Bally Total Fitness Corp. v. Jackson

53 S.W.3d 352, 2001 WL 391636

• Court: Texas Supreme Court
• Decided: September 27, 2001
• Docket: 99-1002
• Status: Published

Opinions

Justice O’NEILL

delivered the opinion of the Court,

joined by Chief Justice PHILLIPS, Justice ENOCH, Justice BAKER, and Justice HANKINSON.

A party may not appeal an interlocutory order unless authorized by statute. Cherokee Water Co. v. Ross, 698 S.W.2d 363, 365 (Tex.1985) (per curiam). Section 51.014(a)(3) of the Texas Civil Practice and Remedies Code allows a party to appeal an interlocutory order that certifies or refuses to certify a class action. Tex. Civ. Prac. & Rem.Code § 51.014(a)(3). In De Los Santos v. Occidental Chemical Corp., 933 S.W.2d 493, 495 (Tex.1996), we held that an interlocutory order that changed a certified class from opt-out to mandatory and created conflict between the class and its counsel altered the fundamental nature of the class and was appealable under the statute.

In this case the trial court certified a class, but that order is not the subject of this appeal. Rather, the defendant, Bally Total Fitness, seeks to appeal three subsequent interlocutory orders. The first order granted a partial summary judgment holding that Bally had charged certain customers an illegal time-price differential. The other two orders overruled Bally’s two motions to decertify the class. We must decide whether the combined effect of these orders meets the De Los Santos test for interlocutory-appeal jurisdiction. We hold that it does not. Whether or not the trial court abused its discretion in issuing the orders Bally seeks to appeal, which we do not decide, those orders do not alter the fundamental nature of the class as De Los Santos requires. Accordingly, we affirm the court of appeals’ dismissal for want of jurisdiction.

I

Keith Jackson filed this class action against Bally claiming that it charged certain customers amounts that exceeded the maximum time-price differential permitted by the Texas Consumer Credit Code. See Tex.Rev.Civ. Stat. art. 5069-6.02(9)(a) (repealed) (current version at Tex. Fin.Code § 345.055(a)). Jackson also claimed that Bally was liable under the Texas Deceptive Trade Practices Act for unconscionable conduct and for representing that an agreement conferred rights and obligations prohibited by law. See Tex. Bus. & Comm.Code §§ 17.50(a)(3), 17.46(b)(12). In 1995, the trial court certified an opt-out class under Rule 42(b)(4) of the Texas Rules of Civil Procedure. Bally appealed the certification order, but the court of appeals affirmed the trial court. See Health & Tennis Corp. of Am. v. Jackson, 928 S.W.2d 583, 592 (Tex.App.—San Antonio 1996, writ dism’d w.o.j.).

Discovery disputes concerning potential class membership arose after the certification, delaying the delivery of notice.¹ As a result, notice had not been sent when Jackson moved for partial summary judgment on the liability issue. The trial court granted Jackson’s motion and ruled that Bally had violated the Texas Consumer Credit Code and the DTP A. Bally then moved to decertify the class, complaining that the partial summary judgment should not have preceded notice to the class members.² The trial court issued two orders denying the motions.

Bally filed an appeal and a petition for writ of mandamus with the court of appeals. The writ of mandamus was denied, and the appeal proceeded. After oral argument, the court of appeals dismissed the interlocutory appeal for want of jurisdiction. 2 S.W.3d 327. Bally filed both a petition for writ of mandamus and a petition for review in this Court. We denied the writ of mandamus, 43 Tex. Sup.Ct. J. 609 (April 13, 2000), but granted the petition for review to consider whether the court of appeals correctly decided its jurisdiction. See Long v. Humble Oil & Refining Co., 380 S.W.2d 554, 555 (Tex.1964) (holding that this Court has jurisdiction to review whether the court of appeals had jurisdiction).

II

By statute, a party may appeal an interlocutory order that certifies or refuses to certify a class action. Tex. Civ. PRAC. & Rem.Code § 51.014(a)(3). The three interlocutory orders at issue here do not expressly certify or refuse to certify a class. Rather, one grants a partial summary judgment and the other two refuse to de-certify the class. Bally concedes this point, but argues that De Los Santos broadened the statute’s reach so that an appeal lies from any order that changes the fundamental nature of the class. Bally offers several reasons why the trial court’s orders altered the class’s fundamental nature. Before addressing Bally’s arguments, we examine the facts presented in De Los Santos.

In De Los Santos, plaintiff Grant filed suit against OxyChem and others for injuries caused by a butadiene plant’s accidental chemical release. Other plaintiffs intervened and the defendants, facing hundreds of personal injury suits, successfully moved the court to certify a mandatory class over the plaintiffs’ vigorous objections. Grant and others appealed the certification, but a group of over 500 plaintiffs represented by attorney Gonzalez did not join in the appeal even though they had initially opposed the certification. While appeals of the certification order were pending, the case was transferred to another court. The new court granted the plaintiffs’ motion to reconsider and certified the class as an opt-oiit class. The Gonzalez plaintiffs and others opted out, and the Grant plaintiffs proceeded to trial.

The jury found defendants to be negligent and grossly negligent, and awarded actual damages. Before proceeding to the punitive damages phase of the trial, the defendants offered to settle for $65,700,000 provided that a mandatory class was certified and approved by the trial court. The class counsel, who had previously opposed a mandatory class, accepted and joined the defendants in convincing the court to modify the class by changing it from an opt-out class to a mandatory settlement class. This was done over the objection of those plaintiffs who had rejected class counsel’s representation by opting out and not participating in the trial.

The court of appeals dismissed the objecting plaintiffs’ appeal for want of jurisdiction, relying upon Pierce Mortuary for the proposition that an order changing the size of a class merely modifies a certification order and does not qualify as an “order certifying or refusing to certify a class.” See Pierce Mortuary Colleges, Inc. v. Bjerke, 841 S.W.2d 878, 880-81 (Tex.App.—Dallas 1992, writ denied). But we held that the interlocutory order at issue in De Los Santos did more than simply change the size of the class: “[cjhanging a class from opt-out to mandatory does not simply enlarge its membership; it alters the fundamental nature of the class.” 933 S.W.2d at 495. In reaching our decision we voiced concern about conflicts that may arise between the class and its counsel, particularly with regard to settlement. We noted that “[t]o deny interlocutory appeal in this situation, when class counsel agrees to a fundamental restructuring of the class to which they were once opposed, aggravates those concerns.” Id.; see also Gen. Motors Corp. v. Bloyed, 916 S.W.2d 949, 953-54 (Tex.1996) (noting “special concerns” raised by settlement classes).

Our narrow ruling in De Los Santos comports with the Legislature’s intent that section 51.014 be strictly construed as “ ‘a narrow exception to the general rule that only final judgments and orders are ap-pealable.’ ” Montgomery County v. Fuqua, 22 S.W.3d 662, 665 (Tex.App.—Beaumont 2000, pet. denied) (quoting Tex. Dep’t of Transp. v. City of Sunset Valley, 8 S.W.3d 727, 730 (Tex.App.—Austin 1999, no pet.)); America Online, Inc. v. Williams, 958 S.W.2d 268, 271 (Tex.App.—Houston [14th Dist.] 1997, no pet.). In Stary v. DeBord, for example, we rejected the argument that a corporate-shareholder derivative claim, even though closely resembling a class action, fit within the statutory language. 967 S.W.2d 352, 353-54 (Tex.1998) (per curiam). Similarly, the statute does not authorize an appeal of an order merely enlarging the size of a class, Pierce Mortuary, 841 S.W.2d at 880-81, or an order modifying a class’s definition, Koch Gathering Systems, Inc. v. Harms, 946 S.W.2d 453, 455-56 (Tex.App.—Corpus Christi 1997, writ denied).

Nevertheless, Bally argues that we should extend De Los Santos to cover an interlocutory order that makes it less likely that class members will opt out. According to Bally, because the partial summary judgment resolved liability in the plaintiffs’ favor, the potential class members’ incentives to opt out have been virtually eliminated; thus the class, while nominally an opt-out class, is actually a de facto mandatory class. Bally also argues that the pre-notice partial summary judgment invites impermissible one-way intervention. “One-way intervention” refers to the practice of permitting class members to intervene after the court has decided the merits in their favor, although they would not have been bound by an adverse decision. See 28 U.S.C. app. at 604 (1988). According to Bally, the Advisory Committee drafters intended Rule 23(c)(3) of the Federal Rules of Civil Procedure to eliminate this practice by allowing a judgment to bind only class members who have received notice and not opted out: “Under proposed subdivision (c)(3), one-way intervention is excluded; the action will have been early determined to be a class or nonclass action, and in the former case the judgment, whether or not favorable, will include the class....” Id. The corresponding Texas class-action rule, Rule 42(c)(3), tracks the language of Federal Rule 23(c)(3). Tex.R. Civ. P. 42(c)(3). From this, Bally infers that Rule 42(c)(3) also prohibits one-way intervention. Bally contends that the trial court’s pre-notice partial summary judgment effectively permits one-way intervention and violates Rule 42(c)(3). Bally claims that allowing one-way intervention also violates the Texas Constitution’s open courts clause and the federal and state constitutions’ due process and equal protection clauses. Bally concludes that these alleged violations implicate the concerns that underlay our De Los Santos decision.

The crux of Bally’s arguments is that De Los Santos authorizes appeals whenever interlocutory orders create incentives for class members to stay in an opt-out class. At the outset, we question Bally’s underlying premise that the trial court’s partial summary judgment implicates one-way intervention because it will cause potential class members to remain in the class. Bally itself acknowledges that “absent class members who opt out could recover seventeen times more damages than by staying in the class.” This is due to the $100,000 penalties cap that applies to class action litigation. Compare Tex. Fin.Code § 349.001 (allowing a plaintiff in an individual action to recover twice the total time-price differential contracted for as a penalty, without regard to the size of his actual damages) with Tex. Fin.Code § 349.403 (limiting members of a plaintiff class to actual damages plus their proportionate share of the maximum class action penalty of $100,000). The class notice that the trial court has approved notifies the class members accordingly: “Because Texas law limits the amount of penalty which may be awarded in a class action, you may be able to receive a greater recovery if you exclude yourself from the class.” Thus, contrary to Bally’s argument, it does not appear that absent class members’ incentive to opt out has been eliminated by the pre-notice partial summary judgment.

But even if that were so, any incentive to stay in the class that might result from the trial court’s order would affect only the size of the class, not its fundamental nature. And in De Los Santos we said that simply enlarging the class’s membership is not enough. 933 S.W.2d at 495. Importantly, De Los Santos was not about strategic opting in, which is what Bally complains of here. It was about forcing plaintiffs who had already opted out into a mandatory settlement class. The law does not permit plaintiffs in a mandatory class to opt out, even if they have every incentive to do so. Thus, the plaintiffs lost their ability to opt out and were forced into a class and a settlement against their will.

By contrast, the Jackson class members face no legal bar to opting out as a result of the pre-notice partial summary judgment. Nor are they forced into a class against their will. And unlike the De Los Santos class members, the class members here have not been forced into a conflict with class counsel. The trial court’s orders do not change the nature of the class, nor do they affect class members’ relationships with each other or with class counsel. We conclude that De Los Santos cannot be extended to the present case, which does not implicate any of De Los Santos ’ concerns.

The dissent states emphatically that a class can never be certified or maintained after any merits decision favoring a plaintiff because of the resulting potential for one-way intervention. Yet it fails to explain how the trial court’s orders here alter the class’s fundamental nature as required by De Los Santos. That the order might be wrong (which we do not decide) does not make it appealable, else all alleged irregularities in a class-action suit would be immediately subject to review. Under the dissent’s analysis, any order denying a motion for reconsideration of a class certification alleging that the class did not meet the requirements of Rule 42 would be subject to interlocutory review. Whether or not orders that might create the potential for one-way intervention are prohibited, as Bally claims, the question presented is whether any such prohibition may be remedied by interlocutory appeal under our statute’s limited jurisdictional grant. And whether or not the trial court’s order here impermissibly created an incentive for potential class members to opt in, which is far from clear, it changed nothing about the class itself.

Moreover, we question the dissent’s sweeping assertion that any pre-notice merits determination favoring the plaintiff requires decertification. None of the cases the dissent relies upon establishes such a per se rule. To the contrary, those cases reveal that the federal courts have declined to proclaim a bright-line rule outside the context of the case’s background or procedural posture.³ See Newberg on Class Actions § 7.15 at 7-54 (3d ed.) (“Whether summary dispositions on the merits, before a class ruling, may be proper in a Rule 23(b)(3) class action is unsettled.”). These decisions are consistent with the broad discretion afforded district courts in certifying and managing class actions. See In re Nissan Motor Corp. Antitrust Litig., 552 F.2d 1088, 1096 (5th Cir.1977).

In Schwarzschild v. Tse, for example, the Ninth Circuit rejected the defendant’s request to order notice sent to class members almost six months after the defendant’s summary judgment motion was granted. 69 F.3d 293, 297 (9th Cir.1995). The court specifically left open the question whether certification and notice may proceed in cases in which the plaintiffs have prevailed on summary judgment. Id. at n. 4. In reserving that question, the court referred to Postow v. OBA Federal Savings & Loan Ass’n, 627 F.2d 1370, 1383 (D.C.Cir.1980). There, the court observed: “[T]he present state of the law does not necessarily preclude class certification after a judgment on the merits ... there may be equitable reasons for allowing post-judgment certification in some cases.” Id. (emphasis added). The Postow court concluded that the trial court did not abuse its discretion in refusing to de-certify a class after rendering summary judgment in the plaintiffs’ favor, taking into account the complicated procedural history of the case. Id. at 1383-84. The court cited the following “equitable reasons” for allowing post-judgment certification in that case:

The class was originally certified before summary judgment was granted to the Postows on Count II (though the members of the class were not correctly identified and notified until after then); Oriental moved for summary judgment after the Postows had agreed to stay discovery on the identity of the potential class members only until a decision on Oriental’s motion to dismiss; and the notice to potential class members did not inform them as to the existence of any judgment in their favor, thus reducing substantially the “one way street” danger of post-judgment certifications.

Postow, 627 F.2d at 1383.

The procedural background in this case is remarkably similar. The class here was originally certified, and that certification was appealed and upheld, before partial summary judgment was granted to the plaintiffs. Moreover, the notice approved by the trial court does not inform potential class members of any judgment in their favor, thus reducing any potential danger from one-way intervention. In addition, Bally had earlier moved for summary judgment seeking dismissal of the class’s claims. Finally, the record suggests that Bally at least contributed to the delay in class notification, as plaintiffs claim; for example, on October 2, 1998, Bally was ordered to produce data about potential class members in electronically readable form, and more than seven months later had not yet complied. If we were deciding the merits of this appeal, we would take all of these considerations into account, as the Postow court did, in deciding whether the trial court’s orders were erroneous. But to review those orders on an interlocutory basis we must have jurisdiction, which simply does not exist under our limited legislative grant.

The dissent also states that the trial court’s refusal to decertify is the functional equivalent of a decision granting certification. But the Legislature has shown elsewhere in section 51.014 that it knew how to encompass such orders. Section 51.014(a)(4) allows an appeal from an order that “grants or refuses a temporary injunction or grants or overrules a motion to dissolve a temporal injunction as provided .by Chapter 65.” (emphasis added). The Legislature could have added similar language to Section 51.014(a)(3) and permitted appeals from orders refusing to de-certify a class, but did not. Rather, the Legislature specified that an appeal lies only from an order that “certifies or refuses to certify a class.” Tex. Civ. Prac. & Rem.Code § 51.014(a)(3). Moreover, though one court of appeals has allowed an interlocutory appeal of an order decertifying a class, see Grant v. Austin Bridge Constr. Co., 725 S.W.2d 366, 368-69 (Tex.App.—Houston [14th Dist.] 1987, no writ), there is a logical distinction between an order that grants a motion to decertify and an order that denies such a motion. While an order that grants a motion to decertify actually alters the original certification decision, an order refusing to decer-tify does not change the status quo. Cf. Gary v. Sheahan, 188 F.3d 891, 893 (7th Cir.1999) (holding that an order denying a motion to decertify a class is not subject to interlocutory appeal as an order refusing to certify a class under the federal rules). Allowing interlocutory appeals whenever a trial court refuses to change its mind and decertify a class would invite successive appeals and undermine the statute’s purpose of promoting judicial economy. See Walker v. Packer, 827 S.W.2d 833, 842 (Tex.1992) (noting the disruptive nature of mandamus review and stating that “the system cannot afford immediate review of every discovery order”); cf. Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 294 (1st Cir.2000) (noting in the context of appeals from class certification orders that “interlocutory appeals are disruptive, time-consuming, and expensive”). Thus, the trial court’s orders overruling Bally’s motions to decertify do not fit within the De Los Santos test for interlocutory-appeal jurisdiction.

III

Because Bally may still appeal after final judgment, its constitutional arguments concerning one-way intervention are premature. The only issue before us today is the court of appeals’ jurisdiction over this interlocutory appeal. The Legislature has carefully articulated which interlocutory orders may be appealed. We are bound by that policy choice. Accordingly, we affirm the court of appeals’ dismissal for want of jurisdiction.

Dissenting opinion by Justice OWEN, joined by Justice HECHT and Justice ABBOTT. Justice JEFFERSON did not participate in the decision.

1 . After these disputes were resolved and while the case was pending before this Court, the trial court approved a form notice but delayed its delivery until June 1, 2000. We granted Bally’s motion to stay delivery of notice pending resolution in this Court. 43 Tex. Sup.Ct. J. 767 (May 24, 2000).

2 . Bally petitioned both the court of appeals and this Court for a writ of mandamus to prevent the rendition of summary judgment before notice was sent to potential class members, but was unsuccessful. 2 S.W.3d 327, 329 n. 2.

3 . In Smith v. Shawnee Library System, the Seventh Circuit considered whether class members who had not yet received class notice were bound by a summary judgment favoring the defendant. 60 F.3d 317 (7th Cir.1995). The court held that they were not. Id. at 322. Although the court stated that “the class action status of the litigation is void,” that statement supported the court's conclusion that the class members were not bound. The court cited Gert v. Elgin National Industries, 773 F.2d 154 (7th Cir.1985), another case the dissent relies upon. But the Gert court did not hold that the class certification was void; rather, it set aside the district court's order granting summary judgment insofar as it purported to rule against the class members who had not received notice of the class action. Id. at 160.

Neither does Peritz v. Liberty Loan Corp. establish the bright-line rule the dissent advocates. 523 F.2d 349 (7th Cir.1975). There, the court expressly declined to decide "whether in all cases Rule 23(c) would bar certification subsequent to a decision on the merits.” 523 F.2d at 354 n. 4. Instead, the court set aside the class certification because the plaintiffs had obtained a favorable jury finding on the central liability issue before even seeking certification. Id. at 354-55. In contrast, the plaintiffs in the present case sought class certification and notice relatively early in the litigation, although discovery disputes and interlocutory appeals delayed class notice. In Philip Morris, Inc. v. National Asbestos Workers Medical Fund, the Second Circuit expressly noted that it did not “foreclose the possibility of a post-trial class certification.” 214 F.3d 132, 135 (2d Cir.2000). And in Premier Electrical Construction Co. v. National Electrical Contractors Ass’n, the issue was not the class’s validity, but whether a class member that had opted out of one class action in which a plaintiff class prevailed could rely on collateral estoppel in another lawsuit. 814 F.2d 358, 367 (7th Cir.1987). Finally, in Katz v. Carte Blanche Corp., the Third Circuit commented that "the judicial system may, by postponing class action treatment until a violation has been proved, avoid whatever time and expense it ... might have incurred in the preparation of [class] notice.” 496 F.2d 747, 760 (3d Cir.1974) (emphasis added).