Ninth Circuit Reverses $200 Million Settlement and Class Certification For Lack of Proper Choice of Law Analysis

In a decision that may make it harder to settle cases on behalf of nationwide classes, the Ninth Circuit recently overturned a $200 million class action settlement and vacated the certification of a nationwide class of consumers, finding the district court failed to examine whether different states’ laws applied to the class members’ claims and whether Rule 23’s predominance requirement was satisfied. The dispute was rooted in a 2012 investigation which found that Hyundai and Kia deviated from U.S. Environmental Protection Agency fuel economy testing protocols and overstated the fuel efficiency estimates in advertisements and car window stickers for certain 2011, 2012, and 2013 vehicles. A California federal court approved the settlement in June 2015. However, in In re Hyundai and Kia Fuel Economy Litigation, a split three-judge panel of the Ninth Circuit vacated the District Court’s approval order and certification of a nationwide class of consumers.

Five objectors appealed from the class settlement arguing, among other things, that the settlement violated consumer rights in states other than California. The Ninth Circuit held that the District Court erred by failing to apply California’s choice of law rules to determine whether California law could apply to all plaintiffs in a nationwide class or, alternatively, if the court had to apply the law of each state. According to the Ninth Circuit majority, this analysis is essential to determine whether variations of various state laws would defeat predominance under Rule 23. The Ninth Circuit found the District Court’s failure to conduct this analysis particularly glaring in light of evidence submitted by certain plaintiffs that the laws in some states materially differed from those in California. The Ninth Circuit rejected the District Court’s belief that “the settlement context relieved it of its obligation to undertake a choice of law analysis and to ensure a class meets all the prerequisites of Rule 23” ruling the proposition “wrong as a matter of law.”

The Ninth Circuit also cautioned against the District Court’s “settlement context” reasoning. The District Court had declared that it would be unlikely to certify the same class of consumers for litigation purposes. The Ninth Circuit explained that this ultimately harmed plaintiffs’ settlement bargaining power, as “the class representatives were well aware that they would be unlikely to succeed in any effort to certify a nationwide litigation class” and therefore would feel more pressure to settle.

In re Hyundai is notable in clarifying that the standard for class certification under Rule 23 must be applied equally in contested litigation and the review of settlements thereof. It is possible, however, that this decision may be criticized as shifting the burden of proving when foreign law applies off of the proponent of the foreign law under the choice of law analysis. This was precisely the point of disagreement for the dissenting judge, who emphasized that this approach to the choice of law analysis may have potential to burden the district courts and impair future nationwide class actions.

Kaitlyn E. Stone is an Associate in the Gibbons Commercial & Criminal Litigation Department.