Ninth Circuit Decertifies Settlement Class and Upsets Applecart in Multidistrict Litigation

Elizabeth T. Castillo
Cotchett, Pitre & McCarthy, LLP

On January 23, 2018, in a 2-1 decision, the U.S. Court of Appeals for the Ninth Circuit concluded that the district court abused its discretion in certifying a nationwide settlement class by failing to perform a “rigorous predominance analysis” pursuant to Federal Rule of Civil Procedure (“Rule”) 23(b)(3) to “determine whether variations in state consumer protection laws, or individual factual questions regarding exposure to the misleading statements, precluded certification.”  In re Hyundai and Kia Fuel Economy Litigation, __ F.3d __, 2018 WL 505343, at *2, 16 (9^th Cir. Jan. 23, 2018). 

Circuit Judge Sandra Ikuta’s decision overturned U.S. District Judge George Wu’s ruling certifying a settlement class of vehicle owners who resolved claims with Hyundai Motor America, Inc. (Hyundai) and its affiliate, Kia Motors America, Inc. (Kia), over the fuel efficiency of their vehicles—effectively undoing a nine-figure settlement reached In re Hyundai and Kia Fuel Economy Litigation. The decision follows five consolidated appeals by objectors raising challenges to class certification, the settlement amount, and attorneys’ fees.

Summary

The nationwide class action is based on allegations that Hyundai and Kia misrepresented fuel economy ratings for certain vehicles before November 2, 2012. As a result of the alleged misrepresentation, plaintiffs purchased certain vehicles that they otherwise would not have purchased or paid more for certain vehicles than they otherwise would have paid. On November 2, 2012, Hyundai issued a statement informing the public that it was voluntarily decreasing the fuel economy ratings of certain vehicles.  2018 WL 505343, at *2

The Ninth Circuit heavily relied on Mazza v. Am. Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), in vacating certification of the settlement class and remanding the case despite that Mazza involved a class certification decision—not a decision for approval of a settlement. The appeals court explained the trial court should have engaged in a choice-of-law analysis—to consider potential differences in various state consumer protection laws—before concluding that common issues predominated over individual issues and certifying a nationwide settlement class under Rule 23(b)(3). The majority reasoned that the lower court could not “avoid considering the potential applicability of the laws of multiple states on the ground that the proposed settlement was fair.” 2018 WL 505343, at *12. 

The Ninth Circuit also relied on Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), which held that although district courts are not required to consider litigation management issues in determining whether to certify a class, they must satisfy the predominance inquiry. The appeals court stated that district should give “undiluted, even heightened, attention” to scrutinizing proposed settlement classes. 2018 WL 505343, at *13.

The majority noted that its ruling does not foreclose the district court from certifying a class (or subclasses) on remand. Indeed, the district court may reevaluate the settlement in light of differences in state laws within the nationwide settlement class and reach the same conclusion. 2018 WL 505343, at *14-16. 

The majority decision held that the lower court failed to define a relevant class by including owners of used vehicles who were not subject to Hyundai and Kia’s fuel economy misrepresentations. The appeals court also stated that because the trial court failed to calculate the value of the settlement, it could not ensure that the attorneys’ fees and costs of $9 million were reasonable in proportion to the benefit conferred on the class. 2018 WL 505343, at *15. 

Circuit Judge Jacqueline Nguyen dissented, remarking, “[T]he majority relies on arguments never raised by the objectors, contravenes precedent, and disregards reasonable factual findings made by the district court after years of extensive litigation.”  2018 WL 505343, at *16.  “The majority also deals a major blow to multistate class actions,” she writes.  Id. 

“Contrary to our case law and that of our sister circuits, the majority shifts the burden of proving whether foreign law governs class claims from the foreign law proponent—here, the objectors—to the district court or class counsel. This newly invented standard significantly burdens our overloaded district courts, creates a circuit split, and runs afoul of the doctrine established long ago in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).”  2018 WL 505343, at *16. 

The majority ruling also “deprives thousands of consumers of any chance to recover what is, conservatively speaking, a more than $159 million settlement,” Judge Nguyen noted. 2018 WL 505343, at *16.

Implications for Class Action Settlements

Choice-of-law issues, while common in class actions involving more than one state, are typically addressed at the class certification stage as opposed to in settlements.  The majority decision is the first of its kind in the Ninth Circuit to reject a class settlement on choice of law grounds. 

The ultimate effect of the majority opinion is unclear.  For defendants, who frequently raise choice-of-law in opposition to certification, the ruling could complicate their arguments for nationwide settlement approval in cases where the court grants certification, but on something less than a nationwide basis.  For plaintiffs, the opinion may create new risks in both framing and litigating nationwide class actions.   

The parties have until February 6, 2018 to seek rehearing en banc.