On January 23, 2018, in a 2-1 decision, the Ninth Circuit sent class-action lawyers into a tizzy when it handed down its decision in In re Hyundai and Kia Fuel Econ. Litig., No. 15-56067, 2018 U.S. App. LEXIS 1626 (Jan. 23, 2018), denying certification of a settlement class and concluding that the district court had failed to consider the differences in various state consumer protection laws. While the court’s decision has provoked debate about its impact on nationwide settlements in the consumer class action context, Hyundai is a powerful, pro-defense decision. What may have gotten lost amid all the shouting is a hidden gem for defendants: the decision makes clear that predominance requires proof of classwide deception as well as proof of classwide exposure to the allegedly misleading advertisement.

Case background. In November 2011, the Environmental Protection Agency (“EPA”) received complaints that Hyundai and Kia had overstated the fuel efficiency of some of their vehicles. In response, EPA launched an investigation, later confirming that Hyundai and Kia had overstated their fuel efficiency estimates.

Before EPA’s results came out, plaintiffs filed a class action in California, bringing claims under California’s consumer protection laws and common law. Defendants removed the case to federal court and then opposed certification, arguing that the differences in state consumer protection laws precluded a finding of predominance. Judge Wu issued a tentative ruling, concluding that Mazza v. American Honda Motor, 666 F.3d 581 (9th Cir. 2012)—which required application of a choice-of-law analysis—precluded class certification.

Before the court made a final ruling on class certification, a flurry of similar class actions was filed nationwide, which the MDL Panel ultimately consolidated before Judge Wu. Plaintiffs then informed Judge Wu that the parties had reached a class settlement. Judge Wu issued a tentative ruling granting the plaintiffs’ motion for certification of the settlement class. In so doing, Judge Wu noted that an “extensive choice of law analysis” was not warranted in the settlement class context and could instead be addressed as part of the final fairness hearing under Rule 23(e). The court granted class certification and the objectors appealed to the Ninth Circuit.

The Ninth Circuit vacated the class certification and held that the district court abused its discretion in certifying a class under Rule 23(b)(3).

Rule 23(b)(3) predominance inquiry requires a choice-of-law analysis. In the most contentious part of its decision, the Ninth Circuit concluded that the district court failed to apply a Mazza choice-of-law analysis when determining the issue of predominance under Rule 23(b)(3). While the parties argued that the Mazza analysis affected only manageability, the court held to the contrary: Mazza’s choice-of-law analysis also affects predominance.

In her dissent, Judge Nguyen argued that the majority had dealt “a major blow” to multi-state class actions by shifting the burden of proving whether foreign law governs the district court or class counsel. This burden shifting, she argued, violated the Erie doctrine, which requires a federal court sitting in diversity jurisdiction to apply the substantive law of the state in which it sits. Under this doctrine, the court was required to apply California law unless a foreign law proponent met its burden of proving otherwise.

Rule 23(b)(3) predominance inquiry requires proof of classwide deception. In its greatest gift to defendants, the Ninth Circuit held that predominance requires proof of classwide exposure. Judge Nguyen’s dissent argued that reliance under California consumer protection laws “is presumed if ‘members of the public are likely to be deceived’…” Not so, held the Ninth Circuit. A presumption of reliance requires “evidence that the allegedly false representations were uniformly made to all members of the proposed class” (emphasis added), i.e., that class members—not just members of the public—were deceived. In fact, the relevant class could only include those class members who were actually exposed to the allegedly misleading advertising.

As a point of comparison, the court distinguished In re Tobacco II Cases, 46 Cal. 4th 298 (2009), where defendants had engaged in a decades-long advertising campaign that left little doubt that every class member had been exposed to the advertising. In this case, however, there was no proof that particular class members—used car owners—were exposed to the advertising. The court held that the class could not be certified without first analyzing whether these class members were exposed to the alleged misleading statements.

Key takeaways. Hyundai provides a powerful tool to defendants in defending against class certification. First, it expands the Mazza choice-of-law analysis beyond manageability to the issue of predominance. Second, Hyundai requires plaintiffs in deception cases to show proof of classwide—not just individual plaintiff—deception. Finally, Hyundai provides an additional defense in “exposure” cases: predominance may be defeated where plaintiffs cannot show exposure of all class members to the alleged misleading advertising.