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Article: August 2019: QE Class Action Win Celebrated By Both Plaintiffs And Defendants

August 29, 2019
Business Litigation Reports

The firm achieved a groundbreaking victory on June 6, 2019 in In re Hyundai & Kia Fuel Econ. Litigation, when the Ninth Circuit, sitting en banc, reversed a controversial 2018 panel opinion that had decertified a nationwide class action and overturned the district court’s approval of a class settlement based on potential variations in state law.  The en banc opinion, which has been lauded in the press as “saving” the ability of parties to settle nationwide class actions, affirms that class manageability concerns need not be considered in the settlement context and courts are free to apply the laws of one state to a settlement.  This ensures parties have the freedom to achieve nationwide resolution of class actions that could not have been certified for litigation purposes.

The case began in November 2011 when the U.S. Environmental Protection Agency began to receive complaints that Hyundai and Kia overstated the fuel efficiency of some of their model vehicles.  In early 2012, a group of plaintiffs filed suit in the Central District of California seeking to represent a nationwide class of consumers.  After approximately one year of litigation, the plaintiffs moved for class certification. 

Shortly after the Court’s tentative order on that motion (which would have denied certification of the proposed nationwide class) but prior to the final ruling, Hyundai and Kia announced the creation of a voluntary reimbursement program that would compensate owners and lessees of the affected vehicles for the higher fuel costs.  This announcement triggered a torrent of class actions filed across the country.  The federal cases were subsequently transferred to the Judicial Panel on Multidistrict Litigation and consolidated in the Central District of California.

The parties eventually reached a settlement valued at more than $210 million—one of the largest auto industry settlements in history.  Despite its prior tentative ruling, the district court certified a nationwide settlement class and granted final approval of the settlement. 

A group of objectors appealed the decision to the Ninth Circuit, arguing, among other things, that variations in state law defeated predominance.  The Ninth Circuit panel credited this argument and, in a 2-1 decision, reversed the district court’s approval of the settlement.  The majority said the district court erred by failing to consider whether variations in state law preclude predominance, citing to the court’s pre-MDL tentative ruling that acknowledged “material differences” among state laws. 

The panel’s decision was considered a “major blow” to nationwide class settlements.  The ruling effectively mandated district courts to survey the laws of all 50 states before certifying a nationwide settlement class, a herculean test that many considered unworkable.  It also put defendants in a particularly difficult position in terms of litigation strategy—a defendant could successfully defend a case in the early stages by showing it was not likely to be certified, thus positioning for a more favorable settlement, but it could not resolve the case through settlement if the same certification standard applied.

Parties on both sides of the case petitioned for an en banc review of the panel’s decision, which the Ninth Circuit granted.  Hyundai, represented by Quinn Emanuel, acknowledged that the Supreme Court’s holding in Amchem Products v. Windsor, 521 U.S. 529 (1997) requires courts to give “undiluted, even heightened attention” to Rule 23’s standards in the settlement context, but it argued that application of those standards should differ.  The Ninth Circuit agreed that “settlement plays [a] role in the predominance inquiry.”  In particular, the court observed that “manageability is not a concern in certifying a settlement class where, by definition, there will be no trial.”  The majority held that the district court was not required to conduct an extensive choice of law analysis prior to certifying the class because application of various state laws is fundamentally a manageability problem.  Moreover, the Ninth Circuit said the burden was on the objectors—not the proponents—to establish that some other state’s law should have been applied, and the objectors in the case failed to meet that burden.

The majority decision affirming the nationwide settlement was a major win for both plaintiffs and class action defendants.  Most importantly, the decision permits nationwide settlement classes to be certified on a less stringent basis while also reaffirming the heightened standards and rigorous analysis that must apply to litigated classes.  This provides a defendant the ability to vigorously oppose nationwide class actions that it intends to litigate, while also providing reasonable standards to achieve nationwide resolution through settlement when desirable.