Divergent applications of FRCP Rule 23 look set to have big impact on US class action landscape

In summary

Rule 23(b)(3) of the Federal Rules of Civil Procedure requires plaintiffs to show that common questions predominate over individual issues to certify a class. The Ninth Circuit became the first appellate court to address the question of whether Rule 23 imposes a blanket prohibition against certifying classes that include more than a de minimis number of uninjured class members. In two decisions in Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC, the court reached drastically different answers. This article explains the approaches taken in the two opinions and the impact they will have on antitrust enforcement.

Discussion points

• Opposing Ninth Circuit decisions in Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC
• De minimis standard
• Impact of Olean Wholesale going forward

Referenced in this article

• In re Packaged Seafood Prod Antitrust Litigation
• Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC (Olean Wholesale I)
• Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC (Olean Wholesale II)
• In re Asacol Antitrust Litigation
• In re Rail Freight Fuel Surcharge Antitrust Litigation

Private antitrust enforcement depends on class-wide liability. Antitrust cases are expensive to litigate, and an individual class member’s recovery is usually too small to sue individually. And so, ‘[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30’.^[1]

Cases focusing on uninjured, absent class members have increased the plaintiff’s burden in class certification. These cases hold that courts cannot certify a class with more than a de minimis number of uninjured plaintiffs.^[2] The upshot of these cases is that defendants can injure large portions while effectively escaping antitrust liability.

These cases left open a key question: can a court ever certify a class with more than a de minimis number of uninjured class members, even in instances where the plaintiffs present a reasonable method to winnow them out?

Within the past year, the Ninth Circuit has reached opposing answers in Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC.^[3] The three-judge panel adopted a blanket rule that more than a de minimis percentage of uninjured plaintiffs defeats certification, regardless of their impact on the litigation.^[4] A majority of Ninth Circuit judges voted to rehear the case en banc. On rehearing, the 11 judges rejected the panel’s per se rule.^[5] Rather than ask whether the plaintiffs could show an injury to a threshold percentage of the class, they asked whether common evidence could resolve each class member’s injury in ‘one stroke’.^[6] If so, common issues would predominate, even if the defendants’ conduct had not injured a significant portion of the class.

This article describes the two approaches taken by the Ninth Circuit, and their impact on antitrust enforcement going forward.

A de minimis standard?

To certify a class under Rule 23(b)(3) of the Federal Rules of Civil Procedure, plaintiffs must show that ‘questions of law or fact common to class members predominate over any questions affecting only individual members’.^[7] Courts may engage in a ‘rigorous analysis’ that ‘overlap[s] with the merits of the plaintiff’s underlying claim’ before certifying a class.^[8] But they cannot embark upon ‘free-ranging merits inquiries at the class certification stage’.^[9] Courts consider ‘[m]erits questions . . . to the extent – but only to the extent – that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied’.^[10]

Increasingly, courts have found predominance requires the plaintiff to prove that all or nearly all plaintiffs have been injured. In Asacol, for example, the plaintiffs alleged that two name-brand drug manufacturers conspired to preclude others from introducing a generic version.^[11] The evidence at class certification showed that 10 per cent of class members were uninjured because they would not have switched to the generic drug, even if it had been available.^[12] But there was no way to identify those class members that fell into that 10 per cent, such that they ‘might be picked off in a manageable, individualized process at or before trial’.^[13] Any class member may not be injured, and weeding them out would take ‘a line of thousands of class members waiting their turn to offer testimony and evidence on individual issues’.^[14] Without a mechanism to separate injured and uninjured class members, ‘[t]he need to identify those individuals will predominate and [will] render an adjudication unmanageable’.^[15]

Since 2018, appellate courts following this reasoning have declined to certify classes when defendants injure significant portions of the class. The First and DC circuits did so when the defendants ‘only’ injured 87.3 per cent^[16] and 90 per cent^[17] of the class, respectively. Some district courts have required even more.^[18] One district court found that the permissible ‘outer limit[]’ of uninjured class members was 5 per cent or 6 per cent.^[19]

But, until recently, no court had decided ‘whether it is ever permissible to define a proper class including more than a de minimis number of uninjured parties’.^[20] Does a lack of injury always defeat predominance? Or was the lack of a winnowing mechanism in Asacol dispositive?

The Packaged Seafood litigation

The Ninth Circuit in Olean Wholesale Grocery Coop, Inc v Bumble Bee Foods LLC answered the question that the other courts left open. The plaintiffs in that case are grocery stores, commercial food preparers and individual consumers.^[21] They sued the three largest domestic packaged tuna producers – Tri Union Seafoods (doing business as Chicken of the Sea), Bumble Bee Foods and Starkist – under state and federal antitrust law for conspiring to fix packaged seafood prices.^[22]

The plaintiffs relied on two statistical models to show the class-wide impact of the defendants’ price-fixing conspiracy.^[23] The first ‘calculated what the price for wholesale tuna would have been “but for” the alleged price fixing’.^[24] This model compared prices during the price-fixing conspiracy to prices either before or after the impacted period, a clean benchmark where there was no anticompetitive activity.^[25] That comparison revealed that each class member suffered an average overcharge of 10.28 per cent.^[26]

Second, the plaintiffs ran a regression model against that benchmark to control for ‘explanatory variables’, such as ‘product characteristics, supply and demand factors, and the period of alleged conspiracy’.^[27] The regression model confirmed that ‘94.5 percent of the purchasers had at least one purchase above the predicted but-for price’.^[28]

The defendants took issue with the regression model. They argued that the model should have considered certain differences between individual class members. And if it had, the model would have shown that only ‘72% paid an inflated price, meaning 28% of the class members suffered no injury at all’.^[29] The defendants argued that the district court must resolve the battle of the experts because the plaintiffs could not show that common issues predominate if their model could not show impact for more than 28 per cent of the class.^[30]

The district court left it to the jury to determine whose ‘theory [was] right or wrong’.^[31] At class certification, it was ‘only concerned with whether the method itself is capable of showing [impact] to all, or nearly all of the Class members – not that it does in fact show that the injury occurred’.^[32] Because the plaintiffs met that burden, the court certified the plaintiff classes.^[33] The defendants appealed that decision to the Ninth Circuit.

The Ninth Circuit’s divergent approaches to predominance

Over the course of the appeal, the Ninth Circuit took two drastically different approaches in determining how uninjured class members affect predominance.

The strict approach: predominance is a proxy for predominance

The panel and the en banc dissent would have required that district courts must resolve the parties’ competing claims as to the number of uninjured plaintiffs before certifying a class.^[34] They interpreted Rule 23 and the line of cases addressing uninjured, absent class members as requiring a blanket rule that would prohibit district courts from certifying a class if it included more than a de minimis number of uninjured plaintiffs.^[35] The dissent had two reasons for this rule.

The first comes from Rule 23’s text. Rule 23(b)(3) provides that ‘questions of law or fact common to class members predominate over any questions affecting only individual members’.^[36] Quoting the online version of the Merriam-Webster Dictionary, they found that ‘common’ meant ‘belonging to or shared . . . by all members of a group’, while ‘predominate’ meant ‘to hold advantage in numbers or quantity’.^[37] Putting the two together, they reasoned that ‘Rule 23(b)(3) thus requires that questions of law or fact be shared by all or substantially all members of the class’.^[38]

This interpretation, according to the panel and en banc dissenters, precluded certifying a class with more than a de minimis number of uninjured class members, even if there were a method to separate the uninjured from the injured at trial.^[39] ‘Rule 23 allows a de minimis number of uninjured members but no more.’^[40] They reasoned that, ‘[i]f a large number of class members “in fact suffered no injury”, identifying those class members “will predominate”’.^[41] This was so ‘because those uninjured class members have little in common with those who have been harmed’.^[42] Neither the panel nor the en banc dissent set the percentage of uninjured class members large enough to defeat predominance, but a statistical model that could not show antitrust impact for a quarter of the class could not prove predominance ‘under any rubric’.^[43]

The dissent accused the majority of creating a circuit split by rejecting a de minimis rule.^[44] Whereas the First and DC circuits found that a lack of injury in 10 per cent and 6 per cent of plaintiffs, respectively, could defeat predominance,^[45] the majority would allow ‘rather a massive grab bag of class members – perhaps almost a third of the class – who may not have suffered any harm’.^[46]

The strict interpreters’ second argument arose from a concern for fairness.^[47] ‘Second, allowing more than a de minimis number of uninjured class members tilts the playing field in favor of plaintiffs.’^[48] Without the fear that a court will decline to certify their overbroad class, plaintiffs ‘will inflate the potential liability (and ratchet up the attorney’s fees based in part on that amount) to extract a settlement, even if the merits of their claims are questionable’.^[49] That pressure would ‘impose an in terrorem effect on defendants’.^[50] ‘Faced with even a small chance of devastating loss, defendants will be pressured into settling questionable claims.’^[51] The dissent warned that the majority’s rule would ‘unleash a tidal wave of monstrously oversized classes designed to pressure and extract settlements’.^[52]

Lenient approach: predominance, not percentage

A majority of Ninth Circuit judges voted to take the case en banc ‘to consider whether the district court erred in finding that each subclass satisfied the requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members”’.^[53] And in April 2022, the Ninth Circuit reversed the panel and affirmed the district court’s class certification decision.^[54]

The majority’s opinion began by explaining the plaintiffs’ burden to show predominance at class certification. To carry that burden, the plaintiffs ‘must show that the common question relates to a central issue in the plaintiffs’ claim’.^[55] Those common questions must be ‘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’.^[56]

Answering that question ‘begins . . . with the elements of the underlying cause of action’.^[57] The elements of an antitrust claim are ‘(i) the existence of an antitrust violation; (ii) antitrust injury or impact flowing from that violation (i.e., the conspiracy); and (iii) measurable damages’.^[58] And so:

to prove there is a common question of law or fact that relates to a central issue in an antitrust class action, plaintiffs must establish that essential elements of the cause of action, such as the existence of an antitrust violation or antitrust impact, are capable of being established through a common body of evidence, applicable to the whole class.^[59]

The court noted that courts may need to weigh conflicting expert testimony to determine whether expert evidence can be resolved in one stroke, but courts can only do so ‘necessary to ensure that Rule 23(b)(3)’s requirements are met and the “common, aggregation-enabling” issue predominates over individual issues’.^[60]

In so holding, the Ninth Circuit ‘reject[ed] the . . . argument that Rule 23 does not permit the certification of a class that potentially includes more than a de minimis number of uninjured class members’.^[61] The court found that the experts’ models could resolve the case in one stroke, regardless of which expert was correct.^[62] If the jury found the plaintiffs’ expert reliable, the plaintiffs ‘would have succeeded in showing antitrust impact on a class-wide basis, an element of their antitrust claim’.^[63] And if it did not find the expert reliable, ‘the jury could conclude that the [plaintiffs] had failed to prove antitrust impact on a class-wide basis. In neither case would the litigation raise individualized questions regarding which [class members] had suffered an injury’.^[64]

Even ‘a great number of members who for some reason could not have been harmed by the defendant’s allegedly unlawful conduct’ does not preclude class certification.^[65] If the class is overinclusive, the court ‘can and often should be solved by refining the class definition rather than by flatly denying class certification on that basis’.^[66] To pare down the overbroad class, the court ‘may redefine the overbroad class to include only those members who can rely on the same body of common evidence to establish the common issue’.^[67]

The court disagreed with the dissent’s argument that its opinion created a circuit split. According to the majority, no other appellate court adopted ‘a per se rule that a class cannot be certified if it includes more than a de minimis number of uninjured class members’.^[68] Rather, they held that the plaintiffs could not satisfy Rule 23’s predominance requirement because, under the particular facts of those cases, the need to identify uninjured class members ‘will predominate and render an adjudication unmanageable’.^[69]

Finally, the Ninth Circuit rejected the dissent’s policy reasons for its rule against certifying classes that include more than a de minimis number of uninjured class members.^[70] The court reasoned that it must ‘apply Rule 23(b)(3) as written’, regardless of policy preferences.^[71]

Antitrust enforcement going forward

Private litigants play a key role in enforcing antitrust laws.^[72] The government cannot prosecute every violation of federal antitrust law. Nor does the government see its role as compensative of the victims of antitrust violations. Private enforcement fills these gaps.^[73] The class action mechanism makes that enforcement possible.^[74] Given that importance, Olean Wholesale will have a large impact on antitrust enforcement going forward.

Focusing on the right issues during class certification

In Olean Wholesale II, the court correctly focused on predominance, rather than on whether the plaintiffs had proved that a certain number of plaintiffs had been injured at the class certification stage.

Rule 23(b)(3) requires that common issues predominate; it does not require that plaintiffs prove that all or nearly all plaintiffs have been injured as a prerequisite to class certification.^[75] Predominance is practical. It is about whether, in practice, common issues will predominate at trial.^[76] In most antitrust cases, they will – regardless of whether impact is a common issue and regardless of whether injury is common to all or virtually all class members.

The number of class members who have not suffered an injury is a poor proxy for predominance. Olean Wholesale is a perfect example. The defendants’ expert testified that the plaintiffs cannot show harm to 28 per cent of the class. The plaintiffs’ expert disagreed and offered a robustness check that confirmed harm to at least 94.5 per cent of class members. Even assuming the defendants win on this point at trial, and a jury determines that the plaintiffs failed to prove injury to 28 per cent of class members, there is no risk the trial court will have to adjudicate the issue of impact individually for those class members. The jury would already have done so, by deciding in the defendants’ favour. Individual issues would not suddenly predominate.

The court rejected the number of uninjured class members as a euphemism for predominance and, instead, focused on what predominance actually means: whether common questions can be resolved in a single adjudication and what that would look like.

Can common issues predominate even if antitrust injury were an individual issue?

The en banc court left an important question open: can common issues predominate, even if antitrust impact were an individual issue?

In Olean Wholesale, the court seems to assume that common issues could not predominate if there are ‘questions [that] relate to the injury status of class members’.^[77] But, the Supreme Court and the Ninth Circuit have made clear that predominance ‘does not require a plaintiff seeking class certification to prove that each element of their claim is susceptible to classwide proof’.^[78] Rather, the focus at class certification is whether ‘one or more common questions predominate’.^[79]

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.^[80]

Fundamentally, predominance gauges how litigation and trial will play out – whether common questions would drive the case or whether it would devolve into a host of common issues.^[81] A question’s potential ‘to drive the resolution of the litigation necessarily depends on the nature of the underlying legal claims that the class members have raised’.^[82]

Uninjured class members rarely drive antitrust cases. Antitrust cases turn almost entirely on the defendants’ conduct and its effects, issues that by their nature are common to class members.^[83] Did the defendants do what the plaintiffs allege? Did those actions violate the antitrust laws? Did they cause antitrust injury in general? What were the total damages?

In contrast, defendants do not care what percentage of class members will ultimately recover. What matters to defendants is whether they have to write a cheque to plaintiffs and how big that cheque is. If plaintiffs prevail at trial – or, far more frequently, settle the case – defendants have no interest in how the money they pay is distributed. That is a task for the plaintiffs and the court to address at the tail end of the litigation process.^[84] And there are practical ways to undertake that task, none of which will bog the court down in adjudicating individual issues.

Rejecting the blackmail myth

The panel and en banc dissent’s policy arguments perpetuate the often-cited but never supported ‘blackmail’ myth – that is, that plaintiffs’ lawyers use class certification to extort defendants into settling unmeritorious claims in a manner that is tantamount to corporate blackmail.^[85] Whatever merit the blackmail myth may have in the abstract,^[86] it rings particularly hollow in Olean Wholesale.

The panel’s opinion began: ‘There is little dispute over the existence of [the] price-fixing scheme’ at issue in this case.^[87] Starkist and its senior vice president pled guilty to ‘a conspiracy among major packaged-seafood-producing firms . . . to fix, raise, and maintain the prices of packaged seafood in the United States’.^[88] Bumble Bee Foods also pled guilty to that conspiracy,^[89] while a jury convicted the company’s CEO for conspiring to fix canned tuna prices, and the court sentenced him to 40 months in prison.^[90] Chicken of the Sea admitted to fixing prices and agreed to cooperate with federal investigators.^[91] And yet, they hope to shirk their responsibility to their victims by urging courts to adopt a new procedural hurdle to class certification that would effectively immunise them from civil antitrust enforcement.

Were it not for a desire to avoid the merits entirely, it is unlikely that defendants like the ones in Olean Wholesale would want to defeat class certification. Their actual liability remains the same if the court decertifies this class, as the class members who were shown to have paid the overcharge could use the expert reports in their own actions. So, class certification ‘should be beneficial to [defendants] – they have but one suit to meet, instead of innumerable ones’.^[92]

But the de minimis standard has never really been about giving defendants the chance to raise individual defences in individual cases. They want the standard so they never have to raise those defences at all. After all, ‘only a lunatic or a fanatic sues for $30’.^[93]

^* The information in this article was accurate as at September 2022.

Notes