Jeffrey Jacobson and Jonathan Selbin.

Last month's decision by the U.S. Court of Appeals for the Ninth Circuit in a case against Hyundai struck a nerve with the class action bar because it brought to the surface a longstanding debate over how much is required to approve nationwide settlements when varying state laws are involved.

That debate has roiled for at least two decades, with proposals to change the civil rules and a raft of conflicting circuit court decisions failing to resolve the issue. The Ninth Circuit's Jan. 23 opinion in In re Hyundai and Kia Fuel Economy Litigation muddied the waters further, imposing a strict set of requirements that alarmed lawyers on both sides—but mostly those in the plaintiffs bar.

“This case is a problem for everybody, plaintiffs and defendants, because it's going to make it harder to resolve class actions on a national basis, which is in the interests of the courts, and the plaintiffs and the defendants,” said Michael Ram, a partner at Robins Kaplan in Mountain View, California. “It's more work for everybody because it makes it more difficult to settle consumer class actions on a national basis.”

Most lawyers agreed that the U.S. Supreme Court, which has overseen several matters involving class actions in recent years, is likely to take up the matter. Plaintiffs lawyers in Hyundai are due to file a petition for en banc rehearing by March 8.

In the meantime, the ruling could end up upending or changing settlements with nationwide classes, with judges and objectors the most likely to raise the issue.

“It definitely is something anyone positioning to settle a class action case in a Ninth Circuit jurisdiction has to think twice about and do more work than we would have thought we needed to do a few weeks ago,” said Jeffrey Jacobson, co-chairman of the class action practice Kelley Drye & Warren in New York. “It makes settlements more vulnerable to objections, and it's going to make district judges think harder about class action settlements proposed to them.”

The ruling already has come up in cases, including settlements over data breaches at Anthem and Target, and in a case involving Remington rifles.

The Ninth Circuit reversed certification of a nationwide class action settlement involving consumers who had sued Hyundai Motor America Inc. and Kia Motors America Inc. over misstatements about the fuel standards of their vehicles. The 2-1 opinion found that the district judge had failed to conduct an analysis over whether consumer laws in several states were so different from one another as to defeat the common claims of class members.

That analysis is enshrouded in Federal Rule 23 of Civil Procedure, which allows class actions to be maintained if a judge “finds that the questions of law or fact common to class members predominate over any questions affecting only individual members.” The so-called predominance analysis is common in class certification arguments but, according to some lawyers, much less so at the settlement stage, when everyone wants to resolve the litigation.

Dissenting Judge Jacqueline Nguyen wrote that the majority's opinion “deals a major blow” to nationwide class actions.

In the $115 million Anthem settlement, which is pending final approval, U.S. District Judge Lucy Koh of the Northern District of California asked plaintiffs lawyers to submit additional briefing to address Hyundai. In the brief, they said the various state laws “all share the same common nucleus of facts and law pertaining to the duty of care and whether Anthem violated it.”

Ted Frank, who objected to the Anthem deal, said he has been raising this issue for years, with “mixed success.”

“The incentive structure is generally to get these things done, and that might be at the expense of absent class members or actual protections that are supposed to be out here,” he said. “And sometimes, courts honor those protections when objectors raise them, and sometimes they don't.”

Frank, of the Competitive Enterprise Institute's Center for Class Action Fairness, said he lost the argument in a class action settlement over lithium ion batteries, which is now before the Ninth Circuit. He expected Hyundai to be part of that appeal, which is due April 2.

On Feb. 8, Frank's colleague, Melissa Holyoak, cited Hyundai in a supplemental brief in the Target data breach settlement, which is before the Eighth Circuit for a second time. Like Hyundai, she wrote, the Target class “encompasses material factual and legal variations.” Last year, the Eighth Circuit found that U.S. District Judge Paul Magnuson of the District of Minnesota, in certifying the nationwide class, had not conducted a “rigorous analysis” on whether the named plaintiffs adequately represented class members without economic losses. After Magnuson approved the $10 million settlement on remand, Holyoak appealed again. An Eight Circuit panel submitted the case on the briefs in December.

Vincent Esades of Heins Mills & Olson in Minneapolis, lead plaintiffs attorney in the Target data breach case, said Hyundai would have no impact on the settlement. He said the case did not involve a single state's law, like in Hyundai, and had individual statewide classes.

In a settlement over allegedly defective Remington guns, the attorney general of Massachusetts, one of 10 states objecting to the deal, flagged Hyundai in a supplemental brief, saying it “bears directly on the issues” before the Eighth Circuit, which is set to hear oral arguments on Feb. 14. Hyundai, wrote senior trial counsel Gary Klein, is “directly at odds with the district court in this matter, which held that no analysis of choice of law or the differences in state law claims was required.”

Writing for both the plaintiffs and defendants, John Sherk, a San Francisco partner at Shook, Hardy & Bacon, responded by stating, “The rule in this circuit is that settlement agreements need not account for differences in state law.”

Circuit Split?

Much of the debate centers on case law.

In vacating certification, the majority in Hyundai relied heavily on the Ninth Circuit's 2012 opinion in Mazza v. American Honda Motor, which decertified a nationwide consumer class brought under California law after finding that each of the 44 states involved had a “strong interest in applying its own consumer protection laws.” The panel found it was the duty of the parties involved to make sure they gave “undiluted, even heightened, attention” to Rule 23's requirements in order to protect the rights of absent class members at settlement, as required under the U.S. Supreme Court's 1997 decision in Amchem Products v. Windsor.

But Mazza didn't involve a settlement, said Steve Berman, of Seattle's Hagens Berman Sobol Shapiro, who plans to file the petition for rehearing in Hyundai.

“The court basically analyzed this as if it was a litigation class, which it wasn't, and we think the authority is pretty clear that you analyze it differently in the context of a settlement,” Berman said.

The decision conflicted with the Ninth Circuit's 1998 holding in Hanlon v. Chrysler, he said. In that case, which involved a nationwide class action settlement over an auto defect, the Ninth Circuit found that “the idiosyncratic differences between state consumer protection laws are not sufficiently substantive to predominate over the shared claims.”

Ram, who represented the plaintiffs in Hanlon, agreed.

“Hanlon has come to stand for the proposition that it's perfectly reasonable to have a national settlement based on consumer protection claims, which are of course state law claims,” he said.

But the conflict isn't limited to the Ninth Circuit. In her dissent, Nguyen cited the Third Circuit's 2011 en banc decision in Sullivan v. DB Investments. Reviewing $295 million in class action settlements in a case against De Beers, the panel focused on the conduct of the defendant: “This conduct resulted in a common injury as to all class members—inflated diamond prices—in violation of federal antitrust law, and the antitrust, consumer protection, or unjust enrichment laws of every state and the District of Columbia.”

Plaintiffs lawyer Jonathan Selbin, a New York partner at Lieff Cabraser Heimann & Bernstein, said Hyundai creates a circuit split.

“There's a million cases that go the other way,” he said. “Now, you've got the Ninth Circuit way out there on its own.”

Public Justice plans to file an amicus brief supporting the en banc petition in Hyundai. Its executive director, F. Paul Bland, wrote in an email: “We believe that the panel majority opinion is a very sharp departure from the normal choice of law analysis that has previously governed this issue in the Ninth Circuit, and that is followed in several other circuits.”

Hyundai also has practical implications on both sides.

Plaintiffs attorneys said they might have to bring more federal claims or, in the bigger cases, find class representatives in all 50 state in order to create subclasses. They might have to draft stipulated agreements over which law governs the settlement, or go back and renegotiate settlements.

That's also bad for defense attorneys, Selbin said, many of whom also are unhappy with the decision because, in most cases, defendants agree not to oppose certification as part of the settlement agreement, and few want to litigate separate class actions in all 50 states.

Not Quite So Dire?

Defense lawyers, however, said they saw the ruling's repercussions as not quite so dire.

“You could characterize the Ninth Circuit decision as persnickety,” Jacobson said.

“It need not be a major hurdle,” he said. “You don't need to go line by line and say this is why it's fair in every jurisdiction. You just need to make sure there's no impediment in some state's law that would preclude the case from going forward.”

That gets trickier for defendants who raised choice-of-law arguments in moving to defeat certification of a nationwide class, since they would have to go back at settlement to argue the opposite. But Hyundai also could come in handy when making those arguments at the class certification stage.

In the antitrust litigation over ion batteries, for example, Jeffrey Kessler, a partner at Winston & Strawn in New York, cited the decision in a Jan. 30 notice. He represents Panasonic Corp., which is opposing certification of a class of indirect purchasers. One of Panasonic's arguments is that California law should not apply to purchasers in 30 different states whose various statutes differ.

Kessler did not respond to a request for comment.

The defense bar actually fought against a proposal that would have lifted the predominance requirements on class action settlements. A Rule 23 subcommittee of the Advisory Committee on Civil Rules floated the proposal in 2015.

“That would have made cases easier to settle on a class basis,” said Michael Pennington, head of the class action team at Bradley Arant Boult Cummings in Birmingham, Alabama.

But DRI – The Voice of the Defense Bar opposed the idea for fear it would lead to the filing of more class actions that could not have survived certification, said Pennington, who heads DRI's class action task force.

The subcommittee tabled the proposal last year, he said.

“This idea has come up before,” he said. “It didn't have consensus then, and doesn't have consensus now.”