Texas SC: Class representation by assignment should be scrutinized

By Steve Korris | Feb 25, 2010


AUSTIN – Auditors who sacrificed fees in exchange for standing to sue Southwestern Bell Telephone can't lead a class action on behalf of 6,900 businesses, the Supreme Court of Texas decided on Feb. 19.

Five justices declared Southwest Tariff Analyst inadequate to represent businesses that paid Southwestern Bell for hotel service and a 23 channel interface.

"We believe courts should scrutinize carefully the motivating interests and incentives of parties that agree at an apparent financial loss to obtain the right to serve as the class representative," Justice Dale Wainwright wrote.

"While the sacrificial servant role exists in many segments of our society, it is not often found in class action litigation," he wrote.

"In this case, class representation not only affords STA the ability to control the outcome for its five assigned claims, but also the claims of the entire class," he wrote.

"STA's interest in the litigation by assignment removes it and its counsel one step further from the class members, enhancing the risk of conflicts," he wrote.

He quoted testimony of Texas School of Law professor Linda Mullenix, who said she had never seen anything like it.

He wrote that Mullenix said, "Class counsel will be either litigating, negotiating, or bargaining the rights of one group against another."

Justices Nathan Hecht, Paul Green, Phil Johnson and Don Willett joined Wainwright.

In dissent, Chief Justice Wallace Jefferson and Justices Harriet O'Neill and David Medina declared Southwest Tariff Analyst more than adequate.

O'Neill wrote, "STA represents five class members, and thus, if anything, is more cognizant of a greater number of economic interests than the typical class representative would be."

She wrote, "Considering the absence of any realistic potential for conflict or antagonism between STA and the class, together with STA's demonstrated superior expertise in the subject matter of the litigation, I would hold that STA has satisfied the adequacy requirement and affirm certification of the class."

Last century, Southwest Tariff Analyst advised clients that Southwestern Bell might have overcharged in recovering municipal right of way charges from 1991 to 1998.

Clients sued Southwestern Bell in Cameron County, and settlement followed.

Settlement did not resolve claims of businesses that paid for hotel service or an interface between Digital Loop and Smart Trunk.

Southwest Tariff Analyst obtained assignments from five clients by reducing its fee from 50 percent of recovery to 30 percent.

The firm sued Southwestern Bell in Cameron County, claiming breach of contract, unjust enrichment, breach of warranty and negligence.

District Judge Robert Garza held a four day hearing and certified a class action.

He found that Southwest Tariff Analyst's knowledge and expertise gave it superior ability to pursue the litigation and supervise class counsel.

He found its interests aligned with other class members, not antagonistic to them.

Appeals judges of the 13th District in Corpus Christi affirmed Garza.

The Supreme Court granted review in 2005, and heard arguments in 2007.

Reaching a decision took three years, due to the distance between those who found the claim assignments fishy and those who found them splendid.

Wainwright wrote that the firm's incentive to settle quickly differed from that of others in the class, and he warned that its theories might yield less recovery for the others.

"The undisputed evidence also shows that STA solicited these assignments from its customers to become the class representative," he wrote.

He didn't call it crooked, but O'Neill took it that way.

"STA did not improperly solicit the assignments," she wrote.

"Though the Court points out that STA might ultimately pursue theories of relief more efficient for itself at the expense of absentee class members, it does not speculate what those theories might be and none have been asserted," she wrote.

Justice Eva Guzman, new to the court, did not participate in the decision.

Mike Hatchell, Molly Hatchell, Christopher Dove, Kirsten Castaneda, Weston Loegering, Christopher Kratovil, Cynthia Malone and Richard M. Parr represented Southwestern Bell.

John O'Quinn, Russell Lloyd, Thomas Bray, Marcus Hill, Jonathan Stoger, Manuel Vela and Ernesto Gamez Jr. represented Southwest Tariff Analyst.

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