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CLASS ACTION UPDATE by Dean Foster, Associate

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1. Griffin Industries v. Grimes, 2003 WL 1911993 (Tex. App. - San Antonio 2003, no pet.).

The Plaintiff’s pre-suit investigation of Defendants named in a class action suit was reasonable; therefore, a Defendant’s motion for sanctions for the alleged filing of a frivolous lawsuit was denied.

Plaintiff landowners filed a class action lawsuit alleging causes of action against several Defendants for the unauthorized, illegal, and/or negligent management and disposal of various hazardous chemicals and waste. Defendant Griffin Industries was one of many waste "generators" named in the suit. However, Griffin was non-suited because it did not have any involvement with the contaminated property.

More than two years later, Griffin filed an amended motion for sanctions and alleged Plaintiffs’ counsel filed a frivolous lawsuit against Griffin in violation of Tex. Civ. Prac. & Rem. Code § 10.0001. The trial court denied the motion for sanctions, and Griffin appealed. The court of appeals affirmed the trial court’s decision. Invoices produced in the lawsuit listed Griffin as a contributor of 314 drums of waste to the disposal site. The court held that under the circumstances of the case, the amount of investigation by Plaintiffs’ counsel was reasonable.

2. Phillips Petroleum Co. v. Bowden, 2003 WL 1988581 (Tex. App. - Houston [14th Dist.] 2003, no pet.).

Class certification was an abuse of discretion because the individual leases would have to be examined.

This case was an interlocutory appeal of the trial court’s class certification order. The trial court granted class certification to three subclasses of royalty owners who alleged that Phillips Petroleum has engaged in inter-affiliate transactions that resulted in the royalty owners being underpaid. The court of appeals reversed and remanded, holding that the trial court abused its discretion in granting the class certification. The court of appeals determined that the leases would have to be examined on an individual basis to determine which leases contain provisions expressly addressing Phillips’ duty to market gas. It would therefore be necessary for the jury to determine Phillips’ duties with regard to each individual lease, and then determine whether those duties were breached. The court held that even though it may not be economically feasible to pursue some of the claims outside of a class action, the trial court may only certify a class if the all the requirements of Rule 42 have been met.

3. Sandwich Chef of Texas, Inc. v. Reliance National Indemnity Ins. Co., 319 F.3d 205 (5th Cir. 2003).

It is an abuse of discretion to certify a class when issues of individual reliance will predominate.

Insured employer brought suit under the Racketeer Influenced and Corrupt Organizations Act (RICO), alleging the defendant casualty insurance companies charged excessive premiums on workers’ compensation insurance policies. The U.S. District Court for the Southern District of Texas granted Plaintiff’s motion for class certification. However, the Fifth Circuit Court of Appeals noted that RICO fraud cases require a showing of detrimental reliance by the plaintiff. In defense, the insurers would be entitled to the opportunity to demonstrate a lack of reliance by the individual Plaintiffs on the alleged misrepresentations in the invoices sent by the insurers. Therefore, the court held the class should not have been certified because in actuality issues of individual reliance and causation would predominate.

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If you have any questions about any of these cases or would like copies of specific cases, please contact Dean Foster (DFoster@fhmlaw.com).

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© Fanning, Harper & Martinson, P.C., July 2003.

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