ACCEPTED
03-15-00436-CV
6397249
THIRD COURT OF APPEALS
August 7, 2015 AUSTIN, TEXAS
8/7/2015 9:12:41 AM
JEFFREY D. KYLE
CLERK
No. 03-15-00436-CV
________________________________________________________________________
In the Third Court of Appeals RECEIVED IN
Austin, Texas 3rd COURT OF APPEALS
AUSTIN, TEXAS
________________________________________________________________________
8/7/2015 9:12:41 AM
JEFFREY D. KYLE
Charles O. “Chuck” Grigson, Clerk
Gerald Hooks, Jr. and Lesly Hooks.
Appellants,
v.
The State of Texas, The Texas Department of Insurance, The Texas Commissioner of
Insurance, and Farmers Group, Inc., Farmers Texas County Mutual Insurance Company,
Texas Farmers Insurance Company, and Fire Insurance Exchange, et al..
Appellees.
________________________________________________________________________
On Appeal from the 261st Judicial District Court, Travis County, Texas
Cause No. D-1-GV-02-002501
________________________________________________________________________
Response of Appellants Gerald Hooks, Jr. and Lesly K. Hooks to the
Appellees’ Joint Motion to Dismiss Gerald and Leslie Hookses’ Appeal for
Lack of Appellate Jurisdiction and Request for Expedited Consideration of Motion
________________________________________________________________________
Joseph C. Blanks
blanxlex@earthlink.net
Joseph C. Blanks, P.C.
P.O. Box 999
Doucette, Texas 75942-0999
409-837-9707
Fax 877-563-7052
Counsel for Intervenors–Appellants
Gerald Hooks, Jr., and Lesly K. Hooks
To the Honorable Court of Appeals,
Intervenors Gerald Hooks, Jr., and Lesly K. Hooks oppose the Appellees’ Joint Motion to
Dismiss [the Hooks Appeal] For Lack of Appellate Jurisdiction. In addition to the points argued
below, the Hooks join in and adopt by reference, as if fully set out herein, the Response of
Appellant Grigson to the Appellees’ Joint Motion to Dismiss his appeal for lack of appellate
jurisdiction.
The Jurisdictional Question
The Preliminary Approval Order (the “Order”) certifies the settlement classes. Despite the
Order’s provisions that track Rule 42, the Appellees argue that the district court’s order does not
certify a class. If they mean that the language of the Order did not contain the magic words, “I
hereby certify,” they are correct. However, the Appellees rely on the form of the Order, the form
they manufactured in an attempt to abrogate this Court’s jurisdiction. They insist that the
settlement preliminarily approved in 2003 and the class certified then exists today, essentially
unchanged; therefore, the classes need no new certification. That is simply not true. Between
2003 and 2015 the class membership changed, the claims being released changed, the law
controlling disposition of uncollected funds changed, and evidence of collusion and adequacy of
representation emerged, all to such an extent that the new certification was inevitable. A
chronological comparison follows.
History of the Three Settlements and the Three Settlement Classes
The 2015 settlement blessed by the district court’s order of preliminary approval required
its new certification. That is precisely what the Appellees asked the court to do in their 2013
joint motion for preliminary approval of the second settlement. That is what the Appellees asked
the court to do in 2015 with their third proposal. The Appellees’ proposed order, Exhibit A to
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 2
their 2015 joint motion for preliminary approval of the third settlement contains the words “the
court herby certifies the following settlement classes.” However, at the very end of the
preliminary approval hearing the Appellees’ presented and the district court signed an order that
removed these words. Despite the deletion of those words, the Order makes all the requisite Rule 42
findings needed for certification.
1. The First Settlement Agreement and Certified Settlement Class
The State and Farmers ignore the Rule 42 findings in the appealed order, arguing that
the 2003 certification endures and supports the 2015 settlement. It did not endure because the
2003 settlement to which it is inextricably intertwined did not endure. The State and the
Farmers did not give the class notice of the 2003 certification and approval of the 2003
settlement . And they did not move for final approval. The Appellees abandoned the 2003 class,
abandoned the 2003 settlement, and one may fairly say, abandoned their respective duties as
class representative, as class counsel, and as proponents of the 2003 deal.
2. The Second Settlement Agreement and Proposed Settlement Class
In 2013, the Appellees made a second agreement to settle. It differed from the first. They
called it the “Second Amended Settlement Agreement and Stipulation” (the “SASAS”). The
Appellees jointly moved the district court for preliminary approval. By the proposed order they
attached to their motion, Appellees asked the district court to certify a settlement class for this
second proposed settlement. The court refused. The district judge observed that the class
representative and class counsel ignored a decade’s lost time value of money. The district court said
that the claims raised in Beaumont in the already–certified Geter class action should be “carved-
out” of the second proposed settlement. Appellants constructively criticized the second proposed
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 3
notice. The court urged the parties to mediate their disagreements and come back with a new
settlement agreement that addressed the concerns the court had articulated and objections the
Intervenors raised.
3. The Third Settlement Agreement and Newly Certified Settlement Class
The Appellees negotiated a new deal in 2015, deal number three. In another joint motion
for preliminary approval, they presented their third settlement agreement, complete with a
proposed order that “hereby certifies” a new class.1 The 2015 settlement agreement consists of
the rejected 2013 agreement—itself different from the 2003 agreement—modified further with
updates and supplements so complex that few class members will read or understand the terms.
In summary, the 2015 deal alters the payouts and the claims released. It improperly
awards the “unclaimed,” i.e., uncollected settlement funds to the class representative, raising
questions of adequacy of representation and collusion. And the passage of time shrank the
settlement class, diminishing its membership by almost 25%; a dozen years of policy–holder
deaths saw to that. Granted, minor changes and adjustments to a settlement’s terms do not
ordinarily compel a new certification. But here the passage of 12 years, recent judicial decisions,
and the district court’s need to consider new evidence inexorably led to the new certification
order here appealed.
Different Payout Amounts. The third settlement, the State and Farmers say, exceeds
the 2003 settlement by $10 million in extra money that, the Farmers parties insist, is “not
interest.” Asked to comment on the “supplement” to the second settlement agreement, David
Mattax, former class counsel and now the Commissioner of Insurance, opined that, “it’s an
improvement over the original settlement. … And the fact that we were able to get an additional
1 Exhibit A to the 2015 Joint Motion for Preliminary Approval.
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 4
$10 million of value to the policyholders and eliminate some of the other issues that back in
2003 were an issue but really no longer are, like the question of the management fee, like the
Geter class-action, I think it’s a great improvement and I fully support it, yes.” 2 In addition, the
Appellees represent that some significant but unspecified quantum of the settlement has already
been “paid” out to the class as rate reductions. And unlike in the first settlement, Farmers Group,
Inc. will pay unspecified sums to its co-defendants, the Exchanges—they were owned in 2003 by
their class member insureds—as part of the third settlement. In addition, the total payments to
the credit–scoring class, originally unlimited in amount, is now reduced to $35 per claimant. In
sum, evidence of how the third settlement differs from the first justified and required certification
anew.
Different Claims Being Released. The third settlement does not release the same range
of claims and rights as did the first settlement. “Unknown claims” are now defined by California
law in this Texas case. Moreover, the agreement underlying the first settlement class did not
release any of the rights or potential claims that accrue to class members by virtue of the Geter
class action pending in Beaumont. But the third settlement agreement does specifically carve-out
the Geter–based rights and potential claims. The Assistant Attorney General told the district court
that, “[W]e added a carve-out for that [Geter] class action, for the declaratory relief that had been
requested in that case. … So we have carved out that declaratory relief so that it can move
forward without any fear that the release [in this case] will be held up to try to block that.” 3
Commissioner Mattax affirmed the Geter carve-out that he had negotiated with Farmers and
asserted, when he testified in the preliminary approval hearing, “I do support it as the
2 Transcript, Preliminary Approval Hearing,. page 92 (1 July 2015).
3 Transcript, pages 67-68, (1 July 2015).
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 5
Commissioner of Insurance.” 4 In addition, the award of attorney fees and costs to class counsel
are carved-out.
Different Class Members. The membership of the third settlement classes differs
markedly from those of the first. Many of the homeowner–insureds in the first class died in the
dozen years since the original certification. The third settlement class is logically smaller, a lot
smaller, than the first. Assume that in 2003 the 1.8 million insureds were evenly distributed
between the ages of 24 and 84 years. A quarter of them have likely expired in the last 12 years.5
If the original class consisted of 1.8 million insureds, then survivors making up the newly
certified class may be as few as 1.38 million. The dead cannot be class members, of course, and
the loss of one third of the class is a big deal. This dramatic diminution in the membership of the
class also compelled the recent certification.
Different Disposition of Unpaid Settlement Funds. Each of the three settlements
provided that the funds not paid out to class members must go into the State’s “unclaimed
property fund.” That proviso in the settlement agreements did not change from prior agreements,
but the controlling law did. By requiring the payment of all undisbursed settlement monies to the
State’s unclaimed property fund, the Order violates the rule articulated in Highland Homes,
pouring a multi-million dollar barrel of private property into the public trough.6 When the court
4 Id., page 91.
5 CDC tables showing mortality rates for Texans in 10–year age groups report an average death
rate of 3,100 persons per 100,000 in the second year. As the cohort ages, the rates of death
increase. In a cohort of 1.8 million homeowners and over a period of 12 years, on average,
around 35,000 persons expire per year. Assuming that the homeowner–insureds were distributed
evenly in ages from 25 to 84 years in 2003, the total expected deaths over the 12 year since are
on the order of 418,000, about 23% of the class as certified in 2003.
See http://www.cdc.gov/nchs/data/dvs/MortFinal2007_Worktable23r.pdf.
6 Highland Homes, Ltd. v. The State of Texas, 448 S.W.3d 403 (Tex. 2014).
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 6
certified the 2003 settlement class and when it refused to certify the 2013 settlement class, the
shunting of the uncollected, undisbursed funds into the State’s unclaimed property fund was not
known to be unlawful. However, the Supreme Court in 2014 rejected the propriety of such
expropriations. As explained in Highland Homes, section 74 of the Property Code covers
abandoned funds as to which owners “have neither asserted claims nor exercised acts of
ownership.” We now know that the funds to be paid in the third settlement are manifestly not
“unclaimed.” The funds have necessarily been claimed by and through the class representative
on behalf of all class members.7 As currently framed, the settlement likely motivates the class
representative to profit his client at the expense of the other class members. Because the district
court had to and did consider this evidence, the new certification order was required.
Collusion and Adequate Representation
In contesting Highland Homes, the State presciently warned “that cy pres awards can be
abused when they are nothing more than a judicial giveaway of private property.” 8 This concern
led the district court to hear evidence before certifying the 2015 settlement class(es). The Order
that the Appellees drafted creates an incentive for class counsel to stand-aside in the claims
process so that class members acquiesce in collecting their settlements. Their failure to pursue
collection will result in a larger cy pres fund that inures to the benefit of the State. 9 This windfall
will include funds that should have gone to the countless deceased, now former, members of the
7 Id. at 410-11.
8 Id. at 412.
9 That the Comptroller makes an accounting entry that “books” the class members’ money as
“unclaimed property funds” does not prevent the State from actually spending the money when
the Comptroller receives it. Moreover, the Comptroller enjoys and keeps earnings on the float.
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 7
2003 settlement class, as well as payments owed to class members who cannot be found or who
are flummoxed by the puzzling notice and burdensome claim form that class counsel approved.10
Heartened by the Supreme Court’s reminder that “trial courts must be careful in class
actions to protect class interests and scrutinize settlements,” the district court heard evidence on
why the uncollected funds should go to the State, but it omitted to consider the collusive efforts
of the Appellees to make the Order they presented look like it merely renewed and extended the
2003 certification to avoid the rigorous analysis required when it certified the new settlement
class(es).
Form versus Substance—a Look Beyond the Pleadings
The Supreme Court has instructed that the trial court must perform a “rigorous analysis”
of the Rule 42 requirements before certifying a class.11 The Austin Court has said the same.12
Moreover, in deciding to certify a settlement–only class, heightened scrutiny is required to
protect the absent class members.13 The trial court did this in 2003. It highly scrutinized the 2013
second settlement agreement which it rejected. Aware of the challenges in this case and its duty
to protect the putative classes, the district court approached the 2015 settlement agreement with
care. The court had to consider the new evidence described above and had to weigh it in light of
the Intervenors’ objections. Because of the new evidence presented, the district court certified the
10 And if the wealth transfer required by the Order must be done via a cy pres award to the State,
then what statute will allow payment of the funds to class members who later come forward to
collect? It will by then have become State property (and be already spent).
11 Phillips Petrol. Co. v. Yarborough, 405 S.W.3d 70, 80 (Tex. 2013)
12Canyon Lake Island Property Owners Assoc. v. Sterling/Suggs L.P., 2015 WL 3543125 (Tex.
App. Austin—2015).
13 McAllen Medical Center v. Cortez, 66 S.W.2d 227, 232 (Tex. 2001).
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 8
2015 settlement classes when it signed the Order that contains all of the relevant Rule 42
requirements.
Of course the Appellees prefer to speak of the settlement class(es) the court certified in
2003, but those classes been modified by a dozen years of class–member deaths.The agreed pay-
over of funds to the class representative’s “unclaimed property fund” has been outlawed by the
Supreme Court. The class representative and class counsel demonstrated the inadequacy of their
representation. The collusion between the State and Farmers became manifest by 2014. Thus, the
several hearings and the form of the pull–it–out–of–the–bag–at–the–last–minute order of
certification. That the district court signed the Order while ignoring the certification order the
Appellees appended to their second and third joint motions for preliminary approval shows the
district court’s lack of scrutiny and failure to conduct the rigorous analysis required in certifying
the class(es). But the Order speaks for itself through all of the Rule 42 language that certifies a
class.
The Phillips court explained the issue well, observing that, “A trial court’s order changes
the fundamental nature of the class, and is therefore subject to interlocutory appeal … if it
modifies the class in such a way as to raise significant concerns about whether certification
remains proper.” 14 Because of the evidence the district court heard describing how the the
fundamental nature of the 2003 settlement classes and settlement agreement have changed over
12 years, the Order here appealed certified a new deal, certified new settlement classes.
14 Phillips Petroleum Corp,, 405 S.W.3d at 82.
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 9
Conclusion
For these reasons and for all the reasons set forth in Appellant Grigson’s response to the
Appellees’ joint motion to dismiss, the Appellants request that the Court deny the Appellees’
Joint Motion to Dismiss Gerald and Leslie Hookses [sic] Appeal for Lack of Appellate
Jurisdiction, give this motion expedited consideration, and grant such other and further relief to
which the Appellants be entitled.
Respectfully submitted,
JOSEPH C BLANKS P.C.,
By: Joseph C. Blanks, TBN 02456770,
PO Box 999, Doucette, Texas 75942. 409-837-9707 fax 877-563-7052
Attorney for Intervenors/Appellants Gerald Hooks, Jr. and Lesly K. Hooks
CERTIFICATE OF SERVICE
I certify that on 6 August 2015 I attempted to electronically file the above instrument With
the Clerk of the Court using the E file.TX courts.gov electronic filing system that will send
notification of such filing to the following persons:
• Michael J Woods, MichaelJWoods@SBCglobal.net,
8620 N. New Braunfels, Suite 522, San Antonio, TX 78217,
Pro Se Intervenor/Objector
• Joe K Longley Joe@JoeLongley.com,
And
• Philip K Maxwell, Phil@PhilMaxwell.com,
1609 Shoal Creek Blvd., Suite 100, Austin, TX 78701,
Counsel for Intervenor/Appellant Charles O “Chuck” Grigson
• Mercy Hogan Greer, mGreer@adjtLaw.com, Alexander DuBose Jefferson and Townsend LLP,
515 Congress Ave., Suite Suite 2350, Austin, TX 78701-3562
And
• M Scott Incerto, @NortonRoseFulbright.com,
Norton Rose Fulbright US LLP, 98 San Jacinto Blvd., Suite 1100, Austin, TX 78701,
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 10
And
• Darryl W Anderson, darryll.anderson@NortonRoseFulbright.com
• Geraldine W Young, geraldine.young@NortonRoseFulbright.com
NORTON ROSE FULBRIGHT US LLP, 1301 McKinney, Suite 5100, Houston, TX 77010 – 3095
Counsel for Defendants/Appellees Fire Underwriters Association, Farmers Group Inc.,
Farmers Underwriters Association, Farmers Insurance Exchange, Fire Insurance Exchange,
Texas Farmers Insurance Company, Mid–Century Insurance Company of Texas, Mid–
Century Insurance Company, Farmers Texas County Mutual Insurance Company, Truck
Insurance Exchange, and Truck Underwriters Association.
• Joshua R Godbey, Joshua.Godbey@TexasAttorneyGeneral.gov,
• Ryan S Mindell, Ryan.Mindell@TexasAttorneyGeneral.gov,
• Jennifer S Jackson, Jennifer.Jackson@TexasAttorneyGeneral.gov
ASSISTANT ATTORNEYS GENERAL OF TEXAS, PO Box 12548, Austin, TX 78711 – 2548
Attorneys for Plaintiffs – Appellees, the State of Texas, the Texas Department of Insurance,
and the Texas Commissioner of Insurance
Joseph C. Blanks
Certificate of Conference
I certify that on 20 July 2015 I conferred with M. Scott Incerto, counsel for the Farmers parties,
about the merits of the Appellees’ Motion to Dismiss for Lack of Appellate Jurisdiction, pursuant
to Texas Rule of Appellate Procedure 10.1(a)(5), and I advised him that the Hooks oppose the
Appellees’ motion.
Joseph C. Blanks
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 11
Certificate of Compliance with Texas Rule of Appellate Procedure 9.4 (i)
I certify that the foregoing document contains 3094 words and complies with the word limit set
forth in Texas Rule of Appellate Procedure 9.4(i).
Joseph C. Blanks
Hooks Appellants’ Response to Appellee’s Joint Motion to Dismiss Appeal ! 12