Johnsons Sales Company, Inc., Kent Johnsons Warehouse Showroom, Inc., Johnsons Warehouse Showroom, Inc., and Best Buy Home Furnishings, Inc. v. Wanda Harris, on Behalf of Herself and Those Similarly Situated, and Decorrien Fleming
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SUPREME COURT OF ARKANSAS
No.
06-1237
JOHNSON’S SALES COMPANY, INC.,
KENT JOHNSON’S WAREHOUSE
SHOW ROOM, INC., JO HNSON’S
WAREHOUSE SHOWROOM, INC.,
AND BEST BUY HOME FURNISHINGS,
INC.,
APPELLANTS;
Opinion Delivered JUNE 28, 2007
APPEAL FROM THE HEMPSTEAD
COUNTY CIRCUIT COURT;
NO. CV-2002-263-2;
HON.
DUNCAN
MCRAE
CULPEPPER, JUDGE;
VS.
WANDA HARRIS, ON BEHALF OF
HERSELF AND THOSE SIMILARLY
SITU ATED , AN D DEC O R R IEN
FLEMMING,
APPELLEES;
AFFIRMED.
DONALD L. CORBIN, Associate Justice
Appellants Johnson’s Sales Company, Inc., Kent Johnson’s Warehouse Showroom,
Inc., Johnson’s Warehouse Showroom, Inc., and Best Buy Home Furnishings, Inc.
(collectively “Johnson’s”), appeal from the Hempstead County Circuit Court’s order granting
class certification under Ark. R. Civ. P. 23. On appeal, Johnson’s raises three arguments for
reversal: the trial court abused its discretion in finding that the elements of (1) commonality,
(2) predominance, and (3) superiority supported class certification.
Because this is an
interlocutory appeal pursuant to Ark. R. App. P.–Civ. 2(a)(9), our jurisdiction is proper under
Ark. Sup. Ct. R. 1-2(a)(8). We find no error and affirm.
Appellees Wanda Harris and Decorrien Fleming (collectively “Harris”), as individuals
who entered into and held purchase agreements with Johnson’s retail stores to purchase
furniture through periodic payments, filed a class-action complaint against Johnson’s.1
Specifically, Harris claimed that, under the purchase agreements, Johnson’s charged an interest
rate in excess of that allowed by article 19, section 13 of the Arkansas Constitution. Harris
further alleged that class certification was proper because Johnson’s eight retail stores also
charged other customers usurious rates during the same time period.2
On May 21, 2004, and July 29, 2004, hearings were held on the issue of class
certification. After full consideration of all the evidence, briefs, and arguments submitted in
support of and in opposition of the motion for class certification, the trial court granted class
certification and entered specific findings of fact and conclusions of law respecting class
certification. Furthermore, the circuit court defined the class as follows:
All persons who entered into or held purchase agreements with eight (8) retail
stores owned by Defendants to finance goods through periodic payments from
July 24, 1997, to present and whose purchase agreements state on their face an
“Annual Percentage Rate” in excess of the Discount Rate on 90-Day
Commercial Paper as promulgated by the Federal Reserve Bank in St. Louis,
Missouri, in effect on the date that their purchase agreements were signed.
On appeal, both parties and the circuit court have stipulated that the proposed class was
intended to state:
All persons who entered into or held purchase agreements with eight (8) retail
stores owned by Defendants to finance goods through periodic payments from
July 24, 1997, to present and whose purchase agreements state on their face an
“Annul Percentage Rate” in excess of five percent (5%) per annum above the
Discount Rate on 90-Day Commercial Paper as promulgated by the Federal
1
Harris’s original complaint was filed on December 4, 2002. A final amended complaint was filed
on July 29, 2005.
2
Harris’s motion for class certification was originally filed on January 2, 2004. An amended motion
for class certification was filed on November 19, 2004.
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Reserve Bank in St. Louis, Missouri, in effect on the date that their purchase
agreements were signed. [Emphasis supplied.]
On appeal, Johnson’s argues that the circuit court erred in certifying the underlying
case as a class action. Specifically, it asserts that the circuit court abused its discretion in
finding that the Rule 23 requirements of (1) commonality, (2) predominance, and (3)
superiority were met.
Circuit courts are given broad discretion in matters regarding class certification and we
will not reverse a circuit court’s decision to grant or deny class certification absent an abuse
of discretion. Beverly Enters.-Ark., Inc. v. Thomas, ___ Ark. ___, ___ S.W.3d ___ (June 21,
2007). When reviewing a circuit court’s class-certification order, this court reviews the
evidence contained in the record to determine whether it supports the circuit court’s decision.
Id. This court does not delve into the merits of the underlying claims at this stage, as the issue
of whether to certify a class is not determined by whether the plaintiff has stated a cause of
action for the proposed class that will prevail. Id.
Rule 23 provides the requirements for class certification. Specifically, the following
six requirements must be met before a lawsuit can be certified as a class action under Rule 23:
(1) numerosity; (2) commonality; (3) typicality; (4) adequacy; (5) predominance; and (6)
superiority. See Beverly, ___ Ark. ___, ___ S.W.3d ___. As stated above, Johnson’s is only
challenging the circuit court’s ruling as to three of these criteria: commonality, predominance,
and superiority.
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Commonality
Rule 23(a)(2) requires the circuit court to make a determination that “there are
questions of law or fact common to the class.” Ark. R. Civ. P. 23(a)(2). This court’s case
law establishes that this requirement be case specific. See Van Buren Sch. Dist. v. Jones, 365
Ark. 610, ___ S.W.3d ___ (2006). Rule 23(a)(2) does not require that all questions of law
or fact be common, but rather the standard is that there need be only a single issue common
to all members of the class. Id. Moreover, when the party opposing the class has engaged in
some course of conduct that affects a group of persons and gives rise to a cause of action, one
or more of the elements of that cause of action will be common to all of the persons affected.
Id.
Here, the class is defined as all persons who entered into or held purchase agreements
with Johnson’s and whose purchase agreements state on their face an Annual Percentage Rate
(APR) in excess of five percent per annum above the discount rate on 90-day commercial
paper. Thus, there clearly is a common usury claim that runs amongst all class members.
Consequently, the circuit court did not abuse its discretion in finding that the commonality
element was satisfied.
Furthermore, Johnson’s argument that the threshold question of whether or not a
prospective class member actually paid interest in excess of the maximum lawful rate cannot
be answered by the common questions of law or fact found by the circuit court is without
merit. This argument fails for two reasons. First, Johnson’s has not challenged the class
definition and the class definition is very clear that class members are individuals who have
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entered into purchase agreements that, on their face, contain an APR in excess of five percent
above the discount rate.3 Second, just as the circuit court determined, Johnson’s argument
would require this court to go to the merits of the case and this is simply not proper in
determining if class certification was proper. See Beverly, ___ Ark. ___, ___ S.W.3d ___.
Therefore, the circuit court did not abuse its discretion in finding that the element of
commonality supported class certification.
Predominance
Rule 23(b) requires that “the questions of law or fact common to the members of the
class predominate over any questions affecting only individual members[.]” Ark. R. Civ. P.
23(b). This court has explained that the starting point in examining the predominance issue
is whether a common wrong has been alleged against the defendant. See Beverly, ___ Ark.
___, ___ S.W.3d ___.
If a case involves preliminary, common issues of liability and
wrongdoing that affect all class members, the predominance requirement of Rule 23 is
satisfied even if the circuit court must subsequently determine individual damage issues in
bifurcated proceedings. Id. Moreover, this court has recognized that a bifurcated process of
certifying a class to resolve preliminary, common issues and then decertifying the class to
3
It should be noted that in its reply brief, Johnson’s argues that the class definition reaches the
underlying merits of the usury claim and must fail in accordance with the reasoning of Southwestern Bell Yellow
Pages v. Pipkin Enterprises, Inc., 359 Ark. 402, 198 S.W.3d 115 (2004). While this argument may be
considered a response to a portion of Harris’s commonality argument that the class definition does not
consider the merits of the underlying usury claim, Johnson’s is essentially raising the class-definition argument
for the first time in its reply brief. This court will not consider arguments made for the first time in the
appellants’ reply brief because the appellees are not given a chance to rebut the argument. See Coleman v.
Regions Bank, 364 Ark. 59, 216 S.W.3d 569 (2005).
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resolve individual issues, such as damages, is consistent with Rule 23. Id. Moreover, this
court has repeatedly stated:
[t]he predominance element can be satisfied if the preliminary, common issues
may be resolved before any individual issues. In making this determination, we
do not merely compare the number of individual versus common claims.
Instead, we must decide if the issues common to all plaintiffs “predominate
over” the individual issues, which can be resolved during the decertified stage
of bifurcated proceedings.
Id. at ___, ___ S.W.3d at ___. See also Van Buren, 365 Ark. 610, ___ S.W.3d ___. Thus, the
question is whether there are overarching issues that can be addressed before resolving
individual issues. Beverly, ___ Ark. ___, ___ S.W.3d ___. However, if preliminary issues are
individualized, then the predominance requirement is not satisfied. See id. Indeed, a case that
presents numerous individual issues regarding the defendants’ conduct, causation, injury, and
damages will best be resolved on a case-by-case basis. Id.
In the present case, as stated above, a common wrong – the usury claim – is alleged
against Johnson’s. Johnson’s claims that predominance cannot be met because the usury
question for each prospective class member will require the court to examine the payment
history of each customer to determine the actual interest rate at which he repaid his loan.
This argument is flawed.
First, as this court has explained, if a case involves preliminary, common issues of
liability and wrongdoing that affect all class members, the predominance requirement is
satisfied even if the circuit court must subsequently determine individual damage issues in
bifurcated proceedings. See id. Here, there is clearly an overlying common wrong alleged
against Johnson’s.
Second, the fact that Johnson’s may bring affirmative defenses and
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counterclaims against individual members of the class does not disqualify the case from
certification. The predominance element can be satisfied if the preliminary, common issues
may be resolved before individual issues, and the question is whether this is an overarching
issue that can be addressed before resolving individual issues. Here, the usury claim is such
an overarching issue. Lastly, Johnson’s predominance argument, much like its commonality
argument, would require this court to delve into the merits of the case, which we will not do.
Consequently, the circuit court did not abuse its discretion in concluding that the need to
resolve the usury question common to each class member outweighed the possibility of
individual defenses, such that the predominance requirement was satisfied.
Superiority
Rule 23(b) requires “that a class action is superior to other available methods for fair
and efficient adjudication of the controversy.”
Ark. R. Civ. P 23(b). This court has
repeatedly held that the superiority requirement is satisfied if class certification is the more
“efficient” way of handling the case, and it is fair to both sides. See Beverly, ___ Ark. ___, ___
S.W.3d ___; Van Buren, 365 Ark. 610, ___ S.W.3d ___. Where a cohesive and manageable
class exists, we have held that real efficiency can be had if common, predominating questions
of law or fact are first decided, with cases then splintering for the trial of individual issues, if
necessary. Id. This court has further stated that when a trial court is determining whether
class-action status is the superior method for adjudication of a matter, it may be necessary for
the trial court to evaluate the manageability of the class. Id. Furthermore, the avoidance of
multiple suits lies at the heart of any class action. Beverly, ___ Ark. ___, ___ S.W.3d ___.
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Here, the circuit court found that the superiority requirement was satisfied because
real efficiency will be achieved in this case if the common, predominating question of usury
is decided first, with consideration of individual claims to be taken up later. Johnson’s
argument is primarily that the circuit court is unable to determine the amount of interest
charged from the face of the purchase agreements and, consequently, each and every class
member would have to come forth to prove the amount “charged.” This argument is
without merit as members of the class are determined based upon what the APR is on the face
of the purchase agreement. Johnson’s has not challenged this class definition, thus there is no
need for the circuit court to determine the actual amount of interest charged. Moreover, to
examine the superiority issue as argued by Johnson’s would again require this court to look
into the merits of the case.
Additionally, in the spirit of class actions, real efficiency can be had if common,
predominating questions of law or fact are first decided, with cases then splintering for the trial
of individual claims. This is such a case. As the circuit court stated, because the individual
claims amounts may be small, individual suits are inappropriate and a class action is a superior
way to resolve the claims of the class members. This was not an abuse of discretion because
a class action is the superior method to resolve the overarching usury claim common to all
class members. Moreover, a class action is fair to both sides in this case, as it is a means for
all class members to have their claims heard, and Johnson’s will not have to defend against the
same assertion of liability in a multitude of different lawsuits. As this court has explained, the
class-action procedure is judicially efficient in resolving not only common claims but also
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common defenses. See The Money Place, LLC v. Barnes, 349 Ark. 518, 78 S.W.3d 730 (2002).
Therefore, the circuit court did not abuse its discretion in finding that the superiority
requirement was satisfied.
Based upon the foregoing reasons, we affirm the circuit court’s order granting class
certification.
Affirmed.
H ANNAH, C.J., and G LAZE, J., dissent.
Tom Glaze, J., dissenting. I disagree that this is a proper class under Ark. R. Civ. P. 23. The
majority correctly posits that, as a general rule, a claim for usury is determined when the
“contract [is] entered into.” Ark. Const. art. 19, §13; see also General Contract Corp. v. Duke,
223 Ark. 938, 270 S.W.2d 918 (1954)(“our cases hold that the transaction is to be judged at
the time the contract is entered into, and not thereafter.”).
The majority, however,
mistakenly assumes that the face of the contract alone is all the evidence that is required to
determine whether a usurious rate was charged at the time the contract was entered into. I
find no case law to suggest this proposition. In fact, Arkansas case law indicates that, in order
to determine whether a rate is usurious, the language in the contract must be read in context
of its stated terms and how allocation of payments were made pursuant to the note. See
Cooprider v. Security Bank, 319 Ark. 75, 77, 890 S.W.2d 240, 242 (1994). In Cooprider, supra,
this court stated:
The chancellor found the renewal note usurious because the terms of the loan
agreement itself were usurious. Appellants rely on Dillon v. Resolution Trust
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Corp., 306 Ark. 173, 811 S.W.2d 765 (1991). In Dillon, we said the test of
whether the note is usurious is judged as of the time the note was made.
Appellants earnestly insist that language must govern in this case. But, as always,
it must be read in context, and in Dillon it is clear that by both the terms of the
note and the allocation of payments made pursuant to the note, a usurious rate of
interest was being collected from the borrower. That did not occur in this case.
Id. (emphasis added). Stated simply, there is nothing in our case law or in Article 19, § 13
that requires the examining court to only look at the face of the contract alone in determining
whether a usurious interest rate was “charged.”
Here, at the time the contract was entered into, the contract did reflect an APR rate
that was facially usurious. However, evidence presented to the circuit court also indicated
that, in a “retail installment contract with pre-computed interest,” like the contract that Harris
entered into in this case, the amount of interest “reflected” on the face of the agreement, at
the time the contract was formed, might not indicate the actual amount of interest “charged.”
Paula McMahan, an employee of Johnson’s who was responsible for setting the in-house
interest rate on the corporate computer system, testified to the following before the circuit
court:
C OUNSEL:
Do you know of any difference between what the APR
rate shown on the contract is, is there any difference
between the percentage of APR and the percentage of
interest that’s charged interest rate that’s charged on any
contract?
M S. M CM AHAN:
Yes, that’s what I was telling you before.
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Previously, Ms. McMahan had attested that the APR rate provided on the face of the
“installment contract with pre-computed interest” was merely an estimate of the amount to
be charged at the time the contract was entered into, and not the actual amount “charged.”
Tom Garrison, an employee of the Computer Services Company, corroborated Ms.
McMahan’s testimony that the “stated” interest on the contract was only an estimate of the
amount to be charged at the time the contract was entered into, and the actual amount
“charged” often varied. In other words, evidence before the circuit court reflected that the
amount “charged” at the time of the contract could not be determined solely from the face
of the purchase agreement, and that analysis is consistent with our case law.4 By the majority’s
holding, our judicial hands are forever tied to the contract terms, never being permitted to
consider anything beyond the face of the agreement.
The superiority requirement contained in Ark. R. Civ. P. 23(b) states that a class
action may be maintained if the action is “superior to other available methods for the fair and
efficient adjudication of the controversy.” The superiority requirement for class certification
will be satisfied if class certification is the more “efficient” way of handling the case, and it is
fair to both sides. Fraley v. Williams Ford Tractor & Equip., 339 Ark. 322, 333, 5 S.W.3d 423,
430 (1999). See also Alba Conte & Herbert Newberg, Newberg on Class Actions § 4:27 (4th
Ed. 2002).
4
Harris’s own expert, Andy Terry, Ph.D., also testified regarding the APR stated on the purchase
agreement. In essence, Dr. Terry’s testimony that one must “assum[e] that the customers make payments
according to the contract” compels a conclusion that the stated interest rate is merely an estimate and is not
necessarily equivalent to the amount “charged.”
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Given this potential discrepancy between the actual interest stated and the interest
ultimately charged, the circuit court would be required, with respect to every individual class
member, to determine the difference between the “stated” interest rate and “charged”
interest. Stated simply, the circuit court would have to perform a mathematical analysis on
each and every purchase agreement in order to determine whether the interest charged was
usurious. Thus, proceeding as a class action would not be an “efficient” method of handling
this case. See Williamson v. Sanofi Winthrop Pharm., 347 Ark. 89, 101, 60 S.W.3d 428, 436
(2001)(because the trial court would have to hear each class member’s testimony regarding
his or her understanding about which paperwork applied, as well as consider all of the
evidence from each plaintiff regarding whether he or she agreed to a contract, a class action
could not be superior method of handling the case).
Despite the majority’s contention otherwise, our analysis does not require delving into
the merits; in other words, it does not require determining what the class members ultimately
will pay or have paid in interest. Rather, what the majority fails to require, and what the law
does require, is that the terms of the contract be examined to reveal whether the contract
obligates the borrower to pay a rate in violation of the usury provision of the constitution.
The question of what the borrower is obligated to pay is not answered by looking at the face
of the contract as the majority concludes.
Because I would reverse on the superiority requirement, I respectfully dissent.
H ANNAH, C.J., joins.
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