Oral Argument Preview: Evaluating the Merits of Plaintiffs’ Claims When Denying Class Certification. Stammco, LLC, d.b.a. The Pop Shop, et al. v. United Telephone Company of Ohio, d.b.a. United Telephone Co., et al.

Update:On July 16, 2013 the Supreme Court handed down a merit decision in this case.  Read the analysis here.

Read the analysis of the oral argment here.

On February 6, 2013 the Supreme Court of Ohio will hear oral argument in the case of Stammco, LLC, d.b.a. The Pop Shop, et al. v. United Telephone Company of Ohio, d.b.a. United Telephone Co., et al., 2012-0169.

Issue

The issue in this case is whether it is an abuse of discretion for a trial court to evaluate the merits of plaintiffs’ claims when denying class certification. Read the blog’s in sharper focus primer about class action suits here.

Background

“Cramming” is a practice that involves placing an unauthorized charge on a customer’s telephone bill. United Telephone was a subsidiary of Sprint. Sprint contracted with other entities to include amounts due from third parties on its local phone billings, and it purchased these receivables and was compensated for each transaction associated with a receivable.

In 2004, Kent Stamm noticed an unauthorized charge on the telephone bill of his business. He called Sprint to have the charge removed, and asked that third party charges to his bill be blocked. Sprint informed him that this service was not available to United Telephone’s customers in Ohio.

Stamm and his wife sued, arguing that United Telephone had a duty to provide accurate statements to its customers and to insure that bill payments collected were for products and services actually authorized and received by United Telephone’s Ohio customers. The Stamms asked for class certification and sought an injunction to prevent United Telephone from billing unauthorized charges, as well as compensatory damages.

Stammco I.

The trial court approved the class. The case was appealed to the Sixth District Court of Appeals, which affirmed. The Supreme Court of Ohio accepted the case and reversed, holding that the definition of the certified class was ambiguous. The case was remanded to redefine the class.

The Remand

On remand in the trial court, the plaintiffs moved to amend the class definition according to the Supreme Court’s mandate. The trial court refused to certify the amended class, finding that (1) the class was a prohibited “fail-safe” class, (2) the plaintiffs sued a local carrier, rather than the third party provider who was the proper defendant, and (3) the suit imposes a duty not required by current legislation and case law.

Appellate Decision, Round Two

Plaintiffs appealed the denial of certification. The 6th District Court of Appeals reversed, issuing a number of holdings on various issues. Relevant to this appeal, the appeals court held that the trial court erred when it held that the plaintiffs wrongly placed blame on United Telephone to police the charges on customers’ bills. The court explained that this was an “improper incursion into the merits of the case” that did not relate to the trial court’s proper scope of analysis under Civ.R. 23.

Supreme Court Appeal, Round Two

United Telephone again appealed to the Supreme Court of Ohio, asserting five propositions of law. In the sole proposition accepted by the Supreme Court on appeal, United Telephone argues that a trial court does not abuse its discretion by evaluating the merits of the plaintiffs’ claims when denying class certification.

Key precedent

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (explaining that “there is nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action, and indeed, such a procedure contravenes the Rule by allowing a representative plaintiff to secure the benefits of a class action without first satisfying the requirements of the Rule.”)

Ojalvo v. Board of Trustees of Ohio State Univ., 12 Ohio St.3d 230 (1984) (citing Eisen for the propositions that “class action certification does not go to the merits of the action” and that the trial court’s resolution of the commonality element of Rule 23 “need [not] have been made with respect to the actual merits of the case beyond the necessity of establishing the validity of certification under [Rule 23].”).

Wal-Mart v. Dukes, 131 S.Ct. 2541 (2011) (characterizing Eisen’s  statements regarding inquiry into the merits as “purest dictum…contradicted by our other cases” and suggesting that merits inquiry is permissible at the class certification stage).

United Telephone’s Argument

United Telephone challenges Ojalvo’s reading of Eisen. It argues that Eisen does not prohibit all consideration of merits issues at the class certification stage, and that Ojalvo’s reading to the contrary is erroneous. Citing the U.S. Supreme Court’s decision in Wal-Mart v. Dukes, it argues that the Supreme Court rejected Ojalvo’s reading of Eisen and held that consideration of the merits (i.e. what plaintiffs are required to prove on the asserted cause of action, and whether those things can be proven for all class members in the same case) is appropriate and necessary at the class certification state. The plaintiff must prove compliance with all aspects of Rule 23 at the pleading stage, and cannot merely promise that it will comply with those requirements in the future. Furthermore, the determination of whether to certify a class involves consideration of closely entwined factual and legal issues that courts cannot avoid.

United Telephone argues that the class in this case does not meet the requirements of Rule 23, in large part because the issues as to third-party charges are individual class member-specific. The merits of the case involve largely individual questions of how third-party charges were placed on customers’ phone bills and how those charges were authorized. Furthermore, the class definition is flawed because it is ambiguous as to how class members’ consent and authorization (or lack thereof) to third-party charges is to be determined. The class is unmanageable, because liability would depend on individually examining every phone bill over a six-year period to identify third-party charges and whether those were unauthorized. Finally, United Telephone argues that the Stamms are atypical and inadequate class representatives because they did not actually pay the third-party charges that appeared on their phone bill, and thus have no injury.

Stammco’s argument

The plaintiffs agree that a trial court may consider some merits issues at the class certification stage. However, they argue that the trial court here exceeded its appropriate scope of analysis of merits issues. They argue that a trial court must review the merits only to the extent necessary to determine whether a class exists. Here, in contrast, the trial court considered the underlying merits of the causes of action themselves, which the plaintiffs argue is an abuse of discretion. The plaintiffs argue that Ojalvo properly read Eisen to allow for some consideration of merits issues at the class certification state, but only to the extent necessary to establish the validity of the class.

Finally, the plaintiffs argue that all the requirements of Rule 23 are met here. Common issues of unauthorized charges predominate over the individual circumstances of those charges, and the fact that not all members suffered damages is not a reason to deny certification because the class seeks injunctive relief that will still benefit the class as a whole. The revised class definition adequately addresses the Supreme Court of Ohio’s concerns in Stammco I. The class is also manageable because Sprint and United Telephone have the relevant information in electronic databases that can be searched easily. The Stamms and Stammco have standing and typicality because their claims are typical and arise from the same unlawful conduct and under the same legal theory as the claims of all the other class members.

United Telephone’s Proposed Proposition of Law

Wal-Mart v. Dukes rejects Ojalvo’s interpretation of Elsen: A trial court does not abuse its discretion by evaluating the merits of the plaintiffs’ claims when denying class certification.

Student Contributor: Greg Kendall

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