NUMBER 13-99-053-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI

____________________________________________________________________

SERVICE LIFE AND CASUALTY INSURANCE COMPANY, Appellant,

v.

GILBERTO ECHAVARRIA, SR. AND DOLORES

ECHAVARRIA, INDIVIDUALLY AND ON BEHALF

OF ALL OTHER PERSONS SIMILARLY SITUATED, Appellees.

____________________________________________________________________

On appeal from the 206th District Court of Hidalgo County, Texas.

____________________________________________________________________

O P I N I O N

Before Justices Dorsey, Hinojosa, and Chavez Opinion by Justice Hinojosa

This is an interlocutory appeal from an order granting class certification.⁽¹⁾ By five issues, appellant, Service Life and Casualty Insurance Company ("SLCIC"), contends the trial court abused its discretion: (1) by adopting an improper class definition; (2) by finding the class so numerous that joinder of all members is impracticable; (3) by finding commonality of legal and factual questions; (4) by finding predominance of common questions over individual ones; and (5) by finding the class representatives' claim typical of the claims of the class. By a sixth issue, appellant contends the granting of class certification violates its due process rights under the Texas and U.S. Constitutions, and its right to a jury trial under the Texas Constitution.

A. Background

SLCIC sells credit life and disability insurance policies to consumers who purchase automobiles and boats through various dealers of such vehicles. SLCIC trains its agents, who are also employees of the dealerships, how to sell the policies. Appellees, Gilberto and Dolores Echavarria, purchased a used 1985 Suzuki Sidekick pickup truck from Frank Smith Toyota on May 2, 1996. At the time of the purchase, they signed a retail installment contract. Mrs. Echavarria was the primary debtor on the contract; Mr. Echavarria was the co-signer. As part of the purchase, the Echavarrias also purchased credit life and credit disability insurance from SLCIC.

The uncontroverted facts show that in August 1996, Mr. Echavarria contracted tuberculosis and became disabled. In October 1996, Toyota Motor Credit repossessed the Echavarrias' truck. The parties disagree about the chain of events between these two occurrences, but it is clear the Echavarrias believed, through the representations of the SLCIC agent, that Mr. Echavarria was also covered under the credit disability policy. The Echavarrias filed suit against SLCIC and others, claiming SLCIC trained its sales agents to misrepresent the policies' coverage and manipulate the application process in order to be able to later deny coverage if a claim was made. On July 1, 1998, the Echavarrias filed their sixth amended class action petition and request for class certification. After a hearing on the motion, the trial court signed an order granting class certification.⁽²⁾ The order included findings of fact and conclusions of law.

B. Class Certification

By interlocutory appeal, a party may complain of all matters pertinent to the trial court's class certification. Rio Grande Valley Gas Co. v. City of Pharr, 962 S.W.2d 631, 637 (Tex. App.--Corpus Christi 1997, writ dism'd w.o.j.). The certification order will be reversed only if the record shows a clear abuse of discretion. Central Power & Light Co. v. City of San Juan, 962 S.W.2d 602, 607 (Tex. App.--Corpus Christi 1998, writ dism'd w.o.j.). We will find an abuse of discretion if the record shows the trial court acted arbitrarily or unreasonably, or without reference to any guiding principles. Id. (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985)). A clear failure by the trial court to analyze or apply the law correctly also constitutes an abuse of discretion. Id. (citing Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992)). The reviewing court must view the evidence in the light most favorable to the trial court's ruling and indulge every presumption in favor of that ruling. Id. (citing Health & Tennis Corp of Am. v. Jackson, 928 S.W.2d 583, 587 (Tex. App.--San Antonio 1996, writ dism'd w.o.j.); Vinson v. Texas Commerce Bank -- Houston, Nat'l Ass'n, 880 S.W.2d 820, 823 (Tex. App.--Dallas 1994, no writ); Dresser Indus., Inc. v. Snell, 847 S.W.2d 367, 371-72 (Tex. App.--El Paso 1993, no writ)).

A member of a class may sue or be sued as a representative party of the class only if all the requirements of rule 42(a) are satisfied. Tex. R. Civ. P. 42(a). These requirements are:

(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.

Id. Additionally, at least one of the enumerated requirements set forth in rule 42(b) must be met. Tex. R. Civ. P. 42(b). The trial court found that rule 42(b)(4) had been satisfied. That rule provides:

(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

* * * * *

(4) the court finds 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 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.

Tex. R. Civ. P. 42(b)(4).

The trial court is charged with the initial task of identifying the substantive law issues and determining whether the character and nature of the class satisfies the requirements of the class action procedure. Central Power & Light, 962 S.W.2d at 608. The trial court is not required to weigh the substantive merit of each class member's claim. Id. Moreover, the proponent of the class is not required to make an extensive evidentiary showing in support of the motion for certification. Id. Accordingly, it is not necessary that the plaintiffs prove a prima facie case of liability to be entitled to class certification. Id. In determining whether a class action is appropriate, the trial court is not limited to evidence that would be admissible at trial, but may consider the pleadings and "other material" in the record. Id.

C. Adequacy of Class Definition

By its first issue, SLCIC contends the trial court's class definition is so vague and amorphous that it is no definition and creates a "fail-safe" class. In its order of December 18, 1998, the trial court defined the class as:

all consumers in Texas who entered into retail installment contracts in Texas for the purchase of goods and services, including Service Life and Casualty Insurance Companies' credit life and/or credit health and insurance products, which insurance products were sold directly to the consumer by Service Life and Casualty Insurance Company through its agents, employees, and/or representatives from 1991 to the present, and who allege such products were sold by means of business practices which enable Service Life and Casualty Insurance Company to construct a pretext to deny coverage to each such consumer for any claim(s) made, whether or not such consumer ever has a need to make a claim on the insurance products purchased (emphasis added).

SLCIC contends this definition makes membership in the class contingent upon a finding of liability against SLCIC.

The Texas Supreme Court has recently written on the requirements for proper class definition. Implicit in Rule 42 is the requirement that the trial court first determine whether there is an identifiable class, susceptible to a precise definition. Intratex Gas Co. v. Beeson, 2000 Tex. LEXIS 23, *10-*11 (Mar. 9, 2000); see also Graebel/Houston Movers, Inc. v. Chastain, 2000 Tex. App. LEXIS 2660, *7 (Tex. App.--Houston [1st Dist.], April 20, 2000). For a class to be properly defined, the class members must be clearly ascertainable by reference to objective criteria. Ford Motor Co. v. Sheldon, 2000 Tex. LEXIS 48, *23 (May 11, 2000); Intratex, 2000 Tex. LEXIS 23 at *13. While a class definition need not be so specific that every potential member can be identified at the commencement of the action, a class cannot be defined by criteria that are subjective or that require an analysis of the merits of the case because class membership cannot be presently ascertainable. Sheldon, 2000 Tex. LEXIS 48 at *23. Because class determinations generally involve considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action, the trial court must be able to make a reasoned determination of the certification issues. Intratex, 2000 Tex. LEXIS 23 at *16. In Intratex, the supreme court stated:

A proposed class definition that rests on the paramount liability question cannot be objective, nor can the class members be presently ascertained; when the class definition is framed as a legal conclusion, the trial court has no way of ascertaining whether a given person is a member of the class until a determination of ultimate liability as to that person is made. . . . Certifying a fail-safe class inevitably creates one-sided results. If the defendant is found liable, class membership is then ascertainable and the litigation comes to an end. A determination that the defendant is not liable, however, obviates the class, thereby precluding the proposed class members from being bound by the judgment.

Intratex, 2000 Tex. LEXIS 23 at *16-*18.

Furthermore, the use of state-of-mind language in a class definition "serves as a shorthand method of alerting the court and the parties that there might be difficulty in identifying class members." Sheldon, 2000 Tex. LEXIS 48 at *25-*26 (citing Simer v. Rios, 661 F.2d 655, 670 n. 25 (7th Cir. 1981)). Sheldon involved a class initially defined by the trial court as purchasers of certain vehicles whose peeling paint "was caused by a defective paint process," and then redefined by the court of appeals as the purchasers of certain vehicles with peeling paint "who allege the peeling or flaking was caused by a defective paint process;" the supreme court found the trial court's definition created an impermissible "fail-safe" class, and that the court of appeals' definition was also defective because

there are no realistic means for the trial court to determine which class members "allege that the peeling or flaking was caused by a defective paint process." The trial court would have to inquire individually into each proposed class member's state of mind to ascertain class membership under [this] definition.

Sheldon, 2000 Tex. LEXIS 48 at *26-*27.

In the instant case, the class is defined as SLCIC customers "who allege [the insurance products in question] were sold by means of business practices which enable [SLCIC] to construct a pretext to deny coverage." Because membership in the class, as currently defined, depends upon a determination of each class member's state of mind, it is unacceptable under the standards set forth in Sheldon; even if the state-of-mind language were removed, the class definition would still be impermissible under Intratex because it creates a "fail-safe" class.

Because the standards for proper class definition recently set out by the supreme court in Intratex and Sheldon have not been satisfied, we hold the trial court abused its discretion by certifying this class, as defined.

We sustain appellant's first issue. In light of our disposition of this issue, it is not necessary that we address appellant's remaining issues. Tex. R. App. P. 47.1.

"Remanding for the trial court to consider redefinition is consistent with the trial court's discretion with regard to class certification and its responsibility to manage a class action." Intratex, 2000 Tex. LEXIS 23 at *21 Therefore, we remand this case to the trial court for it to determine if the definitional problems in this case can be eliminated.

FEDERICO G. HINOJOSA

Justice

Do not publish. Tex. R. App. P. 47.3.

Opinion delivered and filed this

the 17th day of August, 2000.

1. Tex. Civ. Prac. & Rem. Code Ann. § 51.014 (3) (Vernon 1998).

2. The trial court signed this order on December 11, 1998. On December 18, 1998, the court signed a second order because a time limitation had been inadvertently omitted from the original order.