Third Circuit Issues Strong Opinion Reiterating Need for Rigorous Analysis of Class Action Prerequisites
Often cases that fall outside the fields of consumer class actions and mass torts can teach us something useful about our practice in these fields. Today's case is just such a decision. See Sullivan v. DB Investments, Inc., Nos. 08-2784, 08-2785, 08-2798, 08-2799, 08-2818, 08-2819, 08-2831, 08-2881 (3d Cir. July 13, 2010).
Sullivan was an appeal from the settlement of an antitrust class action that had been certified under Rule 23(b)(3) for damages relief and under Rule 23(b)(2) for injunctive relief. It had involved alleged price fixing in the diamond market, and had two classes of plaintiffs: (1) direct purchasers, who had bought diamonds directly from the mining companies and sued for damages under the federal Sherman Act and Clayton Act, and (2) indirect purchasers (retailers and consumers) who bought diamonds from middlemen and, because of the Supreme Court's decision in Illinois Brick, could not sue for damages under the Sherman Act or Clayton Act, but did so instead under state antitrust and consumer protection laws, as well as for unjust enrichment.
Objectors appealed, and what the Third Circuit had to say about class actions and class action settlements is important -- and not just for antitrust class actions.
First, the Third Circuit reiterated the rigorous analysis standard it had set forth in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 316 (3d Cir. 2008). See Sullivan, slip op. at 11-12. Indeed, the court instructed:
When presented with a motion to certify a class for settlement purposes only, as in this case, the court need not consider the difficulties associated with managing the class action through trial. Regardless of the purpose for which class certification is sought, though, the court is not required to rest its certification order solely upon the pleadings. Instead, the court should perform a "rigorous analysis" that "delve[s] beyond the pleadings to determine whether the requirements for class certification are certified."
Id. (citations omitted).
In conducting its rigorous analysis, the Third Circuit first looked at predominance:
The predominance of an issue depends upon the value that addressing it will yield for all class members. The issue need not be dispositive of the case, but must be significant to every class member's claim. Issues are not predominant if they are common to all class members but their resolution does little to bring the case to conclusion. Thus, the predominance inquiry requires the court to identify class members' claims and to ask whether the class can support any of the elements of those claims through common proof.
Id. at 12 (citations omitted).
The objectors to the settlement argued that the state antitrust and consumer protection laws -- as well as state law on unjust enrichment -- were so different that no common issue predominated over the entire class.
The court proceeded to analyze the differences in state antitrust laws, concluding that they were very different and that no jurisdiction provided a claim shared by all -- or even a majority -- of the class members. In a passage that could just as well have been describing state tort law, the court admonished that the differences in the state laws were not trivial, but instead "represent fundamental policy differences among the several states." Id. at 15. The court described how some states follow Illinois Brick to preclude damages suits by indirect purchasers, while others expressly allow such suits. It then reached a conclusion about differences in state law that, once again, sounds very familiar to mass tort and consumer class action lawyers:
The natural result of all of those differences [in state laws] is that there can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact. It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.
. . . The lack of substantive rights cannot be wished away by the promise of easier litigation management [in settlement than in trial]. Proponents of class certification for any purpose, including settlement, retain the burden of demonstrating that all class members share common legal or factual issues and that those issues predominate over matters requiring individual proof. That test presupposes that everyone in the class at least has a cause of action. The variations in state law identified by the objectors preclude requisite finding of predominance under Rule 23(b)(3) because indirect purchasers do not have a right to recover in all states, and, therefore, no question of law or fact regarding their legal rights is uniform throughout the class.
Id. at 16 - 17.
The court counseled that even where the defendant agrees to the settlement, the court has an independent duty to rigorously analyze whether the Rule 23 prerequisites are met because to do otherwise would allow collusive settlements.
The Third Circuit went on to analyze state consumer protection laws and unjust enrichment precedents, holding that they, too, present material differences across the states. The court concluded that although the defendant's conduct may have actually harmed all indirect purchasers, it could not serve as the basis for a predominance finding because it does not give rise to a legal right of recovery in all of the jurisdictions implicated by a nationwide class. Id. at 20.
The Third Circuit also took the district court to task for not having listed the "claims, issues, or defenses to be treated on a class basis." Id. at 22. It noted:
[T]he Court never identified pertinent state antitrust or consumer protection statutes, explained the relevant state common law of unjust enrichment, or described how those statutes and the common law affect class-wide rights. Nor did the Court indicate whether the class antitrust issues that it actually identified would affect the consumer protection and unjust enrichment claims. The failure do so constitutes an abuse of discretion.
Thus, the District Court's class certification order is deficient because the precise claims subject to class treatment are not "readily discernable from the text" of the order and the accompanying opinion. On remand, any certification order must identify with particularity both the prerequisites for membership in the class and the issues or claims that will be resolved on a class-wide basis. . . . [W]e have recommended that the format of an enumerated list can bring clarity to matters subject to class adjudication and facilitates appellate review of a certification order.
Id. at 22-23.
The rules the Third Circuit reiterates in Sullivan are not limited to settlement classes or antitrust class actions; they are applicable in consumer class actions and mass torts, too. It is incumbent on us to use Sullivan to remind courts of their obligations to delve into the facts beyond the pleadings, to consider substantive differences of law among class members, to clearly identify precisely who is included within the class definition, and to list the issues and elements of causes of action that are subject to class treatment.