Opinion
NO. 2019-CA-000872-ME
05-15-2020
COMPLIANCE ADVANTAGE, LLC, D/B/A C.A.L. LABORATORY SERVICES; RELIABLE LAB; AND CAL LEASING, LLC APPELLANTS v. HEATHER CRISWELL, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED; AND JADE MADDOX, ON BEHALF OF HERSELF AND ALL OTHER EMPLOYEES AND BUSINESS VICTIMS SIMILARLY SITUATED APPELLEES
BRIEFS FOR APPELLANTS: Tonya S. Rager David A. Trevey Justin T. Baxter Lexington, Kentucky Joshua J. Leckrone Tamara Patterson Lexington, Kentucky BRIEF AND ORAL ARGUMENT FOR APPELLEES: Thomas K. Herren Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM BOYD CIRCUIT COURT
HONORABLE JOHN F. VINCENT, JUDGE
ACTION NO. 17-CI-00296 OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: GOODWINE, TAYLOR, AND K. THOMPSON, JUDGES. TAYLOR, JUDGE: Compliance Advantage, LLC, d/b/a C.A.L. Laboratory Services; Reliable Lab; and CAL Leasing, LLC (collectively referred to as appellants) bring this interlocutory appeal from a May 23, 2019, order certifying a class action under Kentucky Rules of Civil Procedure (CR) 23.01 and CR 23.02. We reverse and remand.
Appellants provide laboratory testing services, including blood and urine testing. Appellee, Jade Maddox, operated a counseling agency that utilized appellants' laboratory services. Appellee, Heather Criswell, was a patient of the counseling agency and alleged that appellants falsely and negligently reported false laboratory results on numerous patients at the counseling agency. A review of the facts relevant to this appeal follow.
On April 24, 2017, Criswell, on behalf of herself and all others similarly situated, (Criswell) and Maddox, on behalf of herself and all other employees and business victims similarly situated, (Maddox) filed a class action complaint in Boyd Circuit Court against appellants. Therein, Criswell and Maddox alleged:
1. Within the year of 2016, plaintiff, Heather Criswell, was one of many similarly situated persons whose laboratory results were falsely reported by the defendants, thereby causing her and others similarly situated physical, economic and emotional damage.
2. Plaintiff Maddox during 2016 was a business owner whose business was adversely and economically
affected, along with similarly situated employees, agents and/or contractors, by defendants' false reporting.
3. The plaintiffs bring this action on behalf of themselves and others similarly situated.
4. Plaintiff and all similarly situated employees seek to recover either physical, economic and/or emotional damages, or economic damages for loss of clients and business caused by the defendants' false and/or fraudulent conduct.
. . . .
6. Plaintiff, Heather Criswell, was a client of an addiction counseling business in Ashland, Kentucky[,] during 2016, during which time false testing and/or lab results were reported by defendants concerning her, thereby causing her to lose custody of her child and other severe emotional and economic damages. There are numerous other similarly situated victims of false lab reports by these defendants.
7. Additional plaintiffs include those owning or employed by the business(es) that lost clients and revenue as a result of defendants' actions, including clerical staff and contract physicians.
. . . .
11. Plaintiff, Heather Criswell, brings this claim for relief on behalf of herself and on behalf of all similarly situated victims of false reporting of laboratory results by the defendants.
12. Plaintiff Maddox brings this claim for relief on behalf of herself and on behalf of all similarly situated business victims of false reporting of lab results.
13. While defendants' acts or omissions were false, and reasonably believed to be knowingly false, the acts or omissions are at least reckless, grossly negligent, and/or outrageous.
14. The persons in the class(es) identified above ("class members") are so numerous that joinder of all members is impracticable. Although the precise number of such persons is unknown, it is reasonably believed to be in excess of three hundred at one facility and much more at others. The facts on which the calculation of that number can be based are partially within the control of defendants.
15. On information and belief, the identity of the members of the class and the most recent address of each of the class members can be reasonably obtained, but in the class of patient victims may require dealing with HIPAA.
16. Common questions of law and fact exist as to each of the class members, including, but not limited to, the following:
(a) Whether the class members received false laboratory results from the defendants;
(b) Whether class members were employees, agents and/or contractors of one or more businesses in Kentucky, who were economically affected, terminated, etc., by the loss.
17. Plaintiffs' claims are typical of those of the class. Plaintiffs will fairly and adequately protect the interests of the class.
18. Class certification of these claims is appropriate because questions of law and fact common to the class predominate over any questions affecting only individual
members of the class, and because a class action is superior to other available methods for the fair and efficient adjudication of this litigation - particularly in the context of litigation where individual plaintiffs may lack the financial resources to vigorously prosecute a lawsuit in federal court against corporate defendants, and damages suffered by individual class members are relatively moderate compared to the expense and burden of individual prosecution of this litigation.April 24, 2017, Complaint at 1-4. In the prayer for relief, Criswell and Maddox sought:
19. Concentrating all the potential litigation concerning the respective acts and rights of the members of the class in this Court will obviate the need for unduly duplicative litigation that might result in inconsistent judgments, will conserve the judicial resources and the resources of the parties and is the most efficient means of resolving the rights of all the members of the class.
. . . .
21. Plaintiff, Heather Criswell, and similarly situated victims of false laboratory reports, which class number exceeds 300, and each of them, have within information and belief, as a direct and proximate result of defendants' conduct, suffered and will continue to suffer physical and severe emotional damage and economical damage as a result of these false reports.
(a) Certification of this action as a class action;
(b) Designation of plaintiffs as the class representatives;
(c) Appointment of the undersigned attorneys as class counsel;
(d) Judgment in favor of plaintiffs and the other similarly situated victims of false reporting and/or employees, agents, and/or contractors for physical, emotional and/or economic damages for each class member victimized by false reporting and each claim being in excess of the jurisdictional amount of this Court, and anticipated unpaid wages, salaries, commissions, accrued holiday pay, vacation pay, retirement contributions and other employee benefits that would have been paid to the owner, employees and/or contractors collectively in excess of the jurisdictional amount of this Court[.]April 24, 2017, Complaint at 4-5. Appellants filed answers to the complaint on May 19, 2017, and May 24, 2017. Eventually, on March 5, 2019, Criswell and Maddox filed a motion to certify the class action. They argued:
Heather Criswell and other patients or former patients of Counselor's Cottage have claims arising from false reports, false results and false testing by, or allegedly performed by, defendants and falsely reported to Counselor's Cottage, physicians and others. These false reports, results and/or testing caused damages to all of the class represented by Heather Criswell.
For example, Ms. Criswell was subjected to false positive blood or urine reports that, when reported to proper governmental channels, caused the removal of her child from her custody. Other members of the class have personal ramifications of false reports, results and/or testing.
The business effect of the class is represented by Jade Maddox, who administered an agency called Counselor's Cottage in Boyd County, Kentucky. The
defendants' false laboratory reports, false testing, and false reported results caused Maddox and her contractor physicians and employees to lose business and in many cases their occupation.March 5, 2019, Motion at 1-2. Appellants filed a response and argued that the requirements for class certification were not satisfied pursuant to CR 23.01 and CR 23.02. In replying to the response, Maddox withdrew her request for class certification.
Class certification of these claims is appropriate because questions of law and fact common to the class predominate over any questions affecting only individual members of the class, and because a class action is superior to other available methods for the fair and efficient adjudication of this litigation, particularly in the context of litigation where individual plaintiffs lack the financial resources to prosecute a lawsuit against corporate defendants. Damages suffered by individual class members are relatively moderate compared to the expense and burden of individual prosecution of this litigation.
The total classes are so numerous that joinder of all members is impractical. We currently estimate the total class to approximate 900 persons. The claims and/or defenses of the parties will be typical for the class. Criswell and Maddox are the correct representative parties who will fairly and adequately protect the interests of the classes or subclasses.
Counselor's Clinical Cottage was owned by Jade Maddox and purportedly provided counseling services to patients with drug addiction issues.
A hearing on the motion to certify the class was held by the circuit court on May 15, 2019. By order entered May 23, 2019, the circuit court granted Criswell's motion to certify the class action with Criswell as the representative party. As to Criswell's proposed class, the circuit court concluded the mandates of both CR 23.01 and CR 23.02 had been satisfied. The circuit court defined the class as "those individuals who have received false laboratory reports or results from [appellants] through the business of Counselor's Clinical Cottage." May 23, 2019, Order at 5. The circuit court also observed that Maddox had withdrawn her request to certify the class, but her individual claims against appellants remained. This interlocutory appeal follows.
An interlocutory appeal from an order granting or denying class certification is provided for in Kentucky Rules of Civil Procedure (CR) 23.06.
Appellants contend that the circuit court erroneously certified the class action. Initially, appellants assert that the class certified by the circuit court constitutes a legally improper "fail[-]safe class." Appellants' Brief at 11. Appellants argue that the certified class only includes individuals who suffered injury because of alleged false laboratory reports from appellants. According to appellants, "membership in the class is defined first by the individual proving the exact liability questions before the Court - was the individual's laboratory report false, and was its falsity caused by the Appellants." Appellants' Brief at 12-13. Thus, appellants maintain that the certified class constitutes a fail-safe class.
Our Court has addressed the particulars of a fail-safe class in Manning v. Liberty Tire Services of Ohio, LLC, 577 S.W.3d 102 (Ky. App. 2019). Therein, the Court recognized that a fail-safe class is improper and instructed:
[T]he definition of a "fail-safe" class is "a class that cannot be defined until the case is resolved on its merits." Young [v. Nationwide Mut. Ins. Co.], 693 F.3d [532] at 538 [(6th Cir. 2012)]. It bases its membership not on objective criteria, but on the legal validity of each member's claim. Id. To determine class membership, the merits of each individual claim must be examined. See In re Rodriguez, 695 F.3d 360, 369-70 (5th Cir. 2012) ("A fail-safe class is a class whose membership can only be ascertained by a determination of the merits of the case because the class is defined in terms of the ultimate question of liability."). By its very nature, a fail-safe class "includes only those who are entitled to relief." Young, 693 F.3d at 538. "Such a class is prohibited because it would allow putative class members to seek a remedy but not be bound by an adverse judgment—either those 'class members win or, by virtue of losing, they are not in the class' and are not bound." Id. (quoting Randleman [v. Fidelity Nat'l Title Ins. Co.], 646 F.3d [347] at 352 [(6th Cir. 2011)]).Id. at 110-11.
In its order, the circuit court defined the class as comprising "those individuals who have received false laboratory reports or results from [appellants] through the business of Counselor's Clinical Cottage." Order at 5. So, we must determine if membership in the certified class is "dependent on whether a person holds a valid legal claim." See Manning, 577 S.W.3d at 111. We conclude that it is not. By merely receiving a false laboratory report, the class member is not automatically entitled to recover on the claims set forth against appellants. See Hensley v. Haynes Trucking, LLC, 549 S.W.3d 430, 449 (Ky. 2018). Rather, individuals who have received false laboratory results are included in the class and can pursue class action tort claims against appellants. Consequently, we hold that the certified class is not an improper fail-safe class.
More relevant to this appeal, appellants argue that the circuit court improperly determined that the class action fulfilled the mandatory requirements of CR 23.01 and CR 23.02. Specifically, appellants believe that the prerequisites of numerosity, commonality, typicality, and adequacy of representation were not satisfied per CR 23.01. Additionally, appellants maintain that not one of the CR 23.02 requirements were met.
To maintain a class action, the mandates of both CR 23.01 and CR 23.02 must be satisfied. Hensley, 549 S.W.3d at 442. CR 23.01 provides:
Subject to the provisions of Rule 23.02, one or more members of a class may sue or be sued as representative parties on behalf of all only if (a) the class is so numerous that joinder of all members is impracticable, (b) there are questions of law or fact common to the class, (c) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (d) the representative parties will fairly and adequately protect the interests of the class.And, CR 23.02 provides:
An action may be maintained as a class action if the prerequisites of Rule 23.01 are satisfied, and in addition:
(a) The prosecution of separate actions by or against individual members of the class would create a risk of
(i) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or,
(ii) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(b) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(c) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (i) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (ii) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (iii) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (iv) the difficulties likely to be encountered in the management of a class action.
Accordingly, under CR 23.01, there are four prerequisites to maintain a class action, and they are generally referred to as "numerosity, commonality, typicality and adequacy of representation[.]" Hensley, 549 S.W.3d at 442-43. If all four prerequisites of CR 23.01 are satisfied, CR 23.02 mandates that the proposed class must then satisfy one of its three requirements. The circuit court's decision to certify a class action will only be disturbed on appeal for an abuse of discretion. Hensley, 549 S.W.3d at 444.
To begin our analysis, we will address the fourth prerequisite of CR 23.01, as it is glaringly deficient in the case. The fourth prerequisite of adequacy of representation provides generally that "the representative parties will fairly and adequately protect the interests of the class." CR 23.01. It is recognized that the adequacy prerequisite "also raises concerns about the competency of class counsel and conflicts of interest." Nebraska Alliance Realty Co. v. Brewer, 529 S.W.3d 307, 313 (Ky. App. 2017) (citation omitted). So, to satisfy the adequacy prerequisite, the class attorneys must be "qualified, experienced and able to conduct the litigation." Id. (citation omitted).
CR 23.07 also requires class counsel to be capable of adequately representing the interests of the class. However, Kentucky case law and federal case law support our analysis of this issue under the adequacy of representation requirement of CR 23.01. See Manning v. Liberty Tire Serv. of Ohio, LLC, 577 S.W.3d 102 (Ky. App. 2019); Nebraska Alliance Realty Co. v. Brewer, 529 S.W.3d 307 (Ky. App. 2017); Young v. Nationwide Mut. Ins., Co., 693 F.3d 532 (6th Cir. 2012); In re Am. Med. Sys., Inc., 75 F.3d 1069 (6th Cir. 1996). --------
In this case, the circuit court appointed Thomas K. Herren as class counsel and found him to be qualified to conduct the litigation. Yet, it is uncontroverted that Herren also represents Maddox in the same action and filed a singular complaint for both Maddox and Criswell, as representative of the class. Maddox was identified as the owner of Counselor's Clinical Cottage and alleged damages to her business due to false laboratory reports generated by appellants. Although there is sparse discovery in the record, it appears that Counselor's Clinical Cottage routinely provided counseling services to patients with drug addiction issues, which included drug testing. It was these patients who allegedly received false laboratory reports and who constitute the class. It is conceivable and even probable that these patients could bring tort actions directly against Counselor's Clinical Cottage for its own negligence. According to appellees, the false laboratory reports were produced by appellants and received by Counselor's Clinical Cottage between December 2015 through December 2016 or for a period of one year. It is even more problematic if Counselor's Clinical Cottage directly contracted with appellants for laboratory services. Although Criswell's and Maddox's interests are partially parallel, these interests also differ materially and are even antagonistic.
For these reasons, we conclude that Herren cannot adequately represent the interests of the class. This alone constitutes an abuse of discretion and reversible error by the circuit court in certifying the class as the fourth prerequisite of adequacy of representation under CR 23.01 is not satisfied.
Additionally, the Court notes that by separate Order, we have stricken the appendices attached to appellees' brief. The matters contained therein were not part of the record on appeal, nor considered by the circuit court in its order entered May 23, 2019. It is well-established that this Court will not consider evidence that the circuit court had no opportunity to examine. Kindred Nursing Ctrs. Ltd P'ship v. Leffew, 398 S.W.3d 463, 468 n.5 (Ky. App. 2013); Fortney v. Elliott's Adm'r, 273 S.W.2d 51 (Ky. 1954). Likewise, CR 76.12(4)(c)(vii) provides that any evidentiary material or documents not part of the record on appeal shall not be included in the appendix to a party's brief. CR 76.12(4)(d)(v) requires appellees to identify in their appendix index where the attached documents can be found in the record on appeal. Since the materials in appellees' appendices were produced in discovery after the circuit court's ruling on the class action issue, they will not be considered in this appeal. Godman v. City of Fort Wright, 234 S.W.3d 362, 367 (Ky. App. 2007).
Thus, the primary premise of appellees' arguments to support the class action as set out in their brief is not part of the record on appeal considered by the circuit court. As noted, there was little discovery taken or produced prior to the May 15, 2019, hearing and the record is meager at best. This begs the question of whether the circuit court had a sufficient evidentiary or legal basis to grant the class action motion under CR 23. Trial courts often are required to probe behind the proceedings to rigorously analyze a class certification issue. Hensley, 549 S.W.3d at 430, 445. Given the lack of supporting evidence in the record below, we harbor grave doubt that the circuit court was in a position to adequately address the issue as mandated by CR 23. For example, appellees allege in their brief that they have "produced over 31,000 documents in support of [their] claims," yet these documents are not part of the record on appeal and obviously were not available for consideration by the circuit court. Appellees' Brief at 7. Given that the typicality, commonality, and adequacy prongs overlap in a CR 23 analysis, we direct the circuit court on remand to revisit all of the necessary prerequisites required under CR 23.01 and CR 23.02 to determine whether to certify a class action in this case. Nebraska Alliance Realty Co., 529 S.W.3d at 315; see also CR 23.03(2).
For the foregoing reasons, the order of the Boyd Circuit Court is reversed and remanded for proceedings consistent with this Opinion.
ALL CONCUR. BRIEFS FOR APPELLANTS: Tonya S. Rager
David A. Trevey
Justin T. Baxter
Lexington, Kentucky Joshua J. Leckrone
Tamara Patterson
Lexington, Kentucky ORAL ARGUMENT FOR APPELLANTS: Tonya S. Rager
Lexington, Kentucky BRIEF AND ORAL ARGUMENT
FOR APPELLEES: Thomas K. Herren
Lexington, Kentucky