The U.S. Court of Appeals for the Ninth Circuit recently held that it is generally not legal error for a trial court to hold that a settlement class satisfies class action predominance requirements, particularly for a class asserting a unifying federal claim, without first performing a choice-of-law analysis.
A copy of the opinion is available at: Link to Opinion
A class action complaint was filed by consumers against a bank alleging the bank pressured employees to meet unrealistic sales quotas which resulted in a systematic exploitation of the consumers for profit. The consumers sued the bank in a putative class action alleging violations of the Fair Credit Reporting Act (FCRA), the Electronic Fund Transfer Act, California and Arizona statutory law, and common law.
The parties reached a settlement in the trial court that certified a settlement class, and the trial court approved the settlement.
In addressing the objections to the certification and the settlement, the trial court held that "[d]ifferences among state laws do not bar certification of the class here, as Plaintiffs have asserted a claim under a federal statute (the Fair Credit Reporting Act) that is equally applicable in all states."
Some objectors appealed.
On appeal, the objectors argued that the class did not satisfy Rule 23(b)(3)'s predominance requirement because the trial court did not do a choice-of-law analysis. Objectors cited the Ninth Circuit's opinions Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), and the later-reversed three-judge panel's opinion in In re Hyundai & Kia Fuel Economy Litigation, 881 F.3d 679 (9th Cir. 2018), rev'd en banc, 926 F.3d 539 (9th Cir. 2019).
The Ninth Circuit began its analysis by noting Federal Rule of Civil Procedure 23(b)(3) requires "that the questions of law or fact common to class members predominate over any questions affecting only individual members." To determine whether a class satisfies the requirement, a court pragmatically compares the quality and import of common questions to that of individual questions. See Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1045 (2016).
Important in its analysis, a court must determine which questions are likely "to drive the resolution of the litigation." Torres v. Mercer Canyons Inc., 835 F.3d 1125, 1134 (9th Cir. 2016). If a common question will drive the resolution, even if there are important questions affecting only individual members, then the class is "sufficiently cohesive to warrant adjudication by representation." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623–24 (1997).
Also relevant is whether a trial court certifies a class for settlement or for trial. In re Hyundai & Kia Fuel Econ. Litig. (Hyundai II), 926 F.3d 539, 558 (9th Cir. 2019) (en banc). Settlement may "obviate[] the need to litigate individualized issues that would make a trial unmanageable," id., making common questions more important in the relative analysis.
Next, the Ninth Circuit examined it prior rulings starting with Hanlon v. Chrysler Corp., where the Appellate Court affirmed the trial court's certification of a settlement class asserting various consumer protection causes of action without requiring a choice-of-law analysis. 150 F.3d 1011, 1023–24 (9th Cir. 1998), overruled on other grounds by Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). The Ninth Circuit held that a "conclusion as to which state's law applied was not necessary to the predominance determination in [Hanlon] because the law of each state at issue shared common questions that were central to the resolution of the claims and capable of resolution in one fell swoop."
The Ninth Circuit acknowledged it came to the opposite conclusion in Mazza where it held that the trial court abused its discretion by certifying a nationwide class for trial because the trial court erroneously applied California law to the entire class. Mazza, 666 F.3d at 589–90. In Mazza the Court identified material differences in California's governmental-interest test and the other relevant state laws, such as differing scienter and reliance requirements.
The Court stated a distinction between Hanlon and Mazza was that Hanlon affirmed a settlement class's certification whereas Mazza reversed a certification for trial. Together these cases align with the general rule that predominance is easier to satisfy in the settlement context. Hyundai II, 926 F.3d at 558.
Finally, the Ninth Circuit found the three-judge panel's and en banc panel's decisions in Hyundai most illustrative. There, consumers sued an automaker under California consumer-protection law. The trial court at first indicated that it was likely to deny class certification for trial. Hyundai I, 881 F.3d at 696 (citing Mazza, 666 F.3d at 590–92). But later, when asked to certify a class for settlement, the trial court determined that "such an [extensive choice-of-law] analysis," as Mazza required, "was not warranted in the settlement context" and certified the class. Id. at 700.
The Ninth Circuit's three-judge panel relied on Mazza to reverse on appeal and the en banc panel reversed on rehearing. The en banc panel clarified that "[t]he criteria for class certification are applied differently in litigation classes and settlement classes." Hyundai II, 926 F.3d at 556. In the settlement context, a district court assessing predominance "need not inquire whether the case, if tried, would present intractable management problems." Id. at 558. Reaffirming Hanlon, the en banc panel explained that common issues in the matter were the sort of "common course of conduct by [a] defendant" that can establish predominance. Id. at 559.
The Ninth Circuit held in Hyundai that, as a general rule, a trial court does not commit legal error by not conducting a choice-of-law analysis, despite variations in state law, before determining that common issues predominate for a settlement class. Id. at 562–63.
Applying Hyundai to the present matter, the Ninth Circuit held the trial court did not abuse its discretion in foregoing a choice-of-law analysis and certifying the settlement class where common questions predominate, especially where the class was unified by a claim under federal law. Specifically, the FCRA claim was important enough bind the class together and gave the best route to certification and recovery, thus driving the resolution.
Accordingly, the ruling of the trial court was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@MauriceWutscher.com
Admitted to practice law in Illinois
Alabama | California | Florida | Georgia | Illinois | Massachusetts | New Jersey | New York | Ohio | Pennsylvania | Tennessee | Texas | Washington, DC
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates and webinar presentations are available on the internet, in searchable format, at:
Financial Services Law Updates
and
The Consumer Financial Services Blog™
and
and
California Finance Law Developments
