Opinion
112,049.
07-17-2015
Phillys A. JOHNSON, Individually and on Behalf of All Others Similarly Situated, Appellees, v. MKA ENTERPRISES, INC., Appellant.
Kathryn A. Lewis and Stephen J. Torline, of Kuckelman Torline Kirkland & Lewis, of Overland Park, for appellant. A.J. Stecklein, of Consumer Legal Clinic LLC, of Kansas City, for appellees.
Kathryn A. Lewis and Stephen J. Torline, of Kuckelman Torline Kirkland & Lewis, of Overland Park, for appellant.
A.J. Stecklein, of Consumer Legal Clinic LLC, of Kansas City, for appellees.
Before MALONE, C.J., McANANY and SCHROEDER, JJ.
MEMORANDUM OPINION
PER CURIAM.
MKA Enterprises, Inc., d/b/a/ Legends Toyota (Legends), appeals the district court's decision to certify all the buyers of used cars from Legends after April 9, 2009, as a class under K.S.A.2014 Supp. 60–223(b)(1)(A) and (b)(3). We find the district court failed to rigorously analyze the requirements for class certification under K.S.A.2014 Supp. 60–223(b)(1)(A) and (b)(3), thereby abusing its discretion when it certified the class. We reverse the class certification under both K.S.A.2014 Supp. 60–223(b)(1)(A) and K.S.A.2014 Supp. 60–223(b)(3) and remand for further proceedings.
Facts
On May 20, 2010, Phillys A. Johnson purchased a 2008 Hyundai from Legends. Johnson was unable to purchase a car from several other dealerships because she could not qualify for financing. Johnson looked at three cars at Legends and qualified to finance a Hyundai based on her credit history and the down payment she wanted to make. Johnson purchased the car for $10,160. Legends claims the National Automobile Dealers Association (NADA) or “Bluebook” value of the car was $12,825. Johnson also traded in a Lumina in poor condition for $1,000. Legends had to tow the Lumina to its dealership and ultimately sold it for $275.
Johnson's purchase transaction involved two documents, a purchase agreement and a retail installment sale contract (RISC). The purchase agreement failed to disclose the Hyundai was previously a rental car. In a block of text below the buyer's signature line, the form contained three checkboxes for seller disclosures indicating whether the car was (1) used in drivers education, (2) previously a rental or leased car, or (3) a factory buyback or “lemon.” Johnson's purchase agreement did not have any of the boxes checked. Below the checkboxes, the form contained the following paragraph:
“ * * If no boxes are checked, to the best of Seller's knowledge, information, and belief, the Vehicle has not been used as a driver training motor vehicle, or a leased or rented motor vehicle, is not a factory buyback motor vehicle, and has not been returned pursuant to the Kansas ‘Lemon Law’[.]”
The purchase agreement contained a class action waiver and arbitration clause, but the RISC did not. The purchase agreement stated that if there were any inconsistencies between the two documents, the RISC would control. In June 2010, Legends began using a new RISC that included a class action waiver and arbitration clause.
While researching a different legal claim against the dealership that sold her the Lumina, Johnson discovered the Hyundai was previously a rental car. Johnson claims she would have “tried to see if [she] could have got it a little cheaper” if she had known it was previously a rental car. Johnson's expert's affidavit states rental and/or personal lease cars are worth about 10 to 15% less on an industry-wide basis than nonrental or nonlease cars. Johnson admits she was not induced to buy the car because the boxes were not checked, as the decision was made to buy the car when she obtained credit approval. Johnson also admits she glanced over the purchase agreement and did not pay attention to the lease/rental boxes in the purchase agreement. She was happy she qualified to buy the car with Legends' help.
Johnson filed suit against Legends in Wyandotte County District Court on April 4, 2012, raising three claims under the Kansas Consumer Protection Act, K.S.A. 50–623 et seq. (KCPA). She alleged Legends engaged in deceptive acts or practices in violation of K.S.A.2014 Supp. 50–626 and unconscionable acts or practices in violation of K.S.A. 50–627. Johnson also raised a claim of presumptively deceptive acts or practices under K.S.A. 50–659(a)(2), (c).
Legends sought to have Johnson's suit arbitrated, but the arbitrator returned the claims to the district court because the RISC, which purported to control over the purchase agreement, did not have a class-action waiver. Johnson then sought class certification. After receipt of the proffered evidence, the district court certified Johnson's class as both a K.S.A.2014 Supp. 60–223(b)(1)(A) and a K.S.A.2014 Supp. 60–223(b)(3) class. The class certified by the district court was defined as:
“All natural persons to whom Defendant sold a used motor vehicle with a lease or rental history since April 4, 2009, and whose Buyer's Order contract did not include a checkmark in the box indicating: ‘The Vehicle was used as a leased or rented motor vehicle.’ “
At the same hearing, the district court granted partial summary judgment in favor of Legends as to Johnson's presumptively deceptive acts or practices claim because Johnson was not the first purchaser of the Hyundai car. See K.S.A. 50–659(b)(2)(A).
On July 7, 2014, Legends timely sought interlocutory review of the district court's decision to certify the class.
Analysis
“The class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Hansberry v. Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 85 L.Ed. 22 (1940). “Class actions also may permit plaintiffs to pool claims which would be uneconomical to litigate individually.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985).
The district court certified the class as both a K.S.A.2014 Supp. 60–223(b)(1)(A) and a K.S.A.2014 Supp. 60–223(b)(3) class. Here, we choose to move straight to the analysis of whether the evidence to support class certification under K.S.A.2014 Supp. 60–223(b)(1)(A) and (b)(3) was rigorously analyzed by the district court. We will discuss each separately when necessary, but for the most part we will discuss them together. Generally, a(b)(1)(A) certified class is a closed (non-opt-out) mandatory class and a(b)(3) certified class is generally an open (opt-out) class. See Anderson Office Supply v. Advanced Medical Assocs., 47 Kan.App.2d 140, 161–62, 273 P.3d 786 (2012).
Legends argues class certification was not appropriate under K.S.A.2014 Supp. 60–223(b)(1)(A) and (b)(3) because multiple fact questions exist to destroy the viability of the class. Specifically, Legends characterizes the district court's ruling as conclusory and suggests Johnson only “had to prove ... that Legends failed to check the box on the purchase agreement” in order to have the class certified. In further support, Legends provides examples of individualized fact questions that it believes need to be proven, including whether Legends knowingly made a misrepresentation to each class member and whether each class member actually relied on that misrepresentation. Johnson argues common factual issues predominate in the allegations she made to establish her proposed class and Legends' purportedly individualized questions of fact are “red herrings.” But “[c]lass certification is purely procedural, and the issue at a class certification hearing is whether the class action is procedurally preferable, not whether any of the plaintiffs will be successful in urging the merits of their claim.” Critchfield Physical Therapy v. The Taranto Group, Inc., 293 Kan. 285, Syl. ¶ 4, 263 P.3d 767 (2011).
Before proceeding with our analysis, we will set out our standard of review.
Standard of Review
As we consider our standard of review involving class action proceedings, we are guided by:
“ ‘Trial judges are afforded substantial discretion in determining whether a class should be certified.’ Bigs v. City of Wichita, 271 Kan. 455, 477, 23 P.3d 855 (2001). As we noted in Saucedo v. Winger, 252 Kan. 718, 730–32, 850 P.2d 908 (1993), “ ‘the amount and degree of judicial discretion will vary depending on the character of the question presented for determination.’ “ 252 Kan. at 731 (quoting Wallach, Judicial Discretion: How Much, in Judicial Discretion 12 [Smithbum 1991] ). In general, when a discretionary decision is made ‘within the legal standards and takes the proper factors into account in the proper way, the [trial court's] decision is protected even if not wise.’ Davis, Standards of Review: Judicial Review of Discretionary Decisionmaking, 2 J.App. Prac. & Process 47, 59 (2000). However, ‘[a]buse is found when the trial court has gone outside the framework of legal standards or statutory limitations, or when it fails to properly consider the factors on that issue given by the higher courts to guide the discretionary determination.’ [Citations omitted.]” Dragon v. Vanguard Industries, Inc., 277 Kan. 776, 779, 89 P.3d 908 (2004).
Class Certification
Class certification is controlled by Kansas statute. K.S.A.2014 Supp. 60–223(a) establishes the initial conditions that must be satisfied to certify a class as follows:
“Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members 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.”
The analysis under K.S.A.2014 Supp. 60–223(a) for both a K.S.A.2014 Supp. 60–223(b)(1)(A) class, which is designed to avoid “inconsistent or varying adjudications with respect to individual class members,” and a K.S.A.2014 Supp. 60–223(b)(3) class, which finds the class is the predominate and superior method to manage the class, is the same. Without considering whether the four prerequisites required by K.S.A.2014 Supp. 60–223(a) have been met by the appellee, we move onto the ultimate issue before us: Was certification of this class by the district court as both a K.S.A.2014 Supp. 60–223(b)(1)(A) and a K.S.A.2014 Supp. 60–223(b)(3) class proper?
Before certifying a class, the district court “must give careful consideration to and conduct a rigorous analysis of the prerequisites imposed by K.S.A. [2014] Supp. 60–223.” Dragon, 277 Kan. at 783. In determining whether a movant has met the burden of proof, the district court is not required to accept the class allegations as true. 277 Kan. at 780–81. The district court “must discern what common legal and factual issues lie at the heart of the dispute. [Citation omitted.]” Edington v.R.G. Dickinson and Co., 139 F.R.D. 183, 188 (D.Kan.1991).
When considering whether to grant class certification, the district court “should consider evidence when submitted by the parties and make those factual determinations necessary to a determination of whether the prerequisites for a class action are met.” Dragon, 277 Kan. at 783. Often, this analysis will “overlap with the merits of the plaintiff's underlying claim” because the “ “ ‘class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action.’ “ [Citations omitted.]” Wal–Mart Stores, Inc. v. Dukes, 564 U.S., 131 S.Ct. 2541, 2551–52, 180 L.Ed.2d 374 (2011). With this instruction in mind, we will analyze the district court's decision by giving consideration to the “factual and legal issues comprising the plaintiff's cause of action” in granting class certification as both a K.S.A.2014 Supp. 60–223(b)(1)(A) and a K.S.A.2014 Supp. 60–223(b)(3) class. In other words, the district court must carefully consider how each class member's claim, based on factual and legal issues, will have to be resolved. Would resolution of the claims be easier in a class action or by individual causes of action? In a class-action lawsuit, the named representative of the class assumes the burden of proving the total class-wide damages rather than the individual damages of each member of the class. Gilley v. Kansas Gas Service Co., 285 Kan. 24, 29, 169 P.3d 1064 (2007).
In its journal entry granting class certification, the district court mislabeled the paragraphs discussing K.S.A.2014 Supp. 60–223(b)(1)(A) and K.S.A.2014 Supp. 60–223(b)(3). We state this to confirm we considered the actual findings of the district court and not how the paragraphs were labeled. First, we will discuss the certification of the class under K.S.A.2014 Supp. 60–223(b)(1)(A) and then move on to discuss the district court's certification of the class under K.S.A.2014 Supp. 60–223(b)(3).
K.S.A.2014 Supp. 60–223(b)(1)(A) Class Certification
K.S.A.2014 Supp. 60–223(b)(1)(A) is defined by statute as follows:
“Prosecuting separate actions by or against individual members would create a risk of: (A) Inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class.”
Here, the district court granted class certification as a(b)(1)(A) class to avoid the opportunity for inconsistent results. The question over the potential for inconsistent results from individual litigation versus class litigation can be a concern equally applicable to both parties. See Critchfield, 293 Kan. at 302. Here, we must consider whether all the factual issues presented can be consolidated and resolved by the class or whether there is a need to address them individually for the benefit of each class member. Common experiences and facts reflect that car transactions are individual events where a transaction over similar cars, with the same options, with different buyers can, and often does, result in different prices being paid for the car. This is due to many factors including the negotiating ability of the car buyer; the buyer's credit worthiness; the value of his or her trade; and, according to car buying “lore,” whether the purchase is at the beginning, middle, or end of the month.
Because the process of purchasing a car is so fact-driven, the district court abused its discretion by failing to consider the volume of facts that would need to be established by each class member in order to determine his or her damages, if any, in a class action proceeding. Here, the legal issue over class certification is very similar to the legal issue addressed by our Supreme Court in Finstad v. Washburn University, 252 Kan. 465, 845 P.2d 685 (1993), and Legends makes this very point by directing our attention there. Finstad involved a class-action claim of misrepresentation by students in the court reporting program at Washburn University. In Finstad, our Supreme Court concluded that absent a causal connection between the alleged deceptive practice and injury, the class member cannot recover in a civil action pursuant to K.S.A 50–634(b). 252 Kan. at 474. The Supreme Court went into a lengthy discussion about statutory construction and found K.S.A. 50–634(b) did not support the students' claims against Washburn. See 252 Kan. at 470–74. K.S.A. 50–634(b) states: “A consumer who is aggrieved by a violation of this act may recover, but not in a class action, damages or a civil penalty as provided in subsection (a) of K.S.A. 50–634 and amendments thereto, whichever is greater.”
Washburn University offered a court reporting program. All the class members in Finstad were enrolled in the program and alleged Washburn violated the KCPA pursuant to K.S.A. 50–634(b) by representing the program as accredited by the National Shorthand Reporters Association in a course catalogue, and it was not. “Many of the [students] enrolled prior to the publication of the 1987–88 catalogue or enrolled without knowledge of the error in the catalogue.” 252 Kan. at 467. The students claimed that they were aggrieved because they paid tuition for a program that was not accredited, but they [did] not claim that they were induced to enroll in the program by the false statement that it was accredited.” 252 Kan. at 467.
In analyzing K.S.A. 50–634(b), the Supreme Court extensively discussed the need for the consumer to be aggrieved to have a remedy to pursue a claim under the KCPA. The Finstad court defined aggrieved using Black's Law Dictionary as “having suffered a loss or injury.” 252 Kan. at 471–72. The court then found that even though the misstatement by Washburn was a per se violation of the KCPA, that did not mean the students could recover absent a showing that they were “ ‘aggrieved by’ “ such violation. 252 Kan. at 471. The same applies for Johnson's class action claim against Legends. Factually, the claims here are similar as Johnson has acknowledged many, if not most, of the class members were not aware a box or boxes were not checked on the purchase agreement he or she executed at the time of purchase.
Although Finstad is factually similar, there is one distinction and that is the Washburn students signed nothing involving the false claim by Washburn, whereas Legends had all of the buyers sign the purchase agreement. Our Supreme Court in Finstad found that to be aggrieved under K.S.A. 50–634(b), the consumer must be aware of and damaged by the violation of the Act. 252 Kan. at 473. It is hard to flush out, with the nature of Johnson's negotiations involving what she paid for her Hyundai and what she received for her trade-in, whether Johnson suffered an “injury or loss.” Given how unique each car buying transaction is for each class member, he or she must be aggrieved to have a cause of action under the KCPA. The evidence to establish this causal connection will vary from class member to class member and compounds the difficulty in managing the class. Generally, the causal connection/reliance element under the KCPA will destroy most class certifications because of the individualized fact issues. Benedict v. Altria Group, Inc., 241 F.R.D. 668, 677–80 (D.Kan.2007). Here, Johnson admits she did not rely on or consider whether the boxes were checked and freely admits the other class members probably did the same thing. Johnson has failed to show her reliance or that the other class members relied on the boxes not being checked.
Finally, we note that by granting a(b)(1)(A) class certification, each individual class member who has a cause of action under K.S.A. 50–659 to claim a presumptive deceptive acts and practices violation by Legends would lose that opportunity since the district court granted Legends summary judgment on that issue. Moreover, class certification would deny individual claimants the opportunity to seek his or her actual damages or a civil penalty, whichever is greater. See K.S.A. 50–634(b). From the record before us, the potential for civil penalties could be up to $10,000 per transaction pursuant to K.S.A. 50–636(a), plus the right for attorney fees pursuant to K.S.A. 50–634(e)(1). As the Supreme Court said in Walmart Stores, Inc., 131 S.Ct. at 2558, the reason for allowing a class action under Federal Rule of Civil Procedure 23(b)(1) is that “individual [lawsuits] would be impossible or unworkable.” Given the fact issue presented here, individual lawsuits are not impossible or unworkable. In fact, they are more than likely the only way to show the car buyers were aggrieved by reliance on the fact the boxes were not checked.
For the reasons stated above, the district court abused its discretion by failing to rigorously analyze the individual needs of each class member before certifying it as a K.S.A.2014 Supp. 60–223(b)(1)(A) non-opt-out class.
K.S.A.2014 Supp. 60–223(b)(3) Class Certification
Next, we turn our discussion to the district court's decision to also certify this class as a K.S.A.2014 Supp. 60–223(b)(3) class. K.S.A.2014 Supp. 60–223(b)(3) states:
“[T]he court finds that the questions of law or fact common to 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. The matters pertinent to these findings include: (A) The class member's interest in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.”
Generally, a(b)(3) class provides each class member the opportunity to opt out. Under this class type, the class as described must be a superior and predominate way to manage and prosecute the claims of the class members. Clearly, the questions of law over the application of the KCPA would be the same for all class members as to whether the class member has been “aggrieved” as previously discussed above and required by K.S.A. 50–634(b). The individual facts of each car transaction are distinct, and the amount of damages suffered, if any, is individual to each purchase transaction; therefore, class certification as a(b)(3) class is not the superior and predominate procedure to manage the class. Additionally, the individual facts of each class member's car buying experience creates uncommon facts to support the same amount of damages for each member and further denies the viability of a(b)(3) class. If the class, as certified, was allowed to stand, it would require conducting multiple mini-trials to develop and determine each class member's injury or loss, if any, and would be as time consuming, if not more so, as individual lawsuits prosecuted on their own. The need for mini-trials to determine individual damages destroys the class as a manageable, superior, or predominate procedure to resolve each member's damages, if any.
Here, Johnson's facts reflect how the car buying experience is unique. She had a difficult time qualifying for a loan; bought a car with an NADA value of $12,825 for a price of $10,160; and received $1,000 for her trade-in that Legends ultimately sold for $275. Clearly, Johnson's unique car buying experience reflects the determination of actual damages, if any, for a K.S.A.2014 Supp. 60–223(b)(3) class would not be easy to manage and would not offer a superior procedure to resolve the issues on behalf of each class member. The record reflects additional individual fact questions may need to be answered for each class member, and that cannot be efficiently done through a class action proceeding such as:
(1) Whether Legends knowingly made a misrepresentation to the class member;
(2) Whether the misrepresentation was relied upon;
(3) Whether the buyer was informed in some other way than by the purchase agreement the car was previously a rental car or a personal lease car;
(4) The value of the car bought;
(5) The value of the car traded in;
(6) Whether there was a trade-in;
(7) Whether the car bought was a rental or lease car; and
(8) Whether the buyer can show he or she was aggrieved.
Given the possible range of facts, this list could be extensive and exhaustive. Additionally, as discussed before, through class participation, all class members would lose the right to proceed under the KCPA for either actual damages or civil penalties, whichever is greater, plus attorney fees. See K.S.A. 50–634(b) and (e)(1). Thus, a(b)(3) class is not a superior or predominate method to resolve the KCPA-alleged violations.
The district court abused its discretion by failing to rigorously analyze how difficult this class would be to manage, given the absence of superior and predominate factors to support certifying the class as a K.S.A.2014 Supp. 60–223(b)(3) class.
Conclusion
Given the specific facts of this case—the individual nature of the car buying experiences and Johnson's failure to show a causal connection between Legends' failure to check the boxes and the class members' reliance and damage from the misrepresentation—the district court abused its discretion by failing to rigorously analyze whether the requirements of K.S.A.2014 Supp. 60–223(b)(1)(A) and (b)(3) were satisfied before certifying the class. We reverse the district court's class certification and remand to the district court for further proceedings on Johnson's individual claims. Since we are remanding this matter for further proceedings, we see no benefit in addressing Legends' other claims of error by the district court.
Reversed and remanded with directions.