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Komoroski v. Utility Service Partners Private Label, Inc.

United States District Court, W.D. Missouri, Western Division

July 31, 2017

JAMES KOMOROSKI and GALEN VERHULST, individually and on behalf of those similarly situated, Plaintiffs,
v.
UTILITY SERVICE PARTNERS PRIVATE LABEL, INC. d/b/a SERVICE LINE WARRANTIES OF AMERICA, Defendant.

          ORDER CONDITIONALLY CERTIFYING SETTLEMENT CLASS AND GRANTING PRELIMINARY APPROVAL TO PROPOSED CLASS ACTION SETTLEMENT

          GREG KAYS, UNITED STATES DISTRICT COURT CHIEF JUDGE

         This case is a putative consumer class action. Plaintiffs James Komoroski (“Komoroski”) and Galen Verhulst (“Verhulst”) (collectively, “Plaintiffs”) purchased utility warranties from Defendant Utility Service Partners Private Label, Inc., doing business as Service Line Warranties of America (“Defendant”), which would defray the cost to repair and replace the water service line running into their home. Plaintiffs allege Defendant routinely denied warranty coverage for some legitimate repair claims.

         Now before the Court are Plaintiffs' motion for preliminary approval of class action settlement (Doc. 24) and the parties' Stipulation and Settlement Agreement (“the Settlement”) (Doc. 26). Finding that a settlement class should be conditionally certified and that the Settlement is within the range of reasonableness, the motion for preliminary approval is GRANTED.

         The Court has altered the parties' proposed schedule and some procedures relating to objections and exclusion, so the parties should read this order carefully.

         Standard

         Federal Rule of Civil Procedure 23(e) mandates judicial review of any “settlement, voluntary dismissal, or compromise of the claims, issues, or defenses of a certified class.” In the Eighth Circuit, “the district court acts as a fiduciary, serving as a guardian of the rights of absent class members.” In re Wireless Tel. Fed. Cost Recovery Fees Litig., 396 F.3d 922, 932 (8th Cir. 2005).

         When a proposed class-wide settlement is reached, it must be submitted to the court for preliminary approval. W. Rubenstein, Newberg on Class Actions (5th ed. 2007) §13:12. District court review of a proposed class action settlement is a three-step process. Id. §13:10. Step one is a preliminary, pre-notification determination as to whether the proposed settlement is “within the range of possible approval.” Id. If the court grants preliminary approval, step two is sending notice to the class describing the terms of the proposed settlement, at which time “class members are given an opportunity to object or, in Rule 23(b)(3) class actions, opt out of the settlement.” Id. The court also holds a fairness hearing at which class members may appear and support or object to the settlement. Id. At step three, the court decides whether to give final approval to the settlement, taking into account all of the information learned during the process. Id.

         This motion concerns the first step, preliminary approval. Preliminary approval does not require the court to decide the ultimate question whether a proposed settlement is fair, reasonable, and adequate. At this stage, the issue is whether the proposed settlement falls within the range of fairness so that notice of the proposed settlement should be given to class members and a hearing scheduled to consider final approval. See Manual for Complex Litigation, Fourth, § 21.632 (2004). If the court determines a proposed settlement falls within this range and a class has not yet been certified, its preliminary approval order may provisionally certify a class and designate class counsel, class representatives, and a claims administrator. See Rubenstein §13:12. The preliminary approval order will also authorize the parties to provide notice of the proposed settlement to the class and set forth a schedule for objections, opt-outs, a final fairness hearing, and other deadlines. See id.

         A district court cannot certify a class, even for settlement purposes, “until it is satisfied, after ‘a rigorous analysis, ' that Rule 23(a)'s certification prerequisites are met.” In re Target Corp. Customer Data Sec. Breach Litig., 847 F.3d 608, 612 (8th Cir. 2017) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)). This “rigorous analysis” requires the district court to state “its reasons for certification in terms specific enough for meaningful appellate review.” Id. This entails more than just repeating Rule 23(a)'s language; the district court must state the basic facts demonstrating each requirement is fulfilled. Id.

         To certify a class under Rule 23, the plaintiff must first establish that the proposed class is “adequately defined and clearly ascertainable.” Sandusky Wellness Center, LLC v. Medtox Scientific, Inc., 821 F.3d 992, 996 (8th Cir. 2016). Additionally, all of the requirements of Rule 23(a) and at least one of the requirements of Rule 23(b) must be satisfied. Id. at 995. Rule 23(a) requires the moving party to show “(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). These requirements are often summarized as numerosity, commonality, typicality, and adequacy. In re Constar Int'l Inc. Sec. Litig., 585 F.3d 774, 780 (3d Cir. 2009). Rule 23(b) requires a showing that

(1) prosecuting separate actions by or against individual class members would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:
(A) the class members' interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.

Fed. R. Civ. P. 23(b)(3).

         Background[1]

         In Kansas City, Missouri, (“City”), residents receive tap water through a series of underground pipes called water mains that, in residential neighborhoods, typically run underground in easements along City streets. City water mains and connections to it are regulated and maintained by the City's Water Services Department (“WSD”). City water mains connect to smaller pipes, called service lines, which run underground from the mains into buildings and homes.

         Historically, galvanized pipe was used for the water service lines connecting water mains to buildings and homes. Galvanized pipes are steel pipes that have a protective zinc coating. The zinc coating prevents corrosive substances from reaching the more delicate part of the pipe-the steel- which is susceptible to corrosion. Over time, the zinc coating erodes and corrosion sets in, weakening the steel and eventually causing a rupture. More recently, WSD required that galvanized pipe be replaced with copper pipe for service lines whenever the line is repaired because copper is more resistant to corrosion.

         The City, through the WSD, is responsible for maintenance and upkeep of water mains, and homeowners are responsible for maintenance of the service lines connecting their homes to the water mains. If a service line breaks, the burden to pay the cost of repair/replacement falls on the homeowner.

         Each building and home connected to the City's water system has a water meter. Historically, a water meter was placed at the end of a service line, inside a home. More recently, water meters at residential locations are placed in underground “meter pits” near the connection between the City's water main and the service line. WSD now requires homeowners to relocate inside water meters outside whenever the service line is repaired.

         Defendant sells utility warranties. A utility warranty is essentially a contract whereby a consumer pays a monthly or annual premium to a warranty provider, such as Defendant, in exchange for warranty protection against certain leaks, ruptures, and other needed repairs to utility lines. For example, if a homeowner purchases a warranty covering his water service line and the service line subsequently ruptures, the warranty provider is required to repair or replace the service line, subject to the terms of the warranty. Defendant sold approximately 9, 500 of these warranties to customers in Kansas City, Missouri, which were in effect as of February 17, 2016.

         Komoroski purchased a water service warranty from Defendant, and has not made a claim under that warranty. Verhulst purchased a water service warranty from Defendant and did experience a ruptured service line. After making a claim under his warranty, Verhulst incurred costs associated with the repair he believes should have been covered by his warranty.

         On February 17, 2016, Komoroski filed a Petition in the Circuit Court of Jackson County, Missouri, entitled Komoroski v. Utility Service Partners Private Label, Inc., d/b/a/ Service Line Warranties of America (the “Action”).[2] The Petition alleges Defendant routinely denied warranty coverage for the cost of replacing galvanized steel pipes with copper ones, and for relocating interior water meters outside whenever a service line had to be repaired. It alleges violations of the Missouri Merchandising Practices Act (“MMPA”), breach of contract, and breach of the duty of good faith and fair dealing. It seeks declaratory relief and damages, including statutory attorneys' fees under the MMPA. On March 24, 2016, Verhulst joined the Action as a class representative.

         Defendant denied the allegations and, on April 1, 2016, removed the Action to this Court. The case was assigned to the Honorable Howard F. Sachs, Senior United States District Court Judge. After removal, Defendant filed a motion to dismiss, which Judge Sachs denied, and the parties engaged in informal discovery and extensive arms-length settlement negotiations, including at least one session with a third-party mediator.

         On July 5, 2016, the parties notified Judge Sachs that they had reached a settlement of all material terms and were “in the process of finalizing the form of settlement agreement and motion for preliminary approval to be submitted to the Court.” Joint Mot. for Stay at 1 (Doc. 20). On January 23, 2017, the parties submitted an initial proposed settlement (Doc. 24-1). Judge Sachs recused on February 13, 2017, and the case was reassigned to this Court. On February 20, 2017, the parties submitted a slightly modified proposal, the Settlement.

         The Settlement creates a settlement class (“the Settlement Class”) defined as “all individuals with galvanized steel water service lines or interior water meters in Kansas City, Missouri who purchased a Warranty Agreement from [Defendant] which was still in effect as of February 17, 2016.” Settlement ¶ ...


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