Crow v. Citicorp Acceptance Co., Inc.

• Decision Date: 07 April 1987
• Docket Number: No. 200PA86,200PA86
• Citation: 354 S.E.2d 459,319 N.C. 274
• Parties: Lillard Theodore CROW, Jr. and Jean Edwards Crow, on behalf of themselves and all others similarly situated v. CITICORP ACCEPTANCE CO., INC., a Delaware Corporation and Citicorp Person To Person Financial Center, Inc., a North Carolina Corporation.
• Court: North Carolina Supreme Court

Page 459

354 S.E.2d 459

319 N.C. 274

Lillard Theodore CROW, Jr. and Jean Edwards Crow, on behalf

of themselves and all others similarly situated v. CITICORP ACCEPTANCE CO., INC., a Delaware Corporation and Citicorp Person To Person Financial Center, Inc.,

a North Carolina Corporation.

No. 200PA86.

Supreme Court of North Carolina.

April 7, 1987.

Edelstein & Payne by M. Travis Payne, Raleigh, Nixon, Yow, Waller & Capers by John B. Long, Augusta, Ga., pro hac vice, Hull, Towill, Norman & Barrett by David E. Hudson, Atlanta, Ga., pro hac vice, and Dye, Miller, Tucker and Everitt by Thomas W. Tucker, Augusta, Ga., pro hac vice, for plaintiffs-appellants.

Moore, Van Allen, Allen and Thigpen by Robert D. Dearborn, Randel E. Phillips, Charlotte, and William D. Dannelly, Raleigh, for defendants-appellees.

James K. Dorsett, Jr. and James G. Billings, Raleigh, for Barclays American Financial, Inc., amicus curiae.

Edmund D. Aycock, Raleigh, for North Carolina Bankers Ass'n, amicus curiae.

Thomas W. Graves, Jr., Raleigh, for North Carolina Citizens for Business and Industry, Inc., amicus curiae.

Margot Roten, Raleigh, Ellen W. Gerber, Winston-Salem, and Theodore Fillette, Charlotte, for North Carolina Clients Council, amicus curiae.

Michael D. Calhoun, Durham, for North Carolina Consumer Council, Inc., amicus curiae.

Paul H. Stock, Raleigh, for North Carolina League of Sav. Institutions, amicus curiae.

MITCHELL, Justice.

The plaintiffs appealed to this Court contending that the Court of Appeals erred in affirming an order of the trial court granting partial judgment for the defendants on the pleadings, dismissing the claims on behalf of unnamed class members, and striking all references in the complaint to a class. We agree and reverse the Court of Appeals.

The present action was initiated as a class action on 26 April 1985. Simultaneously with the filing of their complaint the plaintiffs filed a "Motion for an Action Maintainable as a Class Action." They filed the complaint on behalf of themselves and unnamed members of a purported class of mobile home purchasers whose sales contracts have been assigned to one or both of the defendants. The plaintiffs sought injunctive relief and double damages for interest charged on those sales contracts which they alleged exceeded the interest rates permissible under the North Carolina Retail Installment Sales Act, N.C.G.S. ch. 25A. They also sought treble damages under N.C.G.S. § 75-1.1 alleging that the defendants engaged in an unfair and deceptive trade practice by charging such interest. Finally, the plaintiffs sought double damages under N.C.G.S. § 24-2, North Carolina's general usury statute.

The named plaintiff-appellants, Lillard and Jean Crow, alleged that they bought a mobile home on 4 August 1981 from a dealer in Lumberton. In connection with that purchase, they signed a retail installment contract which was assigned to one of the defendants, Citicorp Person-to-Person Financial Center, Inc., and later to the other defendant, Citicorp Acceptance Company, Inc. The Crows defaulted on two payments in 1983, and their mobile home was repossessed.

The plaintiffs requested that the trial court defer action on motions by the defendants to strike and dismiss all claims on behalf of the alleged class until the plaintiffs could complete discovery. Discovery, they contended, would demonstrate the existence of a class and the members' identities.

The trial court filed an order on 11 July 1985 concluding that the plaintiffs had failed to allege their capacity and authority to sue on behalf of any unnamed class members. It denied the plaintiffs' request to defer any decision, allowed the defendants' motion for partial judgment on the pleadings, dismissed the claims on behalf of unnamed class members without prejudice, and struck all references to class members from the complaint and prayer for relief.

The Court of Appeals affirmed. It based its holding on its conclusion that there was insufficient "community of interest" between the named plaintiffs and the unnamed members of the purported class. 79 N.C.App. 447, 450, 339 S.E.2d 437, 438. We reverse and remand this action for discovery, a class certification hearing, and such further proceedings, not inconsistent with this opinion, as may be appropriate.

The plaintiffs raise two issues before this Court. First, they contend that they properly alleged the existence of a "class" under Rule 23 of the North Carolina Rules of Civil Procedure. N.C.G.S. § 1A-1, Rule 23 (1983). Second, they assert that the trial court erred by requiring an affirmative allegation of their actual authority to sue on behalf of the unnamed class members.

Until today, we have not considered the proper definition of a "class" under Rule 23, our current class action provision. We now hold that a "class" exists under Rule 23 when each of the members has an interest in either the same issue of law or of fact, and that issue predominates over issues affecting only individual class members. Further, the plaintiffs here have properly alleged the existence of such a class.

Traditionally, North Carolina law has permitted a class action when a "community of interest" existed among named and unnamed class members. Former N.C.G.S. § 1-70, the immediate precursor to our current Rule 23, provided in pertinent part that:

Of the parties to the action, those who are united in interest must be joined as plaintiffs or defendants.... When the question is one of a common or general interest of many persons, or where the parties are so numerous that it is impractical to bring them all before the court, one or more may sue or defend for the benefit of all.

N.C.G.S. § 1-70 (repealed 1967). This statute was interpreted as permitting a class action only when each of the proposed class members had an interest which was a "part of one connected whole" with the interests of the other members. Mills v. Cemetery Park Corp., 242 N.C. 20, 30, 86 S.E.2d 893, 900 (1955). When each class member shared such a jural relationship with each of the other members, they were deemed to have a "community of interest" sufficient to justify the prosecution of a class action on behalf of all of them. The class action device was not permitted where potential class members shared only (1) a parallel relationship to the opposing party, e.g., separate contracts with the same defendant, or (2) an interest in the same issue of law or of fact, but without any overlap in the circumstances of their respective cases. Id.

Our current class action provision, Rule 23(a), was enacted in 1967. It provides that:

If persons constituting a class are so numerous as to make it impractical 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.

N.C.G.S. § 1A-1, Rule 23(a) (1983). It is identical to the first sentence of the 1938 version of Rule 23 of the Federal Rules of Civil Procedure. 28 U.S.C. Rule 23(a) (1950) (amended 1966).

We find it significant that the General Assembly did not adopt the language of three further subparagraphs found in the 1938 version of Federal Rule 23. Each of those subparagraphs delineated a different type of class action depending upon the "character of the right sought to be enforced for or against the class." Id. The three types of class actions under the 1938 version of Federal Rule 23 soon came to be referred to as "true," "hybrid," and "spurious" class actions. Moore, Federal Rules of Civil Procedure: Some Problems Raised by the Preliminary Draft, 25 Geo.L.J. 551, 570 et seq. (1937). In practice, the application of the 1938 version of Federal Rule 23(a) and its three types of class actions proved very difficult, and courts often applied different labels to cases with nearly identical fact situations. See generally, 7A Wright, Miller & Kane, Federal Practice and Procedure: Civil § 1752 (1986). These difficulties spawned considerable scholarly criticism. See, e.g., Chafee, Some Problems of Equity, 243-295 (1950); Developments in the Law: Multiparty Litigation in the Federal Courts, 71 Harv.L.R. 874, 931 (1958); Gordon, The Common Question Class Suit Under the Federal Rules and in Illinois, 42 Ill.L.R. 518 (1947); Kalven and Rosenfield, The Contemporary Function of the Class Suit, 8 U.Chi.L.R. 684, 695-714 (1941); Keefe, Levy and Donovan, Lee Defeats Ben Hur, 33 Corn.L.Q. 327 (1948); Weinstein, Revision of Procedure: Some Problems in Class Actions, 9 Buffalo L.R. 433, 456 (1960); Note, Federal Class Actions: A Suggested Revision of Rule 23, 46 Col.L.R. 818, 822, et seq. (1946).

When adopting North Carolina's Rule 23(a), our General Assembly undoubtedly was aware of the criticism of the 1938 version of the Federal Rule. We believe that the General Assembly rejected the three additional subparagraphs of the 1938 version of the Federal Rule in order to simplify class action procedures in North Carolina and to give our courts greater flexibility in permitting such actions than had been allowed previously under either Federal Rule 23 or former N.C.G.S. § 1-70.

The defendants direct our attention to the commentary to Rule 23(a) which states that: "In respect to class actions, the Commission adhered rather closely to the statutory provisions in North Carolina. See former G.S. § 1-70." N.C.G.S. § 1A-1, Rule 23(a) (1983), Comment. The defendants argue that this commentary reveals a legislative intent to reenact the "community of interest" standard applied under former N.C.G.S. § 1-70 when determining whether a "class" exists under current Rule 23(a). We note, however, that the commentaries printed in the General Statutes with the North Carolina Rules of Civil Procedure, N.C.G.S. § 1A-1, were neither adopted nor mentioned by the General Assembly when enacting those Rules. See 1967 N.C.Sess.Laws, ch. 954, s. 1. This approach by the General Assembly was prudent, since the...