Opinion
NO. 01-18-00980-CV
04-23-2020
IMT PAVILION III LLP AND INVESTORS MANAGEMENT TRUST REAL ESTATE GROUP D/B/A IMT RESIDENTIAL, Appellants v. VICTOR MENDEZ, FOR HIMSELF AND ALL OTHERS SIMILARLY SITUATED, Appellee
On Appeal from the 269th District Court Harris County, Texas
Trial Court Case No. 2015-76253
MEMORANDUM OPINION
This is an interlocutory appeal from an order certifying a class-action claim based on section 13.505 of the Texas Water Code. The landlord contends that the trial court abused its discretion in certifying the two classes because (1) the tenant's section 13.505 claims lack merit and thus were certified based on a significant misunderstanding of law; and (2) the class certification order, on its face, fails to comply with Rule 42(c)(1)(D)(i) since it does not state any of the elements of the landlord's defenses or counterclaims or otherwise discuss or analyze them. We affirm.
Background
Victor Mendez was a tenant at the Pavilion Place apartments in Houston from March 2013 through mid-May 2017. During that time, IMT Pavilion was the apartment owner, and IMT Residential was the management company. IMT Residential is one of the largest corporate landlords in the country. The company "perform[s] the landlord function" at properties owned by various IMT affiliates. It makes "all the decisions" regarding apartment operations, including "how tenants are going to get billed for water and wastewater."
The members of the two certified classes are tenants at three IMT Residential-operated apartment complexes in Texas: Pavilion Place in Houston, where Mendez resided; IMT Chimney Rock, also in Houston; and IMT Seville Uptown, in Dallas. At each complex, IMT allocates its monthly water and sewer bills to its tenants.
At all three properties, IMT imposed a monthly $3 "utility service fee," which IMT explained, covered billing costs IMT incurred through its own billing company, Community Conservation Solutions, which "performs RUBS [residential utility billing services] water and sewer billing" for the IMT properties. Mendez paid the uniform $3 "service fee" every month, like every other tenant at IMT Pavilion Place, the same amount charged at IMT Chimney Rock, in Houston, and IMT Seville Uptown, in Dallas.
Public Utility Commission (PUC) rules prohibit charging tenants for water and sewer service unless they were first assessed by a retail public utility. Mendez contends that by using the "utility service fee" category to recoup the cost of unrelated administrative overhead, IMT violated PUC rules, which forbid residential landlords from passing along expenses that are unrelated to water or sewer service to tenants as water or sewer charges. The applicable rule provides:
Charges billed to tenants for . . . allocated utility service may only include bills for water or wastewater from the retail public utility and must not include any fees billed to the owner by the retail public utility for any deposit, disconnect, reconnect, late payment, or other similar fees.16 TEX. ADMIN. CODE § 24.281(a).
The Texas Water Code provides a statutory remedy for tenants who have paid charges assessed in knowing violation of PUC rules. TEX. WATER CODE § 13.505. When this suit was filed, the Code provided:
[I]f an apartment house owner . . . violates a rule of the utility commission regarding . . . nonsubmetered master metered utility costs, the tenant may recover three times the amount of any overcharge, a civil penalty equal to one month's rent, reasonable attorney's fees, and court costs from the owner or condominium manager. However, an owner of
an apartment house . . . is not liable for a civil penalty if the owner . . . proves the violation was a good faith, unintentional mistake.Id.
Mendez alleges that additional PUC rule violations occurred at Pavilion Place and Chimney Rock. Before an apartment owner may pass water and sewer costs on to its tenants, it must satisfy a series of conditions laid down by the legislature and the PUC: 1. The apartment must register with the PUC: "An owner who intends to bill tenants for . . . allocated utility service or who changes the method used to bill tenants for utility service shall register with the commission in a form prescribed by the commission." Id. § 24.277(a). 2. "[B]efore an owner . . . may implement a program to bill tenants for . . . allocated water service, the owner or manager must," among other things, "perform a water leak audit" of each unit and common area and repair any leaks. Id. § 13.506(a); 16 TEX. ADMIN. CODE § 24.287(b). Mendez alleges that Pavilion Place failed to register with the PUC and failed to perform a water leak audit before billing its tenants according to a nonsubmetered allocation method.
Mendez filed suit in December 2015 on behalf of "himself and all others similarly situated." More than a year later, the legislature amended section 13.505, removing the penalty provisions for three times the amount of any overcharge, the one-month rent penalty, and attorney's fees, and conferring exclusive jurisdiction over section 13.505 claims to the PUC.
Mendez next moved for class certification. Before ruling on certification, the trial court denied IMT's motions for summary judgment, which challenged the viability of Mendez's section 13.505 claims on various grounds.
The trial court certified two classes. It defined the first class as follows:
Class 1
All Texas residents who are or were residential tenants at the following IMT branded apartments in Texas: IMT Pavilion Place, Houston, Texas; IMT Chimney Rock, Houston, Texas; and IMT Seville Uptown, Dallas, Texas, and who were charged and paid at least one $3 monthly "service fee" assessed on a monthly water and sewer utility bill from CCS Community Conservation Solutions during the Class period.
The order defines the Class 1 claim as a
[s]tatutory claim for violation of the Texas Water Code and PUC Rules resulting from imposition and collection of the $3 "service fee." The rules state that owners must not pass along charges that are not actually assessed by the public utility. 16 Tex. Admin. Code § 24.124(a) ("Charges billed to tenants for . . . allocated utility service may only include bills for water or wastewater from the retail public utility . . . ."). A private cause of action for violation of a PUC rule is permitted by way of Tex. Water Code § 13.505, which provides that if a violation of a rule of the utility commission occurs, the tenant may recover the amount of any overcharge.
The certification order list the "issues of law and/or fact common to the members of Class 1." These are:
i. Whether Defendants charged their tenants a $3.00 monthly surcharge for water and wastewater (in whole or in part);The trial court defined the second class as follows:
ii. If "in part," how much of the $3.00 monthly surcharge was for water and wastewater (versus billing for other things)
iii. Whether the $3.00 charge violated the Texas Water Code and PUC Rules, specifically 16 Tex. Admin. Code § 24.124(a); and
iv. Whether the $3.00 charge is an "overcharge" pursuant to Section 13.505.
Class 2Class Two's certified claim is a
All Texas residents who are or were residential tenants of the apartment complex owned by Defendant IP III located at 5401 Rampart St., Houston, Texas (or otherwise at the Pavilion Place Apartments if the address differs from 5401 Rampart St.) and who were charged and paid water and sewer (wastewater) fees during the Class Period.
[s]tatutory claim for violation of the Texas Water Code and PUC Rules resulting from the imposition and collection of water and wastewater charges prior to filing the required registration form with the PUC and/or prior to conducting a water leak audit. The rules state that any apartment owner who "intends to bill tenants for submetered or allocated utility service" is required first to register with the [PUC] in a form prescribed by the commission." 16 Tex. Admin Code § 24.122(a). The rules also state that "before an owner may implement a program to bill tenants for submetered or allocated water service, the owner must . . . perform a water leak audit" of each unit and common area and repair any leaks. Tex. Water Code § 13.506(a), 16 Tex. Admin Code § 24.127(b)(1)-(2). A private cause of action for violation of a PUC rule is permitted by way of Texas Water Code § 13.505, which
provides that if a violation of a rule of the utility commission occurs, the tenant may recover the amount of any overcharge.The trial court found the following issues common to Class 2:
i. whether Defendants could charge tenants for water and sewer service without registering with the PUC and selecting a permissible water billing formula, and whether such registration occurred;
ii. whether Pavilion Place could charge tenants for water and sewer service without first conducting a "water leak audit";
iii. whether i and/or ii lead to "overcharges" within the meaning of § 13.505;
iv. if the answer to (iii) is "yes," whether each member of the Class is entitled to a refund of the overcharges.
The evidence accompanying the motion supports the trial court's findings in certifying two classes on the following elements:
i. Ascertainability. Both classes of tenants may be ascertained using objective criteria and IMT's records.
ii. Numerosity. Thousands of tenants were charged the "utility service fee" and paid water and sewer charges even though their apartments had not registered with the PUC or performed a water leak audit.
iii. Commonality. For the first class, "[a]ny factual dispute over the actual purpose of the $3 fee and legal dispute over the applicability of the PUC no-waiver rule will present common issues that will impact the Class uniformly."
iv. Typicality. Mendez's "claims arise out of the same types of water surcharges and charges, and all the claims are based on the same legal theories (the Statute and PUC rules) and subject to the same defenses."
Class Certification
Citing Exxon Mobil Corp. v. Gill, 299 S.W.3d 124 (Tex. 2009) (per curiam), IMT Pavilion contends that the trial court abused its discretion in certifying Mendez's two proposed classes because his section 13.505 claims lack merit thus were "certified based on a significant misunderstanding of the law." IMT also contends that the trial court failed to conduct the required rigorous analysis because the class certification order does not state any of the elements of IMT's defenses or counterclaims or otherwise discuss or analyze them.
A. Applicable law and standard of review
All classes seeking certification must satisfy all four requirements of Rule 42(a) and at least one of the requirements of Rule 42(b). TEX. R. CIV. P. 42; Sw. Ref. Co. v. Bernal, 22 S.W.3d 425, 433 (Tex. 2000). Rule 42(a) prescribes the following prerequisites for 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.
Rule 42(b)(3) provides that:
An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
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(3) 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. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.TEX. R. CIV. P. 42(b)(3); Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 692 (Tex. 2003).
A proper analysis of the Rule 42 factors requires the court to go beyond the pleadings in order to understand "the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." Union Pac. Res. Grp., Inc. v. Hankins, 111 S.W.3d 69, 72 (Tex. 2003) (quoting Bernal, 22 S.W.3d at 435). "Because class determinations generally involve considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action, the trial court must be able to make a reasoned determination of the certification issues." Gill, 299 S.W.3d at 126 (quoting Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex. 2000)).
Rule 42 does not require the trial court to adjudicate the merits of the plaintiffs' claims before certifying a class. The substantive-law analysis for class-certification purposes is "far less searching than in a trial on the merits." Hankins, 111 S.W.3d at 72; see also Gill, 299 S.W.3d at 126 ("deciding the merits of the suit in order to determine . . . its maintainability as a class action is not appropriate"); Bliss & Glennon Inc. v. Ashley, 420 S.W.3d 379, 387 (Tex. App.—Houston [1st Dist.] 2014, no pet.) (same). Nevertheless, because the applicable substantive law bears some relation to the issues of commonality, typicality, superiority, and predominance, it "must be taken into consideration in determining whether the purported class can meet the certification prerequisites under Rule 42." Hankins, 111 S.W.3d at 72-73.
Our review of an interlocutory appeal from a class-certification order is limited to determining whether the trial court abused its discretion. Bliss & Glennon, 420 S.W.3d at 387; see Schein, 102 S.W.3d at 690-91. Under this standard of review, the appellate court typically indulges every presumption favorable to the trial court's ruling. See Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 29 (Tex. App.—Houston [1st Dist.] 2000, pet dism'd w.o.j.). On certification issues, however, the appellate court is not bound by this presumption and must independently determine whether the requirements of Rule 42 have been fully satisfied. See Ford Motor Co. v. Ocanas, 138 S.W.3d 447, 451 (Tex. App.—Corpus Christi 2004, no pet.); see also Stonebridge Life Ins. Co. v. Pitts, 236 S.W.3d 201, 205 (Tex. 2007) ("Actual conformance with Rule 42 is indispensable, and compliance with the rule must be demonstrated, not presumed."); Bernal, 22 S.W.3d at 435 (actual compliance with rule 42 "must be demonstrated; it cannot be presumed").
B. Substantive-law challenges
IMT contends that the trial court's summary-judgment rulings as to the substantive law governing the class claims, specifically, the denial of IMT's summary-judgment motion on the section 13.505 claims, constitutes reversible error. Appellate review of interlocutory orders is only allowed "when explicitly permitted by statute." Caress v. Fortier, 576 S.W.3d 778, 780 (Tex. App.—Houston [1st Dist.] 2019, pet. denied); see Bison Bldg. Materials, Ltd. v. Aldridge, 422 S.W.3d 582, 585 (Tex. 2012). IMT's notice of appeal relies on section 51.014(a)(3) of the Civil Practice and Remedies Code, which permits appeal from "an interlocutory order of a district court . . . that . . . certifies or refuses to certify a class in a suit brought under Rule 42." IMT identifies no authority for appellate review of the trial court's orders granting partial summary judgment and overruling its special exceptions. This restriction does not mean that we must ignore these rulings entirely. If they reflect a mistaken understanding of how the claims will be tried or whether the certified class meets Rule 42's requirements, they inform our consideration of whether the trial court abused its discretion in granting class certification.
In seeking review of these interlocutory rulings on their merits, IMT misplaces its reliance on Gill. There, the Supreme Court vacated the certification order and remanded the case to the trial court not because the plaintiffs failed to state a viable cause of action, but because the trial court had certified the class based on a breach of contract cause of action that was not alleged in the pleadings. 299 S.W.3d at 128. The Court acknowledged that this error apparently resulted from an effort to distinguish the class claim from one based on a legal theory that the Court had rejected in Shell Oil Co. v. HRN, 144 S.W.3d 429 (Tex. 2004). The Court observed that absent the distinction, the class claim likely was inviable, but the decision does not turn on that observation; the Court left that issue for the trial court to address on remand. 299 S.W.3d at 128.
No analogous circumstance exists here. IMT's arguments on the merits do not point to any theory unmoored to the pleadings. Nor do they undermine the trial court's finding that the class claims satisfy Rule 42's typicality, commonality, or predominance requirements; whether the classes prevail or not, the claims of all class members are based on the same legal theory; an answer as to one is an answer as to all. IMT's disagreement with the trial court's substantive-law rulings does not show that the trial court abused its discretion in granting certification.
IMT next complains that the trial court abused its discretion in certifying the classes because its trial plan fails to expressly address the elements of its defenses to Mendez's section 13.505 claim. The motion for class certification identifies "common defense questions," including whether IMT made a "good faith, unintentional mistake" and whether the tenants contractually agreed to the charges. IMT does not argue that the trial court failed to consider the defenses, and the class-certification order recites that it considered "the motion for class certification, the response, the reply, all supplements, the exhibits admitted into evidence, and the court's file." The record thus reflects that the trial court considered the defenses in deciding whether to certify the classes, and IMT waived its complaint that the order does not expressly address them by failing to raise it below. See TEX. R. APP. P. 33.1.
Conclusion
We affirm the trial court's class-certification order.
Gordon Goodman
Justice Panel consists of Justices Lloyd, Goodman, and Landau.