The real dilemma in Hyundai-Kia

Last month, the 9th U.S. Circuit Court of Appeals agreed to an en banc rehearing of the controversial opinion in In re Hyundai-Kia. 2018 DJDAR 7419 (July 27, 2018). Back in January of this year, the original panel held, 2-1, that certifying of a nationwide settlement class still required an analysis of the relevant laws in all 50 states to ensure that individualized legal issues would not predominate over common issues. 2018 DJAR 767 (Jan. 23, 2018).

The original decision was met with immediate uproar from both plaintiffs' and defense counsel, none of whom were conducting those 50-state analyses, and many of whom argued that doing so imposed an insurmountable obstacle to certification.

For most observers of class actions, that outcry raised an immediate question: Why would a panel of the 9th Circuit, a court not traditionally hostile to class actions, let alone class settlements, impose a new obstacle on setting nationwide cases?

As it turns out, the requirement is not new. The panel's opinion (authored by Judge Sandra Ikuta and joined by Senior Judge Andrew Kleinfeld), involved a straightforward application of existing Supreme Court precedent. Twenty-one years ago, in Amchem Products Inc. v. Windsor, the Supreme Court had expressly held that settlement classes still had to meet Rule 23(b)(3)'s predominance requirement, because the predominance inquiry addresses "questions that preexist any settlement." In other words, before certifying a settlement class, a court must still make sure that individualized legal issues did not predominate over the common issues in the litigation.

For close observers of class actions, that raises another question: Why would experienced class counsel be so up in arms about a straightforward application of clear, longstanding Supreme Court precedent?

The answer is that the practice of settling nationwide class actions has diverged sharply from the law of settling nationwide class actions in the two decades since Amchem. Class actions are big business, for both plaintiffs and defense counsel. Pretty much all plaintiffs counsel, and many (though not all) defense counsel prefer class action settlements to be as easy as possible. That includes not having to conduct 50-state surveys each time they settle a case with a nationwide reach.

This aversion to 50-state analyses is not just laziness. It stems from the inconvenient fact that, once a court takes account of the variations in common-law claims (like fraud, breach of contract, or various tort claims) or state statutory claims (like those based on various state consumer protection statutes), it is clear that individual legal issues would clearly predominate over any nominally common issues.

Indeed, these variations in state law are so numerous and so pronounced that many courts (including the 6th U.S. Circuit Court of Appeals) have ruled that even a class action complaint cannot proceed past the pleading stage if it proposes a nationwide class based on common-law causes of action. In Pilgrim v. Universal Health Card, LLC, the 6th Circuit upheld a lower court's dismissal of nationwide consumer-fraud class claims because the consumer protection acts of the fifty states are not uniform.

So how do nationwide class settlements occur? Because, despite Amchem, they occur frequently.

The published history of this litigation provides some clues. In the wake of an EPA investigation into statements about fuel efficiency, several class action plaintiffs sued Hyundai and Kia, alleging that the companies had improperly tested certain vehicles, thus overstating their mileage per gallon. 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 opposed that lawsuit, partly because the company was already voluntarily reimbursing dissatisfied customers, and partly because the variations in consumer-protection statutes made certifying a nationwide class impossible.

The trial court issued a tentative opinion denying certification. (Courts in the Central District regularly issue tentative rulings before a hearing, reasoning that the ruling allows the parties to focus their arguments more effectively.) Before the opinion was finalized, however, numerous other 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 first class action announced they'd reached a nationwide settlement with Hyundai. The MDL plaintiffs objected, arguing against the certification of a nationwide class, 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 competing plaintiffs/objectors appealed, which resulted in the panel's opinion.

It's no secret that class actions are brought by lawyers, not consumers. After all, a consumer who found out someone had already filed a nationwide lawsuit on their behalf would write a thank-you note, not a copycat complaint. And it's no secret that class action defendants will often settle cases, even where they've done nothing wrong or already offered a remedy, because settling is less expensive than litigating (and possibly losing) a nationwide lawsuit.

What's not secret, but also not advertised, is that defendants who settle nationwide class actions don't object to classes that don't meet Rule 23's stringent criteria. They have every right not to. Rule 23's requirements (including predominance) ensure the class meets the requirements of due process. A defendant may always knowingly and voluntarily waive their due process rights.

But the Amchem court held explicitly that Rule 23 protects not just the defendant's due process rights, but also those of the absent class member. A class that meets Rule 23's requirements justifiably has preclusive effect against later collateral challenges; a class that does not will be ignored by subsequent courts.

The not-so-secret issue with most class settlements is that no one speaks up for the absent class member. The plaintiffs' lawyers are interested in their fees, the defendant is interested in ending the litigation, and many courts are interested in an easy way to remove complex cases from their dockets. Only objectors and conscientious courts consider the effects on those not before the court, but bound by its rulings.

The 9th Circuit en banc has a difficult question before it. Does the predominance requirement protect only the defendant, or also the absent class member? Answered one way, there's little need for a 50-state survey with every settlement. Answered the other, many lawyers will be working a lot harder before settling.