Update: On November 5, 2013, the Supreme Court handed down a merit decision in this case. Read the analysis here.
On February 26, 2013, the Supreme Court heard oral argument in the case of Cullen v. State Farm Mutual Automobile Insurance Company, 2012-0535. This case involves a number of issues regarding the certification of class action lawsuits.
Michael Cullen, later the class representative, reported windshield damage to State Farm in 2003. He was sent to a Lynx agent, and agreed to have his windshield repaired instead of replaced. State Farm subcontracted the handling of “glass-only” damage claims to Lynx Services.
Cullen claims that under his policy, he should have received a check for the full replacement value of his windshield, minus his deductible. He further alleges that Lynx and State Farm developed a script that Lynx representatives would use to get claimants to select windshield repair instead of replacement. He alleged that the Lynx agent he spoke with did not inform him of all the options available to him—and in particular omitted this “pay-out” option whereby claimants could obtain a check for the entire amount of the windshield minus the deductible, and repair the windshield at their own expense.
Cullen’s claims for breach of contract, bad faith and breach of fiduciary duty, center around State Farm’s nondisclosure of all of a claimant’s options, alleging that State Farm saved substantial money by pushing repair rather than replacement for windshield glass-only damage. Cullen alleged that potentially 100,000 people who filed glass-only claims during the class period may have been affected by State Farm’s non-disclosure policy.
The trial court found that Cullen had met all the requirements of class certification. The class definition included two subclasses—insureds whose claims were administered by Lynx, and those whose claims were not administered by Lynx.
In a split decision, the Eighth District Court of Appeals affirmed in part and reversed in part, upholding the class certification with certain modifications. Read the oral argument preview of the case here.
At Oral Argument
Justice French recused herself from this case. Judge Matthew McFarland of the Fourth District Court of Appeals sat for her.
State Farm’s Argument
The Ohio Supreme Court needs to modernize Ohio law to make clear that in deciding class certification, trial courts have to follow the analytical framework set forth by the U.S. Supreme Court in the Wal-Mart decision. The lower courts did not do so in this case and must be reversed. Wal-Mart requires a sharpening of the class certification analyses required in Ohio. Due process requires that the elements of Civ. R. 23 must be proven, not assumed; the merits must be evaluated insofar as they relate to class certification requirements, expert opinions must meet Daubert admissibility requirements, and certification requires actual proof that class member can be identified at the time of certification with reasonable effort. There are simply too many individual issues to manage in this case for a class to be fairly certified. And manageability is a requirement for certification-if the case isn’t manageable now–which it isn’t because of the number of years, makes, and models involved in the case—the proper course is to deny certification.
In this case the trial court never found the policy to be ambiguous, but allowed extrinsic evidence about the cash payment option, and erred in determining the cash-out policy existed as a matter of law.
Furthermore, it’s completely false that there are 100,000 dissatisfied policy holders out there. State Farm’s guarantee of satisfaction gave policyholders the right to choose whether to repair or replace their windshields. If they chose repair and were dissatisfied, they could bring the windshield back for replacement.
Both numerosity and commonality were conceded in this case; only predominance is at issue here. It’s too soon to make a manageability determination; much discovery still needs to be done on that issue. The Court of Appeals dissent unfairly revived the commonality issue, which should be deemed waived.
Contrary to State Farm’s assertions, this case is the perfect example of the modern approach to class actions-the merits were fully explored first, in order to reach a determination on class certification. The trial court was correct—there are clearly common questions of law and fact here. The main one is whether this policy provides for indemnity payments or whether State Farm has the unilateral right to select repair or replacement options. This is an indemnity policy, pure and simple, and the only option is the right to the re-imbursement check, and State Farm had no right to make a unilateral choice of repair or replace.
What Was on Their Minds
Emerging From the Dark Ages
Ohio doesn’t want to be in the Dark Ages, commented Justice O’Donnell. What does the Court need to take away from the Wal-Mart decision to apply to its class certification jurisprudence? What changes need it make?
Does the Court need to change Civ. R. 23, asked Justice O’Neill?
Was this conceded, and thus waived, asked Judge McFarland? But is it waivable?
Should this Case Be a Class Action?
Is this not a proper class action case because of the various deductibles or no deductible, asked Justice Pfeifer?
There are 100,000 people out there who feel that State Farm did not adequately explain all of their options to them and therefore they should be in a class. Isn’t that really what the lawsuit is about, asked Justice O’Neill?
The Devil is in the Details
If a policy holder had a windshield unsatisfactorily repaired, would that policy holder have a claim against State Farm for a new windshield, or is that an election of remedy by the policyholder, asked Justice O’Donnell?
How on earth could you figure out individual damages for 100,000 policy holders all with different windshield replacement providers, asked Chief Justice O’Connor? And what about all the cars that had been disposed of? Cullen’s counsel repeatedly insisted all that was needed was the VIN number for each car, and that this was easily done; Justice Lanzinger followed up that it didn’t seem so simple when considering the number of makes, models, and years in a 20 year period of time.
Chief Justice O’Connor asked if it was Cullen’s position that even if a customer was satisfied with his or her repair at the time, and drove the car for years, that satisfied customer should still have received the replacement cost of that windshield? (yes, it was, replied Cullen’s attorney.)
The Cash-Out Option
Was that actually in the policy, or was that just an interpretation of the policy language, asked Justice Lanzinger?
Complexity of Defining the Class
Do class certification issues relate to the complexity of defining the class? To the complexity of the claims being made, asked Justice O’Donnell?
Aren’t there three different policies here with three different options—aren’t there just too many theories of recovery under a common question to present a unified class, asked Chief Justice O’Connor? She got into quite a back and forth on this with Cullen’s counsel, who insisted there was only one. And Judge McFarland asked also about the three seeming sets of policy language.
Isn’t there an ambiguity question on what language was given to the two subclasses, asked Judge McFarland? He later asked about the fact that Cullen was not a member of one of the two subclasses—what should be done about that? (Cullen’s counsel insisted the subclasses were strictly for administrative purposes, and the only thing that mattered was that Cullen was a member of the overall class.)
Addressing the Merits
Didn’t the appeals court find the trial court did look at the merits to the extent necessary to determine certification, asked Justice Lanzinger?
Since State Farm asked the trial court to do this, are we talking about invited error here, asked Judge McFarland?
Justice Lanzinger asked whether the class hadn’t bitten off more than it could chew, commenting that if there were a class with just one model of car, that would at least narrow things so that the case could be tried fairly, noting that in this case, the expansive nature of the remedy portion would seem to be a problem. Cullen’s counsel pushed back, arguing that it wasn’t fair to make a manageability determination at this point, with much discovery still to be done.
Standard of Review
Isn’t it abuse of discretion, asked Justice Lanzinger? When State Farm’s lawyer answered yes, he added that the Court has held that a trial judge who makes a fundamental error of law has abused his discretion. In a key question of the day, she then asked what was that fundamental error of law, and got an extremely long winded answer the gist of which was in allowing extrinsic evidence to determine a cash-out option existed under the policy.
How it Looks from the Bleachers
To Professor Bettman
As I said in my analysis of the Stammco case, I don’t know much about this field. My impressions from this argument were that State Farm’s lawyer’s answers were incredibly long-winded, and seemingly designed to overwhelm with detail to demonstrate why this case couldn’t possibly work as a class action. Also, after starting out quite dramatically about dragging Ohio into the modern post Wal-Mart era, when asked how, he said Ohio didn’t need to change anything in its class action jurisprudence, just “clarify existing principles.” Nor did the Court need to make any changes to Civ.R. 23.
Cullen’s lawyer seemed as if he’d heard the same points from State Farm too many times, and appeared to brush away many of the justices’ practical concerns. Several of the justices, particularly the Chief and Justice Lanzinger, and Judge McFarland, made reference to and seemed persuaded by portions of the dissent in the appellate decision. They also seemed very concerned about whether there were three different policy clauses involved here. A majority of those who talked seemed to feel that the entire thing just seemed too unwieldy . Still, it looks like the trial judge put in a massive amount of work on this case, and did address the merits to determine certification, as the U.S. Supreme Court has deemed necessary. Abuse of discretion is always a tough standard for reversal, which is probably the only thing that might ultimately save the day for the plaintiff.
To Student Contributor Greg Kendall
Some of the justices appeared confused by State Farm’s argument regarding what it wants the Court to do with regard to modifying or clarifying Rule 23. The Court questioned plaintiff’s counsel extensively on the merits of commonality, and seemed to think that the plaintiff has played down the importance of the differences between classes. Ultimately, the Court was skeptical that plaintiff has met his burden here, especially on issues of manageability and determining who is in the class.