North Carolina General Assembly Strengthens Appeal Rights for Defendants Who Receive Adverse Class Certification Decisions

By Phillip Harris Jr., Joseph Dowdy
Kilpatrick Townsend & Stockton LLP

May 9, 2017

Background. On April 26, 2017, the North Carolina General Assembly overrode a gubernatorial veto to enact N.C. Session Law ch. 2017-7 (formerly HB-239) (the “Act”). The Act arose from a power struggle between the state’s democratic governor and its republican legislature regarding who should make judicial appointments. The legislature sought to revoke the governor’s longstanding power to fill pre-election judicial vacancies by eliminating seats on the North Carolina Court of Appeals. To prevent opposition from the business community, the legislature included in the Act a potentially beneficial reform of state class action procedural law.

The Class Action Appeals Amendment. The Act amends N.C. Gen. Stat. § 7A-27 by adding a new subsection (subsection (a)(4)), which provides: “[an] [a]ppeal lies of right directly to the Supreme Court in any of the following cases: Any trial court’s decision regarding class action certification under . . . Rule 23 [of the North Carolina Rules of Civil Procedure].” This short amendment implements at least four significant changes to North Carolina class action practice.

First, the Act grants to a class action defendant the right to appeal an order certifying a class. Prior to the Act, a plaintiff could appeal from the denial of class certification, but a defendant could not appeal a grant of class certification. Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 699, 705 (N.C. 2016). North Carolina’s appellate courts had concluded that, although either ruling was interlocutory, a denial of class certification affected a substantial right “because it determines the action as to the unnamed plaintiffs,” whereas the allowance of certification does not. Frost v. Mazda Motor of Am., Inc., 540 S.E.2d 324, 327 (N.C. 2000). Thus, an unsuccessful defendant seeking immediate review had to petition for certiorari in the North Carolina Court of Appeals or otherwise show a substantial right beyond the certification decision itself. Now, plaintiffs and defendants stand on equal footing in terms of their right to appeal an adverse decision.

Second, the Act specifies that the direct appeal is directly to the North Carolina Supreme Court. Under prior law, a party appealing from a class certification decision was required to first seek review in the Court of Appeals, pursuant to N.C. Gen. Stat. §§ 7A-27(b). If the Court of Appeals issued a unanimous decision, that decision generally was subject only to discretionary review in the Supreme Court, and an appeal of right existed only when a Court of Appeals judge issued a dissenting opinion. N.C. Gen. Stat. §§ 7A-30 & 31. As the Supreme Court seldom granted discretionary review and dissents were somewhat rare, review in the Supreme Court as a practical matter was unlikely. Further, the Supreme Court had the right, but not the obligation, to take an appeal under N.C. Rule of Appellate Procedure 15. Now all class certification decisions will receive a full, direct appeal in the state’s highest court.

Third, the Act potentially broadens the types of orders that a party can appeal. By its terms the Act applies not only to the denial or allowance of certification, but to “[a]ny trial court’s decision regarding class action certification.” In most instances, parties probably will limit their appeals to grant and denial orders, but it is plausible that other rulings will give rise to appeals as well, such as an order to strike class action allegations.

Fourth, any appeal under the Act will give rise to an automatic stay of proceedings in the trial court. Under North Carolina law, the filing of a notice of appeal divests a trial court of jurisdiction of “all matters embraced within or affected by the order or judgment being appealed.” Lowder v. All Star Mills, Inc., 273 S.E.2d 247, 259 (N.C. 1981). Under prior law, a defendant appealing from an adverse certification decision had to persuade the trial court to issue a discretionary stay of further proceedings. See N.C. R. App. P. 8(a) (governing stays on appeal generally). Now, a stay is automatic.

As a result of this amendment, North Carolina procedural law now provides greater appellate rights in class action cases than Federal Rule of Civil Procedure 23(f). The federal rule allows a party to seek permission from a circuit court to appeal “an order granting or denying class-action certification,” and in federal court, there is no stay of proceedings unless the district court or the appellate court so orders.

Key Takeaways. Businesses facing possible class action liability in North Carolina now have enhanced protections under the Act.

In negotiating class action settlements, businesses should be mindful that an adverse certification decision in state court may have less weight than it formerly did as a result of the direct right of appeal, at least if the order is vulnerable to attack.
In pending cases in which an arguably erroneous class certification order has been entered, the defendant should consider whether to move for decertification or reconsideration, to prompt a ruling that may give rise to a direct appeal to the North Carolina Supreme Court under N.C. Gen. Stat. § 7A-27(a)(4).
In class certification cases presently pending in the North Carolina Court of Appeals, the defendant should consider whether to make a motion to transfer the case to the North Carolina Supreme Court if such a transfer is not otherwise ordered by the Court of Appeals (the Act’s impact on existing appeals is unclear).
Businesses served with new class action cases should carefully consider whether to remove the cases to federal court or whether the Act’s appeal rights make proceeding in state court more desirable.
Businesses should consider engaging appellate counsel at the class certification stage to ensure that they have the best chance of obtaining appellate relief if they receive an unfavorable decision.
Appeals of North Carolina state court class certification decisions are more economical, given there will no longer be proceedings in the intermediate appellate court, and any litigation in the trial court would be subject to an automatic stay.