Garza v. Hon. gama/swift

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

LEONEL GARZA, and all persons similarly situated,
Petitioners,

v.

THE HONORABLE J. RICHARD GAMA,
Judge of the SUPERIOR COURT OF
THE STATE OF ARIZONA, in and for
the County of MARICOPA,
Respondent Judge,

SWIFT TRANSPORTATION CO., INC.,
Real Party in Interest.

No. 1 CA-SA 15-0315
FILED 7-12-2016

Petition for Special Action from the Superior Court in Maricopa County
No. CV2004-001777
The Honorable J. Richard Gama, Judge, Retired

JURISDICTION ACCEPTED; RELIEF GRANTED

COUNSEL

Hagens, Berman, Sobol, Shapiro, LLP, Phoenix
By Robert B. Carey, Leonard W. Aragon, Michella A. Kras
Counsel for Petitioners
Polsinelli, PC, Phoenix
By Rebecca Lumley
Counsel for Real Party in Interest

Polsinelli, PC, Kansas City, MO
By James C. Sullivan, Travis Salmon
Counsel for Real Party in Interest

OPINION

Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in
which Judge Patricia A. Orozco and Judge Kenton D. Jones joined.

J O H N S E N, Judge:

¶1 Petitioners challenge the superior court's order decertifying
an 80,000-member class of drivers suing Swift Transportation Co., Inc. For
the reasons stated below, we accept jurisdiction of the petition for special
action and grant relief. On this record, Swift has failed to show that its
various affirmative defenses render the class unmanageable; we also hold
that Arizona law applies to the drivers' claim for breach of the duty of
good faith and fair dealing.

FACTS AND PROCEDURAL BACKGROUND

¶2 Petitioner Leonel Garza was a Swift truck driver who sued
the company in 2005, alleging it systematically underpaid all of its drivers.
The superior court denied Garza's subsequent motion for class
certification. This court reversed and remanded, but on review, our
supreme court vacated our decision, holding we lacked jurisdiction over
the interlocutory denial of a motion to certify a class. Garza v. Swift
Transp. Co., Inc., 222 Ariz. 281 (2009). On remand, the superior court
certified a class of Swift drivers pursuant to Arizona Rule of Civil
Procedure 23(b)(3). As trial approached, however, the superior court
granted Swift's motion to decertify the class in July 2015.

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DISCUSSION

A. Jurisdiction.

¶3 Petitioner Garza and the drivers who were members of the
now-decertified class lack an adequate remedy on appeal. See Garza, 222
Ariz. at 287, ¶ 27 (special action was suitable means to seek review of
order denying class certification). Cf. Ariz. Rev. Stat. § 12-1873(A) (2016)
(creating appellate jurisdiction over orders certifying or refusing to certify
class actions in cases filed after September 13, 2013). In addition, Garza's
petition raises questions of statewide importance. See Perry v. Ronan, 225
Ariz. 49, 52, ¶ 6 (App. 2010). For these reasons, we accept jurisdiction of
the petition for special action.

B. De-Certification of the Class.

1. Reconsideration of certification.

¶4 Whether to certify a class is a matter within the discretion of
the superior court. Godbey v. Roosevelt Sch. Dist. No. 66 of Maricopa County,
131 Ariz. 13, 16 (App. 1981). In granting Swift's motion to decertify, the
superior court concluded that the drivers' good-faith claim "is
unmanageable as a class action." It held that, even assuming the claim
presents common questions, Swift's affirmative defenses "raise individual
issues" that would predominate over the common questions. Moreover,
the court held, petitioners had not shown that Swift's choice-of-law
arguments did not present "insuperable obstacles" to class-action
treatment.

¶5 Petitioners argue that, having certified the class, the superior
court lacked discretion to revisit the issue as trial neared. They argue that
absent changed circumstances, a change in the law, the need to correct a
clear error of law, or evidence that was unavailable earlier, the court
should not reconsider a grant of class certification.

¶6 Arizona Rule of Civil Procedure 23(c)(1) provides that a class
certification order may be "altered or amended before the decision on the
merits." The class in this case was certified under Rule 23(b)(3) (common
questions of law or fact predominate over individual questions such that
class treatment "is superior to other available methods for the fair and
efficient adjudication of the controversy"). As Rule 23(c) anticipates, when
the nature of the claims has evolved, the superior court has discretion to
revisit whether, considering the elements of the claims and the proof
required to prove those claims and any relevant affirmative defenses,

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common questions of law or fact continue to predominate over individual
questions. See Gen. Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160
(1982); Marlo v. United Parcel Serv., 251 F.R.D. 476, 479-80 (C.D. Cal. 2008)
("[A] district court reevaluating the basis for certification may consider its
previous substantive rulings in the context of the history of the case, and
may 'consider the nature and range of proof necessary to establish the
[class-wide] allegations.'") (citation omitted); see also ESI Ergonomic
Solutions, LLC v. United Artists Theatre Circuit, Inc., 203 Ariz. 94, 98 n.2, ¶ 11
(App. 2002) (cases construing federal rule of civil procedure may be
authoritative in interpreting similar state rule).

¶7 When the superior court certified the class in this case, the
complaint contained claims for breach of a standard form contract and
breach of the implied covenant of good faith and fair dealing. The
premise of the claims was that Swift systematically paid its drivers for
fewer miles than they actually drove. Garza, 222 Ariz. at 282, ¶ 3. A claim
for breach of a standard form contract or company policy often may be
suitable for class-wide treatment. See, e.g., Lennon v. First Nat'l Bank of
Ariz., 21 Ariz. App. 306 (1974) (class treatment of claim arising out of
standard bank charges). In a ruling not now before us, however, the
superior court dismissed petitioners' claim for breach of contract. With
trial approaching on petitioners' remaining claim for breach of the
covenant of good faith and fair dealing, the superior court did not abuse
its discretion when it decided to reconsider whether common questions
continued to predominate and whether the case, now with some 80,000
class members, continued to be manageable.

2. The remaining claim.

¶8 When Swift offers a trip to a driver, it sends a digital
message informing the driver of the route and a mileage total for which
the driver will be paid; the driver accepts the offer by pressing "y" in
response to the inquiry. Garza, 222 Ariz. at 282, ¶ 2. Swift pays a fixed
rate per mile, and to calculate the miles for which it will pay, it uses third-
party software called the Household Goods Mileage Guide ("HHG"). In
dismissing petitioners' claim for breach of contract, the superior court held
that Swift's contracts only required Swift to pay a driver for the number of
miles stated in the digital message, and that a driver could not claim
breach based on Swift's failure to pay for any additional miles a trip
actually may require.

¶9 Consistent with the superior court's earlier ruling dismissing
petitioners' claim for breach of contract, the evidence now in the record is

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that Swift's drivers knew and agreed that they would be paid based on
mileage derived from HHG, that the mileage they would actually drive
would be greater than the HHG-derived mileage, and that, as a
consequence, they would be paid for fewer miles than they drove. Swift
cites evidence that drivers were informed and understood that a trip
might require them to drive five to ten percent more miles than the HHG-
derived mileage for which they are paid.

¶10 Petitioners' remaining claim alleges breach of the duty of
good faith and fair dealing implied as a matter of law in Swift's
contractual relationships with its employee-drivers and owner/operator-
drivers. As explained in their petition for special action, petitioners allege
HHG allows Swift more than one method of estimating the distance to a
particular destination. They allege that in determining how much to pay a
driver for a trip, Swift uses an HHG method that is not the most accurate
means of estimating the distance the driver actually will drive.1
Petitioners allege Swift breached its duty of good faith and fair dealing (1)
by failing to select the HHG alternative that most accurately estimates
actual trip distance and (2) by failing to inform drivers of that fact. They
argue, "[T]elling a driver that the HHG does not equate to actual mileage
does not show that Swift adequately and accurately explained to drivers
how the HHG worked." That HHG-calculated mileage is less than actual
miles driven is one thing, petitioners contend; it is another that Swift
"selected the least favorable HHG payment option – city/state pairs – but
did not tell the drivers" it had done so.

¶11 Implied in every contract is a duty of good faith and fair
dealing that "prohibits a party from doing anything to prevent other
parties to the contract from receiving the benefits and entitlements of the
agreement." Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons
Local No. 395 Pens. Tr. Fund, 201 Ariz. 474, 490, ¶ 59 (2002). A party may
breach the covenant of good faith and fair dealing without breaching an
express term of the contract. Id. at 491, ¶ 64 (breach of good faith when
one party injures the other by "manipulat[ing] bargaining power to its
own advantage[.]"). As alleged here, that principle means that although
Swift's contracts may not have required it to pay drivers for any more
miles than HHG specified, Swift may have breached its duty of good faith

1 According to petitioners, although Swift uses HHG's "city/state
pair option," HHG also offers other (allegedly more precise) means of
calculating distances, including by zip code, nearest intersection, and
latitude/longitude.

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and fair dealing if it deliberately manipulated HHG to have it short the
mileage the software calculated for purposes of payment.

¶12 It is apparent, therefore, that petitioners' claim for breach of
the duty of good faith and fair dealing raises an issue common to all the
members of the class: Given that the class members agreed to be paid
based not on actual miles but on HHG-derived miles, did Swift have a
duty implied by law to select a program within HHG that would derive
mileages that most closely approximated actual miles? Put differently,
assuming petitioners agreed that they would be paid based on whatever
HHG calculated, if Swift could choose between two (or three) options
within HHG, did Swift have a duty to the drivers to select the option that
was most advantageous to them?2

3. Manageability: Affirmative defenses.

¶13 By itself, the presence of a single common question does not
require a case be treated as a class action. Under Rule 23(b)(3) the
common question must "predominate over any questions affecting only
individual members[.]" It also must be shown that "a class action is
superior to other available methods for the fair and efficient adjudication
of the controversy." Ariz. R. Civ. P. 23(b)(3). Related to "fair and efficient
adjudication" is the manageability of the case as a class action. See Ariz. R.
Civ. P. 23(b)(3)(D) ("the difficulties likely to be encountered in the
management of a class action").

¶14 Denial of class action status based on manageability
concerns is disfavored. See Klay v. Humana, Inc., 382 F.3d 1241, 1272 (11th
Cir. 2004) (manageability "will rarely, if ever, be in itself sufficient to
prevent certification of a class"); Iliadis v. Wal-Mart Stores, Inc., 922 A.2d
710, 727 (N.J. 2007). The first manageability concern the superior court
identified in decertifying the class arises from Swift's due-process right to
a fair trial on any affirmative defenses it might raise to the class members'

2 We express no opinion on the merits of petitioners' claim.
Although class-certification issues "may 'entail some overlap with the
merits of the plaintiff's underlying claim,' Rule 23 grants courts no license
to engage in free-ranging merits inquiries at the certification stage. Merits
questions may be considered to the extent – but only to the extent – that
they are relevant to determining whether the Rule 23 prerequisites for
class certification are satisfied." Amgen Inc. v. Conn. Ret't Plans and Trust
Funds, 133 S. Ct. 1184, 1194 (2013) (citation omitted).

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claims. Swift argues that individual questions relating to the good-faith
claim predominate because of affirmative defenses it is entitled to raise
that necessarily are specific to each individual member of the class. In
ordering the class decertified, the superior court found these affirmative
defenses would raise individual issues such that they would "predominate
over the common question and answer."

¶15 As Swift explains, all of its affirmative defenses (limitations,
waiver, laches) are based on when the respective class members came to
know of facts that would give rise to their claim. Under other
circumstances, the date on which each member of a large class became
aware of the facts on which his or her claim is based could create
individual questions that might make a class action unmanageable. But
the record here contains no evidence that any class member knew what
petitioners allege constituted Swift's breach of the duty of good faith: That,
within HHG, Swift could have chosen a more accurate means of deriving
the mileage for which it would pay drivers but did not do so. Indeed, as
petitioners point out, there is plenty of evidence that trainers and others in
Swift management, who presumably would have informed drivers of how
HHG worked, did not themselves understand the facts that petitioners
cite as the basis for their claim for breach of the duty of good faith. Swift
cites substantial evidence that it told its drivers, or that the drivers
otherwise knew, that they would be paid for fewer miles than they
actually drove. It cites no evidence, however, that it told any of its drivers
that, as petitioners allege, it could have used an option within HHG to
derive more accurate mileage totals, but chose not to do so.

4. Manageability: Choice of law.

¶16 The superior court held that choice-of-law issues presented
another manageability issue compelling decertification. The court
concluded, "With regard to Swift's choice of law defense, Garza has not
met his burden to show 'that class certification does not present
insuperable obstacles.'" We review de novo the superior court's
determination concerning the appropriate choice of law. Pounders v.
Enserch E & C, Inc., 232 Ariz. 352, 354, ¶ 6 (2013). Arizona courts generally
look to the Restatement (Second) of Conflict of Laws (1971)
("Restatement") to determine which state's substantive law applies to a
claim. Burr v. Renewal Guar. Corp., 105 Ariz. 549, 550 (1970).

¶17 Swift has standard form contracts with roughly 1,000
owner/operators that contain a provision requiring application of Arizona
law to disputes arising under those contracts. Swift does not dispute that

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Arizona law governs those drivers' claims for breach of the duty of good
faith and fair dealing. The choice-of-law issue is with Swift's roughly
80,000 employee drivers, with whom Swift has no written contract. Swift
hires and manages its employee drivers from terminals located in 26
states, including Arizona. But the company's corporate headquarters is in
Arizona, and it manages all of its payroll operations from within this state.
Although Arizona recognizes a duty of good faith implied by law in every
contract, Swift argues (and petitioners do not dispute) that at least 15 of
the 26 states in which it has terminals either do not recognize a duty of
good faith implied in an employment relationship or do not permit a
claim for breach of the duty of good faith to be brought as an independent
cause of action. Without pausing to analyze each of those states' laws on
the question, we will assume for purposes of this analysis that Arizona's
good-faith law actually conflicts with that in one or more of the other
states.

¶18 When, as here, no statute or contract directs application of a
particular state's law, the Restatement requires the court to consider
various interests, including (as relevant here) "relevant policies of the
forum," "the relevant policies of other interested states and the relative
interests of those states in the determination of the particular issue," "the
protection of justified expectations," and "certainty, predictability and
uniformity of result." Restatement § 6(2). More specifically, in a contract
claim such as this, when the parties have not selected a particular state
law to govern their contract, the court should apply the local law of the
state with the most significant relationship to the transaction and the
parties. Restatement § 188(1); see Taylor v. Sec. Nat'l Bank, 20 Ariz. App.
504, 507 (1973).

¶19 Focusing on contract actions, Restatement § 188(2) instructs
that the interest analysis to be pursued under Restatement § 6 should take
into account the following:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation
and place of business of the parties.

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These contacts are to be evaluated according to their relative
importance with respect to the particular issue.

¶20 In the case of a contract for services, such as the employment
relationships at issue here, Restatement § 196 provides the analysis. See
Restatement § 196 ("Contracts for the Rendition of Services"); id. cmt. a (§
196 applies, inter alia, to "contracts with servants, independent contractors
and agents"); see also Restatement § 188(2)(c), (3). Under Restatement §
196, unless another state has a more significant interest under § 6, the
applicable law will be that of the state where the contract requires the
services to be performed.

¶21 Significantly for purposes of this case, however, the force of
the "place of performance" factor in a contract for services is limited to
situations in which "the major portion of the services called for by the
contract is to be rendered in a single state and it is possible to identify this
state at the time the contract is made." Restatement § 196 cmt. a.3 That is
not the situation with Swift's employee-drivers: By their nature, the
services they perform are not restricted to any one state; drivers' work
takes them across the country. As applicable here, the states through
which Swift drivers pass lack a significant interest in the nature of those
drivers' relationships with Swift; by the same token, a driver's temporary
presence in any particular state is unlikely to create in that driver any
reasonable expectations about applicable common-law duties of good
faith and fair dealing arising out of contract. See Restatement § 6(2)(c)
(respective interests of other states in determination of issue).

¶22 On the other hand, however, as relevant to the claim at issue,
the acts by Swift that are at the center of petitioners' good-faith claim all
were performed in Arizona, not in the many states through which its

3 The comment continues:

For this reason, the rule of this Section is unlikely to aid in
the determination of the law governing contracts for
employment aboard a ship sailing the high seas or to serve
as a traveling salesman in two or more states. The same is
true when the work called for by the contract can be done in
any one of two or more states.

Restatement § 196 cmt. a.

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employees drive. Regardless of the terminal out of which drivers work or
where their trips take them, it was in Arizona that Swift allegedly decided
to use the particular option within HHG of which petitioners complain
and it is within Arizona that Swift prepares all of its drivers' payroll
documents and issues their checks. Under these circumstances, the desire
for certainty, predictability and uniformity of result favors application of
Arizona law to the way in which Swift calculates what it will pay its
drivers. See Restatement § 6(2)(f).

¶23 The hub-and-spoke relationship between Swift's corporate
policies and payroll functions in Arizona and the other states in which its
drivers live and through which they drive is similar to circumstances the
Texas court of appeals addressed in Farmers Insurance Exchange v. Leonard,
125 S.W.3d 55 (Tex. App. 2003). In that case, insurance agents in 29 states
brought a class action over a bonus system their employer implemented
from its corporate headquarters in California. Over the employer's
objections, the Texas court held California had the most significant interest
in the matter because that was the location of the acts on which the class
claims were based. "While each agent's home state has a great interest in
having its law applied to disputes arising within its borders, the only
actions in dispute here occurred in California." Id. at 62. Where the
insurance agents lived and worked was not material:

The relevant performance for the purposes of this dispute is
that of Farmers. . . . In the context of these bonus contracts,
the actions of the agents in selling and maintaining various
insurance products merely provides the measuring stick that
Farmers uses in performing its obligations under the
contract. Thus, the relevant place of performance of these
bonus award contracts was California.

Id. at 63-64.

¶24 As in Farmers, application of Arizona law serves the policies
and interests of Arizona as the forum of the action and the state in which
Swift chose to establish its business headquarters. See Restatement §
6(2)(b). Arizona has a strong interest in enforcing the duty of good faith
and fair dealing that our supreme court has held is implied by law in
every employment contract. Wagenseller v. Scottsdale Mem'l Hosp., 147
Ariz. 370, 385 (1985); see Wells Fargo, 201 Ariz. at 490, ¶ 59 (duty prevents
one party from acting to deprive the other of "the benefits and
entitlements of the agreement"). It would not serve that public policy if an
employer based in Arizona owed that duty to some of its employees but

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not to others. See Restatement § 6(2)(b). By the same token, given the
transitory nature of the drivers' worksites and the fact that Swift's payroll
functions are performed solely from within Arizona, to the extent they
thought about it, the parties were more likely to expect that Arizona law,
not the laws of the many other states, would apply to how Swift
calculated what it would pay its drivers. See Restatement § 6(2)(d)
(protection of justified expectations); Farmers, 125 S.W.3d at 62 (reasonable
to assume that parties thought that state in which bonuses were
determined and from which bonuses were paid would control).

¶25 Swift argues its due-process rights require application of the
laws of the states in which its drivers live (or in which Swift's terminals
are located). The Due Process Clause, however, imposes only "modest
restrictions on the application of forum law." Phillips Petroleum Co. v.
Shutts, 472 U.S. 797, 818 (1985). "[F]or a State's substantive law to be
selected in a constitutionally permissible manner, that State must have a
significant contact or significant aggregation of contacts, creating state
interests, such that choice of its law is neither arbitrary nor fundamentally
unfair." Id. (quoting Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13 (1981)).
In Phillips, upon which Swift relies, the Supreme Court held the Kansas
court erred by applying that state's contract law and equitable principles
to a class action of 28,000 oil lessors even though 99 percent of the leases
and 97 percent of the plaintiffs had no connection to that state. Phillips,
472 U.S. at 814-15. No similar constitutional impediments prevent
application of the law of Arizona, where Swift has its corporate
headquarters and administers its payroll system, to its drivers' claim for
breach of the duty of good faith and fair dealing based on how Swift pays
them.

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CONCLUSION

¶26 For the reasons stated above, we accept jurisdiction and
grant relief by reversing the order decertifying the class.

:AA

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