Worledge v. Riverstone Residential Grp., LLC

379 Mont. 265

350 P.3d 39

2015 MT 142

Victor WORLEDGE, Matthew Hall, Lynne Kelly, and Michael Bartholic, and all others similarly situated, Plaintiffs and Appellees

v.RIVERSTONE RESIDENTIAL GROUP, LLC, HSC Real Estate, Inc., Creekside ICG Apartment Portfolio III, LLC, NW Apartment Portfolio II Wildflower, LLC, NW Apartment Portfolio II Shiloh Glen, LLC, and 4000 Mullan Road LLC, Defendants and Appellants.

No. DA 14–0520.

Supreme Court of Montana.

Submitted on Briefs March 25, 2015.

Decided May 26, 2015.

For Appellants: David M. McLean, Christy S. McCann, Browning, Kaleczyc, Berry & Hoven, P.C., Missoula, Montana (for Creekside ICG Apartment Portfolio III, LLC, Apartment Portfolio II Wildflower, LLC, and NW Apartment Portfolio II Shiloh Glen, LLC), W. Scott Mitchell, Michael P. Manning, Holland & Hart, LLP, Billings, Montana (for Riverstone Residential Group, LLC and HSC Real Estate, Inc.), Perry J. Schneider, Hannah Stone, Milodragovich, Dale & Steinbrenner, P.C., Missoula, Montana (for 4000 Mullan Road, LLC).

For Appellees: Christopher W. Froines, Froines Law Office, Inc., Missoula, Montana.

Opinion

Justice BETH Baker delivered the Opinion of the Court.

¶ 1 Appellants Riverstone Residential Group, LLC (Riverstone), HSC Real Estate, Inc. (HSC), Creekside ICG Apartment Portfolio III, LLC (Creekside), NW Apartment Portfolio II Wildflower, LLC (Wildflower), NW Apartment Portfolio II Shiloh Glen, LLC (Shiloh Glen), and 4000 Mullan Road, LLC (Mullan) appeal a Fourth Judicial District Court, Missoula County, order certifying as a class action claims against them by named Plaintiffs Victor Worledge, Ana Vlahovich, and Lynne Kelly.¹ We restate the issues on appeal as follows:

1. Whether the District Court abused its discretion by admitting new evidence submitted with Plaintiffs' reply brief 2. Whether the District Court abused its discretion in determining that the proposed class satisfied M.R. Civ. P. 23(a)'s prerequisites to class certification.

3. Whether the District Court abused its discretion by certifying the class under M.R. Civ. P. 23(b)(3).

¶ 2 We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 3 Appellants Creekside, Wildflower, Shiloh Glen, and Mullan (collectively, “Owners”) are owners of multi-unit apartment buildings located in Montana: Creekside, Wildflower, and Mullan own apartment complexes in Missoula, and Shiloh Glen owns an apartment complex in Billings. Appellant Riverstone and its predecessor, HSC (collectively, “Riverstone”), are property management companies that collectively managed Owners' apartment complexes during times relevant to the complaint. Appellees are current or former tenants of Owners' apartment complexes who signed leases for those apartments through Riverstone: Worledge resides at Creekside, Kelly resides at Wildflower, and Vlahovich formerly resided at Creekside.

¶ 4 On June 11, 2013, Worledge, Vlahovich, and Kelly filed a complaint on behalf of themselves and other unnamed plaintiffs (collectively, “Tenants”) who entered into rental agreements with Riverstone to rent apartments at Owners' apartment complexes. On October 21, Tenants filed a First Amended Complaint, Statement of Class Action, and Jury Demand. Tenants' First Amended Complaint alleged that rental agreements at all four apartment complexes were almost identical and contained provisions that violated the Montana Residential Landlord and Tenant Act (Landlord–Tenant Act), §§ 70–24–101 through 442, MCA, and the Montana Security Deposit Act (Security Deposit Act), §§ 70–25–101 through 206, MCA. To support these allegations, Tenants filed as exhibits several of the named parties' leases with Riverstone. Between November 2013 and February 2014, Riverstone and Owners filed their answers to the complaint.

¶ 5 On March 13, 2014, Tenants moved to certify a class action under M.R. Civ. P. 23. Tenants alleged that the following provisions included in Riverstone leases are prohibited by law: cancellation fees and liquidated damages clauses; provisions requiring the complete forfeiture of security deposits instead of qualified deductions; provisions requiring payment of non-refundable fees; provisions requiring non-refundable pet deposits; provisions exonerating Riverstone and Owners from any risk associated with Tenants' loss of personal property; provisions requiring Tenants to pay all of Owners' and Riverstone's attorney's fees, regardless of fault; and provisions requiring Tenants to indemnify Riverstone and Owners for any injuries to guests.

¶ 6 Under the Landlord–Tenant Act,

A rental agreement may not provide that a party: (1) agrees to waive or forego rights or remedies under [the Landlord–Tenant Act]; (2) authorizes any person to confess judgment on a claim arising out of the rental agreement; or (3) agrees to the exculpation or limitation of liability resulting from the other party's purposeful misconduct or negligence to indemnify the other party for the liability or the costs or attorney's fees connected therewith.

Section 70–24–202, MCA. Provisions prohibited under § 70–24–202 are unenforceable, and, “If a party purposefully uses a rental agreement containing provisions known by the party to be prohibited, the other party may recover, in addition to ... actual damages, an amount up to 3 months' periodic rent.” Section 70–24–403, MCA. The Security Deposit Act contains a list of deductions that a landlord may make from a tenant's security deposit and provides, “A person may not deduct or withhold from the security deposit any amount for purposes other than those set forth [in that list].” Section 70–25–201, MCA.

¶ 7 Tenants sought class certification under M.R. Civ. P. 23(b)(3). Rule 23(a) sets forth four threshold requirements to class certification: numerosity, commonality, typicality, and adequate representation. M.R. Civ. P. 23(a). Rule 23(b)(3) requires a court to find that “the questions of law or fact common to the class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” M.R. Civ. P. 23(b)(3). Thus, Rule 23(b)(3) adds two requirements—predominance and superiority—to the prerequisites under Rule 23(a).

¶ 8 In their motion to certify, in addition to the named parties' Riverstone leases, Tenants filed as exhibits four letters from Riverstone to residents of each apartment complex. The letters, dated May 1 and May 3, 2013, purported to change certain provisions of the Riverstone leases to “better comply with Montana Law.” The letters were written on Mullan, Shiloh Glen, Wildflower, and Creekside letterhead and were signed “Mullan Reserve Management,” “Shiloh Glen Management,” “Wildflower Management,” and “Creekside Apartments Management,” respectively. Otherwise, the letters were substantively identical.

¶ 9 In their responses to Tenants' motion to certify, Riverstone and Owners argued that Tenants had not submitted sufficient evidence to meet their burden of proof and thus had not met any of the Rule 23 requirements. Riverstone and Owners argued that, among other issues, Tenants did not submit evidence to support their claim that there were over 1,000 class members (numerosity); Tenants did not prove that class members had substantially similar lease agreements (commonality); the named plaintiffs could not represent tenants for apartment complexes where they had never lived (typicality and adequate representation); and the court could not resolve whether Riverstone and Owners violated the Security Deposit Act without performing an individual analysis for each class member (predominance).

¶ 10 On April 11, 2014, Tenants filed a motion to amend their first amended complaint by removing Vlahovich and adding named Plaintiffs Hall, a former resident at Mullan, and Bartholic, a former resident at Shiloh Glen. Also on April 11, Tenants filed a reply brief regarding their motion to certify, attaching four additional exhibits—Exhibits H, I, J, and K—to rebut Owners' and Riverstone's assertions that Tenants did not meet the Rule 23 requirements. Exhibit H was a spreadsheet identifying each potential class member, his or her move-in and move-out dates, the name of the apartment complex in which he or she resided, and which of the seven allegedly prohibited provisions his or her lease contained. Exhibit I was an affidavit by Susan Mayer, president and CEO of Litigation Abstract, Inc., the company that generated the spreadsheet. Exhibit J was an affidavit by attorney Klaus Sitte, testifying to the legislative intent of the committee, of which he was a member, that drafted the Landlord–Tenant Act. Exhibit K consisted of several filings in lawsuits brought by Owners against Tenants in which Owners sought to enforce allegedly prohibited attorney's fees provisions in the leases.

¶ 11 Riverstone and Owners opposed Tenants' motion to amend and moved to strike Tenants' Exhibits H, I, J, and K, arguing that the exhibits presented new, inadmissible evidence that Tenants could not present for the first time in a reply brief. Riverstone and Owners noted that courts are hesitant to admit such evidence because it deprives the opposing party of an opportunity to respond. On June 11, 2014, the District Court denied the motions to strike, finding the exhibits admissible.² The court reasoned that, though parties may not include new arguments in a reply brief, Tenants merely had submitted new evidence in direct rebuttal to Riverstone's and Owners' response briefs. Additionally, the court allowed Riverstone and Owners fourteen days to file sur-replies, supplemental briefing, or supporting evidence to address Tenants' new exhibits, and twenty-one days to request further hearings. On June 25, 2014, Riverstone and Owners all filed sur-replies. Neither Riverstone nor Owners requested hearings or additional time.

¶ 12 On July 30, 2014, the District Court issued a memorandum and order granting Tenants' motion for class certification....