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In a recent 5-3 decision, the Texas Supreme Court decertified a nationwide class of some 20,000 dentists who sued a software supplier, saying that the state’s 3rd Court of Appeals failed to hold the trial court’s certification order to the standard set in Southwest Refining Co. v. Bernal. The court of appeals correctly stated the law established by the supreme court’s 2000 ruling in Bernal but misapplied it, Justice Nathan Hecht, writing for the majority, said in Schein v. Stromboe, et al. The opinion was issued on Oct. 31. “How appropriate it was issued on Halloween because it’s plenty scary,” says Joe Longley, who represents one group of dentists who allege that Henry Schein Inc. billed them for unsolicited upgrades and enhancements to Schein’s DOS software. “The court, by taking this action, is stepping more into the world of micro-managing trial courts,” says Longley, a partner in Austin’s Longley & Maxwell. According to the supreme court majority, the 3rd Court’s conclusion that the certification order in Schein is proper conflicts with the standard set by Bernal, thereby triggering the high court’s conflicts jurisdiction. “What Schein tells us is [ Bernal's] authority is not going to be abated by careful writing from the courts of appeals,” says Charles Schwartz, one of the attorneys representing the software maker. Schwartz, a partner in the Houston office of Vinson & Elkins, says the supreme court is insisting that trial courts do a “rigorous analysis” before ruling on class certification to determine whether the prerequisites to certification are met. Appeals courts won’t get a “pass” simply by stating that they are following Bernal if they don’t apply the law correctly, he says. Jerry Clements, another attorney representing Schein, says Bernal set the standard for personal injury class actions. “The Schein case makes it clear that the same strict standards of Bernal apply in commercial class action cases as well,” says Clements, a partner in the Dallas office of Locke Liddell & Sapp. Supreme Court Justice Harriet O’Neill said in a dissenting opinion that the court doesn’t have jurisdiction to consider the case because the 3rd Court’s opinion does not conflict with Bernal. While concerns over class action certifications would, perhaps, justify the supreme court’s interlocutory review of certification orders, the Legislature has not granted the court jurisdiction to do so, O’Neill said in the opinion in which she was joined by Justices Craig Enoch and Deborah Hankinson. “The important issues this case presents cannot override due respect for precedent and legislative boundaries,” O’Neill wrote. Justice Michael Schneider did not participate in the decision. The supreme court initially dismissed Schein’s petition for review in August 2001 but did an about-face in November 2001, acting on a motion for rehearing filed on the software maker’s behalf by Harry Reasoner, another partner in Houston’s Vinson & Elkins. Although Reasoner did not participate in arguing the case before the supreme court, he says he helped write the brief and worked on issues for the oral argument. David Dunham, who represents a second group of dentists who allege that Schein sold them defective Windows software, questions the supreme court’s finding that it has conflicts jurisdiction. In the first filing in the interlocutory appeal, Schein said the case presents “four largely undecided questions important to class action litigation,” and there can be no conflicts jurisdiction on undecided questions, he says. “It’s mind-boggling how the court was able to take jurisdiction,” says Dunham, a partner in Austin’s Taylor and Dunham. Longley says the Schein decision is a “sea change” in the court’s view of its own jurisdiction. “They’re making a big change,” he says. Edward Sherman, a professor at Tulane Law School, says the decision gives the supreme court more flexibility to select cases to make new law. “It gives them more authority to pick and choose than they once had,” says Sherman, who specializes in civil procedure and complex litigation. “It may herald a more activist trend on the court,” he adds. Under the majority’s analysis, the supreme court would have jurisdiction anytime it thinks a lower court was wrong, says Beth Thornburg, a professor at Southern Methodist University Dedman School of Law. “I don’t think that’s what the Legislature intended,” says Thornburg, whose teaching fields include civil procedures and conflicts of law. But David Crump, a University of Houston Law Center professor who litigates class actions, says what constitutes conflicts jurisdiction is always a judgment call. The Schein ruling shows the supreme court wants a trial court to be able to explain why a case can be tried, he says. Crump says Schein isn’t as big a development as Bernal but tightens the standard. “It’s Bernal with an exclamation point,” he says. Although Crump says he doesn’t think Schein is an anti-class action decision, he says it may mean that the supreme court is against nationwide, state-law based class actions. Thornburg notes that the majority opinion cites a recent decision by the 7th U.S. Circuit Court of Appeals, which found in In Re Bridgestone/Firestone Inc. that a nationwide class action against the tire maker and Ford Motor Co. would be unmanageable. The fact that the opinion was written by Judge Frank Easterbrook, who is “very hostile” to nationwide class actions, is an indication of the Texas Supreme Court’s position on those actions, Thornburg says. 15,000 DENTISTS The Schein class action was filed in 1997 by the two subclasses of dentists who purchased office management software products made by Schein and two of its subsidiaries. The Windows class alleged that the software they bought was defective and sold under false pretenses, the supreme court majority opinion said. The DOS class alleged that Schein told them they would have “free, unlimited technical support” and sent unsolicited upgrades for which they were charged, the opinion said. Among the causes of actions alleged are breach of contract, deceptive trade practices, fraud, negligent misrepresentation and promissory estoppel. Judge Suzanne Covington of Austin’s 201st District Court certified the two subclasses in 1999 before the supreme court ruled in Bernal. The 3rd Court held in 2000 that Covington correctly concluded that common issues would predominate over any individual issues at trial. Justice Mack Kidd wrote the opinion in which he was joined by Chief Justice Marilyn Aboussie and Justice Bea Ann Smith. In Bernal, the supreme court held that Texas Rule of Civil Procedure 42 requires a rigorous analysis and a specific explanation of how class claims are to proceed at trial. The trial court in Schein did not set out a plan for trying the plaintiffs’ claims, Hecht said in the majority opinion. The certification order only lists some common issue and concludes there is “nothing to indicate” that individual claims cannot be managed, the opinion said. Hecht said in the opinion that the 3rd Court stated it is confident that any individual damages issues may be resolved in a “manageable, time-efficient, yet fair manner” and brushed aside arguments that the trial court had not explained how other issues, like reliance, would be tried. That holding conflicts with Bernal, the opinion said. Although the plaintiffs contend that they have established “class-reliance” on alleged misrepresentations made by Schein, the supreme court said that isn’t supported by the record. The trial court didn’t explain in its certification order how the plaintiffs avoid individual proof of reliance or why the necessity for such proof wouldn’t defeat one requirement for certification, the supreme court’s opinion said. Clements, who represented Schein in the trial court, says some class members testified that they relied on what colleagues had told them, rather than the software maker’s statements. The supreme court majority said damages would have to be determined on an individual basis for some of plaintiffs’ claims. The court also said the plaintiffs wholly failed to demonstrate that Texas law should apply to so many of those claims that common legal issues predominate. Because the law varies among the states, it would be improper for a trial court to apply Texas law to everyone in the case, Clements says. Having to apply different states’ laws would make the case unmanageable, she says. However, Longley says the 15,000 dentists he represents brought claims under the Texas Unsolicited Goods Statute. The laws that apply to unsolicited goods essentially are the same at the federal level and in all the states, Longley says, adding that he will raise that issue in a motion for rehearing. In its opinion, the supreme court also held that the court of appeals did not discuss whether a class action is superior to the pursuit of individual claims. The plaintiffs have not shown that a class action is either fairer or more efficient in these circumstances than individual claims would be, the court said. Clements says class actions originally were intended for large numbers of people with small claims to join together to bring an action. The recent trend in Texas has been to aggregate claims that are significant, she says. “I think this is going to cause trial court judges to have to look much more closely at whether individual class members have damages that are more than nominal,” Clements says. The supreme court remanded the case to the trial court, which will have to determine whether a class can be certified.

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