The Business Court made two novel rulings last week in its certification of a class action in Clark v. Alan Vester Auto Group, Inc., 2009 NCBC 17 (N.C. Super. Ct. July 17, 2009). First, it adopted the the concept of a "juridical link," which it used to determine the scope of the class claims. Second, the Court transferred the burden of class notice, which usually rests on the Plaintiff, to the Defendants due to their spoliation of evidence.
The Plaintiffs were seeking certification of a class of car buyers who had gotten loans through a group of auto dealerships. Plaintiffs claimed that the dealers violated the Motor Vehicle Dealers and Manufacturers Licensing Law by falsely reporting that he had made a down payment to purchase a used car. The dealers did this, according to the Plaintiffs, in order to increase the likelihood of the buyers getting loans and to get loan approvals for higher amounts.
First Impression Ruling On Juridical Link
In a second ruling issued the same day, the Court dismissed one Plaintiff’s claim on a motion for summary judgment, ruling that it could address the merits issue before determining the certification issue. The remaining Plaintiff was seeking to represent a class not only of purchasers from the dealership with which he had dealt, but also purchasers from all of the dealerships under the same corporate umbrella. The Defendants argued that the Plaintiff lacked standing to sue the other dealerships, and that he could not be a proper class representative as to them.
Judge Jolly ruled against the Defendants, and certified a class against all of the dealerships, relying on the "juridical link doctrine." He described a judicial link "as the existence of a legal relationship between two or more defendants in a way such that resolution of the disputed claims in a single civil action is preferable to numerous disparate, but similar actions." Op. ¶46. He held, in what he "deem[ed] to be a matter of first impression for the North Carolina courts" that:
The ‘juridical-link doctrine’ answers the question of whether two defendants are sufficiently linked so that a plaintiff with a cause of action against only one defendant can also sue the other defendant under the guise of class certification. . . . A juridical link sufficient to confer standing generally must stem from an independent legal relationship. It must be some form of activity or association on the part of the defendants that warrants imposition of joint liability against the group even though the plaintiff may have dealt primarily with a single member. This link may be a conspiracy, partnership, joint enterprise, agreement, contract, or aiding and abetting which acts to standardize the factual underpinnings of the claims and to insure the assertion of defenses common to the class.
The juridical link was established in Clark due to the close corporate relationship of the defendant dealerships, which included the following: (1) they were managed by a single corporation, (2) they all shared the same compliance manager and compliance manual, (3) the same individual was the president of each dealership, (4) they shared common officers, (5) their accounting was done by the same accountant.
Spoliation Results In The Shifting Of The Expense Of Class Notice
In a third ruling in the case, Judge Jolly ruled that the Defendants had spoliated evidence by destroying "cover sheets" which might have shown whether Defendants had falsely reported a down payment.
The Court observed that it was the "general rule" that a plaintiff should bear the cost of identifying and notifying class members of the pendency of a class action, but that there was an exception when "there has been abuse of discovery or other pre-trial process by the defendant."
The Defendants’ destruction of the cover sheets, according to the court, went "directly to the existence and identity of class members." The Court ruled that the Defendants would therefore bear the costs of identifying and notifying class members of the action, not the Plaintiff.
I have not attached the briefs to this post because they were all filed under seal.