What’s On their Minds: Evaluating the Merits of Plaintiffs’ Claims When Denying Class Certification. Stammco, LLC, d.b.a. The Pop Shop, et al. v. United Telephone Company of Ohio, d.b.a. United Telephone Co., et al.

By Marianna Bettman on February 13, 2013

Update:On July 16, 2013 the Supreme Court handed down a merit decision in this case. Read the analysis here.

On February 6, 2013, the Supreme Court heard oral argument in the case of Stammco, LLC, d.b.a. The Pop Shop, et al. v. United Telephone Company of Ohio, d.b.a. United Telephone Co., et al., 2012-0169. The issue in this case is whether it is an abuse of discretion for a trial court to evaluate the merits of plaintiffs’ claims when denying class certification.

Case Background

“Cramming” is a practice that involves placing an unauthorized charge on a customer’s telephone bill. United Telephone was a subsidiary of Sprint. Sprint contracted with other entities to include amounts due from third parties on its local phone billings, and it purchased these receivables and was compensated for each transaction associated with a receivable.

In 2004, Kent Stamm noticed an unauthorized charge on the telephone bill of his business. He called Sprint to have the charge removed, and asked that third party charges to his bill be blocked. Sprint informed him that this service was not available to United Telephone’s customers in Ohio.

Stamm and his wife sued, arguing that United Telephone had a duty to provide accurate statements to its customers and to insure that bill payments collected were for products and services actually authorized and received by United Telephone’s Ohio customers. The Stamms asked for class certification and sought an injunction to prevent United Telephone from billing unauthorized charges, as well as compensatory damages.

The trial court approved the class. The Sixth District Court of Appeals affirmed. In a decision with two justices concurring separately, and one dissent, the Supreme Court of Ohio reversed, (Stammco I) finding the class definition did not allow class members to be readily identified, and was ambiguous. The case was remanded to clarify the class definition. On remand, the trial court refused to certify the class. The Sixth District Court of Appeals reversed. The Ohio Supreme Court accepted the case again. Read the oral argument preview, including the key precedent analysis here.

At Oral Argument

Chief Justice O’Connor was ill, but watched the case by video stream, and will participate in the decision. In her absence, Justice Pfeifer, senior associate justice, presided.

What Was on Their Minds

United Telephone’s Argument

The Court of Appeals decision must be reversed for two reasons. First, the appeals court found that any consideration of merits issues by a trial court is a per se abuse of discretion. That reason alone justifies reversal. But in addition, the case should be reversed because the trial court ruled correctly in denying class certification. Every case in the country that has considered class certification in a cramming case— including the Ohio Supreme Court in Stammco I—has found that the core of plaintiffs’ claims in these types of cases are individualized issues of harm that cannot be resolved for all class members in one stroke. The U.S. Supreme Court has now made it completely clear in the Wal-Mart decision that it is the plaintiff’s burden to show at the time of certification that there is a reasonable way to identity class members with a reasonable amount of effort. That simply cannot be done here. The Ohio Supreme Court must clarify—as the U.S. Supreme Court has—that a trial court not only can, but should consider the merits in determining class certification.

Stammco’s Argument

The Court of Appeals did not decide that the merits of a case cannot be examined for any purpose in making a class action determination. In many instances the merits must be examined to determine what the case is about, and to the extent necessary to determine whether a class exists. The appeals court merely decided that it was impermissible at the level of class determination to make merits decisions. And here the trial court did exactly that—it made two merits decisions. It decided that a plaintiff would have to sue the third party provider, not United Telephone, and it made a “fail-safe” determination. The trial court also incorrectly determined there was no anti-cramming law applicaple to the case. It would be simple to find out from the Sprint data base which customers received third party charges, which were unauthorized, and which customers challenged them. This is a case in which the mechanics are very simple.

Remedy Without Class Certification?

Justice Pfeifer wanted to know what the remedy would be for those who had false charges on their bills if class certification was denied? (small claims court, for one) And how many people would that involve, asked Justice O’Neill?

The Remand in Stammco I

What exactly was the remand instruction in the case, asked Justice O’Donnell? Didn’t the Court remand the case for clarification on the definition of the class?

Did the trial judge look at the situation and follow Wal-Mart to determine whether class certification would be a superior way to deal with these cases, asked Justice Lanzinger? Did the appeals court misunderstand the mandate of Stammco I in its reversal? (Justice Lanzinger authored Stammco I.) Wasn’t the basis of the appellate reversal the trial court’s improper incursion into the merits of the case?

Formation of a Class

Could there be a class for all the wrongly-charged-for-long-distance-calls customers? Or for all the web-hosting-charged customers, asked Justice O’Donnell.

Anti-Cramming Cases Elsewhere

Are there any decisions finding cramming cases suitable for class actions, asked Justice Lanzinger? (answer from the defense—no; plaintiff discussed cases certified for settlements with other telephone companies.)

What Does the Phone Company Data Base Show?

Asked a number of the justices in a number of ways. In a key question of the day, Justice O’Donnell put it like this, to plaintiffs’ counsel:

“But you would not know by looking at it, though , whether any of those customers authorized say a long distance charge, but not an internet assessment charge. The point I’m trying to make is your statement look and see what they billed, some charges are authorized and some aren’t and they are all for different kinds of charges. That is the difficulty I am having.”

Justice Pfeifer followed this up asking whether the data base showed charges made to everyone and how many people protested. The answer from defense counsel was that the data base only showed what people were charged for, not whether the charges were authorized, and it would also show whether the charge was adjusted, but it could be adjusted for a lot of reasons. And the U.S. Supreme Court in Wal Mart specifically rejected the kind of trial by formula the plaintiffs are suggesting in this case.

How it Looks From the Bleachers

To Professor Bettman

Student contributor Greg Kendall and I agreed that the Court was unusually quiet in this one. The justices seemed to be struggling with formulating their questions, probably due to a lack of individual familiarity with the niceties of class action certification (I plead ignorance here as well), combined with an argument by plaintiffs’ counsel that was at times very hard to follow. Still, I had the impression that Justice Lanzinger, who wrote Stammco I, and seemed the most familiar with the subject, and Justice O’Donnell, seemed ready to affirm the trial court and deny certification. Then-justice O’Connor was also a member of the majority in Stammco I, as was Justice O’Donnell. Justices Pfeifer and O’Neill seemed more inclined to see a formable class—Justice Pfeifer especially so during the rebuttal part of the argument. Justice Pfeifer dissented in Stammco I, and has always favored class certification in this case. He is unlikely to change his mind now. Justices Kennedy and French said not a word. This one was hard to call based solely on argument, but I’m going to predict a defense win here. I think defense counsel’s representation in answer to a question by Justice Lanzinger that no cases nationally have found cramming to be a suitable type of case for class actions will be significant.

To Student Contributor Greg Kendall.

The Court was quieter in this argument than it usually is. Multiple justices were skeptical of the ease with which class members can be determined just by looking at records and bills. The justices are also unclear to what extent the Wal-Mart case should control here to allow or prevent consideration of merits issues at the certification stage. The Court did not clearly come down on one side or the other.