An appeals court decision on Tuesday sent shock waves throughout the class action bar for potentially threatening the ability of lawyers to get approval of national class action settlements in the Ninth Circuit.

In a 2-1 opinion, the U.S. Court of Appeals for the Ninth Circuit found that a federal judge in Los Angeles failed to consider potential differences in various state consumer laws—a process called a “choice-of-law” analysis—in finding that common issues predominated in a nationwide class action settlement with Hyundai Motor America Inc. and Kia Motors America Inc. in 2015. The majority relied heavily on the 2012 Ninth Circuit decision in Mazza v. American Honda Motor in vacating certification of the settlement class and remanding the case.

“Here, the district court failed to conduct a rigorous inquiry into whether the proposed class could meet the Rule 23 prerequisites on the mistaken assumption that the standard for certification was lessoned in the settlement context,” wrote Judge Sandra Ikuta. “Because our precedent raises grave concerns about the viability of a nationwide class in this context, this certification decision cannot stand.”

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Tuesday's ruling, if upheld, adds a potentially major hurdle in getting nationwide class action settlements approved for lawyers on both sides. Choice-of-law issues, while common in class actions involving more than one state, come up more often at the class certification stage than in settlements, said some lawyers.

“Choice of law has never figured into settlement class action settlement discussion in any opinion that I know of,” said William Stern, senior counsel at Morrison & Foerster in San Francisco, who isn't involved in the case. “It's the first time where any judge, any court, has toppled a class action settlement over choice of law.”

For defendants, who often raise choice-of-law issues in attempting to prevent nationwide class actions from getting certified, the ruling could complicate their arguments for settlement approval.

“Where a nationwide class has been denied, but then the defendant later wants to settle on a nationwide basis, you have to take this Hyundai decision into account,” Stern said. “You could still get it done, but it means it's a more intricate choreography to settle one of these.”

For plaintiffs attorneys, it could mean a lot more work.

“It has a serious implication on whether national claims are viable,” said Robert Carey, a partner in Phoenix at Hagens Berman Sobol Shapiro, a lead plaintiffs attorney in the case. “It would put them all at risk of going up and having the court say in your review of 50 states, you missed one, and you're going back.”

In a dissent, Judge Jacqueline Nguyen wrote that the majority “relies on arguments never raised by the objectors, contravenes precedent, and disregards reasonable factual findings made by the district court after years of extensive litigation.”

“The majority also deals a major blow to multistate class actions,” she wrote, and conflicts with other circuits, including the U.S. Court of Appeals for the Third Circuit's 2011 decision in Sullivan v. DB Investments, over who bears the burden of raising choice-of-law issues: Objectors, or the lawyers and judges in the case.

But the ruling's impact remains unclear. Some pointed to the facts of the settlement, which had numerous objectors. The case involves alleged misstatements by Hyundai and Kia over the fuel efficiency of their vehicles. Aside from the distinctions in state consumer laws, the Ninth Circuit also found differences in the fuel efficiency statements made to consumers of new versus used vehicles. The majority also noted that its decision didn't prevent the case from being certified on remand, perhaps using subclasses.

“It might just be a paperwork crime that the district judge, George Wu, committed,” Stern said. “They simply said, 'You got to go back and fix this,' and didn't preclude it as a nationwide fix.”

It wasn't immediately clear whether lawyers will petition the Ninth Circuit for a rehearing. In an emailed statement, Carey wrote: “We intend to further challenge its decision in the Court of Appeals, but even if the case is sent back to the trial court, we expect that the trial court will readily approve the settlement again.”

Hyundai attorney Shon Morgan of Quinn Emanuel Urquhart & Sullivan declined to comment, and Kia attorney Dommond Lonnie of Dykema Gossett didn't respond to a request for comment. Both are in Los Angeles.

In 2012, Hyundai and Kia lowered their fuel efficiency estimates for about 900,000 vehicles and set up a reimbursement program for consumers. On the heels of the announcement, dozens of class actions were filed across the country. U.S. District Judge George Wu of the Central District of California had tentatively rejected certification of one of the cases after concluding there were differences among the various state consumer laws. But before he could issue a final ruling, the U.S. Judicial Panel on Multidistrict Litigation in 2013 transferred 56 class actions to his courtroom.

Objectors brought five appeals to the Ninth Circuit. Among them was an objector who claimed 19,000 Virginia residents weren't represented in the class action: No named plaintiffs were from Virginia, where the law would have allowed them more damages than California law.

In oral arguments before the Ninth Circuit, Ikuta appeared receptive to that appeal, brought by attorney James Feinman, a solo practitioner in Lynchburg, Virginia.

In its opinion, the Ninth Circuit found that Mazza was “closely analogous to our case,” even though it involved a class certification ruling and not a settlement. In that case, the Ninth Circuit 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.”

Plaintiffs attorney Elaine Kusel of McCune Wright Arevalo tried to make the case in oral arguments that a choice-of-law analysis was more appropriate during litigation, when both sides have to manage jury instructions over up to 50 state laws.

But in its opinion, the Ninth Circuit found that judges should be making the same analysis at the settlement stage as part of a duty to determine whether common claims among class members predominate over individual ones. The majority turned to the U.S. Supreme Court's 1997 decision in Amchem Products v. Windsor, which found that judges should give “undiluted, even heightened, attention” to the rights of absent class members at settlement.

“I don't have a problem with having a heightened scrutiny,” Carey said, “but I've never seen a settlement more scrutinized than the trial court here. There were 40 counsel bringing objections here.”

Other objectors raised additional issues over the $9 million in attorney fees awarded in the case. Lawyers had pegged the settlement's value at between $44 million and $210 million, but Wu never came up with an estimate. The Ninth Circuit, which has a benchmark for awarding fees at 25 percent of a settlement's value, said it couldn't determine whether the fees were excessive without an estimated value.

“On remand, if the district court properly approves class certification and a settlement, the district court must determine what value was created by the settlement and take a closer look at the reasonableness of the attorneys' fees in light of the results achieved,” Ikuta wrote.