Compass Bank and Compass Bancshares, Inc. (hereinafter referred to jointly as "the Compass defendants"), appeal from a class-certification order obtained by the plaintiffs in this case, who are present and former customers of the Compass defendants (hereinafter referred to as "the plaintiff customers"). We vacate the class-certification order and remand the case.
I. Factual Background and Procedural History
The plaintiff customers are customers who are dissatisfied with the order in which the Compass defendants pay checks and other items presented for payment on the same day, i.e., the "posting order." A problem arises when a customer, contrary to the customer's agreement with the bank, writes a check for which there are insufficient funds in the customer's account. Specifically, the plaintiff customers complain about the order in which the Compass defendants have chosen to post their customers' checks to their accounts.
Section 7-4-303(b), Ala.Code 1975, allows a bank to choose its posting order; that section provides that "items may be accepted, paid, certified, or charged to the indicated account of its customer in any order." A bank may choose between several different posting orders, including (1)
The plaintiff customers allege that the Compass defendants changed their posting order to a high-to-low-by-amount posting order because, they say, that posting order is more profitable for the bank. When a bank uses a high-to-low posting order, the plaintiff customers say, more checks are dishonored because of insufficient funds, thus allowing the bank to charge a greater number of service charges. The Compass defendants point out that some customers prefer the high-to-low posting order because, they say, it means posting in that order allows a bank to pay significant checks, such as checks for mortgage payments, tax payments, insurance premiums, or vehicle payments, which carry greater economic consequences for nonpayment than do service charges for insufficient funds. They also point out that no posting order is satisfactory to all customers.
In November 1999, the Compass defendants revised their deposit agreements to add what they describe as posting-order disclosures and mandatory arbitration provisions. The Compass defendants say that all customers who opened accounts after October 1998 were provided with the revised agreements, and that the revised agreements were mailed to all existing customers in December 1999 or January 2000. In essence, the Compass defendants say that all customers who continued to maintain their accounts after January 2000 received the revised deposit agreements. The plaintiff customers acknowledge that existing Compass customers received the revised deposit agreements in January 2000.
The Compass defendants have 237 branches, over 6,000 employees, and over 500,000 checking account customers in Alabama, Florida, and Texas. The named plaintiffs, Jucretia Snow, Mary Kennedy, and Charles Butler, Jr., maintained accounts at different Compass Bank branches in Alabama.
In July 1998, Annette Rago sued Compass Bank in the Mobile Circuit Court, alleging breach of contract and fraudulent suppression, resulting from Compass Bank's alleged failure to disclose its posting order to its customers. Rago sued individually and on behalf of a purported class of Compass customers "who incurred service charges that were not agreed upon." Compass Bank answered, claiming that it had implemented its posting order pursuant to § 7-4-303(b), Ala.Code 1975, for its branches in Alabama and pursuant to § 674.303(2), Fla. Stat. Ann., for its branches in Florida. In September 1998, Rago added Compass Bancshares, Inc., as a defendant. Compass Bancshares answered, stating that it was a corporation distinct from Compass Bank and that it had no relationship with or contract with Rago. Compass Bank then filed a compulsory counterclaim against the putative class for all unpaid fees and charges due in connection with their Compass Bank accounts. At some point after the purported class action was filed, Compass Bank in Texas merged with Compass Bank in Alabama and Florida.
Rago withdrew as a named plaintiff in March 2000; she was replaced by Snow, Kennedy, and Butler. They filed an amended complaint in which they alleged breach of contract, fraudulent suppression, and conversion arising out of the Compass
On July 31, 2000, the plaintiff customers filed a motion for class certification, and the Compass defendants filed a response opposing class certification and a motion to compel arbitration. The trial court held a hearing on these motions on October 19, 2000. The motions were submitted based on the parties' briefs and on the evidentiary submissions. No witnesses testified at the hearing. The Compass defendants say that counsel for the plaintiff customers conceded at the hearing that the plaintiff customers were not seeking certification as to the conversion claim. The plaintiff customers' counsel subsequently submitted to the trial court proposed orders granting the motion to certify a class and denying the motion to compel arbitration. The only change the trial court made when it entered those orders, the Compass defendants say, was that it crossed out the word "Proposed" on each order. The trial court signed the orders on December 13; they were entered on December 15. The class-certification order, as entered, certified all of the plaintiff customers' claims, including the conversion claim that the plaintiff customers had conceded at the hearing, and included all of the plaintiff customers, even those who the Compass defendants argue were subject to arbitration. Compass appeals pursuant to § 6-5-642, authorizing an immediate appeal of a class-certification order.
II. Standard of Review
We must first determine the appropriate standard of review when deciding whether a trial court has properly certified a class. The Compass defendants argue that because Alabama law now provides that class-certification orders may be appealed as a matter of right, this Court should apply a de novo standard of review. See § 6-5-642. No live witnesses testified, they argue, and the court's order was based on the written record. The Compass defendants do not, however, cite any cases in which an appellate court has applied a de novo standard of review to review of a class-certification order.
The plaintiff customers argue that this Court has always applied an abuse-of-discretion standard to review of class-certification orders, and that it should continue to do so. The plaintiff customers rely upon Atlanta Casualty Co. v. Russell, 798 So.2d 664 (Ala.2001); and Ex parte Household Retail Services, Inc., 744 So.2d 871 (Ala.1999). They correctly note that the abuse-of-discretion standard is consistent with the federal standard of review of class-certification orders, including review of orders appealed as of right under the new Rule 23(f), Fed.R.Civ.P. See Murray v. Auslander, 244 F.3d 807 (11th Cir.2001); Prado-Steiman v. Bush, 221 F.3d 1266 (11th Cir.2000); Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir.1998). In Allison, the United States Court of Appeals for the Fifth Circuit stated:
151 F.3d at 408 (citations omitted). See also Alfa Life Ins. Corp. v. Johnson, 822 So.2d 400, 414 (Ala.2001) ("This Court applies the abuse-of-discretion standard in reviewing a trial court's class-certification order.").
This Court will continue to apply an abuse-of-discretion standard of review to a trial court's class-certification order, but we will review de novo the question whether the trial court applied the correct legal standard in reaching its decision. We must determine, therefore, whether the trial court abused its discretion in certifying the class in this case and whether it applied the correct legal standard in reaching that decision.
III. Satisfaction of Rule 23(b)(3) Criteria
Initially, "[i]n order to obtain class certification, the plaintiff must establish all of the criteria set forth in Rule 23(a) and one of the criteria set forth in Rule 23(b)." Ex parte Gold Kist, Inc., 646 So.2d 1339, 1341 (Ala.1994).
"Rule 23(b) provides as follows:
646 So.2d at 1341.
In addition to arguing that the plaintiff customers failed to satisfy the requirements of Rule 23(a), the Compass defendants argue that the trial court erred in certifying the plaintiff customers' breach-of-contract and suppression claims, pursuant to Rule 23(b)(3), because numerous individual issues predominate and make the class unmanageable. Therefore, they argue, the plaintiff customers did not produce sufficient evidence to support a finding that common questions of fact or law predominate and that a class action is superior to other methods of adjudication, as required by Rule 23(b)(3). We note that an abuse of discretion in certifying a class action may be predicated upon a showing by the party seeking to have the class-certification order set aside that "the party seeking class action certification failed to carry the burden of producing sufficient evidence to satisfy the requirements of Rule 23." Ex parte Green Tree Fin. Corp., 684 So.2d 1302, 1307 (Ala.1996). Thus, we must consider the sufficiency of the evidence submitted by the plaintiff customers. Because we conclude that the plaintiff customers did not produce sufficient evidence to satisfy the requirements of Rule 23(b)(3), we do not address the Compass defendants' arguments regarding the requirements of Rule 23(a).
In Shelley v. AmSouth Bank (No. CIV. A.97-1170-RV-C, July 24, 2000) (S.D.Ala.) (unpublished order), aff'd, 247 F.3d 250 (11th Cir.2001) (table), in a case involving claims against AmSouth Bank virtually identical to the claims asserted in this action, the United States District Court denied certification of the plaintiffs' breach-of-contract and fraudulent-suppression claims pursuant to Rule 23(b)(3), Fed. R.Civ.P. The court concluded that the plaintiffs did not satisfy the predominance or superiority requirements as to either of those claims. Because the Alabama Rules of Civil Procedure were patterned after the Federal Rules of Civil Procedure, cases construing the federal rules are considered authoritative in construing the Alabama rules. Cutler v. Orkin Exterminating Co., 770 So.2d 67 (Ala.2000).
A. The Fraudulent-Suppression Claim
In concluding that the Shelley plaintiffs did not satisfy the predominance requirement as to their fraudulent-suppression claim, the district court stated:
Shelley (footnotes omitted).
The Compass defendants argue that the trial court erred in certifying the plaintiff customers' fraudulent-suppression claims because, they say, individual issues such as
In this case, the trial court would have to inquire into the circumstances surrounding the accounts of thousands of customers of the Compass defendants. For example, of the named plaintiffs, when Rago, Snow, and Butler inquired about the Compass defendants' posting order, they were informed that the Compass defendants posted in a high-to-low order. Kennedy testified that she was not given this information when she inquired, but said that she learned that the Compass defendants used the high-to-low posting order by reviewing her bank statements, deposit slips, and check register. Snow testified that she also was able to determine that the Compass defendants used the high-to-low posting order by reviewing printouts provided to her by the bank. Butler testified that he learned about the high-to-low posting order by speaking with a bank representative. Kennedy and Snow received written disclosures informing customers that under Alabama law the Compass defendants could choose to post checks in any order. Kennedy testified that it is likely that she read the disclosure; Snow testified that she could not remember receiving it. Butler closed his account before the disclosure was sent. Thus, for thousands of customers, the trial court would have to inquire how they learned, if indeed they did learn, about the posting order used by the Compass defendants; whether they received a written disclosure and, if so, whether they read it; whether they spoke with a bank representative and, if so, with whom they spoke and the substance of the conversation; whether they were able to determine the posting order used by examining their own bank statements, and, if so, what information and calculations they used to make such a determination. In addition, the trial court would need to inquire of each customer when he or she learned that the Compass defendants used a high-to-low posting order and whether and to what extent that information affected their banking practices with the Compass defendants. Apparently Snow, Kennedy, and Rago continued to incur insufficient funds ("NSF") fees after they became aware of the Compass defendants' high-to-low posting order and its effect on NSF fees, while Butler closed his account. The differences in the experiences of the four named plaintiffs illustrates how extensive the individual inquiry would be in this case.
Furthermore, the Compass defendants have asserted counterclaims against Butler and other members of the putative class
In concluding that the Shelley plaintiffs did not satisfy the superiority requirement as to their fraudulent-suppression claims, the district court focused on the manageability of the putative class action, stating:
Likewise, in this case, as we have previously concluded, individual issues predominate over common ones, especially the issue of each plaintiff customer's knowledge of the posting order used by the Compass defendants and the extent to which he or she relied on that knowledge. In addition, the need to apply the laws of at least three states—Alabama, Florida, and Texas—exacerbate the manageability problems of this case. Finally, the plaintiff customers have not offered any standard by which damages can be measured on a class-wide basis. Each plaintiff customer's damages will differ, depending on what posting order the customer thought the Compass defendants used before he or she learned that it posted high to low. The defense of mitigation of damages and other defenses also raise individual issues. The potential for highly individualized damages computations, complicated by the presence of counterclaims, pretermits class-wide resolution of these disputes, which arise out of a myriad of transactions between the Compass defendants and its numerous customers.
After reviewing the evidence presented in this case and the persuasive rationale of Shelley, we conclude that as to their fraudulent-suppression claim the plaintiff customers failed to satisfy the predominance and superiority requirements of Rule 23(b)(3).
B. The Breach-of-Contract Claim
In concluding that the Shelley plaintiffs did not satisfy the predominance requirement as to their breach-of-contract claim, the district court stated:
In this case, proof of the plaintiff customers' breach-of-contract claims will require individual inquiry into each plaintiff's reasonable contemplation as to the Compass defendants' practice, any course of dealing between the parties, and/or any oral statements made to the plaintiff customers by individual employees of the Compass defendants. See Mann v. GTE Mobilnet of Birmingham, Inc., 730 So.2d 150 (Ala.1999), and Ex parte Green Tree Fin. Corp., 723 So.2d 6, 10 (Ala.1998). In both cases this Court rejected class certification in a contract action where the terms of the contract were not clear or where individual testimony would be necessary on the contract claims. Furthermore, in determining damages in the present case, individual inquiry will be necessary to determine the extent to which each plaintiff customer failed to mitigate his or her damages by continuing to incur NSF charges after learning about the posting order and to determine whether a counterclaim by the Compass defendants applies to that customer. Furthermore, the Compass defendants argue that not all customers were harmed by its high-to-low posting order and that there may well be customers who preferred the high-to-low posting order or who actually benefitted by it if a mortgage payment, tax payment, insurance premium, or vehicle payment was made that prevented the assessment of a penalty that would have exceeded an NSF service charge.
Section 6-5-641 places the burden of coming forward with sufficient proof on the party seeking certification. Although the plaintiff customers argue that there is no evidence indicating the existence of customers of the Compass defendants who benefitted from the high-to-law posting order, testimony describing this phenomenon as it related to a virtually identically situated customer in a case against another bank appears in the record. In fact, it is so offensive to common sense to suggest the contrary of something that is virtually axiomatic—that there are such customers among the many thousand class members —that we visit upon the class representatives the consequences of the failure to demonstrate their nonexistence. We therefore agree with the Compass defendants that the individual inquiry would have to be made of each customer before that customer's damages could be determined.
In concluding that the Shelley plaintiffs did not satisfy the superiority requirement as to their breach-of-contract claim, the district court again focused on manageability, stating:
As was the case in Shelley, manageability problems "engulf" the plaintiff customers' breach-of-contract claim as well as their fraudulent-suppression claim. In addition to those manageability problems discussed in connection with the fraudulent-suppression claim, because punitive damages are not available in a breach-of-contract claim, those plaintiff customers who incurred minimal service charges, but who are subject to a potential counterclaim, may risk exposure to liability that exceeds any potential recovery. In such cases, a class action would not meet the superiority requirement.
After further reviewing the evidence presented in this case and the persuasive rationale of Shelley, we conclude that the plaintiff customers failed to satisfy the predominance and superiority requirements of Rule 23(b)(3) as to their breach-of-contract claim.
Because the plaintiff customers did not satisfy the predominance or superiority requirements of Rule 23(b)(3) as to either their fraudulent-suppression or breach-of-contract claims, the trial court abused its discretion in certifying a Rule 23(b)(3) class as to those claims.
IV. Satisfaction of Rule 23(b)(2) Criteria
The Compass defendants argue that the trial court erred in certifying a class pursuant to Rule 23(b)(2), Ala. R. Civ. P. They argue that the class certification cannot stand under Rule 23(b)(2) because, they say, the plaintiffs have failed to show (1) that the Compass defendants have acted or refused to act on grounds generally applicable to the class, (2) that final injunctive relief with respect to the class as a whole is appropriate, and (3) that the money damages sought are merely incidental to the injunctive relief requested.
As a general rule, certification of a class pursuant to Rule 23(b)(2) is improper if the primary relief sought is money damages. See, e.g., Jefferson v. Ingersoll Int'l Inc., 195 F.3d 894, 898 (7th Cir.1999); and Boughton v. Cotter Corp., 65 F.3d 823, 827 (10th Cir.1995). Three of the four counts of the plaintiff customers' complaint seek money damages. The claim for injunctive relief, added almost two years after the complaint was filed, includes claims for punitive damages and for restitution of NSF fees. The plaintiff customers argue that the money damages they seek are incidental to the injunctive relief and flow directly from the injunction, so that the injunctive relief remains predominant. Therefore, they argue, a Rule 23(b)(2) certification is proper in this case.
The United States Court of Appeals for the Fifth Circuit has held that under Rule 23(b)(2), monetary relief is considered predominant in class actions unless it is clearly incidental to the nonmonetary relief sought. Allison v. Citgo Petroleum, supra, 151 F.3d at 415 (employment discrimination case). Incidental damages, the Fifth Circuit held, are those flowing directly from a defendant's liability to the class as a whole in connection with claims for injunctive or declaratory relief and are to be viewed as a group remedy. Id. The court went on to hold that the district court properly denied class certification because calculation of damages would require individualized determinations of the
The trial court abused its discretion in certifying a class in this case, under both Rule 23(b)(2) and 23(b)(3). We vacate the class-certification order, and remand the cause for an order or for further proceedings consistent with this opinion. Because we conclude that the class-certification order must be vacated, we need not address the other issues raised by the Compass defendants.
ORDER VACATED AND CAUSE REMANDED.
MOORE, C.J., and SEE, BROWN, HARWOOD, WOODALL, and STUART, JJ., concur.
HOUSTON and JOHNSTONE, JJ., recuse themselves.