Law360, New York (June 02, 2014, 2:11 PM ET) — Dissident class members on Friday attacked a settlement resolving accusations that Hyundai Motor America and Kia Motors America overstated the fuel efficiency of more than 900,000 vehicles, saying the deal’s claims-made structure will unjustly curtail customer payouts.
The objectors filed a 23-page motion urging U.S. District Judge George H. Wu to deny preliminary approval to the agreement, which was memorialized in December, on the basis of five “red flags” indicating the deal will not adequately compensate class members. Rather than requiring claim forms as a condition for payment, the deal should furnish class members with cash directly, according to the motion.
“The proposed settlement fails the ‘fair, adequate and reasonable’ test, especially as it has been applied — with increasing sensitivity — by courts in the Ninth Circuit and elsewhere,” the objectors said. “If approved, it would erode public confidence in a crucial device for redressing corporate wrongdoing.”
As proposed, the pact would shut down dozens of consolidated class actions claiming Hyundai and Kia — U.S. distributors for their Korean parents — touted fuel mileage estimates their vehicles couldn’t achieve in advertisements and on miles-per-gallon stickers.
The torrent of suits came in the wake of the companies’ joint announcement in November 2012 that they would begin restating the mileage estimates for several vehicle models because they had deviated from U.S. Environmental Protection Agency fuel economy testing protocols when producing previous estimates.
Other suits preceded that announcement and alleged that the companies’ estimates were flawed because there were inadequate disclosures in Kia and Hyundai advertising. The automakers blamed the inaccurate numbers on “honest procedural errors” at a lone testing facility, but entered mediation just weeks after the multidistrict litigation was created.
Under the resulting settlement, current owners and lessees would be entitled to a set payment ranging from $140 to $590 for Hyundai vehicles and $50 to $1,420 for Kias in the form of a prepaid debit card, a dealership services credit or a rebate on a newly purchased car. Owners or lessees of four Hyundai models — the Elantra, Sonata Hybrid, Accent and Veloster — would qualify for an additional $50 to $100 payment because the manufacturer ran a major national advertising campaign dubbed “4×40” touting inaccurate estimates for those vehicles’ fuel economies.
The settlement requires class members to fill out a claim form and select one method of compensation, a requirement that drew harsh criticism Friday from the objectors, who characterized it as a thinly veiled guise to minimize payouts. Claim forms are unnecessary because the manufacturers can easily identify class members through contact information on file with dealerships, enabling them to simply send a cash payment for the lump sum “as the default option,” according to the motion.
“Defendants all too often insist on a claims-made settlement as a deliberate strategy to minimize having to pay what they owe the class because they know that many class mmembers will not take the time to complete and submit a claim form,” the objectors said.
“This risk becomes most serious when — as here — the settling parties not only structure the settlement as a claims-made settlement, but they add layer upon layer of complexity and steps to the process that harmed consumers must follow.”
The motion said Hyundai and Kia should not be vested with the responsibility to administer the uncapped settlement, arguing that they have a perverse incentive to discourage class members from participating in the claims process that is “reflected in the severe deficiencies in the notice and claims procedures.”
“Moreover, the proposed settlement permits the defendants to evade any accountability for their conduct in administering the claims process,” the objectors said, noting that Hyundai and Kia will report claims rate data only to class counsel for and not to the nonsettling plaintiffs.
“This conflict of interest cannot be remediated,” the motion added. “It undermines the interests of class members.”
The objectors also sought to overturn provisions of the deal allowing unclaimed and expired settlement proceeds to revert to the manufacturers, noting that such reversionary settlements are viewed with disfavor because they can allow corporate wrongdoers to evade accountability for their misdeeds and hold on to ill-gotten profits.
Rather than revert to Hyundai and Kia, unclaims funds should be distributed on a pro-rata basis to other class members, the motion said.
Judge Wu has set a June 13 deadline for class counsel to defend the settlement and a June 26 hearing on each side’s motions. Hyundai is the U.S. wing of Hyundai Motor Co., which holds a one-third stake in Kia’s parent Kia Motors Corp.
Representatives for the parties were not available Monday for comment.
The obectors are represented by Harvey Rosenfield, Pamela Pressley and Laura Antonini of Consumer Watchdog, Jonathan W. Cuneo and William Anderson of Cuneo Gilbert & Laduca LLP, Steve M. Campora, Robert A. Buccola and Craig C. Sheffer of Dreyer Babich Buccola Wood Campora LLP and Niall P. McCarthy, Anne Marie Murphy and Eric J. Buescher of Cotchett Pitre & McCarthy LLP.
The settlement class is represented by Elaine T. Byszewski, Robert B. Carey and Steve W. Berman of Hagens Berman