North Carolina Business Litigation Report

Moody v. Sears, Roebuck and Co., 2007 NCBC 13 (N.C. Super. May 7, 2007)(Tennille)(reversed by the North Carolina Court of Appeals)

The Court considered the dismissal of a North Carolina class action following the Illinois settlement of a nationwide class action. Court approval was required, even though the class had never been certified, but the plaintiff had attempted to dismiss its case following the settlement without leave of Court.

The Business Court had tentatively agreed to the dismissal, subject to the filing of an accounting of the settlement and its benefits to North Carolina residents. Plaintiff and class counsel sought to avoid providing the information by taking the unusual step of applying for a Writ of Mandamus from the North Carolina Court of Appeals, but were ultimately required to do so.

The accounting revealed that the distribution was paltry, totalling $66 in cash and coupons to the North Carolina claimants. The entire nationwide class had received $2,402 in cash and coupons. A settlement obtained by the Attorney General for New Jersey, however, had resulted in the payment of $125,440 to 12,544 claimants. Notwithstanding the minimal benefit for the class members, the Illinois Court had awarded fees of $1.1 million.

The Court held that "the shocking incongruity between class benefit and the fees afforded counsel and the representative leave the appearance of collusion and cannot help but tarnish the public perception of the legal profession." The class notice here, the Court found, was both poorly distributed and uninformative, did not provide sufficient time for class members to opt out, and made no mention of the million dollar fee for the lawyers. The Court held that "it is hard to imagine a more inadequate notice plan and claims process."

The Court engaged in a thorough discussion of class notice requirements, and pointed out a number of ways in which the notice was deficient and how it could have been improved. Class counsel, the Court held, has responsibility for ensuring that the notice plan is effective. The Court also expressed its distaste for settlements where class members obtain coupons, especially of small dollar amounts, instead of cash.

Another deficiency referenced by the Court was the lack of monitoring of the claims process. The Court stated that it is its practice "to monitor the claims process and to have legal notices published at the end of the case so the public can see what the class received, what expenses were incurred, and what fees were awarded to class counsel and the class representative."

The Court found that class counsel had not adequately represented the class. It also chastized the defendant, saying that "corporations . . . which settle consumer class actions must do so in a fair manner and should not employ notice and claims processes which deprive consumers of knowledge of the settlement terms or the ability to take advantage of the settlement."

The Court ruled that the Illinois dismissal was not entitled to full faith and credit. It dismissed plaintiff's claim with prejudice, but dismissed the class action allegations without prejudice, finding that the Illinois Court had been misled about the number of potential claimants, that the notice plan did not comport with due process, and absent class members had been inadequately represented. The Court made several references throughout its opinion to the Class Action Guidelines published by the National Association of Consumer Advocates.

Full Opinion

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Mack Sperling
Brooks Pierce, LLP
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