If you bought a diamond at retail in Pennsylvania between 1994 and 2006, Dec. 20, 2011, was your lucky day. The 3rd U.S. Circuit Court of Appeals that day affirmed the certification of a settlement class that will permit you to claim your pro rata share of a $272.5 million national antitrust settlement for indirect purchasers of diamonds.
But, you might ask, how can this be when Pennsylvania does not provide a private right of action for indirect purchasers claiming antitrust violations? Not to worry. According to the 3rd Circuit in Sullivan v. DB Investments, Inc. , your claim and the claims of indirect purchasers in other states are sufficiently common for you to share in the settlement on an equal footing with individuals who bought their diamonds in states that permit such indirect purchaser antitrust suits. The ruling permits the settlement to extinguish the rights of between 67 and 117 million indirect purchasers of diamonds across the country.
From the perspective of a class action defendant, Sullivan might seem like a welcome decision. After all, the decision makes it easier to dispose of the claims of huge numbers of potential claimants in one fell swoop — a comprehensive nationwide class settlement. But be careful what you wish for. Much of Sullivan , though seemingly driven by an interest in encouraging broad settlements, will only encourage the filing of similar massive class actions. And Sullivan has serious implications for defendants opposing the certification of proposed litigation classes once they are filed. Particularly troubling is Sullivan ‘s backtracking from recent 3rd Circuit and Supreme Court jurisprudence regarding the definition of “common questions” under Federal Rule of Civil Procedure 23.
Rule 23(a) and Rule 23(b)(3) both speak of “questions of law or fact common to class members,” i.e., “common questions.” Rule 23(a) requires the existence of common questions as a prerequisite to all class actions. Rule 23(b)(3), applicable to class suits seeking money damages, requires not just that common questions exist, but that they predominate over “any questions affecting only individual [proposed class] members” — i.e., “individual questions.” These requirements apply both to litigation classes and settlement classes under the U.S. Supreme Court’s decision in Amchem Products Inc. v. Windsor .
The 3rd Circuit’s articulation of what it means for “questions of law or fact [to be] common to the class” was somewhat loose before its late 2008 decision in In re Hydrogen Peroxide Antitrust Litigation . In Hydrogen Peroxide , the court defined common questions by reference to “the ‘nature of the evidence that will suffice to resolve a question,’” (quoting the 8th Circuit’s 2005 opinion in Blades v. Monsanto Co. ). In particular, the court defined “common questions” as questions that are “capable of proof at trial through evidence that is common to the class rather than individual to its members.”
The Supreme Court’s June 20, 2011, decision in Wal-Mart v. Dukes effectively tightened the 3rd Circuit’s definition of commonality. In reviewing a 9th Circuit decision affirming class certification, the Dukes court held that a 1.5 million member class of employees claiming employment discrimination could not meet the commonality requirement of Rule 23(a)(2) because it could not identify a single Wal-Mart employment practice that affected the claims of each member of the class. The court explained that Rule 23(a)’s language “is easy to misread, since [a]ny competently crafted class complaint literally raises common questions.” Lots of questions are “common” in that they are not specific to any one plaintiff. And the court listed a variety of cautionary examples susceptible to this misreading: “Do all of us plaintiffs indeed work for Wal-Mart? Do our managers have discretion over pay? Is that an unlawful employment practice?”
Dukes established that commonality under Rule 23 requires more than mere identification of questions that are not specific to any one plaintiff. Rule 23 commonality “requires the plaintiff to demonstrate that the class members ‘have suffered the same injury.’” Echoing the 3rd Circuit’s language in Hydrogen Peroxide, the Supreme Court explained in Dukes that, to satisfy Rule 23, a “common contention … must be of such a nature that it is capable of classwide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.”
This backdrop from Hydrogen Peroxide and Dukes makes the 3rd Circuit’s recent decision in Sullivan extraordinarily puzzling. Every question put forward as “common” in Sullivan fails the definitions of commonality used in both Hydrogen Peroxide and Dukes . In Sullivan , the district court certified a national class of indirect purchasers of diamonds over a 12-year period. This class of somewhere between 67 and 117 million individuals indisputably includes substantial numbers (roughly half based on a tally of states) who have no viable claim. That is because those class members live in states, like Pennsylvania, that do not provide a private right of action for indirect purchasers claiming antitrust violations. (In Pennsylvania, there is no state law cause of action for antitrust violations at all, let alone an Illinois Brick repealer statute that permits claims by indirect purchasers.)
As a result, the supposed “common questions” on which the district court based certification simply have no application to vast swaths of the class. The “common questions” identified in Sullivan were whether the defendants combined or conspired, caused prices to be higher, or caused injury to class members. Those questions are not capable of proof at trial through evidence that is “common” to the class because the evidence used to answer the questions would be completely irrelevant for much of the class. It cannot seriously be said for any of those questions that “determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” (See Dukes .) For example, “whether defendants combined or conspired” is not plausibly “central” to the claim of a Pennsylvania indirect purchaser because that Pennsylvanian’s claim would be dead on arrival if he or she were to bring an individual claim in court. As Judge Kent A. Jordan explained in dissent, “it is nonsense to speak of ‘resolving’ an issue that is central to the validity of each one of the claims” if all class members do not have at least some colorable legal claim.
The Sullivan court’s result appears to have been driven largely by an interest in encouraging broad class action settlements when a case would otherwise be too difficult to resolve. In that respect, the Supreme Court’s earlier decision in Amchem provided the Sullivan court with a seemingly way out. Amchem does require courts faced with motions to certify settlement classes to apply virtually all of Rule 23 with all the same rigor, if not more, than applied to litigation classes. Indeed, the Amchem court suggested that a court should apply “heightened” attention “to protect absentees by blocking unwarranted or overbroad class definitions.” However, Amchem affords one exception: A district court “need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial.”
Seizing on that exception, the Sullivan court dodged an examination of the “nature of the evidence” sufficient to resolve material common questions. The court did this by characterizing the inquiry, as it related to class members with no viable claims at all, as a “merits” inquiry “particularly unwarranted” for settlement classes when “trial manageability” is not a concern. (“The absence of evidentiary and trial manageability concerns that initially motivated our instruction to conduct a preliminary merits inquiry in the predominance context reinforces the ‘key’ distinction between certification of a litigation and settlement class.”)
Judge Anthony J. Scirica, the author of the Hydrogen Peroxide opinion, wrote a concurrence in part to emphasize this point: “A key question in a litigation class action is manageability — how the case will or can be tried, and whether there are questions of fact or law that are capable of common proof. But the settlement class presents no management problems because the case will not be tried.”
Scirica, in fact, would define commonality differently for a settlement class, using the standard for supplemental jurisdiction of claims “deriving from a common nucleus of operative fact.”
The Sullivan court’s effective relegation of the “nature of the evidence” inquiry to a mere “trial management” concern marks a substantial departure from the Hydrogen Peroxide court’s clear statement that “the nature of the evidence that will suffice to resolve a question determines whether the question is common or individual” (quoting Blades ). In other words, in Hydrogen Peroxide , whether antitrust impact was “capable of proof at trial through evidence common to the class” was debated because it answered whether antitrust impact was itself a “common question” that could support a determination of predominance. But the Sullivan court discusses the “nature of the evidence” as if it were only relevant to questions regarding trial management, in conflict with Dukes and Hydrogen Peroxide , among others.
The Sullivan court instead bases its predominance holding on earlier 3rd Circuit precedent purportedly focusing “on whether the defendant’s conduct was common as to all of the class members, and whether all of the class members were harmed by the defendant’s conduct.” But even accepting the premise that “all of the class members were harmed” by the defendants’ conduct in some abstract sense, this too is in conflict with Dukes . Dukes goes out of its way to explain that a myopic focus on “defendant’s conduct” is irrelevant without taking account of how that conduct relates to the legal claims of each class member. Under Dukes , if each class member’s claim depends upon a “common contention” regarding defendant’s conduct and resolving that contention “will resolve an issue that is central to the validity of each one of the claims in one stroke,” then the issue may fairly be said to be “common” under Rule 23. But in Sullivan , the claims of Pennsylvanians and other indirect purchasers do not “depend” on the conduct of the defendants, as the Sullivan court assumes, because they have no claims at all under the applicable state law. As Jordan explained in his dissent, it is unprecedented for a court to rule that, in deciding commonality, “one need not be concerned with whether the alleged injuries of class members are legally cognizable.”
The Sullivan court also characterizes the requirement in some states that a plaintiff be a direct purchaser as “simply another element of proof for an antitrust claim.” It is perhaps a metaphysical question whether an indirect purchaser in states prohibiting indirect purchaser suits lacks the ability to prove “one element” of his claim or whether he lacks a claim at all. (In Pennsylvania, the latter certainly seems a better description.) But as Jordan explained in dissent, “the status of being an indirect purchaser is not only the gateway to membership in the class, it is what entirely disqualifies them from asserting any claim based on De Beer’s price fixing conduct.” This inherent deficiency precludes commonality because no questions can be “central to the validity” of their claims. (See Dukes.)
There is no doubt that it would be extremely burdensome for a court to engage in careful inquiry into the laws of all 50 states when presented with a motion to certify a nationwide settlement class for claims brought under state laws, some of which are pointed out indisputably to lack viability. This is not “fact-finding review” as the en banc Sullivan court curiously characterizes the inquiry. It is merely the court’s bread-and-butter task of saying “what the law is.” But it is hard work. The conclusion to draw is not, as the Sullivan court implies, that because such an “intensive cataloging” might effectively preclude nationwide settlements, it must not be required. It should be difficult — maybe even preclusively difficult — to settle the varied rights of one-third of the country’s population in a single proceeding, as happened in Sullivan . These are courts, not legislatures. The predominance inquiry under Rule 23 is about “the legal or factual questions that qualify each class member’s case as a genuine controversy.” (See Amchem .) It is not too much to ask of a court to ensure that such a “genuine controversy” exists, and that the rights of millions who have such a “genuine controversy” are not diluted by the nonexistent “rights” of others who clearly do not. •
Steven E. Bizar is an executive shareholder ofBuchanan Ingersoll & Rooney. He argued the successfulappeal for the defendants in in re hydrogenPeroxide Antitrust Litigation.
Landon Y. Jones is an associate in the litigation section of Buchanan Ingersoll & Rooney. Both Bizar and Jones are based in the firm’s Philadelphia office.