Garza v. Hon. gama/swift , 240 Ariz. 373 ( 2016 )


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  •                                IN THE
    ARIZONA COURT OF APPEALS
    DIVISION ONE
    LEONEL GARZA, and all persons similarly situated,
    Petitioners,
    v.
    THE HONORABLE J. RICHARD GAMA,
    Judge of the SUPERIOR COURT OF
    THE STATE OF ARIZONA, in and for
    the County of MARICOPA,
    Respondent Judge,
    SWIFT TRANSPORTATION CO., INC.,
    Real Party in Interest.
    No. 1 CA-SA 15-0315
    FILED 7-12-2016
    Petition for Special Action from the Superior Court in Maricopa County
    No. CV2004-001777
    The Honorable J. Richard Gama, Judge, Retired
    JURISDICTION ACCEPTED; RELIEF GRANTED
    COUNSEL
    Hagens, Berman, Sobol, Shapiro, LLP, Phoenix
    By Robert B. Carey, Leonard W. Aragon, Michella A. Kras
    Counsel for Petitioners
    Polsinelli, PC, Phoenix
    By Rebecca Lumley
    Counsel for Real Party in Interest
    Polsinelli, PC, Kansas City, MO
    By James C. Sullivan, Travis Salmon
    Counsel for Real Party in Interest
    OPINION
    Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in
    which Judge Patricia A. Orozco and Judge Kenton D. Jones joined.
    J O H N S E N, Judge:
    ¶1            Petitioners challenge the superior court's order decertifying
    an 80,000-member class of drivers suing Swift Transportation Co., Inc. For
    the reasons stated below, we accept jurisdiction of the petition for special
    action and grant relief. On this record, Swift has failed to show that its
    various affirmative defenses render the class unmanageable; we also hold
    that Arizona law applies to the drivers' claim for breach of the duty of
    good faith and fair dealing.
    FACTS AND PROCEDURAL BACKGROUND
    ¶2            Petitioner Leonel Garza was a Swift truck driver who sued
    the company in 2005, alleging it systematically underpaid all of its drivers.
    The superior court denied Garza's subsequent motion for class
    certification. This court reversed and remanded, but on review, our
    supreme court vacated our decision, holding we lacked jurisdiction over
    the interlocutory denial of a motion to certify a class. Garza v. Swift
    Transp. Co., Inc., 
    222 Ariz. 281
    (2009). On remand, the superior court
    certified a class of Swift drivers pursuant to Arizona Rule of Civil
    Procedure 23(b)(3). As trial approached, however, the superior court
    granted Swift's motion to decertify the class in July 2015.
    2
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    DISCUSSION
    A.     Jurisdiction.
    ¶3             Petitioner Garza and the drivers who were members of the
    now-decertified class lack an adequate remedy on appeal. See 
    Garza, 222 Ariz. at 287
    , ¶ 27 (special action was suitable means to seek review of
    order denying class certification). Cf. Ariz. Rev. Stat. § 12-1873(A) (2016)
    (creating appellate jurisdiction over orders certifying or refusing to certify
    class actions in cases filed after September 13, 2013). In addition, Garza's
    petition raises questions of statewide importance. See Perry v. Ronan, 
    225 Ariz. 49
    , 52, ¶ 6 (App. 2010). For these reasons, we accept jurisdiction of
    the petition for special action.
    B.   De-Certification of the Class.
    1.       Reconsideration of certification.
    ¶4            Whether to certify a class is a matter within the discretion of
    the superior court. Godbey v. Roosevelt Sch. Dist. No. 66 of Maricopa County,
    
    131 Ariz. 13
    , 16 (App. 1981). In granting Swift's motion to decertify, the
    superior court concluded that the drivers' good-faith claim "is
    unmanageable as a class action." It held that, even assuming the claim
    presents common questions, Swift's affirmative defenses "raise individual
    issues" that would predominate over the common questions. Moreover,
    the court held, petitioners had not shown that Swift's choice-of-law
    arguments did not present "insuperable obstacles" to class-action
    treatment.
    ¶5           Petitioners argue that, having certified the class, the superior
    court lacked discretion to revisit the issue as trial neared. They argue that
    absent changed circumstances, a change in the law, the need to correct a
    clear error of law, or evidence that was unavailable earlier, the court
    should not reconsider a grant of class certification.
    ¶6             Arizona Rule of Civil Procedure 23(c)(1) provides that a class
    certification order may be "altered or amended before the decision on the
    merits." The class in this case was certified under Rule 23(b)(3) (common
    questions of law or fact predominate over individual questions such that
    class treatment "is superior to other available methods for the fair and
    efficient adjudication of the controversy"). As Rule 23(c) anticipates, when
    the nature of the claims has evolved, the superior court has discretion to
    revisit whether, considering the elements of the claims and the proof
    required to prove those claims and any relevant affirmative defenses,
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    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    common questions of law or fact continue to predominate over individual
    questions. See Gen. Tel. Co. of the Southwest v. Falcon, 
    457 U.S. 147
    , 160
    (1982); Marlo v. United Parcel Serv., 
    251 F.R.D. 476
    , 479-80 (C.D. Cal. 2008)
    ("[A] district court reevaluating the basis for certification may consider its
    previous substantive rulings in the context of the history of the case, and
    may 'consider the nature and range of proof necessary to establish the
    [class-wide] allegations.'") (citation omitted); see also ESI Ergonomic
    Solutions, LLC v. United Artists Theatre Circuit, Inc., 
    203 Ariz. 94
    , 98 n.2, ¶ 11
    (App. 2002) (cases construing federal rule of civil procedure may be
    authoritative in interpreting similar state rule).
    ¶7            When the superior court certified the class in this case, the
    complaint contained claims for breach of a standard form contract and
    breach of the implied covenant of good faith and fair dealing. The
    premise of the claims was that Swift systematically paid its drivers for
    fewer miles than they actually drove. 
    Garza, 222 Ariz. at 282
    , ¶ 3. A claim
    for breach of a standard form contract or company policy often may be
    suitable for class-wide treatment. See, e.g., Lennon v. First Nat'l Bank of
    Ariz., 
    21 Ariz. App. 306
    (1974) (class treatment of claim arising out of
    standard bank charges). In a ruling not now before us, however, the
    superior court dismissed petitioners' claim for breach of contract. With
    trial approaching on petitioners' remaining claim for breach of the
    covenant of good faith and fair dealing, the superior court did not abuse
    its discretion when it decided to reconsider whether common questions
    continued to predominate and whether the case, now with some 80,000
    class members, continued to be manageable.
    2.    The remaining claim.
    ¶8             When Swift offers a trip to a driver, it sends a digital
    message informing the driver of the route and a mileage total for which
    the driver will be paid; the driver accepts the offer by pressing "y" in
    response to the inquiry. 
    Garza, 222 Ariz. at 282
    , ¶ 2. Swift pays a fixed
    rate per mile, and to calculate the miles for which it will pay, it uses third-
    party software called the Household Goods Mileage Guide ("HHG"). In
    dismissing petitioners' claim for breach of contract, the superior court held
    that Swift's contracts only required Swift to pay a driver for the number of
    miles stated in the digital message, and that a driver could not claim
    breach based on Swift's failure to pay for any additional miles a trip
    actually may require.
    ¶9             Consistent with the superior court's earlier ruling dismissing
    petitioners' claim for breach of contract, the evidence now in the record is
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    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    that Swift's drivers knew and agreed that they would be paid based on
    mileage derived from HHG, that the mileage they would actually drive
    would be greater than the HHG-derived mileage, and that, as a
    consequence, they would be paid for fewer miles than they drove. Swift
    cites evidence that drivers were informed and understood that a trip
    might require them to drive five to ten percent more miles than the HHG-
    derived mileage for which they are paid.
    ¶10            Petitioners' remaining claim alleges breach of the duty of
    good faith and fair dealing implied as a matter of law in Swift's
    contractual relationships with its employee-drivers and owner/operator-
    drivers. As explained in their petition for special action, petitioners allege
    HHG allows Swift more than one method of estimating the distance to a
    particular destination. They allege that in determining how much to pay a
    driver for a trip, Swift uses an HHG method that is not the most accurate
    means of estimating the distance the driver actually will drive.1
    Petitioners allege Swift breached its duty of good faith and fair dealing (1)
    by failing to select the HHG alternative that most accurately estimates
    actual trip distance and (2) by failing to inform drivers of that fact. They
    argue, "[T]elling a driver that the HHG does not equate to actual mileage
    does not show that Swift adequately and accurately explained to drivers
    how the HHG worked." That HHG-calculated mileage is less than actual
    miles driven is one thing, petitioners contend; it is another that Swift
    "selected the least favorable HHG payment option – city/state pairs – but
    did not tell the drivers" it had done so.
    ¶11           Implied in every contract is a duty of good faith and fair
    dealing that "prohibits a party from doing anything to prevent other
    parties to the contract from receiving the benefits and entitlements of the
    agreement." Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons
    Local No. 395 Pens. Tr. Fund, 
    201 Ariz. 474
    , 490, ¶ 59 (2002). A party may
    breach the covenant of good faith and fair dealing without breaching an
    express term of the contract. 
    Id. at 491,
    ¶ 64 (breach of good faith when
    one party injures the other by "manipulat[ing] bargaining power to its
    own advantage[.]"). As alleged here, that principle means that although
    Swift's contracts may not have required it to pay drivers for any more
    miles than HHG specified, Swift may have breached its duty of good faith
    1      According to petitioners, although Swift uses HHG's "city/state
    pair option," HHG also offers other (allegedly more precise) means of
    calculating distances, including by zip code, nearest intersection, and
    latitude/longitude.
    5
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    and fair dealing if it deliberately manipulated HHG to have it short the
    mileage the software calculated for purposes of payment.
    ¶12          It is apparent, therefore, that petitioners' claim for breach of
    the duty of good faith and fair dealing raises an issue common to all the
    members of the class: Given that the class members agreed to be paid
    based not on actual miles but on HHG-derived miles, did Swift have a
    duty implied by law to select a program within HHG that would derive
    mileages that most closely approximated actual miles? Put differently,
    assuming petitioners agreed that they would be paid based on whatever
    HHG calculated, if Swift could choose between two (or three) options
    within HHG, did Swift have a duty to the drivers to select the option that
    was most advantageous to them?2
    3.     Manageability: Affirmative defenses.
    ¶13           By itself, the presence of a single common question does not
    require a case be treated as a class action. Under Rule 23(b)(3) the
    common question must "predominate over any questions affecting only
    individual members[.]" It also must be shown that "a class action is
    superior to other available methods for the fair and efficient adjudication
    of the controversy." Ariz. R. Civ. P. 23(b)(3). Related to "fair and efficient
    adjudication" is the manageability of the case as a class action. See Ariz. R.
    Civ. P. 23(b)(3)(D) ("the difficulties likely to be encountered in the
    management of a class action").
    ¶14             Denial of class action status based on manageability
    concerns is disfavored. See Klay v. Humana, Inc., 
    382 F.3d 1241
    , 1272 (11th
    Cir. 2004) (manageability "will rarely, if ever, be in itself sufficient to
    prevent certification of a class"); Iliadis v. Wal-Mart Stores, Inc., 
    922 A.2d 710
    , 727 (N.J. 2007). The first manageability concern the superior court
    identified in decertifying the class arises from Swift's due-process right to
    a fair trial on any affirmative defenses it might raise to the class members'
    2      We express no opinion on the merits of petitioners' claim.
    Although class-certification issues "may 'entail some overlap with the
    merits of the plaintiff's underlying claim,' Rule 23 grants courts no license
    to engage in free-ranging merits inquiries at the certification stage. Merits
    questions may be considered to the extent – but only to the extent – that
    they are relevant to determining whether the Rule 23 prerequisites for
    class certification are satisfied." Amgen Inc. v. Conn. Ret't Plans and Trust
    Funds, 
    133 S. Ct. 1184
    , 1194 (2013) (citation omitted).
    6
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    claims. Swift argues that individual questions relating to the good-faith
    claim predominate because of affirmative defenses it is entitled to raise
    that necessarily are specific to each individual member of the class. In
    ordering the class decertified, the superior court found these affirmative
    defenses would raise individual issues such that they would "predominate
    over the common question and answer."
    ¶15            As Swift explains, all of its affirmative defenses (limitations,
    waiver, laches) are based on when the respective class members came to
    know of facts that would give rise to their claim. Under other
    circumstances, the date on which each member of a large class became
    aware of the facts on which his or her claim is based could create
    individual questions that might make a class action unmanageable. But
    the record here contains no evidence that any class member knew what
    petitioners allege constituted Swift's breach of the duty of good faith: That,
    within HHG, Swift could have chosen a more accurate means of deriving
    the mileage for which it would pay drivers but did not do so. Indeed, as
    petitioners point out, there is plenty of evidence that trainers and others in
    Swift management, who presumably would have informed drivers of how
    HHG worked, did not themselves understand the facts that petitioners
    cite as the basis for their claim for breach of the duty of good faith. Swift
    cites substantial evidence that it told its drivers, or that the drivers
    otherwise knew, that they would be paid for fewer miles than they
    actually drove. It cites no evidence, however, that it told any of its drivers
    that, as petitioners allege, it could have used an option within HHG to
    derive more accurate mileage totals, but chose not to do so.
    4.     Manageability: Choice of law.
    ¶16           The superior court held that choice-of-law issues presented
    another manageability issue compelling decertification.           The court
    concluded, "With regard to Swift's choice of law defense, Garza has not
    met his burden to show 'that class certification does not present
    insuperable obstacles.'"      We review de novo the superior court's
    determination concerning the appropriate choice of law. Pounders v.
    Enserch E & C, Inc., 
    232 Ariz. 352
    , 354, ¶ 6 (2013). Arizona courts generally
    look to the Restatement (Second) of Conflict of Laws (1971)
    ("Restatement") to determine which state's substantive law applies to a
    claim. Burr v. Renewal Guar. Corp., 
    105 Ariz. 549
    , 550 (1970).
    ¶17          Swift has standard form contracts with roughly 1,000
    owner/operators that contain a provision requiring application of Arizona
    law to disputes arising under those contracts. Swift does not dispute that
    7
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    Arizona law governs those drivers' claims for breach of the duty of good
    faith and fair dealing. The choice-of-law issue is with Swift's roughly
    80,000 employee drivers, with whom Swift has no written contract. Swift
    hires and manages its employee drivers from terminals located in 26
    states, including Arizona. But the company's corporate headquarters is in
    Arizona, and it manages all of its payroll operations from within this state.
    Although Arizona recognizes a duty of good faith implied by law in every
    contract, Swift argues (and petitioners do not dispute) that at least 15 of
    the 26 states in which it has terminals either do not recognize a duty of
    good faith implied in an employment relationship or do not permit a
    claim for breach of the duty of good faith to be brought as an independent
    cause of action. Without pausing to analyze each of those states' laws on
    the question, we will assume for purposes of this analysis that Arizona's
    good-faith law actually conflicts with that in one or more of the other
    states.
    ¶18            When, as here, no statute or contract directs application of a
    particular state's law, the Restatement requires the court to consider
    various interests, including (as relevant here) "relevant policies of the
    forum," "the relevant policies of other interested states and the relative
    interests of those states in the determination of the particular issue," "the
    protection of justified expectations," and "certainty, predictability and
    uniformity of result." Restatement § 6(2). More specifically, in a contract
    claim such as this, when the parties have not selected a particular state
    law to govern their contract, the court should apply the local law of the
    state with the most significant relationship to the transaction and the
    parties. Restatement § 188(1); see Taylor v. Sec. Nat'l Bank, 
    20 Ariz. App. 504
    , 507 (1973).
    ¶19            Focusing on contract actions, Restatement § 188(2) instructs
    that the interest analysis to be pursued under Restatement § 6 should take
    into account the following:
    (a) the place of contracting,
    (b) the place of negotiation of the contract,
    (c) the place of performance,
    (d) the location of the subject matter of the contract, and
    (e) the domicil, residence, nationality, place of incorporation
    and place of business of the parties.
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    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    These contacts are to be evaluated according to their relative
    importance with respect to the particular issue.
    ¶20           In the case of a contract for services, such as the employment
    relationships at issue here, Restatement § 196 provides the analysis. See
    Restatement § 196 ("Contracts for the Rendition of Services"); 
    id. cmt. a
    (§
    196 applies, inter alia, to "contracts with servants, independent contractors
    and agents"); see also Restatement § 188(2)(c), (3). Under Restatement §
    196, unless another state has a more significant interest under § 6, the
    applicable law will be that of the state where the contract requires the
    services to be performed.
    ¶21            Significantly for purposes of this case, however, the force of
    the "place of performance" factor in a contract for services is limited to
    situations in which "the major portion of the services called for by the
    contract is to be rendered in a single state and it is possible to identify this
    state at the time the contract is made." Restatement § 196 cmt. a.3 That is
    not the situation with Swift's employee-drivers: By their nature, the
    services they perform are not restricted to any one state; drivers' work
    takes them across the country. As applicable here, the states through
    which Swift drivers pass lack a significant interest in the nature of those
    drivers' relationships with Swift; by the same token, a driver's temporary
    presence in any particular state is unlikely to create in that driver any
    reasonable expectations about applicable common-law duties of good
    faith and fair dealing arising out of contract. See Restatement § 6(2)(c)
    (respective interests of other states in determination of issue).
    ¶22          On the other hand, however, as relevant to the claim at issue,
    the acts by Swift that are at the center of petitioners' good-faith claim all
    were performed in Arizona, not in the many states through which its
    3      The comment continues:
    For this reason, the rule of this Section is unlikely to aid in
    the determination of the law governing contracts for
    employment aboard a ship sailing the high seas or to serve
    as a traveling salesman in two or more states. The same is
    true when the work called for by the contract can be done in
    any one of two or more states.
    Restatement § 196 cmt. a.
    9
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    employees drive. Regardless of the terminal out of which drivers work or
    where their trips take them, it was in Arizona that Swift allegedly decided
    to use the particular option within HHG of which petitioners complain
    and it is within Arizona that Swift prepares all of its drivers' payroll
    documents and issues their checks. Under these circumstances, the desire
    for certainty, predictability and uniformity of result favors application of
    Arizona law to the way in which Swift calculates what it will pay its
    drivers. See Restatement § 6(2)(f).
    ¶23           The hub-and-spoke relationship between Swift's corporate
    policies and payroll functions in Arizona and the other states in which its
    drivers live and through which they drive is similar to circumstances the
    Texas court of appeals addressed in Farmers Insurance Exchange v. Leonard,
    
    125 S.W.3d 55
    (Tex. App. 2003). In that case, insurance agents in 29 states
    brought a class action over a bonus system their employer implemented
    from its corporate headquarters in California. Over the employer's
    objections, the Texas court held California had the most significant interest
    in the matter because that was the location of the acts on which the class
    claims were based. "While each agent's home state has a great interest in
    having its law applied to disputes arising within its borders, the only
    actions in dispute here occurred in California." 
    Id. at 62.
    Where the
    insurance agents lived and worked was not material:
    The relevant performance for the purposes of this dispute is
    that of Farmers. . . . In the context of these bonus contracts,
    the actions of the agents in selling and maintaining various
    insurance products merely provides the measuring stick that
    Farmers uses in performing its obligations under the
    contract. Thus, the relevant place of performance of these
    bonus award contracts was California.
    
    Id. at 63-64.
    ¶24           As in Farmers, application of Arizona law serves the policies
    and interests of Arizona as the forum of the action and the state in which
    Swift chose to establish its business headquarters. See Restatement §
    6(2)(b). Arizona has a strong interest in enforcing the duty of good faith
    and fair dealing that our supreme court has held is implied by law in
    every employment contract. Wagenseller v. Scottsdale Mem'l Hosp., 
    147 Ariz. 370
    , 385 (1985); see Wells 
    Fargo, 201 Ariz. at 490
    , ¶ 59 (duty prevents
    one party from acting to deprive the other of "the benefits and
    entitlements of the agreement"). It would not serve that public policy if an
    employer based in Arizona owed that duty to some of its employees but
    10
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    not to others. See Restatement § 6(2)(b). By the same token, given the
    transitory nature of the drivers' worksites and the fact that Swift's payroll
    functions are performed solely from within Arizona, to the extent they
    thought about it, the parties were more likely to expect that Arizona law,
    not the laws of the many other states, would apply to how Swift
    calculated what it would pay its drivers. See Restatement § 6(2)(d)
    (protection of justified expectations); 
    Farmers, 125 S.W.3d at 62
    (reasonable
    to assume that parties thought that state in which bonuses were
    determined and from which bonuses were paid would control).
    ¶25            Swift argues its due-process rights require application of the
    laws of the states in which its drivers live (or in which Swift's terminals
    are located). The Due Process Clause, however, imposes only "modest
    restrictions on the application of forum law." Phillips Petroleum Co. v.
    Shutts, 
    472 U.S. 797
    , 818 (1985). "[F]or a State's substantive law to be
    selected in a constitutionally permissible manner, that State must have a
    significant contact or significant aggregation of contacts, creating state
    interests, such that choice of its law is neither arbitrary nor fundamentally
    unfair." 
    Id. (quoting Allstate
    Ins. Co. v. Hague, 
    449 U.S. 302
    , 312-13 (1981)).
    In Phillips, upon which Swift relies, the Supreme Court held the Kansas
    court erred by applying that state's contract law and equitable principles
    to a class action of 28,000 oil lessors even though 99 percent of the leases
    and 97 percent of the plaintiffs had no connection to that state. 
    Phillips, 472 U.S. at 814-15
    . No similar constitutional impediments prevent
    application of the law of Arizona, where Swift has its corporate
    headquarters and administers its payroll system, to its drivers' claim for
    breach of the duty of good faith and fair dealing based on how Swift pays
    them.
    11
    GARZA v. HON. GAMA/SWIFT
    Opinion of the Court
    CONCLUSION
    ¶26            For the reasons stated above, we accept jurisdiction and
    grant relief by reversing the order decertifying the class.
    :AA
    12