North Carolina court ruling could impact class action claims

By Joe Dyton | Oct 13, 2016

RALEIGH, N.C. (Legal Newsline) - A North Carolina appellate court recently affirmed that a plaintiff must pay the defendant’s court costs after he turned down an offer of judgment.

The three-year-old case began when plaintiff Joseph Gay challenged overdraft fees incurred at People’s Bank. His lawsuit against People’s Bank was for breach of contract, breach of the covenant of good faith and fair dealing, conversion, unjust enrichment and unfair and deceptive trade practices. 

Meanwhile, the bank argued that all the fees were authorized by account agreements the plaintiff signed. The business court ruled in the bank’s favor and granted it summary judgment, which was affirmed by the North Carolina Court of Appeals.

The plaintiff must pay the defendant’s litigation costs because of Rule 68 of the North Carolina Rules of Civil Procedure. The rule states that when a party rejects a reasonable settlement offer, it must pay any litigation costs incurred if the eventual judgment is less than the offer. 

The plaintiff listed a number of reasons he shouldn’t have to pay the costs, but the business court rejected all of them. Attorneys fees are excluded, but for this case, the plaintiff will be responsible for the costs of deposition transcripts and mediator’s fees from the court-ordered mediation.

“Usually, a class plaintiff does not worry about the costs of litigating his or her case, because the case is handled on a contingency fee basis by the law firm representing him or her,” Brooks Pierce attorney Dan Smith told Legal Newsline. “That is, class plaintiffs don’t pay for their attorneys.”

People’s Bank was awarded a modest judgment (less than $6,000), but the big reward is the ruling itself, Smith said. 

"For lawyers, the ruling interprets Rule 68 on a point of law that was previously unsettled. Plus it’s different from the federal rules of civil procedure. From the litigants’ point of view, the ruling shows plaintiffs who aren’t successful in their cases on summary judgment are responsible for costs the defendants incur after they make an offer of judgment," Smith said.

The decision will play a big part in litigants’ thought processes when it comes to class action cases. Defending a class action lawsuit can be costly, but plaintiffs aren’t concerned, since defendants typically pay for their own court costs. 

Now that plaintiffs know going into a case that they might have to pay for some of these costs, they may think twice before going forward with a class action claim, Smith said.

“The possibility of paying the defendant’s costs provides a disincentive to bring cases that lack merit,” Smith said. “A plaintiff that loses such a case won’t ‘lose nothing,’ but instead will owe the defendant the costs incurred in the litigation after the offer of judgment.”

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