The 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 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 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.
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 price-fixing 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 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.
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.
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.
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.
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.
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.