As the Eleventh Circuit has recognized, Georgia’s Fair Business Practices Act (“GFBPA”) expressly precludes class actions.1 The continued viability of that principle may now be open to attack, however, after the Eleventh Circuit held on July 10, 2015 that an arguably analogous class action prohibition contained in the Alabama Deceptive Trade Practices Act (“ADTPA”) does not apply in federal court.2 The decision marked the first time the Eleventh Circuit has interpreted the Supreme Court’s 2010 plurality opinion in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Company3 to hold that when a plaintiff sues in federal court, Rule 23 of the Federal Rules of Civil Procedure may displace a state’s consumer protection law to the extent the state statute bars private class actions.
The Supreme Court’s 2010 Opinion in Shady Grove
In Shady Grove, the Supreme Court held that Rule 23 trumps a state rule of procedure, even one that purports to prohibit certain types of claims from being pursued as class actions. In that case, a New York procedural statute prohibited class actions seeking statutory penalties or statutory minimum damages. Notwithstanding that statute, the plaintiff filed a class action suit in federal court seeking to recover unpaid interest from the defendant insurance company. Reversing the lower courts’ dismissal of the class action complaint, a majority of five justices held that Rule 23 “creates a categorical rule entitling a plaintiff whose suit meets specified criteria to pursue his claim as a class action.”4 The Court further held that federal courts sitting in diversity must apply Rule 23—not a conflicting state class action provision—unless the application of Rule 23 would violate the federal Rules Enabling Act, which provides that federal procedural rules may not “abridge, enlarge, or modify any substantive right.”5 The Court was divided 4-1-4, however, with Justice Stevens’s concurring opinion taking issue with the plurality opinion on the proper approach to determine when Rule 23 violates the Rules Enabling Act.
The District Court’s Dismissal of the Lisk Complaint
The plaintiff in Lisk alleged that the defendant, Lumber One Wood Preserving, violated the ADTPA by falsely representing that the lumber it manufactured and distributed had been treated to resist decay. In ruling that the plaintiff could not bring his claim on a classwide basis, the Alabama district court noted that the ADTPA provides that “[a] consumer or other person bringing an action under this chapter may not bring an action on behalf of a class,” and that only the Alabama Attorney General or district attorney could bring ADTPA claims in a representative capacity.6
The district court in Lisk held that the Supreme Court’s decision in Shady Grove did not alter its ruling.7 In so doing, the court relied on Justice Stevens’s “controlling” concurring opinion in Shady Grove which, even though it did not garner the vote of any other justice, is considered by a majority of courts to be the “controlling opinion” because it decided the issue on the narrowest ground.8 Stevens posited that Rule 23 does not govern where it would “‘displace a state law that is procedural in the ordinary use of the term but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right.’”9 After concluding that the ADTPA was materially different from the New York statute, the district court held that the ADTPA’s prohibition on private class actions survived Shady Grove and was not preempted by Rule 23.10
The Eleventh Circuit’s Reversal
The Eleventh Circuit reversed, holding that Shady Grove concerned “a nearly identical issue” and that, under Shady Grove, Rule 23 supplanted the ADTPA prohibition on class actions.11 It reasoned that “[t]here is no relevant, meaningful distinction between a statutorily created penalty at issue in Shady Grove, on the one hand, and a statutorily created claim for deceptive practices of the kind at issue here, on the other hand.”12 The Eleventh Circuit opined that the Lisk case presented “a stronger case than Shady Grove for applying Rule 23” because the New York statute precluded statutory-penalty class actions altogether, whereas the Alabama statute permitted the Attorney General or district attorney to bring class actions. Thus, because the statute merely concerned who could bring class actions—and not whether they could be brought at all—it was even less likely that Rule 23 “abridge[d], enlarge[d], or modifie[d] a substantive right in Alabama,” rather than a procedural one.13
Moreover, the Eleventh Circuit rejected the district court’s holding that the ADTPA materially differed from the New York statute because the Alabama class-action prohibition was contained in the ADTPA itself, whereas the New York prohibition appeared in a procedural statute. The Eleventh Circuit opined that “how a state chooses to organize its statutes affects the analysis not at all” because “the question whether a federal rule abridges, enlarges, or modifies a substantive right turns on matters of substance—not on the placement of a statute within a state code.”14 On this score, the Lisk court stated that “[t]he substantive right of Mr. Lisk and other buyers was to obtain wood that complied with Lumber One’s representations” and “Rule 23 alters these substantive rights and obligations not a whit.”15 Rather, “[t]he disputed issue is only whether they may seek redress in one action or must instead bring separate actions”—a procedural question that does not “abridge, enlarge, or modify” those substantive rights.16 Notably, the Eleventh Circuit stated that it need not decide whether Justice Stevens’s concurring opinion in Shady Grove was “controlling” because its reasoning squared both with the views of Justice Scalia’s plurality opinion and Justice Stevens’s separate concurrence.17
Implications of Lisk for Companies Doing Business in Georgia
In light of the Eleventh Circuit’s decision in Lisk, companies doing business in Georgia should anticipate the possibility that plaintiffs will challenge the class action bar in the GFPBA in federal court, arguing that it—like the ADTPA—is ineffective. Although Lisk dealt only with the ADTPA, plaintiffs likely will argue that the opinion applies equally to similar class action prohibitions contained in other state consumer protection statutes, such as the GFBPA.
Only two federal courts—neither sitting in the Eleventh Circuit—have addressed the extent to which the GFBPA’s class action bar still applies in federal courts after Shady Grove; one court concluded that Rule 23 displaces the Georgia law, while the other declined to resolve the issue.18 When such a case arises in the Eleventh Circuit, however, plaintiffs likely will contend that the prior panel precedent rule requires the court to rule in their favor under Lisk. By contrast, defendants will need to show that GFBPA’s class action prohibition—unlike the New York statute in Shady Grove or the Alabama statute in Lisk—affects substantive rights, not merely procedural issues that would be preempted by Rule 23. To do this, they will need to demonstrate that the GFBPA’s statutory language and/or legislative history meaningfully distinguish it from those other statutes. They will likely also need to argue that Justice Stevens’s concurring opinion is controlling—an issue left open by the Eleventh Circuit in Lisk—as this has been the primary means by which other courts have limited the scope of Shady Grove.
Finally, regardless how the Eleventh Circuit ultimately resolves this issue, the GFBPA’s prohibition on private class actions will remain intact in state courts, which are not bound by Rule 23.19 In this way, Lisk may represent an unintended consequence of the Class Action Fairness Act—by expanding federal jurisdiction over significant class actions, CAFA may force defendants to face class claims where none would be permitted in state court. Accordingly, companies doing business in Georgia may need to reconsider removal strategy in cases involving putative class action claims under the GFBPA.