Will the Ohio Supreme Court Visit Aisle 23 at Wal-Mart?
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Since June 2011, federal courts have been unpacking the lessons set forth in Wal-Mart Stores, Inc. v. Dukes, __ U.S. __, 131 S. Ct. 2541 (2011). Depending on your point of view, Wal-Mart either changed the face of class action jurisprudence or simply confirmed a trend decades in the making.
Perhaps the most important contribution of the case is how it modeled the analysis that courts everywhere — including Ohio — have struggled with: should a court resolve issues of fact at the class certification stage, even if they touch on the merits of the plaintiffs’ claims? And, if so, what is the plaintiffs’ burden of proof?
Wal-Mart makes clear that:
Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule — that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.
Wal-Mart, 131 S. Ct. at 2551 (emphasis in original). Referring to the “rigorous analysis” required under Rule 23, Justice Scalia noted that that this frequently “will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped.” Id. at 2552.
Yet this point, perhaps more than any other, has caused judicial confusion and yielded unpredictable results throughout Ohio.
This may be about to change. At the time of this writing, the Ohio Supreme Court has four jurisdictional memoranda pending1 that raise fundamental challenges to class action law in Ohio. Each asks the Court to affirmatively adopt Wal-Mart and its analytical principles.
This article will briefly explore two of these cases, and will focus on a single issue common to both that arises time and again in the lower courts: what is a “rigorous analysis,” and what is a plaintiff’s burden at the certification stage under Ohio Rule 23?
Cullen v. State Farm Mutual Insurance Company
In March 2003, the windshield of Michael Cullen’s 2001 Volkswagen Jetta was chipped by a stone. The crack was small — about 1/10th of an inch in the lower driver’s side corner — but it was covered under his auto policy with State Farm. Cullen v. State Farm Mut. Ins. Co. 8th Dist. No. 95925, 2011-Ohio-6621.
He called his State Farm agent, who referred him to a third party subcontractor named Lynx Services, LLC. Id. In exchange for State Farm waiving his deductible, Cullen agreed to have the crack repaired rather than to replace the entire windshield. Id. Because the deductible was waived, the $50 repair was free. Id.
But Cullen later claimed that he was misled. In his lawsuit, he alleged that the Lynx representative read from a script that steered him to repair the crack without disclosing the more attractive “pay-out” option. Id. According to Cullen, he could have received a check for the entire amount of his windshield less the deductible, and then had the windshield repaired at his own expense. Cullen believed that “this is the only option that would have been chosen by an insured had their options been fully explained to them.” Id. He claimed that there are at least 100,000 State Farm insureds in Ohio who filed glass-only claims since 1991.
The Eighth Appellate District affirmed the trial court’s certification of Cullen’s class. First, the court found that Cullen had satisfied the requirement under Ohio Rule 23(B)(3) that common issues must predominate over others. Id. at ¶ 21. According to the court, “if Cullen’s theory of the case is to be believed, the use of a common plan to steer claimants to opt for repair rather than replacement or disclosure of a cash payment for the value of the glass, less deductible, is a significant class-wide issue.” Id. The court refused to consider State Farm’s argument that the plain language of the contract did not support the “pay-out” option, stating that “none of these issues need be decided at this time because class certification is not akin to a motion for summary judgment.” Id. at ¶ 24.
The court also rejected State Farm’s argument that liability and damages would require an individualized analysis, thus defeating the efficiencies of class treatment. Id. at ¶ 50. State Farm argued that before a damages calculation could be made, the trial court would need to make a determination as to which of a variety of windshields would have been used in the hypothetical replacement of each class members’ windshield, and would need to verify the price, brands, availability and the like. But the court did not address the individual nature of the calculation. Instead, it focused on Cullen’s methodology, finding that State Farm’s records, in conjunction with industry data, would help the court “arrive at a reasonable estimation of the damages for each putative class member.” Id. at ¶ 37.
Perhaps central to the court’s theory of certification was its statement that “[c]lass certification does not go to the merits of the claim.” Id. at ¶ 55. The Cullen court thus limited its analysis to the plaintiffs’ allegations, and did not delve into the facts surrounding the elements of Rule 23.
Wolfe v. Grange Indemnity Insurance Company
Tina Wolfe suffered minor injuries in a one-car crash on January 17, 2009. She received treatment from EMS personnel, emergency room physicians, hospitals and chiropractors, and submitted her bills to her auto insurer, Grange. Wolfe v. Grange Indem. Ins. Co., 5th Dist. No. 2010-CA-339, 2012-Ohio-598.
Grange forwarded her bills to a third party subcontractor — Review Works — to determine whether the charges were “reasonable” and “necessary” as those terms were defined in her policy. Id. at ¶¶ 10-11. Based on Review Works’ analysis, two of her bills were reduced — one by $21.01, and the other by $55.96. Wolfe paid both bills, and did not contest either reduction. Id. at ¶ 11.
Instead, she filed a class action lawsuit, alleging that Grange “engaged in a company-wide policy of systematically underpaying medical payment coverage claims in violation of its own insurance policies and representations to its insureds.” Id. at ¶ 12. She accused Grange of breach of contract, fraud and bad faith. Id.
The Fifth Appellate District affirmed the trial court’s certification of a class under Rule 23(B)(3). The court said that “cases involving a common scheme or standardized practice are particularly suited for certification under Civ. R. 23(B)(3) because the common issues predominate over those affecting individual members.” Id. at ¶ 57. According to the court, because the “plaintiffs allege that they were harmed by the use of a standardized practice and procedure, and [that] the same issues thus predominate throughout the class and will require common proof,” the plaintiffs had satisfied the requirements of Rule 23. Id. at ¶ 64.
But Grange argued that the case would be dominated by individualized inquiries. For instance, whether a claim is referred for outside review is committed to the discretion of a claims representative. Some of Wolfe’s bills were approved by Grange, while others were sent to Review Works.
Review Works, in turn, determines whether the charges were medically necessary, reasonable in light of the geographic market in which they were rendered, and the like. It also reviews bills to determine whether billing or other errors have resulted in overcharges. And, Grange is not bound by Review Works’ decision, and sometimes overrides them. In short, the claims review process is highly individualized, and reimbursement decisions may turn on a wide variety of considerations that differ from claim to claim.
It is impossible to know what effect these facts had on the court’s thinking, since it did not refer to them in its decision.
What Would Wal-Mart Say?
Both of these cases illustrate a recurring issue in Ohio class action jurisprudence that implicates matters of great public importance. Indeed, Ohio courts have long held that because Ohio Rule 23 is “virtually identical to the federal rule governing class actions, federal authority is an appropriate aid to use in interpreting the Ohio rule.” Wolfe, 2012-Ohio-598, at ¶ 32 (citing Marks v. C.P. Chemical Co., 31 Ohio St. 3d 200, 201, 509 N.E.2d 1249 (1987)).
Yet neither the Cullen nor the Wolfe courts heeded Wal-Mart’s directive that a “rigorous analysis” requires a court to resolve factual disputes at the certification phase of a case to determine if the elements of Rule 23 have been met. For example, the Cullen court rejected State Farm’s argument that highly individualized claims defeated the predominance requirement of Rule 23(B)(3) because “if Cullen’s theory of the case is believed,” his allegations alone were enough to satisfy Rule 23(B)(3). Likewise, the court declined to provide a legal interpretation of the terms of State Farm’s contract as part of its commonality analysis because it believed that “class certification does not address the merits of the claim.” Cullen, 2011-Ohio-6621, at ¶ 55.
The Wolfe court did the same thing. It found that commonality was satisfied because the “plaintiffs allege that they were harmed by the use of a standardized practice and procedure.” Wolfe, 2012-Ohio-598, at ¶ 64 (emphasis added). The court did not inquire into the facts to support its conclusions.
These courts’ reluctance to examine and decide factual disputes stems in part from the Ohio Supreme Court’s ruling in Ojalvo v. Board of Trustees, 12 Ohio St. 3d 230, 466 N.E.2d 875 (1984), which stated both that “class certification does not go to the merits” of the class claims, and that some inquiry into the merits may be necessary in “establishing the validity of certification . . ..” Id. at 233. Some Ohio courts have read Ojalvo to forbid any inquiry into the facts at the certification phase of a case.
But Wal-Mart is to the contrary: “’[T]he class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.’” Wal-Mart, 131 S. Ct. at 2551-52. That is why “ ‘[a]ctual, not presumed, conformance with Rule 23(a) remains . . . indispensable.’” Id. at 2551. While one could argue that Wal-Mart and Ojalvo are not necessarily inconsistent, the results in the Ohio courts are. Only the Ohio Supreme Court can fix that.
If federal law is truly an interpretive guide to construing Ohio Rule 23, and if Rule 23 is more than a mere pleading standard, it is imperative that the Ohio Supreme Court accept jurisdiction over the cases before it, and provide definitive guidance to the lower courts with respect to the lessons of Wal-Mart.
- Wolfe v. Grange Indem. Ins. Co., 5th Dist. No. 2010-CA-339, 2012-Ohio-598; Cullen v. State Farm Mut. Ins. Co., 8th Dist. No. 95925, 2011-Ohio-6621; Stammco, LLC v. United Tel. Co. of Ohio, 6th Dist. No. F-11-003, 2011-Ohio-6503; Ford Motor Credit Co. v. Agrawal, 8th Dist. App. No. 96413, 2011-Ohio-6474.