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Click here for the full text of this decision FACTS:Citizens Inc. and its wholly-owned subsidiary Citizens Insurance Company of America (CICA) are Colorado corporations with their principal places of business in Austin. Harold E. Riley and Mark A. Oliver are officers and directors of Citizens Inc. Citizens sells life insurance policies (CICA policies) through foreign insurance agents exclusively to persons outside of the United States. The purchasers reside in more than 35 countries including the United States. The CICA policies allow policyholders to assign policy dividends and other benefits to offshore trusts. The trusts use the assigned dividends and other benefits to purchase common stock in Citizens Inc. Each year since 1996 there have been approximately 30,000 CICA policies in effect, with each policyholder paying an average annual premium of around $2,000. At least 75 percent of the policyholders have assigned their policy dividends and other benefits to the offshore trusts. The CICA policies are not registered with any regulatory body in the United States, although the common stock purchased with policy dividends is listed on the American Stock Exchange. Similarly, neither Citizens nor its salespeople have registered with any regulatory body in the United States. Citizens asserts that the CICA policies are not subject to regulation in the countries in which the policyholders reside. On Aug. 6, 1999, Delia Bolanos Andrade and Luis Martin Tapia Alberti, both residents and citizens of Colombia, South America, filed a class action against CICA, Citizens Inc., Riley and Oliver (collectively, Citizens) in Texas state court. The original petition alleged several causes of action related to the CICA policies, including: 1. violations of the Texas Deceptive Trade Practices Act; 2. breach of contract; 3. fraud; 4. fraud in the inducement; 5. negligent misrepresentation; 6. breach of the duty of good faith and fair dealing; 7. violations of the Texas Insurance Code; 8. equitable reformation of the policies; 9. conspiracy to plan and implement this “scheme”; and 10. unjust enrichment and the imposition of a constructive trust. On Dec. 15, 2000, the class plaintiffs filed a second amended original petition to add a cause of action under the Texas Securities Act for selling securities in Texas without first registering with the state. By this time, seven new plaintiffs had joined the suit, including Fernando Hakim Daccach. On June 29, 2001, Daccach filed a motion for class certification in which he sought designation as the class representative against Citizens on only one class claim: that the defendants had sold or offered securities from Texas in the form of the CICA policies without registering with the Texas Securities Board. Daccach expressly disclaimed any intention to pursue the other causes of action in the class suit. In the sixth amended petition, filed the same day as the first amended motion for class certification, the other plaintiffs pleaded the original claims against Citizens as individuals, not as class representatives. Challenging Daccach’s motion for class certification, Citizens argued that Texas law should not apply to this worldwide class action and that Daccach’s abandonment of claims defeats certification prerequisites. The trial court granted Daccach’s motion. Citizens brought an interlocutory appeal challenging the trial court’s certification order. Citizens argued that the trial court abused its discretion in granting Daccach’s motion for class certification. First, Citizens challenged the adequacy of the trial court’s class definition. Second, it argued that the trial court failed to conduct a proper choice of law analysis to determine whether common issues predominate over individual issues. Third, Citizens argued that the trial court failed to adequately establish the class certification prerequisites. The 3rd Court of Appeals rejected all three points, holding that: the class definition precisely ascertains the class members; the trial court was not required to engage in a “most significant relationship” choice-of-law analysis; and the trial court did not abuse its discretion by finding that plaintiffs satisfied the class certification requirements. The Texas Supreme Court granted Citizens’ petition for review. HOLDING:The Texas Supreme Court decertified the class and remanded the case to the trial court for further proceedings. The court stated that the case’s threshold question was whether the trial court conducted a proper choice of law analysis and correctly decided that Texas law governed this class suit. Daccach pleaded a single cause of action on behalf of the class: that Citizens violated �12 of the Texas Securities Act, codified in Texas Revised Civil Statutes Arts. 581-12A and -33(A), that requires dealers in Texas who offer or sell securities to register with the Texas Securities Board. Section 12, the court stated, indemnifies investors victimized by violations of the Texas Securities Act, encourages compliance with the act’s regulatory and disclosure provisions, creates an incentive for private enforcement and guards the integrity of the state’s securities industry by protecting resident sellers who operate in compliance with the law. Because the class-action suit only alleges Citizens’ failure to register with the Texas Securities Board before allegedly offering and selling securities from Texas, the court held that �12 governs under any conflict-of-law principles that might apply. Thus, the court found that the trial court correctly concluded that the Texas Securities Act applied to this suit. The court then did an analysis of choice of law. Daccach, the court stated, alleged only that Citizens violated Art. 581-33(A) by selling securities in or from Texas without registering as a dealer. No choice-of-law question was necessary, the court held. The court also held that the trial court did not abuse its discretion in determining that there was a significant aggregation of contacts with Texas to apply Art. 581-33(A) constitutionally. Moving on, the court noted that Citizens challenged the trial court’s class certification by arguing that because Daccach abandoned all claims but the Texas Securities Act claim, inter alia, he was not an adequate representative of the class and common issues did not predominate over individual issues in the suit. The court concluded that the trial court erred in certifying the class without considering the adequacy of the class representative in light of the res judicata effect of the class representative’s decision to abandon claims. Ultimately, the court stated, certifying a class in which the representatives abandoned claims in favor of pursuing certain class claims raised a risk of preclusion for absent class members. The plaintiffs must give effective notice to the absent members regarding the preclusive effect that may attach to their individual claims, the court stated. The unnamed members may then exercise independent judgment and chose to remain in the class or opt out. OPINION:Wainwright, J., delivered the opinion of a unanimous court as to sections I-III and V-VIII; the court’s majority opinion as to sections IV-A, IV-C, and IV-D, joined by Hecht, O’Neill, Green, Johnson and Willett, J.J.; and a concurring opinion as to section IV-B, joined by Johnson, J. CONCURRENCE:Jefferson, C.J., filed a concurring opinion, joined by Brister and Medina, J.J. “I would remand the case for a proper choice-of-law analysis. Because I disagree with the Court’s treatment of that issue, I respectfully concur in the Court’s judgment but not in section IV of its opinion.”

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