FirstPlus Home Loan Owner 1997-1 et al. v. Stacy Bryant and Michael Bryant et al.
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SUPREME COURT OF ARKANSAS
No. 07-740
FIRSTPLUS HOME LOAN OWNER
1997-1, ET AL,
APPELLANTS,
VS.
STACY BRYANT, ET AL, and MICHAEL
BRYANT,
APPELLEES,
Opinion Delivered February
28, 2008
APPEAL FROM THE GREENE
COUNTY CIRCUIT COURT,
NO. CV02-42,
HON. CHARLES DAVID BURNETT,
JUDGE,
AFFIRMED.
JIM HANNAH, Chief Justice
This is an appeal from an order certifying a class action. The cause of action by the
representative plaintiffs, individually, and on behalf of the members of each subclass, seeks
damages arising from the payment by them of interest that they allege is usurious to the trust
or trusts and their trustees that own or owned their loans. The cause of action also seeks
damages for fraud arising from the payment by the plaintiffs and the members of each subclass
of fees to record loan documents in excess of the amounts actually paid by the originators to
record the documents. The circuit court certified five subclasses with each subclass consisting
of a class representative or representatives and class members who pay or have paid interest
to the trust or trusts identified in the subclass that own or owned their mortgage notes. The
subclasses were defined as follows:
1.
(a)
Arkansas residents who entered into promissory note contracts
secured by second mortgages on their homes in Arkansas that
were assigned to U.S. Bank, as trustee for, and owned by
FirstPlus Home Loan Owner Trusts 1997-1, 1997-2, 1997-3,
1997-4, 1998-3, 1998-4, and Remodeler’s Home Improvement
Asset-Backed Certificate Series 1996-1;
(b)
(c)
Arkansas residents who entered into promissory note contracts
secured by second mortgages on their homes in Arkansas that
were assigned to U.S. Bank, as trustee for, and owned by
Keystone Owner Trust 1998-P2;
(d)
Arkansas residents who entered into promissory note contracts
secured by second mortgages on their homes in Arkansas that
were assigned to U.S. Bank, as trustee for, and owned by
Keystone Owner Trust 1997-P3;
(e)
2.
Arkansas residents who entered into promissory note contracts
secured by second mortgages on their homes in Arkansas that
were assigned to U.S. Bank, as trustee for, and owned by
Keystone Owner Trust 1998-P1;
Arkansas residents who entered into promissory note contracts
secured by second mortgages on their homes in Arkansas that
were assigned to U.S. Bank, as trustee for, and owned by United
National Home Loan Owner Trust 1999-1.
Arkansas residents who paid fees to record mortgages and the assignment
of mortgages, identified in subclasses (a) through (e), above.
Appellants are FirstPlus Home Loan Owner Trusts 1997-1, 1997-2, 1997-3, 1997-4,
1998-3, 1998-4, and the Remodeler’s Series 1996-1 Trust Fund; the Keystone Owner Trusts
1997-P3, 1998-P1, and 1998-P2; Wilmington Trust Company and U.S. Bank National
Association in their various capacities as Owner Trustee, Co-Owner Trustee, and Indenture
Trustee (“Trust Defendants”); and United National Home Loan Owner Trust 1999-1
(“United Trust”). Appellees are Stacy Bryant, individually and on behalf of those similarly
situated, and Michael Bryant; April and Gary Harmon, individually and on behalf of those
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similarly situated; Roy Dale Moomey, individually and on behalf of those similarly situated,
and Linda Moomey; Mark Petty, individually and on behalf of those similarly situated, and
Elizabeth Petty; Mark Cheney, individually and on behalf of those similarly situated, and Sara
Cheney; Dale Ferguson, individually and on behalf of those similarly situated, and Danielle
Ferguson; Billy Lawhon, individually and on behalf of those similarly situated; Pearlie Truly,
individually and on behalf of those similarly situated, and Delmore Truly; Terry Ferguson,
individually and on behalf of those similarly situated, and Julie Ferguson; and Stephen Davis,
individually and on behalf of those similarly situated.
On appeal, the Trust Defendants and United Trust argue that the circuit court erred
in certifying the underlying case as a class action. They raise several points and subpoints on
appeal, each of which challenges the circuit court’s conclusion that the plaintiffs met the
requirements of Rule 23 of the Arkansas Rules of Civil Procedure. The gist of the appellants’
arguments is that individual, threshold issues preclude class certification. Because this is an
interlocutory appeal pursuant to Ark. R. App. P.—Civ. 2(a)(9), our jurisdiction is proper
pursuant to Ark. Sup. Ct. R. 1-2(a)(8). We find no error and affirm.
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. See Asbury Auto. Group, Inc. v. Palasack, 366 Ark. 601, 237 S.W.3d 462 (2006).
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. See id.
This court does not delve into the merits of the underlying claims at this stage, as the issue of
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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. See American Abstract & Title Co. v. Rice, 358 Ark. 1,
186 S.W.3d 705 (2004).
Rule 23 provides in relevant part:
(a) Prerequisites to Class Action. 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 and their counsel will fairly and adequately protect the interests of the
class.
(b) Class Actions Maintainable. An action may be maintained as a class action if
the prerequisites of subdivision (a) are satisfied, and the court finds 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. At an early practicable time after the commencement of an action
brought as a class action, the court shall determine by order whether it is to be
maintained. For purposes of this subdivision, “practicable” means reasonably
capable of being accomplished. An order under this section may be altered or
amended at any time before the court enters final judgment. An order
certifying a class action must define the class and the class claims, issues, or
defenses.
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 Asbury Auto. Group, supra.
Commonality
Rule 23(a)(2) requires the circuit court to make a determination that “there are
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questions of law or fact common to the class.” Quoting from Professor Newberg’s treatise
on class actions, this court has explained:
[T]he common question prerequisite is interdependent with the notion
of joinder impracticality under Rule 23(a)(1). Consideration of the common
question issue requires an answer to the question: Common to whom?
...
Rule 23(a)(2) does not require that all questions of law or fact raised in
the litigation be common. The test or standard for meeting the rule 23(a)(2)
prerequisite is . . . that is there need be only a single issue common to all
members of the class . . . . 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.
Williamson v. Sanofi Winthrop Pharms., Inc., 347 Ark. 89, 96, 60 S.W.3d 428, 432 (2001)
(quoting Herbert B. Newberg, Newberg on Class Actions § 3.10 (3d ed. 1993)).
In its order, the circuit court found multiple common issues in this case, including but
not limited to the following: (1) whether Arkansas law applies to the mortgage notes of the
class, and if so, whether the mortgage notes are usurious under Arkansas law; (2) whether the
rates of interest on the mortgage notes of the plaintiffs and the class violate Arkansas’s public
policy; (3) what damages are recoverable for usury violations; (4) what defenses are available
to usury claims; (5) what statutes of limitations are applicable to claims for usury damages; (6)
whether prejudgment interest is recoverable on usury damages awards; (7) whether the
defendants are liable under principles of assignee liability, including the Home Ownership
Equity Act, 15 U.S.C. § 1641, for the claims asserted in this case; (8) whether the defendants
or their representatives acquired loans with unlawful interest rates from the originating
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lenders; (9) what was the applicable Federal Discount Rate in effect at the time of the making
of class loan; (10) whether subjective intent is admissible in the interpretation of unambiguous
uniform instruments, or relevant in the choice of law analyses that have been applied by
Arkansas courts; (11) whether usury recoveries by the class are subject to set-offs; (12) whether
there are exceptions to the application of usury laws based on considerations such as the
“benefit” to the borrowers; (13) whether absent class members are subject to counterclaims;
(14) whether class members were overcharged recording fees, and if so, whether this
constitutes a fraud; and (15) whether this fraud is chargeable to assignees.
The Trust Defendants argue that the class certification order should be reversed
because the few core common questions identified in the order cannot be answered en masse
and must be answered loan-by-loan. The Trust Defendants state that the class loans held by
them were originated by twenty-six different lenders and that as the lenders change, the claims
and defenses relating to the loans change. They contend that the inclusion of twenty-six
different lenders in the certified classes requires consideration of twenty-six different factual
and legal scenarios. Specifically, the Trust Defendants argue that the circuit court erred in
failing to exclude class members whose loans were originated by lenders other than Rosslare
Funding, Inc.1
In its order, the circuit court made the following findings:
1
Plaintiffs’ initial complaint requested certification of a class whose loans were all
originated by a single lender, Rosslare Funding, Inc. Plaintiffs’ third amended complaint
modified the class definition to include all Arkansas loans held by the Trust Defendants, whether
they were originated by Rosslare or some other lender.
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The defendants argue the class certification should exclude persons
whose loans were originated by lenders other than Rosslare. The Court
disagrees. Arkansas law is firmly established that usury injury arises from the
payment of usurious interest. Cooprider v. Security Bank, 319 Ark. 75, 78, 890
S.W.2d 240 (1994). Thus, usury damages and remedies may be recovered from
those that hold usurious loans and have been paid usurious interest pursuant to
those loans. Article 19, § 13(a) Arkansas Constitution. Here the representative
plaintiffs have alleged that they and the members of the subclasses, both
Rosslare and non-Rosslare borrowers, have paid usurious interest to the
defendant trusts identified in the subclasses that hold or held their loans, and
seek usury damages from these trusts and their trustees in the amounts and
manner provided by Arkansas law. Further, because the injury to the
representative plaintiffs and the members of their subclasses caused by the
payment of usurious interest by them to the trust that holds or held their loans
is the same, the class representatives in each subclass have standing to sue the
defendant trusts and their trustees on behalf of both Rosslare and non-Rosslare
borrowers. Accordingly, non-Rosslare borrowers cannot be excluded from the
class.
The circuit court did not abuse its discretion in concluding that the non-Rosslare
borrowers could not be excluded from the class. Because the plaintiffs allege that the
defendants charged usurious rates, not that the loan originators did so, the inclusion of nonRosslare borrowers does not destroy commonality.
The Trust Defendants next argue that the legal basis for the named plaintiffs’ claims
cannot be considered without first deciding which state’s law to apply to each transaction.
Appellees respond that the notes and mortgages of the class are unambiguous, uniform
instruments and that proof of subjective intent is not proper in the interpretation of such
instruments. They contend that the intent that is relevant in this case is the intent expressed
in the language of the notes and mortgages and that this intent can be determined on a classwide basis because the mortgagor notes of the plaintiffs and the class contain substantially the
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same language.
The circuit court rejected the Trust Defendants’ argument that the choice-of-law
determination had to be conducted on an individual, loan-by-loan basis, stating:
The Court agrees with plaintiffs’ analysis of the existence of common
questions at to choice of law. No party has contended that the mortgage notes
in this case are ambiguous. The Court concludes that whether the mortgage
notes express an intent as to applicable law can be determined from an
examination of the language of the mortgage notes, and that this can be done
on a class-wide basis, because the language of the mortgage notes of the class is
substantially the same. The Court further concludes from the testimony of Bill
Baggott [the former president of Rosslare] and the class representatives, that the
notes and mortgages of the plaintiffs and the class were solicited, negotiated,
processed, and closed in substantially the same manner, presenting common
questions of law or fact as to choice of law under any analysis that has been
applied by the Arkansas Supreme Court for determining choice of law.
The Trust Defendants cite Williamson v. Sanofi Winthrop Pharmaceuticals., Inc., 347 Ark.
89, 60 S.W.3d 428 (2001), and Arthur v. Zearley, 320 Ark. 273, 895 S.W.2d 928 (1995),
arguing that the holdings in these cases require individual inquiry in the present case and, thus,
preclude certification. We disagree. Neither of these cases involved a choice-of-law
question, and both are distinguishable from the instant case. In Williamson, we affirmed the
circuit court’s denial of an order of class certification in an action alleging breach of contract
relating to a bonus incentive program. We stated:
Several Arkansas cases have dealt specifically with the commonality issue
in a class-action certification appeal. In Cheqnet Systems, Inc. v. Montgomery, 322
Ark. 742, 911 S.W.2d 956 (1995), this court found that the commonality
requirement was satisfied where the class’s main claim, which applied to every
member of the class, was that Cheqnet violated the Fair Debt Collection Act
by collecting $10 more than it was allowed to collect on returned checks. In
Mega Life, supra, the court found that commonality was established through four
common questions dealing with the applicability of insurance to the class
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members. The court found that “if these issues are resolved in favor of the
class, the individual members will have suffered a common injury of paying
premiums for a void insurance policy.” Mega Life, 330 Ark. at 271. And, in
Farm Bureau Mutual Insurance, supra, this court again found that the
commonality issue was satisfied where the class members alleged that a statutory
violation occurred when they all had to pay “membership dues” to the Farm
Bureau Federation before insurance policies would be issued. In each of these
cases, this court found that the defendant’s act, independent of any action by
the class members, established a common question relating to the entire class
to certify the matter as a class action. In this case, however, Sanofi’s actions
cannot give rise to a cause of action for breach of contract without the
prerequisite of the creation of a contract, which necessarily requires each
plaintiff to show that a contract was formed between Sanofi and himself.
Therefore, before even reaching any common question about breach of
contract, each potential class member would have to establish the existence of
a contract between himself and Sanofi before ever reaching the issue of whether
that contract was breached. This does not lend itself to a class action, and
distinguishes this action from those grounded in fraud or misrepresentation.
Williamson, 347 Ark. at 96, 60 S.W.3d at 432-33. Thus, the question in Williamson as to each
class member was whether a contract existed. Here, the fact that mortgage notes were
executed by the class is not in dispute.
Arthur v. Zearley is also distinguishable. That case involved a medical-malpractice class
action that this court determined was not appropriate for class certification because of the
necessity to prove “informed consent” for each class member. In the present case, the
question is whether the mortgage notes express an intent to apply Arkansas law or whether
Arkansas law applies under an appropriate choice-of-law test. Appellees contend that this
question can be answered on a class-wide basis because the notes and mortgages of the class
are in writing and contain substantially the same language and because each lender has the
same or similar contacts with Arkansas. We agree, and we add that the mere fact that choice
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of law may be involved in the case of some parties living in different states is not sufficient in
and of itself to warrant a denial of class certification. See Security Benefit Life Ins. v. Graham,
306 Ark. 39, 44, 810 S.W.2d 943, 945 (1991).
Typicality
In Mega Life & Health Insurance Co. v. Jacola, 330 Ark. 261, 954 S.W.2d 898 (1997), we
noted that the typicality requirement is satisfied if the representative’s claim arises from the
same wrong allegedly committed against the members of the class. In addition, we stated:
We have also adopted the following explanation of the typicality requirement
taken from Newberg’s treatise on class actions:
Typicality determines whether a sufficient relationship
exists between the injury to the named plaintiff and the conduct
affecting the class, so that the court may properly attribute a
collective nature to the challenged conduct. In other words,
when such a relationship is shown, a plaintiff’s injury arises from
or is directly related to a wrong to a class, and that wrong
includes the wrong to the plaintiff. Thus, a plaintiff’s claim is
typical if it arises from the same event or practice or course of
conduct that gives rise to the claims of other class members, and if
his or her claims are based on the same legal theory. When it is
alleged that the same unlawful conduct was directed at or
affected both the named plaintiff and the class sought to be
represented, the typicality requirement is usually met irrespective
of varying fact patterns which underlie individual claims.
Id. (citing Herbert B. Newberg, Newberg on Class Actions, § 3.13, at pp. 166-67
(2d ed. 1985)) (emphasis added). Thus, when analyzing this factor, we focus
upon the defendant’s conduct and not the injuries or damages suffered by the
plaintiffs. Direct Gen., supra; Cheqnet, supra; Summons, supra.
Jacola, 330 Ark. at 274-75, 954 S.W.2d at 903-04.
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The Trust Defendants state that the class loans were originated by twenty-six lenders,
and it contends that the inclusion of these twenty-six lenders destroys typicality. We disagree.
Here, the common course of conduct that the appellees allege is the acquisition by the
defendant trusts of usurious loans and the appellees’ subsequent payment of usurious loan
installments to the defendants. The circuit court concluded that the claims of the class
representatives and the class members in each subclass arise from the same injury caused by the
payment by them of interest that they allege is usurious to the trust or trusts that own their
loans. Further, the circuit court found that the legal theories underlying the claims of the
plaintiffs and the class members alleging that the loans are usurious and charge fraudulent
recording fees are identical. The circuit court noted that, because the notes and mortgages of
the class representatives contain substantially the same language as those of the class, not only
are the incentives of the plaintiffs directly in line with those of the absent class members, but
the resolution of the plaintiffs’ claims will necessarily resolve the claims of the class. Finally,
the circuit court found that, with the division of the claims in this class into subclasses, the
claims of the class representatives and those on behalf of the class members against the trust
or trusts they alleged caused them injury are directly aligned. Accordingly, the circuit court
concluded that the test of typicality had been met. Because each of the claims arose from the
same wrong allegedly committed by the Trust Defendants and United Trust, the circuit court
did not abuse its discretion in determining that the claims of the class representatives are
typical of the claims presented in the class action.
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Adequacy
We have previously explained that the three elements of the adequacy requirement are:
(1) the representative counsel must be qualified, experienced, and generally able to conduct
the litigation; (2) that there be no evidence of collusion or conflicting interest between the
representative and the class; and (3) the representative must display some minimal level of
interest in the action, familiarity with the practices challenged, and ability to assist in decision
making as to the conduct of the litigation. Jacola, 330 Ark. at 275, 954 S.W.2d at 904.
The Trust Defendants and United Trust did not challenge the professional competence
of counsel to represent the plaintiffs. Additionally, no evidence was presented that the class
representatives had a conflict of interest with class members. United Trust did, however,
challenge the adequacy of the class representatives.
United Trust states that none of the named class representatives have claims arising
from loans issued by any lender except Rosslare and that contained within the United Trust
subclasses are twenty-one non-Rosslare originated loans. Therefore, United Trust argues that
the named class representatives, all of whose loans were originated by Rosslare, are inadequate
representatives of class members whose loans were originated by other lenders. Specifically,
United Trust contends that Joyce and Willie Turner are inadequate representatives. United
Trust states that, while the only lender the Turners sued is their own lender, Rosslare, they
also purport to bring claims on behalf of United Trust subclass members in relation to six or
seven non-Rosslare lenders with whom they have no ties. In support of its argument, United
Trust cites Farm Bureau Policy Holders v. Farm Bureau Mutual Insurance Co. of Arkansas, Inc., 335
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Ark. 285, 984 S.W.2d 6 (1998). In that case, a class representative had one type of insurance
policy but sought to represent persons with different coverage, although all of the coverage
was issued by the same insurer. We stated that we failed to see how the appellant “as class
representative can raise an issue on behalf of the class which pertains to insurance coverage
that he did not have.” Id. at 303, 984 S.W.2d at 15. United Trust contends that, like the
appellant in the Farm Bureau case, the Turners cannot raise an issue on behalf of class members
that pertains to lenders that are strangers to their loan and with which they did not deal.
Appellees respond that, although United Trust cites language from Farm Bureau
questioning how a class representative can raise a claim that he does not have, plainly the
Turners, like all class members, have a claim of usury against United Trust in the instant case.
We agree.
Furthermore, the circuit court specifically addressed United Trust’s arguments
regarding the Turners. The circuit court made the following findings:
United Trust has challenged the adequacy of Joyce and Willie Turner,
as representatives of the United Trust subclass. However, from their affidavits
and depositions, the Court concludes that Joyce and Willie Turner are likewise
adequate representatives.
Specifically, Joyce Turner testified in deposition that she is a high school
graduate and is gainfully employed by Klipsch, LLC as an inspector of stereo
equipment. She further testified that she read the complaint, looked at
Arkansas law to see how much interest they were overcharged, consulted with
her attorney, spent 5-10 hours prior to her deposition working on the case,
appeared at the deposition, and agreed to appear at trial. She stated that she
understood that her case against the defendants was for charging too much
interest and overcharging recording fees. She said she understood that the class
she is representing consisted of people with claims like hers, and understood
that her duties were to review documents and contact her lawyer as to
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questions that might help the case. Thus, although United Trust argues that
Ms. Turner has not displayed sufficient interest, the Court finds otherwise, and
concludes that Ms. Turner meets the test of adequacy.
The Court reaches the same conclusion with regard to adequacy of
Willie Turner to represent the United Trust subclass. Mr. Turner’s affidavit
and deposition show he has a GED degree, that he has taken college courses,
and that he is gainfully employed by Cooper Tire in Texarkana, Arkansas. Mr.
Turner testified in deposition that he filled out a questionnaire in 2002 stating
that he was interested in serving as a class representative and that he has read the
complaint and the law relating to interest rates. He further testified that he
understands that the complaint alleges the defendants overcharged interest and
recording fees, that he understands that the damages to be recovered are twice
the interest paid, and cancellation of future interest, that he understands that his
duties as a class representative are to find out what the case is about, what the
defendants have done wrong, to help his lawyer make decisions and to show
up in court. Mr. Turner testified that he feels that he can adequately represent
the class, and believes his claims are typical of those of the class, because his
claims and the claims of the class for overcharging interest and recording fees
are the same. From this, the Court finds that Mr. Turner knows what class of
people he will represent, has displayed more than a minimal level of interest in
the action, understands the practices challenged and has demonstrated an ability
to assist in decision making as to the conduct of the litigation. Accordingly, the
Court concludes that Mr. Turner is an adequate class representative.
Given that the circuit court found that the Turners had claims that were the same as
the other members of the class, it is clear that the circuit court believed that the Turners,
Rosslare borrowers, could represent the interests of the other class members, some of whom
were non-Rosslare borrowers. The claims—usury and fraud—are the same for all members
of this subclass. We hold that the circuit court did not abuse its discretion in finding that the
Turners were adequate class representatives of the United Trust subclass.
Numerosity
We discussed the numerosity requirement in BPS, Inc. v. Richardson, 341 Ark. 834,
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842, 20 S.W.3d 403, 406 (2000):
In Cheqnet Systems, Inc. v. Montgomery, 322 Ark. 742, 911 S.W.2d 956
(1995), we held that the exact size of the proposed class and the identity of the
class members need not be established for the court to certify a class, and the
numerosity requirement may be supported by common sense. We have not
adopted a bright-line rule to determine how many class members are required
to satisfy the numerosity requirement. Mega Life, supra (citing Summons v.
Missouri Pac. R.R., 306 Ark. 116, 813 S.W.2d 240 (1991) (approving a class of
several thousand claimants)); International Union of Elec., Radio, & Mach. Workers
v. Hudson, 295 Ark. 107, 747 S.W.2d 81 (1988) (declaring that “at least several
hundred” class members were sufficient); Cooper Communities, Inc. v. Sarver, 288
Ark. 6, 701 S.W.2d 364 (1986) (holding that 184 potential class members were
enough); City of North Little Rock v. Vogelgesang, 273 Ark. 390, 619 S.W.2d 652
(1981) (rejecting a class of only seventeen potential plaintiffs)).
In its order of certification, the circuit court found that, although there is no agreement
on the exact numbers, it appears from the briefs of counsel and matters of record that the
FirstPlus subclass has approximately 206 class members, that the Keystone P1 subclass has
approximately 165 class members, that the Keystone P2 subclass has approximately 126 class
members, that the Keystone P3 subclass has approximately 81 class members, and that the
United Trust subclass has 41 class members.
United Trust contends that numerosity is lacking in its subclass. Newberg on Class
Actions states that “the difficulty inherent in joining as few as 40 class members should raise
a presumption that joinder is impracticable, and the plaintiff whose class is that large or larger
should meet the test of Rule 23(a)(1) on that fact alone.” Alba Conte & Herbert Newberg,
Newberg on Class Actions § 3.5, at 247 (4th ed. 2002).
United Trust does not appeal from the ruling that forty-one class members meet the
test of numerosity, but instead argues that twenty-nine members of this class do not share
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“common questions of liability” with the remaining twelve and, therefore, the test for
numerosity has not been met. Specifically, United Trust contends that twenty-one nonRosslare borrowers should be excluded because the class representatives “are not adequate to
represent them,” that borrowers in bankruptcy should be excluded because their claims
belong to the bankruptcy estate, and that one set of borrowers did not pay “excess interest,”
based on the United Trust’s “amortization analysis.”
Having already determined that the Turners are adequate class representatives of a class
consisting of both Rosslare borrowers and non-Rosslare borrowers, we need not address
United Trust’s argument that the twenty-one non-Rosslare borrowers should be excluded
because the class representatives are inadequate. We now turn to the remaining arguments.
Appellees argue that the contention that the usury recovery of a class member in
bankruptcy belongs to the bankruptcy estate is in essence a contention that an absent class
member does not have a cause of action, which is improper for a court to consider in
determining class certification. We agree. The subject of this appeal deals strictly with
whether a class was properly certified. We have repeatedly held that we will not delve into
the merits of a case when reviewing an order denying or granting class certification. See, e.g.,
THE/FRE, Inc. v. Martin, 349 Ark. 507, 78 S.W.3d 723 (2002).
In addition, we are not persuaded by United Trust’s argument that the absent class
members who have filed for bankruptcy should be excluded because they “lack standing” to
make claims. In his treatise on class actions, Professor Newberg has explained that “passive
members need not make any individual showing of standing, because the standing issue
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focuses on whether the plaintiff is properly before the court, not whether represented parties
or absent class members are properly before the court.” Alba Conte & Herbert Newberg,
Newberg on Class Actions § 2.7, at 88 (4th ed. 2002).
We also find no merit in United Trust’s argument that a class member who did not
actually pay excess interest should be excluded from the class. The question of whether a class
member actually paid interest in excess of the maximum lawful rate 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 Johnson’s Sales Co. v. Harris, 370 Ark. 387, ___ S.W.3d ___ (2007). The
circuit court did not abuse its discretion in finding that the numerosity requirement was
satisfied.
Predominance
The starting point in examining the predominance issue is whether a common wrong
has been alleged against the defendant. American Abstract, supra. 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 damages 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 resolve individual issues, such as damages, is consistent with Rule 23.
See Jacola, supra. On predominance, this court has stated:
The 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
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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.
Fraley v. Williams Ford Tractor & Equip. Co., 339 Ark. 322, 344-45, 5 S.W.3d 423, 437 (1999)
(citations omitted). Thus, the question is whether there are overarching issues that can be
addressed before resolving individual issues. Beverly Enters., supra.
The Trust Defendants and United Trust raise a number of individual defenses that they
claim defeat the predominance requirement. On appeal, the Trust Defendants raise the
individual defenses of whether the claims of the class are subject to holder-in-due-course
defenses and whether the defendants are liable for fraud claims. Both the Trust Defendants
and United Trust raise the individual defenses of whether the claims are subject to
counterclaims and whether participation in bankruptcy proceedings bars, limits, or reduces
usury claims. United Trust raises the defenses of whether the class members have actually paid
interest in excess of the maximum lawful rate and whether certain loans may have been table
funded and are exempt.
The circuit court concluded that the individual defenses raised by the Trust Defendants
and United Trust “challenge the right of the class member to recover, and do not go to the
common issues of the defendants’ liability, and are therefore insufficient to prevent a finding
of predominance.” We agree. We have stated that “[t]he mere fact individual issues and
defenses may be raised by the [defendant] regarding the recovery of individual members
cannot defeat class certification where there are common questions concerning the defendant’s
alleged wrongdoing which must be resolved for all class members.” The Money Place, LLC
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v. Barnes, 349 Ark. 518, 531, 78 S.W.3d 730, 738 (2002). In SEECO, Inc. v. Hales, we stated
that “[c]hallenges based on the statutes of limitations, fraudulent concealment, releases,
causation, or reliance have usually been rejected and will not bar predominance satisfaction
because those issues go to the right of a class member to recover, in contrast to underlying
common issues of the defendant’s liability.” 330 Ark. 402, 413, 954 S.W.2d 234, 240 (1997)
(quoting 1 Herbert B. Newberg, Newberg on Class Actions § 4.26, at 4-104 (3d ed. 1992)). See
also Fraley, supra (holding that the circuit court could not examine the affirmative defenses of
release and consent in deciding whether the class should be certified); Johnson’s, supra (The fact
that a party “may bring affirmative defenses and counterclaims against individual members of
the class does not disqualify the case from certification.”).
In arguing these defenses before this court, the Trust Defendants and United Trust are,
in essence, requesting that this court delve into the merits of the case. We have repeatedly
refused to do so. In BNL Equity Corp. v. Pearson, 340 Ark. 351, 10 S.W.3d 838 (2000), we
stated:
The appellants contend that discussion of the Rule 23 criteria must, by
necessity, bring into play some examination of the merits of the claims
including their defenses, and that we should not rigidly enforce our proscription
against a merits analysis at this stage. Without weighing the merits, the
appellants posit that this court cannot decide whether the claims of the class
representatives are typical or that claims of the class members are common and
predominate.
The appellants, however, are plowing old ground in raising an issue that
has clearly been decided by this court. Most recently, we said:
We have held that neither the trial court nor the appellate court
may delve into the merits of the underlying claim in determining
whether the elements of Rule 23 have been satisfied. In that
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regard a trial court may not consider whether the plaintiffs will
ultimately prevail, or even whether they have a cause of action.
Thus, the propriety of a class action is “basically a procedural
question.” (Citations omitted.)
Fraley v. Williams Ford Tractor & Equip. Co., 339 Ark. at 335, 5 S.W.3d at 431
(1999).
BNL Equity Corp., 340 Ark. at 356-57, 10 S.W.3d at 841.
The Trust Defendants and United Trust may have defenses available to them as to
various individual members or even subclasses, but this is no reason to deny certification. See
The Money Place, supra. In reviewing whether the predominance element has been satisfied,
the question is whether there are overarching issues that can be addressed before resolving
individual issues. See Beverly Enters., supra. Here, the common issues regarding usury, fraud,
and choice of law can be addressed before individual issues are resolved. We hold that the
circuit court did not abuse its discretion in concluding that the predominance requirement
was satisfied.
Superiority
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.
Johnson’s, supra; Beverly Enters., supra; The Money Place, supra. 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. The Money Place, supra (citing SEECO, supra).
When a trial court is determining whether class-action status is the superior method for
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adjudication of a matter, it may be necessary for the trial court to evaluate the manageability
of the class. See Asbury Auto. Group, supra.
United Trust argues that a class action is not the superior method of handling the
litigation in this case because a choice-of-law determination will have to made for each loan.
United Trust claims that the circuit court erred in failing to make a choice-of-law
determination prior to certifying the class. The appellees argue that United Trust is making
this argument for the first time on appeal; therefore, this court should not consider it.
We
believe the appellees are correct. The following colloquy demonstrates that United Trust
failed to raise this argument below:
THE COURT:
Is that the issue you’re raise [sic], choice of law?
MR. MAYFIELD:
Judge, it’s the point to show that the answer to the choice
of law question is not in common. We’re not here today
asking you to decide that.
Then, when counsel for United Trust continued making arguments, counsel for the
appellees again objected, resulting in the following exchange.
MR. VEHIK:
We’re getting back into the same merits argument. I
mean, it’s, I’m not putting on any testimony—
THE COURT:
Well, I’m not making any decisions today or tonight
when I take this home over the choice of law issue. Only
whether there is a certifiable class action matter.
MR. MAYFIELD:
Right, and I’m just trying—
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THE COURT:
Go ahead.
MR. MAYFIELD:
—to highlight . . .
United Trust’s failure to raise this argument below precludes this court from addressing
it on appeal. It is well settled that this court will not consider arguments raised for the first
time on appeal. See, e.g., Baptist Health v. Murphy, 365 Ark. 115, 226 S.W.3d 800 (2006).
Finally, both the Trust Defendants and United Trust appear to assert that, due to all
of the individual issues raised in this case, a class action is not the superior method of handling
the litigation. Here, the circuit court concluded that a single class action instead of over 600
individual lawsuits filed throughout the circuit courts in Arkansas to try the common issues
of usury and fraud is the most efficient way to resolve this litigation; benefits the interests of
judicial economy; and is fair to both sides, as the individual issues that the defendants have
raised, if they have merit, can be bifurcated and tried in separate lawsuits. The circuit court
also noted that, with the hindsight of presiding over a similar class-action suit, it could
conclude that the individual issues raised by the defendants would not pose problems to the
manageability of the case as a class action. We have noted that the question of superiority is
very much related to the broad discretion conferred on a circuit court. See Cheqnet Sys., Inc.
v. Montgomery, 322 Ark. 742, 911 S.W.2d 956 (1995). We cannot say that the circuit court
abused its discretion in finding that the superiority requirement was satisfied.
For the foregoing reasons, we affirm the circuit court’s order certifying a class action
in this case.
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Affirmed.
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