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The Profits Are in the Corners: Exploring the Similarities and Differences Between Rule 23 of the South Carolina Rules of Civil Procedure and Federal Rule 23

Whether bringing or defending a class action in South Carolina state court, counsel should closely analyze Rule 23 of the South Carolina Rules of Civil Procedure to understand the foundations of class-action practice in the state. While South Carolina’s drafters adopted language from the federal rules, South Carolina’s version of Rule 23 is not a mere copy and paste of the federal rule, and traps for the unwary abound. Despite the surface similarities, the South Carolina Supreme Court has emphasized that “[o]ur state class action rule differs significantly from its federal counterpart.” Littlefield v. S.C. Forestry Comm’n, 337 S.C. 348, 354, 523 S.E.2d 781, 784 (1999). These points of differentiation are the proverbial corners where the careful practitioner may find the “profits” that can make or break a case. In the coming months, we plan to explore these corners here in greater detail. To begin our series, however, this post reviews the history of South Carolina class actions and the prerequisites for maintaining a class action under South Carolina law, and highlights the similarities and differences between Federal Rule 23 and Rule 23, SCRCP.

History of class actions in South Carolina

South Carolina has a history of allowing class actions, dating back to the adoption of the Field Code in 1870. See James F. Flanagan, South Carolina Civil Procedure (S.C. Bar 2010). Early class actions began in equity, and were originally intended to limit the harsh joinder requirement of the common law so that the sheer number of parties would not preclude litigation concerning matters of common interest. In practice, however, early class actions were limited to three situations: (1) where a prior organizational bond existed between class members; (2) where the class members sought a common fund; and (3) where common declarative or injunctive relief was sought. See Wright v. Proffitt, 261 S.C. 68, 198 S.E.2d 275 (1973); Powell v. Gary, 200 S.C. 154, 20 S.E.2d 391 (1942); Hernlen v. Vandiver, 145 S.C. 412, 143 S.E. 222 (1928). The adoption of Rule 23, SCRCP, expanded access to class actions while preserving the elements of a class action articulated in existing case law. See Knowles v. Standard Sav. & Loan Ass’n, 271 S.C. 217, 246 S.E.2d 879 (1978).

Rule 23, SCRCP sets the prerequisites for maintaining a class action

Both Rule 23 of the Federal Rules of Civil Procedure and Rule 23 of the South Carolina Rules of Civil Procedure set the prerequisites for maintaining a class action. Under both rules, plaintiffs must satisfy each requirement to bring a class action, and a defendant will defeat certification of a class if it prevails against the plaintiff on any one. South Carolina’s drafters increased class-action access by omitting the requirements from Federal Rule 23(b) and (c), which define the general types of class actions and how they are treated in federal court. 

Although the first four subsections of Rule 23(a) do not differ from the federal rule, it is worthwhile to review the prerequisites of maintaining a class action. Rule 23(a) states that to certify a class, the court must find that: 1) the class is so numerous that joinder of all class 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 interest of the class. Therefore, a class action is appropriate when it is a better procedural device for resolving common questions of law versus many individual lawsuits between plaintiffs and defendants. 

South Carolina courts evaluate the prerequisites found in Rule 23(a)(1)-(4), SCRCP similarly to federal courts applying the same language under the federal rule. When evaluating whether a class is so numerous that joinder of all class members is impracticable, counsel should look beyond the sheer numbers of the class. Similar to federal caselaw, which provides no specific class-member size that automatically qualifies as impracticable, the South Carolina courts apply the standard case by case and do not specify a threshold number for qualification. South Carolina courts also consider the difficulty and expense of joining the parties in making this determination. See Faber v. Faber, 76 S.C. 162, 56 S.E. 677 (1907). 

Regarding the commonality question, the South Carolina rule omits the requirement of Fed. R. Civ. P. 23(b)(3) that common questions must predominate over individual issues for damages class actions. To establish commonality under Rule 23, SCRCP, a party must show only that “there are questions of law or fact common to the class.” While the South Carolina Supreme Court has held that “[c]ommonality is met only where the class shares a determinative issue[,] Gardner v. S.C. Department of Revenue., 353 S.C. 1, 21, 577 S.E.2d 190, 200–01 (2003) (emphasis added), a single common issue is sufficient if it holds enough importance, particularly in the context of an action for a declaratory judgment.  See, e.g., S.C. Pub. Serv. Auth. v. Citizens & S Nat’l Bank, 300 S.C. 142, 386 S.E.2d 775 (1989). Accordingly, counsel proceeding under Rule 23, SCRCP should carefully analyze whether an individualized decision for each class member is required by the facts at issue, and defendants may be able to defeat the commonality question if there are many individual decisions required for each class member.

The South Carolina requirement for the class representative remains the same as the federal rule. See Rule 23(a)(3), SCRCP; Rule 23(a)(3) FRCP.  The class representative must be a real party in interest. Therefore, the class representative must share the characteristics of the class.  As does the federal rule, Rule 23(a)(4), SCRCP requires that the class representative fairly and adequately protect the interests of the class.

Statutory limitations on class actions under Rule 23, SCRCP 

Notably, South Carolina’s “door-closing statute” applies to class actions under Rule 23, SCRCP, and non-resident plaintiffs whose claims do not arise in South Carolina may not be members of the class in an action brought against a foreign corporation, even if the defendant corporation’s principal place of business is located in the state.  See S.C. Code Ann. § 15-5-150 (2022). Put differently, a class proceeding under Rule 23, SCRCP “cannot include members who would not be able to bring the action in their individual capacities under the door-closing statute” because “§ 15–5–150 controls the eligibility of class members in a class action where the defendant is a foreign corporation.” Farmer v. Monsanto Corp., 353 S.C. 553, 557–59, 579 S.E.2d 325, 328 (2003) The application of the “door closing statute” by both federal and state courts to class action claims has a curious history of its own, sufficient to earn a separate post in the coming months. Stay tuned!

In addition, at least two state statutes prohibit class actions for certain causes of action. See S.C. Code. Ann. § 12-60-80(C) (2022) (barring class actions for the refund of taxes paid to the State or any political subdivision thereof); S.C. Code Ann. § 37-10-105(a) (2022) (barring class actions for violations of the attorney preference statute in the context of mortgage loans).

Rule 23(a)(5), SCRCP adds an amount in controversy requirement.

Rule 23(a)(5), SCRCP presents the first textual difference between the South Carolina and the federal versions of the rule. This subsection provides that each class member must have at least one hundred dollars in controversary where money damages are the primary relief sought. This additional requirement is intended to limit class actions when the amount sought may be small in comparison with the costs incurred in the litigation, and precludes attorneys from being the chief beneficiaries where the individual members of the class can only recover a small amount. At the same time, while one hundred dollars is unlikely to induce individual litigation in many cases, if enough class members are harmed by the challenged law or conduct, the total amount at issue for the class can reach a substantial amount. The amount claimed by the plaintiff controls if made in good faith, and the requirement will not be satisfied only if it appears to a legal certainty that the threshold amount cannot be recovered. Compare Garner v. Newsome Chevrolet-Buick, Inc., 304 S.C. 328, 404 S.E.2d 200 (1991) (holding claim for recovery of a $99.50 fee payment satisfied the rule where that recovery could be doubled pursuant to statute), with Gardner v. S.C. Dep’t of Rev., 353 S.C. 1, 577 S.E.2d 190 (2003) (finding allegation of improper assessment of fees between $15 and $25 failed to satisfy the monetary requirement).

South Carolina omits Federal Rules 23(b) and (c) and does not require a class action to fit rigid definitions.

The most noticeable difference in South Carolina’s version of Rule 23 is the omission of Federal Rule 23(b) and (c). The drafters of the South Carolina rule omitted the more detailed definitions that a class action must fit under the federal rule.  While the federal rule requires that a class action must first meet the requirements of 23(a), then fit into one category from 23(b), South Carolina’s only requirements for a class action are those set out in Rule 23(a). As the South Carolina Supreme Court has explained, the drafters of Rule 23, SCRCP “intentionally omitted from our state rule the additional requirements found in Federal Rule 23(b)…. By omitting the additional requirements, Rule 23, SCRCP, endorses a more expansive view of class action availability than its federal counterpart.” Littlefield v. S.C. Forestry Comm’n, 337 S.C. 348, 354–55, 523 S.E.2d 781, 784 (1999).

South Carolina Rules 23(b)(1), (b)(2), (c), and (d) have similarities to their federal counterparts.

The remaining provisions of Rule 23, SCRCP closely track the analogous portions of the corresponding federal rule.  Rules 23(b)(1) and 23(b)(2) are analogous to Federal Rules 23.1 and 23.2, respectively, for the requirements of a derivative action and actions relating to unincorporated association.

Rule 23(c), SCRCP contains the current language of Federal Rule 23(d), and mandates that the court must approve any dismissal or settlement and that all class members be notified of a proposed dismissal or compromise. South Carolina courts have generally held that the notice and approval requirements of Rule 23, SCRCP apply even if the case is settled prior to class certification. See Premium Inv. Corp. v. Green, 283 S.C. 464, 471, 324 S.E.2d 72, 76 (Ct. App. 1984). This rule protects absent class members from collusion between the class representative and the opposing party to prematurely end litigation.

Rule 23(d), SCRCP takes its language from Federal Rule 23(c) and (d) and discusses orders from the court in the class action. The state rule differs from the federal rule by giving the court discretion regarding notice.  Unlike the federal rule, the only mandatory notice is the notice of proposed compromise or dismissal required under Rule 23(c), SCRCP. The South Carolina rule also gives the court discretion regarding the method of determining how class members elect to be bound. Significantly, orders on class certification under Rule 23, SCRCP are interlocutory and not immediately appealable. Unlike Federal Rule 23(f), which gives the federal courts of appeal the discretion to grant an appeal on class certification within ten days of the grant or denial of class certification, the South Carolina rule does not grant immediate access to appeal from the certification decision. 

Lastly, Rule 23(e), SCRCP directs that a portion of any residual funds—funds that remain after the payment of all approved class member claims, expenses, and litigation costs—be distributed to the South Carolina Bar Foundation to promote access to civil justice system for low income South Carolina residents. 

Conclusion

When litigating a class action in South Carolina, counsel should review the similarities and differences between Rule 23 of the Federal and South Carolina Rules of Civil Procedure. In many respects, South Carolina’s rule is more expansive than the corresponding federal rule. This is not a universal maxim, however, and counsel should tread carefully when approaching the jurisdictional features that mark the South Carolina rule as more restrictive than its federal counterpart. In particular, the corners where the “door-closing statute” or the minimum amount in controversy requirement may apply merit careful attention, and may well determine whether class plaintiffs finish in the red or in the black when the litigation concludes.

**Ellis & Winters’s Best in Class Blog covers developments in class action developments in courts across the United States, providing insights about their application to class-action practice that reach a nationwide audience.**

February 27, 2024 Matthew Anderson Andrew Parks Carter
Posted in  Class Action Basics