Muise v GPU Inc
(NOTE: This decision was approved by the court for publication.)
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-
MADELINE MUISE, individually
and as owner and operator of
Mediation and Therapy Associates,
on behalf of herself and all
other individuals and business
entities similarly situated,
GPU, INC., its subsidiaries,
agents, servants and/or
employees, and/or GPU Energy,
its agents, servants, and/or
GEORGE J. TZANNETAKIS, and
PAULA R. ZACCONE-TZANNETAKIS,
husband and wife, ANNA JACOUBS,
GERALD HOY and KATHLEEN HOY,
husband and wife, LLOYD VACCARELLI
and DOROTHY VACCARELLI, husband
and wife, FRANK CRACOLICI,
MARMOL, INC., d/b/a/ UMBERTO
RESTAURANT, WARREN ABRAHAMSEN
d/b/a FAIRWINDS CATERING, C.K.
SEAFOOD, INC., d/b/a BAYSHORE
FISHERY, CHARLES KURICA, JR. and
JANICE KURICA, husband and wife,
FOREIGN CARS OF MONMOUTH, INC.,
RAD ENTERPRISES, INC., d/b/a
KRAUSZER CONVENIENCE STORE,
and FAIR HAVEN HARDWARE, INC.,
on behalf of themselves and all
others similarly situated,
GPU, INC., and its subsidiary
companies, JERSEY CENTRAL POWER &
LIGHT COMPANY, GPU GENERATION,
INC., and GPU SERVICE, INC., all
d/b/a/ GPU ENERGY,
Argued: May 19, 2004 - Decided: July 8, 2004
Before Judges King, Lintner and Lisa.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, L-3587-99.
Bruce D. Greenberg argued the cause for appellants (Lite DePalma Greenberg & Rivas, Daller Greenberg & Dietrich, and Miller, Gaudio, Bowden & Arnette, attorneys for appellants; Mr. Greenberg and Gerhard P. Dietrich, on the brief).
Doublas S. Eakeley argued the cause for respondents (Lowenstein Sandler, attorneys; Mr. Eakeley, of counsel; Gavin J. Rooney, Nicole Bearce Albano and Stephen M. Plotnick, on the brief).
The opinion of the court was delivered by
Plaintiffs, electrical utility customers who experienced power outages on the 4th of July 1999 weekend brought this class action for damages for failure to provide service. They also asserted claims for consumer fraud, negligence and breach of contract. This is an interlocutory appeal on leave granted from the order of decertification of plaintiffs' class and the denial of their motion to admit expert testimony on class-wide damages. R. 2:2-3(b).
We affirm the decertification of the class and the rejection of the proffered proof of class-wide damages. We remand for certification of a more limited class of customers whose outages directly resulted from alleged negligence in delaying the replacement of transformers at the Red Bank substation.
Plaintiffs are residential and business customers of defendants GPU, Inc., and related affiliates (GPU or the utility), providers of electrical service. On July 20, 1999 the Tzannetakis plaintiffs filed a class action complaint in the Superior Court, Law Division, Monmouth County, alleging damages resulting from power failures in July 1999. On July 22, 1999 Muise filed a class action complaint in the same court against the same defendants, with similar allegations.
On August 4, 1999 Muise filed a motion for class certification. In September 1999 the Tzannetakis plaintiffs also moved for class certification. On October 8 consolidation was ordered. In an October 12, 1999 hearing Judge Chaiet granted plaintiffs' motions for class certification and denied defendants' motion to dismiss in favor of deferring to the primary jurisdiction of the Board of Public Utilities (the Board).
On January 11, 2000 we granted defendants' motion for leave to appeal from the denial of their motion to dismiss, "in order to determine the proper forum for [plaintiffs'] claims." Muise v. GPU, Inc., 332 N.J. Super. 140, 148 (App. Div. 2000). Defendants did not seek leave to appeal from the class certification because they wanted to develop the factual record. We concluded that the Law Division judge properly retained jurisdiction, rather than deferring to the Board. Id. at 146. We stated, however: "Future developments may require reference of certain issues to the Board, but not at present." Ibid.
At a hearing on May 24, 2001 Judge Uhrmacher denied defendants' motion to decertify the class. On January 28, 2002 she heard arguments on defendants' motion for partial summary judgment. In an opinion issued on August 14, 2002 Judge Uhrmacher granted defendants' motion for partial summary judgment, dismissing with prejudice plaintiffs' claims for fraud, negligent misrepresentation, violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20, and strict product liability.
On November 8, 2002 defendants filed a renewed motion to decertify the class. On December 17, 2002 plaintiffs filed a notice of motion for a declaration of admissibility of their experts' class-wide damage model. On November 10, 2003 Judge Perri issued her opinion denying plaintiffs' motion to permit expert testimony on their proposed survey model for proof of class-wide damages, and decertifying the class. On January 5, 2004 we granted plaintiffs' motion for leave to appeal this ruling.
Plaintiffs alleged damages resulting from electrical power interruptions, deficiencies or failure, and blackouts without notice, during a heat wave from July 4-10, 1999. The Tzannetakis plaintiffs specified damages including spoilage of food; damage to computers, appliances and other electronic equipment; inconvenience, emotional and physical pain and suffering and loss of use of electrically-powered equipment; loss of business income; and other consequential and incidental damages including the cost of alternative sources of power.
Planning engineer Andrew Zulkosky for GPU said it provides electrical service to about one million customers in two non-contiguous regions of New Jersey, separated by a territory served by Public Service Electric & Gas Company (PSE&G). The North Region includes all or part of Sussex, Morris, Passaic, Essex, Warren, Hunterdon, Union, Somerset and Mercer Counties, and the Central Region includes all or part of Monmouth, Middlesex, Ocean, Mercer and Burlington Counties.
The electrical infrastructure has three main levels: the interstate transmission system (originating at the power plants), the subtransmission system (here, two regions, functioning to reduce voltage and circulate power through a series of looped substations), and local distribution systems (here, more than 1000 circuits, functioning to further reduce voltage and distribute power radially to a particular geographic area). Voltage is again reduced at over 160,000 pole-top or pad-mounted transformers in the two energy regions before power is fed from each to a small number of customers (usually three to ten).
All levels of the electrical infrastructure are equipped with devices to protect individuals from harm and to protect equipment from damage; examples are circuit breakers, protective relays and fuses. Some of the devices operate automatically and some are used by system operators to avoid overloads when necessary to protect the system. Planning engineers attempt to forecast system conditions several years ahead to assure sufficient capacity. In a typical instance of widespread service interruptions, usually caused by severe weather, there are numerous "trouble locations" where those interruptions occur.
According to the Board, during the week of July 4, 1999 hot weather combined with the holiday created unprecedented demand for power. Defendants concede that during the relevant period about 250,000 of its customers lost power for periods ranging from a few minutes to more than fifteen hours. Defendants attribute these interruptions to at least forty-four distinct sources, including equipment failures, deliberate circuit shut-offs to permit access for maintenance or fire fighting, the triggering of protective devices, lightning and automobile accidents.
The parties do not seem to dispute the Law Division judge's synopsis of the power outages:
The evidence before the court, which is voluminous and will only be set forth here as a sampling, indicates that the first significant power outage occurred on July 4, 1999, with a "phase" or burn-out of a line in the Mantoloking substation which interrupted power to the customers served by that substation. Within the next 12-hour period, line repairs were required in Manasquan, which required the system operators to de-energize the system while the work was done. At the Cedar Bridge substation, power had to be interrupted for work to be performed on a messenger wire. On the evening of July 6, 1999, the operation of protective devices at the Manasquan substation affected 1,500 customers.
In the late evening hours of July 5, 1999, a bushing on the Bank 2 transformer at the Red Bank substation failed. The loss of this transformer, coupled with the unusually high demand occasioned by the heat, placed additional stress on the other transformers at the substation. On July 6, 1999, the Bank 1 transformer began overheating and service was manually interrupted to several distribution circuits in order to lessen the load on the transformers. These manual interruptions affected approximately 10,000 customers for periods ranging from 2.5 hours to 8 hours. On July 6, 1999, the Bank 8 transformer also overheated, and the Bank 7 transformer was automatically taken out of service by protective devices. These events affected approximately 70,000 customers.
During this time, GPU also implemented rolling blackouts in order to limit the load on Banks 7 and 8. The rolling blackouts continued through July 7, 1999 and affected approximately 46,000 customers. Typical service interruptions lasted for approximately four hours. On July 8, 1999, rolling blackouts continued but only lasted for 2 hours. At approximately 1:30 p.m. on July 8, 1999, the rolling blackouts ceased when there was a break in the heat and the load on the transformers lessened, allowing the two transformers to handle the load.
Other service interruptions occurred throughout the North and Central regions during this time. GPU has identified no less than 38 instances of entire circuit interruptions, the reasons for which included regulator failure, circuit breaker failure, underground feeder cable failure, line burn outs, operation of over-current relay protectors, circuit de-energization, tripping of transformer breakers and car-pole accidents. Partial interruptions also resulted from causes such as animal or bird contact with electrical devices, digging activity, lightning strikes, general pole damage due to rotting, termites, woodpecker holes, age, or corrosion, insulation flashover or insulation breakdown, overvoltage, undervoltage, emergency load shedding and electrical surges (which occur when de-energized lines are suddenly re-energized). Additionally, GPU identified approximately 350 pole-top transformers that experienced interruptions during the week in question, affecting approximately 3,700 customers.
According to a report by plaintiffs' technical experts, Exponent Failure Analysis Associates (Exponent), GPU recognized before July 1999 that it was operating with a deficiency in reactive power. The power outages were the result of GPU's inability to comply with its own planning criteria, and deferring upgrades for budget reasons. This deferral of projects to meet forecast demand caused low voltage, overloads and equipment failures.
Plaintiffs assert that GPU's 1998 decision to defer installation of two larger capacity transformers at the Red Bank substation triggered the worst outages. According to Exponent, the vast majority of outages beginning at 1:22 p.m. on July 6 were related to events at the Red Bank substation. That included all the planned interruptions (rolling blackouts). A GPU internal analysis stated that interruptions resulting from a fire on the number 2 transformer at the Red Bank substation, overheating on numbers 1 and 8, and automatic shutdown of number 7, affected about 100,000 customers.
The Board determined that the majority of outages were concentrated in coastal Monmouth and Ocean Counties, "primarily due to the failure of two Red Bank Substation transformer bushings and associated rolling blackouts." It determined that at Red Bank, two bushings [insulating parts] failed independently, one on July 5 and one on July 7. According to GPU, although a series of equipment failures, deliberate load reductions and protective relay trippings occurred at Red Bank within a few days, they had different causes and affected different groups of customers for varying durations.
The October 18, 1999 order certifying the class defined the class as follows:
All customers of GPU Energy in New Jersey including, but not limited to, customers in Monmouth and Ocean Counties, and all dependents, tenants, employees and other intended beneficiaries of customers of GPU Energy in New Jersey including, but not limited to, Monmouth and Ocean Counties, who suffered damages as a result of the failure of GPU Energy to deliver electricity during the week beginning Sunday, July 4, 1999. The officers, directors and agents of the defendants are specifically excluded from the class. Any persons with claims for personal injury arising out of the power outages are excluded from the class.
At a case management conference on October 18, 1999, Judge Chaiet approved the provision of a notice of claim to class members, which was inserted in customers' bills and also published in the Newark Star Ledger and the Asbury Park Press. About 2500 claims were returned, ranging in amount from $1 to $150,000. Plaintiffs do not want to rely on individual claims, claiming it is unrealistic to expect thousands of class members to testify to their relatively small damages years after the event. Accordingly, they retained two experts, engineers Roy Billinton and Garry Wacker, to estimate class-wide damages.
Those experts estimated damages at $62 million. Billinton and Wacker used existing surveys of electrical customers in California and Canada asked to value hypothetical power outages. The experts relied primarily on four cost-of-interruption studies, two Pacific Gas and Electric (PG&E) studies and two of their own, in which a sample population was asked to state what their expected costs would be if an outage occurred under certain circumstances.
Billinton and Wacker adapted this data to New Jersey in order to "estimate customer damages resulting from GPU services interruptions from July 4 to 10, 1999." Billinton and Wacker explained in their report that customer surveys had "become widely accepted as the most suitable means to obtain accurate customer interruption cost data." "Typical applications of reliability worth data [estimated cost of unreliability] involve cost-benefit analyses to assist system planning decisions, justify new infrastructure, or support changes in electricity tariff structures." The actual losses due to service interruptions "are considered as a lower bound estimate or surrogate of reliability worth."
In several of their own papers on survey estimates of interruption costs, Billinton and Wacker listed some limitations of such survey results. In one paper, they cautioned that the results were predictions and estimations based on survey scenarios respondents had not experienced, and actual actions and costs might be different. In another they cautioned, "Limitations included here are: that the estimates are customer predictions of their losses or responses; that most respondents have little experience with longer interruptions; and costs of interruptions are likely socio-economic/demographic/geography specific; etc." In another they admonished:
The customer damage [cost of interruption] function is rather uncertain and incomplete for many reasons, most notable of which are the considerable variation of customer losses with each customer category and the inherent problem of combining widely varying components into a composite function. Any applications of the customer damage function are therefore similarly limited.
The authors also cautioned that "it would be necessary to generate a composite customer damage function for each region of a utility's service area or other service areas as required to undertake comparisons." "It is highly questionable, however, to make comparisons between systems or to determine the costs associated with those effective minutes of interruption." They concluded that the composite customer damage function, despite its variables and uncertainties, was "the most readily available tool for determining monetary estimates of reliability worth." "More credible values would be determined from customer cost data which are specific to the situation being studied."
Billinton knew of two studies that had used reliability worth assessment methodology to measure customer losses during an actual power interruption. A 1991 study in Norway had conducted a survey to assess the aggregate damages to customers of a blackout. An earlier Swedish study applied cost-of-interruption data to estimate the total national cost of a 1983 blackout. Neither was done in a litigation context or even for the purpose of measuring individual damages and compensating customers.
Plaintiffs provided certifications from two other experts, population surveyor Michael J. Sullivan and engineer Douglas M. Logan. In his certification dated January 3, 2001 Sullivan said, "It is my opinion that reliable interruption cost estimates can be developed using information obtained from published literature and other sources." He explained, "Outage cost surveys are designed to accurately measure the average magnitude of the economic losses groups of customers, similar to one another in the way they use electricity, experience as a result of electric service interruptions." "Electric utilities use average interruption cost estimates (obtained from population surveys) to evaluate the benefits that can be obtained from investments in service reliability. In effect, they use avoided customer interruption costs to identify the cost effectiveness of reliability improvements."
Logan agreed with the statements of Billinton, Wacker and Sullivan about "the applicability of customer interruption costs obtained by surveys to determining the economic damages incurred by classes of customers resulting from power outages." He noted that the original purpose of those surveys was to rationalize reliability criteria and capacity pricing. Interruption costs had been used in the United States for generation planning, for tariff design and in investment decisions for transmission and distribution systems. He stated that interruption cost surveys "may be used as the basis for reliable estimates of the interruption costs for any other utility if there is a reasonable correspondence between the two utilities in terms of climate, economy, and demographics."
William Desvousges, an expert in the valuation of benefits and costs, submitted a report for defendants. He concluded that plaintiffs' methodology was improperly applied here because the value of reliability, even if assumed as accurately measured by these hypothetical studies, was not a reasonable proxy for actual damages. Moreover, the surveys used did not account for differences among customers; the customer composition and circumstances, such as season, were not comparable; and the studies had numerous methodological flaws.
Desvousges testified in deposition that it might be valid to apply data from existing surveys to another similar area, depending on the purpose of the transfer and the level of accuracy needed. It could be valid, for example, in a benefit-cost analysis or a natural resource damage assessment for purposes of settlement. Desvousges had used the benefits transfer method for the utility industry in one context only, in measuring potential environmental costs associated with utility supply plants. He conceded that the benefits transfer method might have been valid here if the surveys used by Billinton and Wacker had met the necessary criteria of soundness and similarity, but they did not. However, he qualified it by adding that such a benefits transfer method would have yielded only a "starting point," because any transfer has error associated with it.
When granting defendants' motion for decertification, Judge Perri found, "While not dispositive on the issue of decertification, the dismissal of the consumer fraud claims in this matter materially changed both the complexion of the case and the preference for certification which was present at the time Judge Chaiet decided the initial motion for certification." Judge Perri explained that much of the law on the liberal construction of the class action rule was made in the context of consumer fraud actions, making it difficult to determine whether it was class actions, or consumer fraud actions, that actually deserved most of the credit. Moreover, the loss of the consumer fraud claims rendered plaintiffs' damages proofs more difficult. In addition, the consumer fraud claims provided a "cohesive, unifying effect" that contributed to the presence of the requirement for predominance of common issues.
Judge Perri stated that a canvass of other jurisdictions showed that, where class action status was sought for interruption of power supplies, courts had "resoundingly rejected the class action format." She found that the record showed no single catastrophic event that caused the outages, but rather, hundreds of "trouble locations" involving different equipment and distinct factual scenarios. "With the dismissal of the consumer fraud claims, plaintiffs are left with what can best be described as a mass tort action sounding in negligence and breach of contract." Such actions lack class cohesion, unless a single event is the common cause. She rejected plaintiffs' theory that "lack of preparedness" qualified for that exception, noting "[T]here is no recognized cause of action in New Jersey for 'lack of preparedness'." She concluded that there was no common nucleus of proof where plaintiffs would have to prove that each separate power interruption was attributable to a failure of GPU to properly allocate its resources. Therefore, class certification was not the superior method for resolving the issues.
Even if plaintiffs could maintain class status based on their theory of liability, there remained the issue of plaintiffs' effort to prove damages on a class-wide basis. Judge Perri rejected the premise that interruption of power per se constituted loss of use, and therefore each member of the class must have sustained damage; plaintiffs would have to prove the fact of damage for each class member. For example, a shopkeeper whose store was closed, or a homeowner not in residence, might have suffered no adverse consequences despite losing power. For those plaintiffs who could prove the fact of actual damage, the nature and degree of their losses would vary greatly. The disparity among commercial customers would be even greater than that among residential customers.
Judge Perri considered the damages model proposed by plaintiffs, based on consumer surveys conducted in California and Canada on projected harm caused by hypothetical outages. She denied plaintiffs' motion to admit the testimony of plaintiffs' two experts in the field of evaluating interruption costs of electric service, Billinton and Wacker. The proposed survey method for calculating damages had been used only in the context of infrastructure planning. Customer surveys had never been used for the purpose of awarding litigation damages, and never used to provide compensation following an actual power outage; they had been used to calculate theoretical losses sustained by customers after an actual outage only in two isolated instances, in Norway and Sweden. Such survey results had not been taken from the customers of one utility company and applied to a different one.
She found the report of Desvousges persuasive, though not dispositive. The studies on which plaintiffs' experts relied differed in location, sectors, duration of outages, season, day of the week and time of day. More important, the survey method focused on the value that customers placed on the reliability of their electric service, not on actual damages possibly suffered as a result of its interruption. Also, it used averages, thus failing to take into consideration individual differences among class members.
Judge Perri observed that there is a preference for individualized proof of damages. She did not find that individualized proofs were always required, but said, "A court should only depart from this general rule where class-wide damages can be calculated by a reliable mathematical formula." She added, "Even then, a statistical model estimating the total amount of damages should not be substituted for actual proof unless it can be presumed that all members of the class suffered damage."
She concluded that the damages model proposed by plaintiffs, a prediction of losses during a hypothetical power outage, could not serve as a substitute for proof of actual damages. Judge Perri added, "No mathematical formula could accurately deduce each class member's fact-of-damage nor can it determine the actual damages sustained during outages which varied as to length and time of day." She thought the model offered by plaintiffs was "too flawed to produce an accurate representation of damages."
Judge Perri also rejected plaintiffs' proposal that the fluid recovery rule applied to relieve them of their obligation to prove actual damages. The remedy of fluid recovery is applied in a class action only when funds from an award are distributed to non-class members because the identities of class members are not known. Here, the names and addresses of GPU customers, along with the precise length of each service interruption, were readily available.
Standard of Review
Plaintiffs argue the judge erred by applying the standard for the initial determination of class certification instead of a more stringent standard allegedly applicable to decertification. Defendants respond that the judge acted within her discretionary authority to grant their decertification motion. We conclude that the judge applied the correct discretionary standard.
We review a determination of class certification for abuse of discretion. See In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 436-37 (1983) (applying that standard). Class certification is governed by R. 4:32-1, which provides:
(a) General Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of paragraph (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against individual members of the class would create a risk either of (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or (B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The factors pertinent to the findings include: first, the interest of members of the class in individually controlling the prosecution or defense of separate actions; second, the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; third, the difficulties likely to be encountered in the management of a class action.
Class actions "should be liberally allowed where consumers are attempting to redress a common grievance under circumstances that would make individual actions uneconomical to pursue." Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. 31, 45 (App. Div. 2000). An applicant must establish the threshold requirements of numerosity, commonality, typicality and adequacy of representation set forth in subpart (a) of R. 4:32-1, and also satisfy one of the three alternative requirements set forth in subpart (b). Saldana v. City of Camden, 252 N.J. Super. 188, 193 (App. Div. 1991). Under R. 4:32-1(b)(3), the party seeking certification must demonstrate both predominance of the common issues and superiority of a class action over other trial techniques. Id. at 196.
When granting class certification here, Judge Chaiet found that the R. 4:32-1(a) requirements of numerosity, commonality, typicality and adequacy of representation were satisfied. He also found that plaintiffs satisfied the requirements of R. 4:32-1(b)(3). He found a predominance of common, over individual, questions of law and fact, because, even though there were claims of fraud, the surrounding issue was defendants' negligence in failing to supply electricity despite knowledge that peak demand periods would occur. He added that individual actions would be expensive.
Rule 4:32-2 controls the determination of maintainability of class actions, notice, judgments, and partial class actions. The part of that rule pertinent to decertification is R. 4:32-2(a), which provides:
Order Determining Maintainability. As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditioned, and may be altered or amended before the decision on the merits.
Judge Chaiet expressly anticipated the possibility of decertification when he granted certification, saying:
[T]he Court is not married to the concept of a class action in this case. And I will closely monitor it to see that it is accomplishing the appropriate goal of the class action suit to minimize expenses and maximize participation to fairly resolve a widespread problem. The Court will not hesitate to curtail this action under Rule 4:32-2(a) if the goals are not being met.
New Jersey courts have recognized that, under R. 4:32, in an appropriate case, a trial court can decertify a class. In re Cadillac, 93 N.J. at 437. Class certification decisions rest in the sound discretion of the trial court. See id. at 436 (class action certification reviewed for an abuse of discretion). However, the parties do not dispute that, as Judge Perri noted, the standard applied on a motion to decertify a class has never been directly addressed in New Jersey.
"Our class-action rule, R. 4:32, is a replica of Rule 23 of the Federal Rules of Civil Procedure as amended in 1966." Riley v. New Rapids Carpet Ctr., 61 N.J. 218, 228 (1972). Construction of the federal rule may be considered helpful, if not persuasive, authority. See Saldana v. City of Camden, 252 N.J. Super. at 194 n.1. Rule 4:32-2 tracks Rule 23(c) of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 23(c)(1) provides: "As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits." The content of the federal rule matches that of R. 4:32-2(a) except for New Jersey's use of "conditioned" instead of "conditional" and the addition of the title "Order Determining Maintainability."
A party seeking class certification has the burden of proof. Davis v. Romney, 490 F.2d 1360, 1366 (3d Cir. 1974). The burden of persuasion remains with the party which desires to maintain certification. Smith v. Armstrong, 968 F. Supp. 50, 53 (D. Conn. 1997).
After a judge enters a certification order, "the judge remains free to modify it in the light of subsequent developments in the litigation," because conformance to the class action rule is indispensable. General Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160, 102 S. Ct. 2364, 2372, 72 L. Ed. 2d 740, 752 (1982). A certification order is "inherently tentative," particularly before notice is sent to class members. Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 n.11, 98 S. Ct. 2454, 2458 n.11, 57 L. Ed.2d 351, 358 n.11 (1978). Plaintiffs do point out that numerous cases from other jurisdictions place on a party seeking to decertify a class a heavy burden to produce evidence of changed circumstances or new facts or law.
For example, in Slaven v. BP America, Inc., 190 F.R.D. 649, 651 (C.D. Cal. 2000), the court stated that because a party seeking class certification bears the burden of demonstrating that the proposed class satisfies the elements of the class action rule, a party seeking decertification should bear the burden of demonstrating that it does not. The Slaven court characterized the defendants' burden in urging decertification as "relatively heavy, since 'doubts regarding the propriety of class certification should be resolved in favor of certification.'" Ibid. (quoting Groover v. Michelin North Amer., Inc., 187 F.R.D. 662, 670 (M.D. Ala. 1999)). However, that court also cautioned that a motion for decertification should not be treated like a motion for reconsideration; that is, it should not be entertained only reluctantly. Id. at 651-52. The court emphasized that the federal class action rule itself provided for periodic reassessment of class rulings. Id. at 652.
Similarly, in Gordon v. Hunt, 117 F.R.D. 58, 61 (S.D.N.Y. 1987), the court concluded that " defendants bear a heavy burden to prove the necessity of either the drastic step of decertification or the less draconian but still serious step of limiting the scope of the class." In Doe v. Karadzic, 192 F.R.D. 133, 137 n.6 (S.D.N.Y. 2000), the court distinguished Gordon v. Hunt because in Karadzic, a group of dissatisfied plaintiffs, not the defendants, sought decertification; moreover, unlike in Gordon v. Hunt, no massive effort had been undertaken to identify and notify potential plaintiffs. Karadzic nevertheless held that a court may not disturb its prior class certification absent "'some significant intervening event'" or "'a showing of compelling reasons to reexamine the question.'" Id. at 136-37 (quoting Langley v. Coughlin, 715 F. Supp. 522, 533 (S.D.N.Y. 1989), appeal dismissed, 888 F.2d 252 (2d Cir. 1989), and Wilder v. Bernstein, 645 F. Supp. 1292, 1311-12 (S.D.N.Y.), aff'd, 848 F.2d 1338 (2d Cir. 1988)).
In contrast, in Ellis v. Elgin Riverboat Resort, 217 F.R.D. 415, 419 (N.D. Ill. 2003), the court concluded that the party seeking certification bore the burden of producing evidence demonstrating that the class action elements were satisfied on a motion to decertify as well as on the initial motion for certification. Accord Chisolm v. TranSouth Financial Corp., 194 F.R.D. 538, 544, 548 n.5 (E.D. Va. 2000) (same legal standard for decertification motion as for class certification motion; disagreeing with Langley v. Coughlin, 715 F. Supp. at 552). Though the Ellis court reached a conclusion contrary to that of the Slaven court concerning the burden of producing evidence, like the Slaven court it relied on the provision of the class action rule assigning to the court the continuing obligation to review the propriety of a class action, and the "inherently tentative" nature of class certification. Ellis v. Elgin Riverboat Resort, 217 F.R.D. at 419 (quoting Coopers & Lybrand v. Livesay, 437 U.S. at 469 n.11, 98 S. Ct. at 2458 n.11, 57 L. Ed. 2d at 358 n.11).
Here, the judge did not expressly place on either party the burden of producing evidence, but invoked the principle of Lusky v. Capasso Bros., 118 N.J. Super. 369, 373 (App. Div.), certif. denied, 60 N.J. 466 (1972), that "the class action rule should be liberally construed, and such an action should be permitted unless there is a clear showing that it is inappropriate or improper." In effect, the judge placed on defendants the burden of producing evidence that class treatment was inappropriate. The judge here said, "If, upon considering the record in accordance with the liberal construction required under Lusky, the court finds that the criteria for and goals of class certification are no longer being met, the motion for decertification should be granted." Plaintiffs do not convince us that this standard was incorrect.
Reliance on Dismissal of CFA claims
Plaintiffs next argue that the judge erred by finding the dismissal of the CFA claims had changed the complexion of the case and removed a preference for class certification. To support her view that dismissal of the CFA claims was significant, Judge Perri cited Carroll v. Cellco Partnership, 313 N.J. Super. 488, 498 (App. Div. 1998). There we pointed out that, in New Jersey, class actions are liberally construed and permitted absent a clear showing of impropriety; we added, "This preference for class certification applies especially for adjudication of multiple consumer-fraud claims." Ibid.
Judge Perri correctly observed that proof of damage in CFA cases is easier than proof of damage in negligence cases. To establish a cause of action for consumer fraud, a plaintiff need show only that a defendant engaged in a practice unlawful under the CFA that resulted in an "ascertainable loss of moneys or property, real or personal." N.J.S.A. 56:8-19. In contrast, to establish a cause of action for negligence, a plaintiff must prove breach of a duty of care and actual damages sustained as a proximate cause of the breach. Weinberg v. Dinger, 106 N.J. 469, 484 (1987).
Plaintiffs assert that Judge Chaiet did not expressly rely on the CFA claims, but granted certification based on "negligence issues." We agree. Judge Chaiet stated:
The Court is satisfied that the common issues of fact and law do exist. This is primarily a case in which there is a claim that GPU through negligence failed to supply the needs of its customers. In Red Bank the issue concerns the two generators that failed. In the other towns the issue concerns the transformers, but the overriding issue is GPU's lack of preparedness to meet the demand.
However, the absence of express reliance thereon does not negate the significance of the CFA claims.
Plaintiffs also contend that Judge Chaiet's citations to CFA cases did not mean that CFA claims were necessary to maintain class certification. Again, we agree. As plaintiffs point out, the principle that the class action rule should be liberally construed has been applied in cases without statutory consumer fraud claims. E.g., Saldana v. City of Camden, 252 N.J. Super. at 196 (accord in negligence action); Lusky v. Capasso Bros., 118 N.J. Super. at 373 (stating principle in contract and tort action). However, there is an enhanced preference for class actions in consumer fraud cases. See Strawn v. Canuso, 140 N.J. 43, 68 (1995) ("[A] class action is the superior method for adjudication of consumer-fraud claims."). But Judge Perri did not conclude that the loss of the CFA claims was dispositive per se on the issue of decertification.
Plaintiffs also contend that, assuming there is a special preference for class action status accorded consumer fraud cases, certification is warranted here. That is because this case, even stripped of its statutory CFA cause of action, involves allegations of consumer fraud. The term "consumer fraud" is ordinarily used to refer to an action under the CFA, in contrast to common law fraud. E.g., Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. at 45 (comparing and contrasting the two). Nevertheless, in In re Cadillac, 93 N.J. at 435, the Court said it was "mindful that the class action rule should be construed liberally in a case involving allegations of consumer fraud," without specifying a statutory cause of action.
The Cadillac Court affirmed the certification of a statewide class of purchasers of automobiles with a particular type of engine, where the causes of action included breach of express and implied warranties, negligence, strict liability, fraud, misrepresentation, violation of the federal Magnuson-Moss Warranty Act, and refusal to accept rescission. In re Cadillac, 93 N.J. at 423, 426-30. The Supreme Court stated, "Certification of a class action should not be denied because of the underlying theory on which the action is predicated." Id. at 426.
None of plaintiffs' arguments convince us that Judge Perri erred in her finding that dismissal of the CFA claims were significant. The Supreme Court, while cautioning that certification of a class action should not be denied based on the underlying legal theory, also recognized that "even the identification of the issues to determine the suitability of an action for certification requires some preliminary analysis." In re Cadillac, 93 N.J. at 426. As we have noted, Judge Perri expressly found not that the loss of a legal theory was dispositive, but that its loss weighed against a class action preference and altered plaintiffs' burden to prove damages.
In Riley v. New Rapids Carpet Center, 61 N.J. at 228, a consumer fraud case, the Court cautioned that "a court should be slow to hold that a suit may not proceed as a class action." Although R. 4:32-2(a) mandates the determination of the maintenance of a class action "as soon as practicable" after commencement of the action, especially in a CFA case, plaintiffs may have difficulty early in the proceedings demonstrating that the elements are satisfied. Ibid. Here, however, there has been no problem posed of a hasty rejection of the class.
Lack of Predominance
Plaintiffs next argue that the judge erred by finding a lack of predominance of common issues. Defendants respond that the court correctly found no single event that would have caused the alleged harm and correctly found that individual issues predominated on causation and on proof of injury. The need for individual damages calculations was not alone dispositive. We conclude that decertification was justified by the predominance of individual causation issues. However, certification is appropriate for a more limited class of customers affected by the failures of equipment at the Red Bank substation.
Judge Perri did not expressly find that plaintiffs had satisfied the threshold requirements of numerosity, commonality, typicality and adequacy of representation set forth in R. 4:32-1(a), but we agree with plaintiffs that she impliedly so found. Judge Chaiet had so found. We also agree that Judge Perri concluded that plaintiffs failed to satisfy only the requirement of R. 4:32-1(b)(3), for predominance of common questions of law or fact and the superiority of a class action. The predominance requirement is more demanding than the commonality requirement. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623-24, 117 S. Ct. 2231, 2250, 138 L. Ed.2d 689, 713 (1997) (asbestos claims). Plaintiffs do not argue that they are entitled to maintain the action as a class action because, in the alternative, they satisfied the requirements of either subpart (1) or (2) of R. 4:32-1(b). Absent those alternatives, failure to satisfy the predominance requirement is fatal.
Plaintiffs contend that Judge Perri, viewing the case as a mass tort, wrongly concluded that they failed to prove a single event that caused their harm. They identify the single event as "the failure of GPU's interconnected delivery system to meet the foreseen demand triggered by the weather." Plaintiffs also contend that, even without a single event, it was sufficient that the outages had a common cause, which was "GPU's decision to cut projects necessary to meet anticipated load." They find defendants' focus on the direct causes of outages to particular customers, such as equipment failures, too narrow.
Judge Perri found that "there is no recognized cause of action in New Jersey for 'lack of preparedness'." But plaintiffs assert that such a theory was recognized in Weinberg v. Dinger, 106 N.J. 469. We disagree. In Weinberg, the Court abrogated the longstanding immunity of water companies for losses caused by negligent failure to maintain adequate water pressure for fire fighting, except with respect to subrogation claims from insurers. Id. at 492. That did not commit the Court to the recognition of a theory that "lack of preparedness" constituted a single event as the alleged cause of a mass tort.
Here, the judge found, "With the dismissal of the consumer fraud claims, plaintiffs are left with what can best be described as a mass tort action sounding in negligence and breach of contract." The judge relied on Amchem Products, Inc. v. Windsor, 521 U.S. at 625, 117 S. Ct. at 2250, 138 L. Ed. 2d at 713-14, for the proposition that mass accident cases are ordinarily not appropriate for class treatment because they "are likely to present 'significant questions, not only of damages but of liability and defenses of liability, . . . affecting the individuals in different ways.'" See footnote 1
In the portion of Amchem quoted by Judge Perri, the Supreme Court was quoting the Advisory Committee for the 1 966 Revision of Rule 23. However, the Amchem Court prefaced the quotation from the Committee: "Even mass tort cases arising from a common cause or disaster may, depending upon the circumstances, satisfy the predominance requirement." Ibid., 117 S. Ct. at 2250, 138 L. Ed 2d at 713. It cautioned that, despite that 1966 comment, the text of Rule 23 did not "categorically exclude mass tort cases from class certification, and District Courts, since the late 1970's, have been certifying such cases in increasing number." Ibid., 117 S. Ct. at 2250, 138 L. Ed. 2d at 714.
Plaintiffs complain that by omitting these statements, the court "dramatically misquot[ed]" the Supreme Court case. We disagree. The judge did not misquote or even mischaracterize, though she did not set forth the entire reasoning of the Supreme Court. Plaintiffs themselves omit a subsequent sentence concerning the trend toward certifying class actions in mass tort cases: " The Committee's warning, however, continues to call for caution when individual stakes are high and disparities among class members great." Ibid., 117 S. Ct. at 2250, 138 L. Ed. 2d at 714. In Amchem, the Court affirmed the decertification of a class for failure to satisfy the predominance requirement of Fed. R. Civ. P. 23(b)(3). The judge's reliance on Amchem was not misplaced.
Plaintiffs distinguish Saldana, 252 N.J. Super. 188, on which Judge Perri also relied. In Saldana, owners of properties damaged by fires started in abandoned buildings owned by the City of Camden sued the city and certain city officials and sought class certification. Id. at 190. The plaintiffs' common theory was that the defendants had failed to implement or administer a policy to adequately regulate the city-owned buildings. Id. at 193. Judge Perri analogized to the theory of negligence alleged by plaintiffs here.
However, in Saldana, the court found the issues of liability, causation and damages would require individualized treatment, because "over 80 privately-owned dwellings were damaged by 61 separate fires over a six-year period," and proof of the causes and damages would be fact-specific, including the possible presence of intervening causes. Id. at 197. Judge Perri found a similar variation in the proofs required here, because plaintiffs must prove that each power interruption resulted from GPU's failure to properly allocate its resources. Plaintiffs distinguish Saldana because GPU had sole control of its system, and the outages occurred "during a common weather event over a single period of a few days." However, the clear evidence showed that there were multiple causes for the power interruptions in various areas. GPU could be held liable for all of them only if the court accepted plaintiffs' theory that GPU's policy leading to a lack of preparedness itself constituted negligence, and that negligence was the proximate cause of all outages.
Plaintiffs rely on Fox v. Cheminova, Inc., 213 F.R.D. 113 (E.D.N.Y. 2003), in which the court certified a class of lobstermen alleging that use of pesticides in September and October 1999 to control mosquitoes, carried into Long Island Sound by runoff hastened by a tropical storm, had caused lobster mortality. There the defendants argued that certification was inappropriate in a mass tort case, relying on Amchem, 521 U.S. 591, 117 S. Ct. 2231, 138 L. Ed.2d 689. The court distinguished Amchem factually and found predominance, agreeing with the plaintiffs that the alleged damage had occurred within a short time frame; all potential class members suffered losses resulting from the die-off; and the causal mechanism, pesticide exposure, was the same for all. 213 F.R.D. at 129. The court found the die-off analogous to a single catastrophic event, like an airplane crash, and noted that specific issues of causation should be left for trial. Ibid.
Plaintiffs contend that similarly here, common liability issues predominate because the breach of contract claims are based on a common tariff and negligence claims are based on the common allegation that all outages were caused by GPU's system-wide failure to meet the increased forecast demand. Plaintiffs focus on defendants' duty to maintain the power supply. This does not answer Judge Perri's concern that there was not one outage, but many, whose direct causes were admittedly numerous. Plaintiffs' theory of common liability rests on their premise that a general lack of preparedness itself constituted negligence and breach of contract, a premise that the judge correctly rejected.
Plaintiffs also contend Judge Perri wrongly concluded that individual damages issues would predominate over common ones. She noted that the nature and degree of the losses of proposed class members would vary greatly. We agree with plaintiffs that that this likely variation would not necessarily preclude certification. Plaintiffs point to Delgozzo v. Kenny, 266 N.J. Super. 169, 190 (App. Div. 1993), in which the court said that, if common questions of liability predominated, a need for individual damages calculations would not preclude class action certification. See also Central Power & Light Co. v. City of San Juan, 962 S.W.2d 602, 610 (Tex. App. 1998) ("[C]lass certification will not be prevented merely because damages must be determined separately for each member of the class.") Here, however, the court reasonably found that common questions of liability did not predominate.
The court found that, among residential customers, damages varied not only in degree, depending on the length of interruption of power, but also in kind, depending on individual circumstances; among commercial customers the disparities might be even greater. Plaintiffs proposed to overcome the problem of individualized proof of damages by offering class-wide proof, but the court rejected that approach, as we will discuss.
The parties discuss several cases from other jurisdictions where utilities customers attempted to bring class actions against a provider. When noting that other jurisdictions had resoundingly rejected the class action format for suits based on interruption of power supplies, Judge Perri cited three Louisiana cases and one Texas case. In Brown v. New Orleans Public Service, Inc., 506 So.2d 621 (La. Ct. App.), writ denied, 508 So.2d 67 (La. 1987), utility customers sued for power interruptions during a cold snap. The Louisiana appellate court reversed class certification, explaining that, although the alleged negligence was common to all claims, there were too many individual differences in proof of causation and the availability of defenses like comparative negligence, as well as the amount of damages, to warrant a finding of predominance of common facts and issues. Id. at 623.
In LaFleur v. Entergy, Inc., 737 So.2d 761 (La. Ct. App. 1998), another winter storm power interruption case where the plaintiffs alleged negligent failure to maintain the power system, the appellate court affirmed the trial court determination that the proposed class did not meet the predominance requirement. Although an ice storm ultimately caused power outages affecting all plaintiffs, it was not clear that the damages of the entire putative class were caused by the defendants' alleged negligence. Id. at 765.
In Entergy Gulf States, Inc. v. Butler, 25 S.W.3d 359 (Tex. App. 2000), the Texas appellate court reversed a class certification granted to electrical utility customers who claimed damages from power outages triggered by an ice storm. Again the plaintiffs based their claim on the alleged failure to properly maintain the system to prepare for storms, and again the court found that common issues did not predominate. Id. at 362-63. The court found in addition that the inclusion of claims for personal injuries weighed against class certification. Id. at 363.
In Royal Street Grocery, Inc. v. Entergy New Orleans, Inc., 778 So.2d 679 (La. Ct. App.), writ denied, 789 So.2d 594 (La. 2001), the appellate court affirmed the trial court's denial of class certification where a fire in an underground electrical vault prompted the fire department to twice order that the utility de-energize an entire grid. Business and individual electrical customers sued, and the court found a lack of predominance of common liability issues. Id. at 685. Various parties had different causes of action and even different standing issues, and the individualized claims could warrant different defenses. Ibid.
Plaintiffs contend that these cases were either distinguishable on the facts, took too cautious an approach to certification, or were wrongly decided. On the contrary, we find these cases are quite similar in structure to the instant case, and, though from sister states, support Judge Perri's reasoning.
Another case that supports defendants' position is Tegnazian v. Consolidated Edison, Inc., 730 N.Y.S.2d 183 (Sup. Ct. 2000). There, too, customers of an electric utility who had lost power in a blackout sought damages, and the court denied class certification based on the absence of the predominance of common questions of law and fact. The court noted that the major common inquiry was whether the utility was grossly negligent in failing to provide service, but that in itself was not sufficient to justify class certification. Id. at 186-87. Other issues, including standing, liability, causation and the existence and amount of damages, would require individual inquiry and would predominate. Id. at 186.
Plaintiffs contend that the judge here wrongly failed to mention several cases that supported their arguments. But any support those cases provide is weak at best. In one, Bucci v. Cunard Line Ltd., 35 Pa. D. & C.3d 228 (Ct. Common Pleas 1985), the court granted class certification to approximately 400 cruise ship passengers alleging damages resulting from a power failure on the ship. The court found that common questions of law and fact predominated because the primary issue was breach of the cruise line's duty to provide the essential services for which the passengers contracted, and every passenger suffered a disruption of those services. Id. at 232-35. This case is quite distinguishable on the facts. Power failure on a cruise ship was likely attributable to a single cause, and the passengers' damages would have been relatively uniform since all were in similar circumstances and subject to the same privations at the same time. Courts in other jurisdictions have rejected class actions in the context of passenger cruises. See Stobaugh v. Norwegian Cruise Line, Ltd., 105 S.W.3d 302, 311 & n.4 (Tex. App. 2003) (distinguishing Bucci based on Texas's more "rigorous analysis" of class action applications and listing cases with contrary results).
In a second case cited by plaintiffs, McDonald v. Washington, 862 P.2d 1150 (Mont. 1993), water company customers sued the supplier for negligent maintenance of the system, alleging that tap water was neither clean nor drinkable, and the trial court certified the class. The Montana Supreme Court affirmed the certification, noting when finding the predominance of common facts and issues that all counts of the complaint stemmed from the alleged failure of the company to provide potable water and adequate service. Id. at 1155. The court distinguished Brown v. New Orleans Public Service, 506 So. 2d at 623, because that case presented issues of comparative negligence and intervening cause.
Plaintiffs further argue that, at Red Bank, there was a single causative event, transformer failures, which would have permitted a Red Bank class, at least. Defendants respond that the Red Bank outages did not constitute a single event, nor could they be attributed to any negligence on the part of GPU, and that customers who lost power as a result of Red Bank equipment failures would have to show that negligence caused the particular failure that led to the relevant outage.
A Board report found that GPU had deferred to the year 2000 the installation of new transformers at Red Bank, originally planned for 1998. It found that the management decision to defer the installation was "risky," and partly motivated by manpower and budgetary constraints. Plaintiffs' theory was that the deferral constituted negligence, and caused the bushing failures in 1999. However, the validity of the negligence claim is technically not before the court on this appeal; the relevant question is whether the installation deferral might have caused all the outages attributable to the Red Bank substation.
During the decertification hearing, the court questioned plaintiffs' counsel concerning the possibility of limiting the class to those affected by the transformer failures at the Red Bank substation. Plaintiffs' counsel described Red Bank as a microcosm of the larger problem, demonstrating the same domino effect but with events more compactly interrelated than those overall. Plaintiffs' counsel asserted that GPU's own documents showed that 74% of circuit outages were related, or possibly related, to equipment failures in Red Bank. Defense counsel asserted that, even within that one substation, there were a series of events that led to power interruption, many of which were unrelated to each other. Judge Perri did not address the merits of certifying a reduced, Red Bank, class.
Exponent, plaintiffs' expert, accepted a summary of the Red Bank equipment failures prepared by Stone & Webster Management Consultants, Inc., a consultant retained by the Board. That report pointed to a bushing failure on transformer bank number 2 on July 5, followed by explosion and fire, and another bushing failure on transformer bank number 1 on July 6 and 7. The report continued, "The loss of the second transformer caused subsequent overloads on the remaining transformers (numbers 7 and 8) which resulted in interruption of service to approximately 105,000 customers."
Defendants contend that there is no connection between the deferred installation of new transformers and the bushing failures, because the installation was not planned in order to prevent bushing failures, and there was no evidence that new transformers would not have experienced bushing failures. This ignores the Board report findings that the bushing failures in transformer bank number 1 and transformer bank number 2 resulted primarily from long-term insulation degradation, exacerbated by elevated temperatures and overvoltages. New transformers would have included new bushings.
Defendants also contend that their initial substation reinforcement project would have added a fifth transformer, leaving numbers 1 and 2 (and 7 and 8) in place, and thus permitting the failures that actually occurred. However, according to Exponent, though a 1996 study proposed a f
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