En Banc 9th Circuit Holds Class Action Certification Is Different for Settlement Classes

Key Points

• En banc 9th Circuit affirmed a $210 million settlement in multidistrict litigation against Hyundai and Kia relating to their alleged misrepresentations about the fuel efficiency of their vehicles, reversing the decision of a split 9th Circuit panel vacating the class settlement because of potential variations in state laws.
• The court held that variations in state laws did not necessarily defeat predominance for class settlement purposes.
• The court held that the predominance analysis for class certification is different for settlement and trial; its holding reaffirms that nationwide classes can be approved for settlement purposes, even where the same class could not be certified for litigation purposes, due to variations in state law.

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Background

Fifty-six actions were brought against Hyundai and Kia arising from alleged misstatements regarding the fuel efficiency of their vehicles in advertisements and car window stickers. The actions were consolidated in the Central District of California.

The district court preliminarily certified a settlement class and approved the settlement agreement, holding that a choice-of-law analysis was not warranted in the settlement context because these issues could be addressed as part of the final fairness hearing under Rule 23(e). The district court gave final approval to the $210 million class settlement after holding a fairness hearing, and did not address choice-of-law issues in its final order approving the settlement. Many objectors promptly appealed to the 9th Circuit, asserting challenges to the settlement in light of differences in state law and adequacy of the class representatives and their counsel.

A split 9th Circuit panel vacated the district court’s final settlement approval order. It held that under Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), before the district court could approve a class action settlement, the court was required to decide whether common questions predominate by applying California’s choice-of-law rules to determine whether California law applied to the claims of all plaintiffs or whether the court had to apply the different consumer protection laws of each state.

En Banc Ninth Circuit Opinion

In an 8-3 decision, the 9th Circuit en banc reinstated the district court’s approval of the $210 million settlement.

The 9th Circuit explained that the predominance of common questions criterion for class certification is applied differently to settlement classes and litigation classes. It noted that “[i]n deciding whether to certify a litigation class, a district court must be concerned with manageability at trial.” By comparison, “such manageability is not a concern in certifying a settlement class where, by definition, there will be no trial.”

Accordingly, the en banc court rejected the argument that the district court was required to address variations in state law under Mazza. Rather, it explained that “a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class,” unless an objector meets the burden of demonstrating that foreign law should apply to class claims.

The 9th Circuit held that the objectors did not meet their burden under California’s three-step governmental interest test. The court noted that “no objector presented an adequate choice-of-law analysis or explained how, under the facts of this case, the governmental interest test’s three elements were met.” Likewise, “no objector argued that differences between the consumer protection laws of all fifty states precluded certification of a settlement class.” Consequently, the court found that “neither the district court nor class counsel were obligated to address choice-of-law issues beyond those raised by the objectors” and refused to “decertify a class action for lack of such analysis.”

The court also rejected the dissent’s “suggest[ion] that the district court must sua sponte survey the law of all fifty states,” noting that “no case law support[ed] this unduly burdensome task.” The 9th Circuit distinguished Mazza because the foreign law proponent there met its burden by “exhaustively detail[ing] 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 court further explained that “the Mazza class was certified for litigation purposes,” and thus the need to apply th­e laws of dozens of jurisdiction weighed against predominance because of the impact it would have on trial manageability. The en banc court found that the predominance of common questions analysis is different in the settlement context, where “the district court need not consider trial manageability issues.”

The 9th Circuit also rejected the objectors’ challenges to the adequacy of class counsel and settlement approval, finding that the notice to class members provided sufficient information, the claims forms were not overly burdensome and there was no evidence of collusion between class counsel and the automakers.

Lastly, the court held that the district court did not abuse its discretion in denying fees to objector’s counsel because he did not “meaningfully contribute” to the class settlement.

Dissent

Judge Sandra Ikuta argued that the district court committed a reversible error in certifying the settlement class because the district court erroneously assumed that a choice-of-law analysis was not necessary to determine predominance of common questions in the class settlement context. She disagreed with the majority’s emphasis on the absence of manageability concerns being of key importance, because Amchem Products, Inc. v. Windsor, 521 U.S. 591, 620 (1997), required courts to give “undiluted, even heightened, attention” to all Rule 23 prerequisites, including predominance of common questions, before certifying a class.

Takeaway

The 9th Circuit’s decision affirms that nationwide class settlements can be approved in federal court, and that differences in state substantive law do not present a per se obstacle to approval under Rule 23. If objectors do not effectively raise the issue, a court will not need to compare sua sponte the consumer protection laws of all 50 states; and even if objectors meet their burden of showing differences in state law, the trial court may still conclude those differences do not preclude Rule 23 certification, because class certification for settlement does not implicate the same trial manageability issues that Mazza considered. Critically, the en banc court’s decision applied only to class certification in settlement, and does not materially affect Mazza’s use in arguing against predominance in class certification for trial.

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