MR. DEE‘S INC., on behalf of themselves and all others similarly situated; RETAIL MARKETING SERVICES, INC., on behalf of themselves and all others similarly situated; CONNECTICUT FOOD ASSOCIATION, on behalf of themselves and all others similarly situated, Plaintiffs - Appellants, v. INMAR, INC.; CAROLINA MANUFACTURER‘S SERVICES, INC.; CAROLINA SERVICES; CAROLINA COUPON CLEARING, INC., Defendants - Appellees. CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, Amicus Supporting Appellee.
No. 23-2165
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
February 12, 2025
PUBLISHED. Argued: December 10, 2024. Before WILKINSON, QUATTLEBAUM, and BERNER, Circuit Judges.
Argued: December 10, 2024
Decided: February 12, 2025
Before WILKINSON, QUATTLEBAUM, and BERNER, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the opinion, in which Judge Quattlebaum and Judge Berner joined.
ARGUED: Daniel Lee Low, KOTCHEN & LOW LLP, Washington, D.C., for Appellants. Lisa R. Bugni, KING & SPALDING LLP, San Francisco, California, for Appellees. ON BRIEF: Daniel Kotchen, KOTCHEN & LOW LLP, Washington, D.C.; Kearns Davis, Matthew B. Tynan, BROOKS PIERCE MCLENDON HUMPHREY & LEONARD LLP, Greensboro, North Carolina, for Appellants. Anne M. Voigts, Palo Alto, California, Mateo de la Torre, New York, New York, Matthew V.H. Noller, KING & SPALDING LLP, San Francisco, California; Samuel B. Hartzell, Pressly McAuley Millen, WOMBLE BOND DICKINSON (US) LLP, Raleigh, North Carolina, for Appellees. Jennifer B. Dickey, Jonathan D. Urick, UNITED STATES CHAMBER LITIGATION CENTER, Washington, D.C.; Brian D. Schmalzbach, MCGUIREWOODS LLP, Richmond, Virginia, for Amicus Curiae.
WILKINSON, Circuit Judge:
Plaintiffs-appellants Mr. Dee‘s Inc., Retail Marketing Services, Inc., and Connecticut Food Association are purchasers of coupon processing services. They sought class certification in a lawsuit alleging that Inmar, Inc. and its subsidiaries participated in an anticompetitive conspiracy to raise coupon processing fees. After multiple rounds of briefing, the district court rejected plaintiffs’ attempts to certify a manufacturer purchaser class. Plaintiffs appealed, arguing that each of the three manufacturer class definitions they proposed satisfied the requirements of
I.
A.
This case arose out of alleged anticompetitive conduct in the coupon processing industry. Stated simply, coupon processing is what happens to coupons after they have been redeemed at grocery stores and other retailers. When a manufacturer issues a coupon, a consumer may present the coupon to a retailer in exchange for a discount on the purchase price of the manufacturer‘s product. Naturally, retailers want to be reimbursed for the discount they provide in honoring the coupon. Manufacturers, meanwhile, want to ensure that they only reimburse retailers for coupons that have been properly redeemed. This is where coupon processing comes into play. J.A. 854–55.
Traditionally, processing paper coupons involved two additional players beyond retailers and manufacturers. First, retailers would send the coupons to a “retailer processor” to count them and invoice the manufacturer. Next, the coupons would be sent to a “manufacturer processor” hired by the manufacturer to re-count the coupons and verify the retailer processor‘s invoice. The amount that manufacturers were ultimately asked by retailers and retailer processors to pay included the face value of
Importantly, because retailers and retailer processors did not contract directly with manufacturers for coupon processing services, manufacturers were not contractually obligated to pay shipping fees. Adding another layer of complication, manufacturers sometimes disagreed with the amounts they were invoiced. When this happened, the manufacturer might refuse to pay, or “charge back,” part of the invoiced amount. In response, a retailer could “deduct” chargebacks from what the retailer owed the manufacturer for the products they purchased. J.A. 856–58, 2055.
B.
The three named plaintiffs in this case are purchasers of coupon processing services. Mr. Dee‘s, Inc. is a manufacturer that issues coupons and purchases coupon processing services. Retail Marketing Services, Inc. and Connecticut Food Association purchase coupon processing services on behalf of retailers. Defendants Inmar, Inc. and its subsidiary Carolina Manufacturer‘s Services, Inc. (“CMS“) sell processing services to manufacturers. Inmar‘s subsidiaries Carolina Coupon Clearing, Inc. (“CCC“) and Carolina Services (collectively “Inmar“) sell processing services to retailers. J.A. 2053–54.
The plaintiffs allege that Inmar entered a horizontal price-fixing agreement with competitor International Outsourcing Services, LLC (“IOS“) that resulted in higher shipping fees. The alleged conspiracy lasted from 2001 until 2007 when certain IOS personnel were criminally indicted. The antitrust case against Inmar was first brought in the United States District Court for the Eastern District of Wisconsin in 2008, but proceedings were stayed to allow resolution of the criminal charges. IOS was eventually dismissed from the antitrust case after filing for bankruptcy, leaving only the Inmar defendants. In 2019, the case was transferred to the Middle District of North Carolina. J.A. 2053-56, 2061.
As is typical in the antitrust context, the plaintiffs relied heavily on expert testimony to make their case. The centerpiece of plaintiffs’ evidence was a report prepared by expert witness Dr. Kathleen Grace. Dr. Grace used a dataset of fees charged to manufacturers to calculate a “mean shipping fee payment per 1,000 coupons” for Inmar, IOS, and NCH (another coupon processor not part of the alleged conspiracy) for each year between 2000 and 2007. J.A. 2057. She then performed regression analyses “to estimate shipping fee overcharges,” that is, the amounts manufacturers paid above a forecasted competitive shipping fee. J.A. 2057–60. Dr. Grace also estimated shipping fee overcharges for retailers that resulted from manufacturers refusing to pay shipping fees. J.A. 2060–61.
Plaintiffs sought certification for two classes, one of manufacturer purchasers of coupon processing services (which the district court denied) and another of retailer purchasers (which the district court granted). For simplicity, we focus only on the proffered manufacturer classes as to which we granted permission to appeal. J.A. 2117, 2119.
The district court denied plaintiffs’ first two motions for class certification without prejudice. The first was denied after issues arose during discovery. J.A. 2061–62. The second sought to certify “a class of manufacturers that directly paid observably higher CCC or IOS shipping fees during the class period (April 11, 2001 through March 28, 2007), identified on the list attached to Plaintiffs’ supporting brief at Exhibit 24, Appendix A.” J.A. 1249. Appendix A was a list of 5,280 manufacturers which Dr. Grace identified as having “directly
Plaintiffs’ third motion sought certification of “a class of manufacturers that directly paid CCC shipping fees during more than 8 different calendar months during the class period (April 11, 2001 through March 28, 2007) and/or were clients of CMS and directly paid shipping fees to IOS for at least 2.2 million coupons during the class period” (the “Limited Payer Class“). J.A. 1452, 2066–67. After a motions hearing, the district court directed the parties to file additional briefing discussing whether a class could be certified without the month and volume cutoffs. In response, the plaintiffs added a new potential class definition: “manufacturers that directly paid CCC shipping fees during the class period and/or were clients of CMS and directly paid shipping fees to IOS” (the “All Payer Class“). J.A. 2067. Plaintiffs also proposed that the classes could, alternatively, be defined simply as the “manufacturers listed in [Appendix A].” J.A. 2097 n.10 (the “Fixed List Class“).
The district court rejected each of the three proffered manufacturer classes. With respect to the Fixed List Class, the district court determined that the revised definition “mirror[ed] the fail-safe class[]” that it previously refused to certify and “fail[ed] for the same reason.” Id. Regarding the Limited Payer Class, the district court found that the class excluded “more than 2,000 manufacturers who were allegedly victims of the same Sherman Act violation.” J.A. 2073. Because, on the court‘s view, the scope of the proposed class was “untethered from Defendants’ alleged wrongs,” the class failed Rule 23‘s implicit ascertainability requirement. J.A. 2052–53. Finally, the district court rejected the All Payer Class for failing to satisfy Rule 23(b)(3)‘s predominance requirement. The district court found that of the 7,813 members of the All Payer Class, 2,533 suffered no demonstrable antitrust injury. Without “expert testimony showing impact and damages to almost a third of the class,” the district court determined that the plaintiffs had not met their burden to show that common questions would predominate. J.A. 2089–90, 2104.
Invoking
II.
We have long recognized that district courts possess “broad discretion in deciding whether to certify a class.” Lienhart v. Dryvit Sys., Inc., 255 F.3d 138, 146 (4th Cir. 2001) (quoting In re Am. Med. Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996)). Accordingly, this court reviews class certification decisions for abuse of discretion. Gregory v. Finova Cap. Corp., 442 F.3d 188, 190 (4th Cir. 2006). In applying this standard, we are “cognizant of both the considerable advantages that our district court colleagues possess in managing complex litigation and the need to afford them some latitude in bringing that expertise to bear.” Krakauer v. Dish Network, L.L.C., 925 F.3d 643, 654 (4th Cir. 2019).
In the class action context, an “abuse of discretion occurs when a district court ‘materially misapplies the requirements of
A class must also “fall within one of the three categories enumerated in
The Supreme Court has made it clear that “[a] party seeking class certification must affirmatively demonstrate his compliance” with
III.
Mindful of the standards outlined above, we review the district court‘s denial of each of the proposed classes in turn.
A.
We begin with the court‘s rejection of the Fixed List Class. In their third attempt to certify a class of manufacturer purchasers, the plaintiffs proposed to certify a class of “manufacturers listed in [Appendix A].” J.A. 2097 n.10. The district court noted that this definition was identical to the one it had previously considered and rejected but for deletion of the phrase “that directly paid observably higher CCC or IOS shipping fees during the class period.” Id. Because the revised definition referenced the same list of manufacturers generated from Dr. Grace‘s regressions, the district court concluded that this class too was an “impermissible fail-safe class[] because class membership is conditioned on having suffered antitrust injury or impact in the form of increased shipping fees.” Id.
A “fail-safe” class is “defined so that whether a person qualifies as a member depends on whether the person has a
On appeal, the plaintiffs advance several arguments for why the Fixed List Class is not a fail-safe class. They contend that the class members have been definitively identified in Appendix A and will remain class members regardless of the merits outcome, and that merely having paid higher prices, standing alone, would not be sufficient to prove liability under the Sherman Act. See Opening Brief at 21–22, 29–30. Moreover, they argue that this court should decline to adopt a prohibition against fail-safe classes that goes beyond the certification requirements prescribed by
We need not reach the viability of fail-safe classes because the Fixed List Class suffers from more basic defects under
For one,
More fundamentally, it is the burden of the party seeking class certification, not the district court‘s, “to demonstrate compliance with
B.
We next turn to the district court‘s rejection of the Limited Payer Class. Plaintiffs moved to certify “a class
The court found that this class failed to satisfy Rule 23‘s implicit ascertainability requirement. We have explained that for a proposed class to be ascertainable, individual members must be identifiable “in reference to objective criteria.” EQT Prod. Co., 764 F.3d at 358. At the motions hearing, the plaintiffs contended that the month and volume cutoffs reflected a “natural breaking point” in the data “above which almost all manufacturers were injured.” J.A. 2073. The district court reasoned, however, that because “Plaintiffs’ model, rather than the Defendants’ alleged conspiracy, determines which retailers and manufacturers receive the benefits of class membership,” the scope of the class was not objectively determined. J.A. 2073–74. The district court also raised a concern that by excluding thousands of manufacturers with valid claims, certification of the Limited Payer Class would frustrate the class action goal of “avoiding multiple lawsuits.” J.A. 2075 (quoting Fariasantos v. Rosenberg & Assocs., LLC, 303 F.R.D. 272, 278 (E.D. Va. 2014)).
The district court did not abuse its discretion in declining to certify the Limited Payer Class. An essential purpose of any class action is to redress an injury. If the criteria for class membership bear little relationship to the defendants’ conduct, then the class definition is untethered from the purpose of employing the class action procedure in the first instance. Here, the fact that more than 2,000 manufacturers–39% of those identified as having paid observably higher shipping fees—were excluded by the date and volume cutoffs demonstrates that the Limited Payer Class definition is untethered from the plaintiffs’ own evidence of harm.
By the same token, excising such a large share of potential claimants from the proposed class raises a superiority problem. Certification under
To be sure, we do not mean to suggest that a plaintiff must necessarily prove that a class action would be the “best” method for adjudicating a controversy before a class may be certified. See Krakauer, 925 F.3d at 655 (observing that because “claims aggregated under
C.
Finally, we consider the district court‘s rejection of the All Payer Class. That class was defined as “manufacturers
The plaintiffs raise two primary challenges to this conclusion. First, they argue that the district court erred in finding as a matter of fact that 32% of the members of the All Payer Class were uninjured. Opening Brief at 50. Second, they contend that nothing in
We disagree on both counts. When it comes to the share of class members lacking evidence of injury, we are hardly “left with the definite and firm conviction that a mistake has been committed.” Williams, 59 F.4th at 86 (quoting Hall, 664 F.3d at 462).2 Plaintiffs
concede that according to the model prepared by Dr. Grace, the plaintiffs’ only expert witness, “there were no observable price increases during the conspiracy period” for 32% of the All Payer Class. Opening Brief at 50. Given that the plaintiffs “lack expert testimony showing impact and damages” for almost a third of class members, it was not clearly erroneous for the district court to conclude that that portion of the class was uninjured. J.A. 2104, 2089. Nor did the district court err in declining to infer harm for this segment of the class from evidence of market-wide harm, “including record evidence, admissions, [and] market characteristics.” Reply Brief at 24. The district court carefully considered these arguments and explained why they were insufficient to support an inference of injury for the 32% of class members that could not demonstrate harm using Dr. Grace‘s regressions. See J.A. 2104-11.
The district court did not abuse its discretion in finding that the high share of class members with no demonstrable injury presented a predominance problem.
And even among the class members that arguably did show injury, the circumstances surrounding the payment of shipping fees varied substantially. Because, as the district court noted, manufacturers were not contractually obligated to pay shipping fees, J.A. 2055, the fees that manufacturers paid depended on company-specific policies. J.A. 1387–88 (declaration of Inmar president Robert Carter) (stating that “payments were made (or not made) according to written policies set by the manufacturers” and describing individual
Finally, we note that attempting to define a class with such a high share of uninjured members also raises Article III standing concerns. Going as they do to the existence of judicial authority, such concerns are not to be ignored. In TransUnion LLC v. Ramirez, the Supreme Court held that “every class member must have Article III standing in order to recover individual damages.” 594 U.S. 413, 431 (2021). But the Court left open “the distinct question whether every class member must demonstrate standing before a court certifies a class.” Id. at 431 n.4; see Lab‘y Corp. of Am. v. Davis, No. 24-304, 2025 WL 288305, at *1 (U.S. Jan. 24, 2025) (mem.) (granting certiorari to resolve “[w]hether a federal court may certify a class action pursuant to
Our circuit has also underscored the importance of standing concerns in class action litigation. See Alig v. Rocket Mortg., LLC, --- F.4th. ---, 2025 WL 271563, at *6–7 (4th Cir. Jan. 23, 2025). Some of our sister circuits have addressed the issue of class member standing in conjunction with the requirements of
IV.
A class action is a compromise between opposing forces of individuality and commonality. Because this procedural mechanism is an exception to the usual practice of litigating cases for named parties only, a party seeking class certification must make a positive showing that common issues will rule the day. The need for common issues to predominate is an explicit and indispensable requirement for classes certified under
We note in conclusion that manufacturers can propose antitrust class actions that avoid the certification pitfalls delineated above. We are bound in this case, however, to address the particular classes that the plaintiffs proposed and that the district court addressed and rejected. Under the circumstances, we cannot fault the trial court for its decision. In view of the latitude afforded district courts in making class certification rulings, we cannot rightly overturn what the district court did here as an abuse of discretion. Accordingly, its judgment is hereby affirmed.
AFFIRMED
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