The Ninth Circuit recently addressed the propriety of applying California law to a nationwide settlement class. The Central District of California had hosted a consolidated multidistrict litigation of individuals who bought Hyundai and Kia automobiles and claimed to have been misled by the companies’ allegedly inaccurate fuel efficiency estimates. The trial court originally denied certification of a litigation class, citing “material differences” in state law. Thereafter, when the parties moved for certification of a settlement class, some Virginia plaintiffs objected, arguing that differences in California and Virginia law precluded a predominance finding. After supplemental briefing and a hearing, the trial court rejected the objectors’ arguments and certified a settlement class. The objectors appealed.

A divided Ninth Circuit reversed the trial court, finding that it failed to analyze the differences in California and Virginia law, and thereby abused its discretion in certifying the settlement class. Class counsel then moved for rehearing en banc, and a majority of the non-recused active judges approved.

Sitting en banc, the Ninth Circuit reversed course again, affirming certification of the settlement class. In so doing, the court noted that certifying a settlement class did not require an analysis of “whether the case, if tried, would present intractable management problems … for the proposal is that there be no trial.” It also found that “[s]ubject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” The court further elaborated that the proponent of applying foreign law must demonstrate its propriety by satisfying the governmental interest test, under which the objectors were required to prove that: (1) the law of the foreign state “materially differs from the law of California”; (2) a “true conflict exists”; and (3) the foreign state’s interest would be “more impaired” than California’s interest if California law were applied.

The court cited four main reasons varying state law did not preclude a predominance finding. First, none of the objectors ever presented a governmental interest test analysis to the trial court and, thus, had waived the argument. Second, because the case involved a settlement class, the presence of a common nucleus of facts predominated over any idiosyncratic differences in state law. Third, although the objectors could opt out of the settlement class by filing an out-of-state action, they failed to do so. And fourth, the Virginia plaintiffs could not opt out an entire subclass from the settlement class.

Interestingly, a cadre of judges dissented, arguing that the trial court violated Supreme Court precedent by relying on the settlement context to justify its failure to consider variations in state law. The majority seemed to respond to that point by claiming that the Supreme Court had approved of a difference in approach for litigation and settlement classes, and thus the trial court’s actions were proper.

In re Hyundai & Kia Fuel Econ. Litig., No. 15-56014 (9th Cir. June 6, 2019).