Tuesday, July 15, 2008, 7:43 PM

COA Holds That Full Faith And Credit Clause Doesn't Permit Broad Collateral Review Of Class Action Settlements Approved By Foreign Courts

Today the Court of Appeals (COA) ruled that the Business Court erred in failing to give full faith and credit to a nationwide class action settlement approved in Illinois. The case is Moody v. Sears Roebuck & Co. (We represented Sears on appeal.)

The COA held that when a court enters a judgment approving a class action settlement, the Full Faith and Credit Clause doesn't permit a second court to undertake a broad collateral review of the foreign judgment to decide for itself if the settlement comports with due process (e.g., to determine for itself whether it deems the issuing court's notice plan adequate). Rather, the only due-process review permitted on collateral review is a limited one--essentially limited to determining whether the issuing court itself determined that the settlement comported with due process. In today's case, the Illinois Circuit Court that approved the class action settlement had determined that the notice plan and settlement terms adequately protected the due process rights of absent class members; therefore, under the Full Faith and Credit Clause, the Business Court couldn't properly second guess the Illinois court's determinations, the COA held.

The COA also addressed a matter of first impression under Rule 23 of the N.C. Rules of Civil Procedure: Does Rule 23(c) require trial court approval of a voluntary dismissal of a case that was filed with the aspiration of becoming a class action (a so-called putative class action) but that was never certified as a class action? The COA answered that in the negative, holding that Rule 23(c) doesn't apply pre-certification. That is, when a named party gives notice that it's voluntarily dismissing its class-action complaint, Rule 23(c) doesn't require trial court approval of the dismissal if the case was never certified as a class action. But the COA held nonetheless that a trial court has inherent authority to conduct a limited inquiry of the dismissal: "We therefore hold that when a plaintiff seeks voluntary dismissal of a pre-certification class-action complaint, the trial court should engage in a limited inquiry to determine (a) whether the parties have abused the class-action mechanism for personal gain, and (b) whether dismissal will prejudice absent putative class members. If the trial court finds that neither of these concerns are present, the plaintiff is entitled to a voluntary dismissal. However, if the trial court finds that one or both of these concerns are present, it retains discretion to address the issues." This limited review is, of course, subject to the Full Faith and Credit Clause.

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