United States - Economist's Perspective: Class actions – litigation, policy and latest developments

Introduction

For a matter to proceed as a class action in the United States, it first must be certified per the criteria listed in Rule 23 of the Federal Rules of Civil Procedure. Namely, a class must satisfy all criteria of Rule 23(a) and any one of the criteria listed in Rule 23(b). Although these criteria are questions of law ultimately answered by the trier of fact, expert economic analysis often is required to determine whether the proposed class in fact satisfies those criteria.

Requirements for class certification

The criteria listed in Rule 23(a) are summarised as:

• numerosity;
• commonality;
• typicality; and
• adequacy.^[1]

In addition, many circuits have an implied requirement of ascertainability addressing whether a proposed class is identifiable through objective criteria. To certify a class under Rule 23(b)(3) (cases where damages are involved), the court must find that ‘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] Related to the issue of predominance is the issue of whether a proposed class contains entities uninjured from the challenged conduct and whether the extent of those uninjured entities provides grounds for denying class certification.

Several recently decided cases have addressed issues specifically related to ascertainability, numerosity and predominance, along with the issue of uninjured class members. In addition, one recent decision recommended decertifying a class on the basis of plaintiffs’ expert’s testimony being excluded at the merits stage of a case.

Ascertainability

In Niaspan, the district court denied class certification on the basis that plaintiffs ‘had not presented an administratively feasible mechanism to distinguish between class members’ and entities specifically excluded from the proposed class.^[3] In that matter, the defendant, Abbvie, was alleged to have inflated the prices charged for Niaspan based on its payment to a ‘potential manufacturer of a generic version of the drug to delay the generic’s launch’.^[4] Plaintiffs initially proposed a class excluding six types of entities, one of which was composed of fully insured health plans described as ‘plans that purchased insurance from another third party payor covering 100% of the Plan’s reimbursement obligations to its members’.^[5]

To exclude fully insured plans, plaintiffs relied on expert testimony claiming that such plans could be identified through data maintained in the normal course of business.^[6] In response to plaintiffs’ proposed methodology, Abbvie advanced its own expert evidence demonstrating examples of inconsistencies between what plaintiffs’ expert claimed the data showed and what other record evidence showed to be reality. Abbvie’s expert also pointed to the ‘complex contractual relationships that can exist among the parties involved’ in relevant transactions.^[7] In particular, Abbvie’s expert observed that since ‘both self-insured and fully insured health plans may use an intermediary’, it could be ‘difficult to recognize what role the intermediary is playing for a given transaction’.^[8]

After the district court denied class certification and plaintiffs appealed, the Third Circuit held that even though plaintiffs claimed that other circuits had putatively ‘rejected the ascertainability requirement as an extratextual hurdle to class certification’, it did not have the ‘authority to overrule our existing precedent’, nor would it be inclined to do so here.^[9] In reaching its conclusion, the Third Circuit noted that ‘absent some mechanism to establish whether the standards of Rule 23 are met, courts could not meaningfully apply the Rule’.^[10] The Third Circuit then observed that determining which entities might fit the fully insured exclusion would require ‘examin[ing] the underlying contractual relationships of each transaction’ and the ‘proper class member could not be identified without analyzing the contractual relationships behind each transaction’.^[11]

In Mr Dee’s, the district court likewise denied class certification on the basis of ascertainability. In that case, plaintiffs alleged that defendants ‘entered into a series of agreements’ for the processing of coupons, the putative result of which was higher processing fees.^[12] After the district court ‘reached tentative conclusions regarding the percentage of putative class members that suffered no demonstrable antitrust impact or damages’, plaintiffs amended their proposed class definition to be limited to just entities paying supposedly higher prices in ‘more than 8 different calendar months’ and for ‘at least 2.2 million coupons’.^[13] Defendants countered that those ‘criteria’ were ‘arbitrary’.^[14]

In denying class certification, the district court found ‘[p]ersuasive’ guidance from the Manual for Complex Litigation stating that if a proposed class definition ‘fails to include a substantial number of persons with claims similar to those of the class members, the definition of the class may be questionable’.^[15] Applied to the specific facts of Mr Dee’s, the district court concluded that it was plaintiffs’ model, and not the alleged conspiracy, that ‘determine[d]’ which entities would be included in the proposed class. As a result, the contours of the proposed class would not be ‘defined by the activities of the defendants’, meaning there was ‘no connection’ between the challenged conduct and plaintiffs’ proposed class. The district court thus agreed with defendants that plaintiffs’ counsel ‘arbitrarily’ drew ‘lines’ to determine ‘who would be included in their class’.^[16]

Numerosity

Numerosity requires that the proposed class be so large that joinder of all members would be impracticable.^[17] In Lamictal, the court declined to certify a subclass composed of eight proposed class members on the basis that a joinder of them would not be impracticable. This decision was made through an analysis of the six factors frequently considered by courts to determine whether joinder is impracticable.

In a 2016 decision in Modafinil, the Third Circuit held that a list of six non-exhaustive factors should be considered to determine whether numerosity is satisfied:

• judicial economy;
• class members’ motivation to litigate as joined plaintiffs;
• financial resources of class members;
• geographic dispersion of class members;
• ability to identify future claimants; and
• whether the claims are for injunctive relief or damages.^[18]

As the court in Lamictal noted, ‘both judicial economy and the ability to litigate as joined parties are of primary importance because they advance the core purposes of a class action.’^[19] With this guidance in hand, the court decided that judicial economy concerns weighed in favour of joinder since defendants noted that five of the named plaintiffs had already been pursuing joint litigation for a decade, while plaintiffs could not make a persuasive argument of why a class action would be more efficient.

The court also rejected plaintiffs’ claims asserting that class members lacked the incentive and ability to issue individual suits since the putative costs supposedly would be too high. The court noted that numerosity only considers the alternative costs of joinder, which would be substantially less expensive than individual lawsuits. The court also noted that the matter involved a ‘relatively small group of large and sophisticated corporate plaintiffs, most of whom have claims worth over $1 million’, thereby weighing against a class certification.^[20]

In addition, neither plaintiffs nor defendants disputed the geographic dispersion of the potential class members, and both sides remained silent on the ability to identify future members. Lastly there was no argument that the plaintiffs sought damages instead of injunctive relief.

Predominance and uninjured class members

In Black, the Tenth Circuit affirmed the district court’s decision to certify the class.^[21] In upholding the district court’s ruling, the appellate court ruled that the presence of uninjured class members did not defeat a finding of predominance.^[22] Plaintiffs had alleged the defendant’s (Anadarko) practice of leasing its mineral interests to its affiliated operating company, including its 30 per cent royalty rate, had the intent and effect of reducing the value of plaintiffs’ mineral interests.^[23]

The district court relied on ‘plaintiffs’ expert evidence as providing common proof that Anadarko’s 30% intracompany leasing program created a reduction in the value of mineral interests in the class area’.^[24] The defendant contested this conclusion, arguing that individualised inquiries would be required to prove whether a causal connection existed between its alleged antitrust violation and plaintiffs’ alleged injury.^[25] In affirming the district court’s decision, the appellate court found that the individualised factors raised by the defendant’s expert were either a ‘class-wide defense or undermine[d] the persuasiveness of Plaintiffs’ evidence’ and that either contention is ‘not for resolution at class certification’ but instead should be resolved at ‘summary judgment or trial’.^[26] The appellate court also found that the district court was correct in concluding that plaintiffs are not required to prove antitrust impact as to every class member at the class certification stage and that the presence of class members who experienced varying degrees of injury, including some who were altogether uninjured, does not bar class certification.^[27]

In Mr Dee’s, the district court did not certify one of the three classes, the All Payer Manufacturer Class, because common issues did not predominate.^[28] Specifically, the district court found ‘that the All Payer Manufacturer Class cannot satisfy the predominance requirement because Plaintiffs’ expert’s regressions did not find impact to almost one-third of the class and Plaintiffs fail to proffer additional evidence that all manufacturers in the class suffered antitrust impact and damages’.^[29]

Based on the decision in Rail Freight, the district court held that ‘plaintiffs must also show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy’.^[30] The court noted that there are two exceptions to the requirement of a showing that class members were injured. The first exception is the de minimis exception, where a de minimis number of class members are injured. After review, the district court found that ‘5% to 6%’ of uninjured class members ‘constitutes the outer limits of a de minimis number’.^[31] The second exception is a ‘“winnowing mechanism” to filter out uninjured class members’.^[32]

Plaintiffs did not claim that there was either a de minimis number of uninjured class members or a winnowing mechanism.^[33] Instead, plaintiffs claimed that they could show all class members were injured by way of five arguments that the court rejected.

In one argument, plaintiffs argued: ‘one way of demonstrating impact and damages to class members would be to take the average overcharge multiplied by volume, which would demonstrate impact to all purchasers.’^[34] The district rejected this argument on the grounds it mispresented the testimony of plaintiffs’ expert, who in fact testified that ‘averages should not be used to calculate impact’.^[35] Plaintiffs were thus found to ‘lack expert testimony’ to establish all class members were injured.^[36]

With respect to the remaining four arguments, the court concluded that the evidence suggested the alleged conduct harmed the market but was insufficient to ‘prove, through common evidence, that all class members were in fact injured’.^[37] Plaintiffs thus failed to ‘explain how these general arguments about the market show that each manufacturer was impacted’.^[38] The district court concluded that although plaintiffs had provided evidence of general market harm, to infer from general market harm that all proposed class members ‘were injured requires a speculative leap this court is not permitted to make’.^[39]

In Van, the Ninth Circuit of Appeals found the district court ‘erred in its assessment of whether the individualized issues generated by the retailer discounts … defeat the predominance of class issues’.^[40] As a result, the appellate court vacated the district court’s order certifying the class and remanded the case for the district court to re-evaluate predominance.^[41]

The defendant, LuLaRoe, had ‘allegedly charged sales tax’ based on the ‘location of the retailer, rather than the location of the purchaser, which resulted in some online purchasers being charged, and having paid, sales tax when none was owed’.^[42] LuLaRoe eventually ‘refunded all the improper sales tax it collected, but it did not pay interest on the refunded amounts’.^[43]

After the district court’s initial decision certifying the class, LuLaRoe appealed on the grounds that ‘some purchasers received discounts from retailers to offset the improperly assessed sales tax and thus suffered no loss’, which would raise individualised issues.^[44] Both parties and the district court agreed that class members who received a discount equal to or greater than the improper sales tax for purpose of offsetting the tax were not injured.^[45] LaLuRoe then presented evidence that 18 of the 13,680 discounts that were provided had offset the improper sales tax. Despite that evidence, the district court certified the class, holding that ‘the number of proposed class members for whom it can presently be determined received a discount to offset sales tax being billed is de minimis’.^[46]

However, the appellate court found that the district court erred in its analysis because ‘Rule 23 does not demand proof of who will win or lose at trial’.^[47] Furthermore, the district court found that 18 invoices ‘was sufficient to prove that inquiry’ into each discount might be necessary. As a result,

[w]hen a defendant substantiates such an individualized issue in this way, the district court must determine whether the plaintiff has proven by a preponderance of the evidence that the questions of law or fact common to class members predominate over any questions affecting only individual members—that is, whether a class-member-by-class-member assessment of the individualized issue will be unnecessary or workable.^[48]

Admissibility of expert economic testimony

In Google Play, defendants moved to exclude the testimony of plaintiffs’ expert economist on the grounds that he had not reliably measured the ‘pass-through’ of allegedly inflated prices to consumers using ‘any’ real-world evidence.^[49] According to defendants, the model advanced by plaintiffs was a ‘bare bones formula’ that ‘depart[ed]’ from ‘standard’ economic analysis and was contradicted by ‘real-world data’, among other putative flaws.^[50] The district court initially denied defendants’ motion to exclude after holding a ‘concurrent expert proceeding’, sometimes referred to colloquially as an ‘expert hot tub’.^[51]

In initially denying defendants’ motion to exclude, the district court found that Google had ‘not demonstrated that unreliability or invalidity warrant[ed] exclusion’ of plaintiffs’ expert and that Google’s criticisms ‘were directed far more to opposing certification than to disqualifying’ him.^[52] Instead, Google’s criticisms related to whether plaintiffs could establish the predominance and commonality criteria under Rule 23, which as the district court noted ‘is a wholly different question from admissibility’.^[53]

However, after initially accepting the admissibility of plaintiffs’ expert’s opinions, the district court at the merits stage of the case then subsequently excluded them.^[54] In noting the differing outcomes, the district court observed that at the certification stage defendants’ expert had declined to conclude that plaintiffs’ expert’s opinions were ‘junk science’ and ‘did not challenge the fundamental soundness’ of his approach.^[55] But at the merits stage, relying upon a different economic expert, defendants ‘changed’ their critiques. Although the district court noted that ‘it had some misgivings’ about defendants ‘taking a second shot’ at plaintiffs’ expert, ‘the path to a fair result often has some turns’.^[56]

The particular issue raised by defendants’ merits expert concerned a statistical assumption known as the independence of irrelevant alternatives. Applied to the specific facts of Google Play, the district court expressed concern about how a jury would be able to evaluate the ‘substitutability’ of the various apps available through the Google Play Store and that the methodology advanced by plaintiffs’ expert did ‘not provide usable guidance on what to do with the myriad of differences and distinctions between apps’.^[57] Given this lack of guidance, the district court expressed concern about a ‘serious risk of the jury simply guessing about proportionate substitution and ultimately the pass-through of fees to consumers’.^[58]

In explaining its reasoning to exclude plaintiffs’ expert at the merits stage, the district court noted the ‘substantially more developed’ record than at the class stage and wrote that based on that more developed record the pass-through model being advanced was ‘not within accepted economic theory and literature’ and was predicated on assumptions ‘not supported by the evidence’.^[59] Ultimately, the district court concluded that the model would ‘not give the jury a sound basis on which to make a reasoned and reasonable judgment about antitrust impact and damages’.^[60]

Because plaintiffs’ pass-through model ‘was an essential element’ of their arguments in support of class certification, the district court noted that the previously certified class should be decertified.^[61] However, since defendants had already appealed the certification decision, the district court found that it lacked the ‘authority to decertify the class’ and recommended instead that the parties meet and confer to discuss ‘proposed next steps’.^[62]

Notes

^[1] Fed R Civ P 23(a).

^[2] Fed R Civ P 23(b)(3).

^[3] In Re Niaspan Antitrust Litigation, 67 F4th 119, 128 (3rd Cir 2023).

^[4] id 121.

^[5] id at 125.

^[6] id.

^[7] id at 126.

^[8] id.

^[9] id at 132. The Third Circuit also noted that ‘even in circuits that have rejected an ascertainability requirement, some version of an administrative feasibility test if applied, albeit under a different name’ (id at 133).

^[10] id at 132.

^[11] id at 138.

^[12] Mr Dee’s, Inc v Inmar, Inc, 2023 WL5436178, at * 1–2 (MDNC).

^[13] id at 5–6.

^[14] id at 6.

^[15] id at 7.

^[16] id at 8.

^[17] In re Lamictal Direct Purchaser Antitrust Litigation, 2023 WL 2525895, at *3–4 (DNJ).

^[18] id at 4.

^[19] id.

^[20] id at 8.

^[21] Black v Occidental Petroleum Corporation, 69 F4th 1161, 1169 (10th Cir 2023).

^[22] id at 1180.

^[23] id at 1168–169.

^[24] id at 1181.

^[25] id.

^[26] id at 1189.

^[27] id. The appellate court clarified: ‘a class may still be properly certified even if it “consists largely (or entirely, for that matter) of members who are ultimately shown to have suffered no harm.”’

^[28] Mr Dee’s Inc v Inmar, Inc 2023 WL 5436178, at *1 (MDNC).

^[29] id at 13.

^[30] id.

^[31] id at 14.

^[32] id.

^[33] id at 15.

^[34] id.

^[35] id at 17–19.

^[36] id at 17–19.

^[37] id at 19.

^[38] id.

^[39] id.

^[40] Van v LLR, 61 F4th 1053, 1058 (9th Cir 2023).

^[41] id.

^[42] id.

^[43] id.

^[44] id.

^[45] id at 1068.

^[46] id.

^[47] id at 1068–1069.

^[48] id at 1069.

^[49] See, generally, In Re Google Play Consumer Antitrust Litigation, Public-Redacted Version Defendants’ Notice of Motion and Motion to Exclude Testimony of Dr Hal J Singer on Class Certification; Memorandum of Points and Authorities in Support Thereof, 2022 WL 3714870 (NDCal).

^[50] id at 4.

^[51] In Re Google Play Consumer Antitrust Litigation, Order Re Consumer Plaintiffs’ Class Certification Motion and Defendants’ Motion to Exclude Expert Testimony, 2022 WL 17252587, at * 1, 3 (NDCal).

^[52] id at 7.

^[53] id.

^[54] See, generally, In Re Google Play Consumer Antitrust Litigation, Order Re Merits Opinions of Dr Hal J Singer, 2023 WL 5532128 (NDCal).

^[55] id at 4.

^[56] id.

^[57] id at 6.

^[58] id.

^[59] id at 7.

^[60] id.

^[61] See Order Re Decertification and Class Notice, In Re Google Play Consumer Antitrust Litigation, 2023 WL 5602143 (NDCal).

^[62] id.