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The Texas Supreme Court on May 7 finally issued its opinion in Compaq Computer Corp. v. Lapray, a much-awaited and closely watched class action appeal with national significance. 2004 WL 1048336, 2004 Tex. Lexis 435 (Texas 2004). The October 2003 oral argument in Compaq pitted the country’s most prominent class action attorneys and intertwined several vexing strands of cutting-edge class action jurisprudence. Similar to many monumental class actions, the Compaq litigation has been litigated for several years. After the U.S. District Court for the Eastern District of Texas dismissed the original action, the plaintiffs filed a nationwide class action in Jefferson County, Texas. See Thurmond v. Compaq Computer, 171 F. Supp. 2d 667 (E.D. Texas 2001). Allegations of defective floppy disks and lost bytes The plaintiffs sued Compaq alleging that Compaq sold computers containing defective floppy disk controllers. This alleged defect supposedly resulted in data incorrectly written to the floppy disk, resulting in lost bytes of data. The plaintiffs asserted that the defective floppy disks breached Compaq’s express warranty. The plaintiffs sought a declaratory judgment that (1) Compaq breached its express warranty; (2) Compaq breached its obligation to repair, replace or refund; (3) the floppy disk defect was covered by Compaq’s express warranty; and (4) class members had a right to seek relief under the warranty. The class sought damages either as a refund measured by the difference in the value between a computer without the defect and as purchased, or damages for the breach of the duty to repair or replace. The plaintiffs disclaimed consequential damages from loss or corruption of data. The Jefferson County court certified a national class of approximately 1.8 million computer purchasers of 37 different Compaq models, under the Texas class action (b)(2) and (b)(3) provisions. The court deferred making an applicable choice-of-law determination, but indicated that it would “likely” apply Texas law to all class members’ claims. The Texas Court of Appeals affirmed the certification and held the trial court’s certification of a (b)(2) declaratory class was appropriate. Compaq Computer Corp. v. LaPray, 79 S.W.3d 779, 794 (Texas App.-Beaumont 2002). In addition, the appellate court held that it was unnecessary to address issues relating to (b)(3) predominance and superiority, because the trial court had certified the class under the (b)(2) provision and only alternatively certified under the (b)(3) provision. Id. at 791. The Compaq class certification and appeal involved three universes of evolving, troublesome class action issues. The first concerns pleading class claims under the (b)(2) and (b)(3) class categories. The second concerns the appropriate standards to certify a class pursuant to the (b)(2) category. The third issue relates to the choice-of-law problems inherent in nationwide class actions. Regarding these vexing problems, the Texas Supreme Court parsed, interpreted and applied recent federal and state class action jurisprudence. The court broadly articulated the following principles: (1) courts may certify (b)(2) damage classes; (2) courts must consider notice and opt-out rights for (b)(2) damage classes; (3) courts must apply the rigorous analysis standard to (b)(2) classes, including the requirement of class cohesiveness; (4) the (b)(2) cohesiveness analysis may be identical to the predominance and superiority inquiry under the (b)(3) provision; and (5) courts may not defer choice-of-law analysis until after class certification, but must conduct an extensive choice-of-law analysis before the court can determine predominance, superiority, cohesiveness and manageability. Applying these principles, the court held that the trial court abused its discretion in certifying a (b)(3) class because the trial and appellate courts failed to conduct a proper choice-of-law analysis. Consequently, the proposed class could not satisfy the (b)(3) predominance requirement. Conducting its own analysis de novo, the court determined that differences in state law relating to the express warranty claim defeated class certification. Moreover, the trial court abused its discretion in holding that Texas law, under the Restatement Second Conflicts of Law, bore the most significant relationship to and governed all class members’ claims. Regarding the court’s (b)(2) class certification, the court held that the trial court failed to analyze the cohesiveness of the proposed (b)(2) class rigorously and did not consider notice and opt-out rights. Consequently, the court reversed the part of the appellate judgment that affirmed a (b)(2) certification. The most knotty issue with which the court grappled was the issue of whether the plaintiffs may seek a (b)(2) declaratory judgment class while simultaneously seeking a (b)(3) damages class. This troubling issue implicates the underlying problem of artful pleading of (b)(2) classes to avoid the more stringent requirements of (b)(3) predominance and superiority. In addition, the artful pleading of (b)(2) declaratory judgment classes implicates due process rights of class claimants, insofar as the (b)(2) class does not provide for notice or an opt-out right. The court was not aided in its appreciation of these problems by federal jurisprudence that is hopelessly confused and murky. As the court correctly identified, the federal circuits are split concerning whether class counsel may seek damages in the context of a (b)(2) class. See Compaq, 2004 WL 1048336 4. In some federal circuits, this is resolved by determining whether the monetary relief is predominant or incidental to the equitable remedy, which until recently was fairly clear. Murray v. Auslander, 244 F.3d 807, 812 (11 th Cir. 2001); Jefferson v. Ingersoll Int’l Inc., 195 F.3d 984, 898 (7 th Cir. 1999); Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415 (5 th Cir. 1998). However, the 5 th U.S. Circuit Court of Appeals mystified this inquiry in its bewildering decision In re Monumental Life Ins. Co., 343 F.3d 331 (5 th Cir. 2003). Other federal circuits, such as the 2d and 9 th, instead favor an ad hoc balancing approach to determine whether (b)(2) certification is appropriate. Compaq, id., citing Molski v. Gleich, 318 F.3d 937, 949-50 (9 th Cir. 2003); Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 164 (2d Cir. 2001). Bravely wading through this swamp, the court noted: “Perhaps as a result of these concerns, recent decisions seem almost to conflate the (b)(2) and (b)(3) subsections.” Compaq, 2004 WL 1048336 5. The court also accurately noted that once notice and opt-out rights are required for (b)(2) class members, then (b)(2) classes become virtually indistinguishable form (b)(3) classes. Id. at 2004 WL 1048336 6. The court eschewed taking sides in the federal debate and instead chose a Texas Third Way: “Accordingly, rather than focus on whether monetary relief predominates, or whether injunctive or declaratory relief will be necessary at some point, we hold that trial courts considering certification under (b)(2) must consider, and due process may require, individual notice and opt-out rights to class members who seek monetary damages under any theory. This conforms to U.S. Supreme Court guidance and discourages parties from artful pleading to circumvent what are perceived as stricter certification requirements under (b)(3).” Id. at 2004 WL 1048336 6 The court made further precedent in stating that parties may not evade the “rigorous analysis” requirement by seeking a (b)(2) class certification. Compaq, 2004 WL 1048336 9. In conformity with Texas precedents, the court reaffirmed that courts must perform a rigorous analysis before ruling on class certification to determine whether all prerequisites to certification have been met. See Southwestern Refining Co. v. Bernal, 22 S.W.3d 425, 435 (Texas 2000). In Compaq, the court declared: “All prerequisites means all prerequisites.” Compaq, id. The court further noted that while the (b)(2) class does not explicitly require findings of predominance and superiority, the (b)(2) class does require a rigorous analysis of “cohesiveness.” Id., citing Barnes v. American Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998). The court suggested a (b)(2) class may require more cohesiveness than a (b)(3) class because the unnamed members are bound by the judgment without an opportunity to opt out. However, the Texas Supreme Court further noted that if a trial court determines that notice and opt-out should be provided in the (b)(2) setting, “the cohesiveness required in a (b)(2) class need not be greater than the predominance and superiority necessary for a class certified under (b)(3).” Compaq, id. Waiting to see what part of ‘Compaq’ gains traction The court’s opinion relating to choice of law in a proposed nationwide class are the less revolutionary. Drawing on a substantial body of federal and state law that has repudiated such attempts, the court simply reaffirmed a litany of principles relating to determination of applicable law in the class certification process. Considering the wide array of issues decided, it remains to be seen what parts of the Compaq decision gain traction. As anyone who has attended Texas high school football games knows, it is often difficult to tell-in the fog of football-whether the Texas Supreme Court scored a clear touchdown. The court’s extensive choice-of-law analysis merits an undisputed six points, and the court’s (b)(2) cohesiveness requirement should earn an additional conversion point. However, it remains to be seen whether the court bobbled the ball on its (b)(2) damage class onside kick, with the court’s suggestion for consideration of notice and opt-out rights. With that inelegantly executed play, the plaintiffs’ bar may be off and running with the (b)(2) ball. Linda S. Mullenix holds the Morris and Rita Atlas Chair in Advocacy at the University of Texas School of Law. She can be reached at [email protected].

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