Opinion
CIVIL ACTION NO. 5:97-CV-273
March 21, 2003
ORDER AND OPINION DENYING CERTIFICATION OF A DEFENDANT CLASS AND CONDITIONALLY GRANTING CERTIFICATION OF A PLAINTIFF CLASS
This matter is before the court on Plaintiffs' "Motion for Certification of Plaintiff and Defendant Classes" filed April 21, 2000 (Dkt. #369). Upon consideration of the extensive briefing, applicable law, and the class certification hearing held on September 13-14, 2000 ("Class Certification Hearing"), the court is of the opinion that the motion to certify a defendant class should be DENIED and the motion to certify a plaintiff class should be conditionally GRANTED.
I. Background
Plaintiffs brought this suit against the Texas Automobile Dealers Association ("TADA"), its President, Gene Fondren, and its members (collectively "Defendants") pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, alleging violation of § 1 of the Sherman Act, 15 U.S.C. § 1. Specifically, Plaintiffs allege a horizontal price fixing conspiracy. Plaintiff's allege that Defendants illegally conspired to charge a Vehicle Inventory Tax ("VIT") to its customers.
The VIT is an inventory tax imposed on automobile dealers by the State of Texas. The VIT is calculated as a percentage of the sales or cash price of each car sold. It is calculated after the sales or cash price of the car is agreed upon. Plaintiff's allege that the Defendants conspired to pass the VIT on to their customers as an add-on charge. It is undisputed that every sales contract that the members of the proposed plaintiff class signed when purchasing their automobile shows an itemized charge to the customer for the VIT.
Plaintiffs allege that Defendants' conduct amounted to horizontal price-fixing and that Defendants were unjustly enriched by their scheme to pass on the VIT to their customers. Horizontal price-fixing agreements are illegal per se. Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 647 (1980). Therefore, if Plaintiffs' allegations are true, Defendants' actions are unlawful.
II. Class Certification Standard
Class certification, for both plaintiff and defendant classes, is governed by Federal Rule of Civil Procedure 23. All classes must meet the requirements of Rule 23(a):
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed.R.Civ.P. 23(a). These four requirements are generally referred to as numerosity, commonality, typicality, and adequacy. James v. City of Dallas, 254 F.3d 551, 569 (5th Cir. 2001). Additionally, the proponent of certification must show that class treatment is appropriate under one of the three alternative class categories in Rule 23(b). The requirements of predominance and superiority in Rule 23(b)(3) are "far more demanding" than the requirements in Rule 23(a). Amchem Prods. v. Windsor, 521 U.S. 591, 624 (1997). "The party seeking class certification has the burden of showing that the requirements for a class action have been met." Applewhite v. Reichhold Chems., Inc., 67 F.3d 571, 573 (5th Cir. 1995) (citations omitted).
While a district court has great discretion, it must conduct a "rigorous analysis of the rule 23 prerequisites" before certifying a class. Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996). In determining whether to certify a class, the court does not look at the merits of the underlying claims, but must consider the substantive law that will govern the outcome of the trial. See Fisen v. Carlisle Jacquelin, 417 U.S. 156, 177-78 (1974); Alabama v. Blue Bird Co., 573 F.2d 309, 316 (5th Cir. 1978).
III. Defendant Class
The proposed defendant class is defined as follows:
all motor vehicle dealerships which were a member of the Texas Automobile Dealers Association ("TADA") at the date of the sale of a new or used motor vehicle in the state of Texas and which charged a "vehicle inventory tax," "inventory tax," "Texas vehicle inventory tax," "ad valorem tax," "personal property tax fee," "P/P tax fee," "VIT," or similarly identified "fee or charge" as an addition to the sales price or cash price of the vehicle during the period January 1, 1994 through the date of defendant class certification.
The court will assume, without deciding, that Plaintiffs have satisfied all of the requirements of Rule 23(a) as to certification of a defendant class. Whether Plaintiffs' proposed defendant class is appropriate for certification under either Rule 23(b)(2) or (b)(3) will, therefore, be the focus of the court's analysis.
Plaintiff's devoted only one paragraph of their forty-one page brief in support of class certification for both a defendant class and a plaintiff class under Rule 23(b)(2). Pls.' Mot. for Cert., at 35 (Dkt. #370). Additionally, Plaintiffs conceded at oral argument that "injunctive relief is not the primary relief that's being sought." Class Cert. Hearing, at 484. While injunctive relief is being sought, the primary relief requested is monetary. Id. Therefore, Plaintiffs have not met their burden on certification under Rule 23(b)(2). Abrams v. Kelsey-Seybold Med. Group, Inc., 178 F.R.D. 116, 134 (S.D. Tex. 1997) ("To be certified under Rule 23(b)(2), injunctive and/or declaratory relief must be the predominant relief sought for the class.").
"Rule 23(b)(3) requires that questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to the individual adjudication of claims." Spence v. Glock, 227 F.3d 308, 311 (5th Cir. 2000). In the instant case, it is clear that the issue of an individual Defendant's involvement in the alleged conspiracy will require an independent factual determination as to each Defendant. Plaintiffs are correct in asserting that their proof may be presented in a generalized manner that would allow a jury to determine that a conspiracy did exist, and that each individual Defendant was part of it, however, Plaintiffs fail to recognize that the court must allow each Defendant to independently defend itself by presenting direct evidence to disprove Plaintiffs' circumstantial case. See In re Hotel Tel. Charges, 500 F.2d 86, 89 (9th Cir. 1974).
Because each Defendant has the absolute right to individually defend itself by presenting direct evidence of noninvolvement in any alleged conspiracy, there is a strong interest on the part of each Defendant to individually control the defense of separate actions. See Fed.R.Civ.P. 23(b)(3)(A). This individual interest will likely lead to most Defendants choosing to opt out of a defendants' class. Moreover, treatment of all Defendants as a class is procedurally unfair to each individual Defendant and not superior to individual treatment. Therefore, class certification of a defendant class under Rule 23(b)(3) is inappropriate and is DENIED.
IV. Plaintiff Class
The proposed plaintiff class is defined as follows:
all persons and entities who purchased a new or used motor vehicle in Texas during the period of January 1, 1994 through the date of class certification herein, from a motor vehicle dealership which was a member of the Texas Automobile Dealers Association ("TADA") at the date of sale, and who were charged a "vehicle inventory tax," "inventory tax," "Texas vehicle inventory tax," "ad valorem tax," "personal property tax fee," "P/P tax fee," "VIT," or similarly identified "fee or charge" as an addition to the sales price or cash price of the vehicle, SAVE AND EXCEPT, and there is excluded from the class, the following:
(a) the Defendants and their co-conspirators, as well as their respective agents, parents, subsidiaries, and affiliates; and
(b) federal, state and local government entities and political subdivisions
(c) all members of the federal judiciary and the judiciary of the State of Texas, as well as their spouses and any person within the third degree of relationship to either of them, or the spouse of such a person.
a. Rule 23(a) Requirements
Potentially, millions of consumers are in the proposed class. Class Cert. Hearing, at 80. Plaintiffs, therefore, have clearly established numerosity.There are many questions of law and fact common to the plaintiff class, including, but not limited to:
a. Whether the Defendants engaged in a combination and conspiracy among themselves to fix, raise, maintain, or stabilize prices of motor vehicles sold in Texas;
b. Whether the conspiracy was implemented;
c. Whether the conduct of the Defendants violated section 1 of the Sherman Act, 15 U.S.C. § 1.
d. Whether the conduct of the Defendants had the effect of raising, stabilizing, or pegging prices, or other anti-competitive affect;
e. Whether the conduct of Defendants affected interstate commerce;
f. Whether the conduct of the Defendants caused an antitrust injury to the Plaintiffs, and if so, the appropriate measure of damages; and
g. Whether Defendants unjustly and unfairly received from Plaintiffs the vehicle inventory tax.
The claims of the representatives are typical of the proposed plaintiff class. The representatives of the plaintiff class are four purchasers of vehicles from particular dealers among those named in this lawsuit. The sales contract of each named Plaintiff, like the sales contract of each unnamed member of the plaintiff class, shows that the Defendant dealer itemized the vehicle inventory tax. The representatives will fairly and adequately protect the interests of the plaintiff class. The representatives have the incentive to pursue their claims as well as those of the plaintiff class. There are no conflicts between the plaintiff class representatives and the class they represent. Furthermore, at oral argument, Defendants stipulated to the adequacy of Plaintiffs' counsel. Class Cert. Hearing, at 387-388.
b. Rule 23(b)(3) Requirements
To meet the requirements of Rule 23(b)(3), the court must find:
that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
Fed.R.Civ.P. 23(b)(3). The Fifth Circuit has found that predominance is a factual matter that must be determined on a case-by-case basis. Alabama v. Blue Bird Body Co., 573 F.2d 309, 316 (5th Cir. 1978). The predominance inquiry must include consideration of how a trial on the merits would be conducted. See Castano, 84 F.3d at 740. The court must ask whether common questions predominate in the particular case before it because there are "no hard and fast rules." Blue Bird, 573 F.2d at 316. The Fifth Circuit, however, has found that it is generally true that "antitrust price-fixing cases are particularly suitable for class action treatment." Id. at 322. This court finds that the factual and legal issues as they apply to the Plaintiffs as a whole are uniquely appropriate for conditional class certification.
The crux of Defendants' opposition to certification of a plaintiff class is that adjudication of the merits of each Plaintiff's claims will require an individual examination of each vehicle sales transaction, and because a jury will have to hear evidence regarding each individual transaction, individual issues predominate over common issues for analysis under Rule 23(b)(3). This argument is largely defeated by the manner in which Plaintiffs intend to prove liability and by operation of the Texas Parol Evidence Rule.
Plaintiffs intend to prove the existence of a conspiracy with general proof that applies to all of the individual Defendants. Plaintiffs have demonstrated to the court that they will be able to present sufficient common evidence at trial for a jury to determine whether Plaintiffs were injured by a conspiracy among the Defendants. Plaintiffs will present documents, such as a VIT Manual, from the TADA to its members instructing them to charge the VIT and explaining how to charge it. Plaintiff's will show that the TADA had meetings with its members to give further instructions and that members were forbidden to advertise that they did not charge the VIT. In addition, all of the sales agreements show the itemized charge for the VIT, which permits the Plaintiffs to prove the existence of an antitrust injury in a generalized manner.
The Texas Parol Evidence Rule states:
Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented
(1) by course of dealing or usage of trade (Section 1.205) or by course of performance (Section 2.208); and
(2) by evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.
Tex. Bus. Com. Code Ann. § 2.202 (Vernon 1994) (emphasis added). Defendants' argument that the final signed and integrated contracts do not represent the actual deal negotiated between a dealer and customer is directly inconsistent with the provisions of the Parol Evidence Rule. The contracts specifically state that each Defendant charged and each Plaintiff paid the VIT. Defendants cannot now argue that they actually were not charging the VIT. That argument is an attempt to directly contradict an express term of the final written agreement by offering proof of a prior negotiation or a contemporaneous oral agreement. The sales contracts represent the deals that were struck between Plaintiffs and Defendants. The Texas Parol Evidence Rule prohibits Defendants from using extrinsic evidence to deny the express terms of that agreement, namely that they did in fact charge, and each Plaintiff did in fact pay, the VIT. Therefore, Defendants' objection to predominance is unavailing under Texas law, and this court finds that common questions of both law and fact predominate over individual questions.
With respect to the superiority aspect of Rule 23(b)(3), the court does have some concerns over the manageability of a suit against over a thousand defendants. However, denying class certification based solely on manageability is disfavored. In re Visa Check/Mastermoney Antitrust Litig., 280 F.3d 124, 140 (2d Cir. 2001) (citations omitted); 3 Newberg on Class Actions § 10:2 (4th ed.) (2003). At this time, this class action is the superior method for adjudicating this controversy. It is superior for one court to handle this claim rather than millions of individual suits in every federal court in the State of Texas. If in the future the court concludes that the individual defense of each Defendant accused of participating in this alleged conspiracy will result in an unmanageable trial, the court always retains the power to decertify: "The purpose of conditional certification is to preserve the Court's power to revoke certification in those cases wherein the magnitude or complexity of the litigation may eventually reveal problems not theretofore apparent." Castano, 84 F.3d at 741 (quoting In re Hotel Telephone Charges, 500 F.2d at 90).
The court is of the opinion that a trial on the merits would last somewhere between the drastically different estimations of the two sides. Plaintiff's predict a two to three week trial and Defendants estimate it will take over thirty-five years to adjudicate the entire dispute. Pls.' Reply to Defs. `Post Hearing Brief in Opp'n to Cert., at 4; Gene Messer Defs.' Post-Hearing Brief, at 14. Plaintiffs' estimation ignores the fact that, with respect to liability, each Defendant will be allowed to testify and individually present a defense to the allegation that it participated in a conspiracy. On the other hand, Defendants' estimation incorrectly assumes that, with respect to damages, there will be a factual inquiry into each vehicle sales transaction. As previously discussed, the Parol Evidence Rule prohibits Defendants from directly contradicting the express terms of the final integrated contracts signed by the customers, and thus allows the Plaintiffs to prove the existence of an antitrust injury and the amount of damages in a generalized manner based on the individual sales contracts. Furthermore, while each Defendant will be afforded the opportunity to individually negate liability by presenting evidence that it was not involved in a conspiracy to fix prices, no Defendants will be allowed to present an explanation of each transaction that directly contradicts the final integrated contract memorializing that each Plaintiff did in fact pay the VIT. Without the ability to examine each transaction, the court is optimistic at this time that a trial will be manageable.
This court's finding that class treatment of the Defendants is not a superior method for the consideration of each Defendant's defense to the liability issues, does not in turn alter the conclusion that class treatment of the Plaintiffs is the superior method of adjudication. Each Defendant's interest in "individually controlling" its defense to the allegation that it participated in the alleged conspiracy is extremely high. See Fed.R.Civ.P. 23(b)(3)(A). That flaw to certification of a defendant class does not affect certification of the plaintiff class. Each individual Plaintiff does not have a high interest in controlling this litigation.
In addition to the fact that the weight of authority holds that it is disfavored to deny certification for manageability reasons, the class action proposed in this matter is the type of class action suit favored by two other judicial principles. First, this action is a collection of negative value suits where the costs of individual civil actions outweigh the potential return per individual plaintiff Negative value suits are "the most compelling rationale for finding superiority in a class action." Ford v. Nyclare Health Plans of the Gulf Coast, Inc., 190 F.R.D. 422, 427 (S.D. Tex. 1999) (quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998)). Second, other district courts have concluded that class actions are particularly important in the private enforcement of antitrust laws and, therefore, doubts over certification should be resolved in favor of certification. In re Lease Oil Antitrust Litig., 186 F.R.D. 403, 419 (S.D. Tex. 1999) (collecting cases).
V. Conclusion
Upon consideration of all relevant arguments and law, the court is of the opinion that each Defendant must be given the opportunity to individually and independently defend itself against the allegation that it was part of a conspiracy. Therefore, certification of a defendant class is not appropriate and is hereby DENIED. Plaintiff's have carried their burden as to the Rule 23 elements, and, therefore, the motion to certify a Plaintiff class pursuant to Rule 23(b)(3) is hereby CONDITIONALLY GRANTED, pending the court's adoption of a manageable trial plan.
It is so ORDERED.