Recent Trends in Class Certification Standards in U.S. Federal Courts

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1 Recent Trends in Class Certification Standards in U.S. Federal Courts Canadian Bar Association 2010 Annual Fall Competition Law Conference September 30, 2010 Jeffrey I. Shinder & Taline Sahakian* Constantine Cannon LLP Introduction Class Certification Standards in Flux It is fair to say that class certification standards have been under sustained assault in recent years in the United States. Whereas courts arguably used to readily certify classes in complex cases without entertaining dueling experts or any merits based inquiry, the pendulum has now shifted the other way. Spurred by a conception that class actions are too easily certified, and thereafter coerce blameless defendants to settle, the standards to certify class actions have certainly gotten tougher and courts are much more willing, perhaps too willing, to engage into merits issues before certifying classes. As this process is still fluid, the jury is still out on whether that is simply politics at work or good jurisprudence. Class certification motions used to be largely procedural in nature and brought early on in the course of litigation. Courts took the allegations in the complaint as true and all favorable inferences were given to plaintiffs. Although Courts were required to engage in a rigorous analysis, 1 they were reluctant to engage in merits related determinations at the class certification stage. 2 Similarly, courts were weary of engaging in battles among competing experts. That has changed. In recent years, courts have struggled with the question of the degree to which courts should decide merits at the class stage, including the way courts * Jeffrey Shinder is the Managing Partner of Constantine Cannon s New York office and specializes in antitrust counseling and litigation. Taline Sahakian is an associate at Constantine Cannon. 1 In General Telephone Co. v. Falcon, 457 U.S. 147, (1982), the Supreme Court stated that a class action may only be certified if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied and sometimes it may be necessary for a court, at the certification stage, to probe behind the pleadings before coming to rest on the certification question. The Court did not provide guidance as to what a rigorous analysis entailed. 2 Relying on the Supreme Court s decision in Eisen v. Carlisle Jacquelin, 417 U.S. 156 (1974), where the Court stated that [w]e find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action. Eisen, 417 U.S. at 177.

2 should weigh expert evidence presented at that juncture. Courts increasingly find that factual issues presented at class certification should be resolved by a preponderance of the evidence, even if those issues also overlap with the merits of the case. As a result, plaintiffs must satisfy a rigorous evidentiary burden that has turned class motions into mini summary judgment hearings. Some courts have even gone so far as to require that plaintiffs satisfy threshold merits issues, like market definition, even if they are not related to class certification. After reviewing the class certification requirements under Federal Rule of Civil Procedure 23, this paper will survey key cases that illustrate this shift in class action certification from the In re Visa Check case which espoused a more liberal certification standard to the IPO and Hydrogen Peroxide cases which advocated stricter certification standards. Finally, this paper will address the benefits and drawbacks of the more merits based class certification hearing, from a plaintiff s and defendant s perspective. Overview of Class Certification Requirements Federal Rule of Civil Procedure ( FRCP ) 23 governs class action certification requirements in Federal Courts in the United States. To certify a class, plaintiffs must show that the putative class action meets the four prerequisites of FRCP 23(a): 1. Numerosity - The class is so numerous that joinder of all members is impracticable. 2. Commonality - The case raises questions of law or fact common to the members of the class. 3. Typicality - The claims and defenses of the representative parties are typical of the claims or defenses of the class. 4. Adequacy - The representative parties fairly and adequately protect the interests of the class. After satisfying the four prerequisites of Rule 23(a), the class action may be maintained only if it also qualifies under at least one of the three categories of class actions set forth in Rule 23(b). A plaintiff will seek certification under Rule 23(b)(1) where it can demonstrate that prosecuting separate actions by or against individual class members would create a risk of 2

3 either (1) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (2) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests. Rule 23(b)(1) cases often involve competing interests vying for identifiable property or money such that adjudication as to one plaintiff will impact the rights of others. A plaintiff will seek certification under Rule 23(b)(2) where the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole[.] Finally, Rule 23(b)(3), invoked for damage class actions, allows for class actions where the questions of law or fact common to class members predominate over any questions affecting only individual members, and the class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Relevant to finding predominance of common questions and superiority of the class action vehicle are the class members' interests in individually controlling the prosecution or defense of separate actions; the extent and nature of any litigation concerning the controversy already begun by or against class members; the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and the likely difficulties in managing a class action. The predominance requirement, as we will see below, is often key to the outcome of a class certification motion. Class Certification, Then Examples from the Visa Check and Heerwagen Cases In re Visa Check/Mastermoney Antitrust Litigation ( Visa Check ) involved an antitrust class action against Visa and MasterCard initiated by a number of large and small merchants and trade associations. Plaintiffs alleged that Visa and MasterCard had unlawfully tied debit card acceptance to their dominant credit cards in violation of 1 of the Sherman Act (15 U.S.C. 1) by means of an honor all cards policy, which required merchants that accepted Visa or MasterCard credit cards to also accept their debit cards. 3

4 Plaintiffs moved for class certification before the close of fact discovery, and in support of that motion, plaintiffs offered an expert economist who proffered a common formula for calculating class members damages. Based on the theory that absent the tying arrangement, merchants would have refused the tied debit cards and Visa and MasterCard would have had to reduce the fees on those debit cards in order to maintain acceptance, each individual class member s damages could be calculated by measuring the overcharge between the rates actually charged and the rates that would have been charged absent the tie. In opposition, defendants moved to strike plaintiffs expert report as being deficient under the Daubert standard 3 and offered their own expert critiquing plaintiffs expert s methodology. According to defendants, plaintiffs methodology was incomplete as a matter of economics as it failed to account for the price of the tying product in the but for world. 4 The district court denied defendants motion to strike plaintiff s report and certified the proposed class finding that there was a sufficient showing of injury-in-fact. In re Visa Check/Mastermoney Antitrust Litig., 192 F.R.D. 68, 84-5 (E.D.N.Y. 2000). The Second Circuit upheld the district court s ruling over a vigorous dissent. In re Visa Check/Mastermoney Antitrust Litig., 280 F. 3d 124 (2d Cir. 2001) (Jacobs, C.J., dissenting) cert denied sub nom, Visa U.S.A. Inc. v. Wal-Mart Stores, Inc., 536 U.S. 917 (2002). The Visa Check Circuit Court declined to entertain a duel of experts holding that the role of a district court is to ensure that the basis of the expert s opinion was not so flawed that it would be inadmissible as a matter of law. In re Visa Check, 280 F.3d at 135 (citing Caridad v. Metro-North Commuter R.R., 191 F.3d 283, (2d Cir. 1999); Cruz v. Coach Stores, Inc. No. 96 Civ. 8099, 1998 WL , at *4 (S.D.N.Y. Nov. 18, 1998) aff d in part, vacated in part on other grounds, 202 F.3d 560, 573 (2d Cir. 2000); In re 3 In Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), the Supreme Court articulated a framework within which courts must determine a given expert s qualifications and the scientific reliability of his testimony. Under Daubert, to assess the reliability of expert testimony, courts look at: (1) whether the scientific theory can be or has been tested; (2) whether the theory has been subjected to peer review and publication; and (3) whether the theory has been generally accepted in the relevant scientific, technical, or professional community. 4 Some economists postulate that if a tying arrangement is severed the price of the tying product will increase and several courts have accepted that a tying plaintiff is injured if it overpaid for the package of the tied and tying product. See e.g. Kypta v. McDonald's Corp., 671 F.2d 1282, 1285 (11th Cir.1982).Will v. Comprehensive Accounting Corp., 776 F.2d 665, 673 (7th Cir.1985) 4

5 Sumitomo Copper Litig., 182 F.R.D. 85, 91 (S.D.N.Y. 1998); In re Disposable Contact Lens Antitrust Litig., 170 F.R.D. 524, (S.D.Fla. 1996); In re Potash Antitrust Litig., 159 F.R.D. 682, 687 (D.Minn. 1995)). Based on that finding, the district court declined to weigh the economic argument proffered by defendants. According to the Circuit Court, the court hearing a class motion should not [ ] determine whether plaintiffs had stated a cause of action or whether they would prevail on the merits, but rather whether they had shown, based on methodology that was not fatally flawed that the requirements of Rule 23 were met. In re Visa Check, 280 F.3d at 135. As such, if plaintiffs proffered a plausible theory of common injury the class should be certified. Following Visa Check, another antitrust class action, Heerwagen, found that while a merits-based inquiry was inappropriate at class certification, a district court could compare the relative weight of competing experts. Heerwagen v. Clear Channel Commc ns, 435 F.3d 219, (2d Cir. 2006). Heerwagen reiterated the importance of a rigorous analysis of the Rule 23 requirements and mandated that the requirements, including the predominance requirement, be shown by a preponderance of the evidence. Id. ( Some overlap with the ultimate review on the merits is an acceptable collateral consequence of the rigorous analysis that courts must perform when determining whether Rule 23 s requirements have been met, [ ], so long as it does not stem from a forbidden preliminary inquiry into the merits. (internal citations omitted) Complying with Rule 23(b)(3) s predominance requirement cannot be shown by less than a preponderance of the evidence. ) Weighing evidence was only prohibited in connection with Rule 23 determinations to the extent those determinations are effectively identical to merits issues. Id. Trying to Find the Balance between Rigorous Analysis and No-Merits Inquiry The IPO Decision Only a few years after Visa Check, the Second Circuit revisited this issue in In re Initial Pub. Offerings Sec. Litig. 471 F.3d 24 (2d Cir. 2006), reh g denied 483 F.3d 70 (2d Cir. 2007). In that decision, the Second Circuit stepped back from Visa Check by clarifying the standards for certifying complex class actions. 5

6 The IPO class action involved claims of fraud by investors against hundreds of underwriters in connection with a series of initial public offerings or IPOs. Citing Visa Check, the district court had granted class certification finding that plaintiffs only needed to make some showing that they had met the requirements of Rule 23. IPO, 471 F.3d at 30. Further, the district court, found that it would be inappropriate at the certification motion stage to weigh conflicting expert evidence regarding issues relevant to the Rule 23 requirements and abstained from entering into an inquiry regarding the merits of the case. Relying on the Supreme Court s decision in General Telephone Co. of the Southwest v. Falcon, the Second Circuit reversed reiterating that the requirements of Rule 23 must be met, not just supported by some evidence and the certification decision requires rigorous analysis. IPO, 71 F.3d at 33. According to the Circuit, a district judge may not certify a class without making a ruling that each Rule 23 requirement is met and a lesser standard such as some showing for satisfying each requirement will not suffice. IPO, 471 F.3d at 27. Even at the certification stage, all of the evidence must be assessed. Id. Further, the Second Circuit found that there was no reason to lessen a district court s obligation to make a determination that every Rule 23 requirement is met before certifying a class just because of some or even full overlap of that requirement with a merits issue. IPO, 471 F.3d at 41. The Second Circuit surveyed case law from other circuits that supported a rigorous analysis at the certification stage, even if it required some merits inquiry. IPO, 471 F.3d at (citing Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 676 (7th Cir.2001) ( a judge should make whatever factual and legal inquiries are necessary under Rule 23 even if the judge must make a preliminary inquiry into the merits ); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4 th Cir. 2004) ( the factors spelled out in Rule 23 must be addressed through findings, even if they overlap with issues on the merits. ); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir. 2001) ( [B]ecause the determination of a certification request invariably involves some examination of factual and legal issues underlying the plaintiff cause of action, a court may consider the substantive elements of the plaintiff s case... ); Blades v. Monsanto Co., 400 F. 3d 562, 575 (8 th Cir. 2005) ( in a ruling on class certification, a court may be required to resolve 6

7 disputes concerning the factual setting of the case, including the resolution of expert disputes concerning the import of evidence. )). As to expert evidence, the IPO court rejected the suggestion from Visa Check that an expert s testimony may establish a component of a Rule 23 requirement simply by being not fatally flawed. IPO, 471 F.3d at 42. The IPO court also rejected Heerwagen s suggestion that a district court may not weigh conflicting evidence at the class certification stage to determine the existence of a Rule 23 requirement just because that requirement is identical to an issue on the merits. Id. Applying this more rigorous standard, the Second Circuit found that plaintiffs could not satisfy the predominance requirement under Rule 23(b)(3) at least as to the issue of plaintiffs individual reliance on the defendants misrepresentations and their lack of knowledge of defendants price manipulations. IPO, 471 F.3d at Other Notable Circuit Court Decisions - The Oscar & Dukes Decisions In Oscar Private Equity Invs. v. Allegiance Telecom, Inc., a securities fraud case, the Fifth Circuit vacated a certification order and remanded the case, holding that the district court had not properly applied the fraud-on-the-market theory. 487 F.3d 261 (5th Cir. 2007) (Dennis, C.J., dissenting). In securities fraud cases, that theory permits a trial court to presume that each class member has satisfied the reliance element of the securities fraud claim. Id. at 264. The Fifth Circuit held that Rule 23 mandates a complete analysis of fraud-on-the-market indicators. According to the Circuit Court, plaintiffs can recover under the fraud-on-the-market theory if they establish at the class certification stage by a preponderance of the evidence that loss causation had actually occurred and that the alleged materials misstatement had actually moved the market. Id. at 265, The Fifth Circuit noted that it cannot ignore the in terrorem power of certification, continuing to abide by the practice of withholding until trial a merit inquiry central to the certification decision, and failing to insist upon a greater showing of loss causation to sustain certification, at least in the instance of simultaneous disclosure of multiple pieces of negative news.... It is largely an empirical judgment that can be made then as well as later in the litigation. Id Although one could argue that the holding in Oscar 5 Loss causation was an element of a securities fraud claim, separate from reliance. 7

8 should be limited to securities fraud cases, the Fifth Circuit arguably went one step further by requiring plaintiffs to actually prove an element of the underlying merits at the certification stage. 6 As more courts enter into merits related inquiries at the class stage, it will be interesting to observe whether courts will consider themselves bound by findings of fact made at the certification stage later on in the case at summary judgment or at trial. It has already been suggested that findings at the certification stage are not binding at later stages. See e.g., McBean v. City of N.Y., 260 F.R.D. 120, 131 (S.D.N.Y. 2009) ( Rule 23 fact-finding is not binding on the trier of facts at the merits stage, even if the trier of fact is the class certification judge[.] ) Dukes, 603 F.3d at 594 ( It is important to note that the district court is not bound by these determinations as the litigation progresses. ) Whether this approach will be followed by courts that treat class certification and summary judgment motions at the same time is unclear. More clarity about merits based determinations at class certification may come from the Supreme Court if it hears an appeal from a recent Ninth Circuit Court of Appeals decision. In Dukes v. Wal-Mart Stores, a case involving claims by a nationwide class of female employees against their employer alleging discriminatory pay and promotion policies, the Ninth Circuit clarified the standards for conducting a Rule 23 rigorous analysis. 603 F.3d 571 (9th Cir. 2010) (en banc). The Ninth Circuit extensively discussed the certification standards applied by other circuits and concluded that the core holding across circuits was essentially unanimous. Dukes, 603 F.3d at 583. According to the majority s holding, the consensus is that district courts have to satisfy themselves that the Rule 23 requirements have been met before certifying a class, which will sometimes, though not always, require an inquiry into and preliminary resolution of disputed factual issues, even if those same factual issues are also, independently relevant to the ultimate merits of the case. Id. In articulating the certification standards, the Ninth Circuit noted however that district courts may not analyze any portion of the merits of a claim that do not overlap with the Rule 23 requirements. Id. at 594. District courts would retain the ability to cut off discovery to avoid either party bootstrapping a trial or summary 6 See also Alaska Elec. Pension Fund, 572 F.3d 221 (5 th Cir. 2009) applying the holding in Oscar. 8

9 judgment motion into the certification stage and to avoid a mini-trial on the merits. Id. at 591, 594. Applying those standards, the Ninth Circuit, in a divided decision, affirmed the district court s certification of a nationwide class of thousands of female employees under Rule 23(b)(2). Commonality under 23(a) was met through plaintiff s evidence of (1) facts indicating company-wide uniform policies and practices; (2) expert opinion of a sociologist interpreting and explaining facts suggesting a corporate culture; (3) expert statistical evidence of class-wide gender disparities between men and women at Wal-Mart and of benchmarking comparing Wal-Mart to twenty of its competitors; and (4) anecdotal evidence. Wal-Mart challenged plaintiffs expert testimony. The majority affirmed the district court s finding that the sociologist expert s opinion raised a question of corporate uniformity and gender stereotyping that [was] common to all class members and the district court s role at the certification stage was to determine whether there were common questions of fact or law, not to decide which parties evidence is ultimately more persuasive as to liability. Id. at At the certification stage, it was enough for the expert to present scientifically reliable evidence tending to show that a common question of fact... exists with respect to all members of the class. Id. at 603. Similarly, arguments going to the relative weight of statistical evidence submitted by plaintiffs and defendant were rejected. That a jury could later find Wal-Mart s statistical evidence more persuasive [did] not detract from the district court s determination that the plaintiffs statistical analysis raise[d] common issues appropriate for class adjudication. Id. at 607. Given the composition of the Supreme Court, there is a substantial chance that the Court will hear the appeal from the Dukes case and reverse it. It would give the Supreme Court the opportunity to weigh in on the issue of the necessity for merits determinations and the evaluation of competing expert testimony at the certification stage. 7 7 The decision also raises the issue of when a class action for monetary and injunctive relief is properly certified under 23(b)(2) as opposed to 23(b)(3). 9

10 Recent Antitrust Class Certification Decisions Until the Supreme Court clarifies certain issues, courts are continuing to apply the stricter standards on a case by case basis. In antitrust class action cases, courts have struggled with the evaluation of competing expert evidence at certification. Parties have typically offered expert testimony about the predominance of common questions related to proof of injury sustained from the alleged anti-competitive acts. Defendants have increasingly responded with Daubert challenges to expert testimony, reflecting the increasing similarities between class certification and summary judgment motions. Courts have been willing to fully scrutinize that testimony. And they may do so even more following a recent ruling from the Seventh Circuit finding that a district court abused its discretion by not conclusively ruling on the admissibility of plaintiffs expert at certification. American Honda Motor Company, Inc. v. Allen, 600 F.3d 813, (7 th Cir. 2010) ( When an expert s report or testimony is critical to class certification, [ ] a district court must conclusively rule on any challenge to the expert s qualifications or submissions prior to ruling on a class certification motion[,] including a challenge based on Daubert. The court must also resolve any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements. ) Applying the more stringent class certification standards and evaluating competing expert evidence, courts are increasingly denying class certification in antitrust cases. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2009), for example, involved a class action by purchasers against producers of hydrogen peroxide and other products alleged to have entered into a horizontal price-fixing conspiracy in violation of the Sherman Act. The Third Circuit vacated the district court s decision to certify a class because the district court had not applied the proper standard in deciding the issue of predominance under Rule 23(b)(3). Notably, the district court had not properly determined whether antitrust impact was capable of proof at trial through evidence common to the class, as opposed to individualized evidence. Hydrogen, 552 F. 3d at 312. The lower court, applying a too lenient a standard for class certification, failed to consider the views of defendants expert and gave undue credit to plaintiffs expert. Id. 10

11 To prove fact or injury in common, plaintiffs offered an expert who purported to show that conditions in the hydrogen peroxide industry favored a conspiracy that would have impacted the entire class. Id. He testified that common proof could be used to demonstrate that the alleged conspiracy to raise prices, restrict output and allocate customers would have impacted all purchasers of hydrogen peroxide, sodium perborate, and sodium percarborate. Id. at He presented a pricing structure which, he claimed showed prices across products, grades and concentrations of hyrdogen peroxide, and end uses moved similarly over time. Id. at 313. He offered two approaches to estimating damages on a class-wide basis: a benchmark analysis and a regression analysis. Id. Defendants, on the other hand, offered their own expert who presented empirical analysis of data on individual sales transactions. Defendants expert found that different customers purchasing the two most common grades and the three most common concentrations from the same hydrogen peroxide producer in a given year were as likely to experience a decline in actual prices over the year as an increase, while other similarly situated customers experienced no change in price. Id. Defendants then went on to critique plaintiffs expert s analysis which didn t explain how or which common proof could be used to determine that the alleged conspiracy impacted customers whose prices declined, as well as customers whose prices increased or stayed the same, over the same time period. Id. The district court concluded that it was sufficient for plaintiff s expert to propose reliable methods for proving impact and damages and it did not matter that the expert had not completed any benchmark or regression analyses since the court would not require plaintiffs to show at the certification stage that either method would work. Id. at 316. The Third Circuit disagreed. As to the predominance requirement, the Third Circuit held that [i]t is incorrect to state that a plaintiff need only demonstrate an intention to try the case in a manner that satisfies the predominance requirement. Id. at 321. Plaintiffs must show that they can meet the requirements of Rule 23. Opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded, under Daubert or for any other reason. Id. at 323. In fact, [w]eighing conflicting expert testimony at the 11

12 certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands. Id. Although the court noted that the predominance test could be readily met in certain cases alleging... violations of antitrust laws, (Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)) it [did] not follow that a court should relax its certification analysis or presume a requirement for certification is met merely because plaintiff s claims [are antitrust claims]. Hydrogen Peroxide, 552 F.3d at Applying Hydrogen Peroxide, a true battle of the experts played out in In re Plastics Additives Antitrust Litigation, where plaintiffs, purchasers of orgatonin heat stabilizers ( tins ) and of epoxidized soybean oil ( ESBO ), sought to prosecute claims against producers alleging a price-fixing conspiracy in violation of the Sherman Act WL (E.D.Pa., Aug. 31, 2010) The district court heard plaintiffs revised certification motion after the Third Circuit vacated the district court s initial order granting certification and remanded the case for further proceedings consistent with its opinion in the Hydrogen Peroxide case. After hearing expert testimony from both sides, the second time around, the district court denied certification. The key issue for the court was whether plaintiffs had demonstrated that element of antitrust impact was capable of common proof. Id. at *3-4. The court conducted a detailed analysis of the experts theories and discussed in turn the four methods plaintiffs proposed to measure antitrust impact, namely: (1) defendants pricing behavior; (2) economic characteristics of the tins and ESBO markets; 3) analysis of pricing structure in these markets, and (4) regression analysis. Id. The court found that plaintiffs could not demonstrate antitrust impact on a basis common to the class through reference to defendants pricing behavior (list prices and price increase announcements) since the evidence showed that the actual prices paid by several purchasers before and after price increase announcements did not change or the average monthly prices paid did not correspond in any way to the price increase announcements. Id. at *4-*6. Similarly, plaintiffs could not demonstrate impact on a common basis through reliance on their expert s opinion that the markets for tins and ESBO displayed certain characteristics such as interchangeability of tin, interchangeability of ESBO products and defendants dominance, all of which showed that conspiratorily set prices would have been unavoidable by all plaintiffs and subclass members. Id. at *7. The court found that the plaintiffs expert s description of the 12

13 market and proposed market definition was inaccurate and he could therefore not rely on it to demonstrate common impact. Id. Plaintiffs pricing structure analysis was no less convincing. According to that analysis, the pricing for tin and ESBO products during the conspiracy period displayed a structure whereby prices moved similarly over time and which lead to the conclusion that, if a conspiracy existed, every purchaser would have been impacted by the conspiracy. Id. at 13. The evidence showed that prices did not behave similarly for all products and customers and the pricing structure analysis was not accepted by the court. Id. at 15. Finally, plaintiffs regressions could not serve as proof of impact common to the class. Plaintiffs expert admitted that the results of his industry-wide regression results were in no way indicative of individual impact and did not show that each and every class member paid a higher than they would have absent the conspiracy or that each and every class member was impacted by the conspiracy. Id. at 16. In fact, defendants expert s regression, based on samples of individual customers, showed that different customers were impacted differently. The court concluded that antitrust impact would require individual treatment and class certification was unsuitable. A perfect illustration of the importance of plaintiffs expert s analysis to the outcome of a class certification motion was California v. Infineon Technologies, AG, 2008 WL (N.D.Cal. Sept.5, 2008). Class certification may be denied where the expert s methodology is too general and theoretical. In the Infineon case, plaintiffs consisting of various states, political subdivisions and state agencies, sued defendant manufacturers for damages arising from a horizontal price-fixing conspiracy in the U.S. market for dynamic random access memory ( DRAM ). Defendants did not challenge that Rule 23(a) requirements were met but challenged predominance and superiority under Rule 23(b)(3). Infineon, at *5. The court ultimately agreed with defendants and denied the class certification motion. Id. To determine whether the predominance requirement was met, the court analyzed whether proof of the elements of plaintiffs claims could be made through generalized proof or whether it was unique to individual class members. Id. at *6. The parties main dispute was whether common issues predominated on proof of antitrust impact or fact of damage. Id. Since the proposed class included indirect purchasers, proof of impact required a two-fold showing that (1) defendants caused prices 13

14 paid by direct purchasers to be artificially high; and (2) direct purchasers passed on the overcharge they paid to indirect purchasers. Id. The Court found that plaintiffs expert s explanation of methodologies he could or would apply to determine the fact of impact, were general and expressed in broad terms, without providing sufficient detail as to how he proposed to apply any particular methodology to the facts and data at issue in the case. Id. at *9. Specifically, he failed to offer methodologies that purport[ed] to adequately demonstrate impact for all class members across customer, product and procurement type. Id. at 10. The court distinguished its ruling from the ruling in In re Dynamic Random Access Memory Antitrust Litig. (2006 WL (N.D.Cal.)), involving private direct purchasers, where predominance was found to exist. Id. at *11. As the court remarked, the expert s report in the private purchasers litigation was supported by actual publication, market, and sales data produced in that litigation, and was further buttressed by affirmative evidence supporting plaintiffs position that the ultimate DRAM pricing paid by all members of the class was determined with reference to an actual benchmark spot price. Id. The difference in methodology and thoroughness of plaintiffs expert in the related cases explained that class certification was denied in one case and granted in the other. Another recent example of a denial of class certification is In re ebay Seller Antitrust Litigation (2010 WL (N.D.Cal. Mar. 4, 2010)) involving a class action based on monopolization and attempted monopolization claims under Section 2 of the Sherman Act against ebay, the well-known online marketplace for the sale of goods and services. After a bifurcated class certification and summary judgment hearing, the district court granted defendants motion for summary judgment and denied the motion for class certification as moot. Even though plaintiffs emphasized, and the court agreed, that plaintiffs were not required to present completed damages models damages at the class certification stage, but merely [to] present a plausible methodology by which they [would] demonstrate impact on a common basis to the class (citing In re Diamonds Antitrust Litig., 167 F.R.D. 374, 384 (9 th Cir. 1996) and In re Tableware Antitrust Litig., 241 F.R.D. 644, 652 (N.D.Cal. 2007)), to defeat ebay s motion for summary judgment plaintiffs were required to point to admissible evidence that would permit a reasonable jury to find that they had suffered injury that was caused by ebay s alleged anti-competitive acts. ebay, at 14

15 *11. The parties disagreed over the appropriate measure of injury in a two-sided market such as ebay s. Id. The court examined plaintiffs expert s two models for showing injury and determined that neither model raised a triable issue of fact as to causal antitrust injury. 8 The first model worked only in theory and plaintiffs had made no attempt to show that the model worked in practice to permit a reasonable jury to conclude that plaintiffs were injured as a result of ebay s actions. Id. at *12. The second model used take rates as a proxy for overcharges and the model was not designed to determine whether an increase in take rates resulted from the imposition of supracompetitive fees. Despite plaintiffs repeated assertions that a class certification hearing was not the appropriate forum for a battling of experts, the court found that absent probative evidence establishing the injury element of plaintiffs antitrust claim, ebay was entitled to summary judgment and class certification was denied. Id. at *14. Since the court held a simultaneous class certification and summary judgment hearing, plaintiffs in the ebay case were trying to grasp what was the applicable standard. Despite the application of more stringent standards, plaintiffs have nonetheless certified antitrust class actions. In the In re Currency Conversion Fee Antitrust Litigation, 264 F.R.D. 100 (S.D.N.Y. 2010), for example, the court certified a class of cardholders asserting antitrust claims arising from an alleged conspiracy among card networks to fix foreign currency conversion fees. Currency Conversion Fee, 264 F.R.D. at 105. The district court found that the numerosity, commonality and typicality requirements were met. Id. at 111. As to the adequacy requirement, defendants argued that representative plaintiffs were adequate class representatives only for the cardholders holding the same cards that representative plaintiffs actually held. Id. at 112. The court dismissed this argument, relying on authority in price-fixing cases holding that the victim of one alleged co-conspirator is adequate to prove liability for victims of all co-conspirators. Id. at citing In re Vitamins Antitrust Litig., 209 F.R.D. 251, 262 (D.D.C. 2002) ( [B]ecause the plaintiffs have alleged an overarching single conspiracy... all named plaintiffs will 8 The first model was a dominant-firm model entry deterrence with network externalities model, where ebay s alleged anti-competitive actions have the effect of reducing competitive threats, enabling ebay to raise its fees (as reflected in its rate cards) and the second model was a reduced-form treatment effects regression model [which] relat[ed] ebay s auction take rates to market conditions, comparing the take rates under different degrees of anti-competitive conduct during the class period. Id. at *12. Take rates referred to ebay's revenues as a percentage of total merchandise sold using ebay.com and was used by plaintiffs expert as a proxy for the amount of seller overcharge experienced by members of the class. Id. 15

16 have the same incentive to the case as an absentee class member. This incentive is in no way diminished by the fact that... the named representatives may have used different methods of purchase. ); In re Urethane Antitrust Litig., Polyether Polyol Cases, 251 F.R.D. 629, 644 (D.Kan.2008)(named plaintiffs had the same interests as the other class members in proving they were all damaged by defendants alleged price-fixing conspiracy ); In re Tableware Antitrust Litig., 241 F.R.D. 644, 649 (N.D.Cal.2007) (adequacy was met where [m]embers of the class were allegedly overcharged for tableware and [had] a mutual and coterminous interest in establishing defendants' liability and in recovering damages in common with representative plaintiffs); In re Carbon Black Antitrust Litig., No. 03 MDL 1543(DPW), 2005 WL , at *14 (D.Mass. Jan.18, 2005) ( The overarching question here is the conduct of the defendants, not the specific damage calculation or relevant bargaining power among the plaintiffs. Therefore, the named plaintiffs and their counsel have the same core objectives as would absent class members. ); In re Linerboard Antitrust Litig., 203 F.R.D. 197, 208 (E.D.Pa.2001) (same); In re NASDAQ Market-Makers Antitrust Litig., 169 F.R.D. 493, 519 (S.D.N.Y.1996) (Because antitrust law provides for joint and several liability of co-conspirators, each Plaintiff will have an equal incentive to generally prove the Defendants' participation in the alleged conspiracy. ); In re Playmobil Antitrust Litig., 35 F.Supp.2d 231, 243 (E.D.N.Y.1998) ( the fact that Plaintiffs purchased only a small portion of the products whose prices were anti-competitively established, and from only certain retailers and not all co conspirator retailers, does not render the Plaintiffs inadequate representatives of the Class as a whole ); In re Industrial Diamonds Antitrust Litig., 167 F.R.D. 374, 381 (S.D.N.Y.1996) ( Where the plaintiffs have alleged a single conspiracy to artificially inflate prices, a representative plaintiff may satisfy the adequacy requirement without having purchased products from all of the defendants... The crucial inquiry is not how many of defendants' products each plaintiff purchased, but rather whether each plaintiff has sufficient incentive to present evidence that will establish the existence of the alleged conspiracy and its effect on the prices of the products purchased by the putative class members. ). Finally, the court discussed whether common questions of law or fact predominated over any individual questions with respect to the three elements of plaintiffs antitrust 16

17 claim: (1) a violation of antitrust law; (2) antitrust injury and causation, and (3) damages. Id. at 114. Plaintiffs successfully showed that common questions predominated as to whether there was an antitrust violation. Id. The foreign currency conversions were not negotiated on an individual basis and the evidence of a conspiracy consisted of class-wide economic proof, parallel conduct, and meetings among competitors. Id. The second element, antitrust injury, required showing that plaintiffs had indeed suffered harm (injuryin-fact) and that the injury was of the type the antitrust laws were intended to prevent. Id. (citations omitted). Plaintiffs allegations that they paid supracompetitive prices for foreign currency conversion fees as a result of the conspiracy could be proven by common evidence and would be sufficient to prove that the injury was of the kind the antitrust laws were intended to prevent. Id. at 115. As to injury-in-fact, both sides offered experts who proposed to compare actual prices to those that would exist in a but for environment. Id. However, each side disagreed on the but for price defendants asserted the but for price would have been identical to the actual price while plaintiffs asserted the but for price would be zero. Id. The court found that because the parties essentially agreed on a common methodology for proving injury-in-fact as to a class-wide basis, common questions also predominated on this element of plaintiffs claim. Id. Similarly, in In re TFT-LCD (Flat Panel) Antitrust Litig., 267 F.R.D. 291 (N.D. Cal. 2010), the court granted in part a motion to certify a class action against manufacturers of Thin Film Translator Liquid Crystal Display ( TFT-LCD ) panels who were implicated in a global price-fixing conspiracy. The district court reiterated that class actions can play an important role in antitrust enforcement. TFT-LCD, 267 F.R.D. at 299 (citing Reiter v. Sonotone Corp., 442 U.S. 330, 344, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979) and Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262, 266, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972)). It also stressed that previous courts have found that price-fixing cases are appropriate for class certification because a class-action lawsuit is the most fair and efficient means of enforcing the law where antitrust violations have been continuous, widespread, and detrimental to as yet unidentified consumers. Id citing In re Rubber Chem. Antitrust Litig., 232 F.R.D. 346, 350 (N.D.Cal.2005). The court s analysis focused on the typicality and predominance requirements of Rule 23. As to typicality, defendants argued that plaintiffs who purchased products could not represent class members who 17

18 purchased panels, and vice versa, and purchasers of different types of TFT-LCD products (e.g. televisions, computer monitors or notebook computers, etc.) could not be included in the same class. Id. at 305. To address these concerns, the court certified separate classes of (1) direct purchasers of TFT-LCD panels and (2) direct purchasers of televisions, computer monitors and network computers that contained TFT-LCD panels, as opposed to purchasers of all TFT-LCD products. Id. As to predominance requirement, the court found that plaintiffs advanced a plausible methodology to demonstrate that antitrust injury could be proven on a class-wide basis. Id. at 313. Plaintiffs expert report was supported by defendants transactional data and industry data: the multiple regression and correlation analyses he used were accepted means of proving antitrust injury and damages on a classwide basis. Id. Even if defendants disputed the evidence on which the expert relied, the court found that plaintiffs had met their burden of proving the predominance requirement was met. Id. Merits based inquiry: Benefits and Drawbacks The trend toward more rigorous analysis at the class certification stage will necessarily make class certification proceedings more involved, more like summary judgment, as plaintiffs increasingly need to wait to the conclusion of fact discovery to present class certification motions that are synched up with their summary judgment presentation on the merits. This approach is faithful to the need to conduct a rigorous analysis of class issues in complex cases. In doing so, these new standards may weed out meritless class actions, while at the same time undermining the efficacy of class actions as a vehicle that permits the little guy his day in court. Whether the U.S. courts have struck the right balance remains to be seen, with the Dukes case perhaps giving the Supreme Court a chance to further clarify these issues. 9 9 For a debate about the change in certification standards see e.g., S.D. Olson, Chipping Away : The Misguided Trend Toward Resolving Merits Disputes as Part of the Class Certification Calculus, 43 U.S.F.L. Rev. 935 ( ); E. Meriwether, Rigorous Analysis in Certification of Antitrust Class Actions: A Plaintiff s Perspective, 20 Antitrust 55 ( ); I. Simmons, A.P. Okuliar & N.A. Sanghui, Without Presumption: Rigorous Analysis in Class Certification Proceedings, Antitrust (Summer 2007), at