An unexpected decision from the US Court of Appeals for the Ninth Circuit has raised questions about the viability of nationwide class action settlements. What appeared to be a wrapped-up settlement agreement unraveled after the Ninth Circuit vacated the certification of a nationwide class of consumers seeking to settle their claims against Hyundai and Kia regarding representations of fuel efficiency in certain vehicles. The decision in In re Hyundai and Kia Fuel Economy Litigation, No. 15-56025 (9th Cir. Jan. 23, 2018), can be viewed as a positive development for defendants in class actions, or as a hindrance to all parties seeking to resolve costly classwide litigation. From either perspective, this decision is a significant development in class action law.

After the Environmental Protection Agency (EPA) began an investigation into the fuel efficiency of Hyundai and Kia vehicles, a number of individual consumers filed a class action seeking to represent a nationwide class of car purchasers who were allegedly deceived by the manufacturers’ fuel efficiency advertising. The plaintiffs asserted common law claims and violations of California’s consumer protection statutes.

The manufacturers were subsequently hit with an onslaught of similar class actions in various jurisdictions, many of which included state statutory claims. The Judicial Panel on Multidistrict Litigation consolidated the actions and assigned the case to the District Court in the Central District of California. Shortly thereafter, the parties in the first suit informed the court that they had reached a nationwide class settlement and moved for class certification.

The plaintiffs in one of the follow-on lawsuits objected to the settlement, arguing that the court needed to conduct a choice-of-law analysis on the claims brought by residents of different states and that material differences among state consumer laws rendered class certification inappropriate. For example, they argued that Virginia law provided materially different remedies to their claims, and thus they should not be bound by a settlement that applies California law.

The district court certified the class and issued a preliminary ruling approving the settlement, noting that, in the settlement context, the rationale for Rule 23(b)(3)’s predominance requirement to the underlying state law claims does not apply and, to the extent there are material variations in state law, they can be raised at the final settlement fairness hearing. Nearly a year later, the district court gave final approval to the settlement, reaffirming its preliminary ruling that the settlement was fair and equitable for all plaintiffs, including those who objected to the settlement. The court never conducted a choice-of-law analysis.

The objectors appealed, and the Ninth Circuit reversed the district court’s approval of the proposed nationwide class settlement. The court of appeals held that the trial court should have conducted its predominance inquiry under Rule 23(b)(3) before considering whether the class settlement was fair under Rule 23(e). The Ninth Circuit admonished the district court for failing to fulfill its “duty to take a close look at whether common questions predominate over individual ones and ensure that individual questions do not overwhelm questions common to the class.” Id. at 27. Specifically, the court held that “[b]ecause the Rule 23(b)(3) inquiry focuses on questions that preexist any settlement, namely, the legal or factual questions that qualify each class member’s case as a genuine controversy, a district court may not relax its rigorous predominance inquiry when it considers certification of a settlement class.” Id. at 32. Thus, the district court abused its discretion by failing to conduct a choice-of-law analysis, and to consider any variations among state laws, before approving the proposed nationwide class settlement.

The court’s ruling also implicates consumer class actions more generally. The Ninth Circuit held that the district court improperly presumed that the reliance prong of a consumer protection claim could be satisfied on a classwide basis, holding that a presumption of reliance is not proper “where there is no evidence that the allegedly false representations were uniformly made to all members of the proposed class.” Id. at 52. The court concluded that the record did not support the assertion that the auto manufacturers made consistent representations to all models of vehicles implicated in the class. Indeed, to calculate the settlement award, the trial court relied on differences in the advertising between certain models of vehicles. Therefore, factual differences between certain owners’ exposure to misrepresentations “translate into significant legal differences regarding the viability of these class members’ claims.” Id. at 55. The Ninth Circuit vacated the certification order and remanded the decision back to the district court.

The court of appeals affirmed the principle that courts have an independent obligation to ensure that the predominance and superiority requirements of Rule 23(b)(3) are satisfied, even where a defendant does not oppose certification, such as at settlement. Accordingly, this decision has been widely touted as a victory for defendants, who often vigorously oppose plaintiffs who seek class certification. For settlement purposes, however, the Ninth Circuit potentially struck a blow to all parties seeking to resolve state law disputes on a classwide basis without the need for protracted litigation.

The court’s decision with respect to whether the reliance prong of a consumer protection claim can be presumed on a classwide basis also carries implications for consumer protection class actions more generally, even those that are not brought on a nationwide basis. Where multiple products are swept into a class action, plaintiffs will have a significant burden of demonstrating uniformity in the misrepresentations made for each of the products. This aspect of the decision certainly provides ammunition to defendants fighting against consumer protection claims, but also presents another substantive issue that will be subjected to the rigorous analysis of Rule 23(b)(3)’s predominance requirement at the settlement stage.