Disappointments and Silver Linings in North Carolina Class-Action Law

Life has its disappointments. Sometimes, you think you’ve won a free car, but it turns out that you’ve won only a couple of dollars. And sometimes, you think that an appellate court will clarify a thorny issue of class-action law, but the court leaves that issue unresolved. These scenarios coalesced in a recent decision from the North Carolina Supreme Court: Surgeon v. TKO Shelby, LLC.

The Surgeon case arose when hundreds of people allegedly suffered the first disappointment above. A car dealership mailed out flyers that advertised a scratch-off contest. According to the plaintiffs, on every flyer, the scratch-off number matched the number for the grand prize: a 2018 Nissan Sentra. When the lucky “winners” went to the dealership to claim their new cars, they were told that the scratch-off numbers were meaningless, and that they had won just two dollars.

The disappointed participants responded by mailing something back to the car dealership: a putative class-action complaint. They alleged that the dealership had breached a contract (the flyer) and had committed unfair and deceptive trade practices.[1]

A North Carolina trial court certified the case as a class action. The certified class included all persons who had received a supposedly winning flyer and who had gone to the dealership to claim their prize.

The defendants appealed the class-certification ruling straight to the North Carolina Supreme Court. They did so based on section 7A-27(a)(4) of the North Carolina General Statutes. That section not only allows an immediate appeal of any ruling regarding class certification, but sends those appeals directly to North Carolina’s highest court. This blog discussed the enactment of this statute here and here.

In the Supreme Court, the Surgeon case appeared to tee up a much-debated issue of class-action law that has not yet been resolved in North Carolina: the issue of “ascertainability.”

As Lawrence Moore and Jordan DeJaco noted on this blog last year, federal appellate courts have held that for a class to be certified under federal law, a court must be able to figure out who the class members are. The class members must, that is, be ascertainable. The federal appellate courts have disagreed, however, on how burdensome this ascertainability requirement is. Some hold that if a series of mini-trials would be needed to decide who is a class member and who isn’t, certification is improper. Others hold, in contrast, that class certification is allowed so long as the criteria for class membership are defined in objective terms.

The North Carolina Supreme Court has not yet taken sides on this ascertainability debate under North Carolina law. But the Surgeon case appeared to present an opportunity to do so.

The defendants argued that under the stricter approach adopted by some federal courts, the Surgeon class wasn’t ascertainable. To be a member of the Surgeon class, a person must have received the flyer and gone to the dealership to claim her prize. Because the dealership didn’t keep track of who came in, however, the defendants argued that a series of mini-trials would be needed to determine which of the purported class members met the class definition.

The plaintiffs argued, in contrast, that the class was defined in objective terms. Under the more permissive approach adopted by other federal courts, they said that was enough for the class to be ascertainable.

That’s when our second bout of disappointment struck. At oral argument in the Supreme Court, it became clear that there was a problem with the certification order. Even though the court certified a class of persons who received the flyer and went to the dealership, the court analyzed the class-certification criteria for a different set of persons: those who received the flyer, who then called a phone number on the flyer, and who only then went to the dealership.

When the Supreme Court issued its decision, it concluded that this mismatch between the class definition and the trial court’s analysis meant that the Supreme Court could not meaningfully review the trial court’s order. The Supreme Court therefore remanded the case to the trial court for further analysis, without deciding the ascertainability issue.

Although the Supreme Court wasn’t able to bring clarity to North Carolina law on ascertainability in Surgeon, its decision did have a silver lining: The Court provided several helpful pointers about North Carolina class-action law.

First, the Supreme Court reminded practitioners that Rule 23(a) of the North Carolina Rules of Civil Procedure doesn’t tell the full story on class certification. The text of Rule 23(a) is quite spare: It says only that “[i]f persons constituting a class are so numerous as to make it impracticable to bring them all before the court, such of them, one or more, as will fairly insure the adequate representation of all may, on behalf of all, sue or be sued.” As the Supreme Court noted in Surgeon, the North Carolina appellate courts have superimposed a number of requirements onto that text — requirements that largely track the class-certification requirements in federal law.

Under North Carolina case law, a party seeking class certification must first show that “the named and unnamed members each have an interest in either the same issue of law or of fact,” and that this common “issue predominates over issues affecting only individual class members.”

The party seeking certification must then show that a number of additional requirements are satisfied:

  • The class representatives “have the ability to fairly and adequately represent the interest of all class members.”
  • There are “no conflicts of interest between the class representatives and the unnamed class members.”
  • The class representatives “have a genuine personal interest in the outcome of the suit.”
  • The class representatives “have the ability to adequately represent class members outside of the jurisdiction.”
  • The proposed class members “are so numerous that it is impractical to bring them all before the court.”
  • And it is “possible to provide sufficient notice to all putative class members.”

Second, the Supreme Court emphasized that lawyers and courts need to be alert for conflicts within a proposed class. If class members have competing interests, the Supreme Court noted, a trial court might need to divide the class into subclasses with separate counsel or even deny class certification altogether. In Surgeon, the Supreme Court reminded the trial court to do a careful analysis of potential conflicts on remand.

Finally, the Supreme Court noted another wrinkle of North Carolina class-action law: If each class member’s potential recovery is too small, that fact can defeat class certification. A well-known selling point of class actions is that they allow plaintiffs to join together to pursue recoveries that might be too small to pursue individually. Under North Carolina law, however, if each class member’s potential recovery is so small that the recovery wouldn’t even cover the cost of administering the class, class certification can be denied as “inefficient.” The Supreme Court told the trial court to consider this issue on remand as well.

In sum, after the Supreme Court’s decision in Surgeon, North Carolina law on ascertainability remains uncertain. But the Supreme Court did provide a number of helpful guideposts on North Carolina class-action law. And one last silver lining from the remand in Surgeon is that, because class-certification rulings in North Carolina can be immediately appealed to the Supreme Court, the ascertainability question may come back to the Court soon. Whether we (and the plaintiffs) will hit the jackpot remains to be seen.


[1] Robinson Bradshaw represented a former defendant in this litigation. The defendant, who was alleged to have been involved in printing and mailing the flyers, was dismissed in 2019.