On July 16, 2013, the Supreme Court of Ohio handed down a merit decision in Stammco, L.L.C., v. United Tel. Co. of Ohio, 2013-Ohio-3019. By a vote of 5-2 in an opinion written by Justice Kennedy, the Court held that the trial court was correct in refusing to allow this case to proceed as a class action, although not for the reasons given. The effect of this decision is that this case is now decertified as a class action. Justice Pfeifer dissented, joined by Justice O’Neill. The case was argued February 6, 2013. Read the oral argument preview of the case here and the analysis of the oral argument here.
This is a messy case with a long procedural history. Much of the decision is a rote recitation of the law in this field and of the requirements of Civ. R. 23. But the bottom line is that the holding is consistent with recent U.S. Supreme Court decisions making class actions increasingly difficult. As I’ve said before, I know very little about this field. For those who don’t either, this is a bit of a slog, but the decision does set forth many fundamentals.
Case Background
Kent Stamm, owner of Stammco, L.LC., dba the Pop Shop, disputed a third-party charge on his phone bill from United Telephone of Ohio (UTO). The practice of placing unauthorized charges from third parties on a customer’s telephone bill is known as “cramming.” The Stamms and the company filed a complaint seeking to certify a class action against UTO, seeking damages and injunctive relief to stop this practice.
Round One
The original proposed class included “those who were billed for charges on their local telephone bills by Sprint on behalf of third parties without their permission.” (Sprint is no longer affiliated with UTO. Only UTO’s business practices are at issue in this case). The trial court approved the class. The case was appealed to the Sixth District Court of Appeals, which affirmed. The Supreme Court of Ohio accepted the case and reversed. In Stammco I the Court held the class as certified did not allow its members to be identified with reasonable effort. The case was remanded to redefine the class.
Redefined Class
On remand, the plaintiffs submitted the following amended class certification:
All individuals, businesses or other entities * * * who were billed for third party charges as to which [UTO] had no prior authorization from the customer in writing or by a method acceptable to [UTO] sufficient for [UTO] to verify that the customer had agreed to such charge.” The trial court refused to certify the amended class, finding that (1) the class was a prohibited “fail-safe” class (for an explanation of what this means, see footnote 2 of the decision), (2) the plaintiffs had sued the local carrier, rather than the third party provider, deemed to be the proper defendant, and (3) the suit imposed a duty not currently required by law.
Appellate Decision, Round Two
The 6th District Court of Appeals reversed, finding that the amended class definition did address the ambiguities found by the high court in its remand mandate. The appeals court held that the class was not a fail-safe class, and the other two reasons articulated by the trial court for refusing certification were improper incursions into the merits of the case.
Whew! Take a breather. We haven’t even started on the merits yet. Originally the Supreme Court turned down UTO’s second discretionary appeal, but changed its mind…
Consideration of the Merits in Deciding Class Certification
At issue is the propriety of addressing the merits of plaintiffs’ claims when deciding upon class certification. Actually, both sides agree courts can consider the merits in order to determine whether class certification requirements are met, but UTO argues that the court of appeals erred in finding an abuse of discretion by the trial court for considering the merits of plaintiffs’ claims. Plaintiffs argue that the trial court was properly reversed because it improperly rejected its proposed amended class definition.
The Merit Decision from the Supreme Court of Ohio
Pursuant to Civ.R. 23, plaintiffs must establish seven prerequisites in order to certify a class action: (1) an identifiable and unambiguous class must exist, (2) the named representatives of the class must be class members, (3) the class must be so numerous that joinder of all members of the class is impractical, (4) there must be questions of law or fact that are common to the class, (5) the claims or defenses of the representative parties must be typical of the claims and defenses of the members of the class, (6) the representative parties must fairly and adequately protect the interests of the class, and (7) one of the three requirements of Civ.R. 23(B) must be satisfied.
Key take-aways for this case from recent precedent
Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (explaining that “there is nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action, and indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements of the Rule.”)
Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011) (Eisen’s prohibition against merits review limited to its facts. Merits inquiry is permissible at the class certification stage. Rule 23 does not just set forth a pleading standard. Trial courts must “conduct a rigorous analysis to ensure that the perquisites of Civ.R. 23 are satisfied.”)
Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S._, 133 S.Ct. 1184 (2013)( “rigorous analysis at the certification stage “may ‘entail some overlap with the merits of plaintiff’s underlying claim’ ” but “Rule 23 grants courts no license to engage in free ranging merits inquiries at the certification stage. Merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”
Bottom line from these cases
“To the extent that Eisen has caused confusion, Dukes and Amgen have clarified that at the class-certification stage, trial courts may probe the underlying merits of an action, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Fed.R.Civ.P. 23,” wrote Justice Kennedy at ¶ 40 of the Court’s decision.
Now add Ojalvo to the mix
UTO argued that the Ohio Supreme Court decision in Ojalvo v. Board of Trustees of Ohio State Univ., is out of step with recent U.S. Supreme Court precedent, because it held that a court cannot decide the case on the merits at the certification stage. The Ohio high court didn’t buy this interpretation of Ojalvo, finding that all these cases say that a trial court can “probe the underlying merits of the plaintiff’s claim in order to determine whether the prerequisites for class certification are satisfied under Civ.R. 23.”
Very short answer on looking at the merits at the certification stage
It’s ok to look a little. In fact, you have to. But only to make sure the requirements of Civ. R. 23 have been met.
Oh yes, the actual case at bar
Remember the actual case at hand? The trial court rejected the plaintiffs’ amended class definition. That is what is before the high court this time.
Right result, wrong reason
The trial court rejected the plaintiffs amended class definition because the trial court believed plaintiffs would eventually lose on the merits. That’s wrong (and was at least part of the reason for the reversal by the Sixth District). But although the reasoning was wrong, the decision was right says the majority here. And the appeals court was wrong to find an abuse of discretion by the trial court.
Why right result?
The Supreme Court of Ohio has come to believe that the need for individualized determinations about those third party charges is enough to kill this class. The Court had some of the same reservations in round one, but wasn’t as clear as it might have been in that case. UTO insisted, and the Court ultimately agreed, that it had no records to determine which charges were authorized and which were not. No way to sort the wheat from the chaff. So first of all, in this case the Court found that the proposed amended class was overboard.
The proposed amended class also fails because issues common to class members do not predominate. This is closely related to overbreadth. The only way to know if third party-provider claims are authorized is by individualized determination. So individual issues overwhelm common issues. UTO is just the messenger. It just delivers the third- party service provider’s bill to the customer. UTO just doesn’t have the information necessary to determine whether those third-party charges were or weren’t authorized. Plaintiffs strenuously argued that UTO had a database that could provide this information, but ultimately the majority found that the record did not support that contention.
Another remand?
Nope. Enough is enough. No point in remanding a case to reach an inevitable result in a very old case. This class is decertified and that’s the end of this story.
Dissent
Vintage Justice Pfeifer:
“This court’s decision today fits with the recent jurisprudence of the United States Supreme Court, “a Court bent on diminishing the usefulness of Rule 23.” Am. Express. Co. v. Italian Colors Restaurant, ___ U.S. ___, 133 S.Ct. 2304, 2320, ___ L.Ed.2d ___ (2013) (Kagan, J., dissenting). As a practical matter, Ohio citizens who suffer small, individual damages as a result of a business’s serial bad conduct are without a meaningful remedy unless they can convince the Ohio attorney general to get interested in their cases. This court is well on its way to consigning class actions in Ohio to the dustbin of legal history, joining workplace intentional torts. What is the next step in diminishing the role of courts? ”
Case Syllabus
At the certification stage in a class-action lawsuit, a trial court must undertake a rigorous analysis, which may include probing the underlying merits of the plaintiff’s claim, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Civ.R. 23. (Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and Amgen v. Connecticut Retirement Plans & Trust Funds, 568 U.S. ___, 133 S.Ct. 1184, 185 L.Ed.2d 308 (2013), followed.)
Concluding Observations
Whew! A lot of words to say that it’s ok to look at the merits in deciding on class certification, but only for a proper purpose. And the decision is certainly in lockstep with federal decisions making it harder and harder to bring class actions. As I noted in my analysis of the oral argument, the justices were unusually passive during this argument, and seemed to be struggling to articulate their questions. Justice O’Donnell in particular was very concerned about what the company’s data base showed, and how it would be possible to tell just from looking which charges were unauthorized, and what they were for. The justices who asked questions (Justices French and Kennedy were silent; Chief Justice O’Connor was ill, and watched from afar) seemed skeptical at how easy it was to determine class members just by looking at bills and records. I suspect there was a lot of studying of the federal law here, and that this was a tough assignment for a rookie justice. And I was right that Justices Pfeifer and O’Neill seemed ready to let the case proceed as a class action. I guess it’s back to small claims court now for consumers wrongly crammed on their phone bills. The Court has another large class action case pending against State Farm, which includes many additional class action issues.