By Gerald L. Maatman, Jr. and Emilee Crowther
Duane Morris Takeaways: In American Campus Communities, Inc. v. Berry, No. 21-0874 (Tex. Apr. 21, 2023), the Texas Supreme Court unanimously reversed the trial court’s class certification order and disposed of the appeal on the grounds Plaintiffs’ claims were facially defective. In rendering its decision, the Texas Supreme Court emphasized that both district and appellate courts, to comply with Texas Rule of Civil Procedure 42 (“Rule 42”), must examine the substantive law underlying Plaintiffs’ claims prior to granting or affirming class certification. The Texas Supreme Court’s decision in this case ultimately serves as a roadmap for trial and appellate courts – as well as counsel for defendants – to ensure a meaningful and rigorous analysis of “the claims, defenses, relevant facts, and applicable substantive law” underlying Plaintiff’s claims prior to granting class certification under Rule 42.
Case Background
American Campus Communities, Inc. and its related companies (“ACC”) own and manage student housing properties throughout the United States. Plaintiffs, four former tenants of ACC’s properties in Texas, filed suit against ACC alleging it omitted language from its leases required under Section 92.056(g) of the Texas Property Code, and requested the trial court to certify a class of 65,000 former ACC tenants whose leases did not include the required language.
In addition to opposing the class certification, ACC moved for summary judgment on Plaintiffs claims. It contended that the Property Code does not create strict liability for an omission of the required statutory language. The district court denied ACC’s summary judgment and granted Plaintiff’s motion for class certification. The court of appeals affirmed a modified version of the trial court’s order, and authorized class-wide litigation on Plaintiffs asserted statutory strict liability claim regarding the omitted lease term. Neither the district court nor the court of appeals analyzed the substantive law governing Plaintiffs’ proposed class claims.
The Texas Supreme Court’s Decision
On further appeal, the Texas Supreme Court spent the majority of its opinion addressing the obligation of a district trial and appellate court to conduct a meaningful and rigorous analysis of “the claims, defenses, and applicable substantive law” underlying a Plaintiff’s claims prior to granting class certification under Texas Rule 42. Id. at 6-7 (quoting Sw. Refin Co. v. Bernal, 22 S.W.3d 425, 435 (Tex. 2000) (emphasis original)). The Supreme Court held that the failure of the district court and appellate court to analyze the applicable substantive law underlying Plaintiffs claims prior to class certification was error and “an example of the ‘certify now and worry later’ approach to class certification.” Id. at 10 (citing Bernal, 22 S.W.3d at 435 and BMG Direct Mktg., Inc. v. Peake, 178 S.W.3d 763, 778 (Tex. 2005)). For courts to comply with their obligations under Rule 42, they must rigorously scrutinize the legal underpinnings of the alleged class claims prior to class certification.
This rigorous analysis, the Supreme Court held, is required even when it is entangled with the merits, as a “court’s duty under Rule 42 to conduct a meaningful analysis of the proposed claims . . . is more fundamental than . . . avoiding premature resolution of the merits.” Id. at 15. While the Supreme Court made clear that a court should not decide the merits of the case in a class certification analysis, it must still understand the law governing the Plaintiffs claims and “gauge the claim’s suitability for class resolution on the basis of that understanding.” Id. at 14.
Due to the failure of the district court and appellate court to analyze the governing law at the class certification stage, the Supreme Court analyzed the substantive law at issue in the case, and ultimately held that class certification was improperly granted as “a proper understanding of the substantive law applicable to the proposed class claims indicates that no such claims exist.” Id. at 19.
Implications For Employers
The Texas Supreme Court’s decision in American Campus Communities, Inc. teaches various lessons. It serves as a reminder that class certification on claims that are not supported by underlying substantive law is legally invalid. For Defendants, it underscores the importance of analyzing the merits of claims at the beginning of the lawsuit, and of moving for a summary judgment on the merits of the underlying claims before class certification.