Stammco, L.L.C. v. United Tel. Co. of Ohio, Addressing Rule 23 Requirements for Class Certification in Ohio

by BakerHostetler
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After eight years and two visits, the Ohio Supreme Court has issued an opinion that not only addresses key developments in federal class action jurisprudence, but also decided the underlying class certification question. The resulting opinion will have a major impact on Ohio class action law in all substantive areas, but will certainly impact employment law.

Writing for a 5-2 majority of the Court, on July 16, 2013 Justice Sharon Kennedy ruled in Stammco, L.L.C. v. United Tel. Co. of Ohio, (“Stammco II”), that the trial court acted properly in refusing to permit the case to proceed as a class action but for a different reason than those the trial court stated – because the proposed amended class definition did not meet Rule 23 requirements. Consequently, the Ohio Supreme Court reversed the court of appeals and reinstated the order of the trial court overruling plaintiffs’ motion to amend the class definition, effectively decertifying the class action.

Background

The case was brought in 2005 by Stammco, L.L.C. and its owners Kent and Carrie Stamm against United Telephone Company of Ohio (“UTO”), the provider of both their local and long-distance service. The plaintiffs’ complaint alleged that their UTO bills contained unauthorized charges from third parties which constituted “cramming”. Plaintiffs sought injunctive relief and compensatory damages for a broadly defined class of UTO subscribers.

The History

Initially, the trial court had certified the class as defined and the court of appeals affirmed, but only under Rule 23(B)(3). On appeal, the Ohio Supreme Court reversed, holding that the class definition failed to “readily identify” prospective members and was ambiguous. The Court also held that the class was not readily identifiable because “individual determinations” would be needed to ascertain if the third party charges were authorized and more than reasonable effort was required. Stammco L.L.C. v. United Tel. Co. of Ohio, 125 Ohio St. 3d 91 (2010) (“Stammco I”). The Court reversed the judgment of the court of appeals and remanded the case to the trial court to redefine the class. UTO’s other arguments, however, were not addressed by the Supreme Court at that time.

On remand, the plaintiffs offered an amended class definition but after extensive briefing and an oral hearing the trial court denied the amended motion for class certification. Plaintiffs appealed claiming the trial court’s denial was improper, in part, because some of the trial court’s grounds were improper “incursions into the merits of this case.” The court of appeals reversed. The Ohio Supreme Court ultimately granted UTO’s second discretionary appeal.

Stammco II Opinion

 In Stammco II the court analyzed Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and other recent U.S. Supreme Court precedent concluding that “at the certification stage in a class-action lawsuit, a trial court must undertake a rigorous analysis, which may include probing the underlying merits of the plaintiff’s claim, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Civ. R. 23.”

As to the trial court’s order, Stammco II found that when considered in light of the proposed amended class definition, the evidence, the requirements of Rule 23 and case law on cramming, “that the trial court’s order rejecting the amended class definition was correct.” The court also held that a reviewing court ought not reverse a correct judgment merely because it was premised on erroneous reasons.

The court in Stammco II found that “the need for individualized determinations is dispositive in that the class did not comport with Civ. R. 23.” Further, a second remand to the trial court “merely to reach an inevitable result” would not have been productive and would only delay final resolution of the more than eight year old case.

After analyzing the UTO data, the court recognized that it “provided no probative evidence that would assist in identifying unauthorized charges from third-party providers” that might appear on UTO’s phone bills. No formula could be applied to identify responsible third parties or unauthorized charges. So, “because ascertaining whether third-party charges are authorized will require individualized determinations, common issues do not predominate”, as required by Ohio Rule 23(B)(3). And, because the amended class definition was overbroad and failed to meet the predominance requirement, the court reversed. In his dissent, Justice Paul Pfeifer declared that the court’s decision “fits with the recent jurisprudence of the United States Supreme Court” and limits the usefulness of Rule 23. Justice Pfeifer noted that he also dissented in Stammco I. Justice William O’Neill concurred in Justice Pfeifer’s opinion.

BakerHostetler represented UTO and the Appellants in this case.

Bottom Line: The Stammco II opinion updates Ohio class action jurisprudence and brings the state in line with the U.S. Supreme Court precedent as well as the long-standing requirement that a trial court must conduct a “rigorous analysis” at the certification stage to determine if a case meets Rule 23’s requirements. Stammco II also will help standardize Ohio class action requirements as they relate to employment-related actions, particularly in the discrimination and wage and hour areas.

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