Ninth Circuit Slams the Brakes on Nationwide Class Action Settlement; Choice of Law and Reliance Are Bumps in the Road
In In re Hyundai & Kia Fuel Economy Litigation, No. 15-56014, 2018 WL 505343 (9th Cir. Jan. 23, 2018), the Ninth Circuit vacated a nationwide class action settlement, concluding that the district court’s failure to conduct a choice-of-law analysis precluded a finding that common issues predominated.
The opinion, which is certified for publication, is significant to consumer class actions in two main respects. First, it clarifies that when plaintiffs bring a nationwide class under CAFA and invoke Rule 23(b)(3), district courts have an affirmative duty to “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[,]’”— regardless of whether the parties or third-party objectors raise the issue. This resolves an ambiguity left open in Mazza v. American Honda, 666 F.3d 581, 589 (9th Cir. 2012), where the Court applied California’s governmental interest test to nationwide class claims, but in response to Honda’s argument opposing a nationwide class. Further, the Ninth Circuit’s holding in In re Hyundai makes clear that the trial court’s affirmative duty to analyze choice-of-law issues applies with equal force in the settlement context.
Second, the Ninth Circuit confirmed that a class-wide presumption of reliance does not arise merely because “there is a showing that a misrepresentation was material.” In re Hyundai, 2018 WL 505343, at *13 n.24 (citation omitted). Relying on its decision in Mazza, the Court affirmed that a presumption of reliance is proper only when the class proponent establishes the existence of advertising similar to that at issue in In re Tobacco II Cases, 207 P.3d 20 (Cal. 2009), which involved a 40-year, pervasive advertising campaign. Applying this analysis to the facts, the Ninth Circuit concluded that the record did not show there were consistent representations made as to all of the models of Hyundai’s and Kia’s vehicles implicated in the class definition, and thus, there was insufficient evidence in the record to show that all class members could have been exposed to, and potentially relied on, Hyundai’s and Kia’s allegedly misleading statements.
These holdings will likely have significant effects on the way consumer class actions are litigated and settled. At the class certification phase, In re Hyundai gives defendants strong authority to oppose certification of a nationwide class unless plaintiffs have conducted a rigorous choice-of-law analysis as to the impact on all of the varying state laws at issue. And where a defendant has multiple products swept in by a class definition, class action proponents must show uniform misrepresentations were made as to each of those products in a manner that would have those reached members of the putative class who purchased them. Further, In re Hyundai makes clear that these factors must be satisfied at the settlement stage as well.