 51.014(a)(3) of the Texas Civil Practice and Remedies Code. TEX. CIV. PRAC. REM. CODE ANN. § 51.014(a)(3) (Vernon Supp. 2004-05). Appellant contends that the trial court erred in certifying the class because the class representative does not have standing and is inadequate as a representative, and because appellee, the City of Edcouch, Texas ("Edcouch"), has failed to satisfy the requisites of numerosity, typicality, or predominance. While the majority affirms the trial court, I would reverse and remand.
I. Background
Magic Valley is an electric cooperative, owned by its membership, which services principally rural areas in south Texas. As populations have grown, cities in that region have annexed new territories which, in some instances, included customers of Magic Valley. As a result, Magic Valley has become subject to various ordinances and/or franchise agreements requiring it to pay franchise taxes to those cities in which it has customers.
A municipality is entitled to collect a franchise tax in exchange for permitting use of its streets, alleys, or public ways. See TEX. TAX. CODE ANN. § 182.025 (Vernon 2002). This provision of the tax code, as enacted prior to its amendment in 1999, provided that an incorporated city or town was entitled to make a reasonable lawful charge for use of its streets, alleys, or public ways, but the total charge, however designated or measured, could not exceed two percent of the "gross receipts" of the public utility "for the sale of gas, electric energy, or water within the city." As amended in 1999, the section now provides that "total charges, however designated, that relate to distribution service of an electric utility or transmission and distribution utility within the city may not exceed the amounts as prescribed in section 33.008 of the Texas Utilities Code." TEX. TAX. CODE ANN. § 182.025 (Vernon 2002). The utilities code provides that a municipality may collect "a charge based on each kilowatt hour of electricity delivered by the utility to each retail customer whose consuming facility's point of delivery is located within the municipality's boundaries." TEX. UTIL. CODE ANN. § 33.008(b) (Vernon Supp. 2004-05). A municipality and electric utility may mutually agree to a different level of compensation, or to a different method for determining the amount the municipality may charge. Id. § 33.008(f).
See Act of May 29, 1981, 67th Leg., R.S., ch. 389, § 182.025, 1981 Tex. Gen. Laws 1490, 1716, amended by Act of May 27, 1999, 76th Leg., R.S., ch. 405, 56, 1999 Tex. Gen. Laws 2543, 2623.
Act of May 27, 1999, 76th Leg., R.S. Ch. 405 § 15, 1999 Tex. Gen. Laws 2543, 2551 (effective 9/1/99).
Magic Valley first began paying franchise fees to Edcouch in 1980 or 1981. Edcouch contends that Magic Valley incorrectly defined and calculated "gross receipts" to include only sales of kilowatt hours of electricity, thereby failing to include as receipts revenue from various other fees. Edcouch contends that Magic Valley thereby violated its agreement with the city and seeks certification of a class composed of all municipalities having franchise agreements with Magic Valley.
These may include disconnect fees, membership fees, or service fees.
Edcouch filed suit in December 1996, bringing claims for breach of contract, negligent misrepresentation, and fraud, as well as an action for a declaratory judgment that class members "are entitled to judgment . . . declaring the rights, status and legal relationship between [Edcouch], the potential class and Magic Valley with respect to Magic Valley's withholding proper municipal fees due and owing to Edcouch." No further action occurred in the case until the matter was placed on the drop docket in January 2003, at which time Edcouch moved to retain the matter on the docket. A docket control order was issued setting trial for December 2003; an agreed motion for continuance was filed in January 2004. In August 2004, Edcouch pursued the class certification issues, and the class certification hearing was held October 6, 2004.
It is nevertheless undisputed that Magic Valley collects and then passes these fees through to the cities as revenue, retaining no portion of the fees and receiving no compensation for this service. The essence of the disagreement appears to be that Magic Valley failed to include all sources of revenue in its definition of "gross receipts."
Testimony in the record indicates there was an informal agreement between the parties' attorneys not to pursue the case until final resolution of all appeals in Central Power Light Co. v. City of San Juan, 962 S.W.2d 602 (Tex.App.-Corpus Christi 1998, pet. dism'd w.o.j.). However, appeals relating to the class certification in that matter were resolved by December 1998. A later appeal from the final order of the Public Utilities Commission was resolved in May 2000. See Central Power Light v. Pub. Util.Comm'n, 17 S.W.3d 780 (Tex.App.-Austin 2000, pet. denied) (the petition for review was denied December 7, 2000).
Evidence at the hearing established that Magic Valley serves a five-county area in south Texas, but that the cities that could potentially be members of the proposed class are located only in Cameron, Willacy, and Hidalgo counties. Evidence further established that there are twenty-seven cities that could potentially be members of the class. Of these, only eleven have a written franchise agreement with Magic Valley. Edcouch has no written agreement with Magic Valley, and no ordinance pertaining to its collection of franchise fees is in evidence.
The trial court certified the class by order dated March 7, 2005. In that order, the class is defined as:
All Texas municipal corporations, municipalities, cities, towns and villages that have or have had, existing or expired franchise agreements that required Defendant Magic Valley Electric Cooperative (hereinafter referred to as "MVEC") to pay various percentages of gross receipts received by MVEC from its electrical lighting and power sales consumed within the corporate limits of the municipalities, and where there has not been the execution of any prior effective release of the claims alleged in this litigation.
The order continues:
The class claims, issues, or defenses are as follows: Defendant MVEC entered into franchise fee agreements with all Plaintiffs to pay a certain percentage of its "gross receipts." Defendant breached the agreements by various acts and procedures, accounting tricks and acts of malfeasance and misfeasance resulting in substantial lost revenue and harm to the Plaintiff and causing damages to Plaintiff and other similarly situated cities.
Although Edcouch indicated at the class certification hearing that it could drop other claims beyond breach of contract, it has never done so. Although the class certification order directly references only the breach of contract claim (while also stating that breach occurred through "accounting tricks and acts of malfeasance and misfeasance"), outstanding claims in the underlying suit continue to include negligent misrepresentation and fraud.
The order identifies common issues of fact, including "that there was an agreement with MVEC" which "permitted MVEC to perform specific tasks within the territory of a class member," by which "MVEC was to pay a percentage of its gross receipts to the class member," and that MVEC did not pay the promised amounts and failed to include revenue received from its electrical and power sales in its calculations. "The issues of law common to the class members are the court's construction of MVEC's legal obligations, based on the franchise agreement, to pay a percentage of its 'gross receipts . . .'" Portions of the order certifying the class also state:
7. The following issues of fact and law may affect only individual members: Whether a written franchise fee contract exists between some of the class member[s] and whether lack of such contract would invite a different interpretation of the franchise fee agreement. This incorporates any affirmative defenses raised by defendant against municipalities with oral contracts. In addition, the issues on damages may affect individual members.
8. The following issues will be the object of most of the efforts of the litigants and the court: whether MVEC's calculations of the member's franchise fee, a method universally calculated regardless of oral or written contract, properly took into consideration all gross receipts.
9. Other available methods of adjudication that exist for this controversy [include] joinder. However after review of the evidence, it is deemed by this court to be impracticable and inferior to class certification.
II. Issues on Appeal
Magic Valley appeals from this interlocutory order of class certification, raising five issues: (1) the trial court erred in holding that Edcouch has standing to bring the suit and to serve as class representative; and (2) Edcouch failed to satisfy the requisites of rule 42, including (a) numerosity (issue two), (b) typicality (issue three), (c) adequacy to serve as a class representative (issue four), and (d) predominance and superiority as required under rule 42(b) (issue five).
III. Analysis A. Standing
Standing to sue is a fundamental prerequisite to bringing a legitimate judicial action; it governs a court's jurisdiction and its essential authority to hear a case. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993). It is therefore a prerequisite to class certification and may properly be considered in an interlocutory appeal. M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 710 (Tex. 2001) (holding that standing is a threshold inquiry regardless of whether the plaintiff brings an individual or class action).
A plaintiff must have both standing and capacity to bring a lawsuit. Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist., 46 S.W.3d 880, 884 (Tex. 2001). In Texas, the standing doctrine requires that there be (1) "a real controversy between the parties," that (2) "will be actually determined by the judicial declaration sought." Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659, 662 (Tex. 1996). Standing focuses on the question of who may bring an action. M.D. Anderson, 52 S.W.3d at 708. Without standing, a court lacks subject matter jurisdiction to hear the case. Tex. Ass'n of Bus., 852 S.W.2d at 443.
A plaintiff has standing when it is personally aggrieved." Nootsie, 925 S.W.2d at 661. A plaintiff is "personally aggrieved" when it demonstrates that it "possesses an interest in a conflict distinct from that of the general public, such that the defendant's action have caused the plaintiff some particular injury." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004) (citing Hunt v. Bass, 664 S.W.2d 323, 324 (Tex. 1984)). "That a suit may be a class action . . . adds nothing to the question of standing, for even named plaintiffs who represent a class 'must allege and show that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong and which they purport to represent.'" M.D. Anderson, 52 S.W.3d at 708 (quoting Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 40 (1976)).
Magic Valley contends that Edcouch lacks standing because it does not have a contract with Magic Valley and, therefore (1) does not fall within the class definition, and (2) has not been "personally aggrieved," see Nootsie, 925 S.W.2d at 661, or sustained any injury as a result of breach of contract, see M.D. Anderson, 52 S.W.3d at 710; Wilson v. Andrews, 10 S.W.3d 664, 669 (Tex. 1999).
Nothing in the order for class certification mandates that the franchise agreement between Edcouch and Magic Valley be in writing. It is further undisputed in the evidence that Magic Valley made payments to Edcouch, over an extended period of years, denominated in Magic Valley's own records as payments for "franchise tax." The dispute in issue is not whether such payments were made, but whether they were sufficient "per the agreement." The absence of a written agreement (or any accompanying ordinance) therefore does not necessarily reflect the absence of an oral or implied agreement. Further, the trial court specifically contemplated and provided for potential oral agreements in its order.
The evidence does not preclude the existence of a contract between Magic Valley and Edcouch, whether oral or implied. The evidence further reflects that Edcouch did in fact receive payments from Magic Valley denominated as franchise taxes over an extended period of time and. If any error in calculation of payment of the type alleged was made, Edcouch would have sustained the same type of particularized injury as those cities with a written agreement. See Lujan, 504 U.S. at 560; City of Sunset Valley, 146 S.W.3d at 646. I agree with the majority that Edcouch has standing to bring its causes of action, and agree that Magic Valley's first issue should be overruled.
B. Rule 42 Requisites-Standard of Review
An appellate court reviews the propriety of the class certification in light of the claims asserted by the named plaintiffs, but in no way evaluates the merits of those claims. See Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex. 2000) ("Deciding the merits of the suit in order to determine . . . its maintainability as a class action is not appropriate."). Review of an interlocutory appeal from a class certification order is limited to determining whether the trial court's order constituted an abuse of discretion. Ford Motor Co. v. Ocanas, 138 S.W.3d 447, 451 (Tex.App.-Corpus Christi 2004, no pet.); see also Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 690-91 (Tex. 2002). Review of a trial court's decision under an abuse of discretion standard requires a determination of whether the trial court acted without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985). The exercise of discretion is within the sole province of the trial court, and an appellate court may not substitute its discretion for that of the trial judge. Johnson v. Fourth Ct. App., 700 S.W.2d 916, 918 (Tex. 1985). Rather, an abuse of discretion occurs only when the trial court reaches a decision that is "so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Id. at 917.
However, no automatic right exists to maintain a lawsuit as a class action. Southwestern Ref. Co. v. Bernal, 22 S.W.3d 425, 439 (Tex. 2000) (quoting Sun Coast Res., Inc. v. Cooper, 967 S.W.2d 525, 529 (Tex.App.-Houston [1st Dist.] 1998, pet. dism'd w.o.j.)). Courts must take a cautious approach to class certification and must perform a rigorous analysis to determine whether all certification prerequisites have been met. Bernal, 22 S.W.3d at 435; accord, Schein, 102 S.W.3d at 690. "Compliance with Rule 42 must be demonstrated; it cannot merely be presumed." Schein, 102 S.W.3d at 691. The Supreme Court has expressly rejected the approach of "certify now and worry later." Bernal, 22 S.W.3d at 435; Schein, 102 S.W.3d at 690. The plaintiffs bear the burden of showing their entitlement to certification. See Cooper, 967 S.W.2d at 529; Glassell v. Ellis, 956 S.W.2d 676, 682 (Tex.App.-Texarkana 1997, pet. dism'd w.o.j.). The rigorous analysis performed by the court must include an indication of how the claims will likely be tried so that conformity with rule 42 can be meaningfully evaluated. Schein, 102 S.W.3d at 688. Courts are to "go beyond the pleadings" and understand the "claims, defenses, relevant facts, and applicable substantive law" in order to make a meaningful determination that the requirements of certification have been met. Bernal, 22 S.W.3d at 435.
Typically, under this standard of review, the appellate court must indulge every presumption favorable to the trial court's ruling. Fid. and Guar. Life Ins. Co. v. Pina, 165 S.W.3d 416, 422 (Tex.App.-Corpus Christi, 2005 no pet.) (citing Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 29 (Tex.App.-Houston [1st Dist.] 2000, pet dism'd w.o.j.)). On certification issues, however, the appellate court is not bound by this presumption and must independently determine whether the requirements of rule 42 have been fully satisfied. Pina, 165 S.W.3d at 422; Ocanas, 138 S.W.3d at 451; see also Schein, 102 S.W.3d at 691; Bernal, 22 S.W.3d at 435 (determining that actual compliance with rule 42 "must be demonstrated; it cannot be presumed").
A trial court's conclusions of law are not binding on this Court, which is free to make its own legal conclusions. Harlingen Irrigation Dist. Cameron County No. 1 v. Caprock Communications Corp., 49 S.W.3d 520, 530 (Tex.App.-Corpus Christi 2001, pet. denied); Muller v. Nelson Sherrod Carter, 563 S.W.2d 697, 701 (Tex.Civ.App.-Fort Worth 1978, no writ). "Conclusions of law are reviewed de novo as a question of law and will be upheld if the judgment can be sustained on any legal theory supported by the evidence." Harlingen Irrigation Dist., 49 S.W.3d at 530 (citing Circle C Child Dev. Ctr., Inc. v. Travis Cent. Appraisal Dist., 981 S.W.2d 483, 485 (Tex.App.-Austin 1998, no pet.)). A trial court's conclusions of law may not be reviewed for factual sufficiency and may be reversed only if they are erroneous as a matter of law. Stable Energy, L.P. v. Newberry, 999 S.W.2d 538, 547 (Tex.App.-Austin 1999, pet. denied); Hofland v. Fireman's Fund Ins. Co., 907 S.W.2d 597, 599 (Tex.App.-Corpus Christi 1995, no writ). Incorrect conclusions of law do not require reversal, provided that the controlling findings of fact support a correct legal theory. Stable Energy, 999 S.W.2d at 547.
1. Numerosity
Magic Valley contends in its second issue that the trial court erred in finding that the proposed class action satisfied rule 42's requirements for numerosity. See TEX. R. CIV. P. 42(a)(1). The record reflects that the maximum potential number of cities that could be members of the class totals twenty-seven. The record further reflects that all of these cities are located in south Texas, in the counties of Cameron, Willacy, and Hidalgo.
To meet the numerosity requirement, Edcouch had the burden of establishing that "the class is so numerous that joinder of all members is impracticable." Id. This determination is not based on numbers alone:
The test is whether joinder of all members is practicable in view of the size of the class and 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.
Chastain, 26 S.W.3d at 32 (quoting Weatherly v. Deloitte Touche, 905 S.W.2d 642, 653 (Tex.App.-Houston [14th Dist.] 1995, writ dism'd w.o.j.)).
This Court previously considered a similar set of circumstances in Rio Grande Valley Gas Co. v. City of Pharr, 962 S.W.2d 631 (Tex.App.-Corpus Christi 1997, writ dism'd w.o.j.). The City of Pharr sought certification of a class including "all Texas municipalities" having franchise agreements with the entities sued that entitled them to payments based on a percentage of gross receipts from gas sales. Id. at 641. Evidence reflected that the putative class was composed of over thirty municipalities in the Rio Grande Valley, with the remainder ("a clear majority of the total") located outside south Texas and throughout the state. Id. Because over ninety municipalities were involved, and because of the distance between class members, the City of Pharr was able to demonstrate that joinder of all would be impractical. Id. The City of Pharr also submitted materials in evidence demonstrating the limited size and resources of many of the class members, in support of its contention that many cities would not pursue their claims without the class action vehicle. Id.
Similarly, in Central Power Light Co. v. City of San Juan, 962 S.W.2d 602 (Tex.App.-Corpus Christi 1998, pet. dism'd w.o.j.), the proposed class was composed of all Texas municipalities having municipal fee ordinances requiring Central Power Light to pay a percentage of gross receipts from electrical lighting and power sales as franchise taxes. Id. at 606. The class consisted of at least 128 cities located in forty-four different counties. Id. at 609. This Court concluded from the evidence presented in City of San Juan that the numerosity element was "presumptively satisfied." Id.
This is the case which ostensibly delayed progress in this suit. See note 5.
Determining whether or not a class is so numerous that joinder is impracticable is not based upon numbers alone. Rio Grande Valley Gas, 962 S.W.2d at 641 (citing Deloitte Touche, 905 S.W.3d at 653). "Rather, the test is whether joinder of all members is impracticable in view of the size of the class and such factors as judicial economy, the nature of the action, geographical locations of class members, and the likelihood that class members would be unable to prosecute individual lawsuits." Id. No mechanical rules exist for making this determination, and in proper circumstances, a putative class very few in number has been found sufficient to comply with the numerosity requirement. Id. Impractical does not mean impossible, but the class representative must show that it is extremely difficult or inconvenient to join all members of the class. Id. (citing Chevron U.S.A., Inc. v. Kennedy, 808 S.W.2d 159, 161 (Tex.App.-El Paso 1991, writ dism'd w.o.j.)).
However, in this instance, I conclude that no such showing was made. The only evidence in the record relating to numerosity is that the total potential class encompasses, at most, twenty-seven cities located in three contiguous counties in south Texas. This does not comport with unmanageable numbers of putative class members located in geographically diverse or distant locales. Further, although there is argument, there is absolutely no evidence of the type presented in Rio Grande Valley Gas that unrepresented municipalities possess insufficient resources to independently pursue similar claims, or indeed that they wish to pursue such claims. Cf. Rio Grande Valley Gas, 962 S.W.2d at 641. There is no evidence that joinder would be "impractical."
I conclude that Edcouch has failed to satisfy its burden to establish the requisite prong of numerosity. TEX. R. CIV. P. 42(a)(1), and I would sustain Magic Valley's second issue on appeal.
2. Remaining Issues
Because of my conclusion on numerosity, I do not reach other issues raised on appeal, including those relating to typicality, adequacy, predominance, and superiority. TEX. R. APP. P. 47.1.
Although I do not reach remaining issues, I nevertheless note serious concerns about Edcouch's adequacy to represent the class, given the extraordinary delays below in pursuing the litigation, regardless of the professed reason, and the complete inability of the tendered representative (as opposed to class counsel) to address serious concerns presented about the litigation. The named representatives must fairly and adequately protect the interests of the class members. TEX. R. CIV. P. 42(a)(4). Adequacy of representation has two elements: (1) an absence of antagonism between the class representatives and the class members, and (2) an assurance the representatives will vigorously prosecute the class claims and defenses. Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 32 (Tex.App.-Houston [1st Dist.] 2000, pet. denied); E V Slack, Inc. v. Shell Oil Co., 969 S.W.2d 565, 568 (Tex.App.-Austin 1998, no pet.). The adequacy inquiry serves to uncover conflicts of interest between the named parties and the class they seek to represent. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997). Adequacy of representation is a question of fact that must be determined by reference to the individual circumstances of each case. Entex v. City of Pearland, 990 S.W.2d 904, 915 (Tex.App.-Houston [14th Dist.] 1999, no pet.). Factors affecting this determination include: (1) adequacy of counsel, (2) potential conflicts of interest, (3) the personal integrity of the plaintiffs, (4) the representatives' familiarity with the litigation and their belief in the legitimacy of the grievance, (5) whether the class is unmanageable because of geographical limitations, and (6) whether the plaintiffs can afford to finance the class action. Forsyth v. Lake LBJ Inv. Corp., 903 S.W.2d 146, 150 (Tex.App.-Austin 1995, writ dism'd w.o.j.) (op. on reh'g). Here, the representative for Edcouch (its city manager) could not identify other putative class members. She stated there had only been one meeting relating to the suit in three years, and that nothing had happened since the matter was filed in 1996. She could only speculate that putative class members shared consistent interests (no evidence of communications between and only speculation about the possibility of existing disputes), in the face of evidence that some putative class members had written contracts by which they were paid franchise taxes based on 4% instead of a 2% factor, and that this higher rate might in fact be jeopardized by the instant litigation. She was unable to express familiarity with the bases on which payments made were calculated. She had no information relating to the circumstances of other cities or potential conflicts of interests. She was not even aware of Magic Valley's pleadings or the existence of a counter-claim. I consider this evidence indicative of inadequate representation.
Conclusion
I conclude that class certification is improper because the requisite prong of numerosity under rule 42 has not been satisfied. I would reverse the trial court's order of class certification and remand for further proceedings.