United States: Class Actions
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The United States relies on a mixed system of enforcement of competition claims. Federal and state regulators, including the US Department of Justice, the Federal Trade Commission and various states’ attorneys general possess the authority to bring criminal and civil suits. Federal and state antitrust laws further empower private citizens to bring civil suits for damages for antitrust violations.
Particularly in the consumer sphere, private antitrust suits are generally brought as class actions – a collective action mechanism permitting individual plaintiffs to represent broader classes of injured persons under defined circumstances. In many such class actions, individual plaintiffs will seek to represent classes of businesses and consumers who fall along the chain of distribution of relevant products. Direct purchasers, often wholesalers or distributors, constituting the first link in the chain of distribution, may pursue their claims under the federal Sherman and Clayton Acts. Indirect purchasers, including many retail stores and individual consumers, must pursue their claims under state antitrust laws that expressly permit recovery by such purchasers.
Antitrust class actions often follow investigations or enforcement actions by federal and state regulators. Many involve multiple suits in courts throughout the country asserting nationwide or multiple state claims. It is common practice for such cases to be consolidated in one federal court so that a single judge can preside over the cases for pretrial purposes, including class certification.
The class action is a creature born of federal and statute procedural rules, which provide a similar framework of requirements that must be met before a case may proceed as a class action. Because most antitrust class actions – even those involving only state law claims – proceed in federal court, Rule 23 of the Federal Rules of Civil Procedure governs the process of judicial certification of cases for class treatment.
Rule 23’s requirements
The US Supreme Court has repeatedly stressed that ‘the class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only”’. 1 To justify a departure from that rule and class treatment of a case, ‘a class representative must be part of the class and possess the same interest and suffer the same injury as the class members’. 2
Rule 23 contains a two-part structure designed to circumscribe a court’s inquiry into the appropriateness of certifying a case for class treatment. The first step under Rule 23(a) focuses on the class representative. The second step under 23(b) requires the court to determine whether a class action would provide the appropriate mechanism for resolution of the asserted claims.
Rule 23(a) helps ensure ‘that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate’. 3 ‘The Rule’s four requirements – numerosity, commonality, typicality and adequate representation – effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims.’ 4
In antitrust class actions, defendants usually do not contest Rule 23(a)(1)s requirement that ‘the class is so numerous that joinder of all members is impracticable’. Most antitrust class actions, particularly those involving consumer claims, involve hundreds of thousands or millions of class members. One exception involves suits brought by direct purchasers of pharmaceuticals, where the number of drug wholesalers is very small. Even in those cases, many courts have certified classes despite defendants’ challenges.
Rule 23(a)(2)’s commonality prerequisite states that there must be ‘questions of law or fact common to the class’. This is satisfied if there is a common issue or issues that ‘drive the resolution of the litigation’. 6 Consideration of this requirement obligates a district court to determine whether plaintiffs have ‘suffered the same injury’. 7 In other words, ‘claims must depend upon a common contention. . . . That common contention, moreover, 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.’ 8 In practice, this requirement is also generally met.
Rule 23(a)(3) requires that ‘the claims or defenses of the representative parties are typical of the claims or defenses of the class’. The typicality requirement is generally satisfied when each class member’s claim arises from the same course of events, and each class member makes similar legal arguments to prove the liability. 9 The typicality requirement is ‘permissive’ and requires only that the representative’s claims are ‘reasonably co-extensive with those of absent class members; they need not be substantially identical’. 10
Finally, Rule 23(a)(4) requires that the representative party (and their counsel) ‘will fairly and adequately protect the interests of the class’. To satisfy Rule 23(a)(4), the named plaintiffs must ‘possess the same interest[s] and suffer the same injur[ies] as the class members’. 11 ‘Adequacy is twofold: the proposed class representative must have an interest in vigorously pursuing the claims of the class, and must have no interests antagonistic to the interests of other class members.’ 12 Not every conflict among subgroups of a class will prevent class certification – the conflict must be ‘fundamental’ to violate Rule 23(a)(4). 13
If all four prerequisites of Rule 23(a) are satisfied, a court must also find that plaintiffs ‘satisfy through evidentiary proof’ at least one of the three subsections of Rule 23(b). 14 Rule 23(b) sets forth three general types of class actions. A class may be certified under Rule 23(b)(1) upon a showing that there is a risk of substantial prejudice or inconsistent adjudications from separate actions. 15 A class may be certified under Rule 23(b)(2) if ‘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’. 16 Finally, a class may be certified under Rule 23(b)(3) if a court finds 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’. 17
The predominance requirement ‘tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation’. 18 This inquiry requires ‘courts to . . . careful[ly] scrutin[ise] the relation between common and individual questions in a case’. 19
When one or more of the central issues in the action are common to the class and can be said to predominate, the action may be considered proper under Rule 23(b)(3) even though other important matters will have to be tried separately, such as damages or some affirmative defenses peculiar to some individual class members. 20
In antitrust cases, the predominance requirement is often hotly contested and frequently turns on complex evidence presented by antitrust economists. Courts often struggle over issues concerning whether evidence of economic harm may vary between class members and whether some class members may not have suffered injury.
The Asacol decision and uninjured class members
The First Circuit’s decision in In re Asacol Antitrust Litigation, 21 has generated substantial commentary among members of the antitrust and class action bars. Much of the commentary has focused on the opinion itself and generally proclaimed that the case represents a significant victory for defendants, to the detriment of antitrust class actions and class actions generally. 22 Defendants have tried to frame Asacol as a seminal decision under which they can defeat class certification, and thus avoid liability, so long as the class definition captures some members that are uninjured. But that result is inconsistent with the purpose of Rule 23, inconsistent with recent Supreme Court precedent and inconsistent with black letter law. This article points out the fundamental defects in the Asacol decision and highlights why the decision is unlikely to survive Supreme Court scrutiny. Next, we explain that even if the decision stands, it is unlikely to have the broad effect that some have suggested. We finish by explaining why Asacol undercuts Rule 1’s directive ‘to secure the just, speedy, and inexpensive’ resolution of cases, and will instead create piecemeal litigation that will unnecessarily add to the workload of the courts and parties.
The Asacol decision
The plaintiffs in Asacol included a class of indirect purchasers of Warner Chilcott’s anti-inflammatory drug, Asacol. Those consumers alleged they suffered antitrust injury when the company pulled Asacol from the market, which forced thousands of patients who depended on Asacol for treatment to switch to the company’s other drugs. The switch eliminated the possibility that a generic product could be substituted automatically for an Asacol prescription.
As is common practice under Rule 23, the plaintiffs sought to demonstrate class-wide impact using statistical representative evidence, which, as the Supreme Court reaffirmed in Tyson Foods, Inc v Bouaphakeo, is a proper basis to establish and apportion harm among the class. The experts on both sides agreed that approximately 10 per cent of customers – ‘brand loyalists’ who do not switch irrespective of price – would not have switched to a generic and therefore were not injured by the ‘product hop’. Notably absent from much of the commentary on this case is that the aggregate damages that the class suffered would not change based on the presence of any uninjured plaintiffs that were captured under the class definition.
The district court certified the class under Rule 23(b)(3), finding that the possibility that a small percentage of class members may not have been injured did not preclude certifying the class because any potentially uninjured class members could be identified and removed in later proceedings. Consistent with what courts across the country have done – and that various reviewing courts have blessed – the district court concluded that, ‘prior to judgment, it will be possible to establish a mechanism for distinguishing the injured from the uninjured class members’, which involved a court-appointed claims administrator evaluating and approving the claim forms (along with relevant data and documentation) that the class members submitted. 24
The First Circuit reversed, finding a lack of predominance on the basis that there was no ‘administratively feasible’ way for deciding ‘who . . . suffered no injury’ and so no mechanism for adjudicating individualised issues, stating that there needed to be protection for the ‘defendants’ Seventh Amendment and due process rights’, despite the defendant in this case claiming a right to contest the claims forms of each class member. 25
In the wake of the First Circuit’s decision, many defence-oriented commentators have been quick to trumpet Asacol as a significant and material limitation on a plaintiff’s ability to seek relief under Rule 23. Numerous updates and articles have been written characterising Asacol as not only a victory for defendants in the antitrust context, but that, under the reasoning of the panel’s decision, ‘many types of class actions – including consumer class-actions – will be harder to certify’. 26
Asacol will be unable to withstand Supreme Court scrutiny
Despite the pronouncements from the defence bar, there is reason to conclude that Asacol will not fundamentally change the landscape and ability to obtain certification under Rule 23. First, Asacol cannot survive scrutiny if certiorari is granted and the Supreme Court faithfully applies its recent precedent. For example, the First Circuit’s holding that individual evidence of injury is required at the class certification stage is inconsistent with Haliburton Co v Erica P John Fund, Inc. 27 In Haliburton, the Supreme Court held that the class plaintiffs ‘could satisfy’ a reliance requirement at the class certification stage ‘by invoking a presumption’ of reliance even while a defendant may rebut this presumption on an individual basis. 28 The Court recognised that individual issues could exist, but nevertheless ruled that issues of ‘individualized rebuttal does not cause individual questions to predominate’. 29
In the antitrust context, circuit courts have held that evidence of anticompetitive conduct such as price-fixing permits a presumption of antitrust injury even where pricing was negotiated on an individual basis. 30 In Kleen Products, the court rejected the argument that plaintiffs ‘have the burden of showing that every class member must prove at least some impact from the alleged violation’ to satisfy Rule 23. 31
Permitting certification even when uninjured class members are present is necessary given the realities of nationwide class actions involving class members numbering in the tens of thousands or millions. Indeed, courts have recognised that it is ‘almost inevitable’ that a class will include uninjured members. 32
Further, the rule in Asacol that class members must be identified and excluded before trial or after a trial addressing common liability and aggregate damages is incompatible with the Supreme Court’s 2016 decision in Tyson Foods. There, the Supreme Court recognised that certification under Rule 23 was proper even if a minority of the class was uninjured, which cannot be reconciled with the First Circuit’s reasoning.
Asacol is also inconsistent with the Supreme Court’s ruling in Tyson Foods because it alters the proper sequence under which the class certification analysis is supposed to be conducted. In Tyson Foods, the Supreme Court held that the plaintiffs could use representative proof to show how the class members were injured. With respect to the order in which a court should conduct the analysis, the Supreme Court stated that it is ‘premature’ even at the trial phase to ask whether the plaintiffs have ‘demonstrated any mechanism for ensuring that uninjured class members do not recover damages’. 33 This is in accord with other courts that have stated that plaintiffs ‘have the burden of showing that every class member must prove at least some impact from the alleged violation’, yet those courts ‘have not insisted on this level of proof at the class certification stage’. 34
The limited effects of Asacol
Despite the buzz around the decision that Asacol reflected a shift in the landscape under which classes containing uninjured members cannot establish predominance, the case is unlikely to be the death knell that some have suggested. Asacol certainly represents a troubling attempt to limit the availability and benefits of class-wide relief to injured consumers, but any restriction is more likely going to be incremental rather than dramatic.
First, Asacol was based on alleged anticompetitive conduct in a highly regulated and complex field. Multiple federal laws, government programmes such as Medicaid and private insurance address how and at what price patients buy their pharmaceuticals. Due to these myriad laws and programmes, the markets for pharmaceuticals like Asacol do not operate as typical competitive markets. For example, some patients do not switch to generic drugs because they have co-pay or have met their annual out-of-pocket maximum, and therefore those consumers are not sensitive to price. 35
Second, despite the First Circuit’s failure to appreciate the reality that nationwide class actions are routinely going to have some number of class members that are uninjured, the panel in Asacol nevertheless affirmed that the presence of uninjured class members does not necessarily defeat class certification. The panel stated, ‘we have not previously required every class member to demonstrate standing when a class is certified, nor do we do so today.’ 36
Third, Asacol is not the first time in recent history that legal observers have predicted that the demise (or material limitation) of Rule 23 was nigh. Recently, the Supreme Court issued its opinion in Bristol-Myers Squibb Co v Superior Court (BMS) 37 holding that a court in California lacked specific jurisdiction over the mass tort claims of non-resident plaintiffs on the basis that the non-resident defendant’s conduct giving rise to their claims did not occur in California. Some commentators opined that if the reasoning of BMS was extended to Rule 23, it would bar the participation of unnamed, non-resident plaintiffs in class actions, which would have the effect of leaving only the defendant’s state of residence as a possible forum for pursuing a class action on behalf of a nationwide class. After an initial divide among the lower courts, the emerging consensus is that BMS does not limit class actions in such a way. 38
Fourth, even if courts find Asacol persuasive, plaintiffs are not powerless. There are still avenues to demonstrate certification even in the face of a strict application of Asacol. One such avenue is to seek certification of certain common issues pursuant to Rule 23(c)(4). Consider the Asacol case: the company’s alleged anticompetitive behaviour was based on the ‘hard switch’ that Warner Chilcott forced on consumers to maintain its monopoly power. Because all of the class members’ antitrust violations stem from the same company conduct – the hard switch – there are certainly common questions of liability. Likewise, aggregate damages can also be determined on a class-wide basis, leaving only the issue of individual damages. Thus, questions about damages can be addressed on an individual basis through a means that does not need to be much different than the claims process for which the Asacol plaintiffs originally advocated.
Apple v Pepper and indirect purchaser claims
As noted above, in antitrust class actions involving plaintiffs found on different links of the chain of distribution, only direct purchasers may pursue their claims under the federal antitrust laws. Indirect purchasers – those farther down the chain – may only pursue their claims under similar state antitrust laws and only for states that permit such suits. The dichotomy between the treatment of direct and indirect purchaser claims stems from a 1977 Supreme Court decision, Illinois Brick Co v Illinois. 39 In Illinois Brick, the Court held that only the direct purchasers – namely ‘the immediate buyers’ – had standing to sue.
In Apple Inc v Pepper, 40 plaintiffs alleged that Apple violated section 2 of the Sherman Act by monopolising the market for the sale of IOS apps. The plaintiffs alleged that, as owners of Apple iPhones, they could only purchase apps from Apple’s App Store. Apple does not create most of the apps in the App Store. Independent developers create the apps and contract with Apple to sell them. The plaintiffs alleged that Apple’s requirement that iPhone owners purchase apps only through Apple’s App Store and pay a 30 per cent markup on all apps amounted to an abuse of monopoly power.
Apple filed a motion to dismiss and asserted that the plaintiffs were indirect purchasers and thus lacked standing to maintain the lawsuit under federal law. The district court in the Northern District of California agreed with Apple and dismissed the case. The Ninth Circuit reversed the district court’s ruling. It found that the consumer plaintiffs were direct purchasers because, regardless of who sets the price, the iPhone owners purchase the apps directly from Apple. The Supreme Court granted review.
In a 5:4 split decision, the Supreme Court affirmed the Ninth Circuit’s decision finding that the plaintiff consumers have standing to sue. The majority reasoned, ‘It is undisputed that the iPhone owners bought the apps directly from Apple. Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.’ 41
Importantly, the Supreme Court roundly rejected an invitation by the Department of Justice, 30 states and the District of Columbia to overturn its decision in Illinois Brick. Neither the majority nor dissenting justices were inclined to revisit the 30-year-old precedent. The majority explained: ‘In light of our ruling in favor of plaintiffs in this case we have no occasion to consider [the] argument for overruling Illinois Brick.’ 42 The dissent, while acknowledging that ‘maybe there is something to these arguments; maybe not’, likewise sidestepped the issue, concluding ‘there is plenty of reason to decline any invitation to take even a small step away from Illinois Brick today.’ 43
It is hardly surprising that the Court would avoid revisiting and potentially overturning settled precedent that has prescribed federal and state antitrust law for over 40 years. Yet, the coordinated effort among federal regulators and a majority of states may presage fights in years to come to revisit the Illinois Brick rule. A decision overturning Illinois Brick would result in remarkable changes in federal antitrust practice for civil parties, including as follows:
- removing the threat of monetary damages under both federal and state law for defendants;
- putting direct and indirect purchasers in actual conflict as they seek to prove the pass through of damages from one level to another;
- necessitating joint trials between direct and indirect purchasers; and
- further complicating the class action inquiry in cases involving direct and indirect purchasers.
1 Wal-Mart Stores, Inc v Dukes, 564 U.S. 338, 348–49 (2011) (quoting Califano v Yamasaki, 442 U.S. 682, 700–01 (1979)).
2 id. (quoting East Tex. Motor Freight System, Inc. v Rodriguez, 431 U.S. 395, 403 (1977)).
3 Dukes, 564 U.S. at 349.
4 id. (internal quotations omitted).
5 For further details on Rule 23, see the ‘United States: Class Action Defence’ article of this publication.
6 Dukes, 564 U.S. at 350.
7 id. (internal quotation marks omitted).
9 See, eg, Armstrong v Davis, 275 F.3d 849, 868 (9th Cir. 2001).
10 Rodriguez v Hayes, 591 F.3d 1105, 1124 (9th Cir. 2010).
11 Amchem Prods., Inc. v Windsor, 521 U.S. 591, 625–26 (1997).
12 Denney v Deutsche Bank AG, 443 F.3d 253, 268 (2d Cir. 2006).
13 See In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 35 (2d Cir. 2009).
14 Comcast Corp. v Behrend, 569 U.S. 27, 35 (2013).
15 Fed. R. Civ. P. 23(b)(1).
16 Fed. R. Civ. P. 23(b)(2).
17 Fed. R. Civ. P. 23(b)(3).
18 Amchem Prods., Inc. v Windsor, 521 U.S. 591, 623, (1997).
19 Tyson Foods, Inc. v Bouaphakeo, 136 S.Ct. 1036, 1045 (2016).
20 id. (internal quotations omitted).
21 907 F.3d 42 (1st Cir. 2018).
22 Patterson Belknap Webb & Tyler LLP, ‘In re Asacol: First Circuit Sharply Limits Certification of Classes Containing Uninjured Members’, at 1 (Oct. 2018), available at www.pbwt.com/content/uploads/2018/10/In-re-Asacol_First-Circuit-Sharply-Limits-Certification-of-Classes-Containing-Uninjured-Members-PDF.pdf.
23 136 S. Ct. 1036 (2016).
24 In re Asacol Antitrust Litig., 323 F.R.D. 451, 479 (D. Mass. 2017).
25 In re Asacol, 907 F.3d at 52.
26 Patterson Belknap Webb & Tyler Reich LLP, above note 17 at 1.
27 573 U.S. 258 (2014).
28 id. at 283–84.
29 id. at 276.
30 See eg, Kleen Prod. LLC v Int’l Paper Co., 831 F.3d 919, 925–26 (7th Cir. 2016).
31 id. at 927.
32 See Kohen v Pac. Inv. Mgmt. Co., 571 F.3d 672, 677 (7th Cir. 2009); see also Ruiz Torres v Mercer Canyons Inc., 835 F.3d 1125, 1137 (9th Cir. 2016) (concluding that class certification is not precluded if the defendant asserts ‘the potential for unlawful conduct in the absence of harm’ because the ‘fortuitous non-injury to a subset of class members does not necessarily defeat certification of the entire class’); id. (noting that the possibility of ‘noninjury to a subset of class members does not necessarily defeat certification of the entire class, particularly as the district court is well situated to winnow out those non-injured members at the damages phase of the litigation, or to refine the class definition’); Wortman v Air New Zealand, 326 F.R.D. 549, 560 (N.D. Cal. 2018) (collecting cases and rejecting the defendant’s argument that predominance was not met because ‘large segments’ of the class ‘did not suffer an antitrust injury’). Rather, under Comcast Corp. v Behrend, 569 U.S. 27 (2013), Rule 23 is met when there is a class-wide method for proving damages.
33 id. at 1049–50.
34 Kleen Prod., 831 F.3d at 927.
35 In re Asacol, 907 F.3d at 53.
36 id. at 58.
37 137 S.Ct. 1773 (2017).
38 Sotomayor v Bank of Am., N.A., 377 F. Supp. 3d 1034, 1037 (C.D. Cal. 2019) (collecting cases and holding that ‘the weight of authority examining this issue has concluded that Bristol-Myers does not apply to class actions’).
39 431 U.S. 720 (1977).
40 139 S. Ct. 1514 (2019).
41 id. at 1520.
42 id. at 6.
43 id. at 1521 n.2.