Justice Brett Busby
In a second case involving the corporate landlord Mosaic Baybrook, the Texas Supreme Court has rejected a trial court’s class certification order.
Mosaic Baybrook One, L.P., Mosaic Baybrook Two, L.P., and Mosaic Residential, Inc. v. Tammy Cessor (No. 21-0161; delivered April 21, 2023) arose from a dispute between the landlord and numerous tenants over late fees charged under § 92.019, Property Code. The class representative, Tammy Cessor, leased an apartment in 2016 with a base rent of $950. The landlord gave her a rent concession that reduced her monthly rent to $858. The following month Cessor notified the landlord that she would only be able to pay $510 on the due date, with the balance 10 days after. The landlord agreed but nevertheless posted a notice on Cessor’s door that showed late fees added to the August rent amount and threatened eviction if she did not pay within three days. Although Cessor paid the balance of the rent a week later, the landlord charged her $130 in late fees and required her to repay the $92 rent concession. Cessor sued the landlord in February 2017, alleging a breach of § 92.019.
The key issue in dispute was the statutory requirement that a late fee “[be] a reasonable estimate of uncertain damages to the landlord that are incapable of precise calculation and result from late payment of rent.” A landlord violating this provision may be liable to the tenant for the sum of $100, three times the amount of the late fee charged, and reasonable attorney’s fees. Here Mosaic developed its late fee schedule based on several factors, including the average monthly rent, the monthly delinquency rates, the average number of delinquent rent accounts that are never paid, and the cost of turning over an apartment after an eviction. The base fee amount further included fixed overhead costs, such as employee salaries and loss of use of funds, as well as a factor for local competition. Whether the inclusion of overhead costs in the base late fee was statutorily permitted as “a reasonable estimate of uncertain damages to the landlord” is at the center of the controversy.
Cessor sought class certification under Rule 42 and proposed a trial plan. Mosaic objected on the basis that the trial court failed to conduct a rigorous analysis of the substantive law but failed to present any suggestions to the court regarding what that analysis should be. Mosaic also neglected to state its affirmative defenses, including a limitations defense, until three days before the hearing on class certification, when it filed an amended pleading without leave of court. Cessor, however, failed to object to the filing, and the affirmative defenses never came up at the hearing. Subsequently, the trial court signed an order granting class certification that outlined a trial plan but did not include the elements of Mosaic’s defenses, as required by Rule 42(c)(1)(d). Mosaic filed an interlocutory appeal. The Houston [1st] Court of Appeals affirmed.
In an opinion by Justice Busby, SCOTX reversed, concluding that the trial court abused its discretion when it did not address the elements of Mosaic’s affirmative defenses in the certification order. As a threshold matter, the Court took up a dispute between the parties over whether the trial court conducted the required “rigorous analysis” of the applicable substantive law. As Justice Busby stated, “the precedent on that question is clear: merits questions should be resolved to the extent they bear on the rigorous analysis of the claims and defenses required by Rule 42.” This rule does not require the trial court to decide the “merits of the suit,” but “whether the purported class can meet the certification requirements.” Quoting the American Campus Communities decision we reported a few days ago, the Court stated that “a court’s task in applying Rule 42 ‘is to correctly understand the law governing the nature and elements of the claim and to gauge the claim’s suitability for class resolution on the basis of that understanding,” including a determination of whether “the proposed class has no basis in law.”
Here the trial court’s trial plan, according to the Court, reflected a sufficiently rigorous analysis of how the case would be tried under § 92.109. The order identified the applicable substantive law, the substantive issues that would control its disposition, and fulfillment of the typicality and commonality of the tenants’ claims. It also “noted the absence of any difficulties in managing the putative class action because ‘[t]he data exists and is objectively verifiable both as to class membership and potential damages (overcharges)…’” Where the trial court went wrong, however, was in its failure to consider Mosaic’s belatedly asserted defenses. While there was some confusion in the record about whether the trial court ever saw the late amended pleading, the Court observed that the trial court’s order stated that it had considered the court file, which included that pleading. Under TRCP 63, which governs the filing of late pleading with leave of court, there is a presumption that the trial court granted leave to file “when [the pleading] is ‘considered by the trial court’ and the opposing party ‘has not shown surprise or prejudice.’” As the Court noted, this presumption is distinct from a Rule 166a(c) motion for leave to file opposing affidavits and written responses to a motion for summary judgment. In that case, “when nothing appears of record to indicate that the late filing for the written [summary judgment] response was with leave of court [under Rule 166a(c)], it must be presumed that the trial court did not consider the response” (citations omitted). Still, the failure to obtain leave of court can be remedied if “the failure to respond was due to accident or mistake and permitting the late response ‘will occasion no undue delay or otherwise injure the party seeking summary judgment’” (citation omitted).
Because Cessor did not make a motion to strike Mosaic’s late pleading under Rule 63 and did not otherwise show surprise of prejudice, the Court presumed that the trial court granted leave and that the amended petition “was properly before the” court. Mosaic’s defenses were thus “part of the pleadings for purposes of Rule 42” and “by opposing class certification, Mosaic made the trial court aware of the need to address those defenses if it certified a class.” Although Cessor argued that the trial court’s failure to address the defenses was harmless error, the Court declined to opine “on the proper outcome of a rigorous Rule 42 analysis, but we do require the trial court to conduct it.” Because it did not do so, the Court reversed the court of appeals and remanded to the trial court for further proceedings. Those proceedings, if they are indeed ever conducted, will require the trial court to reconsider the predominance requirement under Rule 42.
In three separate opinions issued on April 21, SCOTX had added a very significant gloss on Rule 42 jurisprudence. Although the justices parted ways in one of those cases with respect to the substantive law, they were in unanimous agreement as to the standard for reviewing whether a trial court has conducted a Rule 42 “rigorous analysis” and the necessity for a merits review sufficient to demonstrate a firm grasp of the relevant substantive law issues and how they affect the four threshold requirements for certification: numerosity, commonality, typicality, and adequacy of representation.
