Beatty v. Metropolitan St. Louis Sewer District

914 S.W.2d 791, 1995 WL 749571

• Court: Supreme Court of Missouri
• Decided: February 20, 1996
• Docket: 77985
• Status: Published

Opinions

PRICE, Judge.

In Beatty v. Metropolitan St. Louis Sewer District, 867 S.W.2d 217, 221 (Mo. banc 1993) (Beatty II), this Court declared that a rate increase by the Metropolitan St. Louis Sewer District (“MSD”) violated article X, § 22(a) of the Missouri Constitution. On remand, the St. Louis County Circuit Court, for the first time, found that the suit was brought by the three individual plaintiffs as a “representative taxpayer suit” and ordered MSD to credit all of its customers’ periodic bills as a method of refund. We reverse in part and remand. This lawsuit was not prosecuted by plaintiffs as a class action pursuant to Rule 52.08 of the Missouri Rules of Civil Procedure. Neither did the trial court follow the procedures of Rule 52.08 to assure the propriety of class action proceedings. It was error to adjudicate the rights and obligations of the approximately 420,000 MSD customers not before the court. As to the three individual plaintiffs, MSD has expressly waived sovereign immunity pursuant to its Ordinance Number 8657, section 12 (Ord. 8657, § 12). The case is remanded to the circuit court for credits in accordance with Ord. 8657, § 12.

I.

In 1954, St. Louis City and St. Louis County voters approved a plan establishing the Metropolitan St. Louis Sewer District (“MSD”) as a municipal corporation and political subdivision of the state. MSD provides an integrated sewer system for the City of St. Louis and most of St. Louis County. The MSD board of trustees has authority to impose ad valorem taxes and establish charges for sewer services, which it can enforce through liens against real property. MSD currently serves approximately 420,000 customers, including single and multifamily dwellings and commercial and industrial customers.

On May 13, 1992, MSD enacted Ord. 8657, that increased wastewater charges for one year, beginning on July 1, 1992. Relying on Keller v. Marion County Ambulance Dist., 820 S.W.2d 301 (Mo. banc 1991), MSD did not submit this 1992 increase for voter approval. On June 17, 1992, Respondents Richard Beatty, Walter A. Droege, Jr. and Jane Droege brought an action to enjoin the increase because MSD failed to submit the increased charges to voters as required by article X, § 22(a) of the Missouri Constitution. The Petition for Declaratory Judgment and Injunction filed on behalf of respondents did not make any allegations establishing a factual basis for a class action lawsuit pursuant to Rule 52.08.¹ Neither did the petition make any claim for class relief.

On June 29, 1992, the trial court held that the charges were not subject to the article X, § 22(a) requirements and did not issue the injunction. In our first review of this case, we held that the charges were subject to article X, § 22(a) and could not be increased without prior voter approval. Beatty II at 221. The standard mandate on remand ordered that the trial court judgment “be reversed, annulled and for naught held and esteemed, and that said appellants be restored to all things which they have lost by reason of the said judgment.”

On remand, no additional evidence was taken. In fact, the record fails to reflect that the three plaintiffs involved in this case actually paid any increase under the ordinance in question. It is unclear from the record whether a hearing was held. The record implies, instead, that upon written arguments the trial court found that prior to the effective date of the ordinance respondents filed their action as a “representative taxpayer suit”. Consequently, the trial court ordered MSD to refund (by crediting the customers’ periodic bills) the amount of the increased charges under the ordinance to all customers who paid the increased charges.

MSD appealed raising two basic issues. First, it argues that the trial court erred in treating this as a “representative” lawsuit. Second, it argues that it is protected from a money judgment by sovereign immunity. The plaintiffs did not cross appeal.

II.

The Missouri Rules of Civil Procedure provide a mechanism for the certification and conduct of class action lawsuits. Rule 52.08. See also § 507.070, RSMo 1994. The purpose of class action procedure is to facilitate litigation when the number of persons having interest in a lawsuit is so great that it is impractical to join them all as parties. Sheets v. Thomann, 336 S.W.2d 701, 709 (Mo.App.1960). In many cases this allows the accumulation of many relatively small but meritorious claims into a single suit that would otherwise not be pursued.

In his leading work on class action procedure, however, Herbert Newberg notes that “[hjistorically and under modern jurisprudence, a class action is a nontraditional litigation procedure_” 1 Herbert B. Newberg & Alba Conte, Newberg on Class Actions § 1.01 (3d ed. 1992). This is so because class action lawsuits are exceptions to the “cardinal principle of jurisprudence that one is not bound by a judgment in personam entered in litigation to which he was not designated as a party or made a party by service of process or entry of appearance.” Sheets at 709.

The impact of certification of a lawsuit as a class action is readily apparent. Individuals who did not initiate the litigation and who will have little or no practical control over the litigation nonetheless will be bound by its result. The potential increase in exposure to the defendant and the additional increase in the burden and cost of litigation to all parties may well overwhelm the substantive merits of the dispute.

The various provisions of Rule 52.08 have been carefully drafted to weigh these considerations and to assure that due process is maintained. The requirements of this rule are not merely technical or directory, but mandatory. State ex rel. Niess v. Junkins, 572 S.W.2d 468, 470 (Mo.1978); Moore v. City of Pacific, 534 S.W.2d 486, 493 (Mo.App.1976); Carl C. Wheaton, The New General Code for Civil Procedure and Supreme Court Rules Interpreted, 20 Mo.L.Rev. 383, 386 (1955).

There is no reference to Rule 52.08, whatsoever, in the named plaintiffs’ Petition for Declaratory Judgment and Injunction; neither is there any pleading of fact to support class action relief; neither is there any request for class action relief. The record reflects no attempt to amend this petition, nor any evidence introduced at any time in this lawsuit, that would indicate that class issues were considered or that the requirements of Rule 52.08 were established.

Only on remand after appeal did plaintiffs request a credit refund to all ratepayers.² In this regard, the trial court did make a finding of fact that this case was filed as a “representative taxpayer suit”. This finding, however, is not supported by the record, evidentiary or otherwise. Moreover, the only “representative” procedure by which such a lawsuit can proceed is in accordance with the class action provisions of Rule 52.08. Just as we found in State ex rel. Niess v. Junkins, 572 S.W.2d 468, 470 (Mo. banc 1978):

[Tjhere was no pre-trial order with reference to maintenance of this suit as a class action. There was no finding at any time as to compliance with the requirements of Rule 52.08(b) and there was no notice given to members of the class in accordance with Rule 52.08(c)(2). Consequently, we conclude that this case was not maintainable as a class action and the trial court erred in holding that it was. However, the suit is maintainable by the individual relators on their own behalf ...

Plaintiffs rely primarily upon State ex rel. Abeille Fire Ins. Co. v. Sevier, 73 S.W.2d 361, 367 (Mo. banc 1934), cert. denied, 293 U.S. 585, 55 S.Ct. 99, 79 L.Ed. 680 (1934), for authority that a trial court’s equitable power can be utilized to refund excess payments by ratepayers. Sevier, as Aetna Ins. Co. v. Hyde, 34 S.W.2d 85 (Mo. banc 1930), was a suit initiated by the superintendent of insurance in his official capacity and simply does not apply to litigation pursued by a private litigant. For the same reason, eases concerning litigation with the Public Service Commission are not helpful to plaintiffs. See State ex rel. Utility Consumers Council of Missouri, Inc. v. Public Service Commission, 585 S.W.2d 41 (Mo. banc 1979). The plaintiffs initiated this suit as private litigation. They were not empowered by any Missouri law, regulation, or rule of court to represent the interests of any other individuals.

Whether this type of an action is suited for class action procedure is certainly worthy of consideration. Such a determination, however, must occur in the proper course of a lawsuit. Plaintiffs did not establish either that this was a proper case for class certification or that they were proper class representatives pursuant to Rule 52.08.³ It was error for the trial court to order relief concerning individuals and entities who were not parties to the case.

III.

MSD also raised a number of different arguments concerning the defense of sovereign immunity. The right of the sovereign to immunity from suit has long been recognized in Missouri. It applies to tax moneys collected by the state. Although sovereign immunity may be waived, “it is the consent to be sued that is to be expressed in constitutional or statutory enactment or waived by voluntary appearance and submission to jurisdiction.” Kleban v. Morris, 863 Mo. 7, 247 S.W.2d 832, 837-38 (1952). In Page v. Metropolitan St. Louis Sewer District, 377 S.W.2d 348, 352 (Mo.1964), it was determined that the right of sovereign immunity extends to MSD.

Plaintiffs filed a lawsuit seeking declaratory relief and an injunction prior to payment of the increased sewer rates. This is an appropriate method to enforce the Hancock Amendment. Fort Zumwalt School Dist. v. State, 896 S.W.2d 918, 923 (Mo. banc 1995). Although the trial court initially did not rule in favor of the plaintiffs, Beatty II established that it should have done so. Accordingly, on remand we directed the trial court’s judgment “be reversed, annulled and for naught held and esteemed, and that said appellants be restored to all things which they have lost by reason of the said judgment.” This is because “[t]he successful appellant has the right to restitution of money lost by reason of the erroneous or void judgment.” State ex rel. State Highway Comm’n v. Morganstein, 588 S.W.2d 472, 477 (Mo. banc 1979).

In this case, we need not balance the court’s inherent power to impose such a remedy against the state’s right to be immune from suit. Nor do we need to determine whether the Hancock Amendment transcends the defense of sovereign immunity. Here, MSD has adopted an ordinance that provides in part:

Any funds owed by the District to any Person for any reason may be used by the District as a set-off against any charges owed by the Person to the District, whether delinquent or not.

The overpayment by any Person of any charges made by the District, shall be available and may be used by the District as a set-off of any unpaid or delinquent charges against such Person.

Ord. 8657, § 12.

The trial court referred to this ordinance in its Judgment and Decree and apparently tailored its relief in accordance with it. Within the context of this lawsuit, any increased payment of sewer rates by these plaintiffs would certainly constitute “overpayment” entitling them to a credit-refund under Ord. 8657, § 12. See Hackman v. Director of Rev., 771 S.W.2d 77, 81 (Mo. banc 1989) (holding that payment of a tax wholly unauthorized by law was an “overpayment”), cert. denied, 493 U.S. 1019, 110 S.Ct. 718, 107 L.Ed.2d 738 (1990). Although they might have done so, plaintiffs did not appeal their entitlement to any further relief, such as a direct and immediate refund of the excess rates paid with interest.

Accordingly, we remand this matter for a determination of the amount of the named plaintiffs’ overpayments, if any, and the just setoff to which the plaintiffs are entitled pursuant to MSD Ord. 8657, § 12.

IV.

In this opinion, we do not address whether the remainder of MSD customers are entitled to any setoffs in accordance with MSD Ord. 8657, § 12, or whether they are entitled to any relief beyond that provided by the ordinance. It is enough to say that substantial legal and policy arguments exist on both sides of this question. The other MSD customers were not parties to this lawsuit, and the lawsuit did not proceed under our rules in a manner that would have safeguarded both their rights and MSD’s rights regarding the determination of these issues. Therefore, any such ruling here would neither be wise nor just.

Plaintiffs argue that to so limit our holding will render this litigation “meaningless”. This is not so. Plaintiffs have obtained a ruling of this Court that MSD may not increase its sewer charges without an election. Plaintiffs also will receive a credit refund of the excess rates they paid, if any. As private litigants, they obtained all that they could request. At no place in their petition did plaintiffs seek to pursue this litigation on behalf of any defined class of individuals other than themselves. Even upon remand, they did not attempt to amend their petition to make such a request, or to establish by evidentiary hearing the propriety of an order designating them as class representatives. Plaintiffs in this proceeding have no right to complain on behalf of others for relief that others did not request or that others might consider inadequate.

V.

We reverse the portion of the judgment of the trial court insofar as it applies to any individuals or entities other than the named plaintiffs. We remand the case for a determination of the offset to which the named plaintiffs are entitled and for the awarding of the named plaintiffs’ attorneys’ fees and expenses in accordance with art. X, § 23 of the Missouri Constitution,

HOLSTEIN, C.J., BENTON and COVINGTON, JJ., and CROW, Special Judge, concur. ROBERTSON, J., concurs in part and dissents in part in separate opinion filed. LIMBAUGH, J., concurs in opinion of ROBERTSON, J. WHITE, J., not participating because not a member of the Court when cause was submitted.

1 . The text of Rule 52.08 provides:

(a) Prerequisites to a Class Action. 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.

(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

(1) the prosecution of separate actions by or against individual members of the class would create a risk of

(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or

(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or

(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or

(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual, members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;

(D) the difficulties likely to be encountered in the management of a class action.

(c)Determination by Order Whether Class Action to Be Maintained — Notice—Judgment— Actions Conducted Partially as Class Actions.

(1) As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this Rule 52.08(c)(1) may be conditional and may be altered or amended before the decision on the merits.

(2) In any class action maintained under Rule 52.08(b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice shall advise each member that: (A) the court will exclude the member from the class if requested by a specified date; (B) the judgment, whether favorable or not, will include all members who do not request exclusion; and (C) any member who does not request exclusion may, if desired, enter an appearance through counsel.

(3) The judgment in an action maintained as a class action under Rule 52.08(b)(1) or Rule 52.08(b)(2), whether or not favorable to the class, shall include and describe those whom the court finds to be members of the class. The judgment in an action maintained as a class action under Rule 52.08(b)(3), whether or not favorable to the class, shall include and specify or describe those to whom the notice provided in Rule 52.08(c)(2) was directed, and who have not requested exclusion, and whom the court finds to be members of the class.

(4) When appropriate an action may be brought or maintained as a class action with respect to particular issues or a class may be divided into subclasses and each subclass treated as a class, and the provisions of this Rule 52.08 shall then be construed and applied accordingly.

(d) Orders in Conduct of Actions. In the conduct of actions to which this Rule applies, the court may make appropriate orders:

(1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument; (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action; (3) imposing conditions on the representative parties or on intervenors; (4) requiring that the pleadings be amended to eliminate therefrom allegations as to representation of absent persons, and that the action proceed accordingly; (5) dealing with similar procedural matters.

The orders may be combined with an order under Rule 62, and may be altered or amended as may be desirable from time to time.

(e) Dismissal or Compromise. A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.

2 . Contrary to plaintiffs’ argument, the language used in the remand order "that the said appellants be restored” is expressly limited to the named plaintiffs.

3 . Judge Robertson’s dissent raises two concerns about the practicality of applying class action procedures to cases such as this. First, he fears that the notice requirements of subsection (c)(2) of Rule 52.08 would serve as an obstacle to potential plaintiffs and as a financial burden to the state. Second, he questions the legal effect of such a suit upon class members who opt out pursuant to that subsection.

Subsection (c)(2), however, by its own terms, applies only to class proceedings certified pursuant to subsection (b)(3) of the rule. Subsection (c)(2), and its various requirements, simply does not apply to class proceedings certified pursuant to subsections (b)(1) or (b)(2), which are probably preferable in this type of a lawsuit. Certification under subsection (b)(1) or (b)(2) does not require notification nor does it allow class members to opt out. See 1 Newberg on Class Actions, supra, § 4.14 and § 4.20.

Most significantly, however, Judge Robertson misunderstands that the role of class action procedure is to attempt to safeguard, not to frustrate, the rights of absent class members. Although he proposes a newly fashioned private "representative” lawsuit, he does not explain how such a lawsuit could proceed consistent with our principles of due process or who would protect the rights of the unnamed plaintiffs. Neither does he explain why class certification under our existing Rule 52.08(b)(1) or (b)(2) would not have worked well and accomplished all of the goals he seeks, if such certification had ever been requested. In short, it is not the role of the courts to fashion a new remedy at the completion of a lawsuit, even at the risk of disappointing a large number of individuals, when a private litigant chose not to pursue an already existing and adequate remedy at the beginning of the lawsuit.

It is ironic here that Judge Robertson seeks to affirm an award to class members that is inadequate in terms of his understanding of the Hancock Amendment. Instead of full and immediate refund of the overpayments with interest, the relief awarded by the trial court, and accepted by the named plaintiffs, was merely a periodic set-off, whatever that might turn out to be.