Opinion
Case No. 99-CV-720-S (H)
December 14, 2001
REPORT AND RECOMMENDATION
This breach of contract action is before the court on plaintiffs' motion for class certification (Doc. 28). The motion has been referred to the undersigned judge for a report and recommendation pursuant to 28 U.S.C. § 636 (b)(1)(B). For the reasons set forth below, the court recommends that plaintiffs' motion to certify this matter as a class action be DENIED.
Background
Plaintiffs are customers of Southwestern Bell Telephone Company (SWBT) who claim that SWBT breached the terms of an October 10, 1995 settlement agreement. The settlement agreement was entered into by SWBT, the Oklahoma Corporation Commission, the Attorney General of Oklahoma, the Communication Workers of America, and ATT Communications of the Southwest. The agreement resolved five appellate matters filed in the Oklahoma Supreme Court concerning Oklahoma Corporation Commission rulings (Cause 29321 and PUD-662). Under the settlement agreement, SWBT agreed to provide the following:
Plaintiffs' amended complaint also contained claims that SWBT engaged in fraud during settlement negotiations (Count II) and that punitive damages should be awarded (Count III). Judge Saffels dismissed Counts II and III and also rejected plaintiffs' attempt to bring this action on behalf of the state of Oklahoma. Memorandum and Order, Doc. 23, filed January 3, 2000. The only claims which survive are the breach of contract claims by "the individually named plaintiffs and the class of ratepayers whom they represent." Id. at page 13.
1. a one-time cash payment to SWBT customers totaling $170 million,
2. an $84.4 million annual SWBT revenue and rate reduction,
3. vouchers to SWBT customers totaling $268 million that could be redeemed for discounted and/or free services from SWBT, and
4. various educational, community, and economic development benefits totaling $35 million.
As summarized by plaintiffs, the gravamen of their complaint is that:
1. The $84.4 million rate or revenue reduction was never made by SWBT because the revenue reductions were already in effect or mandated prior to the date of the agreement and/or the reductions did not benefit the plaintiffs.
2. The vouchers for discounted and/or free services and other benefits lacked the value assured to the plaintiffs.See Plaintiffs' Brief in Support of Class Certification (Doc. 29, page 2). Plaintiffs seek to represent a class which would include all customers of SWBT as of October 10, 1995.
The parties agree that the one-time cash payment of $125 to each SWBT customer (totaling approximately $170 million) has been made.
Analysis
The determination of class certification is committed to the broad discretion of the trial court. See Anderson v. City of Albuquerque, 690 F.2d 796, 799 (10th Cir. 1982). In deciding whether to certify a class, the court must conduct a "rigorous analysis" of whether the proposed class satisfies the requirements of Fed.R.Civ.P. 23(a).General Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). A class action may only be certified if the "court is satisfied . . . that the prerequisites of Rule 23(a) have been satisfied." Id. "Whether a case should be allowed to proceed as a class action involves intensely practical considerations, most of which are purely factual or fact-intensive." Reed v. Bowen, 849 F.2d 1307, 1309 (10th Cir. 1988). The party seeking class certification is "under a strict burden of proof that all the requirements of [Fed.R.Civ.P.] 23(a) are clearly met." Reed, 848 F.2d at 1309.
In the evaluation of whether certification is proper under Rule 23, the court must not delve into the merits of the suit. Eisen v. Carlisle Jacquelin, 417 U.S. 156, 177-78 (1974). However, the court can go beyond the pleadings to the extent necessary to "understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues." Castano v. American Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996) (citing Manual for Complex Litigation § 30.11, at 214 (3d ed. 1995); Smith v. MCI Telecommunications, 124 F.R.D. 665, 676 (D. Kan. 1989) (the court often must, to some extent, analyze the elements of the claims and defenses of the parties in determining certification issues).
Unfortunately, SWBT devotes over half of its brief to issues related to the merits of plaintiffs' claims. That critique of the merits is not helpful to the decision of whether to certify a class action.
When deciding whether to grant certification, the court begins its analysis with consideration of the four threshold requirements listed in Rule 23(a). See Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir. 1988). That rule provides:
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.
Only after the requirements of Rule 23(a) have been met must the court examine whether plaintiffs are entitled to certification pursuant to Rule 23(b)(3). Analyses of the Rule 23(a) and (b)(3) requirements are set forth below.
I. Rule 23(a)
1. Numerosity and Impracticability of Joinder
Rule 23(a)(1) requires that "the class is so numerous that joinder of all members is impracticable." In support of this requirement, plaintiffs calculate that the number of class members is approximately 1,350,000, based on the settlement agreement. Defendants challenge neither the numerosity requirement nor the impracticability of joinder.The numerosity requirement is clearly satisfied. Furthermore, the sheer number of customers establishes that joinder is impracticable. Accordingly, Rule 23(a)(1) is satisfied.
2. Commonality
Rule 23(a)(2) mandates that there be "questions of law or fact common to the class." However, the commonality requirement in (a)(2) "is subsumed under, or superseded by, the more stringent Rule 23(b)(3) requirement that questions common to the class `predominate over' other questions." Amchen Prods., Inc. v. Windsor, 521 U.S. 591, 612 (1997); see also Harding v. Tambrands, Inc., 165 F.R.D. 623, 627 (D. Kan. 1996) (recognizing that commonality is subsumed within the predominance determination under Rule 23(b)(3)). Because plaintiffs seek to certify the class action under Rule 23(b)(3), the discussion of commonality is incorporated into the analysis of Rule 23(b)(3) requirements in section II below.
3. Typicality
Rule 23(a)(3) requires that the claims or defenses of the class representatives be typical of the entire class. "Typicality determines whether a sufficient relationship exists between the injury to the [class representatives] and the conduct affecting the class so that the court may properly attribute a collective nature to the challenged conduct."Zapata v. IBP, Inc., 167 F.R.D. 147, 160 (D. Kan. 1996) (quoting 1 Newberg on Class Actions § 3.13, at 3-76 (3d ed. 1992). To satisfy this requirement; the named plaintiffs must show that they possess the same interests and suffered the same injuries as the proposed class members. See Falcon, 457 U.S. at 156, 102 S.Ct. 2364. This requirement does not mandate, however, that the claims of the representative plaintiffs be identical to those of the other class members. The claims may be different factually but still typical if the claim "arises from the same event or practice or course of conduct that gives rise to the claims of other class members." Zapata, 167 F.R.D. at 160 (quoting Newberg, supra, § 3.13, at 3-76). Penn v. San Juan Hospital, Inc., 528 F.2d 1181, 1189 (10th Cir. 1975). "The consequence of typicality is that the named plaintiffs' interests are aligned with the proposed class and, in pursuing their own claims, the named plaintiffs will also advance the interests of the class." Emig v. American Tobacco Company, Inc., 184 F.R.D. 379, 386 (D. Kan. 1998) (citations omitted).
Plaintiffs have failed to carry their burden of clearly showing that their individual claims are typical of the class claims as required by Rule 23(a)(3). No information has been provided concerning the named plaintiffs except the solitary assertion that they were SWBT customers on October 10, 1995. As explained in greater detail below, the court is unable to determine from this barebones information that the representative claims are typical of class claims.
i. Rate and Revenue Reduction
Plaintiffs contend that they have a common interest with the class in recovering the "$84 million rate or revenue reduction" described in the settlement agreement. However, the $84 million rate adjustment was not an across-the-board adjustment for all Oklahoma ratepayers. Rather, the settlement agreement established nine different rate adjustments totaling $84 million. (See Appendix A). Because the individual plaintiffs offer no evidence concerning which of those nine rate adjustments apply to them, the court is unable to determine whether the representative claims are typical of the proposed class claims.
ii. $268 Million in Discount Vouchers
Plaintiffs do not dispute receipt of the discount vouchers as set forth in the settlement agreement (a $100 prepaid SWBT calling card and a $100 discount voucher for other SWBT services). But, plaintiffs do contend that the vouchers did not have the value stated in the agreement.
Again, because of the dearth of allegations or evidence, the court is unable to determine whether the named plaintiffs' claims concerning the discount vouchers are typical of the class claims. In addition to the lack of information concerning class representatives, the term "value" is not defined by the plaintiffs and the court is left to speculate whether the "value" of the coupons to the named plaintiffs is typical of the proposed class.
The discount coupons only had value if used in conjunction with SWBT services during a limited time frame (24 months after the vouchers were distributed on December 15, 1995). The value calculation of the vouchers and any shortage depends on the choices made by each class member.
iii. "Other Benefits"
The settlement agreement provides for educational, community, and economic development benefits totaling $35 million. The $35 million in benefits is based on SWBT's agreement to provide (1) free internet connections to public and private universities, colleges, high schools, libraries, and vo-tech schools sewed by SWBT for a limited period of time, (2) a $1 million contribution to an educational fund administered by the state of Oklahoma, and (3) $1.9 million to fund telecommunication centers in conjunction with the Oklahoma Department of Commerce. No showing has been made by the individual named plaintiffs as to how their claims are typical of the potential claims by educational centers, the state of Oklahoma, or the Oklahoma Department of Commerce.
In summary, plaintiffs have failed to sustain their burden of clearly showing that the Rule 23(a)(3) "typicality" requirement is satisfied.
4. Adequate Representation
Rule 23(a)(4) provides that a class action may be maintained only if "the representative parties will fairly and adequately protect the interests of the class." Adequate representation is measured by two factors: (1) plaintiffs' attorneys must be qualified, experienced, and able to vigorously conduct the proposed litigation; and (2) the named representatives' claims must be interrelated to and not antagonistic with the class claims. See Falcon, 457 U.S. at 157 n. 13; Edgington v. R.G. Dickinson Co., 139 F.R.D. 183 (D. Kan. 1991); Skeet v. Sears, Roebuck Co., 137 F.R.D. 347 (D. Kan. 1991). This requirement has particular significance because inadequate representation would implicate the due process rights of absentee class members bound by a final judgment in a class action. See Edgington, 139 F.R.D. at 190.
Although the claims of the named plaintiffs are not antagonistic to the class, the court is not persuaded that the claims of the named plaintiffs are so interrelated that plaintiffs will vigorously prosecute all class claims. See "Typicality" analysis, section I (3), pages 6-9. The named plaintiffs have no incentive to prosecute claims on behalf of educational institutions or the Oklahoma Department of Commerce.
The analyses of the commonality, typicality, and adequacy-of-representation requirements tend to overlap because they all involve an examination of the interrelationship between the claims of the class representatives and the claims of the class members. See Falcon, 457 U.S. at 157, n. 13.
In addition, the court is not persuaded that plaintiffs' counsel have demonstrated that the class action will be vigorously prosecuted on behalf of the proposed class with the requisite attention to detail necessary to satisfy class action due process requirements. For example, plaintiffs move to "certify a class in this matter consisting of all customers of defendant as of October 10, 1995." Motion For Class Certification, Doc. 28, page 1 (emphasis added). Despite the wording of the motion and plaintiffs' proposed class certification order, the proposed class clearly involves only SWBT ratepayers within the state of Oklahoma and not customers found in other states such as Kansas or Texas.
Plaintiffs' counsel also suggest that their expenses in prosecuting this class action will be minimal because notice of the class action can be deferred pending a ruling on their anticipated motion for summary judgment. Plaintiffs' Brief, Doc. 29, page 5. However, because class certification is proposed under Rule 23(b)(3), plaintiffs must provide notice to the individual class members advising them of their right to opt out of the class before the court rules on the merits of the case.See Rule 23(c)(2); Eisen, 417 U.S. at 176 ("individual notice to identifiable class members is not a discretionary consideration to be waived in a particular case. . . . There is nothing in Rule 23 to suggest that the notice requirement can be tailored to fit the pocketbooks of particular plaintiffs.") Plaintiffs' proposal to proceed on the merits of the case without notifying class members as required by Rule 23(c)(2) raises additional concerns regarding counsel's experience and ability to prosecute this case on behalf of 1,350,000 class members.
Moreover, the motion to certify the class action lacks the specificity and evidence necessary to support a request for class certification. The omissions and lack of detailed information are particularly disturbing given the size of the class (1,350,000 ratepayers) and the amount in controversy ($387 million). After considering the totality of the record, the court is not persuaded that plaintiffs have demonstrated that they will fairly and adequately protect the interests of the class as required by Rule 23(a)(4).
II. Rule 23(b)(3)
Even assuming that plaintiffs could satisfy the four requirements in Rule 23(a), the court finds that the requirements of Rule 23(b)(3) have also not been satisfied. Rule 23(b)(3) requires that questions of law or fact common to the members of the class predominate over any questions affecting only individual members and that this class action is superior to other available methods for the fair and efficient adjudication of the controversy. See Moore's Federal Practice, § 23.44 at 23-202 (3d ed. 2001).
In this regard, the court finds that individual issues of fact predominate over common questions of law and fact. While one common question of law is shared by all class members, i.e., whether SWBT breached the settlement agreement, the determination of whether each Oklahoma ratepayer received the benefits described in the agreement requires a factual determination unique to each customer. Specifically, the value of the discount vouchers to a particular customer depends on whether the customer elected to use certain SWBT services. Because this issue would require a separate inquiry and finding of fact for each class member, the certification of this class would not achieve economies of time, effort, and expense. Accordingly, plaintiffs' motion for class certification should be denied.
IT IS THEREFORE RECOMMENDED that plaintiffs' motion for class certification (Doc. 28) be DENIED.
A copy of the recommendation shall be served on the attorneys who have entered their appearance in this case. Pursuant to 28 U.S.C. § 636 (b)(1)(C) and Rule 72(b), the parties may serve and file written objections to the proposed findings and recommendations with the clerk of the district court within ten (10) days after being. served with a copy of this recommendation and report. Responses to objections shall be filed ten (10) days thereafter. Failure to make a timely objection to this report and recommendation waives appellate review of both factual and legal questions.
APPENDIX A * * *
H. Revenue and Rate Reductions
SWBT agrees to a revenue reduction of $84.4 million consisting of the following:
1. $31.9 million annual revenue impact associated with the implementation of the Tulsa, Oklahoma City, Lawton and Enid Wide Area Calling Plans (WACPs) in Cause Nos. PUD 899, 974, 975 and 1131, and the 40% expansion of certain WACPs ordered in Cause No. PUD 1177;
2. $6.9 million reduction in SWBT's annual toll revenues associated with the independent local exchange company (ILEC) make-whole provisions contained in the Joint Stipulation and Settlement Agreement (Toll Pool Stipulation) in consolidated Cause Nos. 920001213, 920001335 and 940000051, approved by the Commission in Order No. 382640, on April 19, 1994;
3. $10.3 million reduction in SWBT's annual revenue associated with its provision of Touch-Tone service as more fully described in Section II.I, hereinafter;
4. $4.9 million annual revenue reduction associated with the SWBT switched access rate reductions resulting from the Commission's authorization of limited intraLATA toll authority in Order No. 382799, issued April 22, 1994, in Cause Nos. PUD 890001159, et al., approving the Amended IntraLATA Toll Competition Joint Stipulation and Settlement Agreement (IntraLATA Competition Stipulation);
5. $8.9 million rate reduction to be applied to the SWBT access rate elements, as more fully described in Section II.M, hereinafter;
6. $5.0 million annual revenue reduction associated with the 800 compensation rate reduction required by the IntraLATA Competition Stipulation;
7. $8.1 million annual revenue reduction associated with the elimination of Outside Base Rate Area (OBRA) mileage charges as required by Cause No. RM 93000090 (RM-90) as more fully described in Section II.K, hereinafter;
8. $.6 million annual revenue reduction associated with the implementation of a Lifeline program as required by RM-90, as more fully described in Section II.L, hereinafter; and
9. A credit of $7.8 million associated with the network modernization requirements of PUD-662 and RM-90, as more fully described in Section II.J hereinafter.