Our Litigators of the Week are a unique pair: defense counsel Shon Morgan of Quinn Emanuel Urquhart & Sullivan and plaintiffs' counsel Steve Berman of Hagens Berman. In 2015, they were on opposite sides of the “v” in hammering out a settlement in a class action over fuel economy ratings against Hyundai and Kia. The deal was expected to cost the automakers $140 million.

But in a decision that sent shock waves through the class action bar, the U.S. Court of Appeals for the Ninth Circuit in 2018 rejected the settlement after concluding the district judge had failed to analyze the consumer laws of several states. Both the plaintiffs and defense bars clamored for en banc review, arguing that if the decision stood, it would make getting approval of class action settlements nearly impossible.

On June 6, Morgan and Berman shared the victory when the Ninth Circuit ruling en banc reversed the three-judge panel.

They discussed the case with Lit Daily.

Lit Daily: Steve, tell us about the underlying complaint—what were the main allegations and who did you work with as co-counsel?

Steve Berman: We filed the case in 2012 after regulators announced Hyundai and Kia had overstated the fuel economy ratings for many vehicle models sold in the U.S. The fuel economy ratings were the reason many people purchased Kia and Hyundai automobiles to begin with—in some cases the ratings sent Hyundai and Kia vehicles to best-in-class status. Consumers overpaid for what they received, and we wanted to make that right.

Hyundai and Kia rolled out a reimbursement program to compensate consumers for the cost of additional fuel, but it didn't go far enough. Consumers deserved a better option. We filed complaints alleging consumer protection and warranty claims under California law and eventually teamed up with the McCune Wright firm during the settlement.

Lit Daily: Shon, how did you come to be involved in the suit and what was your client's response? Who did you work with as co-counsel?

Shon Morgan: This was my first matter working with Hyundai.  It didn't start as a 50-class action MDL. There was only a single case for almost a year, which we defended through class certification. But when the company discovered errors in calculating its MPG figures, it promptly initiated a voluntary compensation plan for its customers. 

The class action flood began. The class settlement broadened and refined those voluntary remedial efforts. There was also the overlay of an EPA action and various state AG inquiries. We worked with Michael Kidney at Hogan Lovells on those issues.  And we coordinated closely throughout with Kia and its counsel at Dykema—Jim Feeney and Ben Jeffers. 

Lit Daily: In June 2015, the district court gave its final approval to the class settlement. Can you both comment on the process to hammer out a deal? What were your priorities? Was it tough to reach an agreement?

Steve Berman: Hyundai and Kia came to the table early and challenged us. They had announced the fuel economy errors and rolled out a reimbursement program that they thought was enough. But the reimbursement program required consumers to fill out paperwork and make repeated visits to the dealership. Moreover, it only compensated consumers for miles they actually drove. It didn't work for consumers who sold their cars early, drove fewer miles, lived far away from the dealership—or just felt misled and wanted to part ways with Hyundai/Kia.

We showed the defendants that there needed to be a new option and worked out a system where consumers could receive a one-time, lump-sum payment that would approximate the additional fuel cost for a typical driver. Hyundai came to an agreement first, and then Kia followed suit.

Our settlement created a baseline of fair, no-hassle compensation for every class member and greatly increased the number of people who would be compensated. We set a new standard for the industry: A few years later, GM had a similar issue and launched a compensation program that was clearly modeled on our settlement, including the lump-sum option.

Shon Morgan: The concept for the deal came quickly. Hyundai and Kia wanted to make their customers entirely whole (and then some). And Steve and his team always have a well-conceived structure in mind when they come to the table. There were gives on both sides of course.

The more difficult work began after we invited comment by the hundreds of other lawyers in the MDL, even before preliminary approval. That was unusual, but the right thing to do. Judge Wu oversaw that lengthy and sometimes contentious process. He also appointed Eric Gibbs as liaison counsel, and Eric was critical in helping preserve order. The resulting agreement garnered almost unanimous support amongst MDL counsel, which was extraordinary. 

Lit Daily: Initially, what did you both make of the objectors? Were their concerns similar to ones you'd seen arise in other class action settlements? Any red flags?

Shon Morgan: Objectors often contend that suing under different theories or statutes might have resulted in better class outcomes. Those alternatives often carry their own risks and limitations. That was certainly the case here. Although the objector's counsel argued Virginia law offered better remedies, he has now litigated more than 1,200 individual claims against Hyundai in Virginia without recovering a cent.  

Steve Berman: The meaningful objections to the settlement were all resolved early on. The settlement process was unique because there was never a lead counsel appointment—we had around 40 other law firms that had filed cases but did not represent settling plaintiffs.

Along with the district court, those firms scrutinized the settlement and monitored a year of intensive confirmatory discovery. So at the preliminary approval stage, the district court and parties were able to respond to and address any criticisms.

Notably, there was never a challenge to the fairness of the lump-sum compensation—the objections were mostly to do with the notice and claim process, and the district court worked with the parties over a period of months to fine-tune those aspects.

The primary objection that drove the appeal was made by a certain Virginia lawyer, basically asserting that Virginians should not be part of a nationwide class settlement, again not taking issue with the fairness of the settlement per se.

Months before final approval, everything had been said, thought about, and thoroughly addressed by the district court and the parties. The Virginia lawyer made objections in the VW clean diesel settlement as well, which the Ninth Circuit rejected last year.

Lit Daily: What was your take on oral arguments before the three-judge panel? Did you have an inkling the settlement might be in trouble? 

Shon Morgan: The panel was very interested in the choice of law issues. The record gave them a basis to sidestep those questions, because there was little evidence that claims under Virginia law were viable. I expected a narrow, fact-based affirmance. But the panel majority saw an opportunity to address a number of broader issues relating to class settlements.  

This was an odd settlement to view skeptically. It was substantively advantageous for consumers and well-vetted by all the MDL counsel during a thorough approval process.  

Steve Berman: In fairness, the record of this case was not user-friendly. It reflected eighteen months of continuous briefing and hearings leading up to final approval.

After the first Ninth Circuit argument, we filed a letter to the Ninth Circuit to clear up confusion over the hard-dollar value of the settlement. And we did persuade a dissenter who wound up writing the en banc opinion.

Lit Daily: When the three-judge panel issued its split decision in January of 2018, my colleague Amanda Bronstad noted that the dissenting judge called it a 'major blow to nationwide class action settlements.' What was new in the opinion and why did it matter—not just for your case, but other class actions? 

Steve Berman: We negotiated the deal on the general understanding that one need not actually certify a nationwide litigation class to settle it. The whole point of settlement is to avoid the expense, delay, and complication of actually litigating a case.

But the court held we couldn't do that—we had to show that the settlement class could be certified for purposes of litigation, something no court had ever held. Obviously the class action world was blindsided by this, and it resulted in settlements being stayed or retooled around the country.

If the three-judge opinion had stood, it still wouldn't have stopped nationwide settlements. It just would have made them much more time-consuming, complicated, and expensive as plaintiffs would be required to plead more multi-state classes and then show that a class could be certified as to each state law claim.

Shon Morgan: From a defense perspective, it was most concerning in the way it limited a defendant's strategic options. Often a defendant first challenges the propriety of the case proceeding as a class. These challenges can better position the case for settlement.  

But the panel majority suggested it was inconsistent to argue a class could not be certified for litigation but could be certified for settlement. Such a rule would effectively force a defendant to elect early in the litigation whether it intended to litigate or settle.  

Lit Daily: Quinn Emanuel on its webpage describes litigation as “a zero sum game.” But that doesn't seem to be the case here. How in this instance did your interests align? Did you work together to get en banc review?  

Shon Morgan: Trials typically have a winner and loser. Consumer class actions, by contrast, often involve situations where a company wants to serve its customer base by offering a remedy for some issue.  

Here, the settlement expanded and refined the relief Hyundai and Kia were already voluntarily providing. And beyond defending this particular settlement, we were aligned with plaintiffs in wanting to clarify the principles by which federal courts evaluate class settlements.  

Nationwide class resolutions benefit defendants as well as plaintiffs, and lessen burdens on our court systems. We have a strong relationship with Hagens Berman and coordinated our en banc submissions.

Certain arguments have more persuasive force coming from a particular side. Same for oral argument.  

Steve Berman: This is the first case I've had where the plaintiffs' bar and the tort reform groups filed amicus briefs on the same side of an issue—in favor of the en banc rehearing. But I'll take it.

The interests of plaintiffs and defendants aligned with the interests of the Ninth Circuit in getting to the right outcome.

Lit Daily: What were some of the highlights/most memorable moments of the en banc argument?

Shon Morgan: The en banc panel was very engaged with predictable results—abrupt turns in questioning and issues left partially addressed. You find a way to weave in your points amid the topic-hopping. The judges that formed the majority did not lob any easy pitches our way or otherwise tip their hand.

Steve Berman: There was a moment where one lawyer went back and forth with Judge Hurwitz about “putting the cart before the horse” and Judge Hurwitz (known for his sense of humor) said, “No, I get to position the animals!” 

Lit Daily: What do you see as the most significant aspects of the en banc court's decision?

Steve Berman: Obviously the settlement puts to rest any doubts that parties can reach a nationwide settlement that is fair, reasonable, and adequate without showing that the nationwide class would be manageable for trial.

And if you think about the implications of reaching a settlement and then having to dream up or hypothesize every possible conflict of law that could pose issues for a class trial—even though no party is raising them—the en banc decision makes perfect sense.

Shon Morgan: It provides perhaps the clearest statement from any federal court on how the Rule 23 standards apply differently to a settlement class than a contested litigation class.  

It affirmed the viability of multi-state class action settlements, without the burdens imposed by the panel majority in the first opinion. It also addressed important issues concerning fee awards and the frequently-invoked specter of “collusion” in settlement negotiations.  

The decision stands as a rare unequivocal win for both plaintiffs and defendants, as reflected in the many “thank you” notes from friends on both sides.