Ninth Circuit’s En Banc Hyundai Decision: Less Strict Standard For Settlement Classes

On June 7, 2019, an en banc Ninth Circuit panel affirmed certification of a nationwide settlement class and held, 8-3, that class certification criteria are applied less strictly in a settlement context.[1]  Hyundai II preserves the ability to certify nationwide settlement classes while maintaining more demanding requirements for litigation classes.  As noted in our earlier post, the prior panel decision,[2] which denied certification, sent class action lawyers into a tizzy, creating concerns about the viability of nationwide class settlements.  (See https://classdismissed.mofo.com/false-advertising-claims/ninth-circuits-pro-defense-decision-in-hyundai-opens-the-door-for-class-certification-defenses/.)  Hyundai II reversed course, holding that the predominance requirement differs in a settlement context because there is no need to consider the manageability of individual issues at trial.

Case Background

As we discussed in our previous post, a flurry of class actions were filed nationwide after the EPA launched an investigation regarding complaints that Hyundai and Kia had overstated the fuel efficiency of some of their vehicles.  The MDL panel consolidated the cases before Judge Wu in the Central District of California, and Judge Wu granted plaintiffs’ motion for certification of the settlement class.  The three-judge panel in Hyundai I vacated the trial court’s decision, holding that the Rule 23(b)(3) predominance inquiry required a choice-of-law analysis, as well as proof of classwide deception, essentially identical to what is required for certification of a litigation class.

On July 27, 2018, the Ninth Circuit granted en banc review of the panel decision.

Predominance Analysis  

Hyundai II held that Rule 23(b)(3) predominance factors must be considered in light of the reason for which certification is sought—litigation or settlement.  Citing the Supreme Court’s decision in Amchem,[3] the Ninth Circuit held that in the settlement context, manageability problems created by the need to resolve individual issues at trial are not a concern because no trial will occur.  Instead, the focus is on the Rule 23 provisions intended to protect absent class members by blocking “unwarranted or overbroad class definitions.”

Individual Issues Regarding Exposure and Reliance Did Not Defeat Predominance for a Settlement Class

In Hyundai II, the Ninth Circuit concluded that common issues predominated regarding exposure and reliance, because so-called “Monroney stickers” containing the alleged fuel efficiency misrepresentations were present on every new car.  The Objectors-Appellants argued that the class of used-car purchasers may not have seen the “Monroney stickers” because they were not required to be displayed on used cars.  The trial court had rejected this argument on the basis that the alleged misrepresentations were part of a nationwide, concerted marketing effort.  The Hyundai II panel, however, did not decide whether Hyundai’s and Kia’s advertising was substantial enough to support an inference of reliance under the Tobacco II standard in a litigation context.[4]  Rather, the court limited its decision to the settlement context and concluded that the potential individual issues would apply only to a subset of the class and thus did not defeat predominance for the settlement class overall.  Moreover, the potential individual issues would “primarily implicate trial management issues, which we do not consider when conducting a predominance analysis for a settlement class.”

Variations in State Law Did Not Defeat Predominance for a Settlement Class

Hyundai II rejected the objectors’ argument that, in the settlement context presented, Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), required the district court to address variations in state law affecting claims by used car purchasers.  While a party litigant could “timely invoke the law of a foreign state,” here, no objector had presented an adequate choice-of-law analysis, or argued that differences between the consumer protection laws of all fifty states precluded certification of a settlement class.  As such, the district court was not obligated to address choice-of-law issues, and the Ninth Circuit would not decertify the class for lack of such an analysis.

Moreover, the Ninth Circuit held that Mazza was “readily distinguishable.”  There, unlike in the case before the court, the foreign law proponent had “exhaustively detailed the ways in which California law differs from the laws of the 43 other jurisdictions,” and showed how applying the facts to those disparate state laws made “a difference in this litigation.”  The en banc panel emphasized that:  “Importantly, the Mazza class was certified for litigation purposes.  The prospect of having to apply the separate laws of dozens of jurisdictions presented a significant issue for trial manageability, weighing against a predominance finding.”

Finally, Hyundai II concluded that application of California law did not violate due process notwithstanding that, under Virginia law, Virginia residents’ claims might be time-barred if they opted out.  Significantly, the Ninth Circuit held that the Virginia objector was free to opt out, but “could not opt out on behalf of anyone else.”  The decision thus eliminates the threat sometimes made by objectors to opt out an entire subclass.

Settlement Approval Was Otherwise Proper

Unlike a number of recent Ninth Circuit decisions that have been notably critical of the details of class settlements, the en banc panel in Hyundai II rejected a variety of challenges to the settlement and settlement procedures.  It held that both the long form and short form notices were proper.  The long form notice adequately described the terms of the settlement and informed settlement class members that additional compensation could be received.  The short form notice “was designed to be, as the name suggests, short.”  It satisfied its “primary purpose” of alerting class members to the settlement; it provided a high-level overview of the process (including critical dates), and explained where class members could obtain additional information and claim forms.

Hyundai II also rejected the argument that claim forms were not necessary and that the claim forms were overly burdensome.  Although the participation rate of lump sum claimants was only 23 percent, the Ninth Circuit noted that it had approved class action settlements “where less than five percent of class members filed claims.”  Finally, the Ninth Circuit found no evidence of collusion between class counsel and the automakers, noting that there was no “clear sailing” provision, no reversion of unclaimed funds to the defendants, and no disproportionate distribution of settlement funds to class counsel.

Dissent

In her dissent, Judge Ikuta, who authored the original panel decision, largely adopted the analysis contained in that decision.  The dissent argues that settlement classes are not different, and that the trial court should have done a full choice-of-law analysis, as would have been required for a litigation class.

Takeaways

Hyundai II reaffirms that, in appropriate cases, nationwide settlement classes can be certified under a less stringent standard than litigation classes.  At the same time, the decision is cabined to the settlement context and preserves intact the far more demanding predominance analysis required for certification of a litigation class.

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[1] In re Hyundai and Kia Fuel Economy Litig., 2019 WL 2376831 (June 6, 2019) (“Hyundai II”).

[2] In re Hyundai and Kia Fuel Economy Litig., 897 F.3d 1003 (9th Cir. 2018) (“Hyundai I”).

[3] Amchem Products Inc. v. Windsor, 521 U.S. 591 (1997).

[4] In re Tobacco II Cases. 46 Cal. 4th 298 (2009).