May 08, 2018 Practice Points

Recent Ninth Circuit Decision Undercuts Nationwide Class Actions

Practitioners should keep their eyes on the Hyundai decision.

The Ninth Circuit has made it more difficult to certify a nationwide class action. See In re Hyundai & Kia Fuel Econ. Litig., No. 15-56014, 2018 WL 505343, at *3 (9th Cir. Jan. 23, 2018). The case involved a class action asserting state consumer-fraud claims for misstatements about the fuel economy of various vehicle models to new- and used-car buyers. A divided Ninth Circuit panel held that the district court could not approve a nationwide class settlement resolving state-law claims without deciding whether (i) choice-of-law principles allowed the court to apply California consumer protection laws to claims asserted on behalf of class members from all 50 states, and (ii) class members had been exposed to the same allegedly misleading statements.

The decision has two key holdings:

  • Courts must analyze choice of law: “Where plaintiffs bring a nationwide class action under CAFA and invoke Rule 23(b)(3), a court must consider the impact of potentially varying state laws, because ‘[i]n a multi-state class action, variations in state law may swamp any common issues and defeat predominance.’” In re Hyundai, 2018 WL 505343, at *3.
  • Uniform exposure is key to certification: “in the absence of the kind of massive advertising campaign at issue in Tobacco II, the relevant class must be defined in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading.” Id. at 13.

The Ninth Circuit emphasized that both these issues must be addressed, even in the settlement context. “The 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 meets all of the prerequisites of Rule 23, is wrong as a matter of law.” Id. at *12. And while “the district court was correct that it need not consider litigation management issues in determining whether to certify a class, the Rule 23(b)(3) predominance inquiry focuses on whether common questions outweigh individual questions, an issue that preexists any settlement.” Id.

The court also rejected the argument that “even if there are individualized questions regarding exposure to the nationwide advertising, these questions do not predominate in the settlement context, where there is no manageability concern.” Id. at *14. “This argument is contrary to Amchem,” the court found, where “factual differences among class members, such as the ways that class members were exposed to asbestos and the length of those exposures, translated into significant legal differences, thereby defeating predominance for a settlement class.” Id.

The Hyundai decision already is affecting class litigation. In In re Lenovo Adware Litig., No. 15-MD-02624-HSG, 2018 WL 620145, at *3 (N.D. Cal. Jan. 30, 2018), the court cited Hyundai and noted that “the parties’ agreement that New York law applies would not, by itself, resolve the choice-of-law inquiry for a direct purchaser class.” Because the JPML transferred several cases, “the Court must apply the choice-of-law rules of each state where the individual actions were filed.” Id. “Under the choice-of-law rules for this forum state, for example, the Court must analyze whether New York ‘has a substantial relationship to the parties or their transaction’ and whether ‘there is any other reasonable basis for the parties’ choice of law,’ regardless of parties’ agreement.” Id.

Similarly, in Sloan v. General Motors, LLC, No. 16-CV-07244-EMC, 2018 WL 784049, at *11 (N.D. Cal. Feb. 7, 2018), the court cited Hyundai and advised the parties that, “in future briefing, to the extent they ask the Court to decide matters on the basis of several states’ laws, they must squarely address whether there are material variations in state law.” “This will also be mandatory with respect to any motion for class certification in order to enable the Court to adequately analyze questions of predominance under Rule 23(b)(3).” Id.

Class-action practitioners should keep their eyes on the Hyundai decision, including whether the Ninth Circuit reviews the case en banc.

 

The author of this Practice Point requested to remain anonymous.