Richard H. Chambers United States Court of Appeals, U.S. Court of Appeals for the Ninth Circuit in Pasadena, California.

An en banc federal appeals panel grilled lawyers on both sides of a case over a ruling earlier this year that many in the class action bar contended could threaten the viability of nationwide settlements.

The panel on Thursday reviewed a Jan. 23 decision in which the U.S. Court of Appeals for the Ninth Circuit de-certified a nationwide class action settlement with Hyundai Motor America Inc. and Kia Motors America Inc. after concluding that U.S. District Judge George Wu of the Central District of California had failed to analyze the consumer laws of several states. That so-called predominance analysis is required under Rule 23, the class action law under the Federal Rules of Civil Procedure, though many debate whether it's as essential in the settlement context versus class certification.

But the panelists spent most of the hearing peppering the four lawyers—one for the objector, one for the plaintiffs, one for Hyundai, and one for Kia—with questions about the specific circumstances behind the settlement's approval. Many asked what law governed the settlement agreement—a question that prompted conflicting replies. They also asked just how far Wu's analysis should have gone.

Plaintiffs attorney Steve Berman of Seattle's Hagens Berman Sobol Shapiro and Hyundai attorney Shon Morgan of Quinn Emanuel Urquhart & Sullivan in Los Angeles both insisted that Wu had adequately addressed the choice-of-law issue.

“I don't think he needed to do it, but he did it,” Morgan said. “He was at least cognizant of this issue and tried to address it even though I don't feel he needed to on this record.”

James Feinman of Lynchburg, Virginia, who represented the objector who won reversal of the settlement, argued that Wu did “no analysis” of the various state laws when he approved the deal, even though he had tentatively rejected certification in an earlier case.

The ruling in In re Hyundai and Kia Fuel Economy Litigation caused alarm for lawyers on both sides. In a dissent, Judge Jacqueline Nguyen wrote that the majority's opinion “deals a major blow to multistate class actions.”

Several federal judges, including those outside California, have cited In re Hyundai in their orders reviewing class action settlements or certification, and the decision has appeared in high-profile settlements.

Lawyers on both sides petitioned the Ninth Circuit to review the case en banc. They argued that the ruling conflicted with a host of other decisions, including the Ninth Circuit's own opinion in Hanlon v. Chrysler, which came out in 1998.

Feinman was quick to explain on Thursday why Hanlon was different.

“What this case presents for the court is two ends of the spectrum,” he said. In Hanlon, there were class representatives from every state; but Hyundai had plaintiffs from only 18 states.

But Judge Andrew Hurwitz asked how his clients could have been injured, since they could just opt out of the settlement and proceed with their own case.

Feinman insisted that the settlement didn't involve a Virginia subclass and, as such, deprived his clients of the right to be represented by class counsel. Such representation is required, he said, under Rules 23 and the U.S. Supreme Court's 1997 decision in Amchem Products v. Windsor, which found that both sides of a class action settlement must make sure to give “undiluted, even heightened, attention” to Rule 23's requirements in order to protect the rights of absent class members.”

“They had that right, and it was destroyed through this process,” he said.

Feinman, who represented an objector claiming to represent thousands of Virginia residents, also insisted that that state's law would have potentially given them more damages than California law—a remark that drew skepticism from opposing lawyers.

The Hyundai decision relied on the Ninth Circuit's 2012 holding in Mazza v. American Honda Motor. In that case, the Ninth Circuit de-certified a nationwide class under California law after finding that each of the 44 states involved had a “strong interest in applying its own consumer protection laws.” But that ruling involved a certification motion, not approval of a settlement—a distinction that the Hyundai settlement's supporters pointed out.

And, in Hyundai, Berman said: “I don't think Judge Wu had an obligation sua sponte to try to figure out whether there are conflicts all over the place.”

At one point, Berman tried to argue that doing an analysis of all 50 states would be “a lot of work” for the lawyers at settlement.

Judge Andrew Kleinfeld abruptly ended that argument.

“That doesn't seem to amount to much compared to $9 million,” he said, referring to how much plaintiffs lawyers in Hyundai got in attorney fees.

Judge Johnnie Rawlinson later questioned him on how Wu came up with that fee amount.

“This was not some sweetheart deal,” Berman insisted.