Hamilton v. Ohio Sav. Bank

Page 67

82 Ohio St.3d 67

694 N.E.2d 442

HAMILTON et al., Appellants and Cross-Appellees, v. OHIO SAVINGS BANK, Appellee and Cross-Appellant.

No. 96-2624.

Supreme Court of Ohio.

Submitted Jan. 20, 1998.

Decided June 10, 1998.

[694 N.E.2d 445] This is an appeal and cross-appeal from a decision affirming in part and reversing in part the trial court's order denying certification of a class action. The action was brought by plaintiffs-appellants and cross-appellees, Frances E. Hamilton, Barbara A. Seidel, and George L. Seidel, on behalf of themselves and others similarly situated, against defendant-appellee and cross-appellant,[694 N.E.2d 446] Ohio

Savings Bank ("Ohio Savings"), to challenge certain methods used to amortize their residential mortgage loans.

In Hamilton v. Ohio Sav. Bank (1994), 70 Ohio St.3d 137, 637 N.E.2d 887, we set forth the background facts regarding appellants' statutory and common-law claims and reversed summary judgment for Ohio Savings. On remand, the trial court took up the matter of class action certification.

Appellants had moved for class certification pursuant to Civ.R. 23(A), (B)(2) and (B)(3). In their motion, appellants set forth both their pivotal allegations and the classes which they seek to have certified, as follows:

"The class of persons whom Plaintiffs seek to represent includes all mortgagors on whose mortgages the Defendant has, or is still, calculating interest according to a method which has been referred to throughout this litigation as the '365/360' method. The mortgagors whom Plaintiffs seek to represent have executed mortgage notes which have either been retired or are still extant and which contain a clause that states, in possibly one or more forms, that the Defendant will calculate interest as follows:

" 'Such interest shall be computed monthly by (i) obtaining a daily interest factor based upon a 360-day year, (ii) multiplying such factor by the actual number of days in each calendar month, and (iii) applying the result against the computed balance of this note outstanding on the last day of each month.'

"The gravamen of this action is that the above-quoted interest calculation method, in effect, charges the potential class members interest at rates that are in excess of their agreed contract rates of interest. For the sake of clarity and administrative ease, it is proposed that the Court certify two (2) subclasses of mortgagors. The Court's power to make subclasses can be found in Ohio Civ.R. 23(C)(4).

"Class I should consist of all mortgagors whose mortgages will not amortize within their stated terms. With respect to these mortgages, the Defendant has established the monthly payment amounts pursuant to the '360/360' method while simultaneously using the '365/360' method in order to calculate interest charges each month. In addition to being charged interest that exceeds their agreed contract rates, the mortgagors in Class I have been saddled with mortgages which will not amortize within their agreed terms. That is, mortgagors who comprise this subclass will be required to make balloon payments at the end of the terms of their mortgages before the Defendant will remove its mortgage liens. Discovery thus far indicates that those mortgagors who comprise Class I, for the most part, executed their mortgages prior to April of 1978.

" * * * The mortgagors who comprise Class II, for the most part, executed their mortgages after April of 1978. The mortgagors in Class II executed mortgages wherein interest has been or is being calculated pursuant to the '365/360' method. However, unlike Class I, the members of Class II have made monthly payments in amounts that were established according to the '365/360' method. Thus, although members of Class II are being charged interest at rates that exceed the agreed interest rates, these class members will not be required to make balloon payments in order to retire their notes. This is because members of Class II are paying a small portion of the Defendant's unlawful interest charge each month. Nonetheless, the members of Class II are paying interest at rates that exceed their agreed contract rates." (Emphasis sic.)

On October 20, 1995, the trial court summarily denied appellants' motion. The court's order reads, in its entirety: "[Plaintiff] Francis [sic ] Hamilton's motion for class certification is denied. No just cause for delay."

The court of appeals, in a two-to-one decision, affirmed in part and reversed in part and remanded the cause. In so doing, the court of appeals held that the trial court erred in failing to certify those subclasses with outstanding mortgage loans pursuant to Civ.R. 23(B)(2), but properly denied certification to those subclasses with retired mortgage loans pursuant to Civ.R. 23(B)(3). In particular, the court found, with respect to the latter subclasses, that "the statute of limitations issue, and the equitable tolling thereof, applicable to each individual member of these subclasses predominates over the common questions of the subclass. * * * [W]hen the borrowers discovered or should have discovered the amortization problem in their loans, necessarily involves an independent inquiry for each potential member of the subclass."

In a separate opinion, Judge Diane Karpinski, concurring in part and dissenting in part, reasoned that "class certification should not be denied to [these] subclasses, because the statute of limitations issue does not predominate over the common questions of the subclass." She concluded that the entire prospective class should have been certified.

The cause is now before this court pursuant to the allowance of a discretionary appeal and cross-appeal.

Law Offices of Steven M. Weiss and Steven M. Weiss, Cleveland; Robert E. Sweeney Co., L.P.A., and Robert E. Sweeney, Cleveland, for appellants and cross-appellees.

Arter & Hadden, Hugh M. Stanley, Jr. and Irene C. Keyse-Walker, Cleveland; Marc W. Freimuth and Roy E. Lachman, Cleveland, for appellee and cross-appellant.

ALICE ROBIE RESNICK, Justice.

The single issue presented by appellant's appeal and Ohio Savings' cross-appeal is whether, and to what extent, the trial court properly refused to certify this case as a class action pursuant to Civ.R. 23.

I STANDARD OF REVIEW

In Marks v. C.P. Chem. Co., Inc. (1987), 31 Ohio St.3d 200, 31 OBR 398, 509 N.E.2d 1249, at the syllabus, the court held that "[a] trial judge has broad discretion in determining whether a class action may be maintained and that determination will not be disturbed absent a showing of an abuse of discretion."

Appellants suggest that because there was no live testimony before the trial court and this court has before it the same written record, we should conduct a de novo review "akin to the review of a lower court's grant of summary judgment." We disagree.

Appellants cite no case in which an appellate court has opted for a de novo review over an abuse-of-discretion standard in this context. To the contrary, appellate courts overwhelmingly, if not universally, give trial courts broad discretion in deciding whether to certify a class. See, generally, 5 Moore's Federal Practice (3 Ed.1997) 23-25 to 23-27, Section 23.04. Moreover, the appropriateness of applying the abuse-of-discretion standard in reviewing class action determinations is grounded not in credibility assessment, but in the trial court's special expertise and familiarity with case-management problems and its inherent power to manage its own docket. Marks, supra, 31 Ohio St.3d at 201, 31 OBR at 399, 509 N.E.2d at 1252; In re NLO, Inc. (C.A.6, 1993), 5 F.3d 154, 157. Thus, the fact that there was no live testimony in the trial court is inconsequential as concerns the applicability of the abuse-of-discretion standard to class action determinations.

However, the trial court's discretion in deciding whether to certify a class action is not unlimited, and indeed is bounded by and must be exercised within the framework of Civ.R. 23. The trial court is required to carefully apply the class action requirements and conduct a rigorous analysis into whether the prerequisites of Civ.R. 23 have been satisfied. Gen. Tel. Co. of the Southwest v. Falcon (1982), 457 U.S. 147, 160-161, 102 S.Ct. 2364, 2372, 72 L.Ed.2d 740, 752; Gulf Oil Co. v. Bernard (1981), 452 U.S. 89, 100, 101 S.Ct. 2193, 2200, 68 L.Ed.2d 693, 703; Castano v. Am. Tobacco Co. (C.A.5, 1996), 84 F.3d 734, 740; In re Am. Med. Sys., Inc. (C.A.6, 1996), 75 F.3d 1069, 1079.

While there is no explicit requirement in Civ.R. 23 that the trial court make formal findings to support its decision on a motion for class certification, there are compelling policy reasons for doing so. Aside from the obvious practical importance, articulation of the reasons for the decision tends to provide a firm basis upon which an appellate court can determine that the trial court exercised its discretion within the framework of Civ.R. 23, and discourages reversal on the ground that the appellate judges might have decided differently had they been the original decisionmakers. On the other hand, the failure to provide an articulated rationale greatly hampers an appellate inquiry into whether the relevant Civ.R. 23 factors were properly applied by the trial court and given appropriate weight, and such an unarticulated decision is less likely to convince the reviewing court that the ruling was consistent with the sound exercise of discretion. See Ojalvo v. Ohio State Univ. Bd. of Trustees (1984), 12 Ohio St.3d 230, 232, 12 OBR 313, 315, 466 N.E.2d 875, 876-877; Valentino v. Carter-Wallace, Inc. (C.A.9, 1996), 97 F.3d 1227, 1234-1235; In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litigation (C.A.3, 1995), 55 F.3d 768, 794; Eisenberg v. Gagnon (C.A.3, 1985), 766 * MESSAGE(S) *MORE SECTIONS FOLLOWF.2d 770, 785; Interpace Corp. v. Philadelphia (C.A.3, 1971), 438 F.2d 401, 404.

It is exceedingly difficult to apply an abuse-of-discretion...