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Questions Swirl About Settlement In Hyundai Fuel Economy Litigation

THE DAILY JOURNAL OF LOS ANGELES

Settlement over MPG claims seen as 'sweetheart deal' by some plaintiffs

As the case inches forward in federal court, battle lines in the fight over fuel economy claims made by automobile manufacturing giants Hyundai Motor Co. and its subsidiaries Hyundai Motor America and Kia Motors America Inc. are shaping up in unusual ways.

The multidistrict class action litigation, which consolidated dozens of fuel economy cases in front of U.S. District Judge George H. Wu in February, has seen fierce infighting between plaintiffs' counsel. One faction is pushing for a settlement that was brokered largely before the first hearing in the case, while another feels an agreement at such an early stage is premature and would jeopardize a better result for the more than 500,000 class members.

Outside observers said the fact that the settlement, advocated by attorneys at
plaintiffs' firms Hagens Berman Sobol Shapiro LLP and the McCune Wright LLP, was announced at the first hearing before Wu, on Feb. 14, raises questions about how it came about and whether it represents the best possible outcome for consumers.

"It could be completely legitimate - why wouldn't they want to settle if the terms are right?" said UC Davis School of Law professor Rex Perschbacher, who focuses on civil procedure, among other things. "But it does raise concerns about why attorneys would want to settle at this stage.

"There's good reason to be wary," he added.

The litigation was initially spawned by consumer complaints that the advertised gas mileage for many Hyundai and Kia automobile models was not being met. Two suits were initially filed, one in federal court in front of Wu, and one in state court in Sacramento. After an Environmental Protection Agency investigation led to an official downgrade of the mileage estimates and a mea culpa from Hyundai, a host of other suits flooded the court system and were ultimately consolidated in the Central District.

Despite Hyundai's voluntary mileage reimbursement program, which it set up in the aftermath of the EPA announcement, the suits moved forward and triggered the preliminary settlement agreement that has created controversy among the plaintiffs' attorneys. But the automaker has stood by the offer.

"Hyundai is pleased to have achieved a settlement in principle in this matter, which we believe once again demonstrates Hyundai's commitment to taking care of our customers," Hyundai representative Sara Jones wrote in a statement. "...We have every confidence that it was a fair process and result for our customers. To date, no party to the proceeding has expressed to the Court any objection to the substance of the confidential settlement term sheet."

Shon Morgan, a partner at Quinn Emanuel Urquhart & Sullivan LLP who represents Hyundai in the case, declined to comment.

Hagens Berman partner Robert B. Carey said while the early settlement might be an issue in a typical class action, Hyundai's position has been such that the move was the correct one.

"Normally [class actions] don't settle this early," Carey said. "But keep in mind
Hyundai wanted to pay class members 100 cents on the dollar. This is not your
ordinary case. Most defendants don't do that."

But ambiguity surrounding the settlement terms and the unusual way the case has played out - while Hagens Berman and the McCune firm have become de facto lead counsel, Wu has not officially appointed them as such - has the non-settling plaintiffs' attorneys on edge.

Consumer Watchdog's Harvey Rosenfeld, who also represents plaintiffs in the case, voiced skepticism about the current push for an agreement at this early stage.

"You have to worry about a sweetheart settlement," he said. "The concern that we have as a nonprofit is that the settlement benefits consumers and not just plaintiffs' attorneys. All too often that's the case."

While both Carey of Hagens Berman and Richard D. McCune of McCune Wright
acknowledged the settlement was not fully worked out, they said negotiations were ongoing and were pleased with Hyundai's candor.

"We're very confident about what we know and with the documents provided," Carey said. "There's not a lot from that we need it figure out what the damages are."

The lone filing with the court so far representing the settlement is sparse. The two-page, bullet-point document lists in very general terms what some of the considerations were and indicates options for the class members.

At a hearing Thursday, Wu made it clear that while settling the case quickly was
preferable, he would make sure the non-settling plaintiffs would be given  enough time and access to information to get them on board with the agreement.

"The courts have to exercise much greater scrutiny [in class actions], and I think
that's what Judge Wu is doing here," Harvey added.

With key Hyundai and Kia executives scheduled to be interviewed within the next month, some plaintiffs' attorneys expressed worry at the hearing that the discovery they'd received so far was inadequate to properly prepare questions and suss out relevant information from the defendants.

Wu didn't bend to requests to delay the interviews. But he made it clear that if filings showed the discovery wasn't being carried out properly or if further information came to light down the road, he could order more interviews or depositions if it meant getting more plaintiffs on the settlement bandwagon.

"That's the whole point of this exercise," he said.

henry_meier@dailyjournal.com