The North Carolina legislature recently passed H.B. 239, over Gubernatorial veto, which gives company defendants the right to appeal trial court decisions allowing class certification directly to the North Carolina Supreme Court. This law parts from North Carolina case law precedent and eliminates the need for the NC Supreme Court to invoke its supervisory authority to review a grant of class certification prior to resolution of a trial, as the court recently did in Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 699, 2016 N.C. LEXIS 1120, (NC Dec. 21, 2016). While H.B. 239 does not single out company defendants for benefit in its language, in effect the law secures a guaranteed avenue for early review of class action cases that was not available to companies in the North Carolina courts before and it minimizes the delay and costs associated with the two-step appellate process.
NC Class Certification Appeals Before H.B. 239
H.B. 239 is entitled: An Act to Reduce the Number of Judges on the Court of Appeals to Twelve; to Provide an Appeal of Right for Trial Court Decisions Regarding Class Action Certification and Termination of Parental Rights; and to Provide for Discretionary Review by the Supreme Court in Cases Where the Subject Matter Involves the Jurisdiction and Integrity of the Court System. The legislature tackled a lot with H.B. 239, and not without putting up a fight. The bill granting a right to appeal class certification decisions was vetoed by Governor Cooper because it was packaged with the reduction of the number of judges on the Court of Appeals from fifteen to twelve. The Governor objected to that portion of the bill due to the increasing burden it would place on the court and his belief that it is unconstitutional. The veto was overridden and H.B. 239, Session Law 2017-7 was passed on April 26, 2017.
Prior to H.B. 239, North Carolina case law recognized that the denial of class certification affects a substantial right because it determines the course of the case for the plaintiffs. Therefore, plaintiffs could immediately appeal a class certification denial to the North Carolina Court of Appeals. However, the courts found that “no order allowing class certification has been held to similarly affect a substantial right such that interlocutory appeal would be permitted." Frost v. Mazda Motor of Am., Inc., 353 N.C. 188, 193, 540 S.E.2d 324, 327 (2000). Under N.C.G.S. § 7A-32(b) (2015), the NC Supreme Court has general power to supervise and control the proceedings of any of the other courts of the General Court of Justice. The Court invoked this power and bypassed the NC Court of Appeals to review the grant of class certification in Fisher because it felt “the subject matter of this case implicates the public interest to such a degree that invocation of our supervisory authority is appropriate.” In Fisher, the NC Supreme Court ultimately upheld the class certification decision. But, having resolution of the issue by the NC high court at that stage in the case provided the defendant company with a level of certainty from which to proceed with the litigation. H.B. 239 recognizes the reality that for company defendants the granting of class certification can be equally case determinative, as the risks and costs of defending class action litigation often pressure companies into settling even meritless cases once a class is certified.
H.B. 239 - Right to Appeal Decisions Regarding Class Certification
In pertinent part, H.B. 239 modifies N.C.G.S. § 7A-27, Appeals of right from the courts of the trial divisions, to read:
Appeal lies of right directly to the Supreme Court in any of the following cases…(4) Any trial court's decision regarding class action certification under G.S. 1A-1, Rule 23.
H.B. 239 grants appellate review as a right, whereas Federal Rule of Civil Procedure 23(f) leaves it to the discretion of the appellate court whether to review the trial court’s decision to grant or deny class certification. H.B. 239’s broad language includes the initial grant or denial of class certification, and arguably any other “decision regarding class action certification,” such as subsequent motions to decertify a class and some suggest possibly motions to strike class allegations.
With H.B. 239, class action defendants no longer need to wait until a trial is over to challenge a class certification decision or for the rare case deemed important enough for the NC Supreme Court to review class certification early. H.B. 239 reduces some risk early and saves time and costs by eliminating the intermediate appellate court. Not having to wonder whether the certification decision would be overturned following trial, defendant companies can best strategize about the course of litigation and settlement prospects.
Standard of Review of Class Certification Decisions
As Fisher illustrates, appellate review of a grant of class certification does not guarantee the decision will be overturned and the class action dismantled. This is even more so now that H.B. 239 provides a right to appeal all decisions regarding class certification. The Fisher court reiterated the standard of review for class actions in North Carolina, noting that “[w]hen all the prerequisites are met, it is left to the trial court's discretion 'whether a class action is superior to other available methods for the adjudication of th[e] controversy,'” and “[t]he trial court has ‘broad discretion’ to allow or deny class certification.” (citing Beroth Oil Co. v. N.C. Dep't of Transp., 367 N.C. 333, 337, 757 S.E.2d 466, 470 (2014) and Frost, 353 N.C. at 198, 540 S.E.2d at 331). The appellate court reviews the trial court's order regarding class certification for abuse of discretion - findings of fact are binding if supported by competent evidence and conclusions of law are reviewed de novo.
Company defendants should confer with counsel regarding the impact of the new law on their class action cases. Depending on the disposition of the case, strategies for filing an appeal of a class certification decision and settlement negotiations may be impacted, or motions for reconsideration of class certification or motions to decertify a class may be appropriate. Also, H.B. 239 sets forth two different effective dates for the provisions of the Act:
SECTION 5. G.S. 7A-27(a)(5), as enacted by Section 2 of this act, and Section 4 of this act become effective January 1, 2019, and apply to appeals filed on or after that date. The remainder of this act is effective when it becomes law.
The provision adding the right to appeal class certification decisions, N.C.G.S. § 7A-27(a)(4), falls within the “remainder of this act is effective when it becomes law,” which was April 26, 2017. Therefore, a question to be explored is whether class certification decisions currently pending before the NC Court of Appeals should or can be transferred to the NC Supreme Court.
Class action law in North Carolina is not yet as fulsome as federal class action law, but with each year North Carolina law continues to advance in this critical area of litigation. We will keep you posted on developments as the courts work through the nuances of the rights created by H.B. 239.
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Companies are operating in an increasingly globalized and regulated business environment, facing ever-changing and complicated litigation and regulatory challenges. We provide cutting-edge information regarding developments in federal, North Carolina State, and international litigation, as well as in arbitration, regulatory enforcement, and related business practices.
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