A split en banc panel of the 3rd U.S. Circuit Court of Appeals has reinstated a $295 million class action settlement in an antitrust case against diamond wholesaler De Beers after an initial panel of the court found the two nationwide classes involved in the settlement were improperly certified.
The court ruled the predominance requirement of class certification was not deficient simply because some of the class members’ state antitrust claims were not recoverable in their jurisdictions. The standard to meet predominance is not as high, the court said, when dealing with certifying a class for purposes of settlement.
At the same time the court has approved attorney fees in the amount of 25 percent, or approximately $73 million, and expenses in the amount of under 1 percent.
In a 116-page majority opinion in Sullivan v. D.B. Investments , Judge Marjorie O. Rendell said the first panel of the 3rd Circuit improperly added a criterion to the Rule 23(b) class certification process that required the district court to ensure each class member possesses a viable claim “‘or some colorable claim.’”
Rendell was referring to the first panel’s finding that predominance was not met because some of the class members were from states that did not allow for antitrust claim recoveries even though De Beers stipulated to liability in all 50 states for purposes of the settlement.
“[W]here a defendant’s singular conduct gives rise to one cause of action in one state, while providing for a different cause of action in another jurisdiction, the courts may group both claims in a single class action,” Rendell said, adding that such a tactic in litigation advances the purpose of class actions to efficiently manage issues affecting large groups of litigants.
Rendell said Rule 23(b)(3) does not require individual class members to individually state a valid claim for relief.
“In our view, this requirement would result in a radical departure from what Rule 23 envisions and what our precedent demands, and it founders for many reasons,” Rendell said.
Rule 23(b)(3)’s predominance requirement goes beyond the commonality of claims requirement and further demands that issues common to the class predominate over those affecting only individual class members, she said. Rendell said there are three guideposts that direct the predominance inquiry: commonality is informed by the defendant’s conduct as to all class members and any resulting injuries common to all class members; variations in state law do not necessarily defeat predominance; and concerns regarding variations in state law largely dissipate when a court is considering the certification of a settlement class.
Rendell said the majority could find no precedent for the proposition that commonality and predominance are defeated simply because available rights and remedies differ under the varying state laws that support the class claims.
“We have never required the presentation of identical or uniform issues or claims as a prerequisite to certification of a class,” Rendell said. “Rather, our jurisprudence evinces a pragmatic response to certifications of common claims arising under varying state laws.”
The fact that this case deals with a settlement gives further credence to the certification of the class, she said.
Rendell said the arguments by the objectors to this settlement are largely marginalized because of the settlement posture of the case. The concern for manageability of a class that is a “central tenet” in the certification of a class is removed from the equation when a settlement is involved, she said.
“[A] district court’s certification of a settlement simply recognizes the parties’ deliberate decision to bind themselves according to mutually agreed-upon terms without engaging in any substantive adjudication of the underlying causes of action,” Rendell said later in the opinion.
Rendell was joined in the majority by Judges Anthony J. Scirica, Thomas L. Ambro, Julio M. Fuentes, D. Michael Fisher, Michael A. Chagares and Thomas I. Vanaskie. Rendell was on the initial three-judge panel that tossed the settlement. She wrote a concurring opinion to join in the result but expressed her disagreement with the panel’s decision to undertake its own analysis of predominance. Scirica wrote a concurring opinion only to discuss the case in the wider context of the evolving law on settlement classes.
Judge Kent A. Jordan, the author of the first panel’s opinion, wrote a 38-page dissent from Rendell’s majority holding. He was joined by Judge D. Brooks Smith.
The majority in Sullivan disputed an argument made by the dissent that the U.S. Supreme Court’s 2011 decision in Wal-Mart Stores Inc. v. Dukes supported its thesis that each class member must have a valid claim for class certification to be made.
“To the contrary, Dukes actually bolsters our position, making clear that the focus is on whether the defendant’s conduct was common as to all of the class members, not whether each plaintiff has a ‘colorable’ claim,” Rendell said. “In Dukes , the court held that commonality and predominance are defeated when it cannot be said that there was a common course of conduct in which the defendant engaged with respect to each individual.”
The allegations in Sullivan that De Beers engaged in anti-competitive activity by exploiting its 65 percent market share resulted in common injury to all class members, Rendell said.
She also disputed the dissent’s argument that the majority’s rationale makes the class “‘practically limitless.’” Rendell said the limits are found in the conduct of the defendant and the injuries sustained by the class members.
The District Court of New Jersey conditionally certified two separate settlement classes in March 2006 and entered its final order in May 2008. The settlement included $22.5 million for direct purchasers of diamonds from De Beers and a $272.5 million settlement for indirect purchasers of De Beers diamonds. The settlement also included $220,000 to the class representatives and more than $73 million in attorney fees and expenses.
In approving the attorney fees, Rendell said the district court went through a detailed analysis. She said the plaintiffs’ lawyers spent more than 39,000 hours on the case in federal and state court and dealt with complex legal and factual issues as well as difficult questions in the post-settlement process.
Howard J. Bashman of Willow Grove, Pa., argued on behalf of class members objecting to the class certification and predominance issue. He said the “passionate nature” of the dissent calls into question whether the majority’s opinion was in compliance with several recent U.S. Supreme Court decisions. Bashman said he, his clients and his co-counsel will be giving serious thought to seeking Supreme Court review of the decision.
“The decision certainly seems to set a very low bar for settling damages class actions to satisfy the predominance prong of the class action rule,” Bashman said.
Joseph J. Tabacco Jr. of Berman DeValerio Pease Tabacco Burt & Pucillo in San Francisco represented the class. Samuel Issacharoff of New York University School of Law argued on behalf of the class. Tabacco said the plaintiffs were gratified the majority correctly applied the law to the facts of the case.
“The court’s opinion will provide very good guidance for settlement of complex class actions going forward not only in the 3rd Circuit but probably nationwide,” he said.
In the suits, the plaintiffs alleged that De Beers, a privately held group of foreign-based companies, monopolized the international diamond business through its control of mines and a web of agreements with diamond suppliers in other countries. De Beers denied the allegations.
According to court papers, De Beers initially refused to appear in the lawsuits, asserting that courts in the United States lacked personal jurisdiction over it and that any judgment entered by those courts would be a legal nullity. By September 2004, defaults or default judgments had been entered against De Beers in six of the seven actions.
But in May 2005, counsel for De Beers approached the plaintiffs’ counsel to discuss a settlement.
After the settlement received final approval in 2008, a group of objectors appealed to the three-judge panel of the 3rd Circuit.
“There can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact,” Jordan wrote for the majority in the first appeal. “It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.”
Contact Gina Passarella at 215-557-2494 or at firstname.lastname@example.org. Follow her on Twitter @GPassarellaTLI .
(Copies of the 171-page opinion in Sullivan v. D.B. Investments, PICS No. 11-4693, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •