COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00425-CV
DENTON COUNTY ELECTRIC APPELLANT AND APPELLEE
COOPERATIVE, INC. D/B/A
COSERV ELECTRIC
V.
NICOLE HACKETT, INDIVIDUALLY APPELLEE AND APPELLANT
AND ON BEHALF OF OTHERS
SIMILARLY SITUATED
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FROM THE 16TH DISTRICT COURT OF DENTON COUNTY
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OPINION
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I. Introduction
In this interlocutory appeal,1 Appellant Denton County Electric Cooperative,
Inc. d/b/a CoServ Electric (CoServ) raises six issues, complaining that the trial
court erred by certifying this case as a class action. We vacate the trial court’s
1
See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(3) (West 2008 &
Supp. 2011).
class certification order and remand the case to the trial court for further
proceedings.2
II. Factual and Procedural History
The underlying issue in this class certification appeal involves the rights of
members of an electric cooperative and the statutory, fiduciary, and contractual
duties, if any, owed by the cooperative to its members.
A. The Parties
CoServ is a member-owned, nonprofit electric cooperative formed under
the Texas Electric Cooperative Corporation Act (ECCA). See Tex. Util. Code
Ann. §§ 161.001–.254 (West 2007). It has approximately 135,000 members,
comprised of a diverse socio-economic and demographic group of residential
users as well as commercial and public users.
Appellee Nicole Hackett is a CoServ member. Mark Glover and Janice
Brady, also CoServ members, are parties in the proceeding below. Glover is a
former CoServ director, and Brady unsuccessfully campaigned in June 2008 for
election to CoServ’s board.
B. The Litigation
In 2008, a CoServ member complained about receiving a robo-call from
Brady on his unlisted phone number during Brady’s election campaign. CoServ
investigated, and Brady admitted that she possessed members’ personal
2
Because of our disposition with regard to CoServ’s issues, we do not
reach Nicole Hackett’s three issues regarding the trial court’s decisions on
appointment of class counsel and bifurcation. See Tex. R. App. P. 47.1.
2
information but refused to disclose her source. In February 2009, Glover
admitted that he had provided Brady with the members’ personal information.
Brady filed a class action suit against CoServ in February 2009, alleging,
among other things, that CoServ breached its fiduciary duty by undermining the
cooperative’s democratic process in its refusal to make its members’ contact
information available to nonincumbents running for election to CoServ’s board of
directors. CoServ removed the suit to federal court3 and initiated the instant suit
in state court against Glover, alleging that Glover had released “CoServ’s
confidential and proprietary information” in violation of CoServ’s policy to protect
its members’ personal information (Policy No. 310)4 and had made an
unauthorized release of confidential real estate information. CoServ’s claims
against Glover included breach of fiduciary duty, misappropriation of trade
secrets, and conversion of CoServ’s property, conspiracy to commit these acts,
and breach of his 2005 and 2008 directorship agreements.5
3
See Brady v. Denton Cnty. Elec. Co-op., Inc., No. 4:09-CV-130, 2009 WL
3151177, at *7 (E.D. Tex. Sept. 28, 2009) (remanding case to state court).
4
Policy No. 310 provides that information that is of a confidential corporate
nature will not be provided to the membership, such as “[t]he names and
addresses or telephone numbers of members, past and/or current” or “[a]ny
information which constitutes a trade secret, process, program, trademark, or
other legally protectable confidential information, or thing owned, or protected in
confidentiality by contract, by the Cooperative.”
5
CoServ alleged that Glover requested a copy of the members’ personal
information while he was an incumbent director running against a challenger.
The board gave Glover the information with restrictions. Glover was re-elected
3
Glover filed a counter-petition on his own behalf and on behalf of a class
consisting of “[a]ll current members of Denton County Electric Cooperative, Inc.
entitled to vote in board elections,” excluding the trial court judge, CoServ, and its
officers, employees, and directors other than Glover.6 He alleged that CoServ
failed to provide its members with open meetings, open records, and fair voting
for board elections by failing to disclose information about CoServ to the
members, and that CoServ had subverted the election process in favor of
incumbent directors. Glover contended that the entrenched “old guard” board
was nearly the same as the board that had driven CoServ into bankruptcy in
2002 and that “continue[d] to put management interests ahead of the interests of
the members to whom it owe[d] a fiduciary duty.”
Brady filed a petition in intervention, seeking a declaratory judgment that
CoServ had a duty to provide challengers with all voter lists and other information
available to incumbent directors; that CoServ’s member contact information is not
confidential, a trade secret, or otherwise privileged from disclosure to other
members; that Policy No. 310 violates state law; that providing member
and then asked for more detailed information on voters in the 2005 and 2006
elections so that he could analyze it to “understand who is voting and why.”
6
Glover also sued on behalf of an equity subclass—“[a]ll current and
former members who have furnished revolving equity capital that has been taken
in whole or in part by CoServ’s ‘discounting’ program or other unlawful acts
alleged herein,” but because the trial court did not certify this subclass, and no
one appeals the denial of certification as to this class, the equity subclass is not
pertinent to our resolution here.
4
information to a person running for election to the board of directors conforms
with state law and does not violate a board member’s fiduciary duties; and that
CoServ member information is not CoServ’s property.
The trial court denied CoServ’s motion to strike Brady’s petition in
intervention or, in the alternative, to stay Brady’s lawsuit based on Brady’s similar
suit formerly pending in the federal court. CoServ subsequently filed an
amended petition against Glover and an original verified petition against Brady,
alleging trade secret misappropriation, conversion, and “conspiracy/aiding and
abetting” by Glover and Brady and breach of fiduciary duty and breach of
contract by Glover.
Brady filed an amended petition and Hackett combined her original petition
in intervention with Brady’s amended petition. They referred to themselves
collectively as “Class Plaintiffs,” defined the voting subclass, listed their common
questions of law and fact for the class, and made claims for breach of fiduciary
duty, statutory duties, and contract, as well as for conversion, oppression, and
fraudulent concealment.
CoServ complained that Hackett and Brady lacked standing and argued
that Brady, Hackett, and Glover were inadequate class representatives, that
there were irreconcilable conflicts among the members of the putative class, that
a class action was not the superior method of adjudicating the dispute, and that
common questions did not predominate over individual issues.
5
Brady and Hackett filed Brady’s second amended petition and Hackett’s
first amended petition in intervention on August 31, 2009, the same day that the
trial court began the five-day hearing on class certification. Their new petitions
omitted the claim for breach of statutory duties. Nonetheless, on November 6,
2009, the trial court signed an order certifying the class under rule of civil
procedure 42(b)(2) that included the statutory duties claim as an issue.
The order set out the following:
IT IS ORDERED, ADJUDGED AND DECREED that the Voting
Subclass is comprised of:
All persons who or entities that currently are members of
Denton County Electric Cooperative, Inc. d/b/a CoServ Electric
(“CoServ”); but excluding CoServ, any and all CoServ affiliates,
officers, directors, and employees of CoServ, members of this Court,
the attorneys in this case, and members of the immediate families of
any of the excluded individuals.
In determining to certify the Voting Subclass, the Court makes
the following findings:
1. The Voting Subclass is comprised of approximately 135,000
members. Joinder of each of them individually is impracticable.
2. There are multiple questions of law and fact that are common
to the Voting Subclass. Some of them include:
Whether the CoServ bylaws and/or policies relating to
governance, director elections, and voting constitute
enforceable contracts between CoServ and the Voting
Subclass;
Whether CoServ materially breached its contractual
relationship(s) relating to governance, director elections,
and voting with the Voting Subclass;
Whether CoServ is a fiduciary of the Voting Subclass;
Whether CoServ breached its fiduciary duty to the
Voting Subclass;
6
Whether CoServ has a statutory duty to the Voting
Subclass vis-à-vis governance, director elections, and
voting procedures;
Whether CoServ breached its statutory duty to the
Voting Subclass in connection with the cooperative’s
governance, director elections, and voting procedures;
Whether CoServ’s Policy 310 as currently interpreted by
CoServ violates voting sub-class members’ rights [of]
access to members’ information for use in connection
with CoServ’s Board of Director Elections and other
proper cooperative purposes;
Whether CoServ’s policies and practices fall short of
providing the access to its books and records to which
the Voting Subclass members are entitled;
Whether CoServ’s practice of providing vote tallies to
management and board members during CoServ Board
Elections violates CoServ’s obligation to maintain
democratic control over the cooperative;
Whether CoServ violated its own policies regarding
voting, balloting, vote counting, etc. in a manner that
violates its obligation to provide democratic operation of
CoServ to its members;
Whether CoServ’s practice of allowing unequal access
to member information violates its obligation to provide
democratic operation of CoServ to its members;
Whether the CoServ election practices are fair and/or
democratic;
Whether the CoServ election policies as written and/or
applied are fair and/or democratic;
Whether CoServ’s polices as written and/or its practices
of interim appointment of directors are fair and/or
democratic;
Whether CoServ’s policies as written and/or its
practices wrongfully delegate decision making and/or
control of CoServ to management rather than the
democratically elected Board of Directors;
Whether the Voting Subclass is entitled to a judicial
determination of the legal and equitable obligations
owed by CoServ to its members as alleged.
....
7
4. The claims of Nicole Hackett are typical of those of the Voting
Subclass. Nicole Hackett is a current CoServ member and has
standing. All class members of the Voting Subclass are CoServ
members and thus are impacted if CoServ does not operate
democratically or its election policies and/or practices are unfair to its
members. Any claims related to these issues are typical within the
Voting Subclass. There are no conflicts between Nicole Hackett and
the other members of the Voting Subclass.
5. Nicole Hackett is an adequate Voting Subclass representative.
She is a CoServ member who has demonstrated that she will
represent the Voting Subclass members’ interests and advocate for
the best interests of the class. She understands and accepts her
fiduciary role as to the class, as well as her proper relationship with
class counsel. She has demonstrated an adequate understanding
of the Voting Subclass claims. She will (and has) participated in
settlement discussion, and attended previously court ordered
mediation. She has retained adequate class counsel.
The order also set out the declarations sought by the class representative
before stating that the entitlement to the declaratory, injunctive, and other relief
sought by the Voting Subclass could be determined by applying the law to the
facts common to the entire class, including the following:
As described more specifically below, the Class Representative has
alleged claims seeking declaratory, injunctive and other relief
regarding certain rights of members to member contact information
in the context of cooperative director elections and other information
of the cooperative regarding its governance and business practices.
....
The Class Representative seeks at least the following declarations
regarding CoServ’s governance practices on behalf of the voting
subclass:
(1) CoServ’s Policy 310 as currently interpreted by CoServ violates
Voting Subclass members’ rights to access to members[’]
information for use in connection with Coserv’s Board of Director
Elections and other proper cooperative purposes;
8
(2) CoServ’s policies and practices fall short of the access to its
books and records to which the Voting Subclass members are
entitled;
....
(5) CoServ’s practice of allowing unequal access to member
information violates its obligation to provide democratic operation of
CoServ to its members;
....
(19) CoServ has a statutory duty to the Voting Subclass vis-à-vis
governance, director elections, and voting procedures; and
(20) CoServ breached its statutory duty to the Voting Subclass vis-à-
vis governance, director elections, and voting procedures.
The trial court indicated in its order that it would determine whether Texas
corporate governance statutes and common law applied to an entity formed
under chapter 161 of the utilities code.7
Hackett filed a second amended petition in intervention after the trial court
signed the certification order and one day before CoServ filed its notice of this
interlocutory appeal. In her new petition, which she filed individually and as class
representative of the Voting Subclass, Hackett set out claims for declaratory and
injunctive relief, breach of fiduciary duty, breach of contract, and fraudulent
concealment. She also renewed the claim for breach of statutory duties and
7
The class certification order also included a statement by the trial court
that it intended to bifurcate the Voting Subclass claims “from any other claims or
counterclaims made by parties in this case and to try the Voting Subclass case
first, in order to avoid prejudice to the Voting Subclass.” However, in the trial
plan attached to the order, the trial court lined out the provision regarding
bifurcation.
9
sought attorney’s fees.8 Hackett moved for approval of the class notice, which
the trial court granted. The common issues set out in the class notice parallel
those included in the class certification order. CoServ then appealed the trial
court’s order on Hackett’s motion for class certification and trial plan.
III. Class Certification
In its fourth issue, CoServ contends that the trial court misunderstood or
failed to consider the law underlying the substantive claims made by Hackett and
therefore granted class certification based on faulty assumptions. This issue is
dispositive. However, before we may reach it, we must determine whether
CoServ is correct in the part of its third issue in which it argues that the trial
court’s order and trial plan do not satisfy Southwestern Refining Co. v. Bernal, 22
S.W.3d 425 (Tex. 2000), because the order recites proposed declarations that
are not supported by the pleadings on some of Hackett’s substantive claims.
A. Live Pleading
At the hearing on the proposed class certification order, two months after
the class certification hearing, CoServ raised the same complaint that it does on
appeal, that “many of [the] proposed declarations [in the certification order] were
not supported by the pleadings on file at the time. For example, Declarations 7–
8
Additionally, Hackett filed a motion for leave to allow class counsel to
associate with outside counsel for purposes of any appellate work relating to
class certification, which the trial court denied and which she now complains
about in her appeal. However, as noted above, because we vacate the trial
court’s class certification order, we do not reach the issues Hackett presents in
her appeal. See Tex. R. App. P. 47.1.
10
8, 11, and 13–20 are not supported by the pleadings that were on file at the time
of the class hearing.” Here, we are concerned only with Declarations 19 and 20,
as set out above in our recitation of the facts.
As a general rule, an amended pleading supersedes the original pleading.
See Conn v. Rhodes, No. 02-08-00420-CV, 2009 WL 2579577, at *3 (Tex.
App.—Fort Worth Aug. 20, 2009, no pet.) (mem. op.) (citing Tex. R. Civ. P. 65,
and Sheerin v. Exxon Corp., 923 S.W.2d 52, 55 (Tex. App.—Houston [1st Dist.]
1995, no writ) (op. on reh’g)). Under this rule, a party may voluntarily dismiss
claims by omitting them from the amended pleading. Id.; see FKM P’ship, Ltd. v.
Bd. of Regents of Univ. of Houston Sys., 255 S.W.3d 619, 634 (Tex. 2008)
(noting that an amended pleading effects a voluntary dismissal of claims not
included in the amended pleading). And, generally, under civil practice and
remedies code section 51.014, we consider the live pleading on file at the time
the trial court entered its appealable interlocutory order. See Tex. Civ. Prac. &
Rem. Code Ann. § 51.014; City of Arlington v. Randall, 301 S.W.3d 896, 906
(Tex. App.—Fort Worth 2009, pet. denied) (setting out claims from the live
pleading on file when the trial court denied the city’s plea to the jurisdiction); see
also Presbyterian Cmty. Hosp. of Denton v. Smith, 314 S.W.3d 508, 511 (Tex.
App.—Fort Worth 2010, no pet.) (setting out claims from live pleading at the time
of the second hearing on the hospital’s motion to dismiss).
On August 31, 2009, the first day of the class certification hearing, Brady
and Hackett filed Brady’s second amended petition and Hackett’s first amended
11
petition in intervention. This document constituted the live pleading when the trial
court issued its class certification order. The pleading did not include a specific
claim for breach of statutory duties, unlike the immediately preceding pleading
filed in July 2009. However, the new pleading still set forth the facts that are the
basis of the breach of statutory duties claim, and it is clear from the record of the
five-day hearing on Brady and Hackett’s class certification motion that breach of
statutory duties was an issue upon which they sought relief—the equivalent of
being tried “by consent.” See, e.g., Tex. R. Civ. P. 67 (stating that when issues
not raised by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects as if they had been raised by the pleadings).
Therefore, we overrule this portion of CoServ’s third issue.9
B. Substantive Law
In its fourth issue, CoServ specifically complains that the trial court
improperly certified the class based on a significant misunderstanding of the law
9
Not long after the hearing on the proposed class certification order and
before CoServ filed its notice of this interlocutory appeal, Brady and Hackett
amended their petition, re-adding the breach of statutory duties claim. Therefore,
it would be a useless act on our part to reverse the class certification order on
this basis merely because the trial court committed a technical error by signing a
flawed order that now matches the subsequently filed pleading, only to have to
review the same substantive legal issues later. See, e.g., Davis v. Hemphill, 243
S.W. 691, 694 (Tex. Civ. App.—Fort Worth 1922, no writ) (op. on reh’g) (stating
that it would be a useless act on the court’s part to reverse the judgment just
because the trial court committed a technical error in overruling a motion for
further time); see also Wheeler v. Duke, 29 Tex. Civ. App. 20, 23, 67 S.W. 909,
911 (Tyler 1902, no writ) (“[A] court is never required to perform a vain and
useless act.”).
12
because it owes no fiduciary duty to its members; it has no contract with its
members via its bylaws; oppression is not a viable claim; and it owes no statutory
duties to its members under the ECCA. Hackett responds that CoServ owes
contractual, statutory, and fiduciary duties to its members and that she has
abandoned her claim for oppression.
1. Standard of Review
Rule of civil procedure 42 governs class actions in Texas. See Tex. R.
Civ. P. 42. We review the trial court’s certification for an abuse of discretion.
Sw. Bell Tel. Co. v. Marketing on Hold, Inc., 308 S.W.3d 909, 915 (Tex. 2010).
However, we do so “without indulging every presumption in favor of the trial
court’s decision.” Stonebridge Life Ins. v. Pitts, 236 S.W.3d 201, 204–05 (Tex.
2007) (citing Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675, 691 (Tex. 2002),
and Bernal, 22 S.W.3d at 434–35, 439). “Actual conformance with Rule 42 is
indispensable, and compliance with the rule must be demonstrated, not
presumed.” Id. at 205.
Prior to ruling on a motion for class certification, courts must perform a
“rigorous analysis” to determine whether all prerequisites to certification have
been met, and a cautious approach to class certification is essential. Bernal, 22
S.W.3d at 435; see also Compaq Computer Corp. v. Lapray, 135 S.W.3d 657,
671 (Tex. 2004) (applying Bernal to rule 42(b)(2) certifications). It is improper to
certify a class without knowing how the claims can and will likely be tried, and to
make a proper analysis, the court must understand the claims, defenses,
13
relevant facts and applicable substantive law to make a meaningful determination
of the certification issues. Bernal, 22 S.W.3d at 435, 437 (explaining that a class
action is a procedural device intended to advance judicial economy by trying
claims together that lend themselves to collective treatment and is not meant to
alter the parties’ burdens of proof, right to a jury trial, or the substantive
prerequisites to recovery); see also Exxon Mobil Corp. v. Gill, 299 S.W.3d 124,
126 (Tex. 2009) (stating that the substantive law must be taken into
consideration in determining whether the purported class can meet the
certification prerequisites under rule 42); Union Pac. Res. Grp. v. Hankins, 111
S.W.3d 69, 72–73 (Tex. 2003) (stating that “[b]y choosing to delay analysis of
Yzaguirre until ‘another stage of litigation,’ the court of appeals ignored
applicable substantive law crucial to understanding the claims and defenses,”
and requiring that the substantive law in Yzaguirre be taken into consideration “in
determining whether the purported class can meet the certification
prerequisites”). When a class has been certified based on a significant
misunderstanding of the law, remand to the trial court is appropriate so that it
may determine the effect on the requirements for class certification. Gill, 299
S.W.3d at 129 (vacating the trial court’s class certification order and remanding
the case to the trial court for further proceedings).
2. Statutory and Contractual Duty Claims
Hackett argues that CoServ owes its members statutory duties under
sections 22.152–.154, 22.158, and 22.351 of the business organizations code
14
and sections 161.070 and 161.072 of the utilities code and contractual duties
under CoServ’s bylaws. The first portions of these claims present a question of
statutory interpretation.
When a general statutory provision conflicts with a special statutory
provision, both provisions shall be construed, if possible, to give effect to both;
but if the conflict is irreconcilable, the special provision prevails absent certain
exceptions. Chesser v. LifeCare Mgmt. Servs., L.L.C., 356 S.W.3d 613, 620
(Tex. App.—Fort Worth 2011, no pet.); see also Tex. Gov’t Code Ann.
§ 311.026(b) (West 2005) (stating that the special provision prevails as an
exception to the general provision unless the general provision is the later
enactment and the manifest intent is that the general provision prevail).
We note initially that section 2.010 of the business organizations code
states that “[a] nonprofit corporation may not be organized or registered under
this code to conduct its affairs in this state to: (1) engage in or operate as a . . .
rural electric cooperative corporation.” Tex. Bus. Orgs. Code Ann. § 2.010(1)
(West 2011) (setting out a list of cooperative associations); see also Tex. Att’y
Gen. Op. No. DM-479 (1998), available at 1998 WL 346647, at *2 (noting that
since 1959, the Non-Profit Corporation Act has expressly excluded from its
application cooperatives organized for particular purposes, including rural electric
cooperatives, because each one of the excluded corporations is provided for and
may be incorporated under a specific statute).
15
The ECCA specifically governs electric cooperatives. See Tex. Util. Code
Ann. §§ 161.001–.254. Section 161.005 provides, “This chapter is complete in
itself and is controlling,” and the powers of electric cooperatives are solely
derived from and measured by the ECCA. Id. § 161.005; Hilco Elec. Co-op., Inc.
v. Midlothian Butane Gas Co., 111 S.W.3d 75, 77–81 (Tex. 2003) (reviewing
electric cooperatives’ purposes and powers under the ECCA); see also Mariko
Kikawa, Hilco Electric Cooperative v. Midlothian Butane Gas Co.: A Look at
Electric Cooperatives in Texas, 57 Baylor L. Rev. 461, 465 & n.14 (2005) (noting
that unlike the statutory provisions governing other cooperatives in Texas, the
ECCA does not contain supplemental provisions integrating sections of the Non-
Profit Corporation Act or general corporation law to fill any gaps in the statute);
cf. Tex. Agric. Code Ann. § 51.002 (West 2004) (stating that the state’s general
corporation laws govern agricultural cooperative societies unless those laws
conflict with chapter 51 of the agriculture code), § 52.004 (West 2004) (stating
same with regard to cooperative marketing associations), § 55.003 (West 2004)
(stating that in addition to the requirements under the state’s general corporation
laws, the articles of incorporation of a cooperative credit association must state
that the association may not obtain loans for, make loans to, purchase notes
from, or discount notes for a person who is not a member of the association);
Tex. Health & Safety Code Ann. § 301.003 (West 2010) (stating that eligible
institutions creating a hospital laundry cooperative association may file articles of
incorporation under the state’s general corporation law), § 301.033 (West 2010)
16
(stating that eligible institutions creating a miscellaneous health-related
cooperative association may prepare and file articles of incorporation under the
state’s general corporation law); Tex. Util. Code Ann. § 162.079 (West 2007)
(stating that the Non-Profit Corporation Act applies to a telephone cooperative in
the same manner as if the cooperative had been formed under the Texas Non-
Profit Corporation Act).
The legislature passed the ECCA in 1937 to provide for the organization of
cooperative, nonprofit membership corporations for the purpose of engaging in
rural electrification. Act of Mar. 30, 1937, 45th Leg., R.S., ch. 86, § 3, 1937 Tex.
Gen. Laws 161, 161–62, repealed and recodified by Act of May 8, 1997, 75th
Leg., R.S., ch. 166, §§ 1, 9–10, 1997 Tex. Gen. Laws 713, 947–57, 1018 (current
version at Tex. Util. Code Ann. §§ 161.001–.254); Tri-Cnty. Elec. Co-op. v. Clair,
217 S.W.2d 681, 682 (Tex. Civ. App.—Fort Worth 1949, writ ref’d n.r.e.). The
ECCA was recodified in 1997 without any substantive changes. See Act of May
8, 1997, 75th Leg., R.S., ch. 166, § 10, 1997 Tex. Gen. Laws 713, 1018.
The ECCA, however, does not always control. See Tri-Cnty. Elec., 217
S.W.2d at 683. In 1949, in a personal injury suit involving nonfatal electrical-burn
injuries, we held that former article 1528b, section 36 of the ECCA10 did not
10
Article 1528b, section 36 of the revised civil statutes was the predecessor
to section 161.005 and stated, “This Act is complete in itself and shall be
controlling. The provisions of any other law of this State except as provided in
this Act, shall not apply to a corporation organized, or in process of organization,
under this Act.” Act of Mar. 30, 1937, 45th Leg., R.S., ch. 86, § 36, 1937 Tex.
Gen. Laws 161, 170 (emphasis added), repealed by Act of May 8, 1997, 75th
17
control because it did not purport to regulate the height of transmission lines or
contain safety measures of any sort. Id. We stated, “It is not reasonable to
suppose that the Legislature by the enactment of the above quoted Section 36
intended to exempt corporations organized under said statute from general police
or safety regulations of the kind provided for” in article 1436a, section 1.11 Id.
But see Rothwell v. Lone Wolf Elec. Co-op., Inc., 444 S.W.2d 197, 198–99 (Tex.
Civ. App.—Eastland 1969, writ ref’d n.r.e.) (stating that the business corporations
act and its amendments were inapplicable to the ECCA with regard to breach of
employment contract issue because the ECCA had a specific provision
addressing the issue and the other act expressly declared that it did not apply to
co-ops and provided that it would apply only if the special statute applying to the
excepted domestic corporations—like co-ops—contained no provisions with
regard to some of the matters provided for in the business corporations act).
Unlike Tri-County Electric, this is not a personal injury suit involving
standards of construction, operation, and maintenance of electric lines. Cf. 217
Leg., R.S., ch. 166, § 9, 1997 Tex. Gen. Laws 713, 1018. The Public Utility
Regulatory Act repealed the second sentence in article 1528b, section 36. Cent.
Power & Light Co. v. Pub. Util. Comm’n of Tex., 649 S.W.2d 287, 289 (Tex.
1983) (holding that a legislature cannot prevent future legislatures from
amending or repealing a statute).
11
Then-article 1436a, section 1 of the revised civil statutes provided that
certain electric lines shall be maintained at a height above the ground of at least
twenty-two feet or be placed in underground pipes. See Act of May 19, 1949,
51st Leg., R.S., ch. 228, 1949 Tex. Gen. Laws 427, 427, repealed by Act of May
8, 1997, 75th Leg., R.S., ch. 166, § 9, 1997 Tex. Gen. Laws 947, 1018 (current
version at Tex. Util. Code Ann. § 181.045); Tri-Cnty. Elec., 217 S.W.2d at 683.
18
S.W.2d at 683. Further, two of the business organizations code provisions that
Hackett lists to support her argument are duplicated in the ECCA. That is,
Hackett argues that CoServ owes statutory duties to its members under the
following sections: section 22.152, which states that members of a nonprofit
corporation are not personally liable for a debt, liability, or obligation of the
corporation; (2) section 22.153, which provides for an annual meeting; (3) section
22.154, which provides legal recourse for a member if the nonprofit corporation’s
board of directors fails to call the annual meeting of members when required; (4)
section 22.158, which provides for the preparation and inspection of a list of
voting members, including the voting members’ addresses; and (5) section
22.351, which provides for a member’s right to inspect books and records. See
Tex. Bus. Orgs. Code Ann. §§ 22.152–.154, .158, .351.
However, utilities code section 161.060 provides that a member is not
liable for a debt of an electric cooperative except for (1) a debt contracted
between the member and the cooperative or (2) an amount not to exceed the
unpaid amount of the member’s membership fee. Compare Tex. Bus. Orgs.
Code Ann. § 22.152, with Tex. Util. Code Ann. § 161.060. And utilities code
section 161.067 provides for an annual meeting. Compare Tex. Bus. Orgs. Code
Ann. § 22.153, with Tex. Util. Code Ann. § 161.067 (stating where and when an
electric cooperative will hold its meeting and setting out who may call a special
meeting of the members). In light of utilities code section 161.005, which
provides that the ECCA is complete in itself and controlling, and because the
19
utilities code contains more specific provisions addressing the same items in
business organizations code sections 22.152 and 22.153, the utilities code
provisions must control. See Tex. Gov’t Code Ann. § 311.026(b). Therefore,
neither Hackett nor the purported class has a substantive claim based on
business organizations code sections 22.152 and 22.153. We sustain this
portion of CoServ’s fourth issue.
Further, nothing we have reviewed so far has indicated that the legislature
meant to incorporate general provisions of the business organizations code into
the ECCA. Cf. Tex. Agric. Code Ann. §§ 51.002, 52.004, 55.003; Tex. Health &
Safety Code Ann. §§ 301.003, 301.033; Tex. Util. Code Ann. § 162.079.
Therefore, we will next review the nature of the electric cooperative and the
ECCA to determine whether the exclusion of business organizations code
sections 22.154, 22.158, and 22.351 from the ECCA was intentional.
a. Electric Cooperatives
In a 1998 letter ruling, the attorney general reviewed what constitutes a
“cooperative” and described it as “a corporation or association organized for the
purpose of providing economic services, without gain to itself, to shareholders or
members who own and control it,” with the defining characteristic of being
obliged to distribute net proceeds to its members in the form of patronage
refunds or dividends in amounts determined by the use made by the members of
the association facilities. Tex. Att’y Gen. Op. No. DM-479 (1998), available at
1998 WL 346647, at *1 (citing United Grocers, Ltd. v. United States, 186 F.
20
Supp. 724, 733 (N.D. Ca. 1960), aff’d, 308 F.2d 634 (9th Cir. 1962), and Roswell
Magill & Allen H. Merrill, The Taxable Income of Cooperatives, 49 Mich. L. Rev.
169, 173–74 (1950)). Additional characteristics that distinguish cooperatives
from other business structures include “the features of democratic control and
voting; distribution of economic benefits on an equal basis or proportionate use
made of association facilities; limited return on capital; and of transaction of
business with their own members.” Id.; see also United States v. Miss. Chem.
Corp., 405 U.S. 298, 311, 92 S. Ct. 908, 915 (1972) (observing that “the essential
nature of cooperatives and corporations differs”).
Cooperatives operate on different foundational principles than
corporations. See Miss. Chem., 405 U.S. 298, 308 n.14, 92 S. Ct. at 914 n.14
(“Cooperatives and corporations operate on different principles. Whereas the
corporate structure separates control and management, the essence of a
cooperative requires that these functions be integrated.”); see also Steve F.
Brault, Equity Financing of Cooperatives: Advantageous Federal Securities Law
and Tax Treatment, 21 Willamette L. Rev. 225, 226 (1985). Specifically, these
principles, called the “Rochdale Principles,” are the principles that “have guided
the formation of cooperative businesses throughout the world and serve as the
essential identifying characteristics of cooperative business organizations.”
Brault, 21 Willamette L. Rev. at 226. The Rochdale Principles are open
membership; democratic control; limited return on member capital; use of new
21
savings for development, common services, and distribution of patronage
refunds; cooperative education; and cooperation among cooperatives.12 Id.
In comparing cooperatives to corporations,
consider the structure of a typical business corporation.
Persons wishing to become equity participants in a
corporation buy stock. This stock gives the owners the right to elect
directors, generally on the basis of the number of shares owned.
Share ownership also entitles the equity participants to share in
earnings on a pro rata basis. Absent agreement among the
shareholders to the contrary, shares are freely transferable, and
capable of appreciating in value. These are, in fact, the essential
attributes of corporate “stock” identified by the United States
Supreme Court in the context of determining when “stock” will be
considered to be a security.
Cooperatives do not generally share these characteristics.
First, cooperatives may or may not issue “stock” to their members;
equity participation in a co-op can take many different forms. In
addition, while members may be required to buy some sort of
“membership interest” as a condition to joining the cooperative, the
majority of a traditional cooperative’s equity comes from retained
patronage dividends rather than external “investment.” Finally, even
where “stock” is purchased, its function is typically only to give
members the right to use the co-op’s services and facilities. It does
not determine voting rights or the right to share in profits from the
venture, if any. Cooperatives generally operate on a one-vote per
member basis, regardless of the relative investment of the members
or the number of shares or membership interests owned. Similarly,
although members generally have equal voting rights in the
cooperative, member income is based on patronage rather than
equity ownership. Distributions upon dissolution are also based on
patronage rather than the members’ proportionate capital
investment. In addition, membership rights, however denominated,
12
Texas Electric Cooperatives—a lobbying organization for cooperative
electric utilities in Texas—adds “concern for community” to the list. See Tex.
Electric Cooperatives, The Seven Cooperative Principles, at http://www.texas-
ec.org/about_tec/the_seven_cooperative_principles/ (last visited May 7, 2012).
22
are not usually freely transferable and typically do not have the
potential for appreciation.
In evaluating the characteristics of a cooperative, it has been said that:
Any definition of a cooperative must account for four
operationally-unique cooperative principles. First,
cooperatives are owned and democratically controlled
by the producers who use their services. Second, the
cooperative distributes its net income to producers in
proportion to their use of the cooperative. Third, returns
on ownership capital are limited. Fourth, producers who
use the cooperative substantially finance its operation.
This litany of attributes makes for ready comparison with the
traditional, for-profit corporate form. In the case of a corporation,
shareholder-owners generally have one vote per share, meaning
that voting rights are held proportionately to each shareholder’s
equity investment in the enterprise. In addition, a shareholder’s
equity interest is typically acquired through investment in the stock
itself, although the stock may (and hopefully will) appreciate in value.
The investment may be recouped through dividends or upon sale of
the appreciated stock on the open market. Most stock is not
redeemable, nor is redemption the typical way in which the value of
an investment in corporate stock is realized. In general, therefore, a
stockholder’s income is generally based on stock ownership, as is
the stockholder’s right to participate in distributions upon dissolution
and liquidation. The shares are generally freely transferable, unless
the shareholders have agreed to limit this right. Moreover, there is
generally no requirement that the owners of a business corporation
“use” the corporation’s facilities or products.
Thus, none of the essential attributes of the cooperative form
of business fit the traditional corporate model. This fact explains
why some commentators have complained that “viewing a co-
operative as a corporation distorts its true nature because an
ordinary corporation may exist and operate from its own detached
power base whereas a co-operative cannot exist apart from a body
of people who are its members.”
23
Carol R. Goforth, Application of the Federal Securities Laws to Equity Interests in
Traditional and Value-Added Agricultural Cooperatives, 6 Drake J. Agric. L. 31,
39–41 (2001) (citations omitted).
b. The ECCA
The ECCA defines a “member” as “a person admitted to membership in
the electric cooperative as provided by Section 161.065.” Tex. Util. Code Ann.
§ 161.002(5); see also Rep. Jim Cooper, Electric Co-operatives: From New Deal
to Bad Deal? 45 Harv. J. on Legis. 335, 337 (2008) (“Electric co-ops are owned
by their customers, who are called ‘members’ of the co-op due to their dual role
as customer/owner.”). Section 161.065 states that a person is eligible to become
a member if he or she has a dwelling, structure, apparatus, or point of delivery at
which he or she does not receive central station service from another source and
in an area where the cooperative is authorized to provide electric energy, and he
or she (1) uses or agrees to use electric energy or the facilities, supplies,
equipment, or services furnished by the cooperative at the dwelling, structure,
apparatus, or point of delivery, or (2) is an incorporator of the cooperative. Tex.
Util. Code Ann. § 161.065(a). Membership in an electric cooperative is not
transferable, and a membership certificate in an electric cooperative is exempt
from the Texas Blue Sky Law.13 Id. §§ 161.063, .065(c).
13
The Texas Blue Sky Law regulates the sale of securities in and from the
state. Citizens Ins. Co. of Am. v. Daccach, 217 S.W.3d 430, 441 (Tex. 2007).
24
The ECCA provides that an electric cooperative shall operate without profit
to its members, but it also contains a statutory distribution scheme to return
revenue to members. Id. § 161.059(a), (c)–(d). The cooperative’s bylaws
regulate and manage its affairs. See id. § 161.064 (stating that the bylaws may
contain any provision for the regulation and management of the cooperative’s
affairs that is consistent with the articles of incorporation). And its business and
affairs are managed by a board of directors, each of whom “must be a member of
the cooperative.” Id. § 161.071(a). Each member present at a meeting of the
membership of an electric cooperative is entitled to one vote on each matter
submitted to a vote at the meeting, although the bylaws may provide for voting by
proxy or by mail. Id. § 161.070. Although there is very little case law interpreting
chapter 161, it appears that its emphasis—as with all cooperatives—lies in
member participation and ownership.
c. Comparison
In comparison to the ECCA, the business organizations code does not
require a nonprofit’s board of directors to be composed of the nonprofit’s
members. Compare Tex. Bus. Orgs. Code Ann. § 22.203 (stating that a director
is not required to be a member unless the certificate of formation or a bylaw
imposes that requirement), with Tex. Util. Code Ann. § 161.071(a) (stating that
each director must be a member of the cooperative). The business organizations
code also sets out procedures to amend the certificate of formation of a
corporation “with members having voting rights” and of one that has no members
25
or has no members with voting rights, Tex. Bus. Orgs. Code Ann. §§ 22.105,
.107, and it provides that each member, regardless of class, is entitled to one
vote on each matter submitted to a vote of the corporation’s members, “except to
the extent that the voting rights of members of a class are limited, enlarged, or
denied by the certificate of formation or bylaws of the corporation,” unlike the
one-member, one-vote provision in the ECCA. Compare id. § 22.160(a), with
Tex. Util. Code Ann. § 161.070.
There are two ECCA provisions that specifically incorporate portions of the
business organizations code. See Tex. Util. Code Ann. §§ 161.078, .121(10). In
section 161.078, the ECCA specifically incorporates the provisions of the
business organizations code pertaining to mandatory and permissive
indemnification, advancement of expenses, and liability insurance. See id.
§ 161.078 (incorporating former article 1396–2.22A of the revised civil statutes,
now found in business organizations code sections 8.051–.052, 8.101–.105, and
.151–.152, to provide that an electric cooperative may indemnify and provide
indemnity insurance in the same manner and to the same extent as a nonprofit
corporation under the business organizations code). In section 161.121(10), the
ECCA specifically incorporates the provisions of the Non-Profit Corporation Act
pertaining to its general powers to exercise “any other power, for which the
cooperative is organized, including other or additional purposes that benefit
members and nonmembers, either directly or through affiliates, described in
Section A, Article 2.01, Texas Non-Profit Corporation Act (Article 1396–2.01,
26
Vernon’s Texas Civil Statutes).” Id. § 161.121(10) (incorporating provisions now
found in business organizations code section 22.051); Hilco Elec. Co-op., 111
S.W.3d at 77 (stating that the ECCA entitles an electric cooperative to create and
own a for-profit company “if necessary, convenient, or appropriate to effectuate
the [ECCA’s] permitted purposes: rural electrification or purposes like those
listed in article 1396–2.01(A) of the Non-Profit [Corporation] Act”).
Based on the nature of the electric cooperative and the specific differences
set out in the ECCA as compared to the provisions of the business organizations
code, as well as the fact that the legislature deliberately chose to incorporate only
two specific provisions of the business organizations code into the ECCA, we
conclude that the legislature did not intend to provide electric cooperative
members with the same rights set out in business organizations code sections
22.154, 22.158, and 22.351. Compare Tex. Util. Code Ann. §§ 161.078,
161.121(10) (deliberately incorporating specific provisions of business
organizations code), with Tex. Agric. Code Ann. §§ 51.002, 52.004, 55.003; Tex.
Health & Safety Code Ann. §§ 301.003, .033; Tex. Util. Code Ann. § 162.079;
see also First Fed. Sav. & Loan Ass’n of Twin Falls v. E. End Mut. Elec. Co., 735
P.2d 1073, 1077–78 (Idaho Ct. App. 1987) (stating that “[o]ur Legislature
evidently has determined that this type of service provider [an unregulated,
private, nonprofit electric cooperative], which typically serves a limited group of
customers and is owned by the customers themselves, merits a lesser degree of
public intrusion”); Hunerjager v. Dixie Elec. Membership Corp., 434 So.2d 590,
27
591 (La. Ct. App.) (concluding that member-plaintiffs had no statutory right to
examine electric cooperative’s records because although there were specific
provisions for records examinations in the Business Corporation Law and Non-
Profit Corporation Law, there were no sections in the Electric Cooperative Law
regarding the examination of records by the membership and the Electric
Cooperative Law did not provide that the business or nonprofit corporate law was
supplementary to its provisions), writ denied, 440 So.2d 149 (La. 1983).
Rectifying this situation is a task best suited for the legislature. Therefore, we
sustain the portion of CoServ’s fourth issue pertaining to the breach of statutory
duties claim under business organizations code sections 22.154, 22.158, and
22.351.
d. Statutory Duties under the ECCA
Hackett also contends that CoServ owes and breached statutory duties to
its members under utilities code sections 161.070 and 161.072. CoServ argues
that the ECCA does not confer an express private right of action on Hackett,
giving her no standing to sue under the ECCA.
Standing is a prerequisite to suit before rule 42’s adequacy requirement
may be considered. See M.D. Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704,
706, 711 (Tex. 2001) (stating that a named plaintiff’s lack of individual standing at
the time suit is filed deprives the court of subject matter jurisdiction over the
plaintiff’s individual claims and claims on behalf of the class); see also
DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304–05 (Tex. 2008) (“For
28
standing, a plaintiff must be personally aggrieved; his alleged injury must be
concrete and particularized, actual or imminent, not hypothetical.”). A plaintiff
has standing to bring suit if she has a legal right that has been breached. Nobles
v. Marcus, 533 S.W.2d 923, 927 (Tex. 1976); McDaniel v. Town of Double Oak,
No. 02-10-00452-CV, 2012 WL 662367, at *3 (Tex. App.—Fort Worth Mar. 1,
2012, no pet. h.) (mem. op.). Without a breach of a legal right belonging to the
plaintiff, no cause of action arises or can accrue to the plaintiff’s benefit. Nobles,
533 S.W.2d at 927.
We start with the plain language of the statutes in construing them. Exxon
Corp. v. Emerald Oil & Gas Co., L.C., 331 S.W.3d 419, 422 (Tex. 2010) (op. on
reh’g) (concluding that natural resources code section 85.321, entitled “suit for
damages,” which provides that a party “may sue for and recover damages and
have any other relief to which he may be entitled at law or in equity,” creates a
private cause of action for damages resulting from statutory violations). “When a
private cause of action is alleged to derive from a constitutional or statutory
provision, our duty is to ascertain the drafters’ intent.” Brown v. De La Cruz, 156
S.W.3d 560, 563 (Tex. 2004) (citing Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, PA, 77 S.W.3d 253, 260 (Tex. 2002)).
Section 161.070, entitled “Voting by Members,” states, “Each member
present at a meeting of the members is entitled to one vote on each matter
submitted to a vote at the meeting. The bylaws may provide for voting by proxy
29
or by mail.” Tex. Util. Code Ann. § 161.070 (emphasis added). Section 161.072,
entitled “Election of Directors; Vacancies,” provides as follows:
(a) The incorporators of an electric cooperative named in the articles
of incorporation shall serve as directors until the first annual
meeting of the members, and until their successors are elected
and qualify. Subsequently, the directors shall be elected by the
members at each annual meeting or as otherwise provided by the
bylaws.
(b) A vacancy on the board shall be filled as provided by the bylaws.
A person selected to fill a vacancy serves until the next regular
election of directors.
Id. § 161.072 (emphasis added).
Unlike the business organizations code provisions for nonprofit
corporations, which specifically set out the procedure to enforce the right to
inspect books and records and to obtain the list of voting members and the duty
of the nonprofit corporation to make records, books, and reports available to the
public for inspection or copying, there are no similar specific provisions set out in
the ECCA, and—as previously discussed above—they are not incorporated into
the ECCA. Cf. Tex. Bus. Orgs. Code Ann. §§ 22.158, 22.351, 22.353; Gaughan
v. Nat’l Cutting Horse Ass’n, 351 S.W.3d 408, 414–21 (Tex. App.—Fort Worth
2011, pet. denied) (construing former articles 1396–2.23 and 1396–2.23A of the
Non-Profit Corporation Act); Lacy v. Bassett, 132 S.W.3d 119, 121, 124 (Tex.
App.—Houston [14th Dist.] 2004, no pet.) (reviewing application of former article
1396–2.23 to church nonprofit); Citizens Ass’n for Sound Energy (CASE) v.
Boltz, 886 S.W.2d 283, 285–86, 289–90 (Tex. App.—Amarillo 1994, writ denied)
30
(reviewing application of former articles 1396–2.23 and 1396–2.23A), cert.
denied, 516 U.S. 1029 (1995); see also Melissa Indus. Dev. Corp. v. N. Collin
Water Supply Corp., 316 F. Supp. 2d 421, 426 (E.D. Tex. 2004) (construing
former article 13.96–2.11B of the Non-Profit Corporation Act, which set out
procedure to inspect list of voting members).
Rather, utilities code sections 161.070 and 161.072 focus attention on the
bylaws rather than setting out specific provisions for legal recourse. Cf. Hilco
Elec. Co-op., 111 S.W.3d at 77–78 (construing utilities code section 161.121 in
suit for declaratory judgment by members, some of whom were propane dealers,
regarding cooperative’s statutory authority to engage in propane sales).
CoServ’s 2009 bylaws comply with utilities code section 161.070 with
regard to voting rights.14 See Tex. Util. Code Ann. § 161.070. Further, by their
own terms, they are contractual in nature. Therefore, Hackett’s—and the
putative class’s—recourse, if any, would appear to be through a breach of
contract claim with regard to the bylaws rather than a breach of statutory duty
14
Because CoServ’s bylaws were submitted as sealed records, we are not
at liberty to directly discuss their contents. See, e.g., E.F. v. Tex. Dep’t of Family
& Protective Servs., No. 03-11-00325-CV, 2011 WL 4937228, at *1, 3 (Tex.
App.—Austin Oct. 14, 2011, order) (forgoing public discussion of the evidence
underlying the jury and trial court decisions because the record had been
sealed); In re Energy XXI Gulf Coast, Inc., No. 01-10-00371-CV, 2010 WL
5187730, at *6 (Tex. App.—Houston [1st Dist.] Dec. 23, 2010, orig. proceeding)
(mem. op.) (“Because the trial court reviewed [the sealed documents] in camera
and they remain sealed in the record before us, we are not at liberty to discuss
the contents of these documents in our opinion.”).
31
claim with regard to the provisions in sections 161.070 and 161.072. 15 See Tex.
Util. Code Ann. §§ 161.070, .072. Accordingly, we sustain the rest of CoServ’s
fourth issue as it pertains to the breach of statutory duties claim, but we overrule
the portion of CoServ’s fourth issue that pertains to the breach of contract claim
under CoServ’s bylaws.16
3. Fiduciary Duties
CoServ also argues that it owes no fiduciary duties to its members.
Nothing in the ECCA provides for a fiduciary duty from the cooperative to its
15
Further, Hackett testified that she had never attended CoServ’s annual
meeting or voted in a CoServ board election. Hackett does not explain in her
brief how, even if sections 161.070 and 161.072 had provided her with a
statutory cause of action, she personally would have standing to sue based on
these provisions, calling into question her commonality with the class. See Union
Pac., 111 S.W.3d at 75 (discussing lack of commonality based on substantive
causes of action).
16
Based on our construction of the ECCA, it appears that the only recourse
for Hackett and the class, if any, is through the breach of contract claim on
CoServ’s bylaws, although there is not much authority on the issue, and neither
party briefed the issue thoroughly in this appeal. See, e.g., Baldwin Cnty. Elec.
Membership Corp. v. Catrett, 942 So.2d 337, 345–46 (Ala. 2006) (stating that
“[t]he right to vote is granted to all members of the Cooperative under the bylaws
and by statute. Thus, each member of the Cooperative had a contractual right to
vote,” and concluding that members could bring a direct action instead of a
derivative one because they were enforcing their individual rights to vote rather
than a right of the corporation); see also Matanuska Elec. Ass’n, Inc. v.
Waterman, 87 P.3d 820, 823–24 (Alaska 2004) (stating that the rules of contract
interpretation applied to the interpretation of an electric cooperative’s bylaws
before affirming summary judgment for member who sued for violation of
bylaws); Granbois v. Big Horn Cnty. Elec. Co-op., Inc., 986 P.2d 1097, 1101–02
(Mont. 1999) (noting that the relationship between an electric cooperative and
each of its members is contractual in nature, as defined by the cooperative’s
bylaws, rules, and regulations and that the bylaws, rules, and regulations—as
well as their implementation—must be reasonable).
32
members. See id. §§ 161.001–.254. Nothing in the ECCA incorporates the
provisions of the business organizations code that provide for duties of good faith
and ordinary care by the “governing persons” and officers of a corporation to the
corporation. See Tex. Bus. Orgs. Code Ann. §§ 3.102–.103 (West 2011); Int’l
Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576–77 (Tex. 1963)
(discussing fiduciary duties owed by corporate officers and directors to the
corporation). And to the extent that a fiduciary duty might be owed by CoServ’s
directors to CoServ’s members, Hackett and the class did not sue CoServ’s
directors. Compare Wilson v. Harlow, 860 P.2d 793, 798 (Okla. 1993) (holding
no fiduciary duty at common law between utility’s directors and its ratepayers
because utility was not a cooperative), cert. denied, 510 U.S. 1117 (1994), and
Hargrave v. Canadian Valley Elec. Co-op., Inc., 792 P.2d 50, 52–53, 56–57
(Okla. 1990) (remanding summary judgment on fiduciary duty issue in class
action brought by utility ratepayer-member against electric cooperatives and their
trustees because trustees owed fiduciary duty under Oklahoma statute and
controverted issues of fact remained with regard to whether trustees had
breached their fiduciary duty), with Peoples Elec. Co-op. v. W. Farmers Elec. Co-
op., 746 F. Supp. 2d 1202, 1206 (W.D. Okla. 2010) (stating, in dispute between
two cooperatives, that “[a]n assumption that the entity itself also owes broad-
based fiduciary duties runs the risk of upsetting the balance struck by director-
focused standards”). But see True v. Robles, 571 F.3d 412, 417–23 (5th Cir.
2009) (stating that “[t]he relevant Texas statutes do not address whether the
33
directors of a reciprocal insurance exchange owe a fiduciary duty to individual
subscribers, and we are not aware of any cases, in Texas or elsewhere, that do
so,” before concluding—after an analysis of analogous law—that there is no
fiduciary or contractual relationship between individual subscribers and the board
of directors).
We conclude that whether the cooperative itself owes a fiduciary duty to its
members is another claim best suited for a legislative determination, and we
sustain this portion of CoServ’s fourth issue. See also McCarthy v. Middle Tenn.
Elec. Membership Corp., 466 F.3d 399, 403, 410 (6th Cir. 2006) (stating with
regard to members’ claims against cooperative for mismanagement, self-dealing,
and breach of fiduciary duty that such claims must generally be brought as
derivative actions because breaches of fiduciary duty are deemed to injure only
the corporation).
34
IV. Conclusion
Having overruled CoServ’s third issue in part and having sustained
CoServ’s fourth issue in part, we vacate the trial court’s class certification order
and remand the case to the trial court for further proceedings without reaching
CoServ’s remaining issues or Hackett’s issues. See Tex. R. App. P. 47.1; Gill,
299 S.W.3d at 129 (stating that when a class has been certified based on a
significant misunderstanding of the law, remand to the trial court is appropriate so
that it may determine the effect on the requirements for class certification).
BOB MCCOY
JUSTICE
PANEL: GARDNER, WALKER, and MCCOY, JJ.
WALKER, J. filed a dissenting opinion.
DELIVERED: May 10, 2012
35
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-09-00425-CV
DENTON COUNTY ELECTRIC APPELLANT AND APPELLEE
COOPERATIVE, INC. D/B/A
COSERV ELECTRIC
V.
NICOLE HACKETT, INDIVIDUALLY APPELLEE AND APPELLANT
AND ON BEHALF OF OTHERS
SIMILARLY SITUATED
----------
FROM THE 16TH DISTRICT COURT OF DENTON COUNTY
----------
DISSENTING OPINION
----------
I respectfully dissent. I agree with the majority that the trial court had a
duty to understand the substantive law, claims, and defenses in determining
whether the purported class can meet the certification prerequisites under Texas
Rule of Civil Procedure 42, but I cannot agree with the majority’s holding—
dispositive of the class’s breach-of-statutory-duties and breach-of-fiduciary-duties
claims—that the trial court misunderstood the applicable law when we do not
know that to be true based on the record before us.
In determining the propriety of a class action, the question is not whether
the plaintiffs have stated a cause of action or will prevail on the merits, but solely
whether the requirements of rule 42 have been met. Eisen v. Carlisle &
Jacquelin, 417 U.S. 156, 177, 94 S. Ct. 2140, 2152 (1974); Garcia v. Gloor, 618
F.2d 264, 267 (5th Cir. 1980), cert. denied, 449 U.S. 1113 (1981);1 Exxon Mobil
Corp. v. Gill, 299 S.W.3d 124, 126 (Tex. 2009) (“‘Deciding the merits of the suit in
order to determine . . . its maintainability as a class action is not appropriate.’”)
(quoting Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex. 2000)). “Viability”
is not a requirement for class certification under rule 42. Clark v. Strayhorn, 184
S.W.3d 906, 909 (Tex. App.—Austin, pet. denied), cert. denied, 549 U.S. 995
(2006); see Tex. R. Civ. P. 42. Although the supreme court has instructed us
that “dispositive issues should be resolved by the trial court before certification is
considered,” State Farm Mut. Auto. Ins. Co. v. Lopez, 156 S.W.3d 550, 557 (Tex.
2004), as our sister court in Austin has explained,
Lopez does not create a new procedural means by which
appellate courts can adjudicate the merits of dispositive issues not
otherwise within their jurisdiction to consider. Instead, it envisions
that such issues should be adjudicated in the trial court in the first
instance, through the established procedural mechanisms under our
1
Because Texas Rule of Civil Procedure 42 is patterned after its federal
counterpart, federal decisions and authorities interpreting current federal class-
action requirements are persuasive authority in applying rule 42. Sw. Ref. Co.,
Inc. v. Bernal, 22 S.W.3d 425, 433 (Tex. 2000); see Fed. R. Civ. P. 23; Tex. R.
Civ. P. 42.
2
rules—such as pleas to the jurisdiction, summary-judgment motions,
and special exceptions—rather than by what are substantively the
same proceedings initiated at the appellate level. Cf. Lopez, 156
S.W.3d at 557 (declining to reach viability issues and remanding so
trial court could address pending plea to the jurisdiction and special
exceptions).
Furthermore, the concept of viability addressed in Lopez
emanates from the core requirement that, before certification, trial
courts perform a “rigorous analysis” to determine whether rule 42’s
requirements are met. Bernal, 22 S.W.3d at 435. To “make a
meaningful determination of the certification issues,” Peake, 178
S.W.3d at 778, trial courts must resolve disputes affecting the
underlying substantive law prior to certification because “courts can
hardly evaluate the claims, defenses or applicable law without
knowing what the law is.”
Texas Parks & Wildlife Dep’t v. Dearing, 240 S.W.3d 330, 357 (Tex. App.—
Austin 2007, pet. denied); see Clark, 184 S.W.3d at 909 (interpreting trial court’s
order dismissing case as summary judgment, rather than order on class
certification, and reviewing as such); see also Miller v. Mackey Int’l, Inc., 452
F.2d 424, 428 (5th Cir. 1971) (“[T]here is absolutely no support in the history of
[federal] Rule 23 or legal precedent for turning a motion under Rule 23 into a
Rule 12 motion to dismiss or a Rule 56 motion for summary judgment by allowing
the district judge to evaluate the possible merit of the plaintiff’s claims at this
stage of the proceedings.”).
Here, in this interlocutory appeal of the trial court’s class certification order,
the majority delves into a lengthy analysis of the interplay between the Texas
Electric Cooperative Corporation Act (ECCA) and chapter 22 of the Texas
Business Organizations Code and ultimately determines that the trial court
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improperly certified the class based on a misunderstanding of the law. However,
the trial court did not discuss these statutes in its order certifying the class, nor
were they discussed at the hearing on the certification. We do not know if the
trial court misconstrued or misapplied the applicable law. Cf. Gill, 299 S.W.3d at
127 (explaining, in holding that trial court misapplied case law, that trial court
acknowledged and distinguished case law that was, in fact, indistinguishable);
Lopez, 156 S.W.3d at 557 (refusing, in interlocutory appeal of trial court’s
certification order, to address argument that policyholders’ claims on merits
should be dismissed when trial court did not identify specific causes of action to
be decided nor indicate how they would be tried or substantive issues that would
control their disposition). In fact, in its order certifying the class, the trial court
found that common questions of the class include “[w]hether CoServ has a
statutory duty to the Voting Subclass vis-à-vis governance, director elections,
and voting procedures.” [Emphasis added.] Moreover, the majority’s holding
reaches the viability of the class’s claims, a matter best addressed through
established procedural mechanisms—such as pleas to the jurisdiction, summary-
judgment motions, and special exceptions—that are not the basis of this appeal.
Cf. Lopez, 156 S.W.3d at 557 (declining to reach viability issues and remanding
so trial court could address pending plea to the jurisdiction and special
exceptions).
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For these reasons, I would overrule Appellant’s fourth issue and address
its remaining issues.
SUE WALKER
JUSTICE
DELIVERED: May 10, 2012
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