Defending an antitrust class action is like playing a game of financial Russian roulette–you might win, but if you don’t, the results will be ruinous.
Once a class is certified, corporate defendants face the prospect of joint and several liability and potentially crippling treble damages. The risk is so high that most companies, even innocent ones, are forced to settle.
Compounding the problem is the fact that in many circuits, corporate defendants start the class certification phase of an antitrust case at a disadvantage. The standard for getting a class certified is low. Oftentimes merely alleging price fixing and the existence of a class is enough.
But thanks to a pair of recent decisions, antitrust defendants in the 3rd Circuit now have a leg to stand on when trying to defeat class cert. In re Hydrogen Peroxide Antitrust Litigation and In re Plastics Additives Antitrust Litigation give antitrust practitioners throughout the country reason to be optimistic about the future of antitrust law.
“The standard had been if the plaintiff alleged antitrust violations, alleged injury to a class and had an expert with charts and graphs, that was enough to get a class certified,” says Steve Bizar, a shareholder at Buchanan Ingersoll & Rooney. Bizar represented Arkema Inc. in both cases. “This actually requires the plaintiff to make a showing that a class should be certified by a preponderance of the evidence,” he adds.
The most helpful aspect of the Hydrogen Peroxide ruling is that the 3rd Circuit instructs lower courts to hold a full hearing on the merits of the plaintiffs’ petition for class cert. Under the 3rd Circuit’s prior precedent, there was a presumption in favor of class cert, and the court would only look at whether the plaintiff had presented some modicum of credible evidence to suggest a class should be certified. Now, the court will not only hear evidence from both sides, but also will make credibility determinations and weigh the evidence each side presents.
In the Hydrogen Peroxide case, this turned out to be key. The district court that decided to certify a class action accepted the opinion of the plaintiffs’ expert witness that the plaintiffs could show injury to the class members through common proof. It refused to consider the defendants’ evidence, which the defendants said undermined the plaintiffs’ claim. An expert witness for the defense had data showing that during the alleged price fixing, prices were actually going down for some members of the proposed class. The 3rd Circuit said the district court should consider that evidence and resolve the conflict between the two sides’ expert witnesses.
“The court will dig into both experts’ reports and provide an opportunity for cross examination,” explains Joseph Tate, a partner at Dechert. Tate represented FMC Technologies Inc. in the Hydrogen Peroxide case. “This provides a realistic opportunity for defendants to defeat class cert,” he says.
Tate predicts that adding a hearing phase will result in far fewer class action certifications. In most instances, it’s difficult for plaintiffs to show that price fixing had an impact on a class by common proof, he points out. In the past, just alleging that there was a methodology for proving damages to the class was enough to support a class action. Now, plaintiffs will face a higher burden of actually explaining how they propose to do it and showing that their proposed class meets the requirements of Federal Rule of Civil Procedure 23.
Defendants didn’t have to wait long for proof that the Hydrogen Peroxide decision had teeth. Less than a month after that decision, the 3rd Circuit decided In re Plastic Additives, vacating class cert and instructing the district court to conduct the same kind of rigorous analysis of the parties’ evidence it mandated in Hydrogen Peroxide.
Many practitioners are hailing the decisions as breakthroughs that will be influential beyond the confines of the 3rd Circuit.
Some circuit courts were already taking an approach similar to the one the 3rd Circuit announced in Hydrogen Peroxide. The 1st and 2nd Circuits, for example, had already abandoned a presumption in favor of class cert. But the 6th, 7th, 9th and 11th Circuits still take a much more lenient approach. The Hydrogen Peroxide decision may be influential in bringing more of the country’s courts over to the conservative side.
“I have cases pending in Chicago and Dallas where we are dealing with this issue, and both courts have asked about it,” Tate says. “It’s the most clear and well-reasoned decision in this area of law.”
Bizar believes that the decisions will be helpful beyond the realm of antitrust litigation. He points out that Judge Anthony Scirica, who authored the Hydrogen Peroxide decision, is well respected and influential. He predicts that judges who confront class cert battles in other areas of law will be more likely to require an evidentiary hearing.
“I think judges will look to this across statutory schemes where class cert is sought,” Bizar says. “This will apply in RICO, ERISA and Consumer Fraud Act cases.”