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Ninth Circuit Provides Clarity for Settlement of Multi-State Consumer Class Action

Class actions bring more complexity to litigating and settling cases, and it can increase substantially when the claims arise from multiple state consumer protection laws. In these cases, determining the applicable law(s) to apply is often critical to whether a class can or should be certified. Depending on the states’ laws and the elements of claims to be proven, there may be insufficient common issues of law or fact, or any such issues may not predominate, in order to satisfy Rule 23 requirements. These vexing questions can also present themselves when a court must determine whether a settlement class should be certified to resolve the dispute. In In re Hyundai and Kia Fuel Economy Litigation, decided June 6, 2019, the Ninth Circuit Court of Appeals en banc opinion addressed these very issues when it reversed the panel’s opinion and affirmed the district court’s approval of a nationwide settlement class.

Key strategies and takeaways:

  • An early motion may be filed to identify the law(s) to apply to the proposed class representative and the putative class members, perhaps coupled with a motion to strike class allegations.

  • While the potential applicability of multiple states’ laws does not necessarily preclude a class action, material differences in the laws (e.g., elements of claims, proof needed, damages recoverable, etc.) may point toward insufficient common issues and lack of predominance. A survey of applicable laws may be used to highlight those material differences.

  • An early motion to dismiss or exclude putative class members with no connection to the forum due to lack of personal jurisdiction may be used to restrain the scope of a potential class.

  • Even where the parties and counsel may be in agreement that a settlement is in the best interest of all involved, a court must follow the robust process set forth in Rule 23 to ensure the absent class members are protected. Whether the same scrutiny required for a litigation class applies to a settlement class is debatable, but a recent Ninth Circuit decision has recognized that the standards differ.

Because class actions are an exception to the rule that cases typically should be litigated on an individual basis rather than on behalf of unnamed individuals, there is a presumption against class certification. Plaintiffs carry a strict burden of proof and must affirmatively demonstrate by a preponderance of the evidence that each of the requirements of Rule 23 is satisfied. The court must conduct a rigorous analysis to determine whether the parties seeking certification have shown that the putative class satisfies the prerequisites of the Rule. While not an explicit element, the court may also consider the merits of the suit to the extent they relate to determining whether the Rule 23 requirements are satisfied.

When plaintiffs bring a multi-state or nationwide class action, a court also must consider the impact of potentially varying state laws. As with any other requirement of Rule 23, the class certification proponents in a multi-state action bear the burden of demonstrating that the laws of the affected states do not vary in ways which may preclude a finding that common legal issues predominate. When consumer protection laws differ in material ways, there may be insufficient common legal issues favoring a class action approach. On the other hand, state law variations do not necessarily preclude a 23(b)(3) action, for even when some class members possess slightly differing remedies based on state statute or common law, there may still be sufficient common issues to warrant a class action.

In multi-state class cases, a frequent strategy employed is to provide the court with a state survey of potentially applicable laws. This effort can demonstrate that states’ consumer protection laws vary considerably, and support the argument that courts must respect these differences rather than apply one state’s law to consumers and transactions in other states with different rules. For example, there may be numerous differences in many important components to the states’ consumer protection laws, such as variances with respect to state of mind, reliance, causation, types of damages available, statutes of limitations, notice requirements, whether class action procedures are permitted and whether there is a heightened scrutiny for particular victims of the scheme, e.g., the elderly. Variations in state consumer protection statutes may prevent application of a single state’s law in any particular case because differences in state consumer protection laws regarding a defendant’s state of mind, type of prohibited conduct, proof of injury-in-fact, available remedies and reliance may be so significant that the states’ laws cannot be grouped in any manageable way. Even where scienter and reliance requirements are similar across certain states, other issues like the measure of damages still prevent them from being grouped together. These variations may present an actual conflict such that a class action cannot be maintained.

Another potential defense and argument to limit nationwide class actions is personal jurisdiction. Following a recent Supreme Court decision involving mass tort litigation, some district courts are now faced with deciding whether they are precluded from exercising personal jurisdiction over defendants with respect to claims by non-resident class representatives and putative class members (at least where the defendant is not sued in its home state). Whether successful at the pleading stage or (if preserved) argued in opposition to certification, personal jurisdiction can create another opportunity to limit the scope and value of a potential class.

Whether these same complex issues need to be addressed or might stall a proposed class resolution is another thing. A tension can be formed when the plaintiffs and defendants have reached an arm’s-length, negotiated compromise of nationwide class claims. On the one hand, counsel and their respective clients seek to resolve their differences in a manner that courts encourage, with an approach to reach a result that considers the evaluation of claims, damages and defenses. A robust process then follows to ensure all affected persons have an opportunity to be heard concerning the settlement. On the other hand, there is no reason to expect that the resolution of class certification questions would change in a settlement context, including the court’s rigorous inquiry when it considers certification of a settlement class. While a district court need not decide whether a case, if tried, would present intractable management problems, other specifications of the Rule, e.g., those designed to protect absentees by blocking unwarranted or overbroad class definitions, compel perhaps more attention in the settlement context. This added scrutiny may be needed because a court is being asked to approve a settlement and certify a settlement class. It will lack the opportunity, present when a case is litigated, to adjust the class informed by the adversarial proceedings as they develop.

The failure to consider all aspects of Rule 23 in the settlement context played out recently in the Ninth Circuit Court of Appeals, where a panel of the court vacated the district court’s decision to certify a multi-state class action for settlement purposes. There, the named plaintiffs sought to represent (and settle) claims in a nationwide class of car owners. While the district court found the settlement was fair and in the best interest of the class members, the appeals court specifically found that the district court erred in failing to consider the choice of law issue and failing to conduct a rigorous analysis of the elements of certification under Rule 23(b)(3). Thus, the case was remanded for further analysis and findings.

As the panel discussed, federal courts do not have authority to substitute Rule 23’s certification criteria with a standard that if a settlement is fair, then certification is proper. That is, a court may not justify its decision to certify a settlement class on the ground that the proposed settlement is fair to all putative class members. Otherwise, if a common interest in a fair compromise could satisfy the predominance requirement of Rule 23(b)(3), that vital element would be stripped of any meaning in the settlement context and the safeguards provided by the Rule, which serve to inhibit class certifications dependent upon a court’s gut feeling or impression of the settlement’s fairness, would be eviscerated.

The full Ninth Circuit Court of Appeals has now considered the panel’s decision, reversed it and affirmed the district court’s order and judgment approving the settlement class. The court recognized that the criteria for class actions differ whether the matters are litigated or settlement classes. For instance, manageability is never a concern for settlement classes. Because the case before the court was a settlement class, the analysis to be performed on appeal is much more limited.

Here, the court focused on the only challenges made by the objectors – the district court’s findings on predominance and adequacy. First, while predominance forms part of the Rule 23 inquiry for certification, it makes a difference if the class is to be litigated or settled. The court found that the district court followed the law and the facts it determined satisfied the applicable standards to conclude that common issues predominated in the consumer fraud case. Similarly, as to adequacy, the court held that the plaintiffs and counsel satisfied the Rule 23 requirements. There was no collusion and the class administration provisions of the settlement agreement were fair and reasonable. In the end, the court complimented the district court’s “admirable job of managing” the complex case, held multiple conferences and made careful findings that support the judgment.

Conclusion

Litigating and settling multi-state class actions can be difficult, especially when the substantive causes of action are governed by numerous states’ laws. While plaintiffs in these cases usually focus on the similarities of the elements of the claims, defendants will highlight the variances in proof, laws and damages. Settling multi-state class actions brings added challenges but the recent Ninth Circuit en banc decision should give comfort that the plaintiffs and defendants can resolve the claims without the necessity of establishing each Rule 23 client required for litigated classes.

© Polsinelli PC, Polsinelli LLP in California

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Mark Olthoff looks for solutions. Whether it is help resolving a commercial dispute, responding to a financial services claim, or counseling on a corporate governance issue, Mark’s experience and knowledge guides clients to the best possible result. He has extensive litigation experience with class actions, consumer protection, banking and securities laws, and all manner of business disputes. Mark's national practice includes actions involving FDCPA, RICO, FCRA, TILA and other federal and state statutes.  Mark represents numerous financial institutions and is an author...

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