Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—ArkSCt: Class Action Claims Proceed Against State Farm over Letters Allegedly Mischaracterizing Unadjudicated Claims as Debts, (Apr 10, 2013)

By Tobias J. Gillett, J.D., LL.M.

An Arkansas resident sued by State Farm Mutual Automobile Insurance Company for alleged negligence in an automobile accident with a State Farm insured may be able to proceed with a class action counterclaim asserting that State Farm mailed Arkansas residents and residents of seventeen other states letters misrepresenting their "unadjudicated, potential subrogation claims" as debts owed to State Farm, the Supreme Court of Arkansas has ruled (Kersten v. State Farm Mutual Automobile Insurance Co., March 28, 2013, Corbin, D.). The Supreme Court reversed a circuit court’s denial of class certification of the counterclaim.

On June 29, 2011, State Farm filed a complaint for negligence alleging that Brandi Kersten was at fault in an automobile accident with a State Farm insured. Kersten filed a counterclaim "alleging that State Farm was unjustly enriched as a result of having engaged in the deceptive and unlawful business practice of causing collection-style letters to be mailed in an attempt to collect unadjudicated, potential subrogation claims as debts." State Farm allegedly caused the McHughes Law Firm to send her a letter referring to State Farm as a creditor and referencing a balance due of $2,969.59. Kersten asserted her counterclaim on behalf of herself and on behalf of two classes, one of Arkansas residents and the other of residents of seventeen states with similar consumer-protection statutes to the Arkansas Deceptive Trade Practices Act (ADTPA).

State Farm moved to dismiss the counterclaim and to strike the class allegations. On May 29, 2012, the circuit court "dismisse[d] Kersten’s counter-claim against [State Farm] insofar as it relates to the McHughes Law Firm" and found "that Kersten’s request for class certification should be denied for the reasons stated in State Farm’s motion." However, the circuit court permitted her personal claim to proceed.

The Arkansas Supreme Court agreed with Kersten that, since the McHughes Law Firm was not a party to the case and the circuit court’s order did not dismiss any other parties, the ruling was "tantamount to a denial of State Farm’s motion to dismiss." Therefore, the appeal was only of the denial of class certification, an order appealable as an interlocutory appeal. As "the reasons stated in State Farm’s motion" were that the counterclaim did not satisfy the factors of commonality, predominance, and typicality under Rule 23, Ark. R. Civ. P., the Supreme Court addressed those factors.

Typicality. The Supreme Court rejected State Farm’s argument that "Kersten’s injury was not typical of the putative class because she did not allege that she conferred a benefit on State Farm by remitting payment of the amount sought in the letter." The Supreme Court explained "that the focus of the typicality requirement is on the conduct of the alleged wrongdoer giving rise to the claim rather than on the injury sustained from the conduct." Kersten’s counterclaim alleged that she received a letter misrepresenting her unadjudicated, potential subrogation claim as a debt owed to State Farm; that State Farm had engaged in similar conduct with respect to the multistate and Arkansas classes; and that she and the class members had incurred expenses as a result of State Farm’s practices, the class members through remitting payment and Kersten through hiring a credit-monitoring service. The court concluded that these allegations were sufficient to allege a course of conduct typical of both Kersten and her proposed classes at the motion to dismiss stage.

Commonality and predominance. The court also concluded that Kersten’s counterclaim presented "questions of law or fact common to the class" and that "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members." The court explained that "[t]he test for satisfaction of the commonality requirement is that there need only be a single issue of law or fact common to all members of the class," and that "[t]he starting point in examining the predominance requirement is whether a common wrong has been alleged against the defendant." A claim could satisfy the predominance requirement if it alleged "preliminary, common issues of liability and wrongdoing that affect all class members," even if damage issues would have to be decided in bifurcated proceedings.

Here, Kersten’s counterclaim involved at least two common questions, (1) "whether [State Farm]’s business practice of sending or causing to be sent collection style letters which characterized its unadjudicated insurance subrogation claim as a liquidated debt which must be immediately paid is deceptive, unfair and/or unconscionable and violates the ADTPA" and (2) "whether [State Farm]’s business practice of sending or causing to be sent collection style letters which characterized its unadjudicated insurance subrogation claim as a liquidated debt which must be immediately paid is deceptive, unfair and/or unconscionable and violates the consumer protection statutes of the Multi-State Class states." Therefore, the counterclaim sufficiently pled common questions to survive the motion to deny class certification.

Moreover, the Supreme Court rejected State Farm’s contention that the laws of the 17 states represented in the multi-state class were not substantially similar and therefore that the commonality and predominance requirements were not satisfied. The court observed that the court had previously rejected similar arguments in other cases, such as a case that would require application of the laws of thirty-nine states with respect to novation. The court also noted that Rule 23 would permit certifying a class to resolve preliminary questions common to the class, and then decertifying the class or subdividing it into smaller classes.

However, the Supreme Court observed that the circuit court did not address all six Rule 23 factors. Therefore, it could not "conclude for the first time on appeal that she has made a prima facie showing of all six factors." The court remanded the case for further proceedings.

The case is No. 12-725.

Attorneys: Darrin L. Williams (Carney Williams Bates Pulliam & Bowman, PLLC) for Brandi Kersten. Thomas J. Frederick (Winston & Strawn, LLP) for State Farm Mutual Insurance Co.

Companies: State Farm Mutual Automobile Insurance Co.

Cases: StateUnfairTradePractices ArkansasNews