Ex parte Citicorp Acceptance Co., Inc.

Page 199

715 So.2d 199

Ex parte CITICORP ACCEPTANCE COMPANY, INC (Re CITICORP ACCEPTANCE COMPANY, INC. v. Truman L. McILWAIN and Eloise McIlwain).

1951977.

Supreme Court of Alabama.

Dec. 16, 1997.

Sterling G. Culpepper, Jr., David R. Boyd, and Donald R. Jones, Jr., of Balch & Bingham, Montgomery, for petitioner.

Joe R. Whatley, Jr., and Frederick T. Kuykendall III of Cooper, Mitch, Crawford, Kuykendall & Whatley, L.L.C., Birmingham; T. Roe Frazer II, Richard A. Freese, and Leslie E. McFall of Langston, Frazer, Sweet & Freese, P.A., Birmingham; E. Mark Ezell and John Sharbrough of Ezell & Sharbrough, L.L.C., Butler; and William L. Utsey of Utsey, Christopher & Newton, Butler, for respondents.

SEE, Justice.

This mandamus petition arises from a trial court's conditional certification of a class action. Citicorp Acceptance Company, Inc. ("Citicorp"), seeks a writ of mandamus directing the Choctaw Circuit Court to decertify the class. Citicorp contends that the trial court abused its discretion by: (1) basing certification solely on the allegations of the plaintiffs in their amended counterclaim; and (2) certifying the class without first giving notice to Citicorp. We agree with both contentions; therefore, we grant the writ.

I.

In April 1989, Citicorp filed the original complaint against Truman and Eloise McIlwain seeking repayment of the amount owed under a mobile home financing agreement. ¹ The McIlwains answered and counterclaimed in January 1990. The counterclaim asserted class allegations based on excessive finance charges arising from the method by which the charges were calculated. ² In June 1992, Citicorp filed a motion to dismiss the McIlwains' counterclaim. The trial court did not rule on that motion. In fact, no action was taken on the case from June 1992 until the McIlwains filed a second amended counterclaim and motion for class certification, on October 19, 1995. ³ On that same date, before Citicorp had received the amended counterclaim, and without notice to Citicorp, the trial court certified the following class:

"All persons who at any time during the six years prior to the filing of the original Counterclaim, were a party to a loan agreement with Citicorp for the purchase of personal property, had a policy of insurance placed on the collateral securing the loan to Citicorp for whatever reason, and had the amount of their insurance coverage calculated on the sum total of remaining payments or the original purchase price of the mobile home or other personal property rather than the lesser of either the actual outstanding balance due under the loan agreement or the fair market value of the mobile home or personal property."

The trial court named the McIlwains as class representatives.

Citicorp moved the trial court to vacate the class action order and to reconsider the class certification, alleging that the Rule 23(a), Ala. R. Civ. P., ⁴ safeguards had been disregarded. Citicorp also moved for dismissal of the amended complaint, with its class allegations, as untimely. The trial court denied both motions and ordered the parties to proceed with discovery. Citicorp filed this petition for a writ of mandamus.

II.

A petition for a writ of mandamus is the proper method for obtaining review of the certification of a class action. ⁵ Ex parte Blue Cross & Blue Shield, 582 So.2d 469 (Ala.1991). Mandamus review of class certification is available when the party seeking review has demonstrated a compelling reason. Ex parte Green Tree Fin. Corp., 684 So.2d 1302, 1307 (Ala.1996) (citing Ex parte Masonite Corp., 681 So.2d 1068 (Ala.1996)). Citicorp has demonstrated that the McIlwains, who sought the class certification, failed to produce sufficient evidence that the class met the four prerequisites of Rule 23(a), Ala. R. Civ. P., and at least one of the prerequisites of Rule 23(b), Ala. R. Civ. P. See Green Tree, 684 So.2d at 1307 (stating that when the trial court fails to require the plaintiff to meet his burden of proof under Rule 23, a compelling reason for review has been established).

Citicorp asserts that the trial court abused its discretion when it certified the class solely on the basis of the McIlwains' pleading, and that this certification improperly shifted the burden of proof to the defendant. Citicorp now finds itself having to produce sufficient evidence to undo the class certification, even though the McIlwains have not satisfied their initial burden to meet the Rule 23 prerequisites.

The McIlwains claim that this conditional certification is in accord with the requirement of Rule 23 that "[a]s soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained." Ala. R. Civ. P., Rule 23(c)(1). They contend that this Court should promote, not limit, ex parte conditional certification. This, they argue, is compelled by the abatement rule, by which certification of a conditional class prevents another court from certifying a class on the same issues, ⁶ and by the fact that class certification protects the class by tolling the running of the statutory period of limitations and giving early notice to class members. ⁷

While conditional certification of a class action is allowed, simply labeling a class certification as "conditional" does not relieve the trial court of its obligation to conduct a rigorous analysis and to require the plaintiff to carry its burden of proof as to the appropriateness of class treatment under Rule 23(a). Castano v. American Tobacco Co., 84 F.3d 734, 741 (5th Cir.1996). ⁸ All classes are "conditional" in that they are subject to decertification. As the Court of Appeals for the Third Circuit stated in In re General Motors Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 792 n. 14 (3d Cir.1995):

"[C]onditional is actually a term that can be properly applied to all class actions, even those that are certified in the normal process. Under Rule 23(c)(1), the court retains the authority to re-define or decertify the class until the entry of final judgment on the merits. This capacity renders all certification orders conditional until the entry of judgment."

In Castano, based solely on the pleadings before the court, the plaintiffs sought and received certification of a nationwide class of all smokers and nicotine-dependent persons and their families. Although the certification was labeled "conditional," the Court of Appeals for the Fifth Circuit decertified the class, because the district court had failed to consider how variations in state law would affect predominance and superiority, and because the district court's predominance inquiry had not included a consideration of how a trial on the merits would be conducted. Id., 84 F.3d at 742.

The seminal and frequently cited case of General Telephone Co. of the Southwest v. Falcon, 457 U.S. 147, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982), demonstrates that class actions may not be approved lightly and that the determination of whether the prerequisites of Rule 23 have been satisfied requires a "rigorous analysis." In Falcon the trial court failed to meet this "rigorous analysis" standard. Falcon, a Mexican-American, sued his employer, General Telephone, making class allegations and contending that he was denied a promotion because, he said, General Telephone's promotion policy operated to disadvantage Mexican-Americans. A federal district court, based on these allegations and without conducting an evidentiary hearing, certified a class consisting of Mexican-American job applicants and employees. The United States Supreme Court held that it was improper to certify such a class based on the mere allegation of discrimination and that no class was properly certifiable unless the party seeking certification specifically demonstrated the Rule 23(a) prerequisites of numerosity, commonality, typicality, and adequacy of representation. Id. The burden of satisfying each of these prerequisites rests solely on the party seeking certification, and the court cannot approve class certification until it has adequate information before it to satisfy each of the prerequisites. Ex parte Blue Cross & Blue Shield, 582 So.2d at 475.

The "rigorous analysis" standard ordinarily requires the trial court to go beyond the bare allegations of the complaint. As the Court of Appeals for the Fifth Circuit stated in Castano, 84 F.3d at 744, "[g]oing beyond the pleadings is necessary, as a court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." See also, Rodriguez v. Banco Central, 102 F.R.D. 897, 903 (D.P.R.1984) (stating that examination of the complaint alone will not suffice); King v. Gulf Oil Co., 581 F.2d 1184, 1186 (5th Cir.1978) (stating that "[t]he propriety of class action suits can seldom be determined on the basis of the pleadings alone, and ... it is the duty of the trial court to hold an evidentiary hearing before deciding whether to grant or deny class certification"); and Morrison v. Booth, 763 F.2d 1366, 1371 (11th Cir.1985) (stating that bare allegations do not satisfy the prerequisites of Rule 23).

The McIlwains also contend that the trial court's order in this case is supported by Ex parte Green Tree Financial Corp., 684 So.2d 1302 (Ala.1996), and Ex parte Masonite Corp., 681 So.2d 1068 (Ala.1996). Their reliance on these cases is misplaced. In Green Tree, there was "extensive briefing" and there was argument before the certification hearing. Green Tree, 684 So.2d at 1304. Even so, this Court reversed the class certification, stating that the trial court had "entered an order based upon little or no evidentiary underpinnings" and that "[t]he order merely parrot[ed] the formulaic language of Rule 23(a)." Id. at 1307. This Court did not decertify the class in Masonite, but that class was certified only after discovery, briefing, and a class...