Opinion
Case No. 99-CV-720-S (H)
March 4, 2002
MEMORANDUM AND ORDER
This matter is before the court on review of Magistrate Judge Humphreys' Report and Recommendation ("RR") (Doc. 34) on plaintiffs' motion for class certification pursuant to Rule 23 of the Federal Rules of Civil Procedure. Plaintiffs have filed objections to the RR (Doc. 35). For the following reasons, the court accepts and adopts the findings and conclusions set forth in Magistrate Judge Humphreys' RR.
I. FACTUAL AND PROCEDURAL BACKGROUND
On October 10, 1995, defendant, the Oklahoma Corporation Commission, the Attorney General for the State of Oklahoma, and multiple other parties entered into a settlement agreement ("agreement") providing, among other things, defendant would pay certain sums and provide certain services to its customers. At issue in this case is defendant's promise to substantially reduce its rates and revenues and defendant's promise to provide vouchers to its customers for free or discounted services. The rate and revenue reductions promised by defendant were separated into nine different categories totaling $84.4 million dollars. The provisions in the agreement regarding vouchers provided: (1) defendant would supply each business and residential customer a prepaid calling card voucher in the amount of one hundred dollars; and (2) defendant would supply each residential and business customer a voucher for discounted services in the amount of one hundred dollars. In each case, the vouchers were to expire within twenty-four months if not redeemed.
Plaintiffs initiated this action on behalf of themselves, a proposed class consisting of all of defendant's customers residing in Oklahoma, and the State of Oklahoma, alleging defendant failed to comply with the terms of the agreement, and that defendant committed fraud in the "negotiation inducement and execution" of the agreement. On September 23, 1999, defendant filed a motion to dismiss, claiming plaintiffs had improperly brought suit on behalf of the State of Oklahoma and that the court lacked jurisdiction over some or all of plaintiffs' claims. The court issued a Memorandum and Order on January 3, 2000, finding plaintiffs did not have authority to bring this suit on behalf of the State of Oklahoma and that the court lacked jurisdiction to hear plaintiffs' fraud claims. Consequently, pursuant to the court's January 3, 2000, Memorandum and Order, plaintiffs' only remaining claims are those relating to defendant's alleged breach of the agreement.
This action was initiated on behalf of the State of Oklahoma pursuant to OKL. STAT. tit. 62, § 373. This statute sets forth specific circumstances under which a "taxpayer" may bring suit on behalf of the state. As noted by the court in its January 3, 2000, Memorandum and Order, the circumstances of this case did not comply with the statutory requirements.
On October 16, 2001, plaintiffs filed a motion for class certification. (Doc. 28). Plaintiffs' motion sought to certify a class consisting of all "customers of defendant as of October 10, 1995." Defendant filed a Brief in Opposition to Motion for Class Certification (Doc. 31) and plaintiffs filed a Reply (Doc. 33). Plaintiffs' motion for class certification was referred to Magistrate Judge Humphreys, and she recommends that plaintiffs' motion be denied. Plaintiffs have filed multiple objections to Magistrate Judge Humphreys' RR. (Doc. 35).
As discussed below, although plaintiff sought to certify a class consisting of "all customers of defendant," it is clear from the pleadings filed in this case, plaintiff sought to certify a class consisting only of all customers of defendant residing in the state of Oklahoma as of October 10, 1995.
II. STANDARD OF REVIEW
A. Review of Magistrate Judge's RR
The standard for district court review of a magistrate judge's RR is contained in 28 U.S.C. § 636, which provides as follows:
A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate. The judge may also receive further evidence or recommit the matter to the magistrate judge with instructions.28 U.S.C. § 636 (b)(1)(C). As stated in the Code, the district court must make a de novo determination regarding the portions of the RR to which objections have been filed. Id.
B. Class Certification
The determination of class certification is committed to the broad discretion of the trial court. Anderson v. City of Albuquerque, 690 F.2d 796, 799 (10th Cir. 1982). "Whether a case should be allowed to proceed as a class action involves intensely practical considerations, most of which are purely factual or fact-intensive." Reed v. Bowen, 849 F.2d 1307, 1309 (10th Cir. 1988).
Determination of class certification requires a two-step analysis. First, the court must conduct a "rigorous analysis" of whether the proposed class satisfies the requirements of Rule 23(a) of the Federal Rules of Civil Procedure. General Telephone Co. v. Falcon, 457 U.S. 147, 161 (1982). A class action may only be certified if the "court is satisfied . . . that the prerequisites of Rule 23(a) have been satisfied." Id. The party seeking class certification is "under a strict burden of proof that all the requirements of [Rule 23(a)] are clearly met." Reed, 848 F.2d at 1309. If the requirements of Rule 23(a) are met, then the action must further qualify for one of the three categories in Rule 23(b). Zapata v. IBP, Inc., 167 F.R.D. 147, 155 (D. Kan. 1996) (citing Smith v. MCI Telecomm. Corp., 124 F.R.D. 665, 674 (D. Kan. 1989)). In this case, plaintiffs seek to certify the proposed class under Rule 23(b)(3)
In evaluating whether certification is proper under Rule 23, the court must not delve into the merits of the suit. Eisen v. Carlisle Jacqueline, 417 U.S. 156, 177-78 (1974). The court can, however, go beyond the pleadings to the extent necessary to "understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." Castano v. American Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996). See also Smith, 124 F.R.D. at 676 (finding that the court must often, to some extent, analyze the elements of the claims and defenses of the parties in determining certification issues).
As Magistrate Judge Humphreys noted in her RR, plaintiffs spend substantial time in their brief discussing the merits of their claims as opposed to supporting their motion for class certification.
III. DISCUSSION
A. Rule 23(a)
For class certification, plaintiffs must demonstrate that their proposed class meets all four prerequisites of Rule 23(a). Rule 23(a) requires the following: "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law and fact common to the class, (3) the claims and defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." These requirements are more commonly known as numerosity, commonality, typicality, and adequacy of representation. Plaintiffs object to Magistrate Judge Humphreys' findings in regard to commonality, typicality, and adequacy of representation. The court will take each of plaintiffs' objections in turn.
Magistrate Judge Humphreys concluded that plaintiffs adequately demonstrated the numerosity requirement of Rule 23(a)(1). Plaintiffs obviously did not object to this finding.
1. Commonality
The commonality requirement found in Rule 23(a)(2) requires that the claims of the individually named plaintiffs and the claims of the proposed class, involve common questions of law and fact. Zapata, 167 F.R.D. at 157. The commonality requirement of 23(a)(2), however, is "subsumed under, or superseded by, the more stringent Rule 23(b)(3) requirement that questions common to the class "predominate over' other questions." Amchen Prod., Inc. v. Windsor, 521 U.S. 591, 612 (1997). Because plaintiffs seek to certify the class action under Rule 23(b) (3), there is no need to separately discuss commonality. The court will analyze the commonality factor in conjunction with its discussion of Rule 23(b)(3) below.
2. Typicality
The typicality requirement found in Rule 23(a)(3) requires a showing that the claims of proposed class representatives are typical of the claims of the proposed class as a whole. Schachner v. Blue Cross Blue Shield, 77 F.3d 889, 896 n. 8 (6th Cir. 1996) Claims do not have to be identical to meet the typicality requirement. Adamson v. Bowen, 855 F.2d 668, 676 (10th Cir. 1988). Claims are "typical" so long as the claims "arise from the same event or practice or course of conduct that gives rise to the claims of other class members. . . ." Zapata, 167 F.R.D. at 160. Demonstrating typicality requires more than conclusory allegations that proposed class members suffered the same as the individual plaintiffs. Id. (citing Paxton v. Union Nat. Bank, 688 F.2d 552, 559 (8th Cir. 1982)).
Plaintiffs argue typicality exists because both plaintiffs' claims and the proposed class's claims arise from defendant's alleged failure to comply with the terms of the agreement. Once again, plaintiffs assert that defendant failed to provide the stipulated rate and revenue reduction promised in the agreement, and defendant failed to provide vouchers to its customers at the agreed upon value. Each of these claims focus on defendant's failure to comply with the agreement. The proposed class's claims, identified by plaintiffs, also arise from defendant's failure to comply with the agreement. Thus, the court finds plaintiffs' claims are typical of the proposed class in that both plaintiffs' claims and the proposed class's claims arise from defendant's alleged breach of the terms of the agreement. See Zapata, 167 F.R.D. at 160.
In terms of the typicality requirement, Magistrate Judge Humphreys found plaintiffs failed to carry their burden to show their claims were typical of the proposed class. In making this determination, Magistrate Judge Humphreys noted that plaintiffs failed to offer evidence concerning which of the nine rate and revenue adjustments applied to them, leaving the court unable to determine if plaintiffs' claims were typical of the proposed class. Magistrate Judge Humphreys further found plaintiffs failed to meet their burden in showing their claim regarding the value of the vouchers was typical of the proposed class because plaintiffs did not provide information concerning the value of the vouchers they received and how such vouchers lacked the promised value. The court finds these issues relate to whether plaintiffs' claims and the proposed class's claims involve common issues of law and fact or whether common issues of law and fact predominate over individual issues. See FED. R. CIV. P. 23(b)(3). Thus, these discrepancies are more properly considered in the commonality analysis or in the "predominance" analysis under Rule 23(b)(3) discussed below.
3. Adequacy of Representation
The requirements of Rule 23(a)(4) are two fold. First, proposed class counsel must be "qualified, experienced, and generally able to conduct the proposed litigation." Zapata, 167 F.R.D. at 160-61 (citing Falcon, 457 U.S. at 157 n. 13). See also Greisz v. Household Bank, N.A. 176 F.3d 1012, 1013 (7th Cir. 1999) (finding that Rule 23(a)(4) requires "the judge to assess the class lawyer's competence before certifying the suit to proceed as a class action"). Second, the individual plaintiffs' claims must be "sufficiently interrelated to and not antagonistic with the class's claims so as to ensure fair and adequate representation." Zapata, 167 F.R.D. at 160-61 (citing Falcon, 457 U.S. at 157 n. 13). The adequacy of representation requirement is of particular importance because inadequate representation would infringe upon the due process rights of absentee class members who are bound by the final judgment of the suit. Edgington v. R.G. Dickinson Co., 139 F.R.D. 183, 190 (D. Kan. 1991).
Plaintiffs' motion for class certification proposes plaintiffs' counsel be appointed as class counsel.
In absence of evidence to the contrary, courts will presume the proposed class counsel is adequately competent to conduct the proposed litigation. Zapata, 167 F.R.D. at 161. In this case, however, evidence exists that, at a minimum, questions plaintiffs' counsel's ability to conduct large scale class litigation.
Magistrate Judge Humphreys found that plaintiffs' counsel had not "demonstrated that the class action will be vigorously prosecuted on behalf of the proposed class with the requisite attention to detail necessary to satisfy class action due process requirements." (RR at 8). Magistrate Judge Humphreys found plaintiffs' counsel's performance troubling in two respects. First, plaintiffs' counsel's lack of attention to detail was evident when he sought to certify the class on behalf of "all customers of defendant on October 10, 1995." (emphasis added). Despite the wording of the motion, it is clear that the proposed class involves only defendant's customers residing in Oklahoma.
The second troubling factor regarding plaintiffs' counsel's performance is that counsel has a record of misstating the law in this case. The following footnote relating to plaintiffs' counsel's misstatement of the law was taken from Magistrate Judge Humphreys' RR:
Plaintiffs' counsel also suggests that their expenses in prosecuting this class action will be minimal because notice of the class action can be deferred pending a ruling on their anticipated motion for summary judgment. Plaintiffs' Brief, Doc. 29, page 5. However, because class certification is proposed under Rule 23(b)(3), plaintiffs must provide notice to the individual class members advising them of their right to opt out of the class before the court rules on the merits of the case. See Rule 23(c)(2); Eisen, 417 U.S. at 176 ("individual notice to identifiable class members in not a discretionary consideration to be waived in a particular case. . . . There is nothing in Rule 23 to suggest that the notice requirement can be tailored to fit the pocketbooks of particular plaintiffs."). Plaintiffs' proposal to proceed on the merits of the case without notifying class members as required by Rule 23(c)(2) raises additional concerns regarding counsel's experience and ability to prosecute this case on behalf of 1,350,000 class members.
(RR at 13 n. 6).
Plaintiffs' counsel has further demonstrated to this court that he does not possess the requisite abilities for massive class action litigation. First, in his objections to the Magistrate Judge Humphreys' RR, plaintiffs' counsel suggests the laws governing class actions are substantive, therefore the laws of the forum state, Oklahoma, should govern the determination of class certification. (Pl. Objection and Br. to RR at 5). Plaintiffs' counsel would have the court evaluate class certification pursuant to OKLA. STAT., tit. 12, § 1223 as opposed to Rule 23 of the Federal Rules of Civil Procedure. To that end, plaintiffs' counsel cites Oklahoma case law instead of federal case law throughout his brief. In this regard, counsel's statements of the law are clearly erroneous. By its very nature and by its own terms, class certification is a matter of procedure. Gottlieb v. Wiles, 11 F.3d 1004, 1007 (10th Cir. 1993). Plaintiffs' counsel's contention that class certification pending in federal court is a matter of substantive law and should be analyzed using the forum state's law is a gross error.
Not only did plaintiffs' counsel apply the wrong law in his brief, he failed to make logical, relevant objections to Magistrate Judge Humphreys' RR. Instead, plaintiffs' counsel spent a full page making an unintelligible argument regarding the irrelevance of plaintiffs' financial status while Magistrate Judge Humphreys did not even challenge plaintiffs ability to carry the financial burden of class litigation. Meanwhile, plaintiffs neglected to address Magistrate Judge Humphreys' contention that plaintiffs' counsel had not demonstrated he was capable of carrying on massive class action ligation as evidenced by his lack of attention to detail and misstatements of the law. Plaintiffs' counsel's incomprehensible and irrelevant objections to the RR, further demonstrate that plaintiffs' counsel would not adequately represent the interests of the proposed class members.
The only reference made to plaintiffs' ability to finance a class action suit was made in response to plaintiffs' incorrect statement that notice could be deferred pending a decision on a possible summary judgment motion. Although plaintiffs are not required to disclose their financial capability in order for the court to determine if the proposed class would be adequately represented by the named plaintiffs, plaintiffs are still required to notify individual class members, advising them of their right to opt out of the suit. See Sanderson v. Winner, 507 F.2d 477, 479-480 (10th Cir. 1974). Notification is required regardless of the cost to plaintiffs. See Rule 23(c)(2); Eisen, 417 U.S. at 176. Thus, a plaintiff's inability to finance such notification seriously calls into question the plaintiff's ability to adequately represent the proposed class.
Magistrate Judge Humphreys also added the following statement regarding plaintiffs' counsel's filings in this case:
Moreover, the motion to certify the class action lacks the specificity and evidence necessary to support a request for class certification. The omissions and lack of detailed information are particularly disturbing given the size of the class (1,350,000 ratepayers) and the amount in controversy ($387 million)
(RR at 9).
Plaintiffs' counsel's lack of attention to detail on one or two issues may not be fatal to the adequacy of representation requirement. In the aggregate, however, the court finds plaintiffs' counsel's mistakes are evidence that he would not provide adequate representation to the proposed class. Because absentee class members' due process rights are at issue, the quality and ability of the proposed class counsel is vital to class certification. Because the court finds plaintiffs have failed to carry their burden in reference to proposed class counsel's abilities, it is unnecessary to analyze whether the individual plaintiffs' claims are sufficiently interrelated to and not antagonistic with the proposed class's claims.
B. Rule 23(b)(3)
In addition to satisfying the requirements of Rule 23(a), plaintiffs must also show their class action is maintainable under Rule 23(b)(1), (2), or (3). Amchem, 521 U.S. at 614. In this case, plaintiffs seek certification under Rule 23(b)(3). Rule 23(b)(3) requires that:
the court [find] that the questions of law or fact common to the members of the proposed class predominate over any 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.
The requirements found in this rule are better known as the "predominance" factor and the "superiority" factor.
Even assuming plaintiffs could satisfy all of the requirements of Rule 23(a), plaintiffs' motion for class certification would still be denied because they have failed to meet the requirements of Rule 23(b)(3). The predominance requirement found in Rule 23(b)(3) ensures that claims of class members will be so similar that prosecution by a few members of the class will be fair." Harding v. Tambrands, Inc., 165 F.R.D. 623, 629 (D. Kan 1996). In deciding the "predominance" factor, the court will consider whether there is a common nucleus of operative facts and whether material variations in the claims exist. See Esplin v. Hirschi, 402 F.2d 94, 99 (10th Cir. 1968); Emig v. American Tobacco Co., 184 F.R.D. 379, 388 (D. Kan. 1998).
The primary factual allegations contained in plaintiffs' motion for class certification, which are alleged to be common to both plaintiffs and the class, are: (1) the promised rate and revenue reductions were not made by defendant; (2) the vouchers promised by defendant per the agreement did not contain the value proscribed by the agreement. The court finds, as detailed below, these common questions of fact do not predominate over the individual questions of fact surrounding plaintiffs' claims and the proposed class's claims.
1. Rate and Revenue Reduction
Plaintiffs claim defendant did not supply the guaranteed $84.4 million dollar rate and revenue reduction promised in the agreement. Plaintiffs' brief in support of class certification contains the following bare-bones allegations concerning the rate and revenue reduction:
The $84.4 million promised rate or revenue reduction promised was not made by the Defendant as the rate or revenue reductions were already in effect or mandated prior to the date of the agreement and/or that the reductions did not benefit Plaintiffs.
(Pl. Brief in Supp. of Mot. for Class Cert. at 2).
As mentioned previously, the rate and revenue reductions were divided into nine categories pursuant to the agreement. Each category is very specific regarding the service or the group of ratepayers to which it applies. Plaintiffs provide no information regarding which rate or revenue reductions were intended to benefit plaintiffs or proposed class members. Instead, plaintiffs allege the ultimate question of whether the rate and revenue reductions were made by defendant, or whether the rate and revenue reductions benefitted plaintiffs and the proposed class members, are the common questions of fact binding plaintiffs and the proposed class. It is clear, however, that defendant did make the rate and revenue reductions as required by the agreement. In fact, an exhibit provided to the court by the plaintiffs indicates the entire $84.4 million rate and revenue reduction was made by defendant. (Pl. Ex. 1 at 3). Thus, the only question of fact left as between plaintiffs and the proposed class is whether the reductions "benefitted" plaintiffs and proposed class members. Whether the rate and revenue reductions "benefitted" each proposed class member requires an individual inquiry. Such an onerous inquiry renders it a question of individual fact that clearly dominates any common questions of fact. As such, the court is left with no choice but to the find common questions of law and fact do not predominate over the individual issue of whether the rate and revenue reductions benefitted each proposed class member.
The agreement provided for the following nine rate and revenue reductions:
1) $31.9 million annual revenue impact associated with the implementation of the Tulsa, Oklahoma City, Lawton and Enid Wide Area Calling Plans (WACPs). . . .
2) $6.9 million reduction in SWBT's annual toll revenues associated with the independent local exchange company (ILEC) make-whole provisions contained in the Joint Stipulation and Settlement Agreement. . . .
3) $10.3 million reduction in SWBT's annual revenue associated with its provision of Touch-Tone. . . .
4) $4.9 million annual revenue reduction associated with the SWBT switched access rate reductions resulting from the Commissions's authorization of limited intraLATA toll authority. . . .
5) $8.9 million rate reduction to be applied to the SWBT access rate elements. . . .
6) $5.0 million annual revenue reduction associated with the 800 compensation rate reduction. . . .
7) $8.1 million annual revenue reduction associated with the elimination of Outside Base Rate Area (OBRA) mileage charges. . . .
8) $.6 million annual revenue reduction associated with the implementation of a Lifeline program. . . .
9) A credit of $7.8 million associated with the network modernization requirements. . . .
(Def. Ex. 2 at 7-8).
2. Vouchers
Plaintiffs' second claim is that the vouchers issued by defendant lacked the value assured to the plaintiffs. Plaintiffs do not contend that defendant did not provide the vouchers to its customers. In fact, plaintiffs freely admit they received vouchers for discounted services. Plaintiffs' only contention is that the vouchers lacked the agreed upon "value." Plaintiffs do not indicate in what way or to what extent the vouchers lacked value. For example, plaintiffs do not contend they received a fifty dollar discount voucher instead of a one-hundred dollar discount voucher as required by the agreement. Instead, plaintiffs make the bare-bones allegation that the vouchers lacked the assured value.
Defendant's requests for admissions contain the following admissions by plaintiffs:
Request No. 2: Admit that you are not contending that [defendant] failed to provide vouchers to [its] customers for discounted and/or free services.
Answer: Admitted.
Request No. 6: Admit that [defendant] did not breach the term of the Settlement Agreement requiring [it] to provide vouchers to [its] customers for discounted and/or free services. Answer: Admitted.
Once again the court is left with more questions affecting individual proposed class members than evidence of common issues of fact and law. For the proposed class to proceed, the value of every voucher received by each proposed class member must be determined. Consequently, at issue then, is whether a claim even exists for each proposed class member.
With voluminous unknown individual details, the court finds individual issues of fact predominate over common issues of law and fact. Because plaintiffs have failed to make the requisite "predominance" showing under Rule 23(b)(3), the court finds it unnecessary to evaluate the "superiority" factor. Therefore, class certification will be denied.
IV. CONCLUSION
The court finds plaintiffs have failed to meet the adequacy of representation requirement of Rule 23(a) and plaintiffs have further failed to meet the "predominance" requirement of Rule 23(b). Therefore, the court accepts and adopts Magistrate Judge Humphreys' Report and Recommendation that class certification should be denied.
IT IS THEREFORE BY THIS COURT ORDERED that the Report and Recommendation (Doc. 34) is accepted and adopted as modified herein.