Earlier this week, in In re Hyundai & Kia Fuel Efficiency Litig., the Ninth Circuit vacated a nationwide class action settlement, ruling that the lower court had abused its discretion by not considering whether the variations in the consumer-protection laws of the fifty states might predominate over common issues in the case. The ruling (by Judge Ikuta) was controversial from the start, arriving with an impassioned dissent from Judge Nguyen. And it’s that controversy that makes this opinion worth watching.
The facts of the case will sound familiar to experienced litigators. In the wake of an EPA investigation, several class action plaintiffs sued Hyundai and Kia, alleging that they had improperly tested their vehicles for fuel efficiency, thus overstating the mileage per gallon of certain vehicles. The first of these cases was a nationwide class action filed in California state court, and then removed to the Central District of California. Hyundai vigorously argued against certification, in no small part because the variations in state consumer-fraud laws would make the case impossible to try. The court issued a tentative opinion denying certification. (This is common practice in the Central District: issue a tentative ruling before a hearing, allowing the parties greater focus for their arguments.) Before the opinion was finalized, however, numerous other class action plaintiffs filed copycat class actions in other jurisdictions, all of which were consolidated in a multi-district litigation (MDL).
Before the MDL could start, the plaintiffs in the original class action announced a nationwide settlement with Hyundai. That settlement predictably drew objections from the newly-created MDL plaintiffs, who argued against the certification procedure, the fees, and various other potential flaws. Nonetheless, the Central District approved the settlement, finding it fair and equitable for all class members involved. The objectors appealed.
The Ninth Circuit made a number of rulings in its opinion. Its primary holding was that:
Where plaintiffs bring a nationwide class under CAFA and invoke Rule 23(b)(3), a court must consider the impact of potentially varying state laws.
That consideration must follow a three-step inquiry: (1) Can the law of the forum state apply constitutionally to class claims? (2) If so, what is the outcome of a choice-of-law analysis under the forum state? (3) If the choice-of-law analysis requires applying the law of multiple states, will variations in state law predominate over common issues?
According to Hyundai, this Rule 23(b)(3) inquiry must occur before any inquiries into Rule 23(e). (In other words, the court cautioned, the fact that all parties found the settlement fair and equitable would not allow a court to skip the certification inquiry.) That certification inquiry was “heightened” in a settlement context. Therefore, the lower court’s failure to engage in any choice-of-law analysis, let along analysis of variations, was abuse of discretion. (Starkly so in this case, because the court had issued a tentative ruling denying certification of the same class for litigation purposes.)
The Ninth Circuit’s opinion is legally sound: it closely tracks the Supreme Court’s analysis in Amchem. It just reiterates the points that most courts tended to bypass. But by requiring a rigorous predominance analysis with specific findings about the nuances of state laws, it appears to impose new requirements.
There is a real question as to the ultimate scope this opinion will have. The Ninth Circuit does not control other circuits, so they might find it easy to ignore or distinguish a challenging opinion. The easiest way to do so would be to characterize variations in state law as a “manageability” problem under Rule 23(b)(3)’s superiority prong, thus making it less relevant to settlement certification. Moreover, while Judge Ikuta is a thoughtful judge (she wrote the dissent in Dukes v. Wal-Mart Stores, Inc. that heavily influenced the Supreme Court’s ultimate opinion), she’s politically an outlier on the Ninth Circuit, so the likelihood of an en banc opinion overruling this case is higher than normal.
In the meantime, most class action defendants are looking closely at the implications of these holdings. It’s hard at this moment to say with confidence what those effects will be, particularly when there’s a distinct possibility of en banc review or district-court backlash. But a few thoughts spring to mind.
Settling just got harder in the Ninth Circuit. Regardless of whether nationwide settlements are possible in the Ninth Circuit, the Hyundai opinion has added an expensive, time-consuming step to settlement briefing. At least, it has until briefing state law variations becomes more standardized in settlement briefing.
This is helpful for non-settlement certification fights. At times, judge—including many in the Ninth Circuit—have elided significant variations in state laws when they are inclined to certify a class. This opinion makes it difficult to do so. Moreover, the certainty with which the Ninth Circuit affirms that variations in consumer-fraud laws preclude certification suggests an opening for Pilgrim-style motions to strike class allegations. (It doesn’t hurt that the opinion specifically relies on Pilgrim.)
Confusion for some defendant strategies. Most defendants tend to enter class actions planning to fight certification hard, or to settle early in the case. Hyundai makes that choice a little starker, since creating a record that predominance is a problem is no longer something that can be handwaved at settlement. Of course, one has to ask: if you’re building an excellent record of problematic variations in state law, why are you considering settlement?
Substantive theories may shift in the Ninth Circuit. Plaintiffs bring causes of action in class actions that they believe they can certify. Any plaintiff choosing to bring a nationwide class action in the Ninth Circuit will probably avoid consumer-protection laws now.
Another setback for multi-state class actions. In his dissent, Judge Nguyen worries that the Hyundai opinion “deals a major blow to multi-state class actions.” “Major” may overstate the effect, but if the opinion holds, then the difficulties of settling, combined with the possibility that many out-of-state plaintiffs will be dismissed early under Bristol-Myers Squibb, may result in far fewer multi-state class actions in the Ninth Circuit. Coupled with that potential decline, we may see a rise in single-state filings that are then consolidated through the MDL process.
In general, it is too early to bemoan the death of the multi-state class action. But any class action lawyer worth their salt should be watching the aftermath of this opinion very closely.