Flow Doc, Inc. v. Horton
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Cite as 2009 Ark. 411
SUPREME COURT OF ARKANSAS
No.
09-13
FLOW DOC, INC.; ROYCE McNEAL,
JR.; & BRENT H. McNEAL,
APPELLANTS,
VS.
THOMAS M. HORTON, on behalf of
himself and all others similarly situated,
APPELLEE,
Opinion Delivered September
17, 2009
APPEAL FR O M TH E PU LASKI
COUNTY CIRCUIT COURT,
NO. CV 2007-5997,
HON. ALICE SPRINKLE GRAY,
JUDGE,
DISMISSED IN PART; AFFIRMED IN
PART.
PAUL E. DANIELSON, Associate Justice
Appellants Flow Doc, Inc., Brent McNeal, and Royce McNeal, Jr. (hereinafter
collectively referred to as “Flow Doc”) bring this interlocutory appeal from the order of the
Pulaski County Circuit Court granting class certification. Flow Doc argues that the circuit
court erred in granting class certification to appellee Thomas M. Horton on both the Arkansas
Deceptive Trade Practices Act claim and the unjust-enrichment claim. We dismiss the appeal
as moot in part and affirm in part.
The record reveals the following facts. On or about April 1, 2005, Thomas M. Horton
refinanced his mortgage loan on his home with Southern Mortgage Company. In connection
with the closing, Flow Doc prepared the loan documents for the loan from Southern
Mortgage to Horton. Flow Doc charged and received a “Document Preparation Fee” of
$195 from Horton for preparing the loan documents, a fee reported on line 808 of the HUD1 Settlement Statement. On May 10, 2007, Horton filed a class-action complaint on behalf
of himself and all others similarly situated, alleging that Flow Doc engaged in the
unauthorized practice of law when it charged a fee for the preparation of loan documents in
connection with a closing. The complaint alleged that Flow Doc’s actions violated the
Arkansas Deceptive Trade Practices Act (ADTPA), codified at Ark. Code Ann. §§ 4-88-101
to -706 (Repl. 2001 & Supp. 2009). The complaint further alleged that Flow Doc was
unjustly enriched by deceptively charging and receiving the document preparation fee and
should be required to make restitution. Flow Doc moved to dismiss the complaint on July
6, 2007, based on lack of personal jurisdiction, lack of standing, failure to state facts upon
which relief can be granted, and the alleged unconstitutionality of the ADTPA.
Horton then moved for class certification on July 26, 2007, asserting that Flow Doc
had routinely charged borrowers involved in loans secured by real estate a document
preparation fee for preparing legal documents and that an appropriate class consisted of all
persons who were residents of Arkansas and had paid document preparation fees to Flow Doc
under those circumstances. Horton argued that this “unauthorized practice of law” raised a
single predominate issue of fact and law common to all class members, that issue being
whether Flow Doc was entitled to charge a fee for preparing the loan documents for loans
secured by real estate in Arkansas and/or filling in the blanks on form loan documents used
to consummate a loan secured by real estate in Arkansas. Therefore, Horton argued, the
requirements for class certification were met and class certification was warranted.
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Flow Doc responded to the motion and also filed a request for specific findings of fact
and conclusions of law with respect to Horton’s request for class certification, each element
required for class certification contained in Rule 23(a) and (b) of the Arkansas Rules of Civil
Procedure, and any order entered by the court granting or denying the class certification. On
October 24, 2007, the circuit court held a hearing on Horton’s motion for class certification
and, on April 1, 2008, issued a letter order informing the parties that it would be granting the
motion. Flow Doc then renewed its request for findings of fact and conclusions of law and
responded to Horton’s proposed findings of fact and conclusions of law with specific
objections.
On June 5, 2008, the circuit court granted the motion for class certification. In its
order, the circuit court found that Flow Doc prepares loan documents contained in a typical
closing package for loans originated by Southern Mortgage by filling in the blanks of form
loan documents and then e-mailing the documents to the closing agent to be used in the loan
closings in Arkansas. The court found that Flow Doc has filled in the blanks of form loan
documents for loans originated by Southern Mortgage and has charged a document
preparation fee for filling in the blanks of the form loan documents since at least May 10,
2002.
The court further found that Flow Doc has charged and received a document
preparation fee paid by the borrowers in over 1,350 loan transactions originated by Southern
Mortgage and closed in Arkansas, resulting in over $241,125 in document preparation fees
received by Flow Doc since May 10, 2002. The court found that the Flow Doc employee
who prepares the Arkansas loan documents, Patricia Alexander, is not an attorney and that
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part of her job is to determine which loan documents will be used and prepared, which note
and mortgage form will be used, what interest rate will be used in preparing the documents,
what payments will be required, what information will be disclosed, who will be required to
sign the particular loan documents, and that the terms and provisions of the loan documents
are consistent with the terms and conditions of the loan based on information provided by
Southern Mortgage.
Additionally, the court determined that all persons who have paid a document
preparation fee to Flow Doc involving a loan originated by Southern Mortgage can be
identified by the HUD-1 Settlement Statements, which contain the name and address of the
borrower and the amount of the document preparation fee charged by Flow Doc. In
certifying the class, the court determined that Horton had satisfied each of the requirements
of Rule 23. The court found that the class would have at least 1,350 members, so the
numerosity requirement had been satisfied. The court also determined that Horton had
satisfied the commonality requirement, declaring that there were at least four questions of fact
or law common to all members of the class. The court was satisfied that Horton’s claims were
typical of all class members who paid a document preparation fee to Flow Doc and that the
named representative was adequate to represent the class. Finally, the court found that the
common issues predominated over any individual questions and that a class action was the
superior method for handling the matter. Accordingly, the court certified the class consisting
of “[a]ll persons who paid document preparation fees to Flow Doc, Inc. involving loans
originated by Southern Mortgage of Arkansas, Inc., from May 10, 2002, to the present.
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Excluded from the Class are (1) all present and former employees, officers, directors, and
agents of Flow Doc, Inc; (2) any Class member who timely elects to be excluded from the
Class; and (3) any employee of the Circuit Court of Pulaski County, Arkansas, or any officer
of any court presiding over this action.”
On June 16, 2008, Flow Doc filed a motion for additional findings of fact and
conclusions of law and for reconsideration of the class-certification order as to Horton’s claim
under the ADTPA based on a recent decision from this court. Additionally, Flow Doc filed
a supplemental motion to dismiss, arguing that, based on that same decision from this court,
the ADTPA does not apply to the unauthorized practice of law and, therefore, Horton’s claim
based on the ADTPA should be dismissed for failure to state facts upon which relief can be
granted.1 Flow Doc filed its notice of appeal on July 3, 2008, and, on July 21, 2008, amended
the notice of appeal to include the deemed denial of their motion for additional findings and
reconsideration. On January 21, 2009, while the appeal of the class-certification order was
pending in this court, the circuit court granted Flow Doc’s motion to dismiss Horton’s
ADTPA claim with leave to amend. The record before us was supplemented with the circuit
court’s order of dismissal. We turn now to the merits of the appeal.
Flow Doc first argues that the class-certification order is moot as to the ADTPA claim.
Alternatively, Flow Doc argues that the certified “common questions” concerning to ADTPA
claim are beyond the reach of the ADTPA and that the circuit court abused its discretion in
1
We take this opportunity to note that the issue of whether or not the ADTPA applies to the
unauthorized practice of law is not an issue properly before this court as a result of the present appeal and,
therefore, will not be addressed.
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ruling that Horton had proved the essential elements of class certification. Horton avers that
the circuit court did not err in certifying the ADTPA claim and, further, that the class
certification of the ADTPA claim is not moot because, after the dismissal, the claim was refiled alleging specific violations of the ADTPA.
As a general rule, the appellate courts of this state will not review issues that are moot.
See Davis v. Brushy Island Pub. Water Auth. of State, 375 Ark. 249, 290 S.W.3d 16 (2008). To
do so would be to render advisory opinions and this we will not do. See id. A case becomes
moot when any judgment rendered would have no practical legal effect upon a then-existing
legal controversy. See id.
As previously noted, after issuing its order granting class certification, the circuit court
granted Flow Doc’s motion to dismiss Horton’s ADTPA claim. Because the ADTPA claim
was dismissed by the circuit court, the issue of whether the court erred in granting class
certification as to that claim is now moot. While Horton urges this court to rule on the
matter because the claim has since been refiled, those documents are not part of the record
on appeal and a ruling would require us to speculate as to what the new claim specifically
alleges and if the circuit court would have granted class certification based upon that new
claim. We have long held that courts do not sit for the purpose of determining speculative
and abstract questions of law or laying down rules for future conduct. See Dodson v. Allstate
Ins. Co., 365 Ark. 458, 231 S.W.3d 711 (2006). For these reasons, this portion of the appeal
is dismissed as moot.
For its second point on appeal, Flow Doc argues that the circuit court’s order is
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deficient in regard to findings of fact and conclusions of law on the unjust-enrichment claim.
Specifically, Flow Doc contends that each of the elements of unjust enrichment cannot be
answered on a class wide basis, but must be answered individually by the plaintiff and each
putative class member. Horton avers that the circuit court made the proper analysis and that
class certification under unjust-enrichment theories, specifically in this case, is appropriate.
When reviewing a circuit court’s class-certification order, we review the evidence
contained in the record to determine whether it supports the circuit court’s decision. See
Georgia-Pac. Corp. v. Carter, 371 Ark. 295, 265 S.W.3d 107 (2007). We have stated that:
[T]he issue of whether to certify a class is not determined by whether the
plaintiff or plaintiffs have stated a cause of action or will prevail on the merits,
but rather whether the requirements of Rule 23 are met. We have also
observed that it is totally immaterial whether the petition will succeed on the
merits or even if it states a cause of action. An order denying or granting class
certification is separate from the merits of the case. Although we do not delve
into the merits of the underlying claims in a potential class-action case, we will
review the trial court's order to determine whether the requirements of Rule
23 are satisfied.
American Abstract & Title Co. v. Rice, 358 Ark. 1, 9, 186 S.W.3d 705, 710 (2004) (internal
citations omitted).
Rule 23 of the Arkansas Rules of Civil Procedure (2009) governs class actions and class
certification. The rule provides, in pertinent part, as follows:
(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.
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(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.
This court has reviewed the provisions of Rule 23 on numerous occasions and has held
that, in order for a class-action suit to be certified, six factors must be met. Specifically, the
party seeking certification must establish: (1) numerosity; (2) commonality; (3) predominance;
(4) typicality; (5) superiority; and (6) adequacy. See Union Pac. R.R. v. Vickers, 2009 Ark. 259,
___ S.W.3d ___; Williamson v. Sanofi Winthrop Pharms., Inc., 347 Ark. 89, 60 S.W.3d 428
(2001). 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 Georgia-Pac., supra; Beverly Enters.-Ark., Inc. v. Thomas, 370 Ark. 310, 259
S.W.3d 445 (2007).
The circuit court first held a hearing on the motion for class certification and then
issued an order granting the motion. Flow Doc contends that the order granting class
certification is deficient. Flow Doc is troubled because the unjust-enrichment claim is not
specifically mentioned in the order and claims that the court failed to properly analyze the
Rule 23 requirements. Furthermore, Flow Doc argues that the question of whether the
charging of a document preparation fee by a nonlawyer constitutes the unauthorized practice
of law is not outcome determinative and will not resolve a common element of the claim and
that each of the elements of unjust enrichment are fact-specific and must be proven
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individually.
Presumably, Flow Doc’s specific challenges are to commonality and
predominance.
First, we do not find the order to be deficient simply because the unjust-enrichment
claim was not specifically mentioned. Although the ADTPA itself is referred to in the
proposed questions of law or fact under commonality, the order reviewed in full is not
focused only on the claim brought pursuant to the ADTPA. Within the order, the circuit
court made seventeen findings of fact, none of which were claim-specific. Furthermore, the
order made conclusions of law, specifically addressing each of the six factors required for class
certification pursuant to Rule 23. As noted, Flow Doc seems to specifically challenge the
factors of commonality and predominance.2
Pursuant to Ark. R. Civ. P. 23(a)(2), the trial court must determine that “there are
questions of law or fact common to the class.” We have previously stated the following
regarding the commonality issue:
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)
2
Flow Doc did not make it clear what factors, if any, it was specifically challenging. This court did
its best to make that determination based on the arguments presented in Flow Doc’s brief. However, we take
this opportunity to note, we also found that the other four required factors for class certification - numerosity,
typicality, superiority, and adequacy - were properly addressed in the circuit court’s order, and we cannot
say the circuit court abused its discretion.
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(quoting Herbert B. Newberg, Newberg on Class Actions, § 3.10 (3d ed. 1993)).
Here, the circuit court found that there are questions of law and fact common to the
class that include, but are not limited to:
1. Does the filling in of blanks of a pre-printed loan form and charging a
document preparation fee for filling in the blanks of the form loan documents
by a non-lawyer constitute the unauthorized practice of law?
2. Do the admitted practices of the Defendants violate the Deceptive Trade
Practices Act?
3. Does the charging of an illegal fee to a borrower as part of an Arkansas loan
constitute a deceptive act or practice in violation of the Arkansas Deceptive
Trade Practices Act?
4. Do Royce McNeal, Jr. and/or Brent H. McNeal directly or indirectly
control the conduct of Flow Doc, specifically the charging of a document
preparation fee for filling in the blanks of form loan documents?
While proposed questions two and three do specifically mention the ADTPA,
proposed questions one and four focus simply on the common issue of whether Flow Doc
charged an illegal fee.
This court has held that the starting point in examining the
predominance issue is whether a common wrong has been alleged against the defendant. See
USA Check Cashers of Little Rock v. Island, 349 Ark. 71, 76 S.W.3d 243 (2002); BPS, Inc. v.
Richardson, 341 Ark. 834, 20 S.W.3d 403 (2000). In the instant case, the common wrong
alleged is that Flow Doc illegally charged and received a document preparation fee in loan
transactions that were closed in Arkansas and originated by Southern Mortgage. If that issue
is resolved in favor of the class, then every member of the class will have suffered a common
injury of paying a fee to Flow Doc that it was not permitted to charge.
The next issue is whether this common issue predominates over individual questions.
See Lenders Title Co. v. Chandler, 358 Ark. 66, 186 S.W.3d 695 (2004). In Lenders, we stated:
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When deciding whether common questions predominate over other questions
affecting only individual members, this court does not merely compare the
number of individual versus common claims. Rather, this court decides if the
issues common to all class members “predominate over” the individual issues,
which can be resolved during the decertified stage of a bifurcated proceeding.
Thus, the mere fact that individual issues and defenses may be raised regarding
the recovery of individual members cannot defeat class certification where there
are common questions concerning the defendant’s alleged wrongdoing that
must be resolved for all class members. That being said, this court has
recognized that the predominance requirement is far more demanding than the
commonality requirement.
Id. at 77.
We have approved the use of a bifurcated process when, even though there are
fundamentally common questions that pertain to all class members, there are certain issues,
such as damages, that may not be amenable to class wide determination. See American Abstract,
supra; Mega Life & Health Ins. Co. v. Jacola, 330 Ark. 261, 954 S.W.2d 898 (1997); Summons
v. Missouri Pac. R.R., 306 Ark. 116, 813 S.W.2d 240 (1991). Because the common issue in
the instant case is a threshold issue, the fact that other individual issues might exist cannot be
used to defeat class certification. See Lenders, supra.
We hold that the circuit court’s order provided a proper analysis of the requirements
of Rule 23 and provided specific findings of fact and conclusions of law. Additionally, after
reviewing the order, we cannot say that the circuit court abused its discretion. Therefore, we
affirm the circuit court’s order granting class certification as to Horton’s unjust-enrichment
claim.
Dismissed in part; affirmed in part.
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