The question boils down to this: Should consumers who relied upon Toyota Motor Corp.’s guarantees of reliability and safety be allowed to recover damages under relatively permissive California state law — regardless of the state in which they live or purchased Toyota vehicles?

Arguments over that point have grown heated in the multidistrict litigation (MDL) over defects in Toyota’s acceleration systems. If the plaintiffs prevail, Toyota faces potentially huge liabilities under some of the most generous consumer protections in the country. If Toyota prevails, the classes of consumers participating in the MDL would be atomized.

“Their hope is to make this whole thing so unmanageable that the court would never certify a nationwide class or classes in many states,” said Steve Berman, managing partner of Seattle’s Hagens Berman Sobol Shapiro, co-lead counsel on the plaintiffs’ steering committee for the consumer actions.

The argument was the lead issue during a hearing on May 16. U.S. District Judge James Selna, overseeing the MDL in Santa Ana, Calif., called the question one of the “big issues” in the litigation, which includes more than 200 consumer class actions originally filed in various federal jurisdictions in various states.

In a memorandum he issued just before the hearing, Selna tentatively sided with the plaintiffs. But he acknowledged that many questions need to be sorted out before he reaches a final ruling. The next hearing is scheduled for June 10.

Toyota attorney Cari Dawson insisted during an interview that “plaintiffs’ counsel are attempting to use a few hand-picked cases to justify applying California law to the claims in the MDL — claims that consist of approximately 205 separate economic actions.” Dawson is chairwoman of the class action practice at Atlanta’s Alston & Bird and Toyota’s lead counsel in the class actions.

A ‘SERIOUS QUESTION’

The debate over the so-called “choice of law” involves only the class actions seeking economic damages for the lost value consumers allege they suffered after Toyota recalled more than 10 million vehicles because of the defects. The MDL includes an additional 100 personal injury and wrongful death cases. About one-third of the consumer claims originally were filed in California; the others were spread across 40 states and Puerto Rico. Ordinarily, a federal judge would apply a particular state’s law to a class action by analyzing where the case originally was filed, where the plaintiffs and defendants are located and where the injury occurred, but MDLs are more complicated.

On May 13, Selna rejected Toyota’s motion to dismiss the class actions, which have been consolidated in a single complaint, ruling that consumers, who because of Toyota’s quality and safety assurances overpaid for their vehicles, made lease payments that were too high or sold their vehicles at a loss, had established sufficient injuries to proceed.

Selna ordered every state law claim included in the consolidated complaint, which ended up being nearly 900 pages long, sparking the choice-of-law debate. In disputes over jurisdiction, each state uses its own analysis to determine whether its laws take precedence. Selna must decide which state’s choice-of-law analysis to apply to the MDL and which to apply to each claim. His decision will determine the scope of the class in the MDL, particularly if he breaks up the case into smaller subclasses.

“The reason why choice of law becomes important to class certification is that, one way or the other, it affects whether there’s common questions or whether the cases are manageable,” said Richard Marcus, a professor at the University of California Hastings College of the Law. “Not only is it a question of shrinking the size,” he said of the class, “but of multiplying the number of people in the courtroom shouting at the judge.”

In his memorandum, Selna concluded that the plaintiffs had established that applying California law would not violate the due process rights of Toyota or its subsidiary, Toyota Motor Sales USA Inc. The subsidiary is based in Torrance, Calif., and oversees the company’s marketing.

He cited the U.S. Supreme Court’s 1985 ruling Phillips Petroleum Co. v. Shutts, which involved claims brought across the country seeking interest on royalty payments for natural gas extracted from land leased by an Oklahoma company. The court rejected the application of Kansas state law, holding that 97% of the plaintiffs had no connection to that state.

Under the ruling, plaintiffs seeking to apply a particular state’s law to a nationwide class must satisfy specific due process requirements. For instance, there must be no material conflict among the states pertaining to the application of their laws, or a state must have enough of an interest in the claims that the application of its law would not be “arbitrary or unfair,” the justices ruled.

“It’s a serious question. It’s a serious question as a matter of constitutional law because it would be unconstitutional to apply the law of California to someone who has no contacts with California,” said Donald “Trey” Childress, a professor at Pepperdine University School of Law.

“The interesting thing is [that] Supreme Court case law is incredibly opaque about that,” Childress said. “It sets a minimum standard for a state to apply its law to an out-of-state party.”

Perhaps as a result of that opacity, Selna’s memorandum included more questions than conclusions. “The limits on Selna’s flexibility in setting this up are fairly amorphous,” Marcus said. “He’s got a lot of options. And probably dividing it into 50 different classes would be a huge headache and to be avoided at all costs. This is not going to be an easy or snap decision, and it’s a big deal.”

WHY CALIFORNIA?

Berman argued that California’s choice-of-law rules should apply to the MDL for several reasons. “California law is generally in some areas very pro-consumer, and so we felt as class counsel that all consumers in the country would benefit from the application of California law to their claim,” he said. “And then, it made sense for that to happen because Toyota has more connections with California than [with] any other state.”

During the hearing, Selna asked co-lead plaintiffs’ counsel Marc Seltzer why the plaintiffs in other states wouldn’t have a right to their own forums. He questioned how the rights of the plaintiffs outside California would be protected if he proceeded under California law.

Seltzer, a partner in the Los Angeles office of Houston’s Susman Godfrey, replied that those plaintiffs have the right to opt out of the class. “Plaintiffs here are exercising their prerogative to decide who should move forward. There’s no law that says they can’t do that.”

California’s rules differ from most states, Childress said. If someone gets injured in Georgia, for instance, Georgia law should apply. If someone gets injured in Georgia but sues under California law, he continued, California’s choice-of-law rules require an analysis to determine which state’s interests would be most impaired if they weren’t applied.

“We argued California’s interest would be more impaired because it’s a California corporation, a huge amount of conduct was in California and the fraud emanated in larger part from California,” Berman said. Toyota has failed to identify a state whose interest exceeds those of California, he argued.

Dawson said in court that proceeding under Cali­for­nia law would violate Toyota’s right to defend itself. “Toyota has a due process right to assert a defense in these states,” she said. “You’re stripping Toyota of substantive due process rights by allowing plaintiffs to game the system.” In an interview, she said 72% of the class actions in the MDL were filed in states that have rules barring plaintiffs from asserting their claims in California. Furthermore, Toyota would enjoy substantive defenses in many of those other states that it lacks in California.

“The overwhelming vast majority of the vehicles in this litigation have never manifested any type of defects whatsoever, and the law of the vast majority of states is that those claims should be dismissed and plaintiffs can recover nothing because their vehicles function appropriately and have not had any problem,” Dawson said.

In court, Selna asked Dawson how he could test whether the differences between some statutes were material enough to warrant breaking up the class. Dawson showed him a U.S. map with the states color-coded to demonstrate their various choice-of-law rules.

“The U.S. Supreme Court has recognized [that] this patchwork of different rules reflects diverse policy judgments of the lawmakers of the various 50 states — and that no single state, such as California, should impose its policy choice on neighboring states but rather should be constrained by the needs of the other states,” she said. Applying California law to consumers in the MDL “tramples each state’s rights to make their own laws for their own citizens.”

Berman insisted: “That’s not the test. Fairness is not the test. It was her burden to demonstrate some other state’s interest would be more impaired and, in my view, she’s completely failed to do that.”

Amanda Bronstad can be contacted at abronstad@alm.com. She owns a Toyota vehicle that was subject to the recall but is not a party to any litigation.

SUING TOYOTA: A TIME LINE OF LITIGATION AGAINST TOYOTA MOTOR CORP.