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In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation

United States Court of Appeals, Ninth Circuit

July 9, 2018

In re Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation,
Volkswagen, AG; Volkswagen Group of America, Inc.; Audi, AG; Audi of America, LLC; Porsche Cars North America, Inc.; Robert Bosch GMBH; Robert Bosch, LLC, Defendants-Appellees, Jason Hill et al., Plaintiffs-Appellees, Tori Partl; Marcia Weese; Rudolf Sodamin; Greg R. Siewert and Scott Siewert; Ronald Clark Fleshman, Jr.; Derek R. Johnson, Objectors-Appellants,

          Argued and Submitted December 7, 2017 Pasadena, California

          Appeal from the United States District Court for the Northern District of California Charles R. Breyer, Senior District Judge, Presiding D.C. No. 3:15-md-02672-CRB

          James Ben Feinman (argued), James B. Feinman & Associates, Lynchburg, Virginia, for Movant-Appellant Ronald Clark Fleshman, Jr.

          Sharon Nelles (argued), William B. Monahan, and Robert J. Giuffra Jr., Sullivan & Cromwell LLP, New York, New York, for Defendants-Appellants.

          N. Albert Bacharach Jr., N. Albert Bacharach Jr. P.A., Gainesville, Florida, for Objectors-Appellants Greg R. Siewert and Scott Siewert.

          Bryan E. Brody, Brody & Cornwell, St. Louis, Missouri, for Objector-Appellant Tori Partl.

          Brian Thomas Giles, Giles Lenox, Cincinnati, Ohio, for Objector-Appellant Derek R. Johnson.

          Stephen D. Field, Stephen D. Field P.A., Hialeah, Florida, for Objector-Appellant Rudolf Sodamin.

          Caroline V. Tucker, Tucker Pollard, Irvine, California, for Objector-Appellant Marcia Weese.

          Kevin R. Budner, David S. Stellings, and Elizabeth J. Cabraser, Lieff Cabraser Heimann & Bernstein LLP, San Francisco, California; Benjamin L. Bailey, Bailey Glasser LLP, Charleston, West Virginia; Roland K. Tellis, Baron & Budd P.C., Encino, California; W. Daniel "Dee" Miles III, Beasley Allen Law Firm, Montgomery, Alabama; Lesley E. Weaver, Bleichmar Fonti & Auld LLP, Oakland, California; David Boies, Boies Schiller & Flexner LLP, Armonk, New York; J. Gerard Stranch IV, Branstetter Stranch & Jennings PLLC, Nashville, Tennessee; James E. Cecchi, Carella Byrne Cecchi Olstein Brody & Agnello P.C., Roseland, New Jersey; David Seabold Casey Jr., Casey Gerry Schenk Francavilla Blatt & Penfield LLP, San Diego, California; Frank Mario Pitre, Cotchett Pitre & McCarthy LLP, Burlingame, California; Rosemary M. Rivas, Levi & Korsinsky LLP, San Francisco, California; Adam J. Levitt, Dicello Levitt & Casey LLP, Chicago, Illinois; Steve W. Berman, Hagens Berman, Seattle, Washington; Michael D. Hausfeld, Hausfeld, Washington, D.C.; Michael Everett Heygood, Heygood Orr & Pearson, Irving, Texas; Lynn Lincoln Sarko, Keller Rorhback LLP, Seattle, Washington; Joseph F. Rice, Motley Rice LLC, Mount Pleasant, South Carolina; Paul J. Geller, Robbins Geller Rudman & Dowd LLP, Boca Raton, Florida; Roxanna Barton Conlin, Roxanne Conlin & Associates P.C., Des Moines, Iowa; Christopher A. Seeger, Seeger Weiss LLP, New York, New York; Jayne Conroy, Simmons Hanly Conroy LLP, New York, New York; Robin L. Greenwald, Weitz & Luxenberg P.C., New York, New York; Samuel Issacharoff, New York, New York; for Plaintiffs-Appellees.

          Before: A. Wallace Tashima, William A. Fletcher, and Marsha S. Berzon, Circuit Judges.


         Class Action / Settlement

         The panel affirmed the district court's judgments certifying a class, approving a settlement, and denying Tori Patl's motion to opt out of the settlement that was entered by Volkswagen and a class of consumers after Volkswagen admitted that it had installed "defeat devices" in certain 2009-2015 model year 2.0-liter diesel cars.

         The class settlement set aside ten billion dollars to fund a suite of remedies for class members. The settlement was reached before class certification. The objectors raised a variety of challenges.

         The panel held that the district court did not abuse its discretion in certifying the class. The primary objection to the certification concerned whether the interests of "eligible sellers" - class members who owned vehicles with defeat devices when VW's scheme became public, but sold them before the proposed settlement was filed - were adequately represented during settlement negotiations. The panel held that the eligible sellers benefitted from being in the class alongside vehicle owners. The panel further held that there were no signs of an improper conflict of interest that denied absent class members adequate representation.

         The panel held that the district court more than discharged its duty in ensuring that the settlement was fair and adequate to the class, and affirmed the district court's approval of the settlement. The panel considered the objections to the settlement, and concluded that the district court considered the proper factors, asked the correct questions, and did not abuse its discretion in approving the settlement. Except with respect to a reversion provision, the appeals did not directly challenge the substantive fairness of the settlement, and therefore the panel held that it had no reason to comment upon it.

         Under the terms of the settlement, money not paid out from the settlement pool reverted to Volkswagen, and one objector alleged that this "reversion provision" made it impossible to know the true value of the settlement to the class and provided incentive to Volkswagen to discourage participation in the settlement. The panel held that the district court adequately explained why the reversion here raised no specter of collusion. The panel further held that the incentives for class members to participate in the settlement, the complementary inducement for Volkswagen to encourage them to participate, the value of the claims, and the actual trend in class member participation all indicated that the reversion clause did not, in design or in effect, allow VW to recoup a large fraction of the funding pool.

         The panel held that the district court did not abuse its discretion in denying Tori Partl's motion to opt out of the class after the deadline to do so had passed. The panel held that the district court reasonably concluded that Partl had actual notice of the correct procedure to exclude herself from the class, she seemingly misunderstood clear directions, and such a mistake did not constitute excusable neglect or good cause.



         Striving to better, oft we mar what's well.[1]

         Volkswagen duped half a million Americans into buying cars advertised as "clean diesel." They were anything but. As the lawsuits piled up, the car manufacturer hammered out a ten-billion-dollar settlement with a class of consumers, agreeing to fix or buy back the affected vehicles and providing some additional money as well. Following a thorough review, the district court blessed the agreement. Of the half million class members, a handful take issue with the settlement. We consider those appeals.


         I. Litigation and settlement talks

         In September 2015, Volkswagen (or VW) admitted that it had installed "defeat devices" in certain of its 2009-2015 model year 2.0-liter diesel cars. These devices-bits of software in the cars-were at the center of a massive scheme by VW to cheat on U.S. emissions tests. The clever software could detect that a car was undergoing government-mandated testing and activate emissions-control mechanisms. Those mechanisms ensured that the car emitted permissible levels of atmospheric pollutants when the test was in progress. During normal road use, however, the emission-control system was dialed down considerably. As a result, the affected cars usually emitted on the road between 10 and 40 times the permissible level of nitrogen oxide, a gas that reacts with other gases to create ozone and smog. This was no smalltime con: over 475, 000 vehicles in the United States alone contained a defeat device.[2]

         The scheme became public when the Environmental Protection Agency (EPA) sent a "Notice of Violation" to Volkswagen alleging that installation of the defeat devices violated the Clean Air Act, 42 U.S.C. § 7522. The notice mentioned the possibility of a civil enforcement action by the Department of Justice.

         Vehicle owners were not far behind. Within three months, hundreds of lawsuits against VW, most of them class actions, had been filed in or removed to over sixty federal district courts. See In re Volkswagen "Clean Diesel" Mktg., Sales Practices & Prods. Liab. Litig., 148 F.Supp.3d 1367, 1368 (J.P.M.L. Dec. 8, 2015). The complaints alleged a bevy of claims under state and federal law, including-to name just a few-breach of warranty, breach of contract, unjust enrichment, and violation of consumer protection, securities, and racketeering laws.

         The Judicial Panel on Multidistrict Litigation transferred all VW defeat device-related cases to Judge Charles Breyer in the Northern District of California ("district court" or "MDL court") for "coordinated or consolidated pretrial proceedings." Id. at 1370. In short order the district court appointed Elizabeth Cabraser lead counsel for the putative consumer class actions and chair of the Plaintiffs' Steering Committee (PSC) charged with coordinating pretrial work on behalf of the class. Around the same time, the United States' newly filed enforcement action was transferred into the MDL court.[3]

         Settlement talks began early and went quickly. With the aid of a court-appointed settlement master, Robert Mueller, the parties-including the United States and the FTC-had reached agreements in principle by April 2016. Two months later-and just seven months after the cases were consolidated in the MDL court-a trio of proposed settlement agreements were filed by the private plaintiffs' class counsel, the United States, and the FTC.[4]

         II. The settlement agreement

         The proposed class settlement set aside ten billion dollars to fund a suite of remedies for class members. A particular class member's choices depended on whether she owned, leased, or had previously owned, but sold, a vehicle with a defeat device:

1. Owners. Owners had the option to (1) sell the car back to VW at its pre-defeat device value (the "buyback" option) or (2) have the car fixed, provided Volkswagen could develop an EPA-approved emissions modification.[5] In addition, owners would receive "owner restitution." For owners who bought their cars before September 18, 2015 ("eligible owners"), that was a cash payment of at least $5, 100, but possibly more, depending on the value of the vehicle. Owners who acquired their vehicles after that date ("eligible new owners") would receive half the eligible owner restitution described above-a cash payment of at least $2, 550.
2. Lessees. Lessees had the option to (1)terminate their leases without penalty or (2) have the car fixed subject to development of an approved modification. In addition, lessees would receive "lessee restitution," a cash payment of $1, 529 plus 10% of the vehicle's value.
3. Sellers. "Eligible sellers"-those who sold their cars after the defeat device scheme became public but before the filing of the settlement with the court in June 2016-would receive "seller restitution" equal to one-half of full owner restitution (a cash payment of at least $2, 550, but possibly more, depending on the value of the vehicle).[6]

         To receive benefits, a class member submits a claim and supporting documentation; a claims processor verifies the class member's eligibility; and the class member elects a remedy, executes a release, and then obtains the benefit. The last step varies somewhat according to remedy. The deadline for submitting a claim is September 1, 2018.

         The settlement figure of $10.033 billion was calculated to cover the most expensive option-the buyback-for all eligible owners, as well as the remedies selected by all non-owner class members. Any money left over in the funding pool will revert to Volkswagen after the claims period runs.[7]

          III. Settlement approval

         One month after the proposed settlement was filed with it, the district court granted preliminary approval and ordered extensive notice to the class. The following schedule was set:

August 10, 2016

Additional information regarding class counsel's prospective request for attorneys' fees due.

September 16, 2016

Class members' objections to the settlement and requests for exclusion from it (i.e., opt out) due.

October 18, 2016

Final fairness hearing on the settlement.

         Eighteen class members appeared at the fairness hearing to voice concerns about, or objections to, the settlement. By that point-just four months after the first proposed settlement was filed and three months after preliminary approval was granted-over 63% of class members had registered for benefits under the settlement. Of the 490, 000 class members, some 3, 300 had opted out (although the district court noted a trend of those opt outs reversing course and later claiming benefits), and 462 had timely objected to the settlement.

         One week after the fairness hearing, the district court, in a 48-page order, granted final approval of the settlement. The approval order first found that (1) the class met the threshold requirements to be certified under Rules 23(a) and 23(b)(3), and (2) notice to the class was adequate, see Fed. R. Civ. P. 23(c)(2). Next, it determined that the settlement was "fair, reasonable, and adequate," see Fed. R. Civ. P. 23(e)(2), devoting over thirty pages to an analysis of eleven separate factors going to the fairness of the settlement and to the objections of class members. The district court noted that the overwhelming early participation in the settlement and the very low numbers of opt outs and objections signaled the strength of the settlement. Assessing factors derived from In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 946-47 (9th Cir. 2011), the district court found that none of the settlement terms evinced collusion or militated against a finding that the settlement was fair, reasonable, and adequate.

         In her motion for final approval of the settlement, class counsel stated that she would seek no more than $333 million in attorneys' fees and costs.[8] The court's order granting final approval directed her to submit a motion for fees by November 8, 2016, and set a deadline for objections to that motion for six weeks after that.

         Fourteen appeals from the order approving settlement were consolidated with one related appeal. Of those, this opinion addresses six.[9]


         "Especially in the context of a case in which the parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both the propriety of the certification and the fairness of the settlement." Staton v. Boeing Co., 327 F.3d 938, 952 (9th Cir. 2003). The settlement here was reached before class certification, so Staton's dual direction applies.

         The objectors bring a hodgepodge of challenges. One contests the district court's decision to approve certification of the class. Several others dispute the fairness of the settlement itself or the adequacy of the district court's process in approving it. And one appeals the district ...

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