Opinion
No. 61372-3-I.
November 17, 2008.
Appeal from a judgment of the Superior Court for King County, No. 01-2-18578-1, Charles W. Mertel, J., entered March 26, 2007.
Reversed by unpublished opinion per Agid, J., concurred in by Schindler, C.J., and Ellington, J.
A class of Washington residents (the Class) who bought fixed deferred annuities from Northern Life Insurance Company (Northern) appeals the trial court's order dismissing their claims against Northern alleging breach of the implied covenant of good faith and fair dealing, and violations of the Washington Consumer Protection Act (CPA). The claims were based on allegations that Northern acted arbitrarily in crediting interest and failed to disclose its interest crediting method to its customers and to the Office of the Insurance Commissioner (OIC). The Class also appeals the trial court's ruling denying nationwide class certification. We hold there are questions of fact about whether Northern acted in good faith and reasonably when it set the interest rates and whether its failure to disclose its method for doing so damaged the plaintiff. Summary judgment on the breach of contract and CPA claims was therefore improper. We also reverse the trial court's ruling on the motion for nationwide class certification. Northern is a Washington business, and the CPA standards apply to its resident and nonresident customers. Because common issues about the challenged interest crediting practice predominate over other issues raised by the class representatives here, nationwide class certification was appropriate.
FACTS
Paul Curtis, Norman Curtis, and Janet Gustafson represent a class of individuals who bought annuities from Northern. The Class is comprised primarily of public school employees who purchased fixed deferred retirement annuities in group policies Northern issued. Under a deferred annuity policy, the policyholder agrees to make regular payments to Northern over a period of time in exchange for Northern's promise to begin making payments to the policyholder at some specified date in the future. Northern then credits interest on the account balance and eventually pays it out to the policyholder in lump sums or as an annuity, i.e., a series of periodic payments. A fixed annuity earns a guaranteed rate of interest for a specific time period, unlike a variable annuity.
The Northern policy at issue here provides:
We guarantee an effective yearly interest rate of three percent (3%).
From time to time, interest greater than the guaranteed rate may be credited in a way set by our Board of Directors. There may be more than one interest rate in effect at any time.
The policy also includes surrender charges designed to limit early withdrawals. These charges were substantially higher and longer-lasting than those of many of its competitors.
The policy does not specify a method that Northern was to use for crediting interest. But in its sales manual, Northern refers to its method as "the old money — new money system," described as follows:
The company declares a new money rate to become effective on a given date. From that date forward until the company declares another rate, contributions (premium payments) receive this interest rate.
When the company changes the new money rate, the premiums contributed during the period the former new money rate was in effect continue to earn that rate, while new contributions earn the new money rate. Each time the interest rate changes, contributions made prior to the change become "old money."
Northern's preprinted tables showed hypothetical accumulated account value based on the assumption that the current new money rate would continue for 40 years. Northern also provided to its agents illustration software designed to use a single crediting rate to estimate policy values over the life of the policy and trained its agents to tell customers: "Your rate is determined by what we earn on those assets; we keep a minor portion of those earnings to cover expenses and profits and our customers benefit from the rest."
But in reality, Northern almost always reduced the initial interest rate on old money. In doing so, Northern increased its "spread" — the difference between the interest rate it earns on its investments and the interest rate it credits to its policyholders — to meet the profit objectives set by parent company Reliastar Life Insurance Company (Reliastar). By initially offering higher rates on new money, and then reducing those rates on old money, Northern remained competitive and attracted new business while still meeting its profit objectives. Northern referred to this interest rate setting strategy as "subsidizing" new money interest rates.
Northern did not disclose to its customers this relationship between new and old money rates, and in 1997, Northern removed old-money rates from policyholders' quarterly statements. Northern told its customers it did so to make the statements easier to read, but an internal Northern memorandum indicates that they were removed to "reinforce consumer confidence in the value of their annuity purchase." Northern's Chief Financial Officer ultimately concluded that nondisclosure of its interest crediting method "is not acceptable in the long run."
Nor did Northern disclose its true interest setting policy to the OIC in annual filings it was required to submit by statute and regulations. For these filings, Northern was required to follow instructions promulgated by the National Association of Insurance Commissioners (NAIC). The NAIC instructions told Northern to "define the company's policy to be used in the process of determining nonguaranteed elements, with particular reference to the degree of discretion reserved for the company, together with the general methods and procedures which are expected to be used." "Non-guaranteed elements" include credited interest in excess of the guaranteed minimum rate specified in the policy.
See RCW 48.05.400; WAC 284-07-050 .
In each of its filings, Northern described its nonguaranteed element redetermination policy as follows:
Non-guaranteed elements shall be periodically redetermined to reflect future differences between anticipated experience factors at redetermination and those at initial determination. The objective of the redetermination shall be to maintain the average present value of future profits per unit at the level initially desired. Subject to contractual guarantees, company management has complete discretion for establishing non-guaranteed elements.
Northern's annual statement filed with the OIC also stated that it used an "investment generation approach." This approach involves a class of policyholders who share in the investment income of separate "generations" of assets in proportion to the net contribution of the class to the investable funds making up each generation. As explained in a professional article:
The result of this method is that each dollar of net investment in a given investment generation will be credited with the investment and reinvestment experience of the assets acquired for that generation. Money invested by a class when market yields are high will achieve a better return than money invested when yields are low. A corollary is that money invested in a particular investment generation will achieve the portfolio mix of that generation only (and its subsequent reinvestments) and, if the method is extended to capital gains and losses, will experience the full effects of capital gains or losses of its own investment generation.
Christopher D. Chapman, Interest Allocation Using a Computer Model, Transactions of Society of Actuaries, Vol. 25 (1973), pp. 333-34.
Northern also responded on the NAIC form that illustrations provided to the policyholders might not be supportable because (1) yields on new investments may differ from existing investments and (2) interest rates are set prospectively based on "subjective factors" which may not be borne out by actual experience. According to the Class's actuarial experts, Northern's disclosures were inaccurate and did not reflect its actual practices.
Paul Curtis purchased Northern annuities in 1986 and 1987, paid lump sum premiums on each and did not make any periodic deposits afterward. He paid a total of $1,980 and received $4,296.64 when he closed the accounts in 1998. Norman Curtis and Janet Gustafson also bought Northern annuities and made periodic deposits through payroll deductions or other employer arrangements. The Northern annuities earned more than the three percent throughout the relevant periods. The average rate of return decreased from about 9.5 percent in 1986 to about five percent in 1998, a trend consistent with those experienced by other annuity vendors. Northern claims its annuities ranked tenth out of the 29 top earning annuities, returning an average of about four percent annually.
Curtis and the other named policyholders were ultimately dissatisfied with their rate of return on the Northern annuities and in 2001 filed a class action suit against Northern, asserting claims for breach of contract and violation of the Consumer Protection Act (CPA). They alleged that Northern failed to disclose its interest crediting practices to its policy holders and to the OIC and that as a result they suffered monetary damage "in the amount that would have been credited to their policies during the accumulation phase but for [Northern's] arbitrary reduction of interest on old money bands." The complaint also sought declaratory, injunctive, and other equitable relief including: a judgment and order (1) declaring Northern's interest rate setting practices to be improper and (2) requiring Northern to
stop arbitrarily reducing interest rates for older bands of money in the accumulation phase and for all funds in the payout phase, and to set such interest rates in both phases by applying the same factors in the same way used to set the advertised initial interest rates offered to persons paying new premiums.
In 2003, the trial court denied the policyholders' motion to certify a nationwide class. The court concluded that evidence of individualized discussions with sales representatives and the possible admission of thousands of these discussions defeated the commonality of fact requirement for class certification. The court further concluded that common questions of law did not predominate because of the significant state variations in the applicable law.
The policyholders moved for reconsideration, challenging the trial court's finding that they sought to rely on evidence of sales representations and asserting that they were not arguing that any point-of-sale representations by Northern's agents provide a basis for liability against the company. Rather, they asserted that they intended to offer only evidence of Northern's representations to the OIC to establish bad faith. Alternatively, they moved for statewide class certification to avoid application of differing state laws. The trial court ultimately granted class certification on a statewide basis only.
The court then established "phases" for the litigation, with Phase 1 limited to the question of
whether Plaintiffs can state an actionable claim under a breach of contract, bad faith, Washington CPA, breach of fiduciary duty or other basis for liability under Washington law based on Northern's submissions to the [OIC] and Northern's conduct in setting interest rates.
The court indicated it would address all other issues "specific to individual members of the plaintiff class," such as individual liability requirements, affirmative defenses, and quantification of individual damages in later phases if the case survived summary judgment on the initial issue. Years of discovery followed, generating approximately a million pages of documentary evidence.
In 2005, the OIC opened an investigation into Northern's interest crediting practices. In 2006, the OIC considered disciplinary action against Northern, but ultimately agreed to delay initiating any action while the parties settled the class action claims. At this point, the investigation appears to remain open.
In September 2006, both parties moved for summary judgment. The Class asserted that it had submitted sufficient evidence establishing that Northern breached the implied covenant of good faith and fair dealing and its fiduciary duty to its policyholders by using and concealing its "subsidy" method of crediting interest, and that its conduct amounted to unfair and deceptive trade practices under the CPA. The Class also sought to supplement its motion with evidence that the OIC was considering disciplinary action, but the court denied the motion.
On March 26, 2007, the trial court granted Northern's motion for summary judgment and dismissed all claims against it. The court found "the contract to be painfully plain and unambiguous in its broad grant of discretion to the Defendant's Board of Directors to set interest rates (above 3%)," and "decline[d] to rewrite a plain and unambiguous contract." The Class sought direct review of the order in the Washington State Supreme Court. The Court denied review and transferred the case to this court.
DISCUSSION
We review summary judgment orders de novo and engage in the same inquiry as the trial court. We will affirm a summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. We construe the facts and all reasonable inferences from those facts in the light most favorable to the nonmoving party.
Sheikh v. Choe, 156 Wn.2d 441, 447, 128 P.3d 574 (2006).
CR 56(c); Huff v. Budbill, 141 Wn.2d 1, 7, 1 P.3d 1138 (2000).
Hertog v. City of Seattle, 138 Wn.2d 265, 275, 979 P.2d 400 (1999).
I. Breach of Implied Covenant of Good Faith
The Class contends that the trial court improperly dismissed its claim of breach of the covenant of good faith and fair dealing because the evidence showed that Northern abused its discretion in setting interest rates by using a method that was not disclosed to policyholders, that was not reported to insurance regulators and that did not reflect market rates but sought only to serve Northern's profit objectives. Northern responds that the contract guaranteed only a minimum rate of return and that the covenant of good faith and fair dealing cannot be applied to require Northern to credit additional unspecified interest above the guaranteed rate and higher than what it actually paid to policyholders.
Every contract contains an implied duty of good faith and fair dealing. This duty exists "to promote 'faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.'" This duty obligates the parties to cooperate with each other so that each may obtain the full benefit of performance and requires that the parties perform in good faith their contractual obligations. "'Ordinary contract principles require that, where one party is granted discretion under the terms of the contract, that discretion must be exercised in good faith — a requirement that includes the duty to exercise the discretion reasonably.'" Thus, "[g]ood faith limits the authority of a party retaining discretion to interpret contract terms; it does not provide a blank check for that party to define terms however it chooses." Insurance companies also have a statutory duty to deal with their insureds in good faith.
Badgett v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d 356 (1991).
Frank Coluccio Constr. Co. v. King County, 136 Wn. App. 751, 766, 150 P.3d 1147 (2007) (quoting Restatement (Second) of Contracts § 205 cmt. a (1981)).
Badgett, 116 Wn.2d at 569.
Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir. 2006) (applying Washington law) (quoting Goldstein v. Johnson Johnson, 251 F.3d 433, 444 (3d Cir. 2001)).
Scribner v. Worldcom, Inc., 249 F.3d 902, 910 (9th Cir. 2001) (emphasis omitted).
Here, the contract provided that Northern would set interest rates at a minimum of three percent, but also provided that Northern "may" credit higher rates in a way set by its Board of Directors. Thus, the contract gave Northern discretion to set higher rates, and it was required to act in good faith when exercising that discretion. The undisputed evidence established that Northern did in fact exercise this discretion and set higher rates. The question then becomes whether Northern acted reasonably and in good faith in exercising its discretion to set these rates.
The Class alleged that Northern did not act in good faith in setting these rates. It relied on evidence that Northern's "subsidy" method of setting interest rates disregarded market forces that would otherwise regulate rates on money currently in the market and asserted that this method served to increase Northern's profit margin and attract new business at the expense of existing annuity holders. The Class also produced evidence that Northern deliberately concealed its "subsidy" method from its customers. Northern falsely reported in its mandatory filings with the OIC that it was using an investment approach interest crediting method. The Class also produced evidence from former insurance commissioners that Northern's use of a subsidy approach amounted to an unfair trade practice. Northern offered evidence that its representations to the OIC were accurate, that the subsidy method it used was an acceptable and commonly used interest crediting practice in the industry, and that the OIC was aware it used this method but did not require Northern to stop the practice. Thus, there was conflicting evidence about whether the subsidy method Northern used was unfair or improper and whether Northern lied to the OIC. These factual disputes relate directly to the question of whether Northern acted in good faith in exercising its discretion to set higher rates, an essential element of the Class's breach of contract claim.
The evidence also raised factual disputes on the issue of damages. "The general rule is that when an insurer breaches its contract, the insured must be put in as good a position as he would have been had the contract not been breached." Thus, damages would be based on an amount that would put the Class in the position it would have been in had Northern acted in good faith when it exercised its discretion to credit higher interest rates.
Greer v. Nw. Nat'l Ins. Co., 109 Wn.2d 191, 202, 743 P.2d 1244 (1987).
The Class argues that acting in good faith in setting higher interest rates required Northern to credit interest using the method it reported to the OIC, i.e., the investment approach method. The Class produced evidence that had Northern used this method instead of the subsidy approach it actually used, policyholders would have received higher returns. Specifically, the Class submitted evidence that Washington customers lost $50 million in account values as a result of Northern's failure to use an investment approach in crediting interest.
We agree with the Class that the remedy for breach of the covenant of good faith would be to require Northern to credit interest in good faith. But that does not necessarily mean, as the Class asserts, that Northern had to use the investment approach method it reported to the OIC. As we noted above, Northern produced evidence that the OIC was aware that it actually used the subsidy method but told Northern only to disclose the method it was using. According to Northern, the OIC stopped short of telling it to use the investment approach or some other method of crediting interest. The Class has not cited any law or regulation that would require Northern to use the method it reported to the OIC.
On the other hand, the Class produced evidence that Northern acted arbitrarily in exercising its discretion to credit interest, focusing on its own profits and generating new business to the detriment of existing annuity holders. For example, the Class submitted the declaration of former Commissioner Deborah Senn which stated: "I have concluded that for many years [Northern] has apparently maintained unfair and deceptive policies and practices regarding the redetermination of non-guaranteed interest rates for certain fixed annuities." She further concluded that Northern "has apparently exercised its discretionary authority to determine non-guaranteed interest in a manner that may be unduly discriminatory, treating its established annuitants worse than its new ones." If the jury accepts Northern's evidence that it only had a duty to disclose its method of crediting interest, the Class may not be able to establish the damages element of its breach of contract claim. But if the Class's version of the evidence prevails, it may establish, through testimony about the standard in the industry or actuarial practices, what method of crediting interest would have been reasonable and thus in good faith.
Thus, what "crediting interest in good faith" means is a factual determination that has yet to be made, but is necessary before the Class can establish the damages element of the breach of contract claim. The trial court's determination at this juncture that the Class could not establish all the elements of the breach of contract claim was premature. We reverse its order granting summary judgment to Northern on the breach of contract claim.
II. CPA Claim
The Class also contends that the trial court erred by dismissing its CPA claims, because at the very least, it produced evidence that raised issues of material fact about whether Northern violated the CPA and whether the Class suffered injury as a result of its violations. The trial court's order is silent on the CPA claim except to summarily dismiss it along with all of the claims.
To prevail on a private CPA claim, the plaintiff must show (1) an unfair or deceptive trade practice (2) that occurs in trade or commerce, (3) a public interest, (4) injury to the plaintiff in his or her business or property, and (5) a causal link between the unfair or deceptive act and the injury suffered. The first two elements may be established by showing that either (1) the alleged act constitutes a per se unfair trade practice or (2) that an act or practice which has the capacity to deceive a substantial portion of the public has occurred in the conduct of any trade or commerce.
Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 784 85, 719 P.2d 531 (1986).
Id. at 785-86.
A. Unfair or Deceptive Trade Practice
The Class contends it has established the first element by showing that Northern committed per se CPA violations. A per se unfair trade practice exists when a party violates a statute and the Legislature has declared that violation of the statute constitutes an unfair or deceptive trade practice. The legislature has expressly provided that certain violations of the insurance code and regulations are per se unfair or deceptive acts and therefore subject to the CPA.
Id. at 786.
RCW 19.86.170; Indus. Indem. Co. v. Kallevig, 114 Wn.2d 907, 922, 792 P.2d 520 (1990).
The Class contends that Northern committed per se CPA violations by concealing its interest crediting policy from policyholders and the OIC in violation of RCW 48.01.030, by failing to set crediting rates in accordance with its mandatory OIC filings in violation of RCW 48.05.400(1) and WAC 284-07-050(2), and by filing false and misleading representations with the OIC in violation of RCW 48.30.040, RCW 48.30.090, WAC 284-23-040(1), and WAC 284-23-050(1), (2), and (15). But none of these acts is expressly defined and prohibited by RCW 48.30.010(2) as per se unfair practices. As the court made clear in Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., "the Legislature, not this court, is the appropriate body to establish that interaction [between certain illegal conduct and the CPA] by declaring a statutory violation to be a per se unfair trade practice."
105 Wn.2d 778, 787, 719 P.2d 531 (1986).
RCW 48.30.010 defines unfair or deceptive practices under the insurance code and provides:
(2) In addition to such unfair methods and unfair or deceptive acts or practices as are expressly defined and prohibited by this code, the commissioner may from time to time by regulation promulgated pursuant to chapter 34.05 RCW, define other methods of competition and other acts and practices in the conduct of such business reasonably found by the commissioner to be unfair or deceptive.
WAC 284-30-330 contains a list of specific unfair methods of competition and unfair or deceptive acts and practices in the business of insurance, none of which include the violations of the statutes and regulations cited above. Thus, the Class has failed to establish that Northern committed a per se CPA violation by violating the disclosure statutes and regulations.
The Class also contends that it established that Northern engaged in an unfair deceptive practice by showing that its acts had the capacity to deceive a substantial portion of the public. The Class appears to rely on two acts to establish this element: Northern's concealment of its interest-crediting practice and the interest-crediting practice itself. As evidence of the act of concealment, the Class produced internal communications within Northern that acknowledged concealing the practice from its customers and expert testimony that Northern's representations of interest-crediting practices in its OIC filings did not reflect its actual practices. Northern countered with evidence that its actuaries certified that Northern followed the investment generation approach disclosed in its OIC filings and that the OIC considered and rejected an internal recommendation that Northern's filings should be revised. But viewed in the light most favorable to the Class, this evidence raises an issue of material fact about whether Northern's efforts to conceal its interest-crediting practices had the capacity to deceive a substantial portion of the public.
The Class also produced evidence that Northern's interest-crediting practice itself may constitute an unfair or deceptive trade practice as stated in the declaration of former Commissioner Deborah Senn and quoted earlier in this opinion. Northern countered with evidence that its interest-crediting practice was common in the fixed annuity industry and accepted by regulatory and professional standards. But the regulations Northern cites also stressed the importance of disclosing rate setting methods. Thus, viewing the evidence in the light most favorable to the Class, there is a genuine issue of material fact about whether Northern's interest-crediting practices constituted an unfair or deceptive trade practice.
Northern cited an actuarial standard of practice recognizing that one approach to setting rates would be to do so "to obtain a particular competitive position in the marketplace," and a Buyer's Guide authored by the NAIC recognizing that determination of the rate is usually "entirely up to the insurance company."
NAIC Model regulation 245-1 requires disclosure of "[t]he guaranteed, non guaranteed and determinable elements of the contract, and their limitations, if any, and an explanation of how they operate."
B. Causation and Injury
The Class further contends that it established the causation and injury elements of its CPA claim. In Indoor Billboard/Wash., Inc. v. Integra Telecom of Wash., Inc., the court held that when a defendant has engaged in an unfair or deceptive practice that involves an affirmative misrepresentation of fact, the plaintiff must demonstrate a causal link between the misrepresentation and the plaintiff's injury. Thus, a plaintiff alleging a private CPA claim must establish that "but for the defendant's unfair or deceptive practice, the plaintiff would not have suffered an injury." Proximate cause is a factual question decided by the trier of fact.
162 Wn.2d 59, 83, 170 P.3d 10 (2007).
Id. at 84.
Id.
In Schnall v. AT T Wireless Servs., Inc., decided a few months before Indoor Billboard, we also held that proof of reliance is not the exclusive means of proving causation. In doing so, we recognized that in cases alleging nondisclosure of material facts, requiring proof of reliance "would place class plaintiffs in the impossible position of proving a negative; that is, that they believed the opposite of the omitted fact when they made their purchase."
139 Wn. App. 280, 291-92, 161 P.3d 395 (2007), review granted, 163 Wn.2d 1022 (2008).
Id. at 291.
Thus, to establish causation the Class must show a loss resulting from the alleged unfair or deceptive trade practices, i.e., either Northern's concealment of its true interest-crediting practices or the crediting practice itself. Under Schnall, to prove damages caused by Northern's concealment of the practice, the Class need not show that the policyholders relied on Northern's false representations to the OIC about its interest crediting method. But the Class must still establish that the false representations resulted in a loss to the policyholders. And to prove damages caused by Northern's use of the subsidy method itself, the Class must establish that but for the use of that method, the policyholders would have bought more favorable annuities or earned higher returns on their Northern annuities.
This assumes, of course, that Schnall remains good law.
But like the breach of contract claim, establishing causation and damages for a CPA claim depends on the factual determination of what constituted the deceptive or unfair practice that violated the CPA. This has not yet been done. If the jury finds that the CPA violation was the subsidy practice itself, the Class must establish that had Northern not used this approach, it would have used another approach that resulted in higher returns. At this point, the Class's evidence only shows that higher returns would have resulted if Northern used an investment approach, not that Northern would have necessarily used that particular approach. But the Class should not be foreclosed from producing that evidence at this juncture.
If the jury finds that the CPA violation was nondisclosure of the subsidy method, the Class would have to produce evidence that Northern would have been required to use the investment approach or some other method more favorable to the Class as a result of its nondisclosure. At this point, the Class's evidence of damages simply assumes this causal link without establishing it; it is based solely on a calculation of returns had Northern credited interest using the investment approach method it reported to the OIC. And while the Class offered Senn's declaration stating that, as the insurance commissioner at the time, she may have taken action against Northern's use of the subsidy interest crediting method, she opines only that she "would anticipate" opening an investigation that "may" result in the issuance of a cease and desist order. She does not say that as a result, Northern would have been required to use the interest crediting approach the Class relies on for its $50 million loss calculation or that policyholders would have otherwise received larger returns on their policies. Nor does she say that any certainty would follow from such action. Northern, on the other hand, produced evidence that a December 18, 2000 OIC Report on the Examination of Northern Life Insurance Company recommended that Northern revise its filings, but not its practices. Thus, at this point, the Class's evidence does not establish that had Northern disclosed that it was using the subsidy method, it would have been required to use a different interest crediting method that would have resulted in the higher yields claimed by the Class.
The report noted: "[T]he company has engaged in a program of subsidizing new money, while representing otherwise, and preparing misleading illustrations on the basis that old money would earn the new money rate. In the case of certain plans, the illustrations actually project old money earning more than the new money rate." (Emphasis omitted.) The report also recommends that Northern "be required to disclose its interest crediting strategy."
But the Class may be able to prove causation and damages if the jury finds that the CPA violation was Northern's failure to use the investment approach method it disclosed to the OIC because the Class has produced evidence of its damages based on what the returns would have been if Northern used the investment approach. Thus, as with the breach of contract good faith issue, the jury must first determine which act constituted the CPA violation before the trial court can determine whether the Class can establish resulting damages. Summary judgment on the CPA claim was premature.
III. Nationwide Class Certification
Finally, the Class contends that the trial court erred by refusing to certify a nationwide class under CR 23(b)(2). "Washington courts favor a liberal interpretation of CR 23 to avoid multiplicity of litigation, free defendants from the harassment of identical future litigation, and save the cost and trouble of filing individual suits." We review rulings on class certification for an abuse of discretion.
Schnall, 139 Wn. App. at 287.
Smith v. Behr Process Corp., 113 Wn. App. 306, 318, 54 P.3d 665 (2002).
CR 23(a) sets forth four prerequisites to a class action: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Additionally, one of the following three requirements of CR 23(b) must be met: (1) that there is a risk of inconsistent results with respect to individual claimants resulting in inconsistent standards of conduct or the possibility of preclusive effect on other class members, (2) that injunctive or declaratory relief is appropriate for the class as a whole, or (3) that common questions of law or fact predominate.
Id. at 321.
Here, the trial court's ruling assumed that the four elements of CR 23(a) were met. But the court concluded that there was no basis to maintain a class under CR 23(b) because "[c]onsidering the facts presented and the size of the claims, there is little likelihood of inconsistent adjudications"; the primary relief sought was monetary, "with scant reference to equitable relief"; and common legal questions would not predominate. As the court explained:
It is clear that the legislature did not intend the Consumer Protection Act to be applicable to non-residents. The bulk of the members of the proposed class here are not Washington residents and have little or no contact with the state of Washington beyond payment of premiums to the office of the Defendant.
The trial court's ruling is contrary to our holding in Schnall, which was decided after the trial court's class certification ruling. There we held that the Washington CPA applied to nonresident plaintiffs who sought class certification in a lawsuit against a Washington business, despite the choice of law provisions in the individual customer agreements. Schnall also held that the primary common issue of challenged fees justified class certification on the class's contract claims, concluding: "Class certification of the issue will be an efficient means of determining this claim given the small amounts of money at issue and its broad impact."
Id. at 299.
Likewise here, the CPA standards apply to all potential class members, including nonresidents, because Northern is a Washington business. And, like the challenged fees in Schnall, the challenged interest crediting practice here is the primary common issue and can be efficiently determined in the class action context. Thus, under Schnall, nationwide class certification was proper.
In so holding, we also recognize that the trial court has broad discretion on the timing and parameters of class certification. Thus, on remand we leave to the trial court's discretion the determination of when and on what basis to certify a nationwide class, understanding that certification may not be necessary until liability has been established.
We reverse.