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Harris County Hospital District v. Public Utility Commission of Texas

Court of Appeals of Texas, Third District, Austin

May 3, 2019

Harris County Hospital District Cross-Appellants,
Public Utility Commission of Texas and Southwestern Bell Telephone Company d/b/a AT&T Texas Cross-Appellee, Public Utility Commission of Texas and Southwestern Bell Telephone Company d/b/a AT&T Texas, Appellant Harris County Hospital District, Appellees


          Before Chief Justice Rose, Justices Kelly and Smith



         This is a suit for judicial review pursuant to the Administrative Procedure Act, Tex. Gov't Code §§ 2001.001-.902. The Harris County Hospital District filed a complaint with the Public Utility Commission (PUC) contesting certain fees Southwestern Bell Telephone Company charged its telecommunications customers in the 1990s. Southwestern Bell's successor in interest, AT&T, contends the fee dispute was resolved by a class-action settlement in 2000. The PUC ultimately dismissed the complaint, holding the Hospital District's claims barred by res judicata due to the class-action settlement. The district court reversed that order, holding that the Hospital District is not bound by the settlement because it was not represented in that action in accordance with Section 281.056(b-1) of the Health and Safety Code, which requires a county or district attorney to represent certain hospital districts "in all legal matters." See Tex. Health & Safety Code § 281.056(b-1)(2) (requiring such representation in any county "with population of 3.4 million or more"). We agree with AT&T and the PUC that the Hospital District is bound by the disputed settlement decree. We will therefore reverse the district court's order and render judgment dismissing the case. See Tex. R. App. P. 43.2 (requiring this court to render the judgment the trial court should have rendered).


         Telecommunications utilities in Texas may charge customers a fee to recover certain costs resulting from use of public rights of way. These "municipal fees" are governed by Section 54.206 of the Utilities Code, which allows the utility "to collect a fee that a municipality imposes . . . through a pro rata charge to the customers [with]in the boundaries of the municipality." Tex. Util. Code § 54.206(b). For more than two decades, customers have alleged that Southwestern Bell imposed excessive municipal fees throughout the 1990s, resulting in several lawsuits. Four are relevant here.

         The Mirales Settlement

         Litigation commenced in 1998 in Cameron County when two residential customers sued Southwestern Bell and alleged the utility had been charging excessive municipal fees since October of 1991. The parties ultimately negotiated a cy pres class-action settlement-now known as the Mirales Settlement-to resolve all related claims in Texas. The proposed settlement defined the putative class as:

[A]ll persons and entities who currently reside in the State of Texas who subscribe, or formerly subscribed, to telephone service provided by [Southwestern Bell] and pay, or paid, to [Southwestern Bell] a municipal fee imposed pursuant to a municipal ordinance, other than an ordinance based on a percentage of gross receipts, and collected pursuant to a tariff or statute.

         That definition excluded certain customers not relevant here, including employees of Southwestern Bell and the district court.

         The proposed settlement, once accepted by the district court, would prohibit any class member from pursuing any claim arising from Southwestern Bell's collection of these allegedly excessive fees:

"Released Claims" means any and all claims, rights, causes of action, suits, matters, issues, controversies, or other bases for liability, whether known or unknown, that have been, could have been, or that might be asserted hereafter in the Lawsuit or in any other court or administrative or regulatory proceeding . . . which have arisen, arise now, or hereafter may arise or relate in any way to the pass-through or collection of municipal fees in Texas, including all causes of action that are or could be raised under Plaintiffs' pleadings on file herein or that consumers or customers could raise in relation to Southwestern Bell's pass-through of municipal fees.

         It continues, "Any member of the Settlement Class who has not properly and timely requested exclusion from the Settlement Class shall be bound by any and all judgments, settlements, or releases entered or approved by the Court whether favorable or unfavorable to the class." See Tex. R. Civ. P. 42(c)(2)(B)(v) (establishing putative class member's right to opt out of class).

         After allowing the parties time to notify putative class members of the proposed settlement, the district court held two hearings on the fairness of the proposed certification and settlement. At the first hearing, certain commercial customers objected to the putative class as too variant to satisfy the commonality requirement of certification. See id. R. 42(b)(3) (requiring common questions of law and fact to "predominate" over any individual questions). This challenge was led by Southwestern Tariff Analyst (STA), a telecommunications billing auditor that had attempted to intervene as named plaintiff but whose petition in intervention had been stricken on Southwestern Bell's motion.

         The district court continued the hearing to afford Southwestern Bell time to address the objections to certification. The hearing resumed a week later, and the reporter's record reflects that STA offered to withdraw its objections and waive any right to appeal the intervention ruling if Southwestern Bell would preserve STA's right to bring a separate class action on behalf of governmental and commercial customers. Southwestern Bell declined to change the class definition but agreed not to raise res judicata or related defenses "in any class action lawsuit brought by STA as plaintiff." The agreement was memorialized under Rule 11 and dictated into the reporter's record.

         The district court then certified the class and accepted the settlement proposal. On May 4, 2000, the court's final judgment "grant[ed] final approval to the Settlement Agreement" and deemed it "in all respects, fair, reasonable, adequate, and in the best interests of the Settlement Class." The judgment indicates that all objections were "carefully considered and [were] all overruled." The district court later issued a judgment nunc pro tunc to correct certain typographical and clerical errors in the final judgment.

         The STA Suit

         After the Mirales Class settled its claims, STA filed a class action in 2003, proposing to represent nearly 7, 000 governmental and commercial customers with respect to any remaining claims arising from the same allegedly excessive fees. See Southwestern Bell Tel. Co. v. Marketing on Hold, Inc., 308 S.W.3d 909, 914 (Tex. 2010) (STA). The Hospital District was identified by the class representative and separately by Southwestern Bell as one of these putative class members, but no attorney other than class counsel appeared on behalf of the Hospital District.

         The district court eventually certified the class and the court of appeals affirmed, but the Supreme Court of Texas reversed, holding that STA-as the only named plaintiff-had not met its burden to show it could adequately represent the class. See Tex. R. Civ. P. 42(a) (requiring, inter alia, a showing that "the representative parties will fairly and adequately protect the interests of the class"); STA, 308 S.W.3d at 27 ("Although STA satisfied the typicality and predominance requirements to be a class representative . . . it failed to establish that it is an adequate class representative.").

         The ...

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