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Class Actions 101, and Some Tips for China

Like most of us, three small business owners from Winston-Salem, North Carolina are unhappy about the effects of the Coronavirus on the health and economic prospects of North Carolina’s citizens. 

Taking matters into their own hands, in Patella v. People’s Republic of China, No. 1:20-cv-00433 (M.D.N.C. May 15, 2020), the three Winston-Salemites filed a putative class action against the People’s Republic of China and several other Chinese government parties, seeking redress for all North Carolina citizens who have suffered physical injury or economic harm as a result of the pandemic.  Based largely on cable news reports, the local business owners accuse the defendants of creating the Coronavirus in a research lab for infectious diseases, covering up a local outbreak, allowing the outbreak to spread and reach pandemic proportions, and then unlawfully hoarding the personal protective equipment that North Carolina citizens needed to keep themselves safe.  The complaint asserts claims of public nuisance, strict liability, negligence, intentional and negligent infliction of emotional distress, and assault and battery.

While the claims, on their merits, may be destined for the chopping block, the North Carolina business owners’ attempts to seek redress for all affected North Carolinians provides a timely backdrop for highlighting some class-action basics.

What’s a Class Action?

In a class action, a group of individuals who have suffered the same injury by the same defendant may sue that defendant together in a single lawsuit.  Class actions are typically brought where the injury suffered by each individual plaintiff is relatively small, and not worth pursuing in an individual action due to the expense of individualized litigation.  The class-action form allows a large number of individual plaintiffs to pursue their claims at the same time, with the same counsel, in the same proceeding, and, often, with the same evidence.  A class action is typically brought by one named plaintiff, or a small group of named plaintiffs, who seek to represent the interests of the entire class.

But not just anyone can bring a class action.  Under Rule 23 of the Federal Rules of Civil Procedure, to sue on behalf of a class, the named plaintiffs must first show the following four things (deemed “prerequisites” for a class action): 

(1)     the class is so numerous that it would be impractical for each class member to sue individually;

(2)     there are common questions of law or fact common to the class;

(3)     the named plaintiffs’ claims are typical of the claims of all other class members; and

(4)     the named plaintiffs will fairly and adequately represent the interests of the class. 

Once these four prerequisites are satisfied, the proponents must also show that a class action is appropriate on one of three alternative bases:

(1)     separate actions by class members could create inconsistent decisions that would be dispositive of individual class members’ claims, or could create incompatible standards of conduct for the defendant;

(2)     injunctive relief is sought regarding the class as a whole; or

(3)     questions common to the class predominate over questions that affect only individual class members, such that resolving the dispute as a class action is superior to individual adjudications.

What does this all mean, in a nutshell?  To pursue a class action, the named plaintiffs must show that there is a large class of people, who are just like them, were injured by the defendant in the same way as they were, have the same legal claims as them, and will prove those claims in the same way.

Defense Playbook

What can a defendant do to stop the class?

The defendant may be able to cut off the head of the snake with a motion to dismiss, by showing that the named plaintiffs’ claims care not viable on the merits, or that the named plaintiffs lack standing to bring them.  The grounds for dismissing claims on the merits depend on the particular claims at issue.  As for standing, a common argument—particularly in cases where plaintiffs seek penalties for statutory violations—is that the named plaintiffs suffered no real injury from the defendant’s conduct, and thus the plaintiffs do not meet the Constitution’s requirements for filing a lawsuit in the first place.

If a motion to dismiss fails, the case moves on to class certification, where the name of the game is individualized differences.  While the proponents of a class action must show that the named plaintiffs and class members are the same, the opponent of the class action must show that the named plaintiffs and the class members—and the claims they seek to pursue—are meaningfully different, such that pursuit of the claims as a class does not make sense.  This includes showing that the class members suffered different injuries, that their claims are based on different facts, and that proving the claims will require different evidence. 

Class-action defendants may also be able to show that some or all class members entered arbitration agreements, which require them to arbitrate their claims against the defendant, rather than pursue them in court.  Many arbitration agreements also contain class-action waivers, which prohibit claimants from proceeding as members of a class, either in court or in arbitration.

Some Tips for China

Given all this, what are the People’s Republic of China and other defendants to do with the looming class-action complaint?

First, they might consider moving to dismiss for lack of standing.  Setting aside possible merits-based challenges to the complaint (such as sovereign immunity and failure to state a claim, to name a few) there is a conspicuous standing problem:  The complaint fails to identify any injuries that Mr. Patella and his two fellow Winston-Salemites actually suffered.  The complaint does not state, for example, whether any of these men contracted the Coronavirus, whether any of them were forced to close their businesses as a result of stay-at-home orders, or whether any of them suffered any other harm as a result of the virus.  (The complaint does not even allege the type of business each man owned.)  Instead, the men largely seek to redress injuries suffered by North Carolina citizens generally. 

This is not enough.  While a class action allows a plaintiff who has himself been injured to sue on behalf of a class of those who have been similarly injured, it does not give any citizen the ability to sue on behalf the public interest.  That role is left to prosecutors and attorneys general.  Thus, the People’s Republic of China and other defendants might argue that the complaint should be dismissed because its allegations provide no basis for the named plaintiffs to sue on behalf all North Carolina citizens.

If a motion to dismiss fails, the case will proceed to class certification, where the defendants might try to identify individualized differences between the named plaintiffs and other class members in the injuries they suffered, the basis for their claims, and the proof that would be needed for each to prevail.  The defendants might explore the following questions, for example:

  • Did any of the named plaintiffs or class members visit China within the past six months?
  • Did some class members, but not others contract the Coronavirus?
  • Can any of the class members trace their infections back to China?
  • Was personal protective equipment (PPE) available to some class members, but not others?
  • Was PPE available to some class members, and did they choose not to use it?
  • Similarly, are all class members business owners?
  • Have they all suffered economically as a result of the pandemic?
  • Have some profited?

In short, while the Coronavirus has affected the lives of all North Carolinians, the People’s Republic of China and other defendants may be well served by showing how the virus has touched each of our lives in different ways—and that proving the specific harms each of us has suffered would require individualized evidence.

Finally, the defendants should not overlook the possibility of arbitration.  They may want to consider whether the named plaintiffs, or any potential class members, entered arbitration agreements that would cover their claims that the Chinese government entities violated duties owed to them as North Carolina citizens. 

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While Mr. Patella and his associates’ attempt to get redress for all North Carolina citizens may not make it past the chopping block, their complaint has, at least, provided an opportunity to highlight some class-action basics for those in North Carolina and beyond.

June 24, 2020 Michelle A. Liguori
Posted in  Articles General News