Ninth Circuit's "Choice of Law Analysis" and How it Affects Class Action Settlements

Since almost all certified class actions settle, a Circuit Court of Appeals decision affecting the viability of such settlements is certain to receive a lot of attention from class action practitioners. This is particularly true when the decision is issued by the high-profile Ninth Circuit, which covers the West Coast. Its recent opinion, In re Hyundai and Kia Fuel Econ. Litig., 881 F.3d 679 (9th Cir. 2018)(“Hyundai”), is definitely one of those attention-getting decisions.

Hyundai and Kia Fuel Economy Litigation

The plaintiffs in Hyundai alleged the defendant auto manufacturers overstated certain mileage per gallon information. A nationwide settlement was approved by the California Central District Court over the protests of a group of objectors who argued that differences in various state laws should preclude certification and settlement. The district court acknowledged that an “extensive choice of law analysis” would be required if the case went to trial, but rejected the idea that such an analysis was warranted in the settlement context.

The objectors appealed and the Ninth Circuit reversed, concluding that the district court erred by not engaging in a choice of law analysis, i.e., the Ninth Circuit concluded that the district court should have considered the “potential differences in state consumer protection laws.” Although noting that Rule 23 of the Federal Rules of Civil Procedure requires a fairness finding, the appellate court also stated that a district court “may not justify its decision to certify a settlement class on the ground that proposed settlement is fair to all putative class members.”

State consumer protection laws and national class action settlements

The Ninth Circuit held that “[t]he district court’s reasoning that the settlement context relieved it of its obligation to undertake a choice of law analysis and to ensure that a class action meets all the prerequisites of Rule 23, is wrong as a matter of law.” The court characterized as “mistaken” the “assumption that the standard for certification was lessened in the settlement context.” To the contrary, said the court, “this case highlights the reasons underlying [the] warning [by the U.S. Supreme Court in Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)] that district courts must give ‘undiluted, even heightened, attention in the settlement context’ ...”

The Hyundai court’s approach potentially creates issues for plaintiffs and defendants in nationwide class actions when both sides want to settle regardless of any possible variations in state law. That being the case, both the plaintiffs and defendants in Hyundai have petitioned the Ninth Circuit for a rehearing en banc, and an amicus brief in support of the petition has been filed by the Association of Global Automakers and the American Tort Reform Association. And, interestingly, the Ninth Circuit has asked the objectors/appellants to submit responsive briefs.

Questions for class counsel

A number of questions remain open, such as: 

  1. Will any other Circuits follow suit? Or will the Ninth Circuit be an outlier as it often is?
  2. Will Ninth Circuit class counsel in other cases argue that federal law claims exist, steering clear of state consumer protection law case theories?
  3. And/or might Ninth Circuit class counsel rely on state law theories but attempt to do so in a way that there are no material variations?
  4. How will settlement strategies be affected given that a record may need to be created regarding variations – or a lack thereof – in state laws?

Of course, if the Ninth Circuit decides to rehear the case en banc, the subsequent new decision would control and would need to be analyzed. However, allowance of a petition for rehearing en banc is the exception rather than the rule – even in the Ninth Circuit. And, in fact, about six years ago, just such a petition was denied by the Ninth Circuit in Mazza v. Am. Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) (relied upon and discussed by the Hyundai court) where, as in Hyundai, the three-judge panel reversed the district court’s certification of a nationwide class on a two-to-one vote. Nevertheless, it is certainly quite possible that a majority of the active Ninth Circuit judges will vote in favor of a rehearing en banc given the significant issues at stake.

Stay tuned for updates.

Simeon D. (“Sim”) Rapoport serves as project director for class action and mass tort solutions at Epiq. In his role as project director, Rapoport oversees the administration of a number of complex product liability and mass tort cases, currently including the GranuFlo mass tort litigation and the Windsor Windows building material class action.

Filed under: class action, settlement

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