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Fransen v. The City of New Orleans

Court of Appeals of Louisiana, Fourth Circuit

March 28, 2018


          APPEAL FROM CIVIL DISTRICT COURT, ORLEANS PARISH NO. 2002-05170, DIVISION "N-8" Honorable Ethel Simms Julien, Judge.

          Allain F. Hardin A. Remy Fransen, Jr. FRANSEN & HARDIN, P.L.C. COUNSEL FOR PLAINTIFFS/APPELLEES

          James A. Brown Shannon S. Holtzman LISKOW & LEWIS, APLC Lawrence Blake Jones BLAKE JONES LAW FIRM Errol Conley LAW OFFICE OF ERROL B. CONLEY COUNSEL FOR DEFENDANTS/APPellants

          Court composed of Judge Daniel L. Dysart, Judge Rosemary Ledet, Judge Regina Bartholomew-Woods

          Regina Bartholomew-Woods, Judge.

         Defendants, Linebarger, Goggan, Blair & Sampson, LLP ("Linebarger"), United Governmental Services of Louisiana, Inc. ("UGSL"), and the City of New Orleans ("the City"), and Plaintiffs, A. Remy Fransen, Jr., and Allain F. Hardin, appeal the November 24, 2015 judgment of the trial court granting class certification. For the reasons that follow, we amend the judgment in part, and as amended, affirm.


         This matter has been before this Court previously on a number of occasions. Plaintiffs filed their original petition in 2002, challenging City Ordinance No. 18637[1] ("the Ordinance"), which the New Orleans City Council passed on March 5, 1998. The Ordinance was enacted to provide for the collection of delinquent ad valorem taxes. In order to "encourage prompt compliance by the taxpayers" affected by the Ordinance, the Ordinance imposed a penalty of three percent of the amount of the tax due on the day the tax became delinquent, with interest accruing at a rate of one percent per month that the tax and penalty went unpaid. For all delinquent taxes for prior years not paid by April 1st of the following year, the Ordinance imposed an additional penalty of thirty percent "to defray costs of collection" if the City "referred the collection of the delinquent taxes, penalty and interest to an attorney or collection agent."

         The Louisiana Supreme Court, in Fransen v. City of New Orleans, 2008-0076, 2008-0087, pp. 4-7 (La. 7/1/08), 988 So.2d 225, 230-32, set forth the relevant background to the matter now before this Court as follows: the City contracted with the law firm of Heard, Linebarger, Graham, Goggan, Blair, Pena & Sampson, L.L.P. and UGSL for tax collection services under the Ordinance. A. Remy Fransen, Jr., and Allain F. Hardin filed suit against the City and law firm alleging that the Ordinance was unconstitutional, later adding UGSL as an additional defendant. The parties filed motions for summary judgment regarding the constitutionality of the Ordinance. The district court granted defendants' motion for summary judgment, finding the Louisiana Constitution did not limit the City's options in collecting delinquent ad valorem taxes. On appeal, this Court reversed. Fransen v. City of New Orleans, 2006-1325 (La.App. 4 Cir. 10/3/07), 970 So.2d 1. Defendants applied for supervisory writs to the Louisiana Supreme Court, which granted writs, Fransen v. City of New Orleans, 2008-0076, 2008-0087 (La. 2/22/08), 976 So.2d 1275, and ultimately declared the scheme unconstitutional:

[W]e find Ordinance No. 18637, codified in the New Orleans Code of Ordinances, Chapter 150, Article II, §§ 150-46.1 through 150-46.6 unconstitutional with respect to any provisions that permit the City to place delinquent ad valorem property taxes on immovables for collection with an attorney or agent and/or that permit the City to proceed in any manner other than by the constitutionally mandated manner of tax sales to collect delinquent ad valorem property taxes on immovables. Article VII, § 25(A) of the Louisiana Constitution prohibits methods or proceedings other than tax sales to collect delinquent ad valorem property taxes. We further find the Ordinance, as codified, unconstitutional to the extent it imposes penalties, other than interest, upon delinquent ad valorem property taxes on immovables. The constitutional provision relating to property taxation permits the governmental subdivision to impose only the taxes, interest and costs in proceeding to sell the property for the delinquent ad valorem taxes.

Fransen, 2008-0076, 2008-0087 at pp. 24-25, 988 So.2d at 242.

         After several more years of litigation, the district court conducted a class certification hearing over three days, May 26 through 28, 2015. Plaintiffs sought to certify a class consisting of individuals who paid the unconstitutional fees and penalties between March 6, 1998, and May 6, 2006.

         Plaintiffs relied largely on a spreadsheet produced by Walter O'Brien, Finance Operations Manager for the City. Mr. O'Brien testified that he works in the City's treasury department on property tax issues. The spreadsheet covered tax data from May 1, 1998, to April 30, 2005. Mr. O'Brien testified that the spreadsheet contained multiple pieces of data, to wit: the type of tax assessed, the bill number associated with the tax, the tax year, the existence of liens on a particular property, the date payments were received, the amount of ad valorem tax paid, the amount of the City penalty paid, the amount of collection agency charges, the name of the assessed owner, and the address. In total, the spreadsheet contained 249, 913 entries.

         Mr. O'Brien explained that the payments reflected on the spreadsheet could be broken down into taxes, interest, and penalties. However, he noted that the column reflecting the three percent penalty paid to the City was "not purely penalty" but "primarily penalty." He explained that the actual three-percent penalty paid could possibly be determined if the "proper records are still available." He also testified that the City kept track of the thirty-percent payments made to Linebarger and UGSL because the City made the payments to those parties.

         On cross-examination, Mr. O'Brien conceded that the column reflecting the "assessed owner" did not necessarily indicate the party to ultimately pay the delinquent tax, interest, and penalties, and that the spreadsheet contained no column identifying the individual actually paying. The spreadsheet lacked additional information, such as whether any checks sent to the City cleared, whether any payments were refunded, or whether payments were made under protest. Ultimately, despite the shortcomings of the spreadsheet highlighted by defense counsel, the district court admitted the document into evidence.

         Plaintiffs also called Li Downing, a Certified Public Accountant, who analyzed the spreadsheet and was admitted as an expert in the areas of data analysis and claims processing. For the period of May 1, 1998, through April 29, 2005, Ms. Downing testified that the City collected 9.89 million dollars in penalties, and Linebarger and UGSL collected 22.4 million dollars in collection fees. Plaintiffs attempted to address perceived issues with the document, as Ms. Downing explained that only a tiny fraction of the payments made could be attributed to payments made by individuals other than the "assessed owner, " such as succession proceedings or estate sales.

         On cross-examination, Ms. Downing acknowledged that the City, as an "assessed owner, " was the top City penalty payer according to the spreadsheet. She further acknowledged that nearly seventy-four percent of payments made, which included the combined City penalty and Linebarger and UGSL collection fees, totaled less than one-hundred dollars. On redirect, Ms. Downing suggested that information regarding the penalties paid could be parsed out from the spreadsheet.

         Defendants called their own expert, a Certified Public Accountant, Holly Sharp, who was retained to assess the reliability of the spreadsheet. Based on her analysis, she concluded that the report was "not reliable to the persons or entities who paid the collection penalties." In support of her conclusion, she noted that the spreadsheet did not identify the proper taxpayer under several circumstances, such as when properties were purchased via tax sale or when bankruptcy trustees paid penalties in lieu of assessed owners. She further noted that a number of the assessed owners listed a single name followed by "et al, " suggesting it would be difficult to determine who, among several owners, paid what amounts of the penalties and fees. She testified that the spreadsheet included instances of penalties being paid despite there being no tax due. She further explained that banks do not retain canceled checks beyond seven years, and that the Internal Revenue Service retains back tax returns for only the previous six years, presumably presenting difficulties of proof where such documentation would be required.

         Plaintiffs additionally called a number of potential class representatives. None testified that they paid the taxes, interest, and penalties "under protest, " nor did any specifically testify to rendering payment to any entity other than the City. By judgment dated November 24, 2015, the district court defined the class as follows:

Those persons and/or entities or their heirs, successors or assigns, who pursuant to New Orleans City Ordinance No. 18637 were assessed city penalties and collection/penalty fees by defendants and who paid these unconstitutional penalties and collection/penalty fees from April 17, 2000 through February 21, 2002.

         The district court granted class certification "as to plaintiffs' claims against defendant, The City of New Orleans." Additionally, the district court denied class certification as to Linebarger and UGSL on the issue of excessive legal fees, and granted certification as to the issue of Linebarger and UGSL being debt collectors.

         In its reasons for judgment, [2] the district court first explained its rationale for limiting the class, noting that between April 17, 2000, and February 21, 2002, there existed "no applicable prescriptive period within which" to protest enforcement of any provision of the tax law (that is, "payment under protest" as to penalties). Specifically, prior to April 17, 2000, La. R.S. 47:2110(A)(2) required "payment under protest" as to "any amount of tax found due, or the enforcement of any provision of the tax laws in relation thereto." Payment under protest required that the taxpayer file suit for recovery of the amounts paid within thirty days of the City's receipt of notice that such payment was being made under protest. After April 17, 2000, the same statute was amended, but removed the language "or the enforcement of any provision of the tax laws in relation thereto[, ]" thereby removing the requirement that penalties be paid under protest and suit filed within thirty days. Thereafter, on February 21, 2002, the City Council adopted Ordinance No. 20556, requiring that penalties be paid under protest no later than May 1st of the year in which the penalty was imposed, and filing suit within thirty days of payment.

         The court then addressed the statutory requirements for class certification as set forth in La.C.C.P. art. 591. First, as to numerosity, regarding claims against the City, the court noted testimony by Ms. Li Downing that the City's records could identify roughly 31, 492 potential plaintiffs who paid the unconstitutional penalties between April 17, 2000, and February 21, 2002. The court also noted the absence of proof as to those taxpayers who paid under protest prior to April 17, 2000. As to Linebarger and UGSL, the court found "no evidence" for plaintiffs' claim of excessive legal fees, but did find numerosity met as to the issue of their status as "debt collectors." The court also found a common question of law and fact of whether the "delinquent taxpayers all paid penalties under an unconstitutional Ordinance." However, the court found no such common question as it related to the issue of excessive legal fees collected by Linebarger and UGSL. Next, the court found the claims of Thomas Monahan, III, and Sandra Monahan, who "paid delinquent taxes and penalties within the relevant time frame, " to be "typical of those of the potential class members" and that they would "be able to devote the time and energy needed of a class representative." As to counsel's ability to represent the class, the court held that both Mr. Fransen and Mr. Hardin "have vigorously conducted this litigation for a period of several years" and "have demonstrated the competence, experience, and qualifications necessary for counsel of the potential class." Lastly, the court held that the issues relevant to the class predominated over those affecting only individual members, and that class action was superior to other forms of litigating the claims.

         On April 14, 2016, the district court denied Plaintiffs "Motion to Amend and/or for New Trial."

         Plaintiffs and Defendants appealed the November 24, 2015 judgment of the district court, both raising numerous assignments of error. Plaintiffs further appealed the April 14, 2016 judgment.


         This Court, in Gudo v. Administrators of Tulane Educ. Fund, 2006-1515, pp. 3-4 (La.App. 4 Cir. 9/5/07), 966 So.2d 1069, 1073, explained the applicable standard of review as follows:

The central issue for this Court to address is whether the trial court erred in granting the motion for class certification. The standard of review of class certification decisions is a bifurcated one. Watters v. Department of Social Services, 2005-0324, p. 3 (La.App. 4 Cir. 4/19/06), 929 So.2d 267, 272. A trial court's decision concerning class certification is reviewed under both a manifest error and an abuse of discretion standard. Parry v. Administrators of Tulane Educational Fund, 98-2125, p. 3 (La.App. 4 Cir. 6/30/99), 740 So.2d 210, 212; Adams v. CSX Railroads, 92-1077 (La.App. 4 Cir. 2/26/93), 615 So.2d 476. The factual findings are reviewed under the manifest error/clearly wrong standard; the trial court's discretionary judgment on whether to certify the class or not is reviewed by the abuse of discretion standard. Id. (citing Boudreaux v. State, Dep't of Transp. and Dev., 96-0137, p. 5 (La.App. 1 Cir. 2/14/97), 690 So.2d 114, 119). These two standards of review correspond with the two-step process for determining whether to certify a class action. First, a trial court must find a factual basis exists to certify an action as a class action. Second, the court must exercise its discretion in deciding if certification is appropriate. Singleton v. Northfield Ins. Co., 2001-0447, p. 7 (La.App. 1 Cir. 5/15/02), 826 So.2d 55, 61.


         Class Action Procedure

         The class action vehicle is a nontraditional procedure meant to allow a representative party or parties to stand in the shoes of similarly situated parties to resolve issues of common interest when joinder of all parties would be impracticable. Brooks v. Union Pac. R. Co., 2008-2035, p. 9 (La. 5/22/09), 13 So.3d 546, 554. Such procedure establishes res judicata effect as to those common issues shared by a representative party and those other parties similarly situated. Id. The Supreme Court, in Brooks, explained:

The determination of whether a class action meets the requirements imposed by law involves a rigorous analysis. The trial court "must evaluate, quantify and weigh [the relevant factors] to determine to what extent the class action would in each instance promote or detract from the goals of effectuating substantive law, judicial efficiency, and individual fairness." McCastle v. Rollins Environmental Services of Louisiana, Inc., 456 So.2d 612, 618 (La.1984). In so doing, "the trial court must actively inquire into every aspect of the case and should not hesitate to require showings beyond the pleadings." Id. (Citing Stevens, v. Board of Trustees of Police Pension Fund of City of Shreveport, 309 So.2d 144, 152 (La.1975)). "[I]f there is to be an error made, it should be in favor and not against the maintenance of the class action, for it is always subject to modification should later developments during the course of the trial so require." Id. at 620 (citing La. C.C.P. art. 593.1(B); Esplin v. Hirschi, 402 F.2d 94 (10th Cir.1968); 1 H. Newburg, Class Actions, § 1160(e) (1977)).

2008-2035 at p. 10, 13 So.3d at 554.

         The only purpose of a class action hearing is to determine "whether the case is one in which the class action procedural device is appropriate." Watters v. Dep't of Soc. Servs., 2005-0324 to 2005-0326, p. 7 (La.App. 4 Cir. 4/19/06), 929 So.2d 267, 273. "Thus, 'the court is not concerned with whether the plaintiffs have stated a cause of action or the likelihood that they ultimately will prevail on the merits." Watters, 2005-0324 to 2005-0326 at p. 7, 929 So.2d at 273-74 ...

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