By Perry Cooper
A new federal appeals court ruling overturning a $210 million consumer settlement with Hyundai Motor Co. and Kia Motors Corp. sounds like it is written with a concern for fairness to plaintiffs, but don’t be fooled, a prominent professor tracking class actions told Bloomberg Law.
“It is a gift to corporate defendants,” Professor Brooke D. Coleman told Bloomberg Law about the 2-1 ruling by the U.S. Court of Appeals for the Ninth Circuit that unwound the deal because of a faulty state-by-state analysis of consumer protection laws.
“I am hard pressed to see how this decision helps the plaintiffs here,” Coleman, who teaches civil procedure at Seattle University School of Law, said. “If this class cannot be certified and settled on a nationwide basis, it means that state-by-state class actions or individual cases have to be filed.”
Both scenarios put the power in defendants’ hands, she said.
But that doesn’t mean the ruling is a complete defense win. If it stands, defendants also will have to fight multiple state class actions or individual suits, Coleman said.
Defense attorney Andrew J. Trask downplayed the ruling’s impact. He called it a “straightforward application” of the 20-year-old U.S. Supreme Court decision in Amchem Prods. Inc. v. Windsor, which held that a court must make an affirmative finding that common issues predominate, even for settlement classes.
Regardless, the full Ninth Circuit is likely to rehear the case, he said.
Nationwide class actions are already under the microscope as lower courts decide whether the Supreme Court’s recent Bristol-Myers Squibb Co. v. Superior Court limitations on where suits can be filed applies to class actions.
This suit could add to that squeeze on nationwide class actions, Howard Erichson, who studies complex litigation at Fordham University School of Law in New York, told Bloomberg Law.
The settlement resolved the claims of 56 cases consolidated in multidistrict litigation. Car owners alleged Hyundai Motor America and Kia Motors America overstated the fuel efficiency of a number of their vehicles.
The lower court approved the deal, under which Hyundai and Kia would put up $210 million. Class counsel would receive $9 million in fees and costs.
The Ninth Circuit majority rejected the deal Jan. 23, saying the class shouldn’t have been certified for settlement purposes. Class status isn’t appropriate for nationwide cases, like this one, involving variations in state law, Judge Sandra S. Ikuta wrote for the appeals court.
Judge Ikuta said variations in state law are a predominance inquiry at class certification, so they can’t be ignored in class settlements, Trask, of McGuire Woods in Los Angeles, said. “She’s technically right, but treading on 20 years of practice in the other direction.”
Most lawyers and judges have treated such variations as a manageability problem that isn’t an issue at settlement, Trask said.
But the problem differences in state law pose for predominance has been around for years, Erichson said.
“The state-law-variation problem is why smart plaintiffs’ lawyers try to show that choice-of-law rules can point to application of a single state’s law to the entire class, but as this case shows, such efforts do not always succeed,” he said.
It still should be possible to certify classes for settlement on state law claims, Erichson said.
“In some cases, there’s a sound basis for applying a single state’s law,” he said. “In other cases, even if the law of multiple states applies, the variations may be insignificant or easily grouped into manageable categories.”
“The majority professes to have the same concern for these plaintiffs as Justice (Ruth Bader) Ginsburg had for the Amchem plaintiffs,” Coleman said.
Ginsburg worried defendants might have an advantage at settlement if everyone knew the case couldn’t be litigated as a class action, she said.
But, “The Amchem concern for plaintiffs and their settlement power was questionable when Amchem was decided,” Coleman said. “It seems entirely misplaced in this case.”
Plaintiffs are already concerned the Bristol-Myers decision will hinder nationwide class actions, and some courts have already come down against them.
Under Bristol-Myers, there must be a link between the defendant’s conduct in a state and the plaintiff’s alleged injury for suit to be brought in the state. It’s not clear whether the decision applies to national class actions.
That means “a nationwide class action might will have to be filed in the defendant’s home court, which either gives the defendant a great advantage and/or dis-incentivizes attorneys and their clients from bringing those cases,” Coleman said. “The Ninth Circuit’s strict reading of Amchem in this case certainly adds to that hindrance.”
But Erichson stressed this case addresses a different issue.
“Unlike the BMS issue about personal jurisdiction over defendants for claims unrelated to the forum state, which is a new issue (and it remains to be seen how it will play out in class actions), the state-law-variation problem is an old one,” he said.
Trask noted that Ikuta dissented to certification of a discrimination class when the Ninth Circuit heard Dukes v. Wal-Mart Stores Inc. en banc, before it was reversed by the Supreme Court.
“She is not your typical Ninth Circuit judge when it comes to class actions,” Trask said.
“Since Judge Ikuta is a relative outlier and this is a bold statement on settlements, I think there is a strong chance we’ll see an en banc hearing of the issue,” he said.
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