United States: California Class Action Update

Last Updated: February 19 2018
Article by Steven Boranian

Class actions hold our interest, even though we do not see them all that often anymore in the drug and medical device space. Maybe we are the rubbernecking motorists who can't resist slowing down to gaze at someone else's fender bender. Maybe we are the children at the zoo who rush to the reptile house to gawk at creatures charitably described as unsightly. Or maybe it's because class actions are such odd ducks. Our civil litigation system is conceived around concepts of due process. Yet, a class action defendant can be compelled under threat of state authority to pay money to people who have never proved a claim or an injury, and an absent class member can be bound to the result of a proceeding in which he or she has never appeared. What could possibly go wrong?

We expect many of you are like us, so we have gathered here a trio of significant class action opinions that caught our eye over the last few weeks. All hail from California. All are important for unique reasons. None involves drugs or medical devices, but the opinions are relevant generally to class settlements, expert opinion, and standing to appeal—topics that readily cross over. So, without further delay, here we go.

Nationwide Class Settlements and Choice of Law: In re Hyundai and Kia Fuel Economy Litig., No. 15-56014, 2018 WL 505343 (9th. Cir. Jan. 23, 2018). We will start with the opinion that has received the most attention and is probably the most important—the Ninth Circuit's opinion reversing a nationwide class settlement because the district court did not consider the impact of varying state law. Id. at **12-13. The procedural history for these multiple class actions resulting in a nationwide settlement is long and dizzying. The important point is that the district court certified a settlement class that offered benefits to class members (automobile purchasers allegedly defrauded by representations regarding fuel mileage) and substantial fees to class counsel.

However, in certifying the class, the district court overly relied on a well-worn principle—that the inquiry on whether common issues of law predominate is relaxed with a settlement class. Because the district court was certifying a class for settlement only, it ruled that a choice-of-law analysis was unnecessary. Id. at *11.

That was the district court's mistake. As the Ninth Circuit explained:

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," a district court may not relax its "rigorous" predominance inquiry when it considers certification of a settlement class. To be sure, when "[c]onfronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial." But "other specifications of the Rule—those designed to protect absentees by blocking unwarranted or overbroad class definitions—demand undiluted, even heightened, attention in the settlement context."

Id. at *5 (emphasis added, citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)). The district court's error therefore was threefold. First, it failed to conduct a choice-of-law analysis to determine the controlling substantive law. Id. at *12. Second, the district court failed to acknowledge that laws in various states materially differed from California law. Third, the district court did not consider whether material variations in state law defeated predominance under Rule 23(b)(3).

This is not to say that the district court lacks discretion on remand to certify another nationwide settlement class. We do know, however, that the district court will have to subject any newly proposed nationwide settlement to choice-of-law analysis and will have to decide whether state laws differ and whether any differences defeat the predominance of common legal issues.

Class Certification and Admissibility of Expert Opinions: Apple, Inc. v. Superior Court, No. D072287, 2018 WL 579858 (Cal. Ct. App. Jan. 29, 2018). Our second case held that a trial court can consider only admissible expert opinion evidence submitted in connection with a class certification motion and that California has only one standard for admissibility of expert opinion, Sargon Enterprises, Inc. v. University of So. Cal., 55 Cal. 4th 747 (2012). In other words, Sargon applies at the class certification stage, a point about which we have often wondered, but for which we never had a clear answer.

Until now. We wrote about Sargon here when it came out in 2012. The opinion moved California away from its unique "Kelly/Leahy" test and toward a more Daubert-like standard. In the new California Court of Appeal case, the trial court certified a class of consumers, but expressly refused to apply Sargon to the declarations of the plaintiffs' experts. Id. at *1. You will not be surprised to learn that the experts in question were damages experts who offered the opinions that damages could be calculated on a classwide basis. Id. at **2-5. Over multiple rounds of briefing, the defendant objected to the opinions and urged the trial court to apply Sargon. The plaintiffs resisted.

In the end, the trial court ruled that "[t]he issues [the defendant] raises with respect to the materials Plaintiffs' experts will rely upon in forming their opinions and whether Plaintiffs' experts' analyses rely on accepted methodologies and whether the analyses are correct are issues for trial." Id. at *6. The court therefore certified the class. Id.

In reversing, the California Court of Appeal issued a very straightforward holding:

[T]he court may consider only admissible expert opinion evidence at class certification. The reasons for such a limitation are obvious. A trial court cannot make an informed or reliable determination on the basis of inadmissible expert opinion evidence. And certifying a proposed class based on inadmissible expert opinion evidence would merely lead to its exclusion at trial, imperiling continued certification of the class and wasting the time and resources of the parties and the court.

Id. at *8 (internal citations omitted). The Sargon case involved expert opinion presented at trial, but the Court of Appeal saw "no reason why Sargon should not apply equally in the context of class certification motions." Id. at *9.

Moreover, although the plaintiffs argued that the result would have been the same even if the trial court had applied Sargon, the Court of Appeal disagreed. The experts' opinions were crucial to the trial court's order, and there were significant individual issues for each consumer that the experts attempted to brush over. Id. at *11. The Court of Appeal found that if the trial court had applied Sargon to these opinions, "there is a reasonable chance it would have excluded these declarations and found plaintiffs' showing to be lacking." Id. The Court of Appeal found similar deficiencies with the experts' estimate of the size of the class, making it "difficult to see on the current record how plaintiffs' formula could be found reliable." Id. at *12.

Class Actions and Standing to Appeal: Hernandez v. Restoration Hardware, Inc., No. S233983, 2018 WL 577716 (Cal. Jan. 29, 2018). Our final class action opinion for today is Hernandez v. Restoration Hardware, where the issue was whether an unnamed class member has standing to appeal from a class action judgment under California procedure. The California Supreme Court decided that an unnamed class member does not have standing to appeal without first intervening as a party in the trial court. In Hernandez, the plaintiff sued a retailer for violating credit card laws, and after several years of litigation, the trial court certified a class and held a bench trial resulting in a substantial award. An unnamed class member received notice of the class action, but she neither intervened as a party nor opted out. Instead, her attorney filed a notice of appearance on her behalf. Id. at *1.

The controversy began when class counsel requested a 25 percent fee. Again the absent class member did not formally intervene, but instead appeared through counsel at the fairness hearing and argued mainly procedural points. Id. at *2. The trial court nonetheless granted the fee request, and the unnamed class member appealed. Id. at *3.

In holding that the unnamed class member was not a "party aggrieved" and had no standing to appeal, a unanimous California Supreme Court followed Justice Traynor's 75-year-old decision in Eggert v. Pacific Sales S&L Co., 20 Cal. 2d 199 (1942). The Court's main point was that absent class members have ample opportunity to become parties of record in class actions, either by filing a complaint in intervention or by filing an appealable motion to set aside and vacate a class judgment. Id. at *4. This appellant did neither, making her neither a "party" nor "aggrieved." The Supreme Court also rejected the invitation to follow Rule 23 of the Federal Rules of Civil Procedure, which gives class members who informally object to settlement the right to appeal. Id. at *5. The federal approach does not address California's statutory requirement for appeal, and it cannot be reconciled with the controlling authority, Eggert. As the California Supreme Court concluded,

Following Eggert and requiring intervention does not discourage unnamed class members from filing a meritorious appeal. Rather, it continues a manageable process under a bright-line rule that promotes judicial economy by providing clear notice of a timely intent to challenge the class representative's settlement action. Formal intervention also enables the trial court to review the motion to intervene in a timely manner. . . . By filing an appeal without first intervening in the action however, [the appellant] never became an "aggrieved party" of record to the action as our law requires.

Id. at *7. According to the California Supreme Court, this absent class member made the strategic decision to wait and see if she agreed with the result in the trial court, and that was not sufficient to perfect the right to appeal. Id. The Court also reasoned that the prevailing rule protects against wasteful and meritless objections, recognizes the fiduciary duties of class representatives and their counsel, and respects the doctrine of stare decisis. Id. at **7-8.

There you have it—all you need to know about three important decisions. Someday you might need them.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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