Ferrell v. Allstate Ins. Co.

188 P.3d 1156

2008 NMSC 042

Joan FERRELL, Maria C. Cappuzzello, Elizabeth Martinez, and H. Jake Salazar, Plaintiffs-Petitioners, v. ALLSTATE INSURANCE COMPANY and Allstate Indemnity Company, Defendants-Respondents.

No. 30,165.

Supreme Court of New Mexico.

June 6, 2008.

Rehearing Denied July 17, 2008.

Freedman, Boyd, Hollander, Goldberg & Ives, P.A., David Alan Freedman, Joseph Goldberg, Alexandra Freedman Smith, Martha E. Mulvany, Karen S. Mendenhall Eaves & Mendenhall, P.A., John M. Eaves, McCary, Wilson & Pryor, Floyd D. Wilson, Dennis M. McCary, Alan Karl Konrad, Wilson Law Firm, P.C., Alan R. Wilson, Peifer, Hanson & Mullins, P.A., Charles R. Peifer, Robert E. Hanson, Albuquerque, NM, Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, L.L.P., John Stoia, Len Simon, Tim Blood, San Diego, CA, for Petitioners.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, Sonnenschein, Nath & Rosenthal, L.L.P., Jeffrey Lennard, Mark L. Hanover, Chicago, IL, for Respondents.

Miller Stratvert, P.A., Ann Maloney Conway, Deron Bradley Knoner, Albuquerque, NM, for Amicus Curiae Property Casualty Insurers Association of America.

Mayer, Brown, Rowe & Maw, L.L.P., George Ruhlen, Santa Fe, NM, for Amicus Curiae American Council of Life Insurers.

Miller Stratvert, P.A., Ruth Fuess, Albuquerque, NM, for Amicus Curiae Chamber of Commerce of the United States of America.

Simone, Roberts & Weiss, P.A., Randal William Roberts, Albuquerque, NM, for Amici Curiae Offices of Insurance Regulation.

OPINION

BOSSON, Justice.

{1} The issues raised by this appeal involve the intersection of two complex areas of law — multi-state class action lawsuits and conflict-of-laws principles. We hold that the correct standard for determining when an actual conflict exists between states' laws such that application of the forum state's law is inappropriate for a class action is more than a mere hypothetical conflict or uncertainty based on the lack of foreign appellate precedent. Rather, proof of an actual conflict is required. Having so concluded, we reverse the Court of Appeals and remand for proceedings consistent with this Opinion.

BACKGROUND

{2} This appeal arises as a result of the district court's decision to certify a multi-state class in New Mexico for the purposes of litigating a class action lawsuit against Allstate Insurance Company (Allstate). Plaintiffs are Allstate insureds who contend that Allstate is liable for breach of contract for failing to include installment fees that are charged when an insured opts to pay the premium in monthly installments in the total premium calculation. Allstate counters that the installment fees are not part of the premium; instead, the fees are imposed when an insured chooses to pay the policy in installments rather than in one lump sum.¹

{3} Plaintiffs originally requested that the district court certify a nationwide class, but eventually narrowed the class to fifteen states, including New Mexico. The district court, in its Findings of Fact and Conclusions of Law, certified a class of thirteen states and found that there was no conflict among the laws of the thirteen states such that application of New Mexico law to the plaintiffs from those states was appropriate. The district court declined to certify the plaintiffs from either Hawaii or Washington because, unlike the policies from the other thirteen states, the insurance policies issued in those states contained specific information about installment fees. The district court "retain[ed] jurisdiction to create subclasses or otherwise alter or amend [the certification order] before a decision on the merits." Allstate appealed the class certification to the Court of Appeals pursuant to Rule 1-023(F) NMRA, which permits the Court of Appeals to hear an appeal arising from an order granting or denying certification of a class.

{4} The Court of Appeals first reviewed the laws of the states connected to the dispute and determined that the laws of the thirteen states potentially conflicted with one another, due to unresolved ambiguities in each state's law. Ferrell v. Allstate Ins. Co., 2007-NMCA-017, ¶ 29, 141 N.M. 72, 150 P.3d 1022. Based upon this conclusion, the Court determined it would be inappropriate to apply New Mexico law to the entire multi-state class. Id. ¶ 30. Having determined that New Mexico law could not apply to the entire class, the Court undertook a conflict-of-laws analysis and determined that the laws of the state where each insurance contract was entered into would separately apply to the plaintiffs from that state. Id. ¶¶ 31-47. In other words, if the multi-state class action were to proceed, the district court would have to apply the laws of each of the thirteen states connected to the dispute. Id. ¶ 47. Because the "need to apply the ambiguous laws of the other class states would render [the] case unmanageable and not superior as a matter of law," id. ¶ 47, the Court of Appeals decertified the class with respect to all out-of-state class members, id. ¶ 54. The Court of Appeals affirmed the certification with respect to New Mexico class members only, and remanded the case to the district court to proceed as a single-state class action, subject to the district court's discretion. Id. We granted certiorari to review significant, novel issues relevant to New Mexico class action jurisprudence that are implicated in the Court of Appeals opinion.

DISCUSSION

{5} The district court's certification was appropriate if the court properly considered the requirements of our class action rule, portions of which can only be satisfied in a multi-state class action by considering conflict-of-laws principles. We begin our discussion with an overview of our class action rule, which forms the backdrop of this appeal. We then discuss the Court of Appeals' determination that the laws of the thirteen states connected to this dispute conflicted. In so doing, we consider as a vital threshold inquiry whether the class proponent has the burden of affirmatively disproving a hypothetical conflict between the laws of the relevant states, as the Court of Appeals held, or whether the party opposing certification has the burden of affirmatively proving that the laws of the relevant states actually conflict.

Class Actions in General

{6} To put our discussion in context, we set out the relevant portions of our class action rule, Rule 1-023(A) and (B):

A. Prerequisites to a class action. One or more members of a class may sue or be sued as representative parties on behalf of all only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or 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.

B. Class actions maintainable. An action may be maintained as a class action if the prerequisites of Paragraph A of this rule are satisfied, and in addition:

...

(3) the court finds that the questions of law or fact common to the members of the 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.

{7} New Mexico's current class action rule mirrors the federal rule upon which it is based. Compare Rule 1-023, with Fed. R.Civ.P. 23; see also Berry, 2004-NMCA-116, ¶ 27 (noting that Rule 1-023 is "[i]dentical to its federal counterpart"). Thus, we may seek guidance from federal law applying the rule. Accord Romero v. Philip Morris Inc., 2005-NMCA-035, ¶ 35, 137 N.M. 229, 109 P.3d 768.

{8} The district court certifies a class in the first instance. Rule 1-023(C)(1) ("As 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."). The court "must engage in a rigorous analysis of whether the Rule's requirements have actually been met." Brooks v. Norwest Corp., 2004-NMCA-134, ¶ 9, 136 N.M. 599, 103 P.3d 39. In deciding whether the requirements of Rule 1-023 have been met, a district court may look beyond the pleadings. See Castano v. Am. Tobacco Co., 84 F.3d 734, 744 (5th Cir.1996). "This `probe behind the pleadings' is necessary because the district court must understand the elements of the plaintiffs' causes of action — and the likely defenses — in order to assess what kind of proof will be necessary to decide the issues." Berry, 2004-NMCA-116, ¶ 50; accord Castano, 84 F.3d at 744. The district court may certify a class only for certain issues or may divide the class into subclasses. Rule 1-023(C)(4). Because, in this case, the district court's decision to certify the class was appropriate only if the class met the requirements of Rule 1-023(A) and the requirements of at least one of the subdivisions of subsection B of Rule 1-023, we now turn to a discussion of those sections of our class action rule.

Rule 1-023(A): Prerequisites to a Class Action

{9} Rule 1-023(A) lists four prerequisites to certification of a class action:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or 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 four requirements are commonly referred to as numerosity, commonality, typicality, and adequacy of representation. See Berry, 2004-NMCA-116, ¶ 40; see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) (same). In this case, the district court concluded that the class met the four requirements of Rule 1-023(A). Neither party appealed this...