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The “certify now and worry later” approach won’t cut it when a trial court is considering a proposed settlement of claims against a defendant in a class action, according to the Texas Supreme Court. In a unanimous decision on Aug. 30, the high court cited a previous ruling in Southwestern Ref. Co. v. Bernal that requires a trial court to perform a “rigorous analysis” to determine whether all requirements for class certification have been met before certifying a class. “We see no reason why settlement-only classes should merit less rigorous treatment,” wrote Justice Harriet O’Neill, author of the court’s opinion in McAllen Medical Center Inc. v. Ramiro Cortez Jr., et al. The supreme court held that the hospital, which declined to settle, has standing to appeal the trial court’s conditional certification of an “opt-out” class and that its appeal is ripe for review. The case was remanded to Corpus Christi’s 13th Court of Appeals, which dismissed the hospital’s appeal last year. Roger Hughes, the hospital’s attorney and a partner in Harlingen, Texas’ Adams & Graham, says the ruling is significant because the supreme court held that a nonsettling defendant has standing to object to the way a settlement is being done if it can show that it’s being hurt by the process. It’s also significant, Hughes says, because more evidence will have to be presented before a settlement class can be certified and notice sent to its members. Michael Caddell, attorney for the plaintiff class, says the ruling sets up a procedure requiring that, if there is a proposed settlement, the trial court conduct a full-blown hearing on class certification before notice can be sent to class members. The trial court is expected take a second look at certification when it reviews the settlement proposal at the fairness hearing, he says. “They are changing class action procedure in Texas,” says Caddell, a shareholder in Houston’s Caddell & Chapman. Caddell argues that the class action inquiry should occur at the fairness hearing after class members have received notice of the proposed settlement. DIRECT EFFECT? Cortez filed the class action against the McAllen Medical Center and Dr. Francisco Bracamontes, a cardiac surgeon at the hospital, in May 1999. The suit alleged that MMC and Bracamontes misrepresented to cardiac surgery patients that all the hospital’s cardiac surgeons were board-certified — an allegation MMC denies in its responses. According to the supreme court’s opinion, Cortez reached a tentative settlement with Bracamontes, and they jointly moved for 92nd District Judge Ed Aparicio to certify a class so that the settlement could be approved. The proposed class included everyone who had cardiac surgery at MMC from Dec. 1, 1993, to May 21, 1999, the opinion said. On June 11, 1999, MMC objected to certification of the proposed class, alleging that it met none of the criteria for class certification under Texas Rule of Civil Procedure 42. On the same day, Aparicio entered an order certifying a class only for the claims against Bracamontes, giving preliminary approval to the settlement, scheduling a fairness hearing and providing for class notice. MMC argues that it’s directly affected by the class certification, notice and proposed settlement. Notice would go not just to Bracamontes’ patients, but to all patients who had cardiac surgery at the hospital during the period in question, the opinion said. “We felt the notice was being used in a way that might injure the hospital,” Hughes says. The supreme court’s opinion said Aparicio allowed Cortez and his lawyer to send the notice, to represent themselves as spokesmen for the class and to formulate and defend the proposed settlement without first determining whether the Rule 42 typicality and adequacy-of-representation criteria had been met. The criteria require the trial court to consider whether the asserted claims are “typical” of the class and whether the class representative and its lawyer will “fairly and adequately” protect the class’s interest, the opinion said. Caddell argues that the usual practice of sending notice to a class after a brief first hearing and preliminary certification allows the proposed class members to appear at the fairness hearing and raise objections to the certification and settlement. A rigorous first hearing followed by classwide notice achieves the same purpose and provides greater protection to absent class members, who still can voice their objections at the later fairness hearing, the opinion said. Jack Ratliff, a University of Texas School of Law professor currently visiting at UT at El Paso, says the state supreme court is requiring trial courts to take an extra step in certifying a settlement class. But in most cases, he says, only the proponents of a settlement are likely to appear at the initial hearing. “As a practical matter, the judge is not going to be able to do a very rigorous analysis if nobody is there to complain,” Ratliff says. The supreme court is overlooking the fact that a trial court can’t go out and conduct an investigation on its own, he adds. The court depends, to a great extent, on dissatisfied class members to present objections, he says. The objectors are the ones who can show the trial judge what’s wrong with the certification or the settlement, and they don’t show up until the fairness hearing, Ratliff says. “If there’s going to be a fight, that’s where it will be,” Ratliff says. “I think most judges will do no more than go through the motions at the first hearing and wait for the fairness hearing to do the real work. Otherwise, there will be a significant duplication of effort.” Caddell says that if a trial court conducts a full Rule 42 analysis for the first hearing, it will be reluctant to go through the entire process again at the fairness hearing. That could mean decisions are “set in concrete” after the first hearing and won’t be revisited, he says. Charles Silver, another professor at the UT law school, says the decision also could benefit “strategic objectors.” Silver says strategic objectors use class actions to extort money by threatening to appeal class certification orders — thereby taking a case out of the trial court’s hands — unless they’re paid a fee. Notes Silver, “This opinion puts a very powerful weapon in their hands.”

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