Kyle A. Medin

Chelsea Pieroni

Does a trial court have to approve a voluntary dismissal of a putative class action before the case gets to class certification? While the precise answer remains uncertain, the Fourth Circuit, North Carolina courts, and other jurisdictions have made room for a Rule 23(e)-adjacent—or, Rule 23(e) “light”—approach for handling voluntary, pre-certification dismissals without leaving unknowing class members high and dry. In this article, we will examine these examples, address parallel happenings in North Carolina, and ponder about what is yet to come.

Rule 23(e) of the Federal Rules of Civil Procedure requires that the “claims, issues, or defenses of a certified class—or a class proposed to be certified for purposes of settlement—may be settled, voluntarily dismissed, or compromised only with the court’s approval.” In the event of a settlement or compromise, the court ensures that the dismissal protects all potential class members. 

But what about a situation when a class representative unilaterally decides to voluntarily dismiss the claims before a class is certified? What does this mean for the putative class members’ individual claims?

Rule 23(e) “Light” in the Fourth Circuit and Beyond

First, a note of clarification. The text of Rule 23(e) requires court approval only in two scenarios:  for (1) a certified class, or (2) a proposed settlement class. In these scenarios, the parties must provide sufficient information to the court so that it can determine how best to notify class members that a judgment will be entered resolving their claims. But, in practice, case law supports something akin to a Rule 23(e)-“light” notice-and-approval process for a third category—plaintiffs proffered as a class.

Although Rule 23(e) appears, on its face, not to apply to such putative classes, “District Court[s] would appear to have an ample arsenal to checkmate any abuse of the class action procedure, if unreasonable prejudice to absentee class members would result, irrespective of the time when the abuse arises.” Shelton v. Pargo, Inc., 582 F.2d 1298, 1306 (4th Cir. 1978).  In Shelton, the Fourth Circuit held that, while a full Rule 23(e) inquiry is not necessary at the pre-certification stage, a district court must still conduct a “proper inquiry” to determine at least “whether the proposed settlement and dismissal are tainted by collusion or will prejudice absent putative members with a reasonable ‘reliance’ expectation of the maintenance of the action for the protection of their interests.” Id. at 1315; In re Stucco Litig., No. 5:00-CV-540BR2, 2001 WL 35955835, at *1 (E.D.N.C. Jan. 16, 2001) (citing Shelton to state the same); In re Microsoft Corp. Antitrust Litig., 332 F. Supp. 2d 890, 895 (D. Md. 2004) (considering whether voluntary dismissal of putative class should be denied based on Shelton analysis).

The Fourth Circuit is not alone in considering a court’s duties with respect to putative class members through the lenses of potential collusion and prejudice.  In Jones v. H&J Restaurants, LLC, for example, the parties moved for “approval of the collective class’s settlement agreement and voluntary dismissal . . . before any ruling on . . . class certification.”  No. 5:19-CV-105-TBR, 2020 WL 6877577, at *6 (W.D. Ky. Nov. 23, 2020). Because the parties made such motion before certification, the Western District of Kentucky acknowledged that “Rule 23(e) does not indicate that the voluntary dismissal sought in this case require[d] court approval.”  Id. Nevertheless, out of concern for prejudice to the remaining class members, the court took it upon itself to consider “the degree of publicity a case has received, evidence of collusion, and the danger of dismissal having a preclusive effect on absent class members” in determining whether 23(e)-“light” notice was due to putative class members.  Id. at *7. 

Other federal courts, too, have inquired into the propriety of pre-certification dismissals. In Campanelli v. Image First Healthcare Laundry Specialists, Inc., the Northern District of California took into account publicity, the potential of a rapidly-approaching statute of limitations, and evidence of collusion by class representatives and counsel. No. 15-CV-04456-PJH, 2019 WL 1925494, at *2 (N.D. Cal. Apr. 30, 2019). In Ross v. Warner, the Southern District of New York emphasized the notion of equity with respect to class members, stating that equity “dictates” ensuring that “possible litigants not forfeit their rights for lack of knowledge that they are once again on their own.”  80 F.R.D. 88, 91 (S.D.N.Y. 1978)); but see Anderberg v. Masonite Corp., 176 F.R.D. 682, 690 (N.D. Ga. 1997) (holding no notice or approval needed for pre-certification dismissal unaccompanied by settlement, where there was no reason to believe that putative class members were relying on the litigation).

North Carolina Follows Suit

North Carolina courts have taken a similar approach.  In Moody v. Sears Roebuck & Co., 191 N.C. App. 256, 664 S.E.2d 569 (2008), a consumer filed a class action complaint against a car service provider, alleging unfair and deceptive trade practices. After a competing class action settled in Illinois, both parties moved to dismiss the North Carolina action with prejudice based on the Illinois settlement. The trial court, troubled by the paltry settlement payments resulting from the Illinois case, entered an order dismissing the consumer’s individual claim with prejudice, but dismissing the class members’ claims without prejudice. Both parties appealed. 

In assessing the trial court’s actions, the North Carolina Court of Appeals leaned on Shelton. It noted that North Carolina’s Rule 23 could not apply per se to a putative class action before class certification because such a case is not, in fact, a class action. But the court noted Shelton’s recognition of “the danger in allowing named plaintiffs to settle their individual claims for hefty sums and then dismiss their class-action complaint with no judicial oversight[.]” 

The Court of Appeals emphasized that North Carolina case law “establishe[s] a clear judicial policy of allowing trial courts broad discretion in matters pertaining to class-action lawsuits.” “Without some level of pre-certification court supervision, there is an unacceptable risk that parties may abuse the class-action mechanism in myriad ways.” Finally, in a manner similar to the federal district courts in the decisions mentioned above, the North Carolina Court of Appeals held that, “when a plaintiff seeks voluntary dismissal of a pre-certification class-action complaint, the trial court should engage in a limited inquiry to determine (a) whether the parties have abused the class-action mechanism for personal gain, and (b) whether dismissal will prejudice absent putative class members.” 

Though the Moody court ultimately reversed and remanded the matter for failure to accord full faith and credit to the Illinois suit, its discussion of dismissal of pre-certification class actions has influenced several North Carolina Business Court decisions. See, e.g., Bennett v. Com. Coll. of Asheboro, Inc., No. 15 CVS 7444, 2016 WL 1118739 (N.C. Bus. Ct. Mar. 22, 2016) (Bledsoe, J.); Thomas Cook Printing Co. v. Subtle Impressions, Inc., No. 05 CVS 11566, 2008 WL 4695734 (N.C. Bus. Ct. Oct. 24, 2008) (Conrad, J.).

The Key Inquiry:  Potential Prejudice to Putative Class Members

The touchstone of the Rule 23(e) inquiry is whether the putative class members are—or may be—counting on the case and therefore need notice that there is no class action safeguarding their rights anymore. A few of the authorities cited above highlight that the risk of prejudice for a pre-certification settlement increases where suddenly-unrepresented putative class members are forced to scramble to bring their own suits within a rapidly-closing limitations window. See, e.g., Campanelli, 2019 WL 1925494, at *2. 

Even where there is no settlement accompanying the dismissal, putative class members may have been holding back their own individual suits during the pendency of the action, believing they were being represented by the class representative and her counsel. Thus, courts may require that the members be notified that they must take their claims into their own respective hands. 

Rule 23(e) “Light” versus American Pipe

What does a court’s notice of a voluntary dismissal mean, practically speaking? It dovetails with the doctrine of American Pipe tolling. Under the U.S. Supreme Court’s decision in American Pipe,

the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action. Once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied.

Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 353–54 (1983) (discussing American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974)); but see China Agritech v. Michael H. Resh, 584 U.S. 732, 736–40 (2018) (barring litigants from abusing the tolling of previous, timely-filed actions through filing successive class actions after the expiration of the limitations period). The North Carolina Court of Appeals has essentially adopted the same tolling analysis, explicitly stating that its holding was “per American Pipe and [Parker].” Scarvey v. First Fed. Sav. & Loan Ass’n of Charlotte, 146 N.C. App. 33, 42–43, 552 S.E.2d 655, 661 (2001).

How much time may be granted to the putative class members through American Pipe tolling could depend on whether notice would have been due under Rule 23(e):

• If no notice was due: In this scenario, it seems that, at most, American Pipe would toll for the pendency of the class action, and so the class members would have whatever time remained on the applicable limitations period(s) in which to file their individual claims or another class action.
• If notice was due: Assuming that, under American Pipe, these claims were tolled during the pendency of the class action, and notice was due but not given because the court did not conduct an inquiry under Rule 23(e), former putative class members may argue for further equitable tolling from the filing of the class action through the time at which the member became aware that the class action had been dismissed. As far as we can tell, this argument has never been heard by a federal or North Carolina court. Nonetheless, class-action defendants should keep this possibility in mind if they are lucky enough to obtain a voluntary dismissal of a class action pre-certification, but there was no court approval.

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In summary, a consensus has been brewing among courts to fill the gaps in Rule 23(e) with decisions consistent with the overall spirit of the Rule. Motivated to guard against procedural abuse and prejudice to unknowing class members, those courts have engaged in Rule 23(e)-“light” rhetoric in support of moving cautiously when handling requests to dismiss a pre-certified class action, even if the Rules do not expressly so require. For now, only time will tell whether this consensus will become commonplace.