Ruling breathes new life into nationwide class actions

Last week, an 11-judge panel of the 9th U.S. Circuit Court of Appeals breathed new life finto nationwide class actions. Writing for the eight-judge en banc majority, Circuit Judge Jacqueline Nguyen abrogated the three-judge panel decision in In re Hyundai and Kia Fuel Economy Litigation, 881 F.3d 679 (9th Cir. 2018), which sent shockwaves through the class action bar 17 months ago. In re Hyundai and Kia Fuel Econ. Litig., 2019 DJDAR 4888 (June 6, 2019)(en banc). In the first Hyundai decision, the 2-1 judge majority, over Judge Nguyen's sharp dissent, effectively sounded the death knell for nationwide settlement of state consumer fraud actions in the 9th Circuit. In this do-over, the en banc court affirmed a judgment approving a nationwide settlement valued at over $200 million.

In a stark reversal from the panel decision, the Hyundai en banc court held that settling parties are not required to conduct a 50-state conflict-of-law analysis to certify a settlement class alleging violation of state consumer laws. Rather, under California's "governmental interest test," the burden is on the party challenging the application of California law -- the settlement objectors in this case -- to demonstrate that California's law materially differs from the law of the "foreign" state, that a "true conflict" exists, and that the foreign state's interests would be "more impaired" if California law were applied.

The en banc majority essentially pressed the reset button, restoring the status quo ante. As one of the rare class action decisions from the en banc court, Hyundai immediately becomes the leading authority on several key class action settlement issues, including predominance, the sufficiency of class notice, the use of a claims process, and attorney fees based on the lodestar.

The Class Action and Settlement Approval

The underlying case was filed after Hyundai announced it would voluntarily take remedial action in response to an EPA investigation that Hyundai and Kia inflated the fuel efficiency figures of certain model vehicles. These remedial actions included lowering the fuel economy estimates for the affected cars and reimbursing affected vehicle owners and lessees for the additional fuel costs they had incurred, and would incur, as a result of the overstatements. Following an multidistrict litigation consolidation of over 50 class actions alleging similar claims, the plaintiffs in three of the cases negotiated a global settlement with Hyundai and Kia. Various class members objected to the settlement, including the plaintiffs in related actions pending in Virginia, who argued that variations between California and Virginia law precluded certification of a nationwide class under California law. Following multiple rounds of briefing and hearings at the preliminary and final approval stages of the settlement proceedings, the district court overruled the objections, and entered a judgment approving the settlement. The objectors appealed.

The Hyundai Panel Decision

In a 2-1 decision, the Hyundai panel decision reversed settlement approval and temporarily changed the landscape for class action settlements. The Hyundai majority essentially held that settlement classes must meet the same predominance test as litigation classes, and that the settling parties would need to satisfy the "governmental interest" test before district courts could apply a forum state's law to nationwide classes. This test erects a high hurdle for settling parties, imperiling nationwide settlements -- at least in the 9th Circuit.

For proposed nationwide litigation classes seeking certification under Rule 23(b)(3) and alleging state law violations, the district court must consider whether variations in state law swamp any common issues and defeat predominance, which is fatal to class certification. The key case is Mazza v. Am. Honda Motor Co., 666 F.3d 581, 590 (9th Cir. 2012), which considered Honda's challenge to a district court's decision to certify a nationwide class of consumers claiming that Honda had misrepresented material information about Acura RLs. Honda contended that the district court erred in certifying the class under Rule 23(b)(3) because California's consumer protection statutes could not be applied to a nationwide class with members in 44 jurisdictions, and therefore plaintiffs had not demonstrated that the questions of law or fact common to class members predominated over any questions affecting only individual members. The 9th Circuit agreed, holding that under California's governmental interest test, class members' consumer protection claims had to be governed by the laws of the jurisdictions in which the transactions took place.

Mazza involved a litigation class, where the application of the laws of dozens of jurisdictions presented significant trial manageability issues, militating against a predominance finding. But under longstanding authority, Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), settlement classes can be certified without regard to manageability problems -- none exist because the case has settled. So until Hyundai, courts had not applied the Mazza governmental interest test to settlement classes.

Furthermore, prior to Hyundai, the "foreign law proponent" had the burden of demonstrating that, "foreign law, rather than California law, should apply to class claims." Typically, in the settlement context, objectors do not attempt to meet that high burden. In a significant move, Hyundai shifted the burden from the objectors to the settling parties, and ultimately, the district court: "Because variations in state law may swamp any common issues and defeat predominance ... a court must analyze whether the consumer-protection laws of the affected States vary in material ways." Writing for the majority, Justice Sandra Ikuta concluded that, "the district court erred in holding that it could avoid considering the potential applicability of the laws of multiple states on the ground that the proposed settlement was fair."

Although the majority did not foreclose the possibility that a nationwide class could be certified under California law, it warned that 9th Circuit precedent, "raises grave concerns about the viability of a nationwide class in this context," because material variations between the laws of the affected states tend to "preclude a finding that common legal issues predominate," thus making certification inappropriate.

In her dissent, Judge Nguyen accused the majority of "championing the cause of a handful of objectors" by promulgating a "newly invented standard" that would significantly burden our "overloaded district courts," create a circuit split, and run "afoul of the doctrine established long ago in Erie R.R. v. Tompkins." More fundamentally, Justice Nguyen observed that "economic reality dictates" that consumer lawsuits "proceed as a class actions or not at all," and by reassigning the burden to the settling parties and the district court, the majority would deprive "thousands of consumers" of valuable remedies.

As Judge Nguyen predicated, Hyundai signaled the possible demise of the nationwide class action, which, through its leverage, is the only way that corporations can be held accountable for unfair business practices. Hyundai also emboldened settlement objectors who capitalized (and likely also capitalized) on the majority's "grave concerns" to challenge nationwide class settlements, not just in the 9th Circuit, but in other circuits as well. See, e.,g., In re Syngenta Ag Mir 162 Corn Litig., No. 14-MD-2591-JWL, 2018 WL 1726345, at *5 (D. Kan. Apr. 10, 2018). Although the notice and comment/objection procedure is a necessary and desirable component of the class action settlement device, numerous courts, including the California Supreme Court, have recognized that "professional objectors" can exploit the delay caused by an appeal, essentially ransom the settlement for a handsome settlement of their own. See Hernandez v. Restoration Hardware, Inc., 4 Cal. 5th 260, 272 (2018).

The settling parties then sought en banc review, supported by a motley coalition of amici curiae that included business groups, consumer rights groups, academia, and a retired district judge. Although en banc review is rare -- the 9th Circuit hears between 15 and 25 cases per year, but receives about 1,500 en banc requests per year (see Ninth Circuit En Banc Procedure Summary (Feb. 10, 2017)) -- Chief Judge Sidney R. Thomas ordered the appeal to be reheard en banc following a vote of a majority of active judges (non-recused). The en banc panel reheard the matter last September.

The Hyundai En Banc Decision

Eight months after oral argument, the en banc court issued its decision. Writing for the majority this time, Justice Nguyen held that under the "extremely limited" standard of review on appeal, the settlement objectors had to make a "strong showing" that the district court clearly abused its discretion, which they failed to do. Far from abusing its discretion, the en banc found that the district court, "performed an admirable job of managing this complex litigation [after] ... multiple status conferences and ... several rounds of briefing to ensure that all of the litigants' concerns were heard and addressed," and made "careful findings ... which more than support the judgment."

Regarding the viability of nationwide classes, and nationwide consumer fraud classes in particular, the majority dispelled the earlier panel's "grave concerns" by finding that the predominance element is "readily met" in cases alleging consumer fraud. The en banc also held that the onus is again on the foreign law proponent to show that California law materially differs from, and conflicts with, the foreign law, and that the foreign state's interests would be more impaired than California's under the governmental interest test. Turning to the facts, the en banc court found that none of the objectors presented an adequate choice-of-law analysis or explained how, based on the facts, California's governmental interest test was met. Nor did they argue that differences between the consumer protection laws of all fifty states precluded certification of a settlement class. Consequently, the en banc ruled that "neither the district court nor class counsel were obligated to address choice-of-law issues beyond those raised by the objectors, and we will not decertify a class action for lack of such analysis."

The en banc also made abundantly clear that the "criteria for class certification are applied differently in litigation classes and settlement classes," holding that "a common course of conduct by the defendant" such as published statements by automakers that are allegedly "false or misleading," can establish "predominance in nationwide class actions."

Now writing for the dissent, Justice Ikuta repeated virtually all of the points and contentions from the original Hyundai opinion, including her conclusion the district court's "failure to determine the applicable law meant it failed to fulfill its independent obligation to conduct a rigorous analysis to determine whether the party seeking certification has met the prerequisites of Rule 23."

Obviously, the views of Hyundai majority and dissent on the propriety of nationwide classes could not be any further apart, underscoring why en banc review of the Hyundai decision was necessary in the first place -- to eliminate intra-circuit splits. With the split resolved in favor of consumers, the nationwide class action has been restored as a viable and necessary mechanism of redressing consumer grievances and protecting consumer rights. 