[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JAN 04 2008
No. 06-16458
THOMAS K. KAHN
________________________
CLERK
D. C. Docket No. 06-00986-CV-T-17MSS
DALE J. MILLS,
C. DIANE MILLS,
Plaintiffs-Appellants,
versus
FOREMOST INSURANCE COMPANY,
a Michigan corporation,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(January 4, 2008)
Before BLACK, HULL and FAY, Circuit Judges.
HULL, Circuit Judge:
Plaintiffs Dale J. Mills and C. Diane Mills (the “Millses”) appeal the district
court’s order granting Defendant Foremost Insurance Company’s (“Foremost’s”)
motion to dismiss their class action complaint. After review and oral argument,
we reverse the district court’s order and remand for further proceedings.
I. BACKGROUND
A. The Complaint’s Allegations
In February 2006, the Millses filed a class action complaint against
Foremost in Florida state court. According to the complaint, the Millses are
Florida residents who own a mobile home that was insured by Foremost under a
“Mobile Home Insurance Policy” (the “Policy”).1 In September 2004, Hurricane
Frances damaged the Millses’ home and personal property covered under the
Policy. The Millses submitted a claim to Foremost under the Policy and received
a loss payment that was less than they were entitled to. Specifically, Foremost
failed to compensate the Millses for contractors’ overhead and profit charges, and
for state and local sales taxes on materials, incurred by the Millses in having their
hurricane-damaged property repaired or replaced.2 The complaint also alleges that
1
The Policy is labeled “Form 3342 01/98.”
2
Although the language of the Millses’ complaint suggests that they actually repaired or
replaced their damaged property, the way the parties have framed the issue on appeal implies that
the Millses submitted their claim to Foremost based on estimated, rather than expended, repair or
replacement costs.
2
Foremost knowingly and unlawfully failed to pay overhead, profit, and taxes in
Foremost’s estimates of hurricane-damaged losses and failed to inform the Millses
about Foremost’s intention not to pay overhead, profit, and taxes under the Policy.
We will refer to the unpaid overhead, profit, and taxes collectively as the
“Withheld Payments.”
The complaint alleges that Foremost (1) breached the terms of the Policy by
failing to compensate the Millses for the Withheld Payments, and (2) unlawfully
failed to inform them, before they purchased or renewed the Policy, of Foremost’s
intention not to pay the Withheld Payments.3 The complaint seeks damages and
declaratory and injunctive relief, both for the Millses themselves and on behalf of
a class. The complaint defines the class as all of Foremost’s mobile home
insurance policyholders in Florida who, from August 1, 2004 onward, submitted to
Foremost claims for hurricane damage to their mobile home or personal property
caused by or arising from four hurricanes that struck Florida in August and
September 2004 (Hurricanes Charlie, Frances, Ivan, and Jeanne).
B. Foremost’s Rule 12(b)(6) Motion
3
The complaint originally sounded in breach of contract and breach of fiduciary duty, but
the Millses later consented to the dismissal of the fiduciary duty claim.
3
Foremost removed the case to federal court and filed a motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6). Neither party filed a motion
regarding class certification under Federal Rule of Civil Procedure 23. However,
Foremost’s Rule 12(b)(6) motion argued that class action treatment was
inappropriate because common legal or factual questions would not predominate
over individual issues.
In a November 15, 2006 order, the district court granted Foremost’s
12(b)(6) motion. First, the district court held that the Millses lacked standing to
bring their claims, either individually or as class representatives. It based this
standing decision on its interpretation of the Policy. The court concluded that, to
receive the Withheld Payments, the Millses must satisfy these preconditions in the
Policy: (1) they must complete the repairs or replacement of the damaged
property; (2) they must actually incur overhead, profit, and sales tax in connection
with the repairs or replacement; and (3) they must make a further claim for any
“additional costs” (including overhead, profit, and sales tax) incurred in repairing
or replacing the damaged property. The district court concluded that (1) the
Millses failed to allege that they had completed the repairs or replacement and
made a claim for such repair or replacement costs, and (2) thus “they do not have
standing to maintain individual claims, let alone class claims.” Mills v. Foremost
4
Ins. Co., No. 8:06-CV-986-T-17, 2006 WL 3313945, at *2 (M.D. Fla. Nov. 15,
2006).
Second, the district court held that in any event the Millses’ claims were
inappropriate for class action treatment because “the individual inquiry of the facts
surrounding the property damage claims of thousands of Foremost policy holders
under thousands of separate insurance policies would predominate and overwhelm
any common issue.” Id. The district court dismissed the Millses’ complaint and
closed the case.4 This appeal followed.
II. STANDARD OF REVIEW
“We review de novo the district court’s grant of a motion to dismiss under
Rule 12(b)(6) for failure to state a claim, accepting the allegations in the complaint
as true and construing them in the light most favorable to the plaintiff.” Castro v.
Sec’y of Homeland Sec., 472 F.3d 1334, 1336 (11th Cir. 2006) (brackets omitted).
“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff’s obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic
4
In its motion to dismiss, Foremost argued, with respect to standing, only that the Millses
lacked standing to represent a class. The district court sua sponte concluded that the Millses
lacked individual standing as well and dismissed even the Millses’ individual claims for breach
of contract.
5
recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1964-65 (2007) (quotation marks,
citations, and brackets omitted). Furthermore, the plaintiff’s factual allegations,
when assumed to be true, “must be enough to raise a right to relief above the
speculative level . . . .” Id. at ___, 127 S. Ct. at 1965.
A district court’s decisions regarding class action suitability are reviewed
for abuse of discretion. De Leon-Granados v. Eller & Sons Trees, Inc., 497 F.3d
1214, 1218 (11th Cir. 2007). “A district court abuses its discretion if it applies an
incorrect legal standard, follows improper procedures in [reaching its decision], or
makes findings of fact that are clearly erroneous.” Adams v. S. Farm Bureau Life
Ins. Co., 493 F.3d 1276, 1285 (11th Cir. 2007) (quotation marks and citation
omitted).
III. DISCUSSION
On appeal, the Millses contend that the district court erred in interpreting
the Policy and then, on that basis, dismissing their complaint for lack of standing
and inability to maintain a class action. We first review Florida law governing
insurance contracts and then examine the Policy provisions in issue. Finally, we
consider the class action suitability issue.
A. Florida Law
6
Under Florida law, “[i]nsurance contracts are construed according to their
plain meaning.” State Farm Mut. Auto. Ins. Co. v. Reis, 926 So. 2d 415, 416 (Fla.
Ct. App.), review denied, 939 So. 2d 94 (Fla. 2006); see also Sphinx Int’l, Inc. v.
Nat’l Union Fire Ins. Co., 412 F.3d 1224, 1227 (11th Cir. 2005) (“Florida courts
have said again and again that insurance contracts must be construed in
accordance with the plain language of the policy.”); Siegle v. Progressive
Consumers Ins. Co., 819 So. 2d 732, 735 (Fla. 2002) (“When an insurance
contract is not ambiguous, it must be given effect as written.”). If the language
lends itself to more than one reasonable interpretation, it is ambiguous and should
be construed in the insured’s favor and against the policy’s drafter. Reis, 926 So.
2d at 416. In other words, ambiguous provisions in an insurance policy should be
interpreted in favor of coverage for the insured. Taurus Holdings, Inc. v. U.S. Fid.
& Guar. Co., 913 So. 2d 528, 532 (Fla. 2005).
B. The Policy
The Millses’ Policy defines “actual cash value,” which is central to this
dispute, as follows: “the cost to repair or replace property with new materials of
like kind and quality, less allowance for physical deterioration and depreciation,
including obsolescence.” The Policy provides that when a policyholder suffers a
7
partial loss to an insured mobile home,5 Foremost will pay benefits using one of
two methods: replacement cost or actual cash value. As explained below, both
methods reference the term “actual cash value.”
Under the Policy’s “Replacement Cost Payment Method,” Foremost pays
the lowest of: (1) the “replacement cost” of the damage to the home; (2) the
“amount actually spent for necessary repair or replacement of the damaged
portion” of the home; or (3) the “Amount of Insurance shown on the Declarations
Page” of the Policy. The Policy further states that “[i]f the cost to repair or replace
the damaged property is more than $2,500, [Foremost] will pay no more than the
actual cash value of that damage until actual repair or replacement is completed.”
Thus, under the Replacement Cost Payment Method, Foremost pays only the
actual cash value of the damage for claims over $2,500 until the actual repair or
replacement is completed. In other words, Foremost will pay up front an estimate
of the “actual cash value of th[e] damage” before the repairs are actually done.
The Policy also provides that the insured “may disregard the Replacement
Cost Payment Method” and make a claim on simply an “Actual Cash Value
Payment Method.” If the policyholder elects the Actual Cash Value Payment
5
For total losses, the Policy provides that Foremost will pay the policy limit, which it
terms the “Amount of Insurance.”
8
Method, he “may make further claim within 180 days after the loss for any
additional cost . . . incur[red] in replacing the damaged property.”6
Thus, under both payment methods, the Policy is clear that making the
actual repairs first is not required in order to be paid the actual cash value of the
damaged property. We see nothing in the language of the Policy that even
suggests that if the Millses never repaired or replaced their property, they would
not for that reason be entitled to compensation for the actual cash value of the
damaged property.7 Accordingly, the proper question becomes what is
encompassed within the term “actual cash value” in the Policy.
As noted earlier, the Policy defines actual cash value as “the cost to repair
or replace property with new materials of like kind and quality” less certain
depreciation. The Policy does not say repair or replacement cost less depreciation
and profit, overhead, and taxes, and, therefore, the costs of overhead, profit, and
6
Under the Actual Cash Value Payment Method, Foremost pays the lowest of: (1) the
“cost of the property or any part thereof identical with such property on the same premises and
intended for the same occupancy and use”; (2) the “actual cash value of repairing or replacing”
the damaged property, but only when the property “is actually repaired or replaced”; (3) when the
damaged property is not repaired or replaced, the difference between the actual cash value of the
property immediately before and immediately after the loss; and (4) the “Amount of Insurance
shown on the Declarations Page.” At this stage, the parties have not raised any issues about these
Policy terms, and thus we do not discuss them.
7
That is not to say that the Millses would necessarily be entitled to the Withheld
Payments for an actual cash value claim. It means only that we cannot conclude that the Millses
could not recover the Withheld Payments merely because they made an actual cash value claim
and had not actually completed the repair or replacement of the damaged property.
9
taxes are not unambiguously excluded from actual cash value coverage. Thus, the
inquiry narrows further to what is encompassed within “the cost to repair or
replace property with new materials.”
As to taxes, we easily conclude that “the cost to repair or replace property
with new materials” would necessarily include the state and local taxes on the
materials purchased to make the repairs.8 Part of “the cost” of new materials is the
taxes paid to purchase those materials.
As to the cost of installing the materials, Foremost does not dispute that
general contractors routinely charge overhead and profit for their services, but
argues (1) that not all hurricane repairs will necessarily require the services of a
general contractor, and (2) that the Millses did not specifically plead that they
needed a general contractor to repair their mobile home. In reply, the Millses
point out that (1) a contractor’s overhead and profit is routinely as much a part of
the cost to repair as is the contractor’s labor and materials costs, (2) that their
complaint specifically alleges that Foremost failed to pay them for overhead,
profit, and taxes incurred by them in repairing their mobile home, and (3) that
8
Florida sales tax applies to the total cost of making repairs to mobile homes, including
materials and labor. See Fla. Admin. Code Ann., Rule 12A-1.051, -1.006.
10
there is no support for Foremost’s exclusion of a contractor’s overhead and profit
charges in the Policy’s broad language of “cost to repair or replace property.”
For several reasons, we agree that a contractor’s overhead and profit charges
are included within the “cost to repair or replace.” First, the Policy definition of
actual cash value does not exclude overhead and profit charged by contractors in
their repairs or replacements or otherwise limit the type of repair or replacement
costs covered by the Policy. Since a contractor’s overhead and profit charges are
well-recognized types of costs routinely charged, those items fall within the “cost
to repair or replace.” Second, the Millses contracted for the actual cash value of
their loss and their recovery is not tied to actually making the repair or
replacement, much less actually paying a contractor anything. Third, the issue of
what is encompassed within the Policy language of “cost to repair or replace” is a
separate and distinct issue from whether certain items of repair costs are
reasonable and necessary. For example, the Millses could not obtain payment for
roof materials unless they had roof damage and it was reasonably likely that roof
materials would be needed to repair the damage, but that does not mean that roof
materials in general are not part of “the cost to repair or replace [the] property.”
The same holds true for the services of a general contractor. The Millses would
not be entitled to receive payment for any type of cost charged by a general
11
contractor without showing that they would be reasonably likely to need a general
contractor for the repairs in issue. Thus, if the estimate of the cost to repair is by a
general contractor that lists labor, materials, overhead, and profit, the question is
the same for all of these items: whether it is reasonably likely that the policyholder
would incur these costs in making the repairs.
Our conclusion in this regard comports with the weight of authority on the
issue. A majority of courts considering the question under similarly drafted
insurance policies has determined that an actual cash value payment includes a
general contractor’s overhead and profit charges in circumstances where the
policyholder would be reasonably likely to need a general contractor in repairing
or replacing the damaged property in issue. See Tritschler v. Allstate Ins. Co., 144
P.3d 519, 529 (Ariz. Ct. App. 2006); Salesin v. State Farm Fire & Cas. Co., 581
N.W.2d 781, 789-91 (Mich. Ct. App. 1998); Gilderman v. State Farm Ins. Co., 649
A.2d 941, 945 (Pa. Super. Ct. 1994).9 Courts have reached the same conclusion
with regard to sales tax on materials. See, e.g., Ghoman v. New Hampshire Ins.
Co., 159 F. Supp. 2d 928, 934 (N.D. Tex. 2001) (holding that sales tax, as well as
9
But see Snellen v. State Farm Fire & Cas. Co., 675 F.Supp. 1064, 1068 (W.D. Ky. 1987)
(holding that, where the policyholder neither repaired or replaced his damaged property, nor
evidenced an intent to do so, the insurance company properly deducted “non-damage factors
which are applicable only in the instance of repair or replacement such as clean up, profit,
overhead, and permits”).
12
general contractors’ overhead and profit charges, should be included in an actual
cash value payment if it is “reasonably likely” that the insured would incur them if
he repaired or replaced the covered loss). These results hold regardless of whether
the insured actually repairs or replaces the property. Tritschler, 144 P.3d at 529;
Ghoman, 159 F. Supp. 2d at 934-35; Gilderman, 649 A.2d at 945-46.10
Thus, for all of these reasons, we conclude that the district court erred in
determining that preconditions in the Policy required the Millses to complete
repair or replacement of their damaged property and to submit such a replacement
cost claim in order to have standing and be entitled to recover the Withheld
Payments.
The district court also erred in treating these particular insurance coverage
issues under the Policy as standing issues. The complaint alleges that the Millses
had a mobile home, that Foremost issued an insurance policy covering hurricane
damage to the mobile home, that a hurricane damaged the Millses’ mobile home,
that the Millses made a claim under the Policy for those damages, and that
Foremost paid less on the claim than the Millses contend they are owed. Thus, the
10
As the Gilderman court reasoned, “the issue is not whether a given cost is contingent
[and hence may never be incurred]. The issue is what State Farm agreed to pay to its insureds
. . . .” 649 A.2d at 945. Moreover, the policyholder has paid for coverage under the policy and
hence, “[i]t can hardly be said that an insured reaps a windfall by obtaining payment of actual
cash value determined in a fair and reasonable manner when that is precisely what the insurer has
agreed to pay under its policy in advance of actual repair or replacement.” Id. at 946.
13
Millses clearly had standing to sue for damages under the Policy. See Wooden v.
Bd. of Regents, 247 F.3d 1262, 1273-74 (11th Cir. 2001) (stating that standing is
essentially a determination of “whether the litigant is entitled to have the court
decide the merits of the dispute or of particular issues,” and requires that a plaintiff
have suffered a concrete, particularized injury that is caused by the challenged
action of the defendant and can be redressed by a favorable court decision).
Whether the Withheld Payments were covered by the Policy is an issue of
whether the Millses’ complaint fails to state a claim for relief under the Policy–not
a standing issue. Whether the Millses’ complaint pled sufficient facts is likewise a
failure-to-state-a-claim issue. We thus reject Foremost’s standing arguments as to
the Millses’ individual claims against Foremost on this basis as well.
C. Class Action Standing
Having concluded that the Millses have stated a claim for the Withheld
Payments, we next conclude the Millses have standing as putative class
representatives. To have standing to represent a class, a party must not only
satisfy the individual standing prerequisites, but must also “be part of the class and
possess the same interest and suffer the same injury as the class members.” Prado-
Steiman ex rel. Prado v. Bush, 221 F.3d 1266, 1279 (11th Cir. 2000) (quoting
14
Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 156, 102 S. Ct. 2364, 2370
(1982)). Put another way,
[i]t is not enough that a named plaintiff can establish a case or
controversy between himself and the defendant by virtue of having
standing as to one of many claims he wishes to assert. Rather, each
claim must be analyzed separately, and a claim cannot be asserted on
behalf of a class unless at least one named plaintiff has suffered the
injury that gives rise to that claim.
Wooden, 247 F.3d at 1288 (quotation marks and citation omitted). The Millses
have alleged two individual claims: (1) that Foremost breached the terms of the
Policy by not compensating them for the Withheld Payments; and (2) that
Foremost unlawfully failed to inform them, before they purchased or renewed their
policies, of Foremost’s intention not to make those payments. The two claims that
the Millses have attempted to raise on behalf of a class are identical. Therefore,
we conclude that with respect to each class claim, the Millses have standing not
just individually, but also as putative class representatives.
Nonetheless, we stress that the fact that the Millses have standing as
putative class representatives is an issue distinct from whether they qualify under
Rule 23 to represent the class. See Wooden, 247 F.3d at 1288 (“Only after the
court determines the issues for which the named plaintiffs have standing should it
address the question whether the named plaintiffs have representative capacity, as
15
defined by Rule 23(a), to assert the rights of others.” (quotation marks and citation
omitted)). Thus, we now turn to the class certification issue.
D. Class Action Suitability
Federal Rule of Civil Procedure 23 governs class actions. The Millses, to
represent a class, must establish these four requirements in Rule 23(a):
(1) the class is so numerous that joinder of all members is impracticable,
(2) there are questions of law or fact common to the class, (3) the claims
or defenses of the representative parties are typical of the claims or
defenses of the class, and (4) the representative parties will fairly and
adequately protect the interests of the class.
Fed. R. Civ. P. 23(a).11 These four requirements are commonly referred to as
numerosity, commonality, typicality, and adequacy of representation. Prado-
Steiman, 221 F.3d at 1278. In addition to meeting Rule 23(a)’s requirements,
parties seeking to represent a class must establish at least one of these three
requirements in Rule 23(b):
(1) the prosecution of separate actions by or against individual members
of the class would create a risk of
(A) inconsistent or varying adjudications with respect to
individual members of the class which would establish
11
Effective December 1, 2007, the Federal Rules of Civil Procedure were amended to
effect a “general restyling . . . to make them more easily understood and to make style and
terminology consistent . . . .” Fed. R. Civ. P. 1 advisory committee’s note on 2007 Amendment.
Except for a “very small number of minor technical amendments” not relevant here, the
amendments were “intended to make no changes in substantive meaning.” Id. In this opinion we
quote the pre-amendment language of the rules, which was in effect when the district court
issued its order.
16
incompatible standards of conduct for the party opposing the
class, or
(B) adjudications with respect to individual members of the class
which would as a practical matter be dispositive of the interests
of the other members not parties to the adjudications or
substantially impair or impede their ability to protect their
interests; or
(2) the party opposing the class has acted or refused to act on grounds
generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the
class as a whole; or
(3) the court finds that the questions of law or fact common to the
members of the class predominate over any questions affecting only
individual members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the controversy.
Fed. R. Civ. P. 23(b). In their complaint, the Millses expressly allege that they
qualify as class representatives pursuant to each of the three different grounds that
are authorized in Rule 23(b).
On appeal, the Millses challenge the district court’s ruling that their claims
are not appropriate for class action treatment because common issues would not
predominate. The district court reasoned that “the individual inquiry of the facts
surrounding the property damage claims of thousands of Foremost policy holders
under thousands of separate insurance policies would predominate and overwhelm
any common issue.” Mills, 2006 WL 3313945, at *2. Thus, the district court’s
17
order was based solely on the lack of common-issue predominance under Rule
23(b)(3).12
We conclude that the district court’s ruling suffers from several errors.
First, a lack of predominance under Rule 23(b)(3) does not automatically bar class
certification because the putative class representative can still attempt to satisfy
the requirements of Rule 23(a) and either Rule 23(b)(1) or (b)(2). In holding that
the Millses’ claims were inappropriate for class action treatment because common
issues would not predominate, the district court either: (1) failed to recognize that
the Millses’ complaint alleged that they satisfied each of the three grounds for
class certification authorized in Rule 23(b); or (2) confused common-issue
predominance, which is required only for Rule 23(b)(3) class actions, with the
Rule 23(a) requirements that all class actions must satisfy.
Additionally, and more fundamentally, the district court’s class certification
ruling was premature under the particular circumstances of this case. We
recognize that Rule 23(c) instructs that the district court “must–at an early
12
The Rule 23(b)(3) common-issue predominance inquiry reduces to whether “the issues
in the class action that are subject to generalized proof and thus applicable to the class as a whole
. . . predominate over those issues that are subject only to individualized proof.” Cooper v.
Southern Co., 390 F.3d 695, 722 (11th Cir. 2004) (quotation marks and citation omitted).
Additionally, common issues do not predominate “if, as a practical matter, the resolution of . . .
[an] overarching common issue breaks down into an unmanageable variety of legal and factual
issues.” Id. (omission and alteration in original; quotation marks and citation omitted).
18
practicable time–determine by order whether to certify the action as a class
action.” Fed. R. Civ. P. 23(c)(1)(A). In some instances, the propriety vel non of
class certification can be gleaned from the face of the pleadings. See, e.g.,
Jackson v. Motel 6 Multipurpose, Inc., 130 F.3d 999, 1006 (11th Cir. 1997)
(concluding that Rule 23(b)(3)’s predominance requirement could not be satisfied,
and that such failure was “readily apparent from a reading of the . . . complaint”).
However, precedent also counsels that the parties’ pleadings alone are often
not sufficient to establish whether class certification is proper, and the district
court will need to go beyond the pleadings and permit some discovery and/or an
evidentiary hearing to determine whether a class may be certified. See Falcon,
457 U.S. at 160, 102 S. Ct. at 2372 (“Sometimes the issues are plain enough from
the pleadings to determine whether the interests of the absent parties are fairly
encompassed within the named plaintiff’s claim, and sometimes it may be
necessary for the court to probe behind the pleadings before coming to rest on the
certification question.”); Huff v. N. D. Cass Co. of Ala., 485 F.2d 710, 713 (5th
Cir. 1973)13 (en banc) (“Maintainability may be determined on the basis of
pleadings, but the determination usually should be predicated on more information
13
Former Fifth Circuit decisions rendered before October 1, 1981 are binding precedent in
the Eleventh Circuit. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en
banc).
19
than the complaint itself affords. The court may, and often does, permit discovery
relating to the issues involved in maintainability, and a preliminary evidentiary
hearing may be appropriate or essential as a part of the vital management role
which the trial judge must exercise in class actions to assure that they are both
meaningful and manageable.” (quotation marks, citations, and footnotes
omitted)).14
This is such a case where the class certification issue cannot be readily
resolved by the complaint alone. Here, the parties’ pleadings take starkly different
positions as to the number and extent of issues that will be involved in this case,
and the method and ease of proof for each. We outline the nature of the parties’
contentions as they readily show that the district court’s conclusion as to the
predominance issue at the complaint stage was speculative at best and premature
at least.
The Millses’ complaint contends that the common issue to all class
members is whether Foremost improperly excluded overhead, profit, and taxes
when paying the actual cash value of their hurricane damage losses. The Millses
14
Several of our sister circuits have reversed denials of class certification that were made
without opportunity for discovery, when the pleadings on their face did not show non-compliance
with Rule 23 or when the satisfaction of the Rule 23 requirements may have depended on factual
matters within the knowledge or possession of the defendant. See Parker v. Time Warner Entm’t
Co., 331 F.3d 13, 21-22 (2d Cir. 2003); Goodman v. Schlesinger, 584 F.2d 1325, 1332 (4th Cir.
1978); Yaffe v. Powers, 454 F.2d 1362, 1366 (1st Cir. 1972).
20
point out: (1) that Foremost’s own adjusters already have prepared claims
estimates of the repair costs for each class member’s hurricane-damage claim; (2)
that the plaintiffs accept Foremost’s own adjusters’ estimates as to the extent of
each repair cost for each class member; and (3) that all that the class members seek
to recover is a percentage of those cost estimates for overhead, profit, and sales tax
line items, which they claim Foremost improperly excluded from its actual cash
value payment to each class member insured with this same Policy who had not
actually completed their repairs at the time of the actual cash value payment. The
Millses argue that the amount due to each class member can thus be determined
with relative ease through basic forensic accounting using Foremost’s own claims
data.15
Foremost, on the other hand, contends that individual issues will abound.
Foremost argues that, even if an actual cash value payment does not require all
work to be completed first, the issue of whether general contractor overhead and
15
In their complaint, the Millses anticipated that a “review [of] the Defendant[’s] claims
estimates in respect of the claims of the Plaintiffs and the Class Members” would be needed to
“calculate the true amounts . . . of wrongfully withheld taxes, overhead and profit due on said
estimates.” In their response to Foremost’s motion to dismiss, the Millses made even more clear
their position that “[t]here will be no individualized proof problems because Plaintiffs are not
contesting Foremost’s assessment of damage in the claims that have already been processed,”
and that “[t]he questions posed by Plaintiffs in the present action will be answered the same for
each aggrieved policyholder in the class[;] the only variance will be the dollar amounts that will
be computed from Foremost’s own preexisting data.”
21
profit is properly owing to each of its insureds still depends on whether the
services of a general contractor would be reasonably required under the
circumstances. And, with respect to the sales tax issue, Foremost argues that there
may be instances in which the insureds, depending on their individual
circumstances, might buy materials but incur no sales tax. Thus, according to
Foremost, in order to prevail each potential class member will still have to prove
that he was likely to require the services of a general contractor, or to pay sales
tax; therefore, thousands of claims files will have to be analyzed in depth and
numerous legal and factual issues will arise as to each.
In response, the Millses stress that proof of whether a general contractor’s
services or sales taxes were reasonably likely to be incurred can be determined
from the face of Foremost’s own adjusters’ estimates, which Plaintiffs accept, and
through forensic review of Foremost’s own adjusters’ estimates. The Millses
contend that industry professionals make such determinations every day in the
course of their adjusting duties. The Millses assert that the class’s acceptance of
the damage estimates of Foremost’s own adjusters for purposes of their lawsuit
obviates the need to painstakingly analyze each class member’s individual
circumstances.
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The parties’ disputes as to issues and proof cannot be resolved simply by
reviewing the face of the Millses’ complaint but warrant, at a minimum,
production and examination of a representative sample of the estimates of
Foremost’s adjusters, which Plaintiffs have accepted as accurate but for the
Withheld Payments. That being the case, the district court abused its discretion in
determining, at this complaint-pleading stage in the litigation, that class action
treatment of the Millses’ claims is inappropriate. Given the vastly differing claims
of the parties about the relative ease and practicability of calculating overhead,
profit, and sales tax from Foremost’s estimates and resolving liability, the Millses
at least should have been granted an opportunity to conduct limited discovery
relevant to the certification issue and thereafter the court should have determined
whether an evidentiary hearing was needed to enable the district court to make any
necessary factual findings.
Accordingly, we conclude only that the district court erred in determining
that class action treatment was inappropriate as a matter of law from the face of
the Millses’ particular complaint, and we remand for further proceedings. In so
holding, we express no opinion as to whether class certification is or is not
appropriate in this case.
IV. CONCLUSION
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For the reasons set forth above, we reverse the district court’s order, dated
November 15, 2006, and remand for further proceedings consistent with this
opinion.
REVERSED AND REMANDED.
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