In re Hydrogen Peroxide Antitrust Litigation
- Reporters:
- , ,
- Before:
- Scirica, Ambro, Fisher
2008 Decisions
Opinions of the United States Court of Appeals for the Third Circuit
12-30-2008
In Re: Hydrogen
Precedential or Non-Precedential: Precedential
Docket No. 07-1689
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Recommended Citation
“In Re: Hydrogen ” (2008). 2008 Decisions. Paper 2. http://digitalcommons.law.villanova.edu/thirdcircuit_2008/2
PRECEDENTIAL
Arkema Inc., Arkema France S.A., FMC Corp., Kemira Chemicals Canada, Inc., Kemira OYJ, Appellants
On Appeal from the United States District Court for the Eastern District of Pennsylvania D.C. Civil Action No. 05-cv-0666 and MDL No. 1682 (Honorable Stewart Dalzell)
Argued April 17, 2008
Before: SCIRICA, Chief Judge, AMBRO and FISHER, Circuit Judges.
(Filed December 30, 2008)
STEVEN E. BIZAR, ESQUIRE (ARGUED)
LANDON Y. JONES III, ESQUIRE
THOMAS P. MANNING, ESQUIRE
HOWARD D. SCHER, ESQUIRE
Buchanan Ingersoll & Rooney
1835 Market Street, 14th Floor
Philadelphia, Pennsylvania 19103
Attorneys for Appellants, Arkema Inc. and Arkema France SA
MICHAEL I. FRANKEL, ESQUIRE
Dechert LLP
Cira Centre, 18th Floor
2929 Arch Street
Philadelphia, Pennsylvania 19104
JEFFREY S. CASHDAN, ESQUIRE
STEPHEN P. CUMMINGS, ESQUIRE
CHRISTINE A. HOPKINSON, ESQUIRE
CATHERINE M. O‘NEIL, ESQUIRE
King & Spalding
1180 Peachtree Street
Atlanta, Georgia 30309
JOANNA J. CLINE, ESQUIRE
BARBARA W. MATHER, ESQUIRE
Pepper Hamilton
3000 Two Logan Square
18th & Arch Streets
Philadelphia, Pennsylvania 19103
Attorneys for Appellants, Kemira OYJ and Kemira Chemicals Canada, Inc.
GREGORY K. ARENSON, ESQUIRE (ARGUED)
ROBERT N. KAPLAN, ESQUIRE
Kaplan Fox & Kilsheimer
805 Third Avenue, 22nd Floor
New York, New York 10022
ANTHONY J. BOLOGNESE, ESQUIRE
Bolognese & Associates
Suite 320, Two Penn Center Plaza
1500 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19102
WILLIAM P. BUTTERFIELD, ESQUIRE
Cohen Milstein Hausfeld & Toll
West Tower, Suite 500
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attorneys for Appellees, Artco Chemical, Inc., Astro Chemicals, Inc.,
Borden & Remington Corporation, Chem/Ser, Inc., EMCO Chemical Distributors, Inc., Finch Pruyn and Company, Inc., Interstate Chemical Company, Lensco Products, Inc., Lincoln Paper & Tissue, LLC, Ohio Chemical Services, Inc., James R. Pacific, Robert Chemical Company, Inc., Safer Textile Processing Corporation,
STEVEN A. KANNER, ESQUIRE
Freed Kanner London & Millen
2201 Waukegan Road, Suite 130
Bannockburn, Illinois 60015
Attorney for Appellees, Direct Purchaser Plaintiffs and EMCO Chemical Distributors, Inc.
OPINION OF THE COURT
SCIRICA, Chief Judge.
At issue in this antitrust action are the standards a district court applies when deciding whether to certify a class. We will vacate the order certifying the class in this case and remand for proceedings consistent with this opinion.
In deciding whether to certify a class under
I.
Purchasers of hydrogen peroxide and related chemical products brought this antitrust conspiracy action against chemical manufacturers.1 An inorganic liquid, hydrogen peroxide is used most prominently as a bleach in the pulp and
paper industry with smaller amounts appearing in chemicals and laundry products, environmental applications, textiles, and electronics. Hydrogen peroxide is available in solutions of different concentrations and grades depending on its intended use. Major concentrations are 35, 50, and 70 percent. The grades, roughly in order from least- to most-expensive, are: standard, food/cosmetic (which must meet FDA standards), electronic, and propulsion. All defendants sold the standard grade, but not all defendants sold all other grades. Defendants sold different amounts of each of the grades. Each grade has different supply and demand conditions because the grades are sold to end-users in a variety of industries with different economic characteristics. According to defendants, the different
The other two products at issue are sodium percarbonate and sodium perborate, together known as persalts, which are granular solids containing hydrogen peroxide used primarily as detergents. Among the defendants, only Solvay produced and sold sodium percarbonate in the United States during the class period. Solvay Chemicals, Degussa Corp., and FMC sold sodium perborate in the United States during the class period. Akzo, Arkema, and Kemira did not sell or produce sodium perborate in the United States during the class period.
After the United States Department of Justice and the European Commission began investigating possible violations of the antitrust laws in the hydrogen peroxide industry,2 several
plaintiffs filed class action complaints against producers of hydrogen peroxide and persalts under § 4 of the Clayton Act,
The District Court denied defendants’ motion to dismiss the complaint for failure to state a claim. Following extensive discovery,3 plaintiffs moved to certify a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate, over an eleven-year class period. In support of class certification, plaintiffs offered the opinion of an economist. Defendants, opposing class certification, offered the opinion of a different economist. Defendants separately moved to exclude the opinion of plaintiffs’ economist as unreliable under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
Concluding plaintiffs’ expert‘s opinion was admissible and supported plaintiffs’ motion for class certification, the District Court certified a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate under
All persons or entities, including state, local and municipal government entities (but excluding defendants, their parents, predecessors, successors, subsidiaries, and affiliates as well as federal government entities) who purchased hydrogen peroxide, sodium perborate, or sodium percarbonate in the United States, its territories, or possessions, or from a facility located in the United States, its territories, or possessions, directly from any of the defendants, or from any of their parents, predecessors, successors, subsidiaries, or affiliates, at any time during the period from September 14, 1994 to January 5, 2005.
We granted defendants’ petition for an interlocutory appeal under
II.
Class certification is proper only “if the trial court is satisfied, after a rigorous analysis, that the prerequisites” of Rule 23 are met.5 Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982); see Beck v. Maximus, Inc., 457 F.3d 291, 297 (3d Cir. 2006); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997) (Rule 23(b)(3) requirements demand a “close look“). “A class certification decision requires a thorough examination of the factual and legal allegations.” Newton, 259 F.3d at 166.6
Class certification under Rule 23 has two primary components. The party seeking class certification must first establish the four requirements of Rule 23(a): “(1) the class is so numerous that joinder of all members is impracticable [numerosity]; (2) there are questions of law or fact common to the class [commonality]; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class [typicality]; and (4) the representative parties will fairly and adequately protect the interests of the class [adequacy].”
The trial court, well-positioned to decide which facts and legal arguments are most important to each Rule 23 requirement, possesses broad discretion to control proceedings and frame issues for consideration under Rule 23. See Amchem, 521 U.S. at 630 (Breyer, J., concurring in part and dissenting in part) (recognizing that the decision on class certification may implicate “highly fact-based, complex, and difficult matters“). But proper discretion does not soften the rule: a class may not be certified without a finding that each Rule 23 requirement is met. Careful application of Rule 23 accords with the pivotal status of class certification in large-scale litigation, because denying or granting class certification is often the defining moment in class actions (for it may sound the “death knell” of the litigation on the part of plaintiffs, or create unwarranted pressure to settle nonmeritorious claims on the part of defendants) . . . . Newton, 259 F.3d at 162; see id. at 167 (“Irrespective of the merits, certification decisions may have a decisive effect on litigation.“); see also Coopers & Lybrand v. Livesay, 437 U.S. 463, 476 (1978). In some cases, class certification “may force a defendant to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability.” Fed. R. Civ. P. 23 advisory committee‘s note, 1998 Amendments. Accordingly, the potential for unwarranted settlement pressure “is a factor we weigh in our certification calculus.” Newton, 259 F.3d at 168 n.8. The Supreme Court recently cautioned that certain antitrust class actions may present prime opportunities for plaintiffs to exert pressure upon defendants to settle weak claims. See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1967 (2007).
III.
Here, the District Court found the Rule 23(a) requirements were met, a determination defendants do not now challenge. Plaintiffs sought certification under Rule 23(b)(3), which is permissible when the court “finds that the 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.”7
Only the predominance requirement is disputed in this appeal. Predominance
A.
The elements of plaintiffs’ claim are (1) a violation of the antitrust laws—here, § 1 of the Sherman Act, (2) individual injury resulting from that violation, and (3) measurable damages.
Importantly, individual injury (also known as antitrust impact) is an element of the cause of action; to prevail on the merits, every class member must prove at least some antitrust impact resulting from the alleged violation. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 454 (3d Cir. 1977); see Newton, 259 F.3d at 188 (In antitrust and securities fraud class actions, “[p]roof of injury (whether or not an injury occurred at all) must be distinguished from calculation of damages (which determines the actual value of the injury)“).
In antitrust cases, impact often is critically important for the purpose of evaluating Rule 23(b)(3)‘s predominance requirement because it is an element of the claim that may call for individual, as opposed to common, proof. See New Motor Vehicles, 522 F.3d at 20 (“In antitrust class actions, common issues do not predominate if the fact of antitrust violation and the fact of antitrust impact cannot be established through common proof.“); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003) (“[W]here fact of damage cannot be established for every class member through proof common to the class, the need to establish antitrust liability for individual class members defeats Rule 23(b)(3) predominance.“); see also Blades, 400 F.3d at 572 (“[P]roof of conspiracy is not proof of common injury.“).
Plaintiffs’ burden at the class certification stage is not to prove the element of antitrust impact, although in order to prevail on the merits each class member must do so. Instead, the task for plaintiffs at class certification is to demonstrate that the element of antitrust impact is capable of proof at trial through evidence that is common to the class rather than individual
Here, the District Court found the predominance requirement was met because plaintiffs would be able to use common, as opposed to individualized, evidence to prove antitrust impact at trial. On appeal, defendants contend the District Court erred in three principal respects in finding plaintiffs satisfied the predominance requirement: (1) by applying too lenient a standard of proof for class certification, (2) by failing meaningfully to consider the views of defendants’ expert while crediting plaintiffs’ expert, and (3) by erroneously applying presumption of antitrust impact under Bogosian, 561 F.2d at 454–55.
We review a class certification order for abuse of discretion, which occurs if the district court‘s decision “rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.” Newton, 259 F.3d at 165. “[W]hether an incorrect legal standard has been used is an issue of law to be reviewed de novo.” In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 32 (2d Cir. 2006) [hereinafter IPO] (citation omitted).9
B.
We summarize briefly the evidence and arguments offered to the District Court. As noted, both plaintiffs and defendants presented the opinions of expert economists. Importantly, the experts disagreed on the key disputed predominance issue—whether antitrust impact was capable of proof at trial through evidence common to the class, as opposed to individualized evidence.
Plaintiffs’ expert, John C. Beyer, Ph.D., offered an opinion purporting to show that “there is common proof that can be used to demonstrate that the alleged conspiracy to raise prices, restrict output and allocate customers would have impacted all purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate.” Beyer‘s “market analysis” suggested that conditions in the hydrogen peroxide industry favored a conspiracy that would have impacted the entire class. First, hydrogen peroxide and persalts are fungible, undifferentiated commodity products, which means producers compete on price, not quality or other features. Second, production is heavily concentrated in a small group of manufacturers.10 Third,
Beyer also observed a “pricing structure” in the hydrogen peroxide industry which, he contended, showed prices across producers, grades and concentrations of hydrogen peroxide, and
end uses moved similarly over time.11 This, according to Beyer, suggested a conspiracy would have impacted all class members:
My analysis of the similarity in price movements over time indicates that hydrogen peroxide prices charged by different manufacturers are affected by the same market forces of supply and demand . . . . These similarities in movement are sometimes referred to as “pricing structure” or “structure to prices.” This analysis confirms that prices would have behaved similarly, in a consistent and generalized manner[,] to a conspiracy to fix prices at artificially high levels [and] to restrict output or to allocate customers.
Beyer also pointed to coordinated increases in list prices by defendants as evidence of common impact.
Beyer identified two “potential approaches” to estimating damages on a class-wide basis: (1) benchmark analysis, which would compare actual prices during the alleged conspiracy with prices that existed before the class period; and (2) regression analysis, through which it “may be possible . . . to estimate the relationship between price of hydrogen peroxide, sodium perborate, and sodium percarbonate and the various market forces that influence prices, including demand and supply variables.” These methods, according to Beyer, could be used to estimate the prices plaintiffs would have faced but for the conspiracy. Beyer stated that “sufficient reliable data” exist to allow him to employ one or both of the potential approaches.
Defendants offered the opinion of their own expert economist, Janusz A. Ordover, Ph.D., to “provide an independent expert assessment of whether certification of the proposed class of Plaintiffs is appropriate in this matter.” Specifically, Ordover set out to address “whether, assuming a conspiracy of the kind described in the Complaint, the Plaintiffs will be able to show, through common proof, that all or virtually all of the members of the proposed class suffered economic injury caused by the alleged conspiracy.” Ordover also “opine[d] on whether a formulaic approach exists by which impact could be demonstrated and damages to the class could be reasonably calculated.” Ordover responded to and disputed many of Beyer‘s opinions.
First, Ordover disputed Beyer‘s finding that hydrogen peroxide and persalts are fungible, contending that the “various grades of hydrogen peroxide . . . [and persalts] have different supply characteristics and face different demand conditions. The existence of supply and demand characteristics that are specific to the various grades and uses requires individualized assessment of the impact of the alleged conspiracy at least across these different grades and uses. Consequently, a finding of class-wide impact from the alleged conspiracy cannot be inferred from the mere fact of the conspiracy and from common
Ordover also found some of defendants’ price-increase announcements were ineffective—actual prices did not follow the purported announcements—suggesting list prices could not be used to measure antitrust impact on a basis common to the class. Ordover observed that a number of contracts for the sale of hydrogen peroxide were individually negotiated, with a variety of contract terms. And deposition testimony from named plaintiffs indicated list prices were sometimes disregarded. Ordover opined that the statistical methods by which Beyer proposed to demonstrate common impact and damages were not feasible. Given the record of prices and output in the industry and the apparent influence of individualized factors on pricing, “class-wide assessment of impact based on aggregate price information [was] impossible,” and any formulaic approach to determine a set of “but-for prices” would have to incorporate a multitude of different “variables,” defeating any reasonable notion of proof common to the class.
Significantly, Ordover presented empirical analysis of the data on individual sales transactions and found that different customers purchasing the two most common grades and three most common concentrations from the same hydrogen peroxide producer in a given year were as likely to experience a decline in actual prices over the year as an increase, while other similarly situated customers experienced no change in price. Defendants contend this disparity goes to the core of the predominance issue—plaintiffs and their expert, Beyer, failed to “explain . . . how or which common proof could be used to determine that the alleged conspiracy impacted customers whose prices declined, as well as customers whose prices increased or stayed the same, over the same time period.”12 Br. of Appellant at 5. Beyer, according to defendants, only “promised” to come up with a method to overcome this obstacle, without showing or even suggesting how it might be done. Defendants contend the market analysis is “generic” and note it would apply equally to a large number of industries. With respect to the pricing structure analysis, they contend Beyer‘s use of average prices, rather than those of individual transactions, to show pricing structure, was erroneous because it glossed over differences in actual prices. The theme of defendants’ argument is that the
data, which Ordover analyzed, rebut Beyer‘s “theory” that common proof was feasible. Beyer‘s and Ordover‘s analyses are irreconcilable.
In addition to presenting Ordover‘s testimony, defendants moved to exclude Beyer‘s testimony as unreliable, citing Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).13 The District Court denied the Daubert motion in its memorandum and order certifying the class.
C.
The District Court concluded the predominance requirement was met. It held that “[e]ither [Beyer‘s] market analysis or the pricing structure analysis would likely be independently sufficient at this stage. Plaintiffs and Dr. Beyer have provided us with both. Despite defendants’ claims to the contrary, we should require no more of plaintiffs in a motion for class certification.” Because hydrogen peroxide is fungible, the court found, “purchasing decisions [are] made primarily on the basis of price rather than quality or specific properties,” and “price is by far the most significant means of competition among producers and an agreement to control prices will seriously hinder competition.” The court rejected defendants’ objection that different grades and concentrations of hydrogen peroxide called into question its fungibility. The prices of the grades and concentrations were related to each other, so in the view of the court, the differences would not preclude common proof of antitrust impact. Defendants’ high combined market share meant that “no competitor who was not a member of the conspiracy would be able to take up the slack and keep prices stable.” The high barriers to entry and lack of economic substitutes implied “a conspiracy such as the one alleged here [could] continue indefinitely with limited risk that a new competitor would enter the market and undercut the agreed-upon prices.” Also, the court accepted Beyer‘s opinion that “prices in the hydrogen peroxide industry moved similarly over time and the industry exhibited structure in pricing.” The court added that it believed “plaintiffs would be able to show antitrust impact on all purchasers merely by showing that defendants kept list prices that were artificially high because of their conspiracy.”
The District Court held that it was sufficient that Beyer proposed reliable methods for proving impact and damages; it did not matter that Beyer had not completed any benchmark or regression analyses, and the court would not require plaintiffs to show at the certification stage that either method would work.
IV.
A.
Defendants contend the District Court applied too lenient a standard of proof with respect to the Rule 23 requirements by (1) accepting only a “threshold showing” by plaintiffs rather than making its own determination, (2) requiring only that plaintiffs demonstrate their “intention” to prove impact on a class-wide basis, and (3) singling out antitrust actions as appropriate for class treatment even when compliance with Rule 23 is “in doubt.”
Although it is clear that the party seeking certification must convince the district
1.
The following principles guide a district court‘s class certification analysis. First, the requirements set out in Rule 23 are not mere pleading rules. Szabo, 249 F.3d at 675-77. The court may “‘delve beyond the pleadings to determine whether the requirements for class certification are satisfied.‘” Newton, 259 F.3d at 167 (quoting 5 James Wm. Moore et al., Moore‘s Federal Practice § 23.61[5]); see Beck, 457 F.3d at 297 (same); see also Johnston v. HBO Film Mgmt., Inc., 265 F.3d 178, 189 (3d Cir. 2001) (district court properly “examine[d] the factual record underlying plaintiffs’ allegations in making its certification decision“).15
An overlap between a class certification requirement and the merits of a claim is no reason to decline to resolve relevant disputes when necessary to determine whether a class certification requirement is met. Some uncertainty ensued when the Supreme Court declared in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974), that there is “nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in
to certify a class “requires a thorough examination of the factual and legal allegations,” id. at 166, the court‘s rigorous analysis may include a “preliminary inquiry into the merits,” id. at 168, and the court may “consider the substantive elements of the plaintiffs’ case in order to envision the form that a trial on those issues would take,” id. at 166 (quoting
Although the district court‘s findings for the purpose of class certification are conclusive on that topic, they do not bind the fact-finder on the merits.19
The evidence and arguments a district court considers in the class certification decision call for rigorous analysis. A party‘s assurance to the court that it intends or plans to meet the requirements is insufficient. See id. at 191 (“[W]here the court finds, on the basis of substantial evidence as here, that there are serious problems now appearing, it should not certify the class merely on the assurance of counsel that some solution will be found.” (quoting Windham v. Am. Brands, Inc., 565 F.2d 59, 70 (4th Cir. 1977)) (quotation marks omitted); Wachtel v. Guardian Life Ins. Co., 453 F.3d 179, 184, 186 (3d Cir. 2006) (the requirement that a district court include in its class certification order “a clear and complete summary of those claims, issues, or defenses subject to class treatment” provides for the “full and clear articulation of the litigation‘s contours at the time of class certification“).
Support for our analysis is drawn from amendments to Rule 23 that took effect in 2003. First, amended
Fed. R. Civ. P. 23 directs that certification decisions be made “at an early practicable time.”Fed. R. Civ. P. 23(c)(1)(a) . This recent amendment replaced the language of the old rule: The former “‘as soon as practicable’ exaction neither reflect[ed] prevailing practice norcapture[ed] the many valid reasons that may justify deferring the initial certification decision.” See Fed. R. Civ. P. 23(c)(1)(a) Advisory Committee Notes. . . . Allowing time for limited discovery supporting certification motions may . . . be necessary for sound judicial administration. See [Newton, 259 F.3d at 166] (“[I]t may be necessary for the Court to probe behind the pleadings before coming to rest on the certification question.“) (quoting [Falcon, 457 U.S. at 160]) . . . .
Id. at 347-48 n.17; see Gariety, 368 F.3d at 365 (noting the change).20 Relatedly, in introducing the concept of a “trial plan,” the Advisory Committee‘s 2003 note focuses attention on a rigorous evaluation of the likely shape of a trial on the issues:
As the Standing Committee on Rules of Practice and Procedure explained in its report proposing this amendment, the new language authorizes the more flexible approach many courts take to class-action litigation, recognizing the important consequences to the parties of the court‘s decision on certification. The current rule‘s emphasis on dispatch in making the certification decision has, in some circumstances, led courts to believe that they are overly constrained in the period before certification. A certain amount of discovery may be appropriate during this period to illuminate issues bearing on certification, including the nature of the issues that will be tried; whether the evidence on the merits is common to the members of the proposed class; whether the issues are susceptible to class-wide proof; and what trial-management problems the case will present.
Report of the Judicial Conference Committee on Rules of Practice and Procedure to the Chief Justice of the United States and Members of the Judicial Conference of the United States 10 (2002) [hereinafter Committee Report].
A critical need is to determine how the case will be tried. An increasing number of courts require a party requesting class certification to present a “trial plan” that describes the issues likely to be presented at trial and tests whether they are susceptible of class-wide proof.
Additionally, the 2003 amendments eliminated the language that had appeared in Rule 23(c)(1) providing that a class certification “may be conditional.”21 The Advisory Committee‘s note explains: “A court that is not satisfied that the requirements of Rule 23 have been met should refuse certification until they have been met.” The Standing Committee on Rules of Practice and Procedure advised:
The provision for conditional class certification is deleted to avoid the unintended suggestion, which some courts have adopted, that class certification may be granted on a tentative basis, even if it is unclear that the rule requirements are satisfied.
While these amendments do not alter the substantive standards for class certification, they guide the trial court in its proper task—to consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class. See IPO, 471 F.3d at 39 (2003 amendments “arguably combine to permit a more extensive inquiry into whether Rule 23 requirements are met than was previously appropriate“); Oscar, 487 F.3d at 267 (noting that these “subtle changes” reflect that “a district court‘s certification order often bestows upon plaintiffs extraordinary leverage, and its bite should dictate the process that precedes it“).
To summarize: because each requirement of Rule 23 must be met, a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements.
2.
Class certification requires a finding that each of the requirements of Rule 23 has been met.22 See Unger, 401 F.3d at 321 (“The plain text of Rule 23 requires the court to ‘find,’ not merely assume, the facts favoring class certification.“); Gariety, 368 F.3d at 365 (Rule 23(b)(3) requires the court to find predominance). Factual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence. In other words, to certify a class the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23. See Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc., 546 F.3d 196, 202 (2d Cir. 2008).
In reviewing a district court‘s judgment on class certification, we apply the abuse of discretion standard. A district court abuses its discretion in deciding whether to certify a class action if its “decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.” In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 783 (3d Cir. 1995) (citation and quotation marks omitted); see Newton, 259 F.3d at 165. Under these Rule 23 standards, a district court
exercising proper discretion in deciding whether to certify a class will resolve factual disputes by a preponderance of the evidence and make findings that each
If a class is certified, “the text of the order or an incorporated opinion must include (1) a readily discernible, clear, and precise statement of the parameters defining
B.
Although the District Court properly described the class certification decision as requiring “rigorous analysis,” some statements in its opinion depart from the standards we have articulated. The District Court stated, “So long as plaintiffs demonstrate their intention to prove a significant portion of their case through factual evidence and legal arguments common to all class members, that will now suffice. It will not do here to make judgments about whether plaintiffs have adduced enough evidence or whether their evidence is more or less credible than defendants‘.” With respect to predominance, the District Court stated that “[p]laintiffs need only make a threshold showing that the element of impact will predominantly involve generalized issues of proof, rather than questions which are particular to each member of the plaintiff class.” (quoting Lumco Indus., Inc. v. Jeld-Wen, Inc., 171 F.R.D. 168, 174 (E.D. Pa. 1997)). As we have explained, proper analysis under
Citing Cumberland Farms, Inc. v. Browning-Ferris Industries, 120 F.R.D. 642, 645 (E.D. Pa. 1988), the District Court reasoned, “[i]t is well recognized that private enforcement of [antitrust] laws is a necessary supplement to government action. With that in mind, in an alleged horizontal price-fixing conspiracy case when a court is in doubt as to whether or not to certify a class action, the court should err in favor of allowing the class.” See also Eisenberg v. Gagnon, 766 F.2d 770, 785 (3d Cir. 1985) (citing Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d Cir. 1970)) (advising that in a “doubtful” case when presented with a putative securities class action, court should err, if at all, in favor of certification). These statements invite error. Although the trial court has discretion to grant or deny class certification, the court should not suppress “doubt” as to whether a
To the extent that the District Court’s analysis reflects application of incorrect standards, remand is appropriate. We recognize that the able District Court did not have the benefit of the standards we have articulated. Faced with complex, fact-intensive disputes, trial courts have expended considerable effort to interpret and apply faithfully the requirements of
C.
Defendants contend the District Court erred as a matter of law in failing to consider the expert testimony of defendants’ expert, Ordover, instead deferring to the opinion of plaintiffs’ expert, Beyer. Plaintiffs do not dispute that a district court may properly consider expert opinion with respect to
In addressing defendants’ Daubert motion to exclude Beyer‘s opinion, the court discussed whether it should consider Ordover‘s opinion in deciding whether Beyer‘s opinion was admissible. The court stated it would be improper to “weigh the relative credibility of the parties’ experts“—in other words, to weigh Ordover‘s opinion against Beyer‘s—for the purpose of deciding whether to admit or exclude Beyer‘s opinion. Concluding Beyer‘s opinion was admissible, the court denied the Daubert motion. But in addressing the
Expert opinion with respect to class certification, like any matter relevant to a
That weighing expert opinions is proper does not make it necessary in every case or unlimited in scope. As the Court of Appeals for the Second Circuit instructed,
To avoid the risk that a
Rule 23 hearing will extend into a protracted mini-trial of substantial portions of the underlying litigation, a district judge must be accorded considerable discretion to limit both discovery and the extent of the hearing onRule 23 requirements. But even with some limits on discovery and the extent of the hearing, the district judge must receive enough evidence, by affidavits, documents, or testimony, to be satisfied that eachRule 23 requirement has been met.
IPO, 471 F.3d at 41. In its sound discretion, a district court may find it unnecessary to consider certain expert opinion with respect to a certification requirement, but it may not decline to resolve a genuine legal or factual dispute because of concern for an overlap with the merits. Genuine disputes with respect to the
2.
Plaintiffs contend the District Court‘s acceptance of their expert‘s opinion was consistent with In re Linerboard Antitrust Litigation, 305 F.3d 145 (3d Cir. 2002), an antitrust conspiracy action in which we affirmed class certification. There are a number of surface similarities between this case and Linerboard. Plaintiffs’ expert, Beyer, also appeared as an expert for the plaintiffs in Linerboard, and in both cases he presented an analysis of the industry and a “structure in pricing” analysis. Id. at 153. As in Linerboard, Beyer here proposed to demonstrate antitrust impact through the use of “benchmarks” and “multiple regression analysis.” Id. at 153–54. In affirming the district court‘s grant of class certification in Linerboard, we concluded that Beyer, along with another
In Linerboard we did not address whether such expert opinion offered by the party opposing class certification would have been properly considered by the district court in the exercise of its discretion. But defendants here presented expert opinion disputing much of the evidence and argument plaintiffs offered for certification—specifically, Ordover disputed Beyer‘s characterizations of the market and the alleged pricing structure. Defendants contend Ordover raised substantial doubts, not considered by the District Court, about whether common proof would be available for plaintiffs to demonstrate antitrust impact at trial.
We do not question plaintiffs’ general proposition, which the District Court accepted, that a conspiracy to maintain prices could, in theory, impact the entire class despite a decrease in prices for some customers in parts of the class period, and despite some divergence in the prices different plaintiffs paid. But the question at class certification stage is whether, if such impact is plausible in theory, it is also susceptible to proof at trial through available evidence common to the class. When the latter issue is genuinely disputed, the district court must resolve it after considering all relevant evidence. Here, the District Court apparently believed it was barred from resolving disputes between the plaintiffs’ and defendants’ experts.
D.
Defendants contend the District Court, by relying on Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3d Cir. 1977), erroneously presumed the predominance requirement was met. In Bogosian, also a Clayton Act § 4 case in which plaintiffs sought class certification, the district court had denied class certification on the assumption that the issue of antitrust impact would have to be proven on an individual, as opposed to common, basis. Id. at 454. Finding that assumption erroneous, we reasoned that “when an antitrust violation impacts upon a class of persons who do have standing, there is no reason in doctrine why proof of the impact cannot be made on a common basis so long as the common proof adequately demonstrates some damage to each individual. Whether or not fact of damage can be proven on a common basis therefore depends upon the circumstances of each case.” Id. Applying the concept, we continued:
If, in this case, a nationwide conspiracy is proven, the result of which was to increase prices to a class of plaintiffs beyond the prices which would obtain in a competitive regime, an individual plaintiff could prove fact of damage simply by proving that the free market prices would be lower than the prices paid and that he made some purchases at the higher price. If the price structure in the industry is such that nationwide the conspiratorially affected prices at the wholesale level fluctuated within a range which, though different in different regions, was higher in all regions
than the range which would have existed in all regions under competitive conditions, it would be clear that all members of the class suffered some damage, notwithstanding that there would be variations among all dealers as to the extent of their damage.
Id. at 455; see Newton, 259 F.3d at 179 n.21 (“In antitrust class actions, injury may be presumed when it is clear the violation results in harm to the entire class.“); Linerboard, 305 F.3d at 151–53.
In Linerboard, we found a “strong argument [could] be made that the Bogosian concept of presumed impact was properly applied” on the facts of that case. Id. at 152. Plaintiffs had alleged a horizontal conspiracy by manufacturers to restrict supply and raise prices of linerboard, the paper lining used in corrugated cardboard boxes and sheets. Id. Over a two-year period, defendants allegedly had agreed to idle their plants to reduce inventories to a twenty-year low and boost prices. Id. at 150–51. During the two-year class period, prices had risen by ninety percent. See id. at 152 (“Coincident with [defendants‘] interference with the normal market forces, linerboard prices in the eastern United States rose in six consecutive price increases, from a low of around $270 to $290 per ton in third quarter 1993 to $530 per ton by April 1995.“). The record in this case is different. Although the price of hydrogen peroxide rose at some points during the lengthy class period, the price was lower, not higher, at the end of the class period than at the beginning. And the evidence, as interpreted by defendants’ expert, shows that through much of the class period the production of hydrogen peroxide was increasing rather than decreasing. Moreover, there was an active dispute between the experts as to the “price structure in the industry” to which Bogosian refers. Defendants cited, for example, Ordover‘s empirical analysis showing substantial price disparities among similarly situated customers. Accordingly, defendants contended, it was far from “clear the violation result[ed] in harm to the entire class,” Newton, 259 F.3d at 179 n.21. It is not apparent that the District Court considered, or believed it had the authority to consider, all the evidence in the record with respect to this dispute.
While the District Court found the Bogosian presumption applied, it also relied on Beyer‘s analysis. Cf. Linerboard, 305 F.3d at 155 (“[T]his was not a case where plaintiffs relied solely on presumed impact and damages.“). As in Linerboard, plaintiffs here stress that they do not rely merely on Bogosian‘s presumption to support class certification, but also on their expert‘s analysis. Plaintiffs do not contend a bare allegation of a price-fixing conspiracy, in the absence of supporting evidence and analysis, suffices to support class certification consistent with a proper “rigorous analysis” under
The District Court, upon review of all the evidence consistent with this opinion, may again consider whether the reasoning in Bogosian is compatible with the record of this case. See In re Salomon Analyst Metromedia Litig., 544 F.3d 474, 485–86 (2d Cir. 2008) (remanding for opportunity for party opposing class certification to present evidence rebutting the fraud-on-the-market presumption, because
V.
For the foregoing reasons, we will vacate the class certification order and remand for proceedings consistent with this opinion.
Notes
249 F.3d at 675-76.The reason why judges accept a complaint‘s factual allegations when ruling on motions to dismiss under
Rule 12(b)(6) is that a motion to dismiss tests the legal sufficiency of a pleading. Its factual sufficiency will be tested later—by a motion for summary judgment underRule 56 , and if necessary by trial. By contrast, an order certifying a class usually is the district judge‘s last word on the subject; there is no later test of the decision‘s factual premises (and, if the case is settled, there could not be such an examination even if the district judge viewed the certification as provisional).
Time may be needed to gather information necessary to make the certification decision. Although an evaluation of the probable outcome on the merits is not properly part of the certification decision, discovery in aid of the certification decision often includes information required to identify the nature of the issues that actually will be presented at trial. In this sense it is appropriate to conduct controlled discovery into the “merits,” limited to those aspects relevant to making the certification decision on an informed basis. Active judicial supervision may be required to achieve the most effective balance that expedites an informed certification determination without forcing an artificial and ultimately wasteful division between “certification discovery” and “merits discovery.”