Hyundai Fuel Economy Case Puts Nationwide Class Suits in Peril

Photographer: SeongJoon Cho/Bloomberg
• Future of nationwide class actions to be weighed Thursday
• Both U.S. companies and plaintiffs’ attorneys agree Hyundai settlement should stand
• Global resolution of suits, leveraging national classes for large payouts, at stake

Big business and plaintiffs’ attorneys rarely agree on anything. But this they both believe and will tell a federal appeals court Thursday: Nationwide class actions are on the line if it rejects a settlement among Hyundai Motor America, Kia Motor America Inc., and car owners over allegedly false statements about some cars’ fuel efficiencies.

For Hyundai, Kia, and a host of the U.S.’s largest companies, the opportunity to buy global peace through settlements not only in the consumer arena, but in all areas of litigation involving state law claims, from antitrust to employment matters, is at stake in the case that will be argued before the U.S. Court of Appeals for the Ninth Circuit Sept. 27, attorneys tell Bloomberg Law.

For consumers, employees, and others, the ability to leverage nationwide classes for larger, and more efficiently negotiated, payouts is at risk, they say.

At issue is a split three-judge panel ruling of the Ninth Circuit that rejected the Hyundai settlement Jan. 23, holding that a nationwide class of car owners shouldn’t have been certified for settlement purposes because of varying state consumer laws.

A Virginia resident had objected to the deal, saying she could have gotten a bigger payout under that state’s laws.

“It’s difficult to overstate the significance of this case for class action practice,” said plaintiffs’ attorney Jason L. Lichtman of Lieff Cabraser Heimann & Bernstein LLP in New York, who filed a supporting brief on behalf of San Francisco-based Public Justice PC and other consumer advocacy groups.

“If read literally, the panel opinion would make it very difficult to settle most cases on a nationwide basis within the Ninth Circuit: essentially, parties would have to prove that every jurisdiction’s laws are identical for purposes of a given settlement,” Lichtman said. The Ninth Circuit includes several Western states, most notably California, where a large percentage of class actions of all kinds are filed.

There are “good reasons that this is the first class case in recent memory where consumer advocates and corporate America have taken the same position,” he said.

Indeed, the Association of Global Automakers, that industry’s primary trade group, and the American Tort Reform Association, a conservative group that favors refashioning the litigation and class action systems as more business-friendly, submitted a joint brief also urging the full court to reverse. They cite the need for businesses to resolve disputes “without prolonged and needless litigation.”

The Hyundai case “pits two conflicting desires against each other on the defense side,” Professor Alexandra D. Lahav of the University of Connecticut School of Law told Bloomberg Law. “One is the desire to eliminate class action litigation altogether, and the other is to have an avenue that will allow you to get global peace when you face exposure,” said Lahav, who specializes in class actions.

“That makes it a really interesting case,” she said.

The implications aren’t limited to consumer suits. The rule for class status that applies to suits and settlements is “applicable to all kinds of cases,” Lahav said. “It’s not interpreted differently for different causes of action.”

She cited, as an example of the importance to companies of globally resolving all pending claims of a certain kind, the DeBeers Group’s 2008 settlement of a nationwide antitrust class action that allowed it to open retail stores without the threat of litigation alleging improper market collusion among jewelers.

The “big picture” is that under the Ninth Circuit panel’s standard, “if a court had to consider all the different varieties of state law, it makes settlement a lot harder,” said Professor Adam Zimmerman of Loyola Law School in Los Angeles.

No Global Resolution of Class Claims

The split three-judge panel, in rejecting the Hyundai settlement, held a trial judge failed to analyze what the differences in state law meant for class certification of a nationwide car owner class.

Common issues must predominate over individualized ones to warrant class status for trial under the rules that apply to federal suits, and the trial court should have looked at the question before certifying the settlement class, the panel held.

The ruling conflicts with precedent in both the Third and Seventh Circuits, Zimmerman said. He added that the U.S. Supreme Court hasn’t directly addressed the extent to which the federal requirements for certifying cases for trial should apply in the settlement context.

Lahav said if the panel’s decision is endorsed, “in the Ninth Circuit, it would foreclose some possibilities for settling these kinds of cases.”

Plaintiffs generally wouldn’t be able to bring as many nationwide class actions, or they would have to “litigate harder” to get class status granted, she said. There might instead have to be regional or state-by-state class actions. And while those could be consolidated into so-called multistate litigation, that wouldn’t be good for anyone as far as saving time and money, she said.

“There are ways around this ruling, but they’re less efficient,” she said.

Even class action defense attorney Wystan Ackerman agrees with that. Ackerman, at Robinson & Cole LLP, takes a contrary stance to the view that how the full Ninth Circuit rules in the case will necessarily have a big impact on class litigation.

But Ackerman, who said the decision will be limited to the Western states affected, acknowledged that parties will have to do significantly more work at the trial court level if the full court rules as the panel did.

Class actions may have to be restructured, he said, and the parties may have to do more research and submit more court filings, which raises costs, he said.

Virginians and Californians

But some don’t agree with the efficiency arguments made on behalf of nationwide class settlements, and say other factors, like higher payments to individual consumers, point to smaller, more regional deals.

Judge Sandra S. Ikuta, in overturning the Hyundai settlement, cited a Virginia statute as an example of why state consumer laws need to be thoroughly compared prior to certification of a settlement class. The Virginia consumer protection law allowed for higher damages than California’s Consumer Legal Remedies Act.

Linda Ruth Scott, the Virginia resident who objected to a trial judge’s settlement approval on that basis, said, “individual Virginia consumers are entitled to enforce the law of Virginia,” and to recover what that state’s law allows.

Scott’s comments came in a filing back in March that urged the full court not to hear the case. She’s represented by James B. Feinman of Lynchburg, Va.

Consumers would get more compensation and the parties actually have less work under the panel’s decision, Scott said. “Defendants will gain an actual fear of our civil justice system,” she said.

But Lichtman, the plaintiffs’ attorney, said typically, “differences in state law do not drive settlement value in a material way.”

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bloomberglaw.com