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CLASS ACTION UPDATE by Robert Fugate, Associate

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1. Henry Schein, Inc. v. Stromboe, ___ S.W.3d ___, 2002 WL 31426407 (Tex. 2002).

Class action plaintiffs bringing fraud and related claims must individually prove the reliance element of such claims.

The trial court certified a nation-wide class action with 20,000 class members who had purchased software to be used in managing dentist’s offices. After a five day hearing, the trial court certified the class. Individual reliance is a required element of the plaintiffs’ fraud, negligent misrepresentation, promissory estoppel, and DTPA "laundry list" claims. The Texas Supreme Court held the trial court’s order did not specify how individual issues, like reliance, would be tried. The Court reviewed its holding in Bernal that class actions are a procedural device and do not alter a party’s burden of proof. Thus, the 20,000 dentist are held to the same standard of proof of reliance as if each had sued individually. The Court concluded the representative plaintiffs failed to demonstrate "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members." The trial court’s certification order was reversed and remanded for further proceedings.

2. State Farm Mutual Ins. Co. v. Lopez, ___ S.W.3d ___, 2002 WL 31426668 (Tex. 2002).

Class certification hearing does not require an evaluation of the merits of the plaintiff’s claims.

State Farm contended the intermediate court erroneously concluded Bernal’s "rigorous analysis" requirement applied only to predominance and commonality issues of class certification. Apparently, State Farm sought to have the trial court apply a rigorous analysis to the merits of the plaintiffs’ claims. The Texas Supreme Court held the intermediate court’s holding did not conflict with Bernal because "Bernal does not require a trial court to evaluate the merits of the plaintiff’s claims" during class certification. Because the intermediate court’s opinion did not create conflict, the Texas Supreme Court dismissed the petition for review for lack of jurisdiction.

3. Texas Commerce Bank, N.A. v. Grizzle, ___ S.W.3d ___, 2002 WL 31890895 (Tex. 2002).

If named plaintiff’s claim is dismissed, other putative class members cannot intervene.

Plaintiff brought suit against bank for allegedly devaluing a trust account through acts of self-dealing. The Bank obtained a summary judgment against the plaintiff. Plaintiff filed "amended petitions and purported interventions" attempting to add new class representatives. The Texas Supreme Court held the trial court properly granted summary judgment against the named plaintiff. Because the named plaintiff had no live claim, the Texas Supreme Court held that, "the trial court properly struck the amended petitions which sought to add new class representatives who could not possibly have a claim or defense in common with [the named plaintiff] who never had a claim." The Court added that the dismissal of the named plaintiff’s claim would have no effect on other putative class members.

4. Centex Homes v. Buecher, ___ S.W.3d ___, 2001 WL 34055991 (Tex. 2002).

Texas Supreme Court remanded homeowners claim to the trial court for determination of whether class action was proper based on alleged violations of implied warranties of habitability and good workmanship.

Homeowners purchased new homes from Centex and signed standard purchase contracts. The Contracts allegedly contained a one-year limited express warranty in lieu of the implied warranties of habitability and good and workmanlike construction. Homeowners sued Centex and sought to certify a class seeking, among other things, a declaration that Centex’s disclaimer of the implied warranties was not valid. The trial court concluded the homeowners could waive the implied warranties and struck all of the class action allegations.

The Texas Supreme Court, however, held the implied warranty of habitability could not generally be disclaimed. That warranty can only be disclaimed "in unique circumstances, such as when a purchaser buys a problem house with express and full knowledge of the defects that affect its habitability." The implied warranty of good workmanship may be disclaimed by the parties when their agreement provides for the "manner, performance or quality of the desired construction." The Texas Supreme Court remanded the case to the trial court for consideration of whether a class action was appropriate in light of the Court’s ruling on the controlling legal principles.

5. Monsanto Co. v. Davis, ___ S.W.3d ___, 2002 WL 31926371 (Tex. App.–Waco 2002, pet. filed)

Class representatives were not typical of unnamed plaintiff class because different defenses applied to the unnamed class members.

Texas farmers purchased genetically enhanced cotton seed from Monsanto. The seed would purportedly produce an insect-fighting protein. The farmers agreed to pay one price for the seed and an additional per-acre technology licensing fee, which was generally purchased on an open account. After the seed allegedly failed to perform, many farmers refused to pay the licensing fee. Monsanto threatened to assess an additional finance charge against the farmers. Plaintiffs brought a class action suit alleging usury, fraud, negligent misrepresentation, and other causes of action. Meanwhile, a national class action involving the sale of the cotton seed was settled out of state.

The Waco Court of Appeals held the plaintiffs could not meet the "typicality" requirement. In order for the class representatives to be typical of the unnamed class members, the representatives must possess the same interest and suffer the same injury as other class members. Although the Texas class representatives opted out of the national class action suit, the unnamed members did not opt out of the national suit. Suits by the unnamed class members were arguably barred by release, accord and satisfaction, and claim preclusion. Because further action by the unnamed members was arguably barred, the action brought by the class representatives was not typical. Therefore, the court of appeals decertified the class.

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If you have any questions about any of these cases or would like copies of specific cases, please contact Robert Fugate (RFugate@fhmlaw.com).

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© Fanning, Harper & Martinson, P.C., March 4, 2003.

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