Another Ninth Circuit panel has roiled the class certification waters, this time rejecting a class action settlement because the district court did not conduct a meaningful analysis of predominance.

The case, In re Hyundai and Kia Fuel Economy Litigation (pdf), involved a multidistrict class action seeking additional remedies for overstatements of the fuel economy of certain automobile models, for a class of both new and used car buyers. A divided panel held that the district court could not approve a nationwide class settlement that resolved only state-law claims without at least addressing whether choice-of-law principles permitted the application of the forum state’s consumer protection laws to plaintiffs from all 50 states, and whether the parties had established that class members had been exposed to the same allegedly misleading statements.

The court’s substantive analysis was a straightforward application of the Ninth Circuit’s 2012 decision in Mazza v. American Honda Motor Co. (a case that I argued).  Mazza’s holding had two components:  (1) material variations in state consumer laws could preclude nationwide application of a single state’s law; and (2) a class cannot be certified for a deception claim under California’s unfair competition law if the class members were not exposed to the same alleged misrepresentations or some class members also received corrective disclosures.  In either circumstance, the class would flunk the predominance requirement of Rule 23(b)(3).

The Hyundai panel perceived similar issues in the settled case before it and faulted the district court for failing to analyze either issue at all before approving the settlement.  In reaching those conclusions, the panel majority explained Mazza in terms that reinforce that decision’s utility in opposing efforts to certify overbroad classes that gloss over intensely individualized issues.

So far, so good. The Supreme Court has repeatedly called for scrutiny of class certification at the settlement stage that is at least as rigorous as the analysis during litigation, and the same legal standards are supposed to apply.

But in real life, they often don’t. Here, the district court was presented with a choice-of-law argument by an objector represented by counsel for a Virginia lawsuit who asserted that Virginia consumers would be better off in their own action under Virginia law. No one presented a 50-state analysis of the variations in state law, however, and the trial court in any event believed that it didn’t have to address predominance in a settled case. The court also believed that it was sufficient to take variations of law into account in evaluating the fairness of the settlement under Rule 23(e).

The Ninth Circuit found both of these escape hatches insufficient, since Rule 23(b) applies to every class action. And this was so even though, at least according to the dissenting opinion, the Mazza issues had not been properly preserved.   That point is compelling; if the dissent were correct, then the Hyundai decision arguably requires district courts reviewing class action settlements to undertake an intensive assessment of predominance sua sponte even if the objectors (if any) have not presented impediments to a settlement’s approval.

The immediate reaction by some in the wake of the Hyundai decision has been to bemoan the end of nationwide class action settlements (at least in the Ninth Circuit).  In some respects, that is overblown:  Nationwide settlements based on federal claims will be unaffected, as will settlements based on state laws that are meaningfully identical. Some commentators maintain that many district judges in the Ninth Circuit treated variations in choice of law as a manageability issue that (under Supreme Court precedent) could be overlooked at the settlement stage, even though the Mazza decision held that “variances in state law overwhelm common issues and preclude predominance for a single nationwide class.”  And, despite the Supreme Court’s instructions to the contrary, there is little doubt that scrutiny of settlements is in practice less rigorous than the analysis applied to class certification when litigated by truly adversary parties.

Of course, both plaintiffs and class action defendants will want a single global settlement regardless of the legal underpinnings of the claims.  (And that explains why both the plaintiffs and the defendants in Hyundai have indicated their intent to petition for rehearing en banc.)

In the meantime, what are defendants to do in the face of Hyundai?

Several arguments are available to support nationwide or at least multi-state settlements:

  • First, if there is a viable federal claim among the state claims, and the federal claim can support the damages provided by the settlement and by state-law claims, that claim can make a choice-of-law analysis immaterial.
  • Second, a claim may be characterized so as to minimize the effect of variations in state law.  That, of course, requires awareness and analysis of those variations.  But state law sometimes can support a nationwide class if the variations don’t matter.
  • Third, settlements can carefully construct multi-state subclasses, each under state laws that are sufficiently similar to make the choice of one state’s law permissible.
  • Fourth, courts routinely hold that defendants have waived choice-of-law arguments based on variations among state laws in litigated cases; there are strong arguments that defendants can surely waive those arguments in settlements, especially if they do so expressly.

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