Surgeon v. TKO Shelby

898 S.E.2d 732

Gary W. SURGEON and Marla Lepley-Starr, individually and on behalf of those similarity situated

v.TKO SHELBY, LLC, trading as Nissan of Shelby; Integrity Automotive Promotions, LLC; A To Z Staffed Events, Inc.; Brian Leachman; Michael Smith; and Travis K. Ostrom, d/b/a the TKO Group, defendants; Dealer Compliance Services, Inc., cross-claim defendant

No. 198A22

Supreme Court of North Carolina.

Filed March 22, 2024

Appeal pursuant to N.C.G.S. § 7A-27(a)(4) from an order granting plaintiff’s motion for class certification entered on 13 December 2021 by Judge Forrest D. Bridges, in Superior Court, Gaston County. Heard in the Supreme Court on 12 September 2023.

Higgins Benjamin, PLLC, Greensboro, by John F. Bloss and Frederick L. Berry, for plaintiff-appellees.

Gray, Layton, Kersh, Solomon, Furr & Smith, P.A., by Michael L. Carpenter, Gastonia, and D. Scott Hester, Jr., Charlotte; Wilson Elser Moskowitz Edelman & Dicker LLP, by Jeremy A. Stephenson; and Barnes, Alford, Stork & Johnson, LLP, by Curtis W. Dowling and Matthew G. Gerrald, for defendant-appellants.

DIETZ, Justice.

Plaintiffs brought this class action lawsuit after receiving a promotional flyer from a car dealership. They allege that the flyer was deceptive and misled them into believing they won a free car or $20,000 cash. Instead, they received a $2 prize. Plaintiffs allege that they and nearly one thousand other people were harmed by the deceptive promotion.

The trial court certified plaintiffs’ case as a class action in a detailed written order, and defendants appealed. At oral argument, the parties acknowledged that the trial court’s certification order is internally inconsistent. Specifically, the trial court’s order used one class definition to analyze the certification criteria, then changed the definition when actually certifying the class.

This inconsistency requires us to vacate the order and remand for further proceedings. As explained below, we cannot engage in meaningful appellate review of a trial court order—particularly one that includes a discretionary component—when the order suffers from this type of internal contradiction.

Because we vacate the order on this basis, we need not address all of defendants’ arguments in this appeal, many of which may be mooted by entry of a new order. We limit our analysis to a few issues, such as conflicts of interest and efficiency concerns, that are likely to persist on remand even after the inconsistency is corrected.

Facts and Procedural History

I. The promotional sales event

In 2018, plaintiffs Gary Surgeon and Marla Lepley-Starr received a promotional flyer in the mail advertising a "Game On Tent Sale Event" held exclusively at Nissan of Shelby, an automobile dealership. The flyer informed recipients that they had the chance to win one of six "grand prizes," including the largest prize, a 2018 Nissan Sentra SR or $20,000 in cash. In the middle of a grid displaying these grand prizes, there was a scratch-off area that revealed a contest code.

On the flyer, promotional language stated that recipients who "scratch and match" their scratch-off codes with one of the numbers assigned to a prize become a "guaranteed winner." The flyer instructed recipients with a matching code number to call the event hotline and come to the dealership during the sales event to claim their prize.

Although not evident from the flyer itself, the code number beneath the scratch-off portion of all 50,000 flyers was the same. It matched the code number assigned to the largest grand prize, the 2018 Nissan Sentra SR or $20,000 in cash. This scratch-off code was not the code number used to identify the winning contestants of the contest. Instead, each flyer had a separate "activation code" located in a red box under the contest instructions. This code, which was unique to each flyer, was used to identify the contest winners.

After receiving the flyer, plaintiffs each scratched off the area labeled "scratch and match" on their flyers and revealed the code number matching the 2018 Nissan Sentra SR or $20,000 prize. Plaintiffs called the event hotline to claim their prize. An automated answering system congratulated them on winning and prompted them to come to the dealership to claim their prize.¹

As a result, both plaintiffs visited the dealership during the sales event. When they tried to claim their prizes, plaintiffs learned that they were not winners of the 2018 Nissan Sentra or $20,000. Dealership agents told plaintiffs that the hidden numbers beneath the scratch-off area of their contest flyers did not mean anything. Instead, the agents explained, the "activation code" in the red box on the flyer determined which prize each recipient had won. Those activation code numbers matched numbers on a poster displayed at the dealership. In addition to the six "grand prizes" on the contest flyer, there was a seventh prize box on the poster that awarded a $2 cash prize. The sales agents at the dealership told plaintiffs that, based on their activation codes, they won the $2 prize.

II. The class action lawsuit

Plaintiffs later brought a class action complaint against the dealership and various other parties connected to the sales promotion. They sought to certify a class of "all individuals who received a contest [f]lyer which had the scratch-off number 801602," which was the number matching the 2018 Nissan Sentra SR or $20,000 cash prize, and who then "went to Nissan of Shelby to claim their prizes."

Plaintiffs alleged that defendants created a deceptive contest flyer in violation of North Carolina law governing unfair or deceptive trade practices; breached the terms of a contract with recipients of the flyer by failing to deliver the prizes; and negligently created and implemented the sales event.

During discovery, defendants produced a log with contact information for approximately 50,000 households that received the flyer in the mail. Defendants also produced a log of the 2,557 people who called the event hotline to claim their prize. That log lists 1,167 people as using the hotline to make an appointment to visit the dealership.

Defendants did not produce any records identifying the people who actually visited the dealership to claim a prize. There is a factual dispute concerning what happened to those records and who is responsible. At this stage in the proceeding, defendants estimate that 927 people visited the dealership during the sales event, although not all of those people necessarily visited to claim a promotional prize.

III. The trial court’s class certification

Several years into the lawsuit, the trial court granted plaintiffs’ motion to certify a class. Surgeon v. TKO Shelby, LLC, No. 18 CVS 3983, 2021 WL 9772618, at *5 (N.C. Super. Dec. 13, 2021).

The trial court defined the class of plaintiffs in its written order as follows:

All individuals who received at their place of residence a contest Flyer promoting a contest held at Nissan of Shelby in late April and/or early May 2018, which had the scratch-off number 801602 that matched the number for Prize 5 (the 2018 Nissan Sentra SR or $20,000.00 cash), and who went to Nissan of Shelby to claim their prize.

Id. at *5.

In its analysis in the order, the trial court explained that it intended to certify a class of the "Ups." Id. at *4. The trial court’s order defines the "Ups" as "the approximately 927 people who called the number and who showed up at the dealership." Id. Notably, the definition of "Ups" used in the court’s analysis includes a requirement that the class members both "called the number" and "showed up at the dealership." Id.

The class definition quoted above, by contrast, applies to anyone who received the flyer and then "went to Nissan of Shelby to claim their prize" regardless of whether they called the event hotline as the flyer instructed. Id. at *5.

Then, in the trial court’s instructions regarding notice to potential class members, the court ruled that notice should be sent to the "1,167 people who called the telephone number on the contest flyer and made an appointment to come to the dealership for the sales event," limiting notice to those people who called the event hotline and made an appointment—a smaller subset of the 2,557 people who called the hotline to claim a prize, and who may have gone to the dealership without making an appointment. Id.

Defendants appealed the trial court’s class certification order directly to this Court under N.C.G.S. § 7A-27(a)(4).

Analysis

[1–3] This Court reviews a trial court’s class certification order for abuse of discretion. Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 369 N.C. 202, 209, 794 S.E.2d 699 (2016). The "test for abuse of discretion is whether a decision is manifestly unsupported by reason or so arbitrary that it could not have been the result of a reasoned decision." Frost v. Mazda Motor of America, Inc., 353 N.C. 188, 199, 540 S.E.2d 324 (2000) (cleaned up). Within this analysis, we review the trial court’s conclusions of law, including its evaluation of the legal criteria to establish a class, de novo. Fisher, 369 N.C. at 209, 794 S.E.2d 699.

I. Class certification criteria

We begin our analysis by reviewing the criteria for class certification. Rule 23 of the North Carolina Rules of Civil Procedure permits class actions when the "persons constituting a class are so numerous as to make it impracticable to bring them all before the court." N.C.G.S. § 1A-1, Rule 23(a) (2023).

[4] The party seeking class certification bears the burden to show that a proper class exists, meaning "the named and unnamed members each have an interest in either the same issue of law or of fact, and that issue predominates over issues affecting only individual class members." Crow v. Citicorp Acceptance Co., 319 N.C. 274, 280, 354 S.E.2d 459 (1987).

[5] Beyond this threshold requirement, the party seeking class certification also must satisfy a number of other certification criteria, including: (1)...