Monthly Archives: February 2014

Debate Over Predominance in Issue Certification Continues as Supreme Court Denies Cert.

View Amanda Pickens’ Complete Bio at RBH.comParticularly with the Supreme Court’s denial of cert in Whirlpool v. Glazer, U.S., No. 13-431, cert. denied 2/24/14, “issue certification” itself remains an unresolved issue. In Whirlpool, the Sixth Circuit affirmed the district court’s order granting class certification of claims for breach of warranty, negligent design, and negligent failure to warn under Ohio law for Whirlpool’s front-load washing machines. Whirlpool argued that class certification was improper because individual issues of liability and damages predominated with respect to the action as a whole. Some years ago, Judge Dever discussed the notion of “issue certification” in Farrar & Farrar Dairy, Inc. v. Miller-St. Nazianz, Inc., 254 F.R.D. 68 (E.D.N.C. 2008), noting that “although the Fourth Circuit appears to address this issue in Gunnells v. Healthplan Services, Inc., 348 F.3d 417 (4th Cir. 2003), its analysis is unclear.” As Judge Dever read the opinion, the Fourth Circuit appeared to hold that only causes of action, not individual issues, can be certified. A bona fide circuit split exists on this issue. Compare Castano v. American Tobacco Co., 84 F.3d at 745 n. 21 (5th Cir. 1996), with McReynolds v. Merrill Lynch & Co., No. 11-3639 (7th Cir. 2012). This can be particularly important in consumer class actions. SeeCarving at the Joints: Using Issue Classes to Reframe Consumer Class Actions.” The Fourth Circuit has not touched the issue since Judge Dever wrote about it five years ago. The circuit split encourages forum shopping by plaintiffs hoping to certify issue-based class actions.

Up and Back Class Certification in the Business Court

View Matt Tilley’s Complete Bio at RBH.comJudge Jolly has granted class certification in a couple of cases pending before him.

In Elliott v. KB Home North Carolina, Inc., which was filed in 2008 and made its way to the Business Court in 2010, the plaintiff cited his displeasure with the installation of “James Hardie’s HardiPlank cement fiber lap siding” without a weather-resistive barrier. In February 2012, Judge Jolly certified a class of between 277 and 554 homeowners, centering his determination on the observation that the claims at issue “arise from the same common nucleus of operative alleged facts.” He rejected the notion that individual damages calculations defeated predominance. Plaintiffs avoided a common problem in state-law warranty claims by confining the class to one state (North Carolina) and avoiding the mess created by having to apply different state laws to the claims.

Unlike federal court, there is no right of immediate appeal of a class certification decision under the North Carolina Rules of Civil Procedure. North Carolina’s Rules don’t have a Rule 23(f) analogue, and the Court of Appeals has taken the rather odd stance that a “substantial right” is affected if class certification is denied, but not when it is granted. See Stetser v. TAP Pharm. Products, Inc., 165 N.C. App. 1, 4, 598 S.E.2d 570, 573 (2004). So when Defendants took an appeal from Judge Jolly’s order, the Court of Appeals dismissed it. In their notice of appeal, the defendants also included an allegation – apparently for the first time and well into the litigation – that an arbitration clause should be enforced. When the case came back before him, Judge Jolly found that contention came too late. See 2012 NCBC 5 (N.C. Super. 2012), and the Court of Appeals affirmed, holding that Defendant “litigated this case [for over three years] while sitting on contractual rights it had to arbitrate.” See 752 S.E.2d 694 (N.C. App. 2013)

In a footnote, Judge Jolly noted he was concerned by Homes’ “attempt to compel arbitration as to the unnamed class members, thereby effectively ‘undoing’ this court’s Order on Class Certification and getting the proverbial ‘second bite at the apple’ for class certification.” KB Homes is now asking the Supreme Court to take another look at the waiver issue.

In another case – this one assigned to him under Rule 2.1 – Judge Jolly certified a class of tobacco farmers suing a tobacco marketing cooperative that administered the price component of the Federal Tobacco Program. Fisher v. Flue-Cured Tobacco Cooperative Stabilization Corp., Nos. 05 CVS 188 and 05 CVS 1938 (N.C. Bus. Ct., Feb. 7, 2014). The plaintiffs alleged that they were guaranteed a “life membership” in the cooperative that could not be cancelled without a hearing. Like Elliott, the fact that the cases raised contractual issues and affected a number of individuals didn’t dissuade Judge Jolly from certifying a class. In his order, Judge Jolly cited a host of “common issues.” A difficulty in certifying this class was the fact that the claims seem to depend upon whether particular tobacco farms received, read and relied upon individual letters sent to them. But the Court dodged that issue, construing the letters not as “proof of a separate contractual agreement,” but rather a “course of dealing with members which is supported by cooperative law.” Numerosity wasn’t a problem: there were well over 200,000 certificates issues to putative class members since 1967.

Choice of Law & Commonality: Failure to Establish Common Claim Elements Precludes Class Certification

View Sinéad O’Doherty’s Complete Bio at RBH.comIn Wal-Mart Stores, Inc. v. Dukes, the Supreme Court tightened the requirements for establishing “commonality” for class certification under Rule 23. After all, it’s easy enough to articulate an abstract “common question” in a putative class action: “For example: Do all of us plaintiffs indeed work for Wal-Mart? Do our managers have discretion over pay? Is that an unlawful employment practice?” Wal-Mart, 131 S. Ct. 2541, 2551 (2011). But, according to Justice Scalia, such abstract questions no longer suffice: the “common contention . . . must be of such a nature that it is capable of classwide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Id. Unsurprisingly, this standard presents special challenges to certification of nationwide class actions involving state law claims. See Cochran v. Volvo Group North America, LLC, No. 1:11-cv-927, 2013 WL 1729103, at *2-*3 (M.D.N.C. Apr. 22, 2013) (discussing problems, including constitutional and manageability concerns, associated with choice-of-law issues for nationwide breach of warranty claims).

The Cochran plaintiffs sought certification of a nationwide class of truck owners and lessees with warranty claims related to certain Volvo trucks. The Cochran plaintiffs asserted that the potential class members had substantially the same warranty and that two common “fact” questions existed: (1) did the trucks have common defects and (2) did Volvo fail to fix the defects? Seems fairly straightforward, right? Unfortunately for the Cochran plaintiffs, warranty claims are state law claims, and they failed to show either that the same law (or at least a common element) applied to breach of warranty claims throughout America or that one state’s law applied to all putative class members’ claims. Cf. Gariety v. Grant Thornton, LLP, 368 F.3d 356, 370 (4th Cir. 2004) (recognizing that plaintiffs must identify and compare applicable states’ laws where choice-of-law issues impact certification decision). Without this information, the court could not determine whether “resolution of the defect and repair questions would resolve an issue that is central to the validity of the warranty claim,” precluding class certification. Cochran, 2013 WL 1729103, at *4. As the Cochran plaintiffs discovered, under the heightened Wal-Mart commonality standard, “evidence of defect and failure to repair is not, in the end, enough for class certification.” Id.

After Co-Counsel Communication Issues, Court Appoints Sole Class Counsel

View Stuart Pratt’s Complete Bio at RBH.comIn Mitchell v. Smithfield Packing Co., Inc., No. 4:08-CV-182, 2013 WL 3819935 (E.D.N.C. July 23, 2013), Magistrate Judge Gates had to decide how to deal with putative class counsel who were having trouble communicating: “Communications between [co-counsel] appear to have completely broken down, and the court cannot envision any scenario in which they could continue to work together.” In the face of this, the Court had to choose which counsel to appoint as sole class counsel under Rule 23(g). Rule 23(g)(2) provides that “[i]f more than one adequate applicant seeks appointment, the court must appoint the applicant best able to represent the interests of the class.” In this case, the Court opted for experience, finding that one set of lawyers’ experience “in this area vastly outstrip[s]” the other. In so holding, Judge Gates went against the wishes of the named plaintiffs, which he held “not to be dispositive.”

North Carolina Court of Appeals Upholds Class Action Waiver in Arbitration Agreement

View Susan Huber's Complete Bio at RBH.comIn recent companion decisions, the North Carolina Court of Appeals had to decide whether a governing North Carolina Supreme Court decision concerning class actions had to yield to a decision of the United States Supreme Court.

A contract is generally governed by state law, but when that contract includes an arbitration clause, the provisions of the Federal Arbitration Act come into play. The United States Supreme Court has wrestled with the intersection of the arbitration-friendly FAA and state law contractual defenses against contractual enforcement – like “unconscionability” – since at least the 1967 decision of Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967). The FAA clearly prevents a state law from directly invalidating an arbitration clause – that is exactly what the FAA was enacted to prevent. But sorting out the perimeters of state law and the penumbra of the FAA is not always easy. See, for instance, the Supreme Court’s decision in Volt Information Sciences, Inc. v. Stanford University, 489 U.S 468 (1989), where Court held that the parties had agreed to a state-law provision that was otherwise antithetical to the FAA’s policies and remedial scheme.

Not only is it difficult to draw the FAA/state-law line, but the federal and North Carolina courts historically have reached opposite conclusions. In AT&T Mobility LLC v. Concepcion, 563 U.S. 321 (2010), the Supreme Court applied its FAA/unconscionability analysis to an arbitration clause containing a class action waiver. The Court held that under the FAA a state court can’t use state law “unconscionability” to get rid of a class action waiver contained in arbitration agreement. But the North Carolina Supreme Court, in a pre-Concepcion case, had adopted the opposite approach. In Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93 (2008), North Carolina’s highest court said that “substantive unconscionability” could preclude enforcement of an arbitration clause prohibiting joinder of claims and class actions.

So what gives? The Court of Appeals of North Carolina concluded in a recent decision that Tillman is no longer good law because the legal theories upon which it was based have been undermined by the United States Supreme Court. The decision, Torrence v. Nationwide Budget Finance (N.C. Ct. App. Feb. 4, 2014), was unanimous, and the North Carolina Supreme Court need not take the case on discretionary review. The Court of Appeals reiterated its ruling in another case raising the issue, Knox v. First Southern Cash Advance (N.C. Ct. App. Feb. 4, 2014), decided the same day. So, for now at least, contractual waivers of class proceedings contained in arbitration provisions are fair game in North Carolina. Stay tuned for whether the North Carolina Supreme Court wants to weigh in concerning the Court of Appeals’ reading of its precedent.