(a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if the court finds (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, (4) the representative parties will fairly and adequately protect the interests of the class, and (5) in cases in which the relief primarily sought is not injunctive or declaratory with respect to the class as a whole, the amount in controversy exceeds one hundred dollars for each member of the class.
This language is drawn principally from Federal Rule 23(a) and contains essentially the same requirements as Code § 15-5-50, except that subsection (3), the requirement that the claims of the representative be typical is not mentioned, although it could be inferred from the language of the statute. Subsection (5), which requires that when money damages are the primary relief sought, each class member have a claim exceeding one hundred dollars is new. It is intended to limit class actions when the amount sought may be small in comparison with the costs incurred in the litigation. Although not stated in the federal rules, a similar requirement exists when jurisdiction is based upon diversity of citizenship, for then each member of the class must meet the jurisdictional amount, Zahn v. International Paper Co., 414 U.S. 291 (1973). Present State practice permits a class action where the relief sought is primarily equitable, even though small monetary damages are sought, Miller v. Borg-Warner Acceptance Corp., 279 S.C. 90, 302 S.E.2d 340 (1983).
(b)(1) Derivative Actions by Shareholders. In a derivative action brought by one or more shareholders or members to enforce a right of a corporation or of an unincorporated association, the corporation or association having failed to enforce a right which may properly be asserted by it, the complaint shall be verified and shall allege that the plaintiff was a shareholder or member at the time of the transaction of which he complains or that his share or membership thereafter devolved on him by operation of law. The complaint shall also allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for his failure to obtain the action or for not making the effort. The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association. The action shall not be dismissed or compromised without the approval of the court and notice of the proposed dismissal or compromise shall be given to shareholders or members in such manner as the court directs.
This Rule 23(b)(1) is the language of present Federal Rule 23.1. Existing State practice permits a class action in these circumstances. See e.g., Hernlen v. Vandiver, 145 S.C. 412, 143 S.C. 222 (1928) (action on behalf of depositors, stockholders, and creditors of bank against directors of bank for mismanagement) and Black v. Simpson, 94 S.C. 312, 77 S.E. 1023 (1913) (suit by stockholders against director and general manager for fraudulent acquisition of control). The Rule simply provides more specific guidance for the procedure.
(b)(2) Actions Relating to Unincorporated Associations. An action brought by or against the members of an unincorporated association as a class by naming certain members as representative parties may be maintained only if it appears that the representative parties will fairly and adequately protect the interests of the association and its members. In the conduct of the action, the court may make appropriate orders corresponding with those described in Rule 23(d), and the procedure for dismissal or compromise of the action shall correspond with that provided in Rule 23(c).
This Rule 23(b)(2) is current Federal Rule 23.2. It is included here because it is similar to the requirements for derivative actions. In addition, present State practice recognizes a class action in similar circumstances.
(c) Dismissal or Compromise. A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.
This is the language of current Federal Rule 23(e). It is necessary to protect the rights of all members of the class.
(d) Orders in the Conduct of Actions. In the conduct of actions to which this rule applies, the court may make appropriate orders: (1) As soon as practicable, after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be altered or amended before the decision on the merits. (2) The court may at any time impose such terms as shall fairly and adequately protect the interest of the persons on whose behalf the action is brought or defended. It may order that notice be given in such a manner as it may direct of the pendency of the action by the party seeking to maintain the action on behalf of the class. It may order that notice be given in such manner as it may direct of a proposed settlement, of entry of judgment, or any other proceedings in the action including notice to the absent persons that they may come in and present claims and defenses if they so desire. (3) Whenever the representation appears to the court inadequate fairly to protect the interests of absent persons who may be bound by the judgment, the court may at any time impose additional conditions on the representative parties, or order an amendment of the pleadings, eliminating therefrom all reference to the representation of the absent persons, and in that event the court shall order entry of the judgment in such form as to affect only the parties to the action and those adequately represented.
This Rule 23(d) is found in Federal Rules 23(c) and (d) in slightly different language, and describes the present State procedure in specific language. This Rule requires those seeking to maintain an action on behalf of a class to notify the members of the class of the pendency of the action.
(e) Disposition of Residual Funds.
(1) "Residual Funds" are funds that remain after the payment of all approved class member claims, expenses, litigation costs, attorneys' fees, and other court-approved disbursements to implement the relief granted. Nothing in this rule is intended to limit the parties to a class action from suggesting, or the trial court from approving, a settlement that does not create residual funds.
(2) Any order, judgment, or approved compromise in a class action under this rule that establishes a process for identifying and compensating members of the class may provide for the disbursement of residual funds. In matters where the claims process has been exhausted and residual funds remain, not less than fifty percent of residuals must be distributed to the South Carolina Bar Foundation to support activities and programs that promote access to the civil justice system for low income residents of South Carolina. The court may disburse the balance of any residual funds beyond the minimum percentage to the South Carolina Bar Foundation to any other entity or entities for purposes that have a direct or indirect relationship to the objectives of the underlying litigation or otherwise promote the substantive and procedural interests of members of the class.
Note to 2016 Amendment:
This amendment directs that a portion of any residual funds in a class action matter be distributed to the South Carolina Bar Foundation to promote access to the civil justice system for low income residents of South Carolina. However, the rule does not require that parties create residual funds as part of any class action settlement.
Amended by Order dated April 27, 2016.