Lead Opinion
Dissent by Judge Nguyen
OPINION
This аppeal involves a nationwide class action settlement arising out of misstatements by defendants Hyundai Motor America, Inc. (Hyundai) and its affiliate, Kia Motors America, Inc. (Kia)
,1
“The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Wal-Mart Stores, Inc. v. Dukes,
We review the district court’s decision to certify a class for an abuse of discretion. Parra v. Bashas’, Inc.,
Rule 23 “does not set forth a mere pleading standard.” Comcast,
After carrying its burden of satisfying Rule 23(a)’s prerequisites, the plaintiff must establish that the class meets the prerequisites of at least one of the three types of class actions set forth in Rule 23(b). Fed. R. Civ. P. 23(b); Comcast,
The Rule 23(b)(3) predominance inquiry is “far more demanding” than Rule 23(a)’s commonality requirement. Amchem Prods., Inc. v. Windsor,
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, because “[i]n a multi-state, class action, variations in state law may swamp any common issues and defeat predominance.” Castano v. Am. Tobacco Co.,
In determining whether predominance is defeated by variations in state law, we proceed through several' steps.- See Mazza v. Am. Honda Motor Co.,
We undertook this predominance inquiry in Mazza v. American Honda Motor Co., which is closely analogous to our case. Mazza considered a car manufacturer’s challenge to a district court’s decision to certify a nationwide class of consumers claiming that Honda had misrepresented material information regarding Acura RLs. Honda contended that the district court erred in certifying this class under Rule 23(b)(3), because “California’s consumer protection statutes may not be applied to a nationwide class "with members in 44 jurisdictions,” Mazza,
Mazza addressed this argument by undertaking the following analysis. The plaintiffs first established that defendants had adequate contacts to the forum state, and therefore the court should apply California’s choice of law rules.
Our conclusion that the plaintiffs’ class claims “will require adjudication under the laws of multiple states,” Wash. Mut. Bank,
Because the Rule 23(b)(3) predominance 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,” Amchem,
A court may not justify its decision to certify a settlement class on the ground that the proposed settlement is fair to all putative class members.
II
We now turn to the facts of this case. Under the Clean Air Act, all new vehicles sold-in the United States must be covered by an Environmental Protection Agency (EPA)- certificate of conformity demonstrating compliance with fuel efficiency and greenhouse gas emission standards. See 42 U.S.C. § 7522(a)(1). To obtain such a certificate, a vehicle manufacturer must submit an application to the EPA with information about the fuel efficiency for each model year. Id. § 7525(a)(1). In November 2011, a consumer advocacy group sent a letter to the EPA regarding complaints that Hyundai and Kia had overstated the fuel efficiency of a number of their vehicles and asked the EPA to audit the manufacturers. In response, the EPA initiated an investigation into. .-Hyundai’s and Kia’s fuel efficiency test procedures. About a year later, in November 2012, the EPA investigation confirmed that Hyundai .and Kia used improper test procedures to develop the fuel efficiency information submitted for certain 2011, 2012, and 2013 models.
At the same time as the EPA announced its findings, Hyundai and Kia announced that they'would lower their fuel efficiency estimates for approximately 900,000 Hyundai and Kia vehicles from model years 2011, 2012, and 2013. At the same time, Hyundai and Kia announced the institution of a voluntary Lifetime Reimbursement Program (LRP) to compensate affected vehicle owners and lessees for the additional fuel costs they had incurred and would incur in the future as a result of the overstated fuel efficiency estimates. Under the LRP, anyone who owned or leased an affected Hyundai or Kia vehicle on or before November 2, 2012 was entitled to periodic reimbursements based .on the number of miles driven, the difference between the original and revised fuel efficiency estimate, and the average fuel price in the area where the car was driven, plus an extra 15 percent to account for the inconvenience caused by the overstated fuel efficiency estimates. In order to receive these benefits, class members could enroll in the LRP and then periodically visit a Hyundai or Kia dealership to verify their odometer readings.- Car owners could register for the LRP until December 31, 2013, although the program would continue for those who registered for as long as they owned or leased their vehicles.
After the EPA commenced its investigation, but before announcing its results, a number of plaintiffs filed suit against Hyundai and Kia. In January 2012, plaintiffs filed a putative nationwide class action in state court in Los Angeles County. See Espinosa v. Hyundai Motor Am., No. BC 476445 (Cal. Super. Ct. filed Jan. 6, 2012). The complaint raised- claims under California’s consumer protection laws- and common law, alleging that Hyundai had falsely advertised that its 2011 and 2012 Elantra and Sonata vehicles got 40 miles per gallon (MPG) on the highway, when in fact these vehicles got far lower MPG.-
After Hyundai' removed the Espinosa action to federah court, see No. 2:12-cv-800 (C.D. Cal. filed Jan. 30, 2012), the plaintiffs moved for certification of a nationwide class. In its opposition to ’ class certification, Hyundai argued, among other things, that differences in state consumer protection laws precluded the application of California law to consumers who are not Californians and defeated predominance. Hyundai supported this argument with a thirty-four page “Appendix of Variations in State Laws,” which detailed the numerous differences in the burden of proof; liability, damages, statutes of limitations, and attorneys’ fees awards' under: different state consumer protection laws and common law fraud actions. Hyundai also argued that there were individual questions regarding whether each class member was exposed to or relied' on Hyundai’s advertising, and that these questions prevented class certification.
In November 2012, the district court issued a tentative ruling on the motion for class certification in Espinosa. Plaintiffs sought to.certify two.classes, an Elantra class (including purchasers and lessees of 2011-12 mоde) year Elantras) and a Sonata class (including all purchasers and lessees of 2011-2012 model year Sonatas). The court stated it would likely find that the plaintiffs denionstrated both the Rule 23(a) commonality and Rule 23(b)(3) predominance requirements were met as to statutory, but not common law claims. With respect to the question whether plaintiffs could show individualized reliance on advertising, the court stated that it would likely find that class-wide reliance on the challenged advertising could be presumed due to the “extensive sweep” of Hyundai’s marketing efforts.
Turning to the question whether plaintiffs, could certify a nationwide class, despite the fact that their cornplaint invoked only California law, the district court held it was required to perform a choice of law analysis. The court stated that California had sufficient, contacts to support the,extraterritorial application of California law to all claims, but “just as in Mazza, the three-part choice of law test ... comes out in Defendant’s favor.” In reaching this conclusion, the court relied on three factors. First, Hyundai’s submission of its appendix of variations in state law “unquestionably demonstrates that there are material differences as between the various states’ laws that would ‘make a difference in this litigation.’” (quoting Mazza,
Because California law could not be applied to out-of-state сlass members, the court thought it was obvious that the class could not be certified: “were the laws of the other various states applied to out-of-state purchasers, class certification would be precluded because common questions of law and fact would no longer predominate.” The court held that it would consider certifying a class- of California consumers, defined to include only those California consumers who actually viewed one of the challenged advertisements or marketing materials. On November 29, 2012, the Court held a hearing on the class certification motion pending in Espinosa, but did not- make a final ruling, instead requesting supplemental briefing.
Immediately following Hyundai’s November 2, 2012 announcement of the LRP, and before the Espinosa court could make a final ruling on class certification, plaintiffs across the country filed a flurry of putative class actions alleging that Hyundai and Kia misrepresented the fuel efficiency of their vehicles through advertising and Monroney Stickers.
Plaintiffs in one putative nationwide class action, see Krauth v. Hyundai Motor Am., No. 8:12-cv-01935 (C.D. Cal. filed Nov. 6, 2012), initiated proceedings before the Multidistrict Litigation (MDL) judicial panel pursuant to 28 U.S.C. § 1407, requesting that twelve putative class actions against Hyundai and Kia (including Espinosa, Hunter, and Brady) relating to the marketing and advertising of the fuel efficiency estimates of Hyundai and Kia vehicles be transferred to a single district for coordinated pretrial proceedings. On February 6, 2013, the MDL judicial panel transferred those actions as MDL No. 2424 to the court that was alrеady presiding over the Espinosa action. The MDL judicial panel noted that any other related actions were potential tag-along actions.
One week after the MDL judicial panel issued its transfer order, and approximately three months after the announcement of the EPA investigation and LRP, the district court held a status conference in the Espinosa matter. At that status conference, the Espinosa plaintiffs informed the district court that they (along with the plaintiffs in Hunter and Brady) had reached a settlement with Hyundai for a single nationwide class. Shortly thereafter, the parties informed the court that Kia had agreed to the same settlement terms as Hyundai.
The proposed settlement agreement had the following terms. The parties agreed that the district court should certify a nationwide class of all persons who were current and former owners and lessees of specified Hyundai and Kia vehicles on or before November 2, 2012.
Two other compensation options offered consumers a credit that was nominally larger than the lump sum value of the existing LRP program, but which could be used only for purchasing more services or products from Hyundai or Kia. First, class members could choose to receive a Hyundai or Kia dealer service credit worth 150 percent of the value of the- lump sum payment. The credit expired after two years. Alternatively, class members could choose to receive a new car rebate certificate worth 200 percent of the lump sum payment, which could be used toward the purchase of a new Hyundai or Kia vehicle. The certificate would expire after three years.
Finally, class members who were already participating in the preexisting LRP could choose to forego any of the settlement options and simply remain in the preexisting LRP. The deadline for enrolling in the LRP was extended to July 6, 2015, giving class members who had not enrolled in the LRP by the original December 31, 2013 deadline an additional 18 months to do so. Class members who were current owners or lessees of certain Hyundai vehicles who elected to remain in the LRP could receive an additional $100 for current original owners and $50 for current lessees and fleet owners.
Used car owners were included in the proposed settlement class, but received only half the amounts available to new car owners. The settling parties justified this settlement amount on the ground. that used car owners’ “reliance on the Monro-ney numbers is less clear and potentially individualized” because Monroney stickers are not required for sales of used cars. See 15 U.S.C. §§ 1232-1233.
The proposed settlement provided a process for class members to opt out of the settlement by mailing a request for exclusion. However, upon the district court’s final approval of the settlement agreement, the district court would dismiss “all other lawsuits centralized in the MDL in W'hich the named plaintiffs in such lawsuit(s) did not timely exclude themselves from the settlement.”
In addition to paying the rеquisite amounts for class members, Hyundai and Kia-agreed to pay class counsel reasonable attorneys’ fees. The-amount of attorneys’fees would be negotiated and awarded separately from -the relief provided to class members. •
Following the February 2013 announcement of this proposed settlement, the court ordered discovery in April 2013 to confirm the facts on which the settlement was based and to allow plaintiffs to evaluate the terms of the settlement. Hyundai and Kia produced several hundred thousand pages of- documents and allowed plaintiffs to interview 11 employees.
While this confirmatory discovery was. ongoing, a different group of plaintiffs filed another action- against Hyundai in the Western District of Virginia. See Gentry v. Hyundai Motor Am., No. 3:13-cv-0030 (W.D. Va. filed Oct. 14, 2013). The Gentry plaintiffs asserted claims under Virginia consumer protection, false advertising, and vehicle warranty laws on behalf of a putative class of all persons who had purchased a model year 2011, 2012, or 2013 Hyundai Elantra in Virginia.
In December 2013, after approximately eight months of confirmatory discovery, the Hunter, Brady, and Espinosa plaintiffs moved for class certification and preliminary approval, of the nationwide class settlement. According to these plaintiffs, confirmatory discovery had failed to reveal any evidence that Hyundai and Kia had engaged in deceptive conduct,' knowing concealment, or other--bad acts. In their motion for certification of a settlement class, the settling parties contended that common questions of Tact or law predominated under Rule 23(b)(3) with respect to California causes of action. .
The Gentry plaintiffs opposed class certification and sought ’ remand 'of their' action to the Western District of Virginia. In their memorandum opposing class certification filed May 2014, the Gentry plaintiffs argued that California choice of law rules did not allow certification of the class. The memorandum discussed elements of both the governmental interest test and the contractual choice-of-law provision. First, with respect to their contractual claim, the plaintiffs stated that the Virginia plaintiffs had purchased their vehicles by means of a contract with a Virginia choice of law provision and under California law, “an otherwise enforceable choice-of-law agreement may not be disregarded merely because it may hinder- the prosecution of a multistate or nationwide class action or result in the exclusion of nonresident consumers from a California-based class action.” Wash. Mut. Bank,
In June 2014, the district court circulated a tentative ruling granting the plaintiffs’ motion for certification of the settlement class. The court acknowledged that it “would need to engage in an extensive choice of law analysis” if the case were going to trial. Nevertheless, the court thought such an analysis was not warranted in the settlement context, because notwithstanding the Gentry plaintiffs’ objections to class certification “on the grounds that Virginia law provides a materially different remedy to Virginia consumers” for certain claims, state law variations were less of a concern and could be addressed as part of the final fairness hearing under Rule 23(e). Accordingly, the district court declined to apply California’s choice of law rules to determine whether California law was applicable to the class, or to make any choice of law ruling, and instead held that even if “substantial differences in state law are brought to light at the final fairness hearing, those issues do not prevent the Court from certifying the class for settlement purposes.” The court adhered to this position in its subsequent rulings.
In August 2014, the court granted class certification without ever addressing variations in state law.
In December 2014, counsel for the Espi-nosa, Hunter, and Brady plaintiffs, as well as counsel for plaintiffs in other actions that had been transferred to the district court, filed applications for attorneys’ fees. Through a series of hearings beginning in March 2015, the district court approved $2,700,000 in attorneys’ fees to class co-counsel who represented the plaintiffs in the Hunter and Brady cases, $2,850,000 in attorneys’ fees to class co-counsel who represented the plaintiffs in the Espinosa case, and collectively over $3 million to counsel for other plaintiffs. In calculating attorneys’ fees, the district court began with the lodestar method (multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonable hourly rate). The court then determined that the Hunter and Brady counsel were entitled to a lodestar enhancement in light of the complexity and volume of work and the amount of the settlement, and multiрlied the lodestar amount by a 1.22 multiplier. The district court also determined that the Espinosa counsel was entitled to a lodestar enhancement- due to the risk of filing a lawsuit before the November 2, 2012 EPA announcement, and multiplied the lodestar amount by a 1.5521 multiplier. In total, the district court awarded approximately $9 million in attorneys’ fees and costs.
In March 2015, the Hunter, Brady, and Espinosa plaintiffs, along with Hyundai and Kia, jointly moved for final approval of class settlement. In support of this motion, Hyundai and Kia submitted declarations reporting on response rates of class members. The reports established that approximately 21 percent of class members had filed claims for some $44,000,000 in total value. Of the class members filing claims, more than two-thirds began participating in the LRP before the settlement. Therefore, the portion of the class filing new claims accounted for only a small fraction of the $44 million in total value.
In June 2015, the district court gave its final approval of the class settlement. The court reaffirmed its prior conclusion that the certification of the class for settlement was proper under Rule 23(b)(3) and that the settlement was fair, relying in part on its August 2014 finding that the settlement would provide an estimated $210 million to the class. In rejecting objections that the proposed attorneys’ fees awards were excessive and not in proportion to the benefit conferred on the class, the district court noted that the attorneys’ fees did not impact class recovery because they were awarded separately, and so the issue of collusion did not arise. Further, the court stated that the fees were in most cases less than the amount requested by counsel. Finally, the court dismissed all lawsuits in MDL No. 2424 except for those in which the named plaintiffs had timely excluded themselves from the settlement.
Ill
Objectors now bring 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 оn the class.
A
We first address objectors’ arguments that the district court abused its discretion by failing to conduct a choice of law analysis or rigorously analyze potential differences in state consumer protection laws before certifying a single nationwide settlement class-under Rule 23(b)(3). As explained in Mazza, the district court was required to apply California’s choice of law rules to determine whether California law could apply to all plaintiffs in the nationwide class, or whether the court had to apply the law of each state, and if so, whether variations in state law defeated predominance.
In failing to apply California choice of law rules, the district court committed a legal error. “A federal court sitting in diversity must look to the forum state’s choice of law rules to determine the controlling substantive law.” Id. (quoting Zinser, 253, F.3d at 1187). The district court made a further error by failing to acknowledge, as it had in its tentative ruling, that Hyundai and the Gentry plaintiffs submitted evidence that the laws in various states were materially different than those in California, and that these variations prevented thé court from applying only California law.' Finally, the court erred by failing to make a final ruling as to whether the material variations in state law defeated predominance under Rule 23(b)(3). Because “variations in state law may swamp any common issues and defeat predominance,” Castano,
The district court’s reasoning that the settlement context relieved it of its obligation to undertake a choice of law analysis and to ensure that a class meets all of the prerequisites of Rule 23, is wrong as a matter of law. While the district court was correct that it need not consider litigation management issues in determining whether to certify a class, the Rule 23(b)(3) predominance inquiry focuses on whether common questions outweigh individual questions, an issue that preexists any settlement. Amchem,
If anything, this case highlights the reasons underlying Amchem’s warning that district courts must give “undiluted, even heightened, attention in the settlement context,” Amchem,
Finally, the district court erred in holding that it could avoid considering the potential applicability of the laws of multiple states on the ground that' the proposed settlement was fair. “[A] fairness hearing under Rule 23(e) is no substitute for rigorous adherence to those provisions of the Rule designed to protect absentees[.]” Ortiz,
Because the district court erred in certifying a settlement class, we must vacate the class certification. This does not mean that the court is foreclosed from certifying a class (or subclasses) on remand. We make no ruling on this issue, and merely note that Mazza determined that no such class was possible in a closely analogous case.
B
Even if the district court had restricted the class to California consumers (as the court indicated it would do in its tentative ruling in Espinosa), we would still have to consider the objectors’ argument that the ■ district court abused its discretion-.in certifying, a settlement class under Rule 23(b)(3) that includes used car owners- without analyzing whether these class members were exposed to, and therefore could have relied on Hyundai’s and Kia’s misleading statements. According to the objectors, individual questions of reliance preclude the inclusion of used car owners in this class.
In Mazza, we provided guidance on how a district court should determine whether a court can presume that class members relied on misleading advertising; On the one hand, we explained, “[a]n inference of classwide reliance cannot be made where there is no evidence that the allegedly false representations were uniformly made to all members of the proposed class.” Mazza,
The district court addressed the question whether class members could have relied on Hyundai’s and Kia’s misleading statements in its June 14, 2014 ruling, and concluded that it could presume that all class members relied on the misleading statements because “misrepresentations were uniformly made to all consumers by virtue of Monroney stickers and nationwide advertising.” In reaching this conclusion, the district court failed to reference any evidence in the record regarding the extent of the advertising campaign for the 41 different Hyundai models and 35 different Kia models from 2011 to 2013; nor did it provide any reasoning regarding how this advertising reached the level of the cigarette advertising campaign (extending over 40 years by 11 defendants) discussed in Tobacco II.
The settling parties argue that even if there are individualized questions regarding exposure to the nationwide advertising, these questions do not predominate in the settlement context, where there is no manageability concern. This argument is contrary to Amchem, where the Court held that factual differences among class members, such as the ways that class members were exposed to asbestos and the length of those exposures, translated into significant legal differences, thereby defeating predominance for a settlement class.
In sum, because the record does not support the presumption that used car owners were exposed to and relied on misleading advertising, the district court had an obligation to define the relevant class “in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading.” Mazza,
C
Because a court’s obligations under Rule 23 are heightened in the settlement-class context, Amchem,
IV
Because the district court may yet determine, after a rigorous Rule 23 analysis, that it may certify a settlement class and approve a settlement, we briefly clarify some principles of attorneys’ fee approval for the district court on remand. See, e.g., In re Gen, Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig.,
Here, the district court used the lodestar method to calculate attorneys’ fees, awarding approximately $9 million in attorneys’ fees and costs. However, the court failed to calculate the value of the settlement in order to ensure that the attorneys’ fees were not excessive in proportion to the settlement value. Although the court mentioned that the settling parties had earlier estimated the value of the proposed settlement at $210 million, it did not make a finding regarding the actual value of the settlement based on claims made, and the claims data in the record indicates that the amount of settlement funds claimed by class members was far lower.
A district court must also provide adequate justification for the use of a multiplier, which is appropriate in only “rare” or “exceptional” cases. See Perdue v. Kenny A. ex rel. Winn,
On remand, if the district court properly approves class certification and a settlement, the district court must determine what value was created by the settlement and take a closér look at the reasonableness of the attorneys’ fees in light of the results achieved.
V
We conclude that the district court abused its discretion in certifying a nationwide settlement class without’conducting a rigorous predominance - analysis under Rule 23(b)(3) to determine whether variations in state consumer protection laws, or individual factual questions regarding exposure to the misleading statements, precluded certification.
VACATED AND REMANDED.
Notes
. Rule 23(b) provides, in relevant part:
A class action may be maintained if Rule 23(a) is satisfied and if: ...
(3) the court finds that the questions. of law or fact common to class members predominate over any questions affecting only individual membe.rs, and, that a class action is superior .to other .available methods for fairly and efficiently adjudicating the controversy.. The matters pertinent to these findings include: . '
(A) the class members’ interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability .or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
. The Supreme Court has explained that in order to apply the forum state’s law to out-of-state defendants, the state must have a "significant contact or significant aggregation of contacts” to the claims asserted by each member of the plaintiff class. Phillips Petroleum Co. v. Shutts,
. Under California choice of law rules, there are "two different analyses for selecting which law should be applied in an action”: one considering a contractual choice-of-law provision, and the other requiring an application of the governmental interest test. See Wash. Mut. Bank,
. California takes the same approach in applying a choice-of-law analysis to class claims. Under California law, if the court concludes "that class claims will 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.’ ” Wash. Mut. Bank,
. A court must make such a fairness finding under Rule 23(e) of the Federal, Rules of Civil Procedure, which prohibits a court from approving a settlement unless it concludes that "it is fair, reasonable, and adequate,” Fed. R. Civ. P. 23(e)(2).
. According to the EPA, the improper procedures included selecting results from test rims that were aided by a tailwind, selecting only favorable results from test runs rather than averaging a broader set of results, restricting testing times to periods when the temperature allowed vehicles to coast farther and faster, and preparing vehicle tires to improve the test results.
. In October 2014, Hyundai and Kia entered into a $100 million consent decree with the United States and the California Air Resources Board to settle claims arising from the EPA investigation.
. Specifically, the Espinosa plaintiffs asserted claims for violations of California Unfair Competition Law, Cal, Bus. & Prof. Code §§ 17200-17209; violations of California False Advertising Law, id, §§ 17500-17509; violations of California Consumer Legal Remedies Act, id. §§ 1750-1784; fraud;' negligent misrepresentation; and deceit, id. § 1.710.
. During the period from January 2012, when the Espinosa plaintiffs filed their complaint, until November 2012, the date the EPA announced tiie result of its investigation and Honda annoúnced its LRP program, the Espi-nosa plaintiffs focused their efforts on certifying a class. The plaintiffs otherwise limited their actions to filing two amended complaints (one to join additional class representatives) and responding to Hyundai's motion to dismiss, which was denied by the district court on April 24, 2012. (Hyundai's prior motion to dismiss had been vacated when Espi-nosa filed its amended complaint.) Hunter v. Hyundai Motor America, No, 8:12-CV-01909 (C.D. Cal. filed Nov. 2, 2012); and Brady v. Hyundai Motor America, No. 8:12-cv-1930 (C.D. Cal. filed Nov. 6, 2012) were not filed until after the LRP program -was announced.
. Although the court indicated that the marketing efforts related to “the fuel efficiency of the Elantra and Sonata vehicles,” the campaign identified by the court was limited to the 2011 Elantra. Specifically, the court noted that Hyundai had purchased advertising for the 2011 Elantra during the NFL playoffs, the Super Bowl, and the Academy Awards, placed Elantra ads on Amazon, Facebook, Yahoo, and other internet sites, used print advertising, and placed billboard ads for the 2011 Elantra in Times Square in New York and on certain California freeways.
. A Monroney Sticker is named after Senator A.S. Mike Monroney, sponsor of the Automobile Information Disclosure Act of 1958, ís U.S.C. §§ 1231-1233. The Act requires a car manufacturer to affix a label displaying information about the car’s fuel efficiency to the window of every new vehicle sold in the United States. See 15 U.S.C. §§ 1232-1233; see also 49 U.S.C. § 32908; 49 C.F.R. § 575.401 (2012). Monroney stickers are not requirеd for sales of used cars. See 15 U.S.C. §§ 1232-1233.
.Specifically, the Hunter and Brady plaintiffs asserted claims under California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200-17209; California False Advertising Law, id. §§ 17500-17509; California Consumer Legal Remedies Act, id. §§ 1750-1784; for fraud; for negligent misrepresentation; for unjust enrichment; and for breach of express warranty, Cal. Com. Code § 2313.
. See Rule 1.1(h), Rules of Procedure of the United States Judicial Panel on Multidistrict Litigation (" ‘Tag-along action’ refers to a civil action pending in a district court which involves common questions of fact with either (1) actions on a pending motion to transfer to create an MDL or (2) actions previously transferred to an existing MDL, and which the Panel would consider transferring under Section 1407.”).
. The settlement agreement covered 41 different Hyundai models and 35 different Kia models from 2011 to 2013.
. For lessees, the lump sum payment was based on a 2,75-year term.
. In January 2014, the settling parties filed an addendum to the proposed settlement that extended the additional $100 offer to former owners of these Hyundai models. In May 2014, tlie settling parties filed a second addendum to the settlement agreement allowing class members to submit claims through the settlement website and requiring defendants to follow certain procedures for distributing class members' payments.
. The Gentry plaintiffs alleged violations of the Virginia Motor Vehicle Warranty Enforcement Act, Va. Code Ann. §§ 59.1-207.9 to 207.16:1, the Virginia Consumer Protection Act, id. § 59.1-200(14), .and, Virginia’s false advertising statute, id. § 18.2-216.
. The Gentry plaintiffs argued that the Virginia Consumer Protection Act provides for a minimum of $500 in statutory damages for individuals who suffer damage as a result of a violation of the act, see Va. Code Ann. § 59.1-204(A), while California’s Consumer Legal Remedies Act sets no statutory minimum damages for individuals who suffer violations of the act, see Cal. Civ. Code § 1780(a). This statutory minimum of $500 is superior to the average maximum lump sum benefit of $353 that Hyundai class members are entitled to under the settlement. In addition, under the Virginia Consumer Protection Act, the trier of fact can award treble damages within its discretion if it finds that the violation was "willful,” see Va. Code Ann. § 59.1-204; Holmes v. LG Marion Corp.,
.The dissent contends that we should disregard the Gentry plaintiffs’ argument regarding California choice of law rules because they alternatively argue on appeal that the failure to include a Virginia subclass would violate their due process rights. See Dissent at 710, n.3. This claim is based on the Gentry plaintiffs’ interpretation of a Virginia Supreme Court case as holding that the commencement of a class action in California that does not include a Virginia cause of action will not toll the statute of limitations in Virginia, and thus they would be time-barred from bringing their Virginia-specific claims. Recognizing this interpretation is in dispute, the Gentry plaintiffs alternatively urged us to certify this question to the Virginia Supreme Court. Because the Gentry plaintiffs raised their choice-of-law argument to the district court, we do not place any significance on the fact that they later also raised an alternative argument.
. In addition to the Gentry plaintiffs, the objectors included the named plaintiffs in two other actions transferred to the district court as part of MDL No. 2424, Krauth and Wilson v. Kia Motors America, Inc., No. 13-CV-1069 (D.N.J. filed Jan. 24, 2013), These plaintiffs are not objectors in this appeal.
. The class was defined as: ”[a]ll current and former owners and lessees of a Class Vehicle (i) who were the owner or lessee, on or before November 2, 2012, of such Class Vehicle that was registered in the District of Columbia or one of the fifty (50) states of the United States,” with several small exceptions.
. The dissent argues that we fail to apply the correct standard of review. See Dissent at 714-15. In making this argument, the dissent echoes the dissenting justices in Amchem, which likewise argued that the majority had erred in failing to give sufficient deference to the district court. Amchem,
. California courts have likewise read Tоbacco II narrowly, and have rejected the argument that class-wide reliance can be presumed "whenever there is a showing that a misrepresentation was material." Tucker v. Pacific Bell Mobile Services,
. The district court's statement in its November 2012 ruling that class-wide reliance on the challenged advertising could be presumed due to the "extensive sweep” of Hyundai’s marketing efforts focused solely on the 2011 Elantra model; the Sonata model is merely mentioned in an aside. The court did not address either the 35 other Hyundai models or any Kia models. This is not surprising, given that the district court relied on a declaration that focused almost exclusively on the 2011 Elantras, with only limited mention made of the 2011 Sonata models or any 2012 models. Moreover, because the advertising was limited in time (under a year) and scope, it does not come close to the pervasive campaign (extending over 40 years by 11 separate companies) described in Tobacco II,
, Although the settling parties filed expert •reports, the district court did not discuss or address them in any way. An examination of. the reports, would have likely led the district court to probe some of expert’s questionable assumptions, such as the assumption that car owners who entered the LRP program before the settlement would own their cars for a shorter period of time than car owners who entered the LRP program after the settlement, and the assumption that all of the class members who entered the LRP program after the settlement would not have done so of their own accord regardless of the settlement. •
. The dissent contends that "we have rejected objectors' arguments that a federal investigation merits a reduction in class counsel’s fees,” citing Vizcaino v. Microsoft Corp.,
. We also disagree with the district court’s conclusion that “the issue of collusion is not present in the attomey[s’] fees context” because “the attomey[s’] fees were awarded separately from the class recovery and did not impact class recovery.” The district court’s responsibility to conduct an independent inquiry into the reasonableness of- attorneys' fees is of equal, if not greater, importance when attorneys’ fees are awarded separately from the class award. See Bluetooth Headset Prods. Liab. Litig.,
. In light of our decision that the district court abused its discretion in certifying a settlement class under Rule 23(b)(3) without conducting a choice of-law analysis and considering differences in state consumer protection laws, we do not reach the objection raised by James Feinman, counsel for the Gentry plaintiffs, that the district court abused its discretion in not awarding him attorneys’ fees.
.Objectors raised a number of additional arguments, including claims that: the district court abused its discretion in certifying the ■ settlement class because named plaintiffs did not adequately represent the interests of the class, as required under Rule 23(a)(4); the district court’s failure to conduct a choice of law analysis viоlated absent class members’ due process rights; the district court's failure to certify a Virginia subclass violated class members’ due process rights; and the settlement was not fair and adequate under Rule 23(e), Because we conclude that the district court abused its discretion in certifying the class under Rule 23(b)(3), we do not consider these arguments. See Wang,
Dissenting Opinion
dissenting:
“Economic reality dictates” that this consumer lawsuit “proceed as a class action or not at all.”’ Eisen v. Carlisle & Jacquelin,
The majority also deals a major blow to multistate class actions. Contrary to our case law and that of our sister circuits, the majority shifts the burden of proving whether foreign law governs class claims from the foreign law proponent—here, the objectors—to the district court or class counsel. This newly invented standard significantly burdens our overloaded district courts, creates a circuit split, and runs afoul of the doctrine established long ago in Ene R.R. v. Tompkins,
I. Rule 23’s predominance inquiry was readily met
Both we and our sister circuits have long held that a nationwide class action cannot be decertified simply because there are “differences between state consumer protection laws.” Hanlon v. Chrysler Corp.,
Here, the district court concluded that the following undisputed common questions predominated over individualized issues: “[w]hether the fuel economy statements were in fact accurate” and “whether defendants knew that their fuel economy statements were false or misleading.” The district court also found that the class claims were subject to common proof because the fuel economy statements were “uniformly” made by Defendants via “Monroney stickers and nationwide advertising.” These types of common issues, which turn on a common course of conduct by the defendant, establish predominance in nationwide class actions. Hanlon,
II. Neither the district court nor class counsel had a duty to raise arguments on objectors’ behalf, nor can a class action be decertified for failure to do so
The majority’s first misstep in the predominance analysis is a subtle, but disposi-tive, departure from our nationwide class action jurisprudence. In violation of controlling. choice-of-law rules, the majority places the burden on the district court or class counsel to extensively canvass every state’s laws and determine that none other than California’s apply. Opinion at 691, 703. This is wrong for three reasons. First, because the objectors here bore the burden and failed to meet it, the class claims are controlled by California law. Second, the majority’s reassignment of the burden cannot be justified under Rule 23, which is silent on choice-of-law issues and requires class counsel to prove predominance, but not a negative. Nor can the majority rely on the combination of Rule 23 and CAFA diversity jurisdiction to. flip the burden. Doing so violates the Erie, doctrine, which requires a California federal court sitting in diversity jurisdiction to apply California’s choice-of-law rules, even where a federal rule is involved. Third, the majority’s heavy reliance on Amchem is misplaced because that case did not address choice-of-law issues and involved conflicts between potential claimants that are not present here.
A. The objectors failed to meet their choice-of-law burden
As the majority acknowledges, California’s choice-of-law rules control the outcome of this case. Opinion at 691-92, 702. Under these rules, California law applies “unless a party litigant timely invokes the law of a foreign state,” in which case it is “the foreign law proponent” who must “shoulder the burden of demonstrating that foreign law, rather than California law, should apply to class claims.” Wash. Mut. Bank, FA v. Superior Court,
To meet their burden, the objectors must satisfy the three-step governmental interest test. Wash. Mut.,
The majority faults the district court for not sua sponte surveying all 50 states’ laws to prove that none other than California’s should apply. But, to the extent anyone was obliged to analyze the laws of other states, that burden fell squarely on the objectors—and they failed to meet it. No objector even mentioned, much less conducted; the correct choice-of-law analysis. Nor did any objector explain how, under the facts of this case, they satisfied the governmental interest test’s three elements. “Where, as here, parties do hot address choice-of-law issues, California courts presumptively apply California law.” Johnson v. Lucent Techs. Inc.,
The majority acknowledges, as it must, that the objectors carry the burden. Opinion at 692. But it does not acknowledge that the' objectors entirely failed to do so here. Instead, the majority implies that a
few sentences in the objectors’ opposition to class' certification constitute a developed choice of - law analysis, Opinion at 699-700. But in that opposition, the Gen■try objectors clearly argue that California contractual choice of law provisions should govern, citing explicitly to three contracts entered into by their named class representatives. “California has two different analyses for selecting which law should be aрplied in an action”: the contractual choice-of-law provisions analysis from Nedlloyd Lines B.V. v. Super. Ct,
Our precedent recognizes that-when, as here, the foreign law proponent fails- to meet its burden, neither the district court nor class counsel is obligated to address choice-of-law issues, nor will a class action be decertified for lack of such analysis. In Harmsen v. Smith, for example, we rejected the argument that California law could not.be applied to a class -which'included non-Californians, even though the district court conducted no choice-of-law analysis.
This case is even more straightforward than Harmsen,. as the objectors here did not advance any argument under the governmental interest test, and therefore we must “apply California law.” Johnson,
We have never held, in Mazza or any other case,.that a class cannot be certified Unless a district court sua sponte raises and refutes arguments on the objectors’ behalf in support of foreign law. Rather, we have made clear that, if the “parties do not address choice-of-law issues, California courts presumptively apply California law.” Johnson,
B. Under the Erie doctrine, CAFA and Rule 23 cannot reassign the foreign law proponent’s burden because it is substantive state law
The majority’s reassignrhent of the burden under California’s choice-of-láw rules also violates the Erie doctrine. A federal court sitting in diversity jurisdiction must “apрly the substantive law of the state in which it sits, including choice-of-law rules”—even where a federal rule or statute is involved. Harmsen,
Because California’s choice-of-law rules are substantive state law for which the California Supreme Court is the final arbiter, the majority is not free to disregard them. Harmsen,
■ By flouting the applicable choice-of-law rules, the majority denies relief that the class would have obtained in state court.
Nor can the majority rely on the general principle that a district court should “protect” the class by conducting a “heightened” or “rigorous” analysis of whether class counsel has satisfied certain Rule 23 prerequisites. Opinion at 693, 702-03, 704-06. Rule 23 says nothing about how choice-of-law issues should be resolved, nor does it require class counsel or the district court to make choice-of-law arguments on the objectors’ behalf. We should avoid importing into the class certification process “an additional hurdle” found nowhere in the Rule. Briseno v. ConAgra Foods, Inc.,
Moreover, the majority’s position puts us at odds with the reasoned decisions of other circuits. The prevailing view amongst our sister circuits is that “variations in the rights and remedies available to injured class members under the various laws of the fifty states [do] not defeat commonality and predominance.” Sullivan v. DB Investments, Inc.,
It is best to bypass marginal theories if their presence would spoil the use of an aggregation device that on the whole is favorable to holders of small claims. Instead of requiring the plaintiffs to conduct what may be a snipe hunt, district judges should do what the court did here: Invite objectors to identify an available state-law theory that the representatives should have raised, and that if presented would have either increased the recovery or demonstrated the inappropriateness of class treatment.
Id. This burden allocation makes sense because Rule 23 does not come into play until after a foreign law proponent has proven that the class claims are governed by multiple states’ laws. The majority’s contrary holding sends a district court on exactly the “snipe hunt” that the Seventh Circuit warns against.
The problem created by the majority can easily be avoided simply by adhering to our own precedent, which is on all fours. In Hanlon v. Chrysler Corp., we affirmed certification under Rule 23(b)(3) of a nationwide settlement class оf car owners alleging violations of state consumer laws.
C. The settlement raises no concerns about collusion
The majority implies that the settlement here raises the same concerns about collusion between class and defense counsel that animated Amchem. Opinion at 702-03. But this case is nothing like Amchem, which was the most “sprawling” class the Court had ever seen.
Unsurprisingly, the Court found the class untenable on multiple grounds, including inadequate representation, because' of class members’ conflicting interests. Id. at 627-28,
The consumer class certified here raises none of the concerns identified in Am-chem. As Hanlon explained in distinguishing Amchem, the “heart” of the problem there was the class members’ conflicting interests: current claimants, who were sick, wanted to maximize the immediate payout, whereas healthy claimants had a strong interest in preserving funds in case they became ill in the future." Hanlon,
Nor does Amchem support decertification on the ground urged by the majority, namely, that the district court should have sua sponte catalogued the laws of all 50 state law to identify any variations and competing state, interests. Amchem did not address, much less conduct, a choice-of-law analysis. The fundamental problem in Am-chem was the factual differences between class members that created a conflict between potential claimants. Id. at 1020-21. And that conflict would have existed even if all the state laws,at issue were identical.
Finally, faulting the district court at every turn, the majority fails to adhere to our deferential standard of review. When reviewing an order granting class certification, “we accord the district court noticeably more deference than when we review a denial.” Torres,
III. Used car owners need not offer individualized proof under the reasonablе consumer test, which asks only if the public is likely to be deceived
In excluding used car owners from the class, the majority again focuses on an argument not raised by the objectors and belied by the record. The reliance element of California consumer protection laws “does not require individualized proof’ that each plaintiff was exposed to a specific misrepresentation. Pulaski & Middleman, LLC v. Google, Inc.,
Applying.this standard, we routinely affirm class certification without demanding proof of every class member’s, exposure to the same misrepresentation. In Gutierrez v. Wells Fargo Bank, NA, for example, we upheld .class certification because common issues predominated, as to whether the public was likely to be deceived (and thus reliance could be presumed) by a bank’s “misleading marketing materials.”
Similarly, the district court here did not limit the class to those who saw the Mon-roney stickers on new cars because the fuel economy statements were also “uniformly” made in “nationwide advertising.” The advertising campaign here was even more pervasive than in Gutierrez, with more than $100 million spent on a large number of print magazines, billboards, and TV commercials during the NFL playoffs, the Super Bowl, and the Academy Awards. The objectors do not refute any of this evidence, which in any event requires us to defer to the district court’s factual finding even if another view “is equally or more” plausible. Cooper v. Harris, — U.S. —,
The omissions in the advertising campaign here bear no resemblance to the “smaller-scale” advertisements of “quite disparate information” in Mazza, to which the majority (but not the objectors) analogizes.
Rather than apply clear error review, the majority faults the settling parties for purportedly “not identifying] any evidence in the record of [a] massive advertising campaign.” Opinion at 704. But the settling parties directed us to such evidence, including the TV and print advertising discussed above. And, contrary to the majority’s assertion, the advertisements’ misleading fuel statements were pot limited to only Elantra vehicles. Importantly, the settling parties might well have identified more evidence had the objectors actually made the argument that the majority advances here. The objectors’ failure to do so waived the issue. See W. Radio,
Finally, the majority mistakenly equates the uniform advertising campaign here with the asbestos exposure in Amchem, Opinion at 704-05, which involved different substantive state law. Unlike the products liability claims in Amchem, the consumer claims here do not turn on individualized proof of exposure. See Rubio,
IV. The attorneys’ fees award was not an abuse of discretion
The district court correctly calculated the attorney’s fee award using the lodestar method and then cross-checked that figure against the settlement’s estimated value to make the factual finding that the “total amount of attorney’s fees awarded in this case is far lower than ... 25% of the settlement figure.” The majority does not dispute this methodology, but criticizes the award based on its own miscalculation of the settlement’s value and the mistaken belief that the court failed to address the objectors’ questions. Opinion at 705-07. These are curious grounds for disapproval, as the objectors do not rely on them, instead confirming at oral argument that that their “only disagreement is with the multiplier that was applied to a portion of the fees.” Oral Argument at 17:01- 17:25. In fact, the concerns that the objectors raised were addressed by the district court in several hearings and rounds of supplemental briefing.
The majority states that the court failed to answer the objectors’ questions about whether the Lifetime Reimbursement Program (“LRP”) portion of the settlement “could be attributed to the attorneys’ efforts in this litigation,” implying that the LRP was instead the result of the EPA investigation. Opinion at 706. But these questions were not raised by the objectors and, in any event, are answered by the district court’s finding that the investigation only played a “part” in Defendants’ announcement of the LRP on November 2, 2012. The LRP announcement came only after almost a year of dispositive motions, discovery, depositions, and expert reports, and just three weeks before a class certification hearing. It is therefore more than reasonable to infer, as the district court did, that this litigation pressured Defendants to announce the LRP.
Certainly, the claims here were bolstered by the EPA’s finding that Defendants’ fuel economy representations were inflated. Yet other important elements of the class claims remained unresolved. Where, as here, other “pivotal issue[s]” remain, we have rejected objectors’ arguments that a federal investigation merits a reduction in class counsel’s fees. Vizcaino v. Microsoft Carp.,
Moreover, the record supports the district court’s finding that attorneys’ fees were “far lower” than 25% of the settlement value even if we count only the portion of the settlement that is indisputably attributable to class counsel’s efforts: LRP claims filed after December 31, 2013 (the original LRP enrollment deadline that the settlement extended). As reflected in several expert
•The majority wrongly suggests that all class claims were worth less thаn “$44,-000,000 in total value.” Opinion at 701. The reports from which it plucks that number make clear that the $44 million reflected only lump sum payments for roughly 100,-000 “completed claims” as of March 2015. That number does not.include the $65 million in LRP claims filed after December 2013, nor the almost 42,000 “pending claims” that had not yet been paid, nor any other claims to be submitted in the more than three months before the July 6, 2015, claim deadline. Not only that, the majority’s concerns about how to account for class members who switched from' the LRP to a lump sum payment were addressed in expert reports that calculated the “incremental value” of the lump sum payments. These reports were never challenged below.
The majority also suggests that “this exact arrangement” has been found to be “one of the ‘subtle signs’ of collusion.” Opinion at .707 n.28 (quoting In re Bluetooth Headset Prod. Liab. Litig.,
Given that the objectors’ sole quibble is with the multiplier used by the district court, and reviewing factual findings for clear error, affirmance should be an easy call. The district court’s findings about the “complexity” of the work and the “risk” class counsel assumed by litigating this case are exactly , the kind of findings that justify an upward lodestar adjustment. Hanlon,
* * *
In decertifying this class of hundreds of thousands of car owners who were deceived, the majority effectively ensures that “no one will recover anything.” In re Mego Fin. Corp. Sec. Litig.,
. The majority attempts to soften its decision by noting that its vacatur of the class certification "does not mean that the court is foreclosed from certifying a class (or subclasses) on remand.” Opinion at 703. But this sentiment is undercut by the majority’s acknowledged "grave concerns about the viability of a nationwide class in this [case’s] context.” Opinion at 705.
. The objectors’ burden is not the "modest” burden applicable when an out-of-state defendant invokes its due process right to be free from arbitrarily applied state law, Phillips Petroleum Co. v. Shutts,
. Indeed, the lead plaintiff in the Gentry tag-along action (the. only Gentry objector to appeal) sought to hold hostage any class recovery under the settlement unless she and her ' attorney were certified to'represent a Virginia subclass that, by her own concession, would recover nothing because her claim was "time-barred” under Virginia law. Given that concession, any textual differences between the two states’ statutes are not "material” because they do not "make a difference in this litigation”: they do not result in a greater recovery under Virginia rather than California law. Mazza v. Am. Honda Motor Co., Inc.,
. See, e.g., Rutledge v. Hewlett-Packard Co.,
. These expert reports were filed in appeal No. 15-56014 on March 10, 2016.
. That $65 million figure is the sum of the net present value of LRP claims filed from January through December 2014 with Hyundai ($13,698,496) and Kai ($12,535,120), plus net present value of LRP claims filed after that date with Hyundai ($21,862,156) and Kia ($17,655,276).
. These reports reflect a total settlement value of, conservatively speaking, more than $159 million as of March 2015—three months before the July 6, 2015, claim deadline. That $159 million reflects the sum of the $65 million in LRP claims filed after December 31, 2013, another $50 million in LRP claims filed before that date, and $44 million in lump sum payments. Given' that the settlement totaled $159 million well before the claim deadline, the district court was correct that the claims process was on track to reach an estimated $210 million. Where, as here, a settlement involves "a complicated formula from which valuable considerations of several kinds are provided to the class members,” it is no abuse of discretion to use a settlement’s “estimated value" when calculating fees. Wing v. Asarco Inc.,