Arkansas Supremes Reverse Trial Court That Relied on Expert Testimony (Gasp!) to Deny Class Certification
I knew it was too good to be true. A few months ago I posted about a decision from the Arkansas Supreme Court that affirmed dismissal of a deceptive trade practices claim because it fell within a safe harbor of regulatory approval. At the time, I asked if there had been a sea-change in Arkansas class action jurisprudence. Today, I'm sad to report that the answer is "no."
If there's one thing I learned growing up in Southwest Missouri, it's that everything is just a little bit different in Arkansas. (Even my friends from Rogers, Arkansas concede as much.) Apparently that principle goes double for class actions.
At a time when the Supreme Court, most federal Circuit Courts of Appeal, and many state supreme courts have held that due process requires a rigorous analysis of how a case is actually going to be tried before a class can be certified, Arkansas continues to instruct its trial courts to retreat from any sort of reality that touches upon the substantive elements of a claim. See Rosenow v. Alltel Corp., 2010 WL 199247 (Ark. Jan 21, 2010).
In Rosenow, a customer sued his mobile phone service provider for damages allegedly resulting from the early termination fee in its standardized customer contract. Plaintiff asserted on behalf of those who paid the early termination fee a putative statewide class action for violation of Arkansas' Deceptive Trade Practices Act and for common law unjust enrichment.
The trial court rejected class certification, holding that although a number of elements of Rule 23 had been met, the commonality, predominance and superiority requirements were not met. In doing so, the trial court had relied upon the defense expert's testimony that determining whether the early termination fee (i.e. liquidated damages provision) was a reasonable approximation of the defendant's damages would be an individualized inquiry that would make the class unmanageable.
The Arkansas Supremes reversed, articulating a theory of class actions that is just a little bit different than anywhere else. According to the Arkansas Supremes, so long as there are common issues, the class should be certified for trial of those issues even if it must later be bifurcated into a second phase of individual trials over things like damages, and in deciding whether the class action prerequisites are met, courts should not inquire into defenses to plaintiffs' claims, as that is an impermissible inquiry into the merits of the case:
In this case, Appellant alleges that the common wrong giving rise to this litigation is that the Appellees engaged in an unfair and deceptive business practice of imposing the early termination fee. Appellant further asserts a laundry list of common questions of law and fact that stem from this alleged common wrong. There must be a determination on these common issues. The mere fact that individual issues and defenses may be raised regarding the recovery of individual members cannot defeat class certification where there are common questions concerning the defendant's alleged wrongdoing which must be resolved for all class members. Moreover, an attempt to raise defenses at this stage is an attempt to delve into the merits of the case. . . .
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This court has further said that if a case involves preliminary issues common to all class members, predominance is satisfied even if the court must subsequently decertify a class due to individualized damages. However, if the preliminary issues are sufficiently individualized, then predominance is not satisfied and class certification is improper. Indeed, a case that presents numerous individual issues regarding the defendants' conduct, causation, injury and damages will best be resolved on a case-by-case basis. Stated another way, predominance does not fail simply because there are individual issues that may arise; the central question to be resolved by the circuit court is whether there are overarching issues that can be addressed before resolving individual issues. . . .
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Here, by focusing on the merits of the case, the court noted that it might be necessary to conduct thousand[s] of mini-trials that would overwhelm its docket and thus concluded that the superiority requirement was not satisfied. However, as we have explained, the circuit court's reasoning was based on an impermissible evaluation of the merits of this case. Accordingly, the circuit court abused its discretion in finding that the requirement of superiority could not be satisfied.
Id. (citations omitted). Because the defense expert's testimony addressed issues of how to prove damages and the reasonableness of the liquidated damages as compared to actual damages, the Arkansas Supremes concluded that it was concerned with the underlying merits of the case and the trial court had abused its discretion in refusing to strike such testimony.
Of course, Rule 23 is a procedural device that is not intended to change the substantive elements of underlying claims or defenses viz a viz any individual class member. See, e.g., Compaq Computer Corp. v. LaPray, 135 S.W.3d 657 (Tex. 2004). By wholly ignoring how the defendant will prove its defenses with respect to each class member in a classwide trial, the Arkansas approach effectively alters substantive elements of the defenses -- which is not what the drafters of Rule 23 intended. Thankfully, Arkansas remains an outlier jurisdiction, and the trend toward rigorous analysis of how the case will actually be tried -- both the causes of action and the defenses -- remains the norm in class action jurisprudence.
