Class Action Jurisprudence

The Impact of Disparate State Laws on Class Certification for Settlement Purposes: Ninth Circuit to Review Hyundai and Kia Fuel Economy Decision en BancThe Ninth Circuit has agreed to review a panel decision from the court which rejected a settlement in multidistrict litigation over the fuel efficiency of Hyundai Motor America Inc. and Kia Motors Corp. vehicles. The case and rehearing raise the issue of what weight, if any, is given to disparate state laws when reviewing proposed settlement agreements in a multidistrict case and to what extent courts and class counsel bear the burden of addressing that issue.

The Hyundai and Kia fuel economy litigation was assigned to the U.S. District Court for the Central District of California in 2013. The case involved 12 class actions pending in five federal districts, all involving the marketing, sale and advertising of the mileage estimates for certain Hyundai Motor America  and Kia Motors Corp. vehicles. In all, 56 actions were consolidated into the multidistrict litigation.

An earlier ruling had previously indicated the case was not appropriate for certification because of variances in state laws. Despite this earlier concern, a class was then certified for settlement purposes consisting of current and former owners of specified Hyundai and Kia vehicles registered in the United States. Subsequently, the district court granted final approval of a settlement and dismissed the case.

On appeal, objectors brought five consolidated appeals raising challenges to class certification, approval of the settlement as fair and adequate, and approval of attorneys’ fees as reasonable in proportion to the benefit conferred on the class. A panel of the Ninth Circuit vacated the district court’s order granting class certification in the nationwide class action settlement.

With respect to choice of law issues, the panel held that the district court abused its discretion in concluding that common questions predominated, and in certifying the settlement class under Fed. R. Civ. P. 23(b)(3). The panel noted that Rule 23(b)(3)’s predominance inquiry was far more demanding than Rule 23(a)’s commonality requirement. The panel further noted that where plaintiffs bring a nationwide class action under CAFA and invoke Rule 23(b)(3), a court must consider the impact of potentially varying state laws. Finally, in determining whether predominance was defeated by variations in state law, the panel proceeded through a framework outlined by previous opinions of the Ninth Circuit.

The panel majority quoted from Castano v. Am. Tobacco Co. and stated that, “a court must consider the impact of potentially varying state laws, because ‘[i]n a multi-state class action, variations in state law may swamp any common issues and defeat predominance.’” The panel also relied on Mazza v. Am. Honda Motor Co, under which a judge reviewing a proposed settlement should determine whether predominance is defeated by variations in state law. According to the panel decision, under the predominance inquiry “the class action proponent must establish that the forum state’s substantive law may be constitutionally applied to the claims of a nationwide class.” Once demonstrated, the court applies the forum state’s choice of law rules to determine whether the forum state’s law or the law of multiple states apply to the claims. There is no issue if the result is the application of only one state’s laws to the entire class, but, if class claims require adjudication under the laws of multiple states, then the court must determine whether common questions will predominate over individual issues and whether litigation of a nationwide class may be managed fairly and efficiently.

Applying the predominance inquiry to the case at hand, the panel first determined that California choice of law provisions could permissibly be applied and that this required the district court to apply the California governmental interest test. The court stated that it was undisputed that the district court did not conduct a choice of law analysis, and did not apply California law or the law of any particular state in deciding to certify the class for settlement.  The panel further opined that “factors such as whether the named plaintiffs were in favor of the settlement or whether other class members had an opportunity to opt out are irrelevant to the determination whether a class can be certified.” The court also reasoned that the error in the certification arose because of “the mistaken assumption that the standard for certification was lessened in the settlement context.”

In dissent, Judge Nguyen wrote that, contrary to Ninth Circuit case law and that of other circuits, the majority shifted the burden of proving whether foreign law governed from the foreign law proponent – here, the objectors – to the district court or class counsel, thereby creating a circuit split and violating the doctrine of Erie R.R. v. Tompkins.  Judge Nguyen opined that “[f]ar from imposing geographic limitations, the predominance inquiry under Rule 23(b)(3) simply tests whether questions common to the class are more prevalent or important than individual ones.” She reasoned that the district court permissibly determined that issues regarding fuel economy statements predominated other matters and warranted certification. Judge Nguyen also reasoned it was wrong to require the district court or class counsel to extensively canvass every state’s laws and determine that none other than California’s apply when the issue was not adequately raised by objectors. Judge Nguyen concluded by stating that under the majority’s framework, “no one will recover anything.”

The opinion has already begun to affect other settlements. Given the panel’s admonishments, district court judges have become more cautious in granting approval for settlement agreements, faced with the task of surveying state laws nationwide prior to doing so.  For example, in the U.S. District Court for the Northern District of California, Tesla’s settlement over allegedly faulty Autopilot and safety features is conditioned upon a state law analysis to be completed prior to the court considering final approval (Sheikh et al. v. Tesla Inc.). In another California case, Uber’s settlement concerning “safe ride fees” and employee screening has been paused until the Ninth Circuit’s en banc decision is rendered  (Byron McKnight et al. v. Uber Technologies Inc. et al.). Likewise, a settlement involving ADT security devices has been paused pending the Ninth Circuit’s en banc review (Edenborough v. ADT LLC).

Although certification was still possible if the case were remanded, both plaintiffs and class action defense attorneys filed briefs requesting the full Ninth Circuit to review the ruling arguing that the panel’s January ruling clashed with precedent, would impede nationwide settlements and class action litigation, and would burden trial courts. Others believe that it is impossible for a court to determine the fairness of a settlement without considering potentially meaningful differences in the chances of success of a claim under the laws of one state as opposed to another. Under this view, assessing the fairness of a settlement to all class members in a nationwide class action based on the weaknesses of the claim under the forum state’s law, without considering whether all class members face similar hurdles, would run roughshod over the rights of absent class members. After granting rehearing en banc, the Ninth Circuit has set oral arguments for the week of September 24 in Pasadena, California.

The Growing Split Over Issue Class Certification as an End Runaround Predominance of Common IssuesLast week the Sixth Circuit took a big step to extend its reputation as one of the most class-friendly circuits in the country. In Martin v. Behr Dayton Thermal Prods. LLC, Judge Jane Stranch, writing for a unanimous panel, concluded that although a toxic tort class action involving the “risk of vapor intrusion” into homes in a single neighborhood as a result of two separate plumes of groundwater contamination could not be certified as a class action in its entirety, some issues in the case still could be certified as “issue classes” under Rule 23(c)(4). The contamination did not affect drinking water, and the vapors were not shown to have invaded every home.

The trial court correctly concluded that certification of the pollution claims failed because individual issues predominated under Rule 23(b)(2), even for a liability only class, because of the individualized issues of injury in fact and causation. But remarkably, the trial court found that seven issues of law and fact could still be certified under Rule 23(c)(4):

Issue 1: Each Defendant’s role in creating the contamination within their respective Plumes, including their historical operations, disposal practices, and chemical usage;

Issue 2: Whether or not it was foreseeable to Chrysler and Aramark that their improper handling and disposal of TCE and/or PCE could cause the Behr-DTP and Aramark Plumes, respectively, and subsequent injuries;

Issue 3: Whether Chrysler, Behr, and/or Aramark engaged in abnormally dangerous activities for which they are strictly liable;

Issue 4: Whether contamination from the Chrysler-Behr Facility underlies the Chrysler-Behr and Chrysler-Behr-Aramark Class Areas;

Issue 5: Whether contamination from the Aramark Facility underlies the Chrysler-Behr-Aramark Class Area;

Issue 6: Whether Chrysler and/or Aramark’s contamination, and all three Defendants’ inaction, caused class members to incur the potential for vapor intrusion; and

Issue 7: Whether Defendants negligently failed to investigate and remediate the contamination at and flowing from their respective Facilities.

More remarkably still, the Sixth Circuit affirmed. Never mind that joinder of all class members was hardly impractical as is required by the numerosity provision of Rule 23(a), since all class members occupied homes in a single neighborhood and it was those homes that were the subject of the action. Never mind that some of these issues, such as issues 1, 4 and 5, facially reveal that they apply, if at all, to only one of the plumes or part of the neighborhood and therefore to only some of the class, and as a result make it fairly certain the others are not truly class-wide issues either. The goal was issue class certification, and issue class certification was the single-minded focus of the Sixth Circuit’s opinion.

This kind of adventuresome application of 23(c)(4) is the subject of a festering three-way circuit split. The Fifth Circuit in the famous case of Castano v. American Tobacco said that a “district court cannot manufacture predominance through nimble use of subdivision (c)(4),” and that common issues may be severed for class trial on common issues only if the entire cause of action is first certifiable under some provision of Rule 23(b), which for damages class actions generally means Rule 23(b)(3), inclusive of its predominance requirement. This view, supported by the Eleventh Circuit, fits nicely within the structure of Rule 23. Rule 23 states that a class action may be certified “only if” Rule 23(a)’s requirements of commonality of proof, numerosity and impracticability of joiner of class members, adequacy of representation, and typicality of claims are all met, “and” the proposed class claims then meet one of the three requirements of Rule 23(b), which, again, for damages class actions requires a showing that common issues predominate over individual ones. Rule 23(c), which talks about collateral and housekeeping matters such as the need for the judgement to identify class members and the need for notice and opt out in 23(b)(3) class actions, also goes on to say in 23(c)(4) that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.” But 23(c)(4) creates no new, alternative, or independent criteria for determining whether class certification can be granted. Those criteria are found exclusively in 23(a) and (b). Nothing in 23(c)(4) discusses any exception to the predominance requirement for damage causes of action.  The official commentary to 23(c)(4) likewise dovetails with this view, giving as its lone example the certification of a damages class action for purposes of determination of liability only, while leaving damages to individual litigation.

Interestingly, both the trial court and the Sixth Circuit agreed that a liability-only class could not be certified in Martin v. Behr precisely because the predominance requirement still applied and defeated class certification even as to the issue of liability. Despite this, they went on to conclude that once you carve liability down further into the discrete issues involved, some of those issues can then be certified because the predominance inquiry is then magically limited to the issue certified. Nowhere in the current language of Rule 23 will you find any textual support for that proposition.

In fact, this extraordinarily class-friendly approach creates a host of other inconsistencies with the language of Rule 23. For example, if injury in fact and causation are too individualized to certify a class for the pollution claim, then exactly whose claims are the plaintiffs’ claims typical of? How do we determine who actually is properly in the class to begin with if we are talking about an issue divorced from a ripe claim? Do ripeness and standing doctrines suddenly disappear too as long as you are certifying less than an entire claim? Is the court manufacturing a way to render an advisory opinion that Article III otherwise bars? If we are talking about issues and not claims, how do we determine if there is a right of opt out? Is there a requirement of notice to the class—mandatory for 23(b)(3) damage classes but not for 23(b)(2) injunctive relief classes?  Under the Sixth Circuit’s approach, a court has to make all this up as it goes along, because Rule 23(c)(4) contains none of the answers. Nor does it solve the problems inherent in having a few discrete factual issues decided by a class jury and everything else decided by different juries in individual follow-on cases, despite the facial prohibition of that in the Reexamination Clause of the Seventh Amendment’s right to jury trial. And how does a decision on issues divorced from claims allow a trial court to enter a judgment as contemplated by Rule 23, much less a final judgment subject to appeal? How would Rule 23(e)’s standards for approval of a class action settlement apply to attempted settlement of such an issue class?

Despite these and other problems, the Second, Fourth, Seventh, and Ninth Circuits have also adopted this “slice the case up until only common issues are left” approach to issue class certification. Two other circuits, the Third and the Eighth, apply a different but still fuzzy and free-ranging superiority-like analysis as a test for issue certification. But there is only one way that purported class adjudication of superficially-common but artificially-excised issues such as these can produce any meaningful degree of “efficiency”– by increasing the pressure on the defendant to settle. The purpose of Rule 23, however, is to provide an efficient alternative to individual litigation for the actual resolution of the overall claim, not to increase the already oppressive pressure on class defendants to settle because of the heavy defense costs and risk of adverse publicity that already come with defending class actions. This use of issue classes effectively means that pressure can be exerted even for otherwise uncertifiable claims simply by divorcing discrete, allegedly common issues from the claims to which they may relate.

It is time for the U.S. Supreme Court to resolve this split. Rule 23(c)(4) as presently worded is too thin a reed to support these kinds of make-it-up-as-you-go semi-certifications. The rule-makers also need to step up to the plate. The very purpose of the rules of civil procedure is to create uniform, easily understood rules that not only read the same way in every court, but are applied the same way in every court. The rule-makers’ oft-repeated approach of letting ambiguities “percolate” among the circuits before attempting to promulgate a clear rule is the exact opposite of what they should be doing. The Rules of Civil Procedure should never be so vague as to force or encourage courts to guess at what was intended, much less to make it up as they go along. At the very least, when a rule is finally promulgated, its text should not leave nearly this much to debate.

A Brief Look at Justice Kennedy’s Rule 23 RecordWhile he often kept us guessing about how he might vote in politically significant cases, retiring Justice Anthony Kennedy was far more predictable on class action issues over the course of his 30-year tenure on the Supreme Court. This post briefly analyzes Justice Kennedy’s voting record in class action-related cases.

In cases involving class certification, Justice Kennedy has consistently voted in favor of more stringent application of Rule 23 requirements. He sided with the majority in AmChem Products, Inc. v. Windsor (1997), a Rehnquist Supreme Court decision holding that all Rule 23(b)(3) requirements except trial manageability must be satisfied for settlement class certification in Rule 23(b)(3) cases. Justice Kennedy also voted with the majority in Wal-Mart Stores, Inc. v. Dukes (2011) and its beefed-up commonality requirement; and again two years later in Comcast Corp. v. Behrend (2013), which required class-wide theories of damages to be logically tethered to the class claims and supported by class-wide proof.

Likewise, Justice Kennedy’s record in cases in which the Federal Arbitration Act (FAA) was invoked to oppose collective redress under class action procedures reveals a justice uniformly defending the FAA.  Justice Kennedy voted with the majority in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp. (2010), ATT&T Mobility v. Concepcion (2011), and American Express Co. v. Italian Colors (2013), all decisions either upholding class action waivers or declining to allow class litigation in arbitration unless the parties expressly allow for the same in their agreement. He likewise sided with the majority in Epic Systems v. Lewis (2018), a 5-4 decision issued this term, holding that the National Labor Relations Board could not, consistent with the FAA, invalidate arbitration provisions and class action waivers in employment agreements. Even Justice Kennedy’s vote as part of the unanimous decision in Oxford Health Plans, LLC v. Sutter (2013), holding that an arbitrator did not exceed his powers in interpreting an arbitration agreement to authorize class-wide arbitration even though the agreement did not expressly address the subject, is (in our view) rightly viewed as less a pro-class action vote and more a pro-arbitration one. The general sentiment of that opinion is that if the parties give the arbitrator the authority to decide the meaning of an arbitration clause, and do not expressly preclude class arbitration in the agreement, the parties have chosen to have the arbitrator be the final word.

Justice Kennedy also sided with the majority in a variety of other cases significant to class action defendants, including:

  • Bristol-Myers Squibb Co. v. Superior Court (2017), holding in a mass action that a district court lacks personal jurisdiction over a defendant with respect to claims by out-of-state mass tort claimants who sustained no injury in the forum state;
  • Spokeo v. Robins (2016), holding that a plaintiff’s allegation of a defendant’s statutory violation without accompanying concrete harm fails to satisfy Article III’s case or controversy requirement;
  • Standard Fire Ins. Co. v. Knowles (2013), a 9-0 decision holding that a class representative cannot stipulate that the class will seek less than $5 million in damages, so as to defeat federal jurisdiction under the Class Action Fairness Act (CAFA); and
  • Clapper v. Amnesty International (2013), a 5-4 decision holding that class plaintiffs have no Article III standing in the absence of injuries that are not concrete, particularized, and actual or imminent.

The justice did, on rare occasions, side with the Supreme Court’s more liberal wing in cases involving class action issues. Perhaps the most notable is Tyson Foods, Inc. v. Bouphakeo (2016), the lone class action-related opinion authored by Justice Kennedy. In Tyson Foods, an FLSA overtime pay class and collective action, the Court declined to adopt a rule prohibiting statistical or “representative” evidence to prove class certification. Justice Kennedy’s opinion held that such evidence’s admissibility depends on its reliability and on whether such evidence would be admissible in an individual action to prove or disprove an element of a plaintiff’s claim. The 7-2 decision noted that the ruling did not deprive (on the facts of the case) the defendant of the ability to litigate individualized defenses, thus hinting that the decision may not have significant applicability apart from specific fact patterns in FLSA cases.

Another example of Justice Kennedy aligning with the more liberal wing of the Court is Campbell-Ewald Co. v. Gomez (2016), a 6-3 decision holding that an unaccepted offer of judgment did not moot the claims of a class action plaintiff. (Campbell-Ewald contrasts with Genesis HealthCare Corp. v. Symczyk (2013), where Justice Kennedy sided with the majority in a 5-4 decision upholding a similar “pick off move” by a collective action defendant.) Justice Kennedy joined the 9-0 Court in Smith v. Bayer Corp. (2011), holding that a denial of class certification by a federal court was not res judicata so as to allow the federal court to enjoin a subsequent class action in state court by putative members of the first class action. It might be observed that any contrary holding would have required a fairly aggressive interpretation of both federal preclusion law and the Anti-Injunction Act. Mississippi ex rel. Hood v. AU Optometrics Corp. (2014), holding that a parens patriae claim by the State of Mississippi did not qualify as a “mass action” for removal purposes, could hardly be viewed as class action-friendly activism given the 9-0 vote, and rather involved an uncomplicated application of the mass action provisions of CAFA.

All in all, in class action-related cases, Justice Kennedy’s voting record does not vary significantly from that of any of the conservative justices on the Rehnquist or Roberts Courts.  Whatever pronouncements or predictions one might wish to make about the jurisprudential leanings of Judge Brett Kavanaugh (recently nominated by President Trump to fill Justice Kennedy’s seat), it would be a challenge for him to be markedly more conservative or more favorable to business than Justice Kennedy has been on Rule 23 issues.