Appellee’s Brief

Summary: This case involves a class action suit brought against an investment company known as Life Partners that sells life settlements. A “life settlement” is a life insurance policy that is purchased from the original insured for an amount less than the face amount of the policy (i.e., less than the death benefit). When the insured subsequently dies (called a maturity), the policy proceeds are paid to the purchaser of the policy as opposed to the family of the insured. The idea behind the investment is that the purchaser of the policy retains as profit the difference between the amount paid for the policy and the amount of the policy proceeds upon the death of the insured. Investors that acquire life settlements through Life Partners are required to pay a certain sum to acquire an interest in a given life settlement. However, investors are also required to pay to Life Partners an amount to be deposited into escrow to pay premiums on the policy through the life expectancy of the insured. However, if the insured passes away early, then the investor is to receive a refund of the escrowed funds. In the case of Ms. McDermott and other investors, Life Partners refused to refund these escrowed funds when an insured died early. Thus, a class action was filed by Heygood, Orr & Pearson on behalf of all investors who wrongfully had their escrowed funds for premiums withheld when the insured died earlier than expected.

After the case was filed and discovery was conducted, the court granted a motion to certify the class action. Life Partners then appealed. The below brief was submitted by Heygood, Orr & Pearson on behalf of the class in opposition to the appeal filed by Life Partners.

No. 05-12-01623-CV
IN THE COURT OF APPEALS FOR THE FIFTH
JUDICIAL DISTRICT OF TEXAS AT DALLAS
LIFE PARTNERS, INC.,

Appellant

v.

HELEN Z. McDERMOTT, INDIVIDUALLY AND ON
BEHALF OF ALL OTHERS SIMILARLY SITUATED,

Appellee

On Appeal from Class Certification Ruling
116th Judicial District Court
Dallas County, Texas
Cause No. 11-02966

ORAL ARGUMENT REQUESTED

TABLE OF CONTENTS

STATEMENT OF FACTS

I. Introduction.

II. Life Partners and the business of “life settlements.”

III. McDermott invests in the Gummelt policy.

IV. Life Partners overpays the carrier for Gummelt policy.

V. McDermott files suit to recover damages from the prepayment.

VI. The trial court considers and grants certification.

SUMMARY OF ARGUMENT

ARGUMENT AND AUTHORITIES

I. Review of the trial court’s order granting class certification is governed by a modified abuse of discretion standard.

II. The trial court properly conducted a rigorous analysis to determinewhether all prerequisites to certification were met before ruling on class certification

A. A “rigorous analysis” is one that demonstrates the court went beyond the mere pleadings and understood the issues relating to certification.

1. Whether a trial court conducted a “rigorous analysis” is not determined by the length of the certification hearing or the number of pleadings reviewed by the court.

2. There is no evidence that Life Partners was “prevented” from presenting its opposition to class certification.

3. Life Partners has failed to show the Trial Court did not consider its post-hearing brief or that it was prejudiced in the event the brief was not considered.

4. The evidence clearly demonstrates that the trial court undertook a rigorous analysis before granting class certification, including an analysis of res judicata and adequacy issues.

III. The trial court properly considered the res judicata risk to absent class members before finding that the superiority and adequacy requirements were met.

A. The trial court clearly considered the res judicata risk to absent class members before finding that the superiority and adequacy requirements were met.

B. Not only did the trial court consider the issue of res judicata, it properly analyzed the issue and came to the appropriate conclusion that the risks of res judicata did not outweigh the pother factors supporting class certification.

1. Daccach merely held that a trial court abuses its discretion when it fails to consider the possible res judicata effects arising from class certification.

2. An analysis of the various pending class actions against Life Partners demonstrates that certification was proper despite the presence of potential res judicata concerns.

3. Where res judicata concerns exist, the proper remedy is to advise potential class members of their opt-out rights as was done here.

IV. The Trial Court properly found that Michael McDermott and Plaintiff’s counsel are adequate representatives for the class.

A. Neither Michael McDermott nor his counsel suffers from any conflict interest.

1. Michael McDermott suffers from no conflict of interest.

2. Class counsel suffers from no conflict of interest.

B. Mr. McDermott’s suffers from no lack of credibility.

C. Mr. McDermott was and is sufficiently familiar with the facts of the litigation to serve as class representative.

V. The trial court properly found the class is sufficiently “numerous that joinder of all members is impractical.”

PRAYER

CERTIFICATE OF SERVICE

CERTIFICATE OF COMPLIANCE

- – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – -

INDEX OF AUTHORITIES

Cases

Adams v. Reagan, 791 S.W.2d 284

(Tex.App.–Fort Worth 1990, no writ) 32

Akuna Matata Invs., Ltd. v. Tex. NOM Ltd. P’ship,

No. SA-05-CV-1053-RF, 2006 U.S. Dist. LEXIS 76788

(W.D. Tex. Sept. 28, 2006) 27

 Amchem Products v. Windsor,

521 U.S. 591, 117 S.Ct. 2231 (1997) 33

Barr v. Resolution Trust Corp.,

837 S.W.2d 627 (Tex. 1992) 26, 28

Bowden v. Phillips Petroleum Co.,

247 S.W.3d 690 (Tex. 2008) 22

Brown v. Dr. Michael D. Hoffman & Associates,

111 S.W.3d 826 (Tex.App.–Dallas 2003, no pet.) 27

Butnaru v. Ford Motor Co.,

84 S.W.3d 198 (Tex. 2002) 8

Chevron U.S.A. Inc., v. Kennedy,

08 S.W.2d 159 (Tex.App.—El Paso 1991, writ dism’d w.o.j.) 44

Cire v. Cummings,

134 S.W.3d 835 (Tex. 2004) 8

Citizens Ins. Co. of America v. Daccach,

217 S.W.3d 430 (Tex. 2007) passim

Daniels v. Empty Eye, Inc.,

368 S.W.3d 743 (Tex. App.–Houston [14th Dist.] 2012, pet. filed) 28

Douglas R. Bigelow Trust v. U.S.,

97 Fed.Cl. 674 (Fed.Cl. 2011) 43

E & V Slack, Inc. v. Shell Oil Co.,

969 S.W.2d 565 (Tex. App.–Austin 1998, no pet.) 32

E.I. du Pont de Nemours & Co. v. Robinson,

923 S.W.2d 549 (Tex. 1995) 8

Farmers Ins. Exch. v. Leonard,

125 S.W.3d 55 (Tex. App.–Austin 2003, pet. denied) 34

Gen. Tel. Co. of the Nw., Inc. v. E.E.O.C.,

446 U.S. 318, 100 S.Ct. 1698 (1980). 41

General Motors Corp. v. Bloyed,

916 S.W.2d 949 (Tex. 1996) 42

Graebel/Houston Movers, Inc. v. Chastain,

26 S.W.3d 24 (Tex.App.–Houston [1st Dist.] 2000, pet. dism’d w.o.j.) 41

Grant Thornton LLP v. Suntrust Bank,

133 S.W.3d 342 (Tex. App.–Dallas 2004, pet. denied) 23, 30, 34

Great Southern Life Ins. Co. v. Thibodeau,

1999 WL 254430 (Tex. App.–Dallas April 30, 1999) 45

Henry Schein, Inc. v. Stromboe,

102 S.W.3d 675 (Tex. 2002) 9, 41

Highland Crusader Offshore Partners, L.P. v. Motient Corp.,

281 S.W.3d 237 (Tex. App.–Dallas, 2009, pet. denied) 26

Hutchins v. Grace Tabernacle United Pentecostal Church,

804 S.W.2d 598 (Tex. App.–Houston [1st Dist.] 1991, no writ) 45

Johnson v. United States,

208 F.R.D. 148 (W.D. Tex. 2001) 35

Lehocky v. Tidel Techs.,

220 FRD 491 (S.D. Tex. 2004) 43

Low v. Henry,

221 S.W.3d 609 (Tex. 2007) 8

Magic Valley Elec. Co-op. v. City of Edcouch,

2006 WL 733960 (Tex. App.–Corpus Christi 2006, pet. dism’d by agreement) 44

Methodist Hosp. of Dallas v. Tall,

972 S.W.2d 894 (Tex.App.–Corpus Christi 1998, no pet.) 41

National Gypsum Co. v. Kirbyville Indep. Sch. Dist.,

770 S.W.2d 621 (Tex. App.–Beaumont 1989, writ dism’d w.o.j.) 44

Nissan Motor Co., Ltd. v. Fry,

27 S.W.3d 573 (Tex. App.–Corpus Christi 2000, pet. denied) 35

Norwood v. Raytheon Co.,

237 F.R.D. 581 (W.D. Tex. 2006) 43

Pate v. Elloway,

No. 011-03-00187-CV, 2003 Tex. App. LEXIS 9681

(Tex. App.–Houston [1st Dist.] Nov. 13, 2003, pet. denied) 36

Peters v. Blockbuster, Inc., 65 S.W.3d 295

(Tex. App. – Beaumont 2001, no pet.) 9

Phila. Elec. Co. v. Anaconda Am. Brass Co.,

43 F.R.D. 452 (E.D. Pa. 1968) 42

Phillips Petr. Co. v. Shutts,

472 U.S. 797 (1985) 43

State Farm Mutual Auto. Ins. Co. v. Lopez,

45 S.W.3d 182 (Tex. App.–Austin 2001, no pet.). 35

Sun Coast Res. v. Cooper,

967 S.W.2d 525 (Tex.App.-Houston [1st Dist.] 1998, pet. dism’d w.o.j.) 44

Sw. Ref. Co., Inc. v. Bernal,

22 S.W.3d 425 (Tex. 2000) 8, 9, 12

Unifund CCR Partners v. Villa,

299 S.W.3d 92 (Tex. 2009) 8

 - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - -

STATEMENT OF FACTS

I. Introduction.

This class action involves relatively small claims on behalf of 38 investors located in eight states throughout the country. (CR 301-302, 720-758). The class members were purchasers of fractional interests in a “life settlement”—the Gummelt life insurance policy—from Appellant Life Partners, Inc. (CR 1078-1079). The petition alleges Life Partners failed to pay a total of almost $65,000 that should have been returned to the class members (based on their relative fractional interest) when Gummelt died and the policy benefit was paid. (CR 301-302, 377-398). More specifically, Plaintiff alleges that Life Partners breached its obligations to the class members by unilaterally making a single, large and unwarranted prepayment of premiums to the carrier for the Gummelt policy. (CR 377-398). When Gummelt passed away not long thereafter, the carrier retained the excess money from the prepayment and the class members lost nearly $65,000.

After extensive briefing and oral argument, the trial court certified the following class:

All persons residing in the United States who purchased any portion of a life settlement interest from Life Partners, Inc. in the Gummelt policy, American General Life Insurance Company, policy number #####7322L.

(CR 1078-1079). The class excludes anyone who has entered into settlement agreements with Life Partners regarding the Gummelt policy prepayment. (Id.).

II. Life Partners and the business of “life settlements.”

“A life settlement is simply the sale of an existing life insurance policy by a terminally ill or elderly person to another party.” (CR 66). “The price of the policy is negotiated and sold by the owner at a discount to the face amount. The purchaser then collects the full amount paid out under the policy.” Id. “Life settlements are attractive to policyholders because they provide a secondary market for life insurance policies that are no longer needed or wanted.” Id. “Investors are attracted to life settlements because they offer the opportunity for potentially high returns that are not tied to stock or bond markets, interest rates, or business cycles.” Id.

“Life Partners “originates, analyzes, and facilitates the purchase of life settlement transactions on behalf of its worldwide network of clients.” (CR 68). According to Life Partners, it “introduced the concept of a secondary market for life insurance in 1997.” (CR 71). Life Partners “earns fees from providing life settlement purchasing agent services to both individual and institutional clients.” Id. Life Partners’ clients can purchase “either a whole policy, or a fractional interest in a policy.” (CR 74).

If you purchase a fractional interest, the remaining fractional interests in the policy will be sold to other investors. When the life settlor dies, you would receive your pro-rata interest of the proceeds paid out under the policy.

(Id.). The majority of life settlements —and the one at issue herein—involve many investors purchasing small, fractional interests in a policy.

III. McDermott invests in the Gummelt policy.

This case involves a single life settlement in which Ms. McDermott purchased a fractional interest from Life Partners. Ms. McDermott invested $12,500 for .227273% of a life settlement regarding the Gummelt policy, American General Life Insurance Company, policy number #####7322L. (See, e.g., CR 78). As part of the transaction, Life Partners placed a portion (apparently about $4,500) of McDermott’s investment into an escrow account to be used to pay premiums on the Gummelt policy in order to keep the policy in force until it matured. (CR 80, 82). Life Partners represented to McDermott that its escrow agent would be “responsible for holding amounts escrowed for payment of premiums and for paying those premiums from the escrow account as they come due.” (CR 84). As was the case with all such purchasers, if the escrowed funds were not needed to keep the policy in force to maturity, Life Partners agreed that the money would be returned to the purchaser:

[I]n the event the policy matures earlier than the estimated maximum life expectancy, unused premiums remaining in the escrow account are returned to the purchasers in addition to their share of the policy proceeds.

(CR 88) (emphasis supplied).

IV. Life Partners overpays the carrier for Gummelt policy.

Gummelt passed away prior to July 25, 2009. (CR 164, 189). In the course of receiving information from Life Partners about the Gummelt policy maturing, McDermott was informed for the first time in August 2009 that Life Partners had intentionally overpaid the insurance carrier for the Gummelt policy. (CR 189, 190). Life Partners paid the “scheduled” annual premium of $374,250 in December 2008, which was sufficient to keep the policy in force throughout 2009 (and thus obviously though Gummelt’s death in the summer of 2009). (CR 187-188). However, also in December 2008, Life Partners deliberately “prepaid” an additional $872,750 of its clients’ money held in escrow (including money of McDermott and the class members). (Id.). As a result of this intentional overpayment, there was $872,750 less to distribute to the purchasers of interests in the Gummelt policy than there should have been. As to Ms. McDermott specifically, Life Partners failed to pay her just under $2,000 (i.e., $872,750 multiplied by her .227373% interest). This suit involves about $65,000 and not $872,750 because, of the Gummelt policy purchasers located in the U.S., Life Partners has reached settlements with all but the 38 class members. (See CR 301-302 (chart listing percentage interest of class members)).

Shortly after Gummelt passed away (and even before Life Partners notified the class members of Gummelt’s death), Life Partners sent a letter to the insurance carrier in which Life Partners admitted two of the primary claims underlying the present lawsuit: (1) the December 11, 2008 “scheduled premium” payment of $374,250 was “sufficient to carry the coverage through to December 2009” (i.e., past Gummelt’s death); and (2) the December 10, 2008, payment of $872,750 “should not have been made.” (CR 199). Specifically, Life Partners’ President Scott Peden wrote the carrier as follows:

According to a recent audit on the premium history of the above-referenced policy a scheduled premium of $374,250 was paid on December 11,2008. This payment would have been sufficient to carry the coverage through to December 2009.

However, one day prior, on December 10, 2008, a payment of $872,750 was also made on this policy. This payment should not have been made and we request that it be refunded to us at your earliest convenience.

Thank you for your assistance in this matter. We regret any confusion this may have caused.

Sincerely,

R. Scott Peden

President

(CR 199 (emphasis supplied); see also CR 187). The carrier did not refund any of the money. (CR 188, 189).

V. McDermott files suit to recover damages from the prepayment.

In the present lawsuit, Plaintiff/Appellee Helen Z. McDermott, by and through her attorney-in-fact Michael McDermott, alleges that, by directing its escrow agent to make the prepayment/overpayment, Life Partners breached a fiduciary duty owed the proposed class and breached its standard form agreements with the proposed class. (CR 377-398). In short, to quote Life Partners’ President Peden, the $872,750 prepayment/overpayment “should not have been made.” (CR 199). That is the sole basis of the claims raised herein.

VI. The trial court considers and grants certification.

Plaintiff moved for certification of the class and filed supporting briefs and evidence. (CR 36-376; 676-760). Defendant opposed the motion for certification and filed its own briefing and evidence. (CR 648-675). Defendant’s opposition thoroughly explored the issues it now raises on appeal. (Id.).

A class certification hearing was held on November 9, 2012. (RR). The court took the matter under advisement. (RR 59-60). On November 20, 2012, the court entered an order granting certification of the class. (CR 1078). With regard to issues concerning res judicata and the other class actions asserted against Life Partners, the court’s order expressly provided that “the Court refuses to decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number 11-02966.” (CR 1085).

 - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - – - -

SUMMARY OF ARGUMENT

Plaintiff presented evidence supporting every element required for class certification. (CR 36-376; 676-760). After applying the required “rigorous analysis,” the trial court properly certified the class. (CR 1078).

The mere fact that other class actions were pending against Life Partners asserting very different class definitions and seeking to recover for different losses based on different conduct did not mean that Plaintiff or counsel were inadequate or a class action not superior for this case. Instead, given the unusual circumstances, the trial court’s decision to clarify that it would not “decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number 11-02966” was appropriate and certainly not an abuse of discretion. (CR 1085).

Regarding the adequacy requirement, Life Partners presented evidence that it believes conflicts with the evidence presented by Plaintiff. The trial court has discretion to resolve conflicting evidence for purposes of class certification, and the record here supports the finding below. (See, e,g., CR 348-364, 373-376).

This case involves 38 class members located from coast to coast in eight different states asserting claims based on losses totaling about $65,000. (CR 377-398, 720-758). No class member has filed an individual suit. (RR 44). The trial court did not abuse its discretion in finding the class sufficiently numerous that “joinder of all members is impractical.” The order granting class certification was proper and should be affirmed.

ARGUMENT AND AUTHORITIES

I. Review of the trial court’s order granting class certification is governed by a modified abuse of discretion standard.

The appellate review standard for a class certification order is a modified abuse of discretion. Sw. Ref. Co., Inc. v. Bernal, 22 S.W.3d 425, 439 (Tex. 2000). To determine whether a trial court abused its discretion, the reviewing court decides whether the trial court acted without reference to any guiding rules or principles; in other words, it must decide whether the act was arbitrary or unreasonable. Low v. Henry, 221 S.W.3d 609, 614 (Tex.2007); Cire v. Cummings, 134 S.W.3d 835, 838–39 (Tex. 2004). Of course, an appellate court cannot conclude that a trial court abused its discretion merely because the appellate court would have ruled differently in the same circumstances. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 558 (Tex. 1995); see also Low, 221 S.W.3d at 620. Nor does an abuse of discretion occur when the trial court bases its decisions on conflicting evidence and some evidence of substantive and probative character supports its decision. Unifund CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex. 2009); Butnaru v. Ford Motor Co., 84 S.W.3d 198, 211 (Tex. 2002). “A trial court has discretion to rule on class certification issues, and some of its determinations—like those based on its assessment of the credibility of witnesses, for example—must be given the benefit of the doubt.” Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 691 (Tex. 2002).

II. The trial court properly conducted a rigorous analysis to determine whether all prerequisites to certification were met before ruling on class certification.

A. A “rigorous analysis” is one that demonstrates the court went beyond the mere pleadings and understood the issues relating to certification.

Life Partners, focusing on the alleged brevity of the class certification hearing, asserts that the trial court failed to conduct a “rigorous analysi” prior to ruling on class certification. However, the Texas Supreme Court has never remotely suggested that the required “rigorous analysis” is to be measured with a stopwatch or by the number of briefs filed. Rather, “[t]o make a proper analysis, going beyond the pleadings is necessary, as a court must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000). Ultimately, reviewing courts should “focus on the purpose for the rigorous analysis and heightened scrutiny” and bear in mind that “[t]he exact timing and procedure used are not determinative.” Peters v. Blockbuster, Inc., 65 S.W.3d 295, 302 (Tex. App. – Beaumont 2001, no pet.). In other words, form is not required over substance. Applying the proper definition/standard for “rigorous analysis” and considering the submissions of the parties, the certification hearing, and, most importantly, the certification order itself, the trial court clearly complied with its obligation to conduct a “rigorous analysis.”

1. Whether a trial court conducted a “rigorous analysis” is not determined by the length of the certification hearing or the number of pleadings reviewed by the court.

A class certification hearing was held on November 9, 2012. (RR). The trial court began the hearing by noting it had “read everything, all your pleadings.” (RR 5). Later, the court invited the parties to submit case law on the issues raised. (RR 59 [“THE COURT: … I am reading all the cases, and I do want to look at your doc -- yeah, if you've got cases you want me to read, please.”).

At the hearing, certain of Plaintiff’s previously-filed exhibits were admitted into evidence. (RR 14-15, 35; see also CR 2nd Supp 8-10). Plaintiff supported the motion for certification with an affidavit and deposition testimony from the proposed class representative, Mr. McDermott (CR 373, 600); an affidavit from Plaintiff’s counsel (CR 348); deposition testimony from Life Partners’ CEO Brian Pardo (CR 116); deposition testimony from Life Partners’ President Scott Peden (CR 168); marketing materials created by Life Partners (66-72, 86, 96); correspondence between Life Partners and McDermott regarding the Gummelt policy (CR 78, 161, 164); contract documents regarding the Gummelt investment (CR 74, 80, 82, 84); a memorandum created an sent by Life Partners to Gummelt policy purchasers (CR 157); correspondence between Life Partners and the carrier for the Gummelt policy (CR 199); exemplars of the standard form agency agreements used by Life Partners with class members (CR 201); exemplars of the standard form policy funding agreements used by Life Partners with class members (CR 275); a table listing the class members (CR 301); letters sent by Life Partners to the proposed class members—showing they are located in eight different states—regarding the Gummelt policy prepayment (CR 720-758); a proposed settlement agreement created and sent by Life Partners to McDermott regarding the Gummelt policy prepayment (CR 345); Life Partners’ initial disclosures (CR 366); and Plaintiff’s pleadings (CR 377). Life Partners objected to some of the Plaintiff’s exhibits and portions of the Orr Affidavit, and the trial court sustained some of the objections. (CR 7-14).

At the hearing, Life Partners called its President Peden to testify (RR 26), submitted numerous exhibits into evidence (RR 30, 32, 34, 27, 47, 48) and presented extensive oral argument (RR 47-60). Twice, Life Partners’ counsel indicated that she had “no more questions” for Mr. Peden and passed the witness. (CR (39, 47). At no point did she seek to ask any additional questions. At no point during the hearing did Life Partners ask for a continuance of the hearing

The court took the matter under advisement. (RR 59-60). On November 20, 2012, the court entered an order granting certification of the class. (CR 1078). With regard to issues concerning res judicata and the other class actions asserted against Life Partners, the court’s order expressly provided that “the Court refuses to decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number 11-02966.” (CR 1085).

In the context of claiming the trial court failed to conduct the required rigorous analysis, Life Partners complains about the “length/brevity of the class certification hearing.” Appellant’s Brief at 10. However, Life Partners fails to even identify the length of the hearing, merely noting that the hearing started late and had to conclude that Friday afternoon. Appellant’s Brief at 11. More importantly, Life Partners did not object to the hearing adjourning when it did and did not ask at that time that the hearing be continued. (RR). Lastly, Life Partners cites no authority for the proposition that the rigorousness of a trial court’s class certification analysis is measured by the length of the class certification hearing; rather, as set forth above, the only requirement is that the court must “[go] beyond the pleadings” and “must understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of the certification issues.” Bernal, 22 S.W.3d at 435. The entire record before this Court substantiates that the trial court did just that, regardless of precisely how many minutes the class certification hearing lasted.

2. There is no evidence that Life Partners was “prevented” from presenting its opposition to class certification.

In addition to generally complaining of the alleged “brevity” of the hearing, Life Partners asserts that due to such brevity, it was somehow “prevented from fully responding to Plaintiff’s arguments and presenting all of [its] positions in opposition to class certification.” Appellant’s Brief at 11. But Life Partners points to no actual arguments, positions or evidence that it attempted but failed to present below because it was “prevented” from doing so. And none of its citations to the record support the allegation that it was prevented from presenting its arguments. Appellant’s Brief at 11 (citing to RR 35:25, RR 47:18-21, RR 49:2-10, RR 56:20-25; RR 60:4-6).

The reality is that every witness called and every line of questioning sought by Life Partners was allowed (RR 26-48). Every exhibit offered by Life Partners was admitted into evidence (RR 48). And Life Partners was allowed to and did present extensive legal argument at the hearing, discussing both the issue of res judicata and the issue of adequacy. (RR 49-60). In sum, Life Partners was allowed to present its position, arguments, legal authority and evidence without limitation. (See CR 468-675; see also CR 463-467).

3. Life Partners has failed to show the Trial Court did not consider its post-hearing brief or that it was prejudiced in the event the brief was not considered.

Finally, Life Partners complains the trial court may have failed to consider its post-hearing brief, CR 1043. However, if anything, the record suggests the trial court did consider the post-hearing submission. At the hearing, the court invited the parties to submit case law. (See, e.g. RR 59 [“THE COURT: … if you've got cases you want me to read, please.”]). Further, Life Partners’ motion to submit a post-hearing brief, to the extent leave was even necessary, was certainly not denied. Most importantly, Life Partners’ post-hearing brief simply did not raise any new argument, position or evidence. (Compare CR 488 – 517 with RR 47-60 and CR 1053-1061). Rather, its belated brief focused on issues of res judicata and adequacy, the same issues covered in its pre-hearing brief and at the hearing itself. (Id.). No new arguments or evidence were offered. And nowhere in its post-hearing brief did Life Partners identify a single issue, fact or piece of evidence it had been unable to offer at the hearing due to its supposed “brevity.”

4. The evidence clearly demonstrates that the trial court undertook a rigorous analysis before granting class certification, including an analysis of res judicata and adequacy issues.

Applying the proper definition/standard for “rigorous analysis” and considering the submissions of the parties, the certification hearing, and, most importantly, the certification order itself, the trial court clearly complied with its obligation to conduct a “rigorous analysis.” In this case, evidence supports every element required for certification. (See CR 36-376 and 676-760). There can be no credible suggestion here that this case involves reliance on “pleadings” alone or “mere assurances of counsel.” The certification order expressly discusses in some detail the specific “claims, defenses, relevant facts, and applicable substantive law” at issue herein. (CR 1078-1085). The order expressly addresses every item required by Rule 42(c)(1)(d). (CR 1079-1084). The order details the elements of every claim and defense raised herein and discusses how such claim or defense plays into the certification analysis. (Id.) The order sets forth a proper trial management plan, and Life Partners has not raised any challenge to the plan on appeal. (CR 1081-1084).

Life Partners suggests the certification order fails to address its argument regarding “the res judicata effect.” In fact, the order expressly addresses the res judicata argument by stating “The Court refuses to decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number 11-02966.” (CR 1085). The “res judicata effect” was addressed by the parties in their briefs (Life Partners: CR 473-481; Plaintiff: 676-681) and repeatedly through evidence and argument at the certification hearing (See, e.g., RR 31-33 and 49-60). The trial court clearly understood, carefully considered, and expressly addressed the “res judicata effect” argument. (CR 1085; RR 49-60).

Life Partners also suggests the order does not address “adequacy” even though the order expressly does. (CR 1078-1079). “Adequacy” was also addressed by the parties in their briefs (CR 51-55, 473-494 and 676-685) and at the certification hearing (RR 18-19, 23-26, 57-58). Life Partners deposed both of the McDermotts and presented all such testimony it deemed relevant and necessary to the court. (CR 502-548). Plaintiff presented evidence—including deposition testimony and affidavits— which clearly supports the finding of adequacy. (See, e.g., CR 348-364, 373-376). Life Partners points to no legal authority that would require a detailed or lengthy discussion within a certification order to explain a court’s expressly stated (and well-supported) decision on adequacy. Here, the trial court clearly went “beyond the pleadings” as required and did not rely on “mere assurances of counsel.”

The trial court complied with its obligation to conduct a “rigorous analysis” to determine whether all prerequisites to certification were met before ruling on class certification. Certification of the class was not an abuse of discretion and the order below should be affirmed.

III. The trial court properly considered the res judicata risk to absent class members before finding that the superiority and adequacy requirements were met.

A. The trial court clearly considered the res judicata risk to absent class members before finding that the superiority and adequacy requirements were met.

Life Partners’ Point of Error is not that the trial court reached an erroneous conclusion that certification was proper despite the presence of issues relating to res judicata. Rather, Life Partners’ complaint is that the court “failed to consider” the presence of such issues. See Appellant’s Brief at vii, 12. This complaint is clearly without merit.

At the time of the certification hearing, the trial court was well aware of the existence and nature of the other class action lawsuits pending against Life Partners. (CR 560-638). Willingham v. Life Partners and the similar Steuben v. Life Partners class action on behalf of all California purchasers involve broad claims based on general practices of Life Partners on behalf of thousands of investors and hundreds of life settlements and seek to recover for different losses based on different conduct at different times and under different circumstances. (CR 560-586, 587-614). The Willingham and Steuben actions do not assert any claims regarding the prepayment issue that is unique to the Gummelt policy. (Id.). And as Life Partners admits, “no members of the putative class herein are members of the putative class in Steuben.” Appellant’s Brief at 16, n.4.

The trial court was also made aware of the Turnbow v. Life Partners class action pending in the United States District Court for the Northern District of Texas. (CR 615-638). The Turnbow litigation involves virtually every life settlement sold by Life Partners and allegations that the investments were overpriced due to Life Partners knowingly providing false life expectancies created by a Dr. Cassidy. (Id.). Turnbow does not assert anything related to the prepayment issue that is unique to the Gummelt policy. (Id.). As Life Partners admits, “the Cassidy-life-expectancy allegations in Turnbow are not the same as the premium-overpayment allegations in McDermott.” Appellant’s Brief at 17.

Not only was the trial court aware of the other class action lawsuits against Life Partners, it properly considered the potential res judicata effects of certifying the instant class. (CR 493-502 (Life Partners’ pre-hearing brief addressing arguing res judicata issue); RR 5 (trial court indicated “I did go back and read everything, all of your pleadings last night); RR 51-57 (Life Partners’ counsel extensively addressed res judicata issues during the certification hearing); CR 1059-1062 (Life Partners’ post-hearing brief addressing res judicata); CR 1085 (class certification order stating that “[t]he Court refuses to decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number.”)). The trial court clearly understood and appreciated the res judicata issues raised by Life Partners:

THE COURT:

The problem I’ve got is the Gummelt issue, the specific issue of this payment is not common to any other policy except the Gummelt one. And so my concern is, if I was the judge and I had Turnbow and Willingham, I would look at Gummelt and say, go away. I mean, because in my opinion, it is extraneous, it doesn’t involve all policies, it doesn’t involve the same — I would say complicated issues about – about preoptimization and whether you have or not and whether life expectancies — I mean, those are all pretty complicated issues. This to me seems a much more — a much simpler more discrete issue. And I guess that’s my concern, is that the issues in Gummelt don’t have any commonality – the issues in this lawsuit versus in Gummelt don’t have any commonality to any other policy.

MS. O’ROURKE [LIFE PARTNERS’ COUNSEL]:

The policies are the subject matter of the lawsuits, Your Honor, and it’s precisely because this is the point of res judicata, is to avoid duplicative litigation and allow people to piecemeal and sue in one company based on the same transaction.

THE COURT:

And, counsel, I don’t disagree with you. I guess, like I said, my concern is Turnbow and Willingham involved a large number of policies that have commonalities. Gummelt – this case and the Gummelt issue in this case don’t have commonality to any other transactions. Like I said, if I was Judge Lynn, I would look at Gummelt and say, go — it needs to be severed because it doesn’t have any commonality to anybody else.

RR 53-54. While Life Partners may disagree with the trial court’s legal and factual conclusions, it cannot credibly argue, as it has, that the trial court “fail[ed] to consider the res judicata risks to the absent class members.” Appellant’s Brief at 12. Its point of error should be rejected.

B. Not only did the trial court consider the issue of res judicata, it properly analyzed the issue and came to the appropriate conclusion that the risks of res judicata did not outweigh the other factors supporting class certification.

1. Daccach merely held that a trial court abuses its discretion when it fails to consider the possible res judicata effects arising from class certification.

Citing Citizens Ins. Co. of America v. Daccach, 217 S.W.3d 430 (Tex. 2007), Life Partners argues the proposed class should not have been certified because the members may have other claims that might be barred by res judicata if this class proceeds (and therefore, so the argument goes, plaintiff or counsel is not adequate and/or a class action is not superior to individual suits). The argument fails for several reasons.

First and foremost, the holding in Daccach was quite limited. In that case, the Texas Supreme Court merely held that a trial court errs by “certifying the class without considering the adequacy of the class representative in light of the class representative in light of the res judicata effect of the class representative’s decision to abandon claims.” Daccach, 217 S.W.3d at 448.

Daccach concerned claims that the defendant wrongfully sold certain insurance policies. The plaintiffs in Daccach were asserting only one cause of action on behalf of the class while at the same time asserting the other causes of action (based on the very same alleged wrong by the defendant) just for themselves, individually. Id. at 436 (“Daccach expressly disclaimed any intention to pursue the other causes of action in the class suit”; however, in a pleading filed the same day as the motion to certify, “the other plaintiffs pled the original claims against Citizens as individuals, not as class representatives.”). Furthermore, the plaintiffs in Daccach conceded that the “other,” unasserted causes of action arose from the very same transactions as the claim they were asserting on behalf of the class. Indeed, the res judicata “question” in Daccach involved claims arising out of the very same course of conduct by the defendant selling the very same policies. Daccach, 217 S.W.3d at 436-437.

Even under those facts, the Supreme Court did not rule that the named plaintiffs were per se inadequate. Rather, the Supreme Court merely held that the case needed to be remanded for the trial court to consider whether the plaintiffs were adequate class representatives given that the plaintiffs were not pursuing these other causes of action on behalf of the class. Id. at 460. When remanding the case in Daccach, the Supreme Court was careful to note that abandonment of claims in a class action context did not automatically render class treatment improper as Life Partners seems to allege here:

Parties often decide to drop claims to achieve a desired objective: to enter a particular forum or venue, to avoid removal to federal court, to avoid expense for claims with little likelihood of success, to refrain from opening evidentiary doors harmful to client or case, or to focus the case on claims most likely to be successful. Similarly, a class may decide to pursue certain claims, abandon some, or not plead others. In the context of class actions this is not per se inappropriate . . . .

Id.

More recently, the Texas Supreme Court has reiterated that even where a proposed class representative is considered to have “split” the claims of the would-be class that does not mean the representative is per se inadequate. Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 697 (Tex. 2008) (“We disagree with the court of appeals’ holding that class representatives who split the claims of the class are per se inadequate.”). The court also confirmed that “the choice of claims to pursue or abandon” is merely “one relevant factor in evaluating the requirements for class certification such as typicality, superiority and adequacy of class representation.” Id. at 698.

By contrast, Life Partners’ position would render class certification improper any time there is a risk of res judicata. Neither the Texas Supreme Court nor any other court has gone so far. And Life Partners has not cited a single case where a class certification order was reversed due to res judicata concerns when those concerns were carefully considered by the certifying court as they were here. See Section III.A above. Simply put, Daccach merely requires a trial court to consider res judicata concerns when certifying a class, and it is without question that the trial court did so here. (CR 493-502; RR 5; RR 51-57; CR 1059-1062; CR 1085).

2. An analysis of the various pending class actions against Life Partners demonstrates that certification was proper despite the presence of potential res judicata concerns.

Daccach does not, as Life Partners seems to imply, require a trial court to reach a definitive conclusion regarding whether certification of a class may result in the preclusion of other claims belonging to members of the class. In fact, such an exercise would be futile since it is impossible for a trial court to make such a prediction with any accuracy:

In the only other case in which the United States Supreme Court has addressed res judicata in the class action context, a dissenting justice noted that “[a] court conducting an action cannot predetermine the res judicata effect of the judgment; that effect can be tested only in a subsequent action.” We generally agree with this maxim . . . .

Daccach, 217 S.W.3d at 455 (citations omitted); see also Grant Thornton LLP v. Suntrust Bank, 133 S.W.3d 342, 353 (Tex. App.–Dallas 2004, pet. denied) (“We conclude that we need not ascertain, before the fact, whether res judicata may bar the class members’ potential causes of action for common-law and statutory fraud and federal securities act claims”). Rather than requiring trial courts to reach such a conclusion, the holding in Daccach merely requires trial courts to consider the effects of res judicata when certifying a class, as was done here:

We hold, therefore, that Texas Rule of Civil Procedure 42 requires the trial court, as part of its rigorous analysis, to consider the risk that a judgment in the class action may preclude subsequent litigation of claims not alleged, abandoned, or split from the class action. The trial court abuses its discretion if it fails to consider the preclusive effect of a judgment on abandoned claims . . .

Id.

While not required, an analysis of the various pending class claims against Life Partners demonstrates that certification was proper despite the presence of potential res judicata concerns. Here, unlike Daccach, the “other claims” that form the basis of Life Partners’ res judicata effect argument are actually for unrelated acts and misconduct (such as claims based on improper life expectancy determinations by Dr. Cassidy) arising from the sale of unrelated life settlement policies (this case is limited to the Gummelt policy) that seek to recover entirely different losses (the other damages sought have nothing at all to do with recovering the overpayment on the Gummelt policy, the sole issue here). (See CR 560-638).

Willingham v. Life Partners and Steuben v. Life Partners both involve broad claims that Life Partners failed to properly optimize premiums on behalf of thousands of investors involved in hundreds of life settlements. (CR 560-586, 587-614). Both seek to recover for different losses based on different conduct at different times and under different circumstances. (Id.). The Willingham and Steuben actions do not assert any claims regarding the prepayment issue that is unique to the Gummelt policy. (Id.). And as Life Partners admitted, “no members of the putative class herein are members of the putative class in Steuben.” Appellant’s Brief at 16, n.4.

Similarly, the Turnbow v. Life Partners class action involves virtually every life settlement sold by Life Partners and allegations that the investments were overpriced due to Life Partners knowingly providing false life expectancies created by a Dr. Cassidy. (Id.). Turnbow does not assert anything related to the prepayment issue that is unique to the Gummelt policy; Life Partners admits that “the Cassidy-life-expectancy allegations in Turnbow are not the same as the premium-overpayment allegations in McDermott.” Appellant’s Brief at 17.

Despite the stark differences between the claims, claimants and alleged damages among the various class action suits, Life Partners boldly asserts that “the subject matter of each of these actions is the same for res judicata purposes.” Appellant’s Brief at 16. This is simply false. Life Partners’ “analysis” of the various class claims consists solely of examining the labels given to the claims and the scope of the purported classes. Appellant’s Brief at 15-19. At no point does Life Partners examine the factual bases of the claims at issue. And yet, under Texas’ “transactional approach” to res judicata, it is the factual bases of the claims that define the scope of claim preclusion:

A determination of what constitutes the subject matter of a suit necessarily requires an examination of the factual basis of the claim or claims in the prior litigation. It requires an analysis of the factual matters that make up the gist of the complaint, without regard to the form of action.

Barr v. Resolution Trust Corp., 837 S.W.2d 627, 630 (Tex. 1992); see also Daccach, 217 S.W.3d at 449 (“Determining the scope of the ‘subject matter’ or ‘transaction’ of the prior suit requires ‘an analysis of the factual matters that make up the gist of the complaint, without regard to the form of action.’”).

Where, as here, claims are based on separate contracts or separate contractual obligations, Texas courts have refused to construe the reach of res judicata anywhere nearly as broad as Life Partners suggests. In fact, this Court has noted that res judicata does not apply when different claims are, as here, “based on a separate and distinct contractual obligation.” See, e.g., Highland Crusader Offshore Partners, L.P. v. Motient Corp., 281 S.W.3d 237, 246 (Tex. App.–Dallas, 2009, pet. denied). Not unlike the present case, Highland Crusader involved several contemporaneous lawsuits. Id. at 243 (summarizing the four related suits). The opinion acknowledged that “some of the [alleged] misrepresentations and failures to disclose leading to its purchase of the Series A Preferred Stock arose out of the same conduct in the Delaware case” and that “there are facts common to both suits.” Id. at 243. Nonetheless, the Court held the Dallas case was not barred by res judicata because “the Delaware derivative action arose out of allegations that Motient’s directors ‘committed corporate waste by paying exorbitant fees and warrants over a period of years to two financial advisory firms for their services’ …. while this suit seeks rescission of the sale of Series A Preferred Stock to Highland.” Id., at 244. This Court also held the Dallas case was not barred by res judicata due to another case by the same plaintiff against the same defendant, “the Austin action,” because the two cases were “based on a separate and distinct contractual obligation.” Id. at 245-246.

In Brown v. Dr. Michael D. Hoffman & Associates, 111 S.W.3d 826, 829–30 (Tex. App.–Dallas 2003, no pet.), a terminated employee’s action for breach of a termination agreement against his former employer was held to not be barred by res judicata due to a judgment in a prior action by the former employee to recover funds from the former employer’s profit-sharing plan. The former employer argued that both suits were based on “Brown’s termination and Brown’s acrimonious relationship with Dr. Hoffman prior to and after her termination.” This court disagreed and concluded that “each was based on a separate and distinct contractual obligation.” Id., at 829-830; see also Akuna Matata Invs., Ltd. v. Tex. NOM Ltd. P’ship, No. SA-05-CV-1053-RF, 2006 U.S. Dist. LEXIS 76788 at *15 (W.D. Tex. Sept. 28, 2006) (“the Court finds that Plaintiff’s claims arise out of different facts. Plaintiff’s original state court claims concern the partnership agreement and fiduciary duties owed to the partnership. Plaintiff’s dissolution claims, on the other hand, arise out of continued uneasiness between Defendants and Plaintiff in regard to the status of the partnership.”).

 

Texas courts determine whether the same transaction or a series of transactions are involved “pragmatically, ‘giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a trial unit conforms to the parties’ expectations or business understanding or usage.’” Barr v. Resolution Trust Corp., 837 S.W.2d 627, 631 (Tex. 1992). The claims at issue in the other class action suits involve thousands of investors and hundreds of life settlement policies, and it is nonsense to suggest they could “form a convenient trial unit” in this case involving 38 members with a very specific claim that is entirely unique to the Gummelt life settlement. Similarly, because the claims herein are expressly and unequivocally limited to only the Gummelt policy pre-payment, because Life Partners is currently litigating separate putative class actions based on the Cassidy life expectancy determinations (the cases consolidated in Turnbow) and based on its failure to optimize premiums (Steuben and Willingham), it is ridiculous to suggest that Life Partners could reasonably expect that those life expectancy or optimization claims would be part of the trial unit in this case. See, e.g., Daniels v. Empty Eye, Inc., 368 S.W.3d 743 (Tex. App.–Houston [14th Dist.] 2012, pet. filed) (breach of contract and breach of fiduciary duty claims that arguably arose from same series of transactions as those covered by prior divorce action between the parties were not barred by res judicata in part because when the divorce action was settled, “all of the claims for breach of contract and breach of fiduciary duty were being separately litigated in another county”).

Under the circumstances before the trial court, the court’s finding as to res judicata was entirely appropriate and certainly not an abuse of discretion. The court made clear it was certifying a class limited to the Gummelt prepayment and did not intend to address the issues raised in the other, pending class action suits. (CR 1085) (the “Court refuses to decide any disputes or claims related to failure to optimize premiums or life expectancy estimates or assessments by Dr. Cassidy under this cause number 11-02966.”). Because none of the parties can reasonably expect such a narrow class and case to resolve the currently-pending putative class action claims against Life Partners for its life expectancy determinations and failure to optimize premiums, a judgment here would not bar claims in those other currently-pending actions.

3. Where res judicata concerns exist, the proper remedy is to advise potential class members of their opt-out rights as was done here.

Daccach does not require that class certification be denied every time res judicata concerns are present as Life Partners suggests. Instead, the court in Daccach recognized that “[a] trial court could, however, determine that the risk of preclusion is not high enough to refuse certification” as did the trial court herein. Daccach, 217 S.W.3d at 457. Rather than denying class certification every time res judicata concerns are present, Daccach and other Texas cases hold that the proper remedy is to advise potential class members of their opt-out rights:

A trial court could, however, determine that the risk of preclusion is not high enough to refuse certification. For instance, the abandoned claims may be insignificant, unlikely to succeed in any proceeding, or not valuable. Some abandoned claims may be alleged against different defendants or may not be ripe for litigation, in which case res judicata would not apply. But, because we hold class actions seeking damages to the same res judicata standards as other forms of litigation, including enforcing the preclusion on abandoned claims which could have been litigated in the suit, it is critical that putative class members be given adequate notice and an opportunity to exclude themselves from the class form of proceeding so that they may preserve individual claims that may otherwise be barred from subsequent litigation.

Daccach, 217 S.W.3d at 457-58.

In the case of Grant Thornton LLP v. Suntrust Bank, 133 S.W.3d 342 (Tex. App.–Dallas 2004, pet. denied), various plaintiffs brought class claims against accounting firm Grant Thornton relating to the registration for the IPO of Bollinger Industries. The trial court certified as a class action two of the claims brought by the plaintiffs. Grant Thornton appealed, arguing that the class as certified would bar class members from bringing other related claims in the future. According to Grant Thornton, these concerns of res judicata rendered erroneous the trial court’s findings of superiority, adequacy and typicality. This Court disagreed and held that class certification is proper despite the presence of res judicata concerns so long as the trial court properly considers the issue and ensures that potential class members are apprised of their right to opt out of the proposed class:

We conclude that we need not ascertain, before the fact, whether res judicata may bar the class members’ potential causes of action for common-law and statutory fraud and federal securities act claims after February 14, 1995. This is because the answer to that issue is not outcome-determinative of the issue before us–whether the trial court properly certified the class. Here the trial court, unlike the trial court in Henry Schein, Inc., specifically explored whether to certify a class excluding some of the claims held by the named plaintiffs and other prospective class members. Moreover, the trial court’s Amended Class Certification Order and Trial Plan ordered the “Class Administrator” to provide notice by “registered and certified mail” to prospective class members who held claims that were being excluded from class status; the order specifically required the notice to include information regarding the right of any affected class member to opt out of the class. The same order also required the “Claims Administrator” to use his “best efforts” to contact affected class members by telephone to notify them of their right to opt out of the class.

Thus, unlike the record in Henry Schein, Inc., the record here reflects that the trial court considered the adequacy of class representation issue in the context of claims splitting and authorized the class to proceed with safeguards designed to protect absent class members whose non-certified claims may be affected by the outcome of the class action. The presence of these safeguards provides a basis, absent from Henry Schein, Inc., for concluding that the class representatives would adequately represent any class members who decline to opt out of the class even if the res judicata effect of the judgment in the class action may bar them from asserting any claims not asserted in the class action.

Id. at 353 (emphasis added).

As set forth in Section III.A above, the trial court herein clearly considered the res judicata issues raised by Life Partners. And its certification order required class counsel to notify the 39 class members of their opt-out rights and of the binding effect of any judgment. CR 1085. Under the holdings in Daccach and Grant Thornton, the trial court did everything it was required to do, and its class certification order should not be reversed.

IV. The Trial Court properly found that Michael McDermott and Plaintiff’s counsel are adequate representatives for the class.

A. Neither Michael McDermott nor his counsel suffers from any conflict of interest.

1. Michael McDermott suffers from no conflict of interest.

Class representatives must fairly and adequately protect the interests of the class. TEX. R. CIV. P. 42(a)(4). The adequacy requirement means: (1) an absence of antagonism between the class representatives and the class members, and (2) an assurance the representatives will vigorously prosecute the class claims and defenses. E & V Slack, Inc. v. Shell Oil Co., 969 S.W.2d 565, 568 (Tex. App.–Austin 1998, no pet.). The primary consideration is antagonism between the interests of the representatives and the remaining members of the putative class. Adams v. Reagan, 791 S.W.2d 284, 291 (Tex. App.–Fort Worth 1990, no writ). In other words, the adequacy inquiry serves to uncover conflicts of interest between class representatives and putative class members. Amchem Products v. Windsor, 521 U.S. 591, 625, 117 S. Ct. 2231, 2250 (1997).

Here, it is undisputed that both McDermott and the class (1) entered into the same standard form agency agreements and policy funding agreements; (2) invested in similar fractional portions of the same Gummelt life settlement; (3) were informed about the prepayment only until the Gummelt policy had matured; and (4) were not paid any amount by Life Partners to account for the loss of escrow funds due to the prepayment/prepayment. Seeking to recover losses due to the prepayment/prepayment, McDermott alleges the exact same legal theories and causes of action for herself as for the class members. (CR 377-398). McDermott alleges that the exact same conduct (the December 10, 2008 overpayment/prepayment of $872,750 on the Gummelt policy using money placed in escrow by both McDermott and the class members) renders Life Partners liable to both McDermott and the class members. (Id.) McDermott seeks the same forms of relief individually as for the class. (Id.).

Despite the foregoing, Life Partners claims that Mr. McDermott is an inadequate class representative because he suffers from a conflict of interest due to his willingness to risk the abandonment or waiver of other claims under principles of res judicata. As this Court stated previously in another case:

the record here reflects that the trial court considered the adequacy of class representation issue in the context of claims splitting and authorized the class to proceed with safeguards designed to protect absent class members whose non-certified claims may be affected by the outcome of the class action. The presence of these safeguards provides a basis, absent from Henry Schein, Inc., for concluding that the class representatives would adequately represent any class members who decline to opt out of the class even if the res judicata effect of the judgment in the class action may bar them from asserting any claims not asserted in the class action.

Grant Thornton, 133 S.W.3d at 353 (emphasis added). Here, as previously stated, the certification order provides such safeguards, including mandatory opt-out notice to the 39 class members. (CR 1085).

The only other “conflict” identified by Life Partners is Mr. McDermott’s supposed motivation against, and bias towards, Life Partners. Appellant’s Brief at 31-33 (“Mr. McDermott was motivated to serve as the lead Plaintiff in this case . . . out of desire to see LPI harmed through the instant litigation.”). But Life Partners fails to explain how McDermott’s alleged dislike of Life Partners creates a conflict between him and the other class members. If anything, one would expect his supposed disdain for Life Partners to only increase the likelihood that he will “vigorously prosecute the class claims and defenses.” In any event, “[o]nly a conflict that goes to the very subject matter of the litigation will defeat a finding of adequacy.” Farmers Ins. Exch. v. Leonard, 125 S.W.3d 55, 66 (Tex. App.–Austin 2003, pet. denied); Nissan Motor Co., Ltd. v. Fry, 27 S.W.3d 573, 583 (Tex. App.–Corpus Christi 2000, pet. denied) (same). And “speculative claims regarding potential conflicts are insufficient to show the trial court abused its discretion in finding representativeness.” State Farm Mutual Auto. Ins. Co. v. Lopez, 45 S.W.3d 182, 192 (Tex. App.–Austin 2001, no pet.).

Here, it is undisputed that the plaintiff and the class are asserting the same causes of action for the same injury as a result of the same wrong. Life Partners had identified no antagonism between McDermott and the other class members. In short, there is no conflict and no evidence of inadequacy. See, e.g., Johnson v. United States, 208 F.R.D. 148, 169 (W.D. Tex. 2001) (The adequacy of representation requirement “is fulfilled if the interests of the named plaintiffs are aligned sufficiently with the interests of other members of the class.”).

2. Class counsel suffers from no conflict of interest.

Life Partners also asserts that class counsel somehow suffers from a conflict of interest because he represents three separate classes with claims against Life Partners. But it fails to explain how the mere representation of multiple classes creates a conflict. Its assertion that this case is “lawyer-driven” similarly fails to demonstrate a conflict of interest.

B. Mr. McDermott suffers from no lack of credibility.

Life Partners also claims that McDermott is an inadequate class representative because he suffers from a lack of credibility. Appellant’s Brief at 24-30. However, it points merely to a single typographical error (stating that McDermott has fifty-four years experience as a filed producer and recruiter) as evidence of his untruthfulness. Other than this single inaccuracy in his affidavit, Life Partners offers no evidence that Mr. McDermott has been anything other than truthful in his statements herein. Nor does Life Partners establish how McDermott’s supposed lack of credibility renders him an inadequate class representative.

C. Mr. McDermott was and is sufficiently familiar with the facts of the litigation to serve as class representative.

At the time of his deposition, Michel McDermott had been the class representative for a grand total of two (2) weeks. (CR 516, CR 1st Supp 4, 32). It is hardly surprising, therefore, that he may not have had complete, detailed knowledge of all facets of this litigation. Moreover, due to the complexities involved in this case, it is not realistic to expect a class representative to have complete command of every detail underlying the class claims. See, e.g., Pate v. Elloway, No. 011-03-00187-CV, 2003 Tex. App. LEXIS 9681 at *19 (Tex. App.—Houston [1st Dist.] Nov. 13, 2003, pet. denied) (“the financial complexities of this case are such that it is unreasonable to expect the class representative to have detailed knowledge of the facts underlying the claims.”).

In any event, the record below demonstrates that McDermott is sufficiently knowledgeable about the case and is clearly interested in vigorously pursuing the claims. (CR 373-375). As Life Partners stated in response to a request for initial disclosures: “Michael McDermott was the licensee of Life Partners, Inc. that assisted, advised, and instructed Plaintiff in her purchase of an interest in Plaintiff’s Policy and thus, has knowledge of the underlying transaction forming the basis of the claims asserted in the Petition and of the claims asserted.” (RR 369).

When he became aware that Life Partners had made the prepayment in question and was not returning what he considered the full unused premium to his mother, Mr. McDermott was the one who reviewed the letter and offer from Life Partners and advised his mother not to cash the offered check. (CR 705-707 (deposition pp. 57-65)). It was Mr. McDermott’s idea that a lawsuit be filed to recover the full amount he felt his mother was due. (CR 710 (deposition p. 78)). According to Mr. McDermott, Life Partners “owed [his mother] the unearned premium on the Gummelt policy” and was wrongfully “shifting the responsibility of their misjudgment onto my mother.” (CR 705 (deposition p. 58)). He advised his mother not to accept “[t]he excuse for why they weren’t returning the [full] unearned premium” and to demand instead “the amount of money they truly owed her.” (CR 705-706 (deposition pp. 58- 61)).

Mr. McDermott also clearly understood his role in this case as a class representative:

A. I believe that [my mother’s] the lead plaintiff for the class.

Q. And what does that mean?

A. That she represents the other injured parties who will be the plaintiffs in the lawsuit with her.

Q. And does she owe any duties to the other members of the class?

A. Yes.

Q. And what duties does she owe?

A. Well, to use good faith and fair dealing with — with the company to try to collect the money that’s owed to all the other class members.

Q. Good faith and fair dealing to the company. You’re referring to Life Partners, Inc.?

A. No, good faith and fair dealing to the other plaintiffs, the other injured parties.

Q. So could you explain that? She has a duty to use good faith and fair dealing to the other members of the class?

A. Yes.

Q. And how is she supposed to do that?

A. By pursuing a remedy for the class from Life Partners, which is why we’re here today.

Q. And what is your role in this lawsuit?

A. Well, I’m standing in her shoes with the power of attorney that she gave me.

Q. And was your role as the power of attorney in this case?

A. I’m the lead plaintiff.

Q. Are you a plaintiff in this lawsuit?

A. As — on behalf of my mother, as her agent.

(CR 709 (deposition pp. 75-76)).

Mr. McDermott also clearly understands the nature of this lawsuit. He has testified that his mother is “suing for the full amount owed to her on the unearned premium on that policy” (CR 705 (deposition p. 65)).

Q. Do you know what claims your mother is asserting in this case? And by “claims,” I mean, what causes of action she’s asserting.

A. Causes of action. Well, I know that she’s asserting the return of the unearned portion of the premiums. I don’t know particularly the — what legal term that would be for the cause of action.

(CR 710 (deposition p. 80)).

McDermott was also familiar with the number of class members and the amount of the overpayment of premiums.

Q. […] Do you know how many people are in the class in this case?

A. I believe there are 40, around 40.

(CR 711 (deposition p. 81)).

Q. Is it your understanding that the overpayment of premiums was 872,000-and-something dollars?

[…]

A. Yes

Q. And that the damages of each class member would be their percentage that they owned in the policy times the overpayment of premiums?

[…]

A. Yes.

Q. Mr. McDermott, where did you obtain the understanding that the overpayment of premiums was $872,000?

A. From the document you just showed me that I had looked at earlier –

Q. And you –

A. — Exhibit 18.

Q. Okay. If $872,000 is the total amount overpaid — is that your understanding?

A. Well, that’s — yeah, according to the document that I saw, yeah. That’s why I said it was – I thought it was around a million dollars, from my memory.

(CR 715-16 (deposition p. 100-01)). While Life Partners asserts McDermott believed the class itself was owed nearly a million dollars, it is clear from the above answers that he misunderstood the question and was referring to the total amount of underpaid premiums as opposed to the amounts owed to the class members (those amounts are much lower because most of the aggrieved purchasers accepted Life Partners’ settlement offer (See CR 716-17)). This is hardly a basis for a finding of inadequacy. Nor is Mr. McDermott’s belief that his mother was owed between $5000 and $10,000 when the correct amount is closer to $2000. Appellant’s Brief at 25-30.

Ultimately, Life Partners does nothing more than point to a handful of mistakes or misunderstandings by Mr. McDermott as evidence of his supposed inadequacy. But the trial court had his entire deposition and affidavit before it and was more than capable of determining his adequacy. An examination of his entire testimony, as opposed to the handful of snippets offered by Life Partners, demonstrates that the trial court did not abuse its discretion in finding that McDermott was an adequate class representative. See, e.g., Schein, 102 S.W.3d at 691 (“A trial court has discretion to rule on class certification issues, and some of its determinations—like those based on its assessment of the credibility of witnesses, for example—must be given the benefit of the doubt.”).

V. The trial court properly found the class is sufficiently “numerous that joinder of all members is impractical.”

The numerosity inquiry “requires examination of the specific facts of each case and imposes no absolute limitations.” Gen. Tel. Co. of the Nw., Inc. v. E.E.O.C., 446 U.S. 318, 330, 100 S. Ct. 1698 (1980). In other words, “[t]his determination is not based on numbers alone.” Methodist Hosp. of Dallas v. Tall, 972 S.W.2d 894, 898 (Tex. App.–Corpus Christi 1998, no pet.). Rather, “[t]he test is whether joinder of all members is practicable in view of the size of the class and such factors as judicial economy, the nature of the action, geographical location of class members, and the likelihood that class members would be unable to prosecute individual lawsuits.” Graebel/Houston Movers, Inc. v. Chastain, 26 S.W.3d 24, 32 (Tex. App.–Houston [1st Dist.] 2000, pet. dism’d w.o.j.). Applying these factors here, it is clear that numerosity is established.

First, as to judicial economy, the relevant question is whether judicial economy favors trial of a single class action or multiple trials of individual suits. Here, each class member’s claim depends on proof of the very same facts and each member’s damages can then be quickly determined with basic math. (See CR 1079-1085). One trial is far more efficient than numerous virtually identical repetitions of the same trial; there is obviously no reason to burden the courts with 38 lawsuits when one will do. See, e.g., Phila. Elec. Co. v. Anaconda Am. Brass Co., 43 F.R.D. 452, 463 (E.D. Pa. 1968) (“While 25 is a small number compared to the size of the other classes being considered, it is a large number when compared to a single unit. I see no necessity for encumbering the judicial process with 25 lawsuits, if one will do.”).

Second, as to the “nature of the action,” the amount in controversy for each proposed class member is extremely small compared to the cost of litigating the claims against Life Partners. Here, it is unquestioned that the average value of the class members claims – as well as the value of Ms. McDermott’s claim – is less than $2000 ($64,977.46 ÷ 38 = $1709.930). (CR 48; CR 396-97; RR 34:3-20). It would be economically unfeasible to litigate these small individual claims separately, as attorneys’ fees and expenses would clearly outstrip any recovery. See, e.g., General Motors Corp. v. Bloyed, 916 S.W.2d 949, 952 (Tex. 1996); (“Class action suits furnish an efficient means for numerous claimants with a common complaint to obtain a remedy ‘where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages.’”); Phillips Petr. Co. v. Shutts, 472 U.S. 797, 809 (1985) (“Class actions also may permit the plaintiffs to pool claims which would be uneconomical to litigate individually.”); Norwood v. Raytheon Co., 237 F.R.D. 581, 604 (W.D. Tex. 2006) (“the most compelling rationale for finding superiority in a class action [is] the existence of a negative value suit”); Lehocky v. Tidel Techs., 220 FRD 491, 511 (S.D. Tex. 2004) (“The Court disagrees with Defendants’ contention that this is not a negative value suit. There are likely many smaller purchasers of Tidel stock who would be unable to pursue their claims outside of a class action.”). Under these facts, wholly ignored by Life Partners, numerosity has clearly been met. See, e.g., Douglas R. Bigelow Trust v. U.S., 97 Fed. Cl. 674, 677 (Fed. Cl. 2011) (certifying class of 25 members when the court found that “potential recovery here would likely be exceeded by the litigation costs associated with litigating such matters on an individual basis”).

Third, as to “geographical location of class members,” there are 38 class members. They are scattered across the United States in eight different states, including Arizona, California, Florida, Illinois, Louisiana, New Mexico, and Rhode Island, in addition to Texas. (CR 720-758).

Fourth, as to the “likelihood that class members would be unable to prosecute individual lawsuits,” Life Partners admits that not one proposed class member has attempted to prosecute an individual lawsuit. (RR 44: “Q. There aren’t any other lawsuits on file related to the Gummelt policy, are there? A. [Peden:] No, this is the only one.”). In fact, Life Partners conceded below that “there is no indication that the 39 putative class members would ‘burden the courts’ with individual suits for the claims asserted herein.” (CR 195 [at ¶ 43]). Because the recovery is small compared to the cost of litigating, it is hardly surprising no class member is attempting to individually pursue these claims regarding the Gummelt prepayment.

Considering all of the relevant factors, the record supports the trial court’s finding that this class of 38 geographically-dispersed members with relatively small claims is sufficiently numerous that “joinder of all members is impractical.” See, e.g., Chevron U.S.A. Inc., v. Kennedy, 808 S.W.2d 159, 161-162 (Tex. App.–El Paso 1991, writ dism’d w.o.j.) (certifying class of 20 members); Magic Valley Elec. Co-op. v. City of Edcouch, 2006 WL 733960, (Tex. App.–Corpus Christi 2006, pet. dism’d by agreement) (27 members); National Gypsum Co. v. Kirbyville Indep. Sch. Dist., 770 S.W.2d 621, 621 (Tex. App.–Beaumont 1989, writ dism’d w.o.j.) (66 members); Sun Coast Res. v. Cooper, 967 S.W.2d 525, 531-532 (Tex. App.–Houston [1st Dist.] 1998, pet. dism’d w.o.j.) (numerosity would be satisfied by class of approximately 60 people all located within 100 mile area); Hutchins v. Grace Tabernacle United Pentecostal Church, 804 S.W.2d 598, 601 (Tex. App.–Houston [1st Dist.] 1991, no writ) (numerosity satisfied by 76 members within close geographic area); Great Southern Life Ins. Co., Inc., 1999 WL 254430 (Tex. App.–Dallas April 30, 1999) (“Even at forty-eight plaintiffs, the case would present significant manageability issues without class certification.”).

PRAYER

The order granting class certification should be affirmed.

Respectfully submitted,

/s/ Eric D. Pearson

James Craig Orr, Jr.

State Bar No. 15313550

Eric D. Pearson

State Bar No. 15690472

HEYGOOD, ORR & PEARSON 2331 W. Northwest Hwy., 2nd Floor

Dallas, Texas 75220

(214) 237-9001

(214) 237-9002 (fax)

ATTORNEYS FOR PLAINTIFFS