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Hall v. Environmental Litigation Group, P.C.

Supreme Court of Alabama

September 1, 2017

Mary Hall, as personal representative of the Estate of Adolphus Hall, Sr., deceased, and Anaya McKinnon, as personal representative of the Estate of Wanzy Lee Bowman, deceased
v.
Environmental Litigation Group, P.C.

         Jefferson Circuit Court, CV-13-901014

          SHAW, JUSTICE.

         Mary Hall, as personal representative of the estate of Adolphus Hall, Sr., [1] and Anaya McKinnon, as personal representative of the estate of Wanzy Lee Bowman (hereinafter collectively referred to as "the plaintiffs"), appeal from the Jefferson Circuit Court's dismissal of their class-action claims against Environmental Litigation Group, P.C. ("ELG"). We reverse and remand.

         Facts and Procedural History

         This is the second time this matter has come before the Court. Our previous decision, Hall v. Environmental Litigation Group, P.C, 157 So.3d 876, 878 (Ala. 2014) ("Hall I"), discusses the pertinent factual and procedural history:

"On March 19, 2013, the plaintiffs filed a complaint in the Jefferson Circuit Court against ELG, requesting a declaratory judgment and alleging one count of unjust enrichment and one count of breach of contract. The plaintiffs asserted those claims on behalf of the estates they represented and on behalf of 'others similarly situated as a class action pursuant to Rule 23, ' Ala. R. Civ. P. The plaintiffs' complaint included the following factual allegations: in the 1990s, ELG agreed to represent hundreds of clients who had been exposed to asbestos, including Adolphus Hall and Bowman; ELG entered into an attorney-employment agreement with each client; pursuant to that agreement, ELG agreed to 'take all legal steps necessary to enforce the said tort claim, ' and in return ELG would receive 40% of amounts collected from any settlement or judgment as its fee; the agreement also permitted LG to reimburse itself for reasonable expenses related to the clients' claims; on February 23, 2012, ELG sent a memorandum to all of its 'asbestos clients' stating that, as a result of additional work required to obtain the proceeds of a settlement that ELG had negotiated, ELG would begin charging an 'administrative-service-expense charge' in the amount of $250 for living clients and $600 for clients who were deceased, which could be deducted from settlement proceeds due to be passed on to the client; between April 2011 and July 2012, the estate of Adolphus Hall received settlement proceeds from three asbestos defendants and, from those proceeds, ELG deducted $192.01 in expenses and a $600 administrative-service-expense charge, in addition to deducting 40% of the settlement proceeds as an attorney fee; and, in December 2012, the estate of Wanzy Lee Bowman received settlement proceeds from one asbestos defendant and ELG deducted $68.64 as an 'administrative credit' in addition to deducting 40% of the proceeds as an attorney fee. The plaintiffs alleged that the administrative-service-expense charge 'is nothing more than an extra attorney fee collected by ELG in addition to the 40% contingent fee' provided as the attorney fee in the attorney-employment agreement.
"The plaintiffs asked the circuit court to enter an order declaring that ELG had breached the attorney-employment agreement 'by charging, without legal authority, more than 40% for attorney staff services'; that ELG had been unjustly enriched by its wrongful activities; that the plaintiffs were due monetary relief; and that the plaintiffs were entitled to recover an attorney fee and reasonable expenses related to the prosecution of this action. In addition, the plaintiffs alleged separate counts of unjust enrichment and breach of contract, which were based on ELG's alleged breach of the attorney-employment agreement.
"In response to the plaintiffs' complaint, ELG moved the circuit court to dismiss the complaint pursuant to Rule 12(b)(6), Ala. R. Civ. P., for failure to state a claim upon which relief could be granted. ELG attached several documents to its motion to dismiss, including the attorney-employment agreement signed by Adolphus Hall and Mary Hall, the attorney-employment agreement signed by Bowman, and an 'adoption and ratification' of Bowman's attorney-employment agreement signed by McKinnon. ELG also attached the memorandum dated February 23, 2012, from ELG to its asbestos clients informing them of the implementation of the administrative-service-expense charge.
"ELG subsequently filed a supplement to its motion to dismiss, arguing that the plaintiffs had, 'in essence, ... asserted that ELG has charged its clients an excessive fee and [they] ask this court to enter a declaratory judgment to that effect.' ELG further argued, among other things, that Rule 1.5, Ala. R. Prof. Cond., directly addresses the issue of excessive attorney fees; that the Alabama State Bar was not a party to the action; and that a declaratory judgment in the present case would constitute only an advisory opinion by the circuit court because, it argued, the Alabama State Bar has sole authority to enforce the Alabama Rules of Professional Conduct and to determine whether an attorney fee is excessive under Rule 1.5. Thus, ELG argued, the circuit court was required to dismiss the plaintiffs' complaint for lack of subject-matter jurisdiction. See Rule 12(b)(1), Ala. R. Civ. P. (providing that 'lack of jurisdiction over the subject matter' is a defense that may be made by motion). ELG cited B.W.T. v. Haynes & Haynes, P.C., 20 So.3d 815, 822 (Ala. Civ. App. 2009), to support its position. The plaintiffs filed a response to ELG's motion to dismiss, arguing, among other things, that their complaint was not 'based merely on an ethics charge of "excessive fees"' but was based on an allegation that 'ELG ha[d] breached the terms of the [attorney-employment agreement, ] which ELG drafted and entered into with each client.'
''. . . .
"On November 20, 2013, the circuit [court] entered an order ... dismissing the case with prejudice. The plaintiffs timely filed a notice of appeal. On appeal, the plaintiffs argue[d] that the circuit court erred in dismissing their complaint because, they [said], the allegations in their complaint articulated a breach-of-contract claim against ELG and because their complaint was not an ethics complaint against ELG, which, they contend, would have been subject to the exclusive jurisdiction of the Alabama State Bar. In response, ELG assert[ed] that the circuit court properly dismissed the plaintiffs' complaint because, ELG says, the circuit court did not have subject-matter jurisdiction over the plaintiffs' complaint."

157 So.3d at 877-79 (footnotes omitted).

         On appeal, this Court disagreed with the circuit court's holding. We held that "[t]he 'crux' of the plaintiffs' claims [was] that ELG breached the attorney-employment agreement by allegedly taking as an attorney fee more than 40% of the settlement proceeds" and, thus, the plaintiffs' claims "[fell] within the subject-matter jurisdiction of the circuit court." 157 So.3d at 881. Unlike B.W.T. v. Haynes & Haynes, P.C., 20 So.3d 815, 822 (Ala. Civ. App. 2009), which ELG cited, "the 'crux' of the plaintiffs' case [was] not whether ELG's fee arrangement with the plaintiffs violated Rule 1.5, Ala. R. Prof. Cond." 157 So.3d at 881. We therefore reversed the circuit court's order of dismissal and remanded the matter for further proceedings.[2]

         Following remand, ELG moved for a status conference to establish a discovery schedule and to consider class certification.[3] Shortly thereafter, the plaintiffs filed a "First Amended Class Action Complaint" that added to the previously pending individual and class-based claims a count against ELG pursuant to the Alabama Legal Services Liability Act, § 6-5-570 et seq., Ala. Code 1975. Additionally, the plaintiffs filed a motion seeking, after discovery, class certification pursuant to Rules 23(b)(2) and 23(b)(3), Ala. R. Civ. P.[4]

         After numerous additional filings by the parties and the trial court's appointment of a special master, who recommended the denial of ELG's renewed dismissal request, on February 23, 2016, ELG filed a "Motion to Dismiss Class Claims or, Alternatively, for Partial Judgment on the Pleadings." In that motion, ELG sought the dismissal of only the plaintiffs' class-based claims on the ground that the claims "require individualized inquiries" that would destroy the "commonality" required for class-based relief because, according to ELG, the contract at issue was ambiguous. Specifically, the parties disagree on whether the "Administrative Service Expense Charge" (hereinafter "the new charge") assessed to the plaintiffs was permitted under the terms of the attorney-employment contract, which allowed recoupment of ELG's "expenses, " or whether the new charge was an additional "fee." ELG further maintained that the plaintiffs' proposed definition of a class, which included all past and present ELG asbestos clients who executed a contingency-fee contract, was both "overly broad" and "inconsistent with and contradicted by the allegations in the Complaint."

         On April 11, 2016, ELG filed, as a "supplement" to its motion to dismiss, an "alternate" motion to strike the plaintiffs' class claims and allegations pursuant to Rules 12(f), 23(c)(1), and 23(d)(4), Ala. R. Civ. P., which, according to ELG, "provide a clear path for the Court to evaluate class claims at an early stage under the burden of proof and standard of review of Alabama Rule 23" and, where appropriate, to strike class allegations before the class-certification process.

         Following a hearing--but without permitting the plaintiffs' requested discovery on the class-certification issue--the trial court granted ELG's motion to dismiss. The trial court agreed with ELG that the "[p]laintiffs' contracts with ELG are ambiguous regarding whether the 'Administrative Service Expense Charge' was an expense or should have been included in the 40% contingency fee." The trial court held:

"Specifically, the contract is ambiguous in at least three ways. First, the definition of expense is open-ended and ambiguous. Second, the client contracts are silent and ambiguous regarding how work related to probate, bankruptcy, and Medicare should be charged to the client. Third, the client contracts are ambiguous regarding whether post-settlement work done to make sure that claims that have already been recovered are paid out to the proper party is an expense or part of the contingency fee for prosecution and 'enforce[ment of] the said tort claim, ' or outside the scope of the contract."

         As a result of that ambiguity and of the particular nature of the asbestos claims themselves, including "the fact that the current plaintiffs are not even victims of asbestos injuries but instead are actually second or third generation descendants of the original clients who signed the fee agreements in 1992 and 1994" and that ELG's long-term representation could have given rise to "situation[s] ... not anticipated and addressed by the parties on the face of the contract, " the trial court concluded that "individualized inquiry is required to resolve the ambiguity and delve into the state of mind of each party and determine what each party intended at the time of contracting" and that, therefore, such inquiry "destroys predominance and commonality and bars class ... breach-of-contract-based claims in this case." In sum, opining that no amount of discovery would alleviate the above-identified issues with the plaintiffs' class-based claims, the trial court granted ELG's motion to dismiss, "struck" the plaintiffs' claims for class-based relief, and held that the class-based claims were "denied."[5] The plaintiffs appeal.[6]

         Standard of Review

         ELG contends that the trial court was authorized to "strike" the class allegations in the complaint under the authority of a combination of three rules: Rule 12(f), [7] Rule 23(c)(1), [8] and Rule 23(d)(4).[9] In support of this argument, ELG cites numerous federal court decisions explaining that Rule 12(f), Fed. R. Civ. P.; Rule 23(c)(1)(A), Fed. R. Civ. P.; and Rule 23(d)(1)(D), Fed. R. Civ. P., together can form the basis for striking class allegations in the pleading stage and before the class-certification process begins:

"As an initial matter, the authority to strike class allegations stems from Federal Rules of Civil Procedure 12(f), 23(c)(1)(A), and 23(d)(1)(D) .... See Gray v. BMW of North America, LLC, 22 F.Supp.3d 373 (D.N.J. 2014) (citing Fed.R.Civ.P. 12(f) as authority for the District Court to strike class allegations); In re Paulsboro Derailment Cases, [Civ. No. 13-784, April 8, 2014] (D.N.J. 2014) ('A motion to strike class allegations implicates Federal Rules of Civil Procedure 12(f) and 23(c)(1)([A]).... A further procedural vehicle is provided by Federal Rule of Civil Procedure Rule 23(d)(1)(D), which provides that a "court may issue orders that ... require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly."'); see also 1 Joseph M. McLaughlin, McLaughlin on Class Actions § 3:4 (11th ed. 2014) (Noting that Federal Rule of Civil Procedure 23(d)(1)(D) 'expressly authorizes a motion to strike class action allegations by authorizing the court to issue an order "requiring that the pleadings be amended to eliminate allegations about representation of absent persons...."'[).] Rule 12(f) permits a district court to 'strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter, ' and Rule 23(c)(1)(A) directs the court to make the class certification determination '[a]t an early practicable time.' Fed.R.Civ.P. 12(f), 23(c)(1)(A).
"These Rules, together, provide authority for the Court to strike the class allegations from Plaintiffs' Complaint, if appropriate, even before Plaintiffs move for class certification. The Court of Appeals for the Third Circuit has acknowledged that there are a 'rare few [cases] where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met, ' although, '[i]n most cases, some level of discovery is essential.' Landman & Funk PC v. Skinder-Strauss Assoc., 640 F.3d 72, 93, 93 at n. 30 (3d Cir. 2011). Class allegations may be stricken only when no amount of discovery will demonstrate that the class can be maintained. Goode v. LexisNexis Risk & Info. Analytics Group, Inc., 284 F.R.D. 238, 244 (E.D. Pa. 2012) (citing Thompson v. Merck & Co., Inc., [No. C.A. 01-1004, January 6, 2004] (E.D. Pa. 2004)); see also Woodard v. FedEx Freight E., Inc., 250 F.R.D. 178, 182 (M.D. Pa. 2008) (noting that a 'district court will strike class allegations without permitting discovery or waiting for a certification motion where the complaint and any affidavits clearly demonstrate that the plaintiff cannot meet the requirements for a class action')."

Bell v. Cheswick Generating Station, Genon Power Midwest, L.P., No. 12-929, Jan. 28, 2015 (W.D. Pa. 2015) (not selected for publication in F.Supp.3d).

         No Alabama decisions are cited that have addressed the propriety of a motion to strike class allegations before class-certification discovery or the class-certification process. However, in the instant case, we are not required to determine such issue, because it does not appear that the trial court simply struck the plaintiffs' class allegations. Specifically, ELG's motion to dismiss requested that the trial court dismiss the plaintiffs' class claims "with prejudice." The trial court's order stated: "[ELG's motion to dismiss] is hereby granted. Plaintiffs' class allegations are hereby stricken and the claims denied." (Emphasis added.) It appears that, by stating that the class claims were "denied, " the trial court was dismissing them with prejudice. Specifically, stating that the claims were "denied" is inconsistent with merely striking the claims or "requiring that the pleadings be amended" under Rule 23(d)(4). Further, we see no basis in this case for striking the class claims for containing "insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Rule 12(f). Therefore, we treat the trial court's dismissal as pursuant to the initial ground specified in ELG's motion to dismiss: failure to state a claim under Rule 12(b)(6).

         Generally, a Rule 12(b)(6) motion "'should not be used to test the sufficiency of a complaint after a responsive pleading has been filed.'" Pontius v. State Farm Mut. Auto. Ins. Co., 915 So.2d 557, 562 (Ala. 2005) (quoting Sims v. Lewis, 374 So.2d 298, 301 (Ala. 1979)). However, "a defense of failure to state a claim upon which relief can be granted, although typically raised pursuant to Rule 12(b)(6), can be raised after an answer has been filed by moving for a judgment on the pleadings" under Rule 12(c), Ala. R. Civ. P. Pontius, 915 So.2d at 562.

         This Court has discussed the distinction between the standard of review for a ruling based on Rule 12(c) and one based on Rule 12(b)(6) as follows:

"In ReedElsevier, Inc. v. TheLaw.net Corp., 269 F.Supp.2d 942, 947 (S.D. Ohio 2003), the federal district court stated with regard to Rule 12(b)(6) ...

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