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www. NYLJ.com
Tuesday, february 14, 2012
Volume 247—NO. 29
Expert Analysis
Antitrust Trade and Practice
Class Confusion? Interpreting Rule
23(b)(3) on Certification
T
he changing landscape of class
certification jurisprudence has been
marked by increasingly stringent
standards. Recently, the U.S. Supreme
Court in Wal-Mart Stores Inc. v. Dukes
emphasized that trial courts must conduct a
“rigorous analysis” in evaluating whether the
requirements for class certification are satisfied.1
The Supreme Court noted that the mandated
“rigorous analysis” frequently will overlap with
the merits.
This trend toward stricter certification
standards has been on prominent display in
cases under Rule 23(b)(3) of the Federal Rules
of Civil Procedure. Rule 23(b)(3) provides that
certification is available if “the court finds that the
questions of law or fact common to class members
predominate over any questions affecting only
individual members, and that a class action is
superior to other available methods for fairly and
efficiently adjudicating the controversy.”2
In the past, courts often accepted a presumption
that individual injury or “impact” could be
established by common evidence in antitrust
cases and thus that certification was proper.3
Despite the often cited declaration that “[p]
redominance is a test readily met in certain cases
alleging…violations of the antitrust laws,”4 the
Third Circuit’s seminal decision in In re: Hydrogen
Peroxide Antitrust Litigation set the stage for
courts to impose more demanding standards
on the evidence required before certifying a
class under Rule 23(b)(3).5 Recently, several
courts outside the Third Circuit have imposed
the stricter requirements set forth in Hydrogen
Peroxide, as exemplified by the Southern District
of Florida’s recent decision in In re Florida Cement
NEAL R. STOLL and SHEPARD GOLDFEIN are partners at
Skadden, Arps, Slate, Meagher & Flom. Danielle Moore,
an associate of the firm, assisted with the preparation of
this column.
By
Neal R.
Stoll
And
Shepard
Goldfein
and Concrete Antitrust Litigation.6 The authors’
firm represents one of the defendants in these
actions.
These strict certification standards, however,
raise unique issues in the context of settlement
classes. In Amchem Products Inc. v. Windsor, the
Supreme Court stated that class certification
requirements “demand undiluted, even heightened,
attention in the settlement context.”7 The Third
The strict certification standards
raise unique issues in the context of
settlement classes.
Circuit’s decision in Sullivan v. DB Investments Inc.
reveals how the predominance requirement for
certification under Rule 23(b)(3) may be analyzed
in the context of a settlement class.8 The authors’
firm represents defendant De Beers S.A. in this
matter.
‘Concrete’ Ruling
The Third Circuit’s decision in Hydrogen
Peroxide clarified the standards for class
certification in antitrust litigation. In Hydrogen
Peroxide, plaintiffs alleged that the defendant
chemical manufacturers engaged in a pricefixing conspiracy in violation of Section 1 of the
Sherman Act. Plaintiffs moved to certify a class
of direct purchasers under Rule 23(b)(3). On
the predominance requirement, plaintiffs and
defendants offered opposing testimony from two
expert economists on whether antitrust impact was
capable of proof at trial through evidence common
to the class.
Judge Anthony J. Scirica, writing for the panel,
reversed the district court’s certification order
on the ground that the district court abused
its discretion in applying an improperly lenient
“threshold” standard of proof. Instead, the
Third Circuit held that the district court must
make factual determinations supporting Rule
23 findings by a preponderance of the evidence.
Additionally, recognizing that the Supreme Court
has described the class certification inquiry as
a “rigorous analysis,” the Third Circuit held that
the district court must resolve all factual and
legal disputes relevant to class certification,
even if those disputes overlap with the merits.9
Further, the Third Circuit concluded that the
district court’s obligation to consider all relevant
evidence extended to expert testimony, and that
the court should weigh competitive economic
expert testimony in determining whether impact
can be demonstrated by evidence common to
the class.
Hydrogen Peroxide’s heightened standard was
applied by the district court in Concrete in denying
class certification.10 In Concrete, plaintiffs claimed
that defendants were involved in an unlawful
conspiracy to fix the price of ready-mix concrete in
Florida and sought certification under Rule 23(b)
(3). Plaintiffs and defendants presented opposing
expert testimony on whether a conspiracy to fix
the price of concrete in Florida would have a
common impact on all members of the proposed
class of direct purchasers.
The court, after weighing and comparing the
proffered expert testimony, concluded that impact
could not be shown through common evidence.
While acknowledging that courts often presume
that a price-fixing scheme impacts all purchasers
of the price-fixed product, the court stated that
plaintiffs could not demonstrate common impact
merely by alleging a price-fixing conspiracy. The
Tuesday, february 14, 2012
court found that evidence of price increase
announcements could not establish common
impact because while some concrete purchasers’
prices increased, many concrete purchasers’
prices stayed the same or decreased. Moreover,
the court found that concrete was not a fungible
product because the product varied based on
the specific mix of concrete and the proposed
end-use of the mix. Additionally, because the
concrete markets in Florida were highly localized
plaintiffs could not show the alleged conspiracy
had a common impact statewide.
The court noted that the price of concrete also
was affected by the volume of the purchaser and
the customer/supplier relationship. The court,
therefore, denied class certification holding that
plaintiffs failed to satisfy their burden of showing
that the alleged antitrust impact was susceptible
to common proof at trial.
‘Sullivan’ Ruling
In Sullivan, purchasers of diamonds brought
class actions alleging De Beers had used its
market dominance to wrongfully raise the price
of rough diamonds. The proposed settlement
created a fund of $295 million for direct and
indirect purchasers. Several indirect purchasers
objected to the settlement asserting that a
nationwide class of indirect purchasers could
not be certified for purposes of administering
the monetary settlement because of significant
differences among the various states’ laws, in
particular laws in several states that prohibited
recovery for indirect purchasers.
The district court overruled the objections,
certified the classes of direct and indirect
purchasers, and approved the settlement.
The Third Circuit vacated the district court’s
certification order holding the district court
abused its discretion in finding that common
issues predominated when some states extended
antitrust standing to indirect purchasers while
others did not.11
The Third Circuit granted a motion for rehearing
en banc. Judge Marjorie O. Rendell, writing for
the majority, held that the district court properly
granted certification. In analyzing the predominance
requirement, Judge Rendell identified three
“guideposts” that directed the court’s decision.12
First, the predominance inquiry focuses on
“whether the defendant’s conduct was common
as to all of the class members,” not on whether
each plaintiff has a “colorable” claim. Second,
variations in the rights and remedies available
to injured class members under the various state
laws did not necessarily defeat predominance.
Third, concerns regarding variations in state law
are minimized for a settlement class because
issues of manageability central to certification
of a litigation class are eliminated in the settlement
context.
The Third Circuit concluded that common
issues predominated over individual issues.
The court noted that plaintiffs shared common
questions as to De Beers’ alleged anticompetitive
conduct and whether that activity affected
diamond prices. Specifically, plaintiffs alleged that
De Beers’ control of the rough diamond market
and related anticompetitive activity resulted in
a common injury as to all class members in the
form of inflated diamond prices.
The trend of applying stringent class
certification standards is likely to
continue. The Third Circuit’s opinion in
‘Sullivan’ simply reflects a practical application of these stringent standards in
the context of a settlement class.
Although all proposed class members did not
share common legal claims, the Third Circuit held
this did not bar certification. The Third Circuit
stated that while Hydrogen Peroxide required
an examination of the elements of the claims
to determine whether the elements could be
proven through common evidence, it did not
mandate an inquiry into the merits to prove
each member had a valid claim. Instead, citing
Amchem, the Third Circuit emphasized that when
“confronted with a request for settlement-only
class certification, [a district court] need not
inquire whether the case would present intractable
management problems.”13 The court concluded
that the variations in state law fell within this
manageability exception and did not defeat a
finding of predominance.
Analysis
While at first glance, the decisions in Concrete
and Sullivan may appear to be in conflict, upon
closer review we find no inconsistency in the
rulings. The court in Concrete continued the trend
of applying strict standards for certification by
conducting the required “rigorous analysis,” and
evaluating opposing expert testimony before
determining impact could not be established by
common evidence. Although the Third Circuit
in Sullivan took a more practical approach in
certifying the settlement class, it did not simply
take plaintiffs’ allegations as true and presume
common impact. Instead, the Third Circuit
analyzed plaintiffs’ allegations and found that
the alleged price-fixing conspiracy could be
established by common evidence, regardless
of whether every class member actually had
a viable claim.
A comparison of Concrete and Sullivan does,
however, reflect an effort to balance a rigorous
Rule 23 inquiry with the desire to promote class
action settlements. The majority in Sullivan
recognized that “were we to mandate that a
class include only those alleging ‘colorable’
claims, we would effectively rule out the ability
of a defendant to achieve ‘global peace[,]’…a
valid, and valuable, incentive to class action
settlements.”14 Imposing a “colorable claims”
requirement would run contrary to the strong
presumption in favor of voluntary settlement
agreements. This presumption, the court noted,
is particularly strong in class actions and other
complex cases because it “promote[s] the
amicable resolution of disputes and lighten[s]
the increasing load of litigation faced by the
federal courts.”15
The trend of applying stringent class
certification standards is likely to continue.
The Third Circuit’s opinion in Sullivan simply
reflects a practical application of these stringent
standards in the context of a settlement
class.
•••••••••••••
••••••••••••••••
1. 131 S. Ct. 2541, 2551 (2011) (quoting Gen. Tel. Co. of Sw. v.
Falcon, 457 U.S. 147, 161 (1982)).
2. Fed. R. Civ. P. 23(b)(3).
3. See Michelle M. Burtis and Darwin V. Neher,
“Correlation and Regression Analysis in Antitrust
Class Certification,” 77:2 Antitrust L.J. 495, 500 (2011)
(describing the Bogosian presumption of common impact).
4. Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 625 (1997).
5. 552 F.3d 305 (3d Cir. 2008); see Paul A. Johnson, “The
Economics of Common Impact in Antitrust Class Certification,”
77:2 Antitrust L.J. 533, 533 & n.2 (2011) (citing Hydrogen Peroxide
for the proposition that courts are rejecting the presumption that
class certification is appropriate in antitrust matters and that merits
disputes should be left unresolved); John H. Johnson and Gregory
K. Leonard, “Rigorous Analysis of Class Certification Comes of
Age,” 77:2 Antitrust L.J. 569, 571 (2011) (describing the changed
legal standard for class certification after Hydrogen Peroxide).
6. No. 09-23187, 2012 WL 27668 (S.D. Fla. Jan. 3, 2012); No.
09-23493, 2012 WL 12382 (S.D. Fla. Jan. 3, 2012).
7. 521 U.S. at 620.
8. No. 08-2784 et al., 2011 WL 6367740 (3d Cir. Dec. 20, 2011)
(en banc).
9. Hydrogen Peroxide, 552 F.3d at 316 (quoting Falcon, 457
U.S. at 161).
10. Although the district court refused to certify both a
class of direct and indirect purchasers, for purposes of this
article, we focus on the direct purchaser action, In re Florida
Cement & Concrete Antitrust Lit. (Direct Purchaser Action), 2012
WL 276688.
11. Sullivan v. DB Invs. Inc., 613 F.3d 134, 147-50, 158 (3d
Cir. 2010). In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977),
the Supreme Court decided that only direct purchasers of
a product or service may sue for an antitrust injury. While
some states have elected to follow the Supreme Court’s lead
in Illinois Brick, other states have implemented Illinois Brick
repealer statutes or extended antitrust standing to indirect
purchasers through judicial decisions.
12. Sullivan, 2011 WL 6367740, at *11-17.
13. Id. at *16 (quoting Amchem, 521 U.S. at 620).
14. Id. at *21-22.
15. Id. at *22.
Reprinted with permission from the February 14, 2012 edition of the NEW YORK LAW
JOURNAL © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication
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com. # 070-02-12-15