Legal Alert: Ninth Circuit “Missile Strike of a Ruling” Curtails Ability to Certify Nationwide Settlement Classes

On January 23, 2018, in In re Hyundai and Kia Fuel Economy Litigation, 2018 WL 505343, -- F.3d – (9th Cir. Jan. 23, 2018), a three-judge panel of the Ninth Circuit overturned the trial court’s certification of a nationwide settlement class of consumers who alleged that defendants made misrepresentations regarding fuel efficiency.  The trial court preliminarily certified the settlement class, but did not address the issue of whether variations in state law would preclude certification.  The court recognized that in the trial context, it would “need to engage in an extensive choice of law analysis” but in the settlement context, such an analysis was not warranted. The court finally approved the settlement. 

On appeal, the Ninth Circuit held that the trial court’s ruling that in the settlement context, the court need not undertake a choice of law analysis, was wrong as a matter of law. The court held that a choice of law analysis is part of the inquiry into whether the proposed settlement class meets the requirements of Rule 23.  Thus, the trial court erred in assuming that the standard for certification in the settlement context was lowered.  

The Ninth Circuit’s ruling could have an impact on the ability of parties to class actions – especially consumer class actions – to resolve their cases on a nationwide basis.  It potentially imposes a heightened standard in the settlement context to prove that application of the laws of multiple states would not differ significantly from the law of the forum state such that it defeats predominance.

We believe a Petition for a Hearing En Banc will be filed in this case, and believe that there is a significant likelihood that this opinion will be overturned if such a hearing is granted.  The Ninth Circuit stands alone in requiring such a rigorous examination before permitting nationwide class settlement.  If the opinion stands, it would impact whether nationwide settlement classes based upon state law claims may be certified. It increases the role both sides will need to play in providing the court with all information necessary – including the briefing of potential state law variations – to approve classes so that the court’s analysis will withstand appellate scrutiny.  Defendants facing nationwide class claims will also need to evaluate strategy regarding whether to seek an early settlement of the case.  Building a record that variations in state law are an obstacle to certification may hinder the parties’ ability to later certify a nationwide settlement class, or require the parties to create subclasses based on similarities in state law.  

As recognized by the dissent, this opinion may be a “major blow to multistate class actions.”   If the opinion stands, piecemeal or state by state litigation may become the norm for some claims.  This is true especially in light of last year’s Supreme Court ruling in Bristol Meyers Squibb Co. v. Supreme Court of California, 137 S. Ct. 1773 (2017), which limits jurisdiction over nonresident plaintiffs’ claims against an out-of-state corporation. This would add significant uncertainty and cost and expense in the defense of cases implicating multiple states.  It may also implicate the theories under which plaintiffs seek nationwide class certification.  A plaintiff seeking a nationwide class may avoid legal theories that vary from state to state. Moreover, pending settlements before the Ninth Circuit could potentially be at risk.  The only thing that appears certain is that this opinion will not be the last word on this matter.

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