Class-Action Practice in North Carolina: 2022 Year in Review
2022 was, in our estimation, a good year, including for class-action practice in North Carolina’s courts. All in all, 2022 gave us one important opinion from the North Carolina Supreme Court concerning Rule 23 as well as several court of appeals opinions concerning issues important to class-action practice, such as whether unilaterally imposed arbitration agreements can be enforced; a matter of first impression concerning whether an unsuccessful notice of removal waives defenses based on service; and a few opinions clarifying the boundaries of the jurisdiction of North Carolina’s courts. Please read on to find out more.
- Dewalt v. Hooks: Class claims for equitable relief must satisfy commonality and predominance under North Carolina’s Rule 23.
In Dewalt v. Hooks, previously ably covered by our colleagues Jeff Warren and Chris Flurry, the North Carolina Supreme Court confirmed that North Carolina’s Rule 23 is not identical to federal Rule 23. In particular, all class claims in North Carolina—even those seeking only undivided equitable relief—must satisfy the commonality and predominance requirements. 2022-NCSC-105, 879 S.E.2d 179 (2022).
In Dewalt, several state prisoners sought a declaration that the state prison system’s policies for solitary confinement inflicted cruel and unusual punishment in violation of the Eighth Amendment of the United States Constitution. They sought to represent a class consisting of prisoners who are or may be subject to solitary confinement in the state prison system. The North Carolina Supreme Court rejected the class. The key takeaways from Dewalt are as follows:
- The differences in wording between North Carolina’s Rule 23 and federal Rule 23 are meaningful. They can make a difference in practice.
- North Carolina’s Rule 23 contains no analogue to Federal Rule 23(b)(2), and therefore does not allow a class to be certified by seeking injunctive or declaratory relief applicable to the class as a whole.
- Accordingly, in North Carolina, all plaintiffs seeking class certification (even those seeking injunctive relief) must satisfy the commonality and predominance factors. All plaintiffs must “demonstrate that each [class] member has an interest in either the same issue of law or of fact, and that issue predominates over issues affecting only individual class members.’” Dewalt, 2022-NCSC-105 ¶ 31 (quoting Crow v. Citicorp Acceptance Co., 319 NC. 274, 277, 354 S.E.2d 459, 462 (1987)).
- To satisfy the commonality/predominance requirement of North Carolina Rule 23, class-action claims must be capable of resolution “in one stroke.” ¶ 12 (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011)
The prisoner plaintiffs in Dewalt could not satisfy the commonality and predominance requirements because whether or not solitary confinement is cruel and unusual as to each class member is a fact-based, individualized inquiry that is incapable of resolution “in one stroke.”
- Canteen v. Charlotte Metro Credit Union: Arbitration agreements that were retroactively, unilaterally imposed can be enforced.
Beyond the four corners of Rule 23, several other legal issues weigh on a class-action practitioner’s mind as litigation brews, begins, and proceeds. One such issue is whether the class action may be avoided altogether by enforcing an arbitration agreement. In Canteen v. Charlotte Metro Credit Union, 881 S.E.2d 753 (2022), the court of appeals considered whether an arbitration agreement that was added to an account agreement after the agreement was signed can be enforced. The answer is yes, it can, under certain circumstances.
The Canteen plaintiff sought to represent a class of consumers challenging unauthorized overdraft fees imposed by a credit union. The credit union moved to compel arbitration based on an arbitration agreement that was added to the plaintiff’s account agreement after the agreement was signed.
The court of appeals held that the arbitration agreement was enforceable because the agreement was expressly amendable by the credit union with notice to the consumer, the credit union sent notice of the amendment adding the arbitration clause, and the consumer failed to exercise the option to opt out of the amendment.
Somewhat ironically, it was relevant that the original account agreement contained a (non-arbitral) forum selection clause. The presence of the forum selection clause distinguished past cases in which courts held that unilaterally changing an existing agreement to add an arbitration clause violated the covenant of good faith and fair dealing. In those cases, the retroactively-added arbitration agreement was unenforceable because the original contract “made no reference to arbitration or any other dispute resolution procedures and did not in any manner address the forum in which a customer could have disputes resolved.” Canteen, 2022-NCCOA-779 ¶ 16 (citing Sears Robuck & Co. v. Avery, 163 N.C. App. 207, 221, 593 S.E.2d 424, 434 (2004)). In contrast, because the account agreement in Canteen selected a forum, “Plaintiff was therefore on notice that [the credit union] could change this provision to allow for disputes to be settled, not in the court … but rather in another forum, including before an arbitrator.” 2022-NCCOA-779 ¶ 17.
- Blaylock v. AKG North America: unsuccessfuly removing a case to federal court does not waive defenses based on insufficiency of process or service of process, at least in state court.
Class-action defendants may also find themselves pushing for removal to federal court for various reasons, and with uncertain prospects for success. In Blaylock v. AKG North America, ___ N.C. App. ___, 2022-NCCOA-549 (2022), the court of appeals considered whether filing a notice of removal constitutes a general appearance that waives defenses for insufficiency of process and service of process. The answer is no, it does not, at least with respect to the state court.
In Blaylock, plaintiff sued her employer for sexual harassment, hostile work environment, and failure to supervise/intervene. The employer removed the action to federal court under federal question jurisdiction and noted in the removal that it had not been properly served. After the federal court remanded the action, the state trial court granted a motion to dismiss for improper service. On appeal, plaintiff contended that the notice of removal worked a general appearance and waived objections to jurisdiction or service. As a matter of first impression, the court of appeals held that filing a notice of removal does not constitute a general appearance, because state courts do not exercise discretion or adjudicatory authority during the removal process.
- Personal Jurisdiction
Finally, where class actions often concern putative classes that stretch over many states, personal jurisdiction defenses often arise, and can be a common avenue to end the action before costly discovery begins. In 2022, the North Carolina courts issued a few opinions relating to specific personal jurisdiction that provide key insights for class-action attorneys.
Miller v. LG Chem: “Stream of commerce” arguments are not enough.
In Miller v. LG Chem, Ltd., 2022-NCCOA-55, 281 N.C. App. 531, 868 S.E.2d 896, the court of appeals considered a products liability action by a consumer against LG Chem, a South Korean company, and LG America, its American counterpart. The action concerned lithium ion batteries which were made by LG Chem and purportedly ended up in North Carolina, were misused as components in e-cigarettes without the company’s authorization, and which allegedly exploded in the consumer’s pocket, causing severe burns.
The court of appeals, following the lead of the United States Supreme Court in Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 209 L. Ed. 2d 225, 141 S. Ct. 1017 (2021), held that in products liability actions, it is not enough to show that a defendant has contacts with the state, but that the contacts “involve the precise product at issue.” Miller, 2022-NCCOA-55 ¶ 18. The Miller panel thus reaffirmed the earlier holding of the court of appeals that simply “injecting . . . products into the stream of commerce” would not suffice to show sufficient contacts and purposeful availment of the state’s laws to establish specific personal jurisdiction. Id. ¶ 32 (citing Cambridge Homes of N. C. Ltd. P’ship. v. Hyundai Constr., Inc., 194 N.C. App. 407, 416, 670 S.E.2d 290, 297 (2008)).
Where LG Chem had never intended the batteries to be used by individual consumers at all, much less those specifically in North Carolina, see id. ¶ 35, a “stream of commerce” argument was all the plaintiff could make, and the Court did not find it persuasive. The court of appeals affirmed the trial court’s dismissal for lack of personal jurisdiction.
Dow-Rein v. Sarle: There is no purposeful availment if plaintiffs come to you.
In Dow-Rein v. Sarle, ___ N.C. App. ___, 2022-NCCOA-92, the Court of Appeals considered whether a horse seller in Florida and his corporate entity purposefully availed themselves of the privilege of conducting activities in North Carolina sufficient to establish personal jurisdiction. The buyer lived in North Carolina, the seller in Florida, and essentially nothing beyond the exchange of a purchase order and wire transfer of funds involved the state of North Carolina. No advertisements were made to the State, no part of the transaction took place in-state, and the buyer did not even take possession of the horse in-state. Thus, the seller had not purposefully availed themselves of a North Carolina forum, and personal jurisdiction was not established.
The court also declined to hold that the seller’s one other transaction with the buyer established an “ongoing business relationship” reflecting purposeful availment. Dow-Rein at ¶ 21. It remanded to the trial court for dismissal.
The bottom line on 2022’s developments in personal jurisdiction law:
The throughline of these cases is that the North Carolina courts emphasize the need to show a direct, substantial connection between the alleged wrongdoing at issue and the State to show specific personal jurisdiction. Per LG Chem, it is not enough for a plaintiff (or class) to point to the ubiquity of a product in North Carolina as sufficient if the manufacturer took no affirmative steps to bring it here in particular. In Dow-Rein, the court of appeals emphasized that a plaintiff cannot enter a transaction with an out-of-state counterparty and, without more, expect to hale them into North Carolina courts. Therefore, savvy class-action defense attorneys must be attuned to not only the hard facts of where their client is headquartered, where the client’s offices are, etc., but also to the more ephemeral concepts of whether the client’s contacts with the state (if any) are isolated and attenuated, or substantial enough to constitute purposeful availment.
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The North Carolina courts clarified several issues central to and related to class actions over the past year, which made 2022 a good year for class-action practice. We hope 2022 was also a good year for you, dear reader! As we forge ahead into 2023, North Carolina class-action practitioners will benefit from the latest guidance of the courts as we serve our clients, and Best in Class will continue to digest, distill, and share that guidance with you.