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Almost 40 years ago, the U.S. Supreme Court in Hanover Shoe v. United Shoe Machinery Corp., 392 U.S. 481 (1968), defined antitrust legal injury without regard to actual economic injury. Hanover Shoe thus established the great fiction of antitrust law: Direct purchasers of a monopolized product have a legally cognizable antitrust injury regardless of whether they passed on the higher prices to their customers. The import and the legacy of Hanover Shoe is to preclude the monopolist from defending its unlawful conduct by claiming that the purchaser was not economically harmed. In effect, Hanover Shoe selected the direct purchaser as the victim of legally cognizable antitrust injury and therefore the proper plaintiff to bring the monopolist to justice in the form of treble damages. Although economic damage is irrelevant to a plaintiff’s standing under Hanover Shoe, it may be directly relevant to the question of whether that same plaintiff constitutes a proper class representative. Courts are beginning to address the question of whether the Hanover Shoe fiction of antitrust injury is sufficient to withstand the class action analysis of Fed. R. Civ. P. 23(a)(4). This tension is more than simply a lesson on the best, and worst, venue for an antitrust class action. At its most fundamental level, the tension questions the continued vitality of antitrust class actions. Rule 23′s adequate class representative analysis Under Rule 23(a)(4), a class action, antitrust or otherwise, requires an adequate class representative so as to “uncover conflicts of interest between named parties and the class they seek to represent.” Amchem Prods. v. Windsor, 521 U.S. 591, 625-26 (1997). In order to qualify as adequate, the class representative must “possess the same interest and suffer the same injury” as the class members. Id. Class action law has traditionally denied certification to classes that included both members who benefited from the accused conduct and members who were harmed by it. See, e.g., Pickett v. Iowa Beef Processors, 209 F.3d 1276 (11th Cir. 2000). The adequacy requirement of Rule 23(a)(4) thus challenges the legal fiction of antitrust injury in Hanover Shoe. The question now is: Can a purchaser that economically benefited from the monopolistic behavior participate as class member alongside other purchasers that suffered a net economic loss as a result of that behavior? The 11th U.S. Circuit Court of Appeals is the only circuit court thus far to address the tension directly. In In re Terazosin Hydrochloride Antitrust Litig., 350 F.3d 1181 (11th Cir. 2003), the 11th Circuit concluded that the class action requirements trump the legal fiction created by Hanover Shoe. In Terazosin, two direct purchasers sought to certify an antitrust class action against drug manufacturers. The 11th Circuit reversed the trial court’s certification of the class because some members “appear to benefit from the effects of the conduct alleged to be wrongful by the named plaintiffs because their net economic situation is better off when branded drugs dominate the market.” Id. at 1192. That is, the proposed class contained absent members who benefitted economically from the monopoly. “Class certification . . . would [thus] be inappropriate.” Id. The 11th Circuit held that Hanover Shoe “is a distinctly separate question from the issue of whether class certification is appropriate where a fundamental conflict exists among the named and unnamed members of a class.” Id. at 1192. The class action analysis of the 11th Circuit was expressly and utterly unaffected by Hanover Shoe: “Accordingly, in the absence of direction from the Supreme Court on this issue, we will not interpret the ‘fundamental conflict/antagonistic interests’ prong of the Rule 23(a)(4) inquiry in this case any differently than we would apply it in all other contexts.” Id. at 1193. Therefore, the 11th Circuit found, at least for the purpose of Rule 23(a)(4), that antitrust injury was different from actual injury. While the question of whether Hanover Shoe affects the analysis under Rule 23(a)(4) has not been explicitly addressed by the other circuits, decisions by the other circuits addressing similar issues suggest that at least two are unlikely to follow the 11th Circuit’s approach. The 3d Circuit addressed a related issue in In re Warfarin Sodium Antitrust Litig., 391 F.3d 516 (3d Cir. 2004). In Warfarin, the 3d Circuit considered the certification of a settlement class of consumers and third-party payors asserting antitrust claims against a drug manufacturer. The court approved the certification of an antitrust settlement class because the class members “all shared the same goal of establishing the liability of DuPont, suffered the same injury resulting from the overpayment for [the monopolized product], and sought essentially the same damages by way of compensation for overpayment.” The 3d Circuit found no conflict despite the presence of fixed co-pay consumers and third-party payors as members of the class because “[a]ll class members had the opportunity to recover 100% of their ‘Recognized Loss.’ ” Id. at 531. Given that the 3d Circuit found no conflict between the simultaneous presence of fixed co-pay consumers and third-party payors within the same class, it seems likely that the 3d Circuit would similarly find no conflict in the different economic effects to direct purchasers. See also Newton v. Merrill Lynch, Pierce, Fenner & Smith, 259 F.3d 143 (3d Cir. 2001). Similarly, in In re Visa Check/ Mastermoney Antitrust Litig., 280 F.3d 124, 144 (2d Cir. 2001), the 2d Circuit affirmed the certification of a class of retailers, merchants and retail associations alleging an illegal tie. The defendants and a strong dissent argued that different damages theories resulted in conflicts within the class. The 2d Circuit found “that potential for conflict need not defeat certification,” and affirmed certification because “[e]very member also has an interest in establishing the hypothetical, ‘untied’ price as low as possible in order to maximize recovery of damages.” These cases suggest that the 2d and 3d circuits would incorporate the Hanover Shoe concept of antitrust injury in their class certification analysis, as opposed to the economic injury approach followed by the 11th Circuit in Terazosin. The 1st Circuit has not addressed the issue, but at least one trial court within the 1st Circuit relied upon Terazosin in the context of an end-payor antitrust action to limit class certification to end payors who were economically injured and to exclude end payors who suffered no economic injury. In re Relafen Antitrust Litigation, 221 F.R.D. 260 (D. Mass. 2004). On the other hand, the same district court had certified the direct-purchaser class six months earlier without any discussion of potential conflicts between winners and losers; however, that occurred before the 11th Circuit’s ruling in Terazosin. In re Relafen Antitrust Litigation, 218 F.R.D. 337 (D. Mass. 2003). The Relafen cases were ultimately settled; thus, the 1st Circuit was not asked to weigh in on the debate. A structure for analysis of the tension Despite the disparate results, a common structure undergirds the analyses of each of these decisions. These considerations can be used to form a decision tree for litigants and courts alike in addressing the tension between the antitrust injury of Hanover Shoe and actual injury in the class certification context. First, the courts have considered whether the defendants have made an initial showing of a potential conflict within the class. See Terazosin, 350 F.3d at 1193; and In re Pressure Sensitive Labelstock Antitrust Litig., 226 F.R.D. 492, 498 (M.D. Pa. 2005). The extent of proof required at this stage is not yet well-defined in the case law, but appears to require a prima facie showing of a specific conflict that, if proven, would render the class representative inadequate. Second, if a sufficient showing of conflict is made, the courts consider whether it is real or speculative and whether it is fundamental. If Hanover Shoe applies within the class certification context, then any proposed conflict between class members as to actual economic injury will likely be deemed either nonexistent or not fundamental. The analysis would therefore conclude by this stage and class certification would be granted. If the fiction of Hanover Shoe is not considered as part of the certification analysis and the potential conflict is real and fundamental, then third, the court may, in its discretion, allow appropriate downstream discovery. See Terazosin, 350 F.3d at 1192. Fourth, if a fundamental conflict is supported by the record, the courts may consider whether to split the proposed class into separate classes or to certify a more limited class. Warfarin, 391 F.3d at 533 n.14; Relafen, 221 F.R.D. at 270. Fifth, if the class cannot be split or limited to eliminate a fundamental conflict, the courts should deny class certification. Terazosin, 350 F.3d at 1194. The outstanding question, of course, is whether the antitrust injury of Hanover Shoe should be considered in this analysis. If Hanover Shoe is deemed inapplicable to the class certification analysis, courts will need to progress through the entire decision tree, absent class members may be subjected to substantive discovery as to economic injury and direct-purchaser antitrust class actions will be more difficult to certify. Mitchell W. Berger is the chairman and founder of Berger Singerman, practicing in its Fort Lauderdale, Fla., office. Ren� D. Harrod is a litigation associate in that office. They can be reached at [email protected] and [email protected], respectively. The firm was liaison counsel to the direct purchaser class in the Terazosin case discussed in this article.

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