Just before the Christmas holiday, the Third Circuit (meeting en banc) issued an opinion approving a classwide settlement in an antitrust case. The en banc opinion is unusual. (Any en banc opinion is.) But in this case, the opinion is unusual not just because it represents a break from routine, but because of how it reaches its result.
The case is Sullivan v. DB Investments, the culmination of litigation against South African diamond giant De Beers. The primary allegation in the underlying lawsuit was that De Beers had exploited its market dominance to inflate the price of rough diamonds, which would inflate the price of diamonds down the line. De Beers got sued by both direct purchasers and indirect purchasers (in this case: jewelers, other middlemen, and consumers).
The case was not really litigated. De Beers suffered a default judgment because it refused to recognize the jurisdiction of the US courts. It then negotiated a classwide settlement with the plaintiffs' counsel.
The district court approved the settlement, despite the fact that the settlement implicated the antitrust laws of 50 states. (Many state antitrust laws do not allow indirect purchasers to recover for antitrust claims.) Several objectors appealed, arguing that the settlement could not be fair if it allowed people without a legal claim to recover the same amounts as class members who did have solid legal claims. A split panel of the Third Circuit reversed the trial court. Then an en banc panel vacated that opinion and granted an en banc rehearing.
The result was Sullivan. On the surface, the holding (approving a classwide settlement that includes people without a legal claim) may seem unusual, but the fact that the court was approving a settlement class might explain its willingness to overlook the fact that many of the class members would not have been entitled to recover if they had brought their claims in the courts of their home states.
The en banc panel's justification of that holding was more adventurous however, and it has led to some pronouncements that frankly, are just--well, bizarre is the best way to put it. In particular, Sullivan makes a number of statements that flat-out disagree with the Supreme Court's class-action jurisprudence, most notably its definitive statement on class-action settlements Amchem Products, Inc. v. Windsor. Among those statements:
Variations in state law that are outcome-determinative do not predominate over common issues:
the objectors argue that the existence of substantive variations in the state antitrust laws underlying the Indirect Purchaser damages claims should preclude a court from finding that common issues affecting the class as a whole predominate. They also urge that differences among state consumer protection and unjust enrichment laws would likewise preclude a finding of predominance. Our dissenting colleagues focus on this issue as well, and adopt a specific requirement that every class member has “some colorable legal claim” in order for a district court to certify a class. 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.
(Emphasis added, internal citations omitted.) The Fifth Circuit disagrees, as does the Second. And so did the Third Circuit in Georgine v. Amchem Products, Inc. (which became Amchem).
Predominance focuses only on defendant's conduct:
Our precedent provides that the focus of the predominance inquiry is 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.
The Supreme Court disagreed in Wal-Mart Stores, Inc. v. Dukes. And to see the extent of that disagreement, here is Justice Ginsburg's characterization of that very issue from her dissent:
The Court gives no credence to the key dispute common to the class: whether Wal-Mart's discretionary pay and promotion policies are discriminatory. "What matters," the Court asserts, "is not the raising of common 'questions,'" but whether there are "[d]issimilarities within the proposed class" that "have the potential to impede the generation of common answers." … The Court's emphasis on differences between class members mimics the Rule 23(b)(3) inquiry into whether common questions "predominate" over individual issues.
(Emphases added, internal citations omitted.) In short, while Justice Ginsburg disagreed that the commonality requirement should focus on dissimilarities within the class (as opposed to defendant's conduct), she (and her three dissenting colleagues) took it as read that the predominance inquiry did look at dissimilarities.
Courts should not look at whether class claims could survive a motion to dismiss:
An analysis into the legal viability of asserted claims is properly considered through a motion to dismiss under Rule 12(b) or summary judgment pursuant to Rule 56, not as part of a Rule 23 certification process.
and
Class certification and motions to dismiss involve two distinct (and different) standards, and the former does not permit as extensive an inquiry into the merits as the latter does.
(Emphasis added.) Compare the Supreme Court's holding in Amchem:
The predominance requirement stated in Rule 23(b)(3), we hold, is not met by the factors on which the District Court relied. The benefits asbestos-exposed persons might gain from the establishment of a grand-scale compensation scheme is a matter fit for legislative consideration, but it is not pertinent to the predominance inquiry. That inquiry trains on the legal or factual questions that qualify each class member's case as a genuine controversy, questions that preexist any settlement.
(Emphasis added.)
Choice-of-law inquiries are not appropriate for class certification:
Moreover, district courts undertaking the scrupulous review of state laws could not ensure the validity of each individual claim without first settling upon the precise state law governing each of the putative class members’ claims. This choice-of-law analysis would be particularly difficult in a nationwide class action where an array of factors beyond the residence of the class members must be considered, including, inter alia, the location of the parties and the purchased items, and the place of contracting and performance. See generally Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 467 (3d Cir. 2006). The Seventh Circuit rightly noted that “choice-of-law issues in nationwide class actions are rarely so uncomplicated that one can delineate clear winning and losing arguments at an early stage in the litigation”; “the legal uncertainty resulting from the complicated choice-of-law issues” would unduly complicate the process for establishing predominance under Rule 23. Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745, 750 (7th Cir. 2006). As a result, many courts find it “inappropriate to decide choice of law issues incident to a motion for class certification.”
(Emphasis added) The Supreme Court clearly disagreed with this premise in Phillips Petroleum v. Shutts (which, oddly, the Third Circuit did not cite). To wit:
the [choice-of-law] calculus is not altered by the fact that it may be more difficult or more burdensome to comply with the constitutional limitations because of the large number of transactions ....
(Emphasis added.)
The fairness of a class settlement does not depend on the viability of different class members' claims:
only by engaging in the type of fact-intensive merits and choice-of-law analyses that we have rejected could a district court attempt to assay the varying strengths and weaknesses of asserted state claims. We can find no support in our case law for differentiating within a class based on the strength or weakness of the theories of recovery. Accordingly, we decline to require such an analysis.
According to the Supreme Court in Amchem, this statement is factually incorrect. The Third Circuit has in fact differentiated based on theories of recovery:
The Court of Appeals next found that "serious intra- class conflicts preclude[d] th[e] class from meeting the adequacy of representation requirement" of Rule 23(a)(4). Ibid. Adverting to, but not resolving charges of attorney conflict of interests, the Third Circuit addressed the question whether the named plaintiffs could adequately advance the interests of all class members. The Court of Appeals acknowledged that the District Court was certainly correct to this extent: "'[T]he members of the class are united in seeking the maximum possible recovery for their asbestos-related claims.' " Ibid. (quoting 157 F.R.D., at 317). "But the settlement does more than simply provide a general recovery fund," the Court of Appeals immediately added; "[r]ather, it makes important judgments on how recovery is to be allocated among different kinds of plaintiffs, decisions that necessarily favor some claimants over
others." 83 F.3d, at 630.
In short, it appears that the en banc opinion did not consider much of the relevant Supreme Court jurisprudence on the issues facing it.
Many of these strange statements make a lot more sense if they are limited to either (1) specific kinds of antitrust cases, or (2) settlement-only classes. They're still debatable--Amchem, for example, dealt with a settlement-only class--but they at least have an underlying logic that a court might be reluctant to interfere with an agreement between parties. In fact, Judge Scirica's concurrence specifically spells out that this was a settlement-only class, and therefore would not face many of the manageability problems that plaintiffs might face were they to take the case to trial. The majority appeared to agree with this conclusion in at least one part of its opinion. When evaluating the fairness of the settlement, it explicitly stated that
although the size and variety of issues implicated in this nationwide class action do not present an obstacle to certification of a settlement class, there is a significant risk that such a class would create intractable management problems if it were to become a litigation class, and therefore be decertified. Accordingly, we agree with the District Court that the considerable risk of maintaining the class action through trial weighed in favor of settlement.
(Internal quotations omitted.) And, in several places, it stressed the fact that this was an antitrust class action as well, and that antitrust cases are more susceptible to certification under certain circumstances.
Given the confusion sown by the majority opinion, the fact that many statements seem to contradict the Supreme Court's class-action jurisprudence, and the circuit splits this opinion opens, it would seem to be ripe for a certiorari petition. (Of course, it is always difficult to predict whether the Supreme Court will grant certiorari in cases like these.)
Meanwhile, given the en banc panel's sporadic attempts to limit the reach of its holding (however confusing in the context of the opinion itself), there are two strategies defense lawyers can employ when plaintiffs in the Third Circuit inevitably cite this opinion:
- Point out that the opinion is limited to settlements (and where appropriate, more specifically to antitrust settlements), and
- Quote the Supreme Court. In a contest between the Third Circuit and the Supreme Court, the Court wins. At least, it usually does.
(Thanks to Glenn Lammi for suggesting the first case of the year.)
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Andrew Trask has defended more than 100 class actions, involving all stages of the litigation process. While his work has