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A national class action settlement that’s hit the skids would have provided coupons to purchasers of vehicles for which Hyundai Motor America admitted it misstated the horsepower ratings as well as up to $2 million in fees for the attorneys who negotiated the deal with the automaker. On Aug. 26, Judge Gary Sanderson of the 60th District Court in Beaumont, Texas, vacated an order he signed in March that gave preliminary approval to the proposed settlement that was protested by 29 firms involved in other class actions filed last year after Hyundai publicly admitted that it overstated horsepower ratings on several of its vehicles. Plaintiffs involved in the related class actions intervened in Hermie Bundick v. Hyundai Motor America (HMA) to request that Sanderson vacate the preliminary approval order. Mike Caddell, co-lead counsel for the intervenors, says the settlement was “a bad deal” for Hyundai owners. “It’s a coupon deal for people, most of whom will not use the coupons,” says Caddell, a partner in Houston’s Caddell & Chapman. Christopher Kesler, one of Bundick’s attorneys, disagrees. “We got something that really provided a benefit,” says Kesler, a partner in Kemp & Kesler in Houston. “Now what we’re up against is everybody fighting in [a number of] lawsuits,” Kesler says. The trial and appeal process could take from three to five years, but the settlement would have provided a real benefit to class members much sooner, he says. Kesler contends that the settlement was derailed because plaintiffs’ lawyers involved in the related actions were upset that they weren’t getting paid. “It’s absolutely about fees,” he alleges. Daniel Girard, a California attorney who shared the lead counsel duties with Caddell on behalf of the intervenors, contends the concern was about the fairness of the settlement and whether it was “the product of vigorous arm’s-length negotiations or plaintiffs’ lawyers getting too cozy with the defendants’ lawyers.” Girard, managing partner at San Francisco’s Girard Gibbs & De Bartlomeo, says Bundick is one of 18 class actions filed in eight states after HMA announced on Sept. 9, 2002, that the horsepower ratings on some of its vehicles had been mistakenly reported in the company’s marketing materials. “These errors occurred because Hyundai Motor America did not have an established procedure in place to verify that our preliminary horsepower figures matched the actual horsepower,” the company said in a news release. “It was an innocent mistake,” says Brian Anderson, attorney for Hyundai. Anderson, a partner in O’Melveny & Myers in Washington, D.C., says the misstated horsepower ratings have no effect on the safety, performance or value of the vehicles. He alleges that plaintiffs’ attorneys are trying to “exploit” Hyundai’s announcement. Caddell and Girard allege that Hyundai tried to get the settlement in Bundick through a state district court after trying unsuccessfully to have it approved by a federal court. According to the settlement agreement, Bundick was filed on Oct. 17, 2002, in the state court in Beaumont, and Hyundai removed the case to the U.S. District Court for the Eastern District in Beaumont about a month later. At a Jan. 30 hearing, Anderson told U.S. District Judge Thad Heartfield that Hyundai responded affirmatively when Bundick’s counsel proposed settlement discussions in late November 2002 because the company wanted to put the controversy behind it, a transcript of the hearing shows. Attorneys for Bundick and Hyundai argued for preliminary approval of the settlement at the hearing. But Heartfield remanded the case to the state district court, where Sanderson entered the order certifying the class and giving preliminary approval of the proposed settlement on March 5. Girard says his firm filed Irwin, et al. v. Hyundai — the first of seven now-consolidated California class actions on the misstated horsepower ratings before Bundick was filed. But Girard says he received the first notice of the settlement in Bundick on March 5, when Sanderson entered the preliminary approval order that stayed the other pending cases. “That was the first indication we had that they had entered into a settlement,” he says. In a Dec. 13, 2002, e-mail, which Texas Lawyer obtained from lawyers for the intervenors, Hyundai attorney Anderson provided a list of the other class actions and the lawyers to Kesler, an attorney for the Bundick class. Anderson said in the e-mail that he was providing the list with Kesler’s assurance that Kesler would not contact the plaintiffs or counsel in those cases “without our consent, as doing so prematurely and without careful thought about the nature of such communications would have adverse repercussions for both of us.” Anderson says there is “absolutely nothing unusual, untoward, nefarious or sneaky” about limiting negotiations to the counsel for one class action. He says that at the time the negotiations began with the Bundick class, more than 15 groups of lawyers had filed the same class action in different courts around the country and paying fees to all those lawyers would have been tremendously expensive for Hyundai. “We were not about to convene a convention or an open house of every lawyer in the country who had filed one of these suits,” Anderson says. If a defendant can negotiate a fair compromise with a lawyer in one case, that’s generally what is done, he says. That is the “standard way” to handle settlement negotiations in class actions when there are related causes of action, Kesler says. “There are just too many mouths at the table. All those law firms want to get paid,” he says. Plaintiffs in the other cases intervened in Bundick on March 12 — a week after their attorneys received notice that Sanderson had given preliminary approval to the proposed settlement. The intervenors alleged in a memorandum to Sanderson that Hyundai chose to settle with Bundick because he was willing to negotiate without conducting formal discovery. “In fact, Bundick and his counsel conducted no formal discovery, took no depositions and made no document requests before settling the claims of 1.3 million injured class members for coupons — and a $2 million fee,” the intervenors alleged in the memorandum. Kesler says attorneys for Bundick learned all the basic facts in the case through an informal process, which involved sitting down with Hyundai and its attorneys to discuss the case. In a response to the intervenors’ motion to vacate the preliminary approval order, Bundick argued that his attorneys “expeditiously received the same information it has taken intervenors’ months to discover.” NOTHING OF SUBSTANCE Mitchell Toups, one of the local attorneys representing the intervenors, says Bundick’s attorneys were given some documents. “They were not given anything of real substance,” alleges Toups, managing partner of Weller, Green, Toups & Terrell in Beaumont. The intervenors alleged in their memorandum that of the 895 pages of material that Hyundai provided to Bundick’s attorneys, 803 pages were the company’s advertisements, scripts for commercials, in-house articles and brochures, while another 27 pages were engineering documents in the Korean language. “Setting aside Hyundai’s advertising materials and Korean language documents, Bundick and his counsel reviewed only 65 pages of documents about Hyundai’s misrepresentations of horsepower before agreeing to the coupon settlement,” the intervenors alleged in the memorandum. Toups says the intervenors added Hyundai Motor Corp. of Korea, HMA’s parent company, as a defendant because the settlement would have released it from all claims stemming from the horsepower rating litigation. “It seemed a little strange that they were going to give release to a company not named as a defendant,” Toups says. The intervenors alleged in their memorandum that Hyundai may have intentionally misrepresented its vehicles’ horsepower and that tests conducted by the Southwest Research Institute indicate that the actual rating for some vehicles is below Hyundai’s “corrected” numbers. For example, Hyundai originally advertised its Santa Fe sports utility vehicle with a horsepower rating of 181 at 6,000 rpm and announced a corrected rating of 173 at 6,000 rpm, but SWRI’s tests indicate that the vehicle’s peak horsepower is 162 at 6,000 rpm, according to test results obtained from Toups. “That allegation is incorrect,” Anderson contends. “The objectors either do not understand or are mischaracterizing the various tests.” Toups contends that a vehicle’s horsepower rating is a major selling point, and automakers know it. Hyundai’s slogan in its advertising is: “The horsepower to launch you. America’s best warranty to catch you.” The intervenors also alleged in the memorandum that the coupons offered in the settlement would not provide meaningful relief. Caddell says vehicle owners would have received coupons of up to $500 off new vehicles that they would have had to have used within three years or, in some cases, coupons for oil changes. The coupons could not be sold to a third party for 18 months and if they were sold, they would be worth only half the original value, he says. “That means they’re worthless unless you’re going to buy a new Hyundai within another three years,” Caddell says. Anderson contends the settlement would have provided fair compensation to the purchasers, whose claims aren’t likely to be litigated as class actions. “At the end of the day, these owners are not likely to recover any monetary damages,” Anderson predicts.

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