BMG Direct Marketing Inc. v. Peake

In this class action case, involving a class of music club members who paid allegedly illegal late fees for failing to timely pay for compact discs in accordance with the terms of a membership agreement, the court applies the voluntary payment rule.

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Click here for the full text of this decision FACTS:The trial court certified a class of music club members who paid allegedly illegal late fees for failing to timely pay for compact discs in accordance with the terms of a membership agreement. The parties dispute whether the customers’ claims are subject to the voluntary-payment rule. HOLDING:Because the trial court failed to analyze the rule’s effect on the requirements for class certification and how the claims in this case would be tried, the court de-certifies the class and remands the case to the trial court for proceedings consistent with this opinion. More than 50 years ago, the court stated the common-law voluntary-payment rule as follows: “‘[M]oney voluntarily paid on a claim of right, with full knowledge of all the facts, in the absence of fraud, deception, duress, or compulsion, cannot be recovered back merely because the party at the time of payment was ignorant of or mistook the law as to his liability.’” Pennell v. United Ins. Co., 243 S.W.2d 572 (Tex. 1951). The rule is a defense to claims asserting unjust enrichment; that is, when a plaintiff sues for restitution claiming a payment constitutes unjust enrichment, a defendant may respond with the voluntary-payment rule as a defense. The named plaintiff, Patrick Peake, paid BMG Direct Marketing’s late fees without protest and only later asserted that they were unenforceable; under these circumstances, BMG contends, Peake’s claims (and those of the class) are subject to the voluntary-payment defense. Although the voluntary-payment rule has been applied in both the private and public contexts, other legal and statutory remedies have evolved over time to supplant the rule’s application in many of these contexts. Like other equitable claims and defenses, an adequate legal remedy may render equitable claims of unjust enrichment and equitable defenses of voluntary-payment unavailable. This court has affirmatively applied the rule only once in the last 40 years, and that holding has itself been modified since. Nevertheless, the voluntary-payment rule has never been abrogated, and it still has limited application in Texas jurisprudence. Contrary to the court of appeals’ opinion, we do not find a substantial split of authority in Texas or across the nation generally that would categorically bar application of the voluntary-payment rule to the circumstances presented here. Thus, the trial court erred in concluding that the rule was “unlikely” to apply in this case. The court agrees with BMG that knowledge of a late fee’s amount and the circumstances under which it will be imposed is sufficient to charge one with “full knowledge of the facts” for purposes of the voluntary-payment rule’s application. Late-fee arrangements like the one BMG and Peake contracted for are designed to allocate the risk of a recognized uncertainty that arises from the parties’ imperfect knowledge regarding the precise amount of damages that will result if payments are not timely. Thus, when a person pays a late fee knowing its amount and the circumstances under which it would be imposed, that person pays in the face of a recognized uncertainty sufficient to satisfy the voluntary-payment rule’s full-knowledge requirement. The distinction between public and private entities should not alter the voluntary-payment rule’s application, the court states. The court agrees with Putnam v. Time Warner Cable of S.E. Wis., Ltd. P’ship, 649 N.W.2d 626 (Wis. 2002), that a claim that a late fee constitutes an unlawful penalty is not tantamount to a claim of fraud, duress or coercion. In this case, the late fees were a set amount per month, and there is no allegation of mistake or fraud as to their calculation. Even though the rule’s relevancy has receded in light of the current state of our jurisprudence, the voluntary-payment defense applies to the illegal-penalty allegation and refund request in this case. The court remands to the trial court so that it may determine the effect of BMG’s voluntary-payment defense on the requirements for class certification. If the trial court determines that common issues will predominate in resolving the voluntary-payment defense, then the court should explain why and describe how the voluntary-payment issues will be tried. OPINION:O’Neill, J.; Jefferson, C.J., Hecht, Brister, Medina, Green, Johnson and Willett, JJ., joined. Hecht, J., filed a concurring opinion. Wainwright, J., filed a concurring opinion. CONCURRENCE:Hecht, J. “I agree with the Court that”the voluntary-payment doctrine’s full-knowledge requirement has been met’ in this case, and that”the classmembers’ unlawful-penalty allegation, under the circumstances presented here, does not implicate the type of fraud, duress or coercion that would preclude the voluntary-payment defense.’ All of the class’s arguments thus having been rejected, and a dispositive defense having been conclusively established, the class cannot proceed on any claim it has asserted (those being only for damages, not injunctive relief), and the case is at an end.” CONCURRENCE:Wainwright, J. “Before precluding an innocent purchaser from recovering her mistaken payment from a wrongdoer, we should at least require that the purchaser in some manner harmed the seller or knowingly waived rights to the funds. The voluntary payment rule currently requires neither. Because I have serious concerns about the continued viability of the voluntary payment doctrine in private transactions and the rationale for its existence, I join only the Court’s judgment.”

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