EDWARD D. THURMAN and KATHY L. THURMAN, AS NAMED PLAINTIFFS ON BEHALF OF A CLASS, Plaintiffs and Appellants,
CUNA MUTUAL INSURANCE SOCIETY and BLACK HILLS FEDERAL CREDIT UNION, Defendants and Appellees.
ARGUED APRIL 23, 2013
APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE ROBERT A. MANDEL Judge.
JAMES D. LEACH Rapid City, South Dakota and MICHAEL A. WILSON of Barker Wilson Law Firm, LLP Rapid City, South Dakota Attorneys for plaintiffs and appellants.
ROGER K. HEIDENREICH of Dentons U.S. LLP St. Louis, Missouri and CATHERINE M. SABERS THOMAS G. FRITZ of Lynn, Jackson, Shultz & Lebrun, PC Rapid City, South Dakota Attorneys for defendant and appellee CUNA Mutual Insurance.
FRANK A. BETTMAN TODD LOVE of Bettman, Hogue & Diedrich, Prof., LLC Rapid City, South Dakota Attorneys for defendant and appellee Black Hills Federal Credit Union.
[¶1.] Edward D. and Kathy L. Thurman filed a class action lawsuit against CUNA Mutual Insurance Society and Black Hills Federal Credit Union for changing their credit disability insurance policy. The lawsuit alleges that CUNA Mutual Insurance Society and Black Hills Federal Credit Union wrongfully switched the credit disability insurance policies of 4, 461 borrowers. The Thurmans filed a motion for class certification, which was denied by the trial court. The Thurmans petitioned this Court for a discretionary appeal of the class certification order and we granted the intermediate appeal. We reverse and remand the trial court's denial of class certification because the trial court erred in its application of class certification statutes to the facts in this case.
[¶2.] In October 1995, Edward and Kathy Thurman obtained a home equity loan of $30, 114.47, payable over 15 years from Black Hills Federal Credit Union (BHFCU). The Thurmans' loan was a closed-end loan, meaning that the payments would be the same amount every month over the 15 year period. At the time they finalized the loan, the Thurmans' pay-off date was August 27, 2010. When obtaining their loan at BHFCU, the Thurmans purchased credit disability insurance to cover Edward, who worked in the construction industry, often with heavy machinery. The credit disability insurance was a 30-day non-retroactive policy issued by CUNA Mutual Insurance Society (CUNA).
[¶3.] Credit disability insurance is a product offered by BHFCU in conjunction with loans to protect insureds against the risk of being unable to make loan payments due to the insured's total disability. A 30-day non-retroactive disability insurance policy pays the insured if the insured is disabled for 30 days, but is not retroactive to the first day of the disability.
[¶4.] The credit insurance application / contract, which appeared at the bottom of the note and disclosure statement signed by the Thurmans, stated that the Thurmans would pay $4, 140.79 for the insurance over the life of their home equity loan. The contract also stated that the rate charged was subject to change, but that written notice would be provided prior to any increase going into effect. The monthly premium charged for the policy was based on a rate per $100 of outstanding loan balance. The contract did not state the rate that the Thurmans would pay, but the rate was later determined to be $0.14 per $100 of outstanding loan balance.
[¶5.] In July 1999, BHFCU unilaterally changed its group credit disability insurance policy, not just the rate as authorized by the contract. BHFCU changed its credit disability insurance from a 30-day non-retroactive policy to a 14-day retroactive policy. Under the new policy, an insured's payments begin after the insured is disabled for 14 days and are retroactive to the first date of the disability. The new policy was accompanied by a rate increase to $0.235 per $100 of outstanding loan balance.
[¶6.] BHFCU announced the change in the insurance policy in their July 1999 newsletter. The newsletter was a trifold document, which included advertisements for BHFCU's member auto sale and an investment adviser, a report from the president of BHFCU, and current loan rates. On the bottom of the interior center page, there was a "Notice to Members, " which stated:
This Notice is to be attached to and made a part of the Monthly Premium Certificate of Insurance issued under the Group Credit Insurance Policy.
Effective July 1, 1999, Black Hills Federal Credit Union has changed the Credit Disability plan of coverage from 30 Day NonRetroactive to 14 Day Retroactive. This affects the "Total Disability Benefits" provision of the Certificate previously given to you. The new provision will provide that instead of being disabled for 30 days with benefits beginning on the 31st day, you must be disabled for 14 days with benefits retroactive to the 1st day. All other provisions will remain the same. Your new Single Credit Disability rate will increase to $.235 per $100 of outstanding loan balance and your Joint Credit Disability rate will be $.411 per $100 of outstanding loan balance.
The Credit Life rate per $100 of outstanding loan balance is $.075 for the Single Insured Plan and $.124 for the Joint Insured Plan.
Loans originated through our Dealer Direct Program have, if insurance is included, always had 14 days retroactive disability insurance, therefore, they are not affected by the certificate endorsement notice.
Aside from the notice in the newsletter, no notice of the policy change was provided to the Thurmans. The Thurmans testified that they did not recall reading or receiving the newsletter containing the notice.
[¶7.] In August 1999, the Thurmans filed a voluntary Chapter 7 bankruptcy petition. As part of the bankruptcy proceedings, the Thurmans reaffirmed their loan with BHFCU because they did not want to lose their home. The reaffirmation agreement, which was signed by the Thurmans and a representative of BHFCU, stated that the Thurmans' original note and security agreement from October 1995 were unchanged. However, the reaffirmation agreement's payment schedule reflected the changed credit disability insurance policy and its higher premium rate. The Thurmans new payment schedule included 150 monthly payments of $355 and one final payment of $32.80, for a total of $53, 282.80.
[¶8.] In 2009, the Thurmans became interested in paying off their loan before the original contract pay off date of August 27, 2010. The Thurmans believed that they owed $4, 260 on the loan, or twelve payments of $355. Kathy contacted BHFCU and a BHFCU representative told her that the outstanding balance was more than $10, 000. The Thurmans allege they worked with BHFCU representatives for a period of days to up to two weeks until they found that the reason for the higher outstanding balance was the credit disability policy change and corresponding rate increase. After discovering the credit disability policy switch, Kathy complained to the South Dakota Department of Revenue's Division of Insurance and the National Credit Union Administration. The subsequent investigation by the South Dakota Department of Revenue's Division of Insurance resulted in a consent order detailing the Division of Insurance's allegations against CUNA, which CUNA neither admitted nor denied, and a fine of $116, 000 paid by CUNA.
[¶9.] In June 2011, the Thurmans filed a class action lawsuit against CUNA and BHFCU for breach of contract, unjust enrichment, violations of South Dakota's unfair trade and deceptive trade practices laws, deceit and breach of duty, conversion, and implied trust. The Thurmans allege that 4, 461 borrowers at BHFCU were wrongfully switched from the 30-day non-retroactive insurance policy to the 14-day retroactive insurance policy. In addition, the Thurmans contend that because of the change in the insurance policy, BHFCU garnered $6, 838, 414 in total profits as of June 2011, when this lawsuit was filed.
[¶10.] On July 10, 2012, the trial court held a motion hearing to consider class certification. The trial court denied the motion for class certification and wrote a memorandum decision letter. Specifically, the trial court found that the Thurmans did not meet the adequacy requirement of Rule 23(a). Further, the trial court found that even if the Thurmans met the adequacy requirement, they did not meet the predominance and superiority requirements of Rule 23(b)(3). The trial court entered an order denying the motion for class certification on August 16, 2012. The Thurmans then petitioned this Court to hear an intermediate appeal of the order denying class certification. We granted the discretionary appeal on September 21, 2012.
STANDARD OF REVIEW
[¶11.] We have said in general terms that "'[o]n review of an order denying or granting a motion to maintain a class, the lower court may be reversed only for an abuse of discretion.'" In re S.D. Microsoft Antitrust Litig., 2003 S.D. 19, ¶ 4, 657 N.W.2d 668, 671 (quoting Trapp v. Madera Pac., Inc., 390 N.W.2d 558, 560-61 (S.D. 1986)). A trial court abuses its discretion when it makes an error of law. Hendrickson v. Wagners, Inc., 1999 S.D. 74, ¶ 14, 598 N.W.2d 507, 510-11 (citing Koon v. United States, 518 U.S. 81, 100, 116 S.Ct. 2035, 2047, 135 L.Ed.2d 392 (1996)). In applying the abuse of discretion standard of review, we no longer rely on language, which we have previously used, stating "we do not determine whether we would have made a like decision, only whether a judicial mind, considering the law and the facts, could have reached a similar decision." In re S.D. Microsoft Antitrust Litig., 2003 S.D. 19, ¶ 5, 657 N.W.2d at 671 (citations omitted). Though we have used the "judicial mind" definition in applying the abuse of discretion standard, the definition has been shortened to the point of losing much of its original meaning.The original use of the definition was grounded in the application of law and circumstances in an effort to protect litigants from trial courts exceeding the bounds of reason. More recently, the Court has stated: "'Although we have repeatedly invoked stock definitions, the term 'abuse of discretion' defies an easy description. It is a fundamental error of judgment, a choice outside the range of permissible choices, a decision, ...