The Ninth Circuit’s decision this week vacating a class action settlement in In re Hyundai and Kia Fuel Economy Litig., No. 15-65014 (9th Cir. Jan. 23, 2018) is getting a lot of attention in the class action bar. It’s 84 pages long, but the bottom line is that the Ninth Circuit held that the district court failed to analyze whether differences in state law precluded a finding that common questions of law and fact predominated under Rule 23(b)(3). That’s an argument that defendants often make in opposing class certification, and courts often agree with it. In fact, the trial court in this case when a motion for class certification was under consideration strongly suggested that this argument would carry the day. But the parties later settled and agreed to certification, and the Ninth Circuit majority criticized the district court for sidestepping the issue in the settlement approval process. This is because the basic requirements for class certification under Rule 23(a) and (b) must be satisfied for settlement purposes under the Supreme Court’s decision in Amchem Prods., Inc. v. Windsor, except that factors such as manageability do not apply where the case is being settled, not tried. This is nothing new, but parties and district courts sometimes do not give sufficient attention to this in the settlement process.
Some commentators have suggested that this decision could endanger nationwide class action settlements in cases governed by state law. (It’s not a problem where federal law applies.) Defendants sometimes need to enter into a nationwide settlement to achieve complete peace, such as in this MDL proceeding involving alleged misrepresentations as to the fuel economy of Hyundai and Kia vehicles. Entering into 50 separate statewide settlements would be impractical.
So, what can parties do when they want to settle but the issues are governed by state law that in some respects varies among the 50 states? Here are a couple of thoughts:
- If you need to do a Rule 23(b)(3) settlement, find at least one plausibly common and predominating issue on which state law does not vary and make that your focus in seeking approval of the settlement. The defendant does not have to affirmatively sign onto the argument that predominance is satisfied based on that issue; it can just not oppose the plaintiff’s motion. Defenses should not be an issue because it is a settlement, and thus the defendant is effectively waiving its individualized defenses if the settlement is approved.
- Consider whether you can seek certification of a settlement class under Rule 23(b)(2) if the settlement includes some declaratory or injunctive relief and the monetary relief goes hand-in-hand with the declaratory or injunctive relief. Rule 23(b)(2) does not require a showing of predominance. If the class receives notice and has the opportunity to opt out, some of the concerns about the propriety of a Rule 23(b)(2) class may fall by the wayside.