In a “major blow to multistate class actions,” according to the dissenting opinion in Espinosa v. Ahearn (In re Hyundai & Kia Fuel Econ. Litig.) 2018 U.S.App.LEXIS 1626 (January 23, 2018), the Ninth Circuit vacated a class action settlement after more than six years of litigation.  In reaching its decision, the majority found that the lower court failed to conduct the “rigorous analysis” required to determine whether common questions “predominated” in the action.  As a result, class certification was vacated and the action was remanded to the lower court for further proceedings. 

Background

The Ahearn case involved a nationwide multidistrict class action litigation arising from alleged misstatements by Hyundai and Kia entities regarding the fuel efficiency of their vehicles.  In essence, the plaintiffs claimed that Hyundai and Kia had made substantial marketing efforts, (e.g., the purchase of advertising during the NFL playoffs, the Super Bowl, and the Academy Awards, among other things), to persuade consumers to purchase their vehicles, and that consumers had relied on the statements regarding fuel efficiency of the vehicles to their detriment. 

After 56 actions were transferred to the multidistrict litigation panel, the parties announced a settlement had been reached for a single nationwide class that provided a variety of relief to separate members of the class.  The parties agreed that an aggregate amount of $210 million represented the total lump sum compensation that would be available to class members.  Thereafter, approximately $9 million was approved by the district court for attorneys’ fees and costs. 

At a final approval hearing more than two years after the parties initially proposed the settlement, the district court gave its final approval for the class settlement over objections by parties who challenged the settlement.  Objectors then brought five consolidated appeals challenging class certification, approval of the settlement, and approval of attorneys’ fees. 

Ruling

In a divided opinion (2-1), the Ninth Circuit vacated the district court’s order granting class certification of the settlement class.  In reaching this conclusion, the majority emphasized that before certifying a class, a trial court must conduct a “rigorous analysis” to determine whether the party seeking certification has met the prerequisites of Rule 23, including a demanding predominance inquiry.  When a district court certifies for class action settlement only, the moment of certification requires “heightened” attention.  Thus, even when reviewing certification in a settlement context, the court has a “duty” to take a close look at whether common questions predominate over individual ones, and ensure that individual questions do not overwhelm questions common to the class.

Because the Ahearn case involved claims in multiple states, the predominance inquiry required consideration of the impact of potentially varying state laws.  The majority found that the district court had committed legal error by not applying a choice of law analysis before approving the settlement.

Takeaway

The vast majority of cases settle before trial.  And in most cases, once a settlement agreement is reached between the parties, there is very little work left to be done in order for the parties to conclude the litigation.  This is not true with class action and representative litigation. 

Companies looking toward settlement of class action claims should take care to ensure the reviewing court has a proper basis for evaluating and approving any such settlement under the applicable legal standards.  If not, the parties risk being sent back to the drawing board to engage in further, potentially protracted, litigation.