Olean Wholesale Grocery Co-Op v. Bumble Bee Foods LLCOlean Wholesale Grocery Co-Op v. Bumble Bee Foods LLC
FOR PUBLICATION
Plaintiffs-Appellees,
and
JESSICA DECKER, JOSEPH A. LANGSTON, SANDRA POWERS, GRAND SUPERCENTER, INC., THE CHEROKEE NATION, US FOODS, INC., SYSCO CORPORATION, GLADYS, LLC, SPARTANNASH COMPANY, BRYAN ANTHONY REO,
Plaintiffs,
v.
Defendants-Appellants,
and
Defendants.
Appeal from the United States District Court for the Southern District of California
Dana M. Sabraw, Chief District Judge, Presiding
Argued and Submitted En Banc September 22, 2021
Pasadena, California
Filed April 8, 2022
Before:
Opinion by Judge Ikuta;
Dissent by Judge Lee
SUMMARY*
Antitrust / Class Certification
The en banc court filed an opinion affirming the district court‘s order certifying three subclasses of tuna purchasers who alleged that the suppliers violated federal and state antitrust laws. The en banc court held that the district court did not abuse its discretion in concluding that the purchasers’ statistical regression model, along with other expert evidence, was capable of showing that a price-fixing conspiracy caused class-wide antitrust impact, thus satisfying one of the prerequisites for bringing a class action under
To take advantage of Rule 23‘s procedure for aggregating claims, plaintiffs must make two showings. First, under
Joining other circuits, the en banc court held that plaintiffs must prove by a preponderance of the evidence the facts necessary to carry the burden of establishing that the prerequisites of Rule 23 are satisfied. The en banc court held that to prove 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.
The en banc court held that in making the determinations necessary to find that the prerequisites of
The en banc court held that when individualized questions relate to the injury status of class members,
Beginning with the “DPP” class of direct purchasers of the tuna suppliers’ products, such as nationwide retailers and regional grocery stores, the panel held that in order to prevail on their antitrust claim, the DPP class was required to prove that the tuna suppliers engaged in a conspiracy (an antitrust violation), which resulted in antitrust impact in the form of higher prices paid by each member of the class, which in turn led to measurable damages. The question whether each member of the DPP class suffered antitrust impact was central to the validity of each of the DPP claims. The central questions on appeal were whether the expert evidence presented by the DPPs was capable of resolving this issue “in one stroke,” and whether this common question predominated over any individualized inquiry.
The en banc court concluded that the district court did not abuse its discretion in certifying the class. The DPPs relied on the expert testimony and report of Dr. Russell Mangum, whose findings about the tuna market and tuna suppliers’ collusive behavior, pricing correlation test, regression model, and robustness checks confirmed his theory that the price-fixing conspiracy resulted in substantial price impacts, and that the impact was common to the DPPs during the collusion period. The en banc court concluded that the district court did not make any legal or factual error when, in considering whether the DPPs’ evidence was capable of establishing antitrust impact for the class as a whole, the district court reviewed Dr. Mangum‘s expert testimony and report, the rebuttal testimony and report by Dr. John Johnson, and Dr. Mangum‘s reply, and then addressed the parties’ disputes. The district court thus properly concluded that Dr. Mangum‘s pooled regression model, along with other evidence, was capable of answering the question whether there was antitrust impact due to the collusion on a class-wide basis, thus satisfying this prerequisite of
The en banc court held that the district court did not abuse its discretion in determining that the evidence presented by the DPPs proved: (1) that the element of antitrust impact was capable of being established class-wide through common proof, and (2) that this common question predominated over individual questions. The en banc court rejected any categorical argument that a pooled regression model cannot control for variables relating to the individual differences among class members. The en banc court also rejected the argument that, in this case, the model‘s output could not plausibly serve as common evidence for all class members given the individual differences among those class members. The en banc court held that the district court did not err by failing to resolve a dispute between the parties as to whether 28 percent of the class did not suffer antitrust impact. Rather, the district court fulfilled its obligation to resolve the disputes raised by the parties in order to satisfy itself that the evidence proves the prerequisites for
The en banc court held that the district court also did not abuse its discretion in determining that the evidence presented by the “CFP” class of indirect purchasers of bulk-sized tuna products and the “EPP” class of individual end purchasers was capable of proving the element of antitrust impact under California‘s Cartwright Act, thus satisfying the prerequisites of
Dissenting, Judge Lee, joined by Judge Kleinfeld, wrote that the majority opinion allowed the district court to certify a class, even though potentially about one out of three class members suffered no injury. Judge Lee wrote that if defendants’ econometrician expert was correct that almost a third of the class members may not have suffered injury, then plaintiffs did not show the predominance of common issues under
COUNSEL
Gregory G. Garre (argued), Samir Deger-Sen, and Shannon Grammel, Latham & Watkins LLP, Washington, D.C.; Christopher S. Yates, Belinda S. Lee, and Ashley M. Bauer, Latham & Watkins LLP, San Francisco, California; for Defendants-Appellants StarKist Co. and Dongwon Industries Co. Ltd.
Christopher L. Lebsock (argued), Michael P. Lehmann, Bonny E. Sweeney, and Samantha J. Stein, Hausfeld LLP, San Francisco, California, for Plaintiffs-Appellees Direct Purchaser Plaintiff Class.
Jonathan W. Cuneo (argued), Joel Davidow, and Blaine Finley, Cuneo Gilbert & Laduca LLP, Washington, D.C., for Plaintiffs-Appellees Commercial Food Preparer Plaintiff Class.
Thomas H. Burt (argued), Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York; Betsy C. Manifold, Rachele R. Byrd, Marisa C. Livesay, and Brittany N. DeJong, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, California; for Plaintiffs-Appellees End Payer Plaintiff Class.
Corbin K. Barthold and Cory L. Andrews, Washington, D.C., for Amicus Curiae Washington Legal Foundation.
Ashley C. Parrish and Joshua N. Mitchell, King & Spalding LLP, Washington, D.C.; Steven P. Lehotsky, Jonan D. Urick, Daryl Joseffer, and Jennifer B. Dickey, United States Chamber Litigation Center; Anne M. Voigts, Quyen L. Ta, and Suzanne E. Nero, King & Spalding LLP, San Francisco, California; Kerry Perigoe, King & Spalding LLP, Los Angeles, California; Christopher A. Mohr, Software & Information Industry Association, Washington, D.C.; Jeanine Poltronieri, Internet Association, Washington, D.C.; for Amici Curiae Chamber of Commerce of the United States of America, Software Information Industry Association, and Internet Association.
Randy M. Stutz, American Antitrust Institute, Washington, D.C.; Professor Joshua P. Davis, University of San Francisco School of Law, San Francisco, California; Ellen Meriwether, Cafferty Clobes Meriwether & Sprengal, Media, Pennsylvania;
Scott L. Nelson and Allison M. Zieve, Public Citizen Litigation Group, Washington, D.C., for Amicus Curiae Public Citizen Inc.
Jocelyn D. Larkin, Lindsay Nako, and David S. Nahmias, Impact Fund, Berkeley, California, for Amici Curiae Impact Fund, Bet Tzedek, California Rural Legal Assistance Foundation, Centro Legal de la Raza, Legal Aid at Work, and Public Counsel.
Karla Gilbride, Washington, D.C., as and for Amicus Curiae Public Justice P.C.
Deborah A. Elman and Chad Holtzman, Garwin Gerstein & Fisher LLP, New York, New York; Warren T. Burns and Kyle K. Oxford, Burns Charest LLP, Dallas, Texas; Robert S. Kitchenoff, President; Lin Y. Chan, Vice President, Committee to Support the Antitrust Laws, Washington, D.C.; for Amicus Curiae Committee to Support the Antitrust Laws.
Jonathan F. Cohn, Joshua J. Fougere, and Jacquelyn E. Fradette, Sidley Austin LLP, Washington, D.C., for Amicus Curiae Consumer Healthcare Products Association.
OPINION
IKUTA, Circuit Judge:
The primary suppliers of packaged tuna in the United States appeal the district court‘s order certifying three classes of tuna purchasers who allege the suppliers violated federal and state antitrust laws. The main issue on appeal is whether the purchasers’ statistical regression model, along with other expert evidence, is capable of showing that a price-fixing conspiracy caused class-wide antitrust impact, thus satisfying one of the prerequisites for bringing a class action under
I
Bumble Bee,1 StarKist, and Chicken of the Sea (COSI), and their parent companies are the largest suppliers of packaged tuna in the United States (referred to collectively as the “Tuna Suppliers“). Their products include packaged tuna sold to direct purchasers like Costco and Walmart, and food-service-size tuna products sold to various distributors for resale. Together, the Tuna Suppliers sell over 80 percent of the packaged tuna in the country.
In late 2015, the United States Department of Justice (DOJ) opened an investigation into the packaged tuna industry for violations of federal antitrust law. The DOJ investigation uncovered evidence of a price-fixing scheme among the Tuna Suppliers, which led the DOJ to enter multiple indictments alleging a criminal conspiracy to fix prices of canned tuna for the period from approximately November 2011
A number of purchasers of the Tuna Suppliers’ products (referred to collectively as the “Tuna Purchasers“) filed putative class actions against the Tuna Suppliers alleging violations of various federal and state antitrust laws. The Tuna Purchasers alleged that the Tuna Suppliers engaged in a conspiracy from November 2010 through at least December 31, 2016 to fix prices of tuna, along with other collusive activities in furtherance of the price-fixing conspiracy. The Tuna Purchasers alleged that they were damaged by the conspiracy because they paid supra-competitive prices for the Tuna Suppliers’ products.3
The Tuna Purchasers’ actions were consolidated in a multidistrict litigation pretrial proceeding in the Southern District of California. The Tuna Purchasers consist of three putative subclasses: (i) direct purchasers of the Tuna Suppliers’ products, such as nationwide retailers and regional grocery stores, who purchased packaged tuna between June 1, 2011 and July 1, 2015 (the “DPPs“); (ii) indirect purchasers of the Tuna Suppliers’ products who bought bulk-sized tuna products between June 2011 and December 2016 for prepared food or resale (the “CFPs“); and (iii) individual end purchasers who bought the Tuna Suppliers’ products between June 1, 2011 and July 1, 2015 for personal consumption (the “EPPs“).
In 2018, the Tuna Purchasers moved to certify the three subclasses under
The Tuna Suppliers timely appealed, and a panel of this court vacated the district court‘s order and remanded. See Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774, 794 (9th Cir. 2021), reh‘g en banc granted, 5 F.4th 950 (9th Cir. 2021). We took 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.”
We have jurisdiction under
II
A
To take advantage of Rule 23‘s procedure for aggregating claims, plaintiffs must make two showings. First, the plaintiffs must establish “there are questions of law or fact common to the class,” as well as demonstrate numerosity, typicality and adequacy of representation.4
A common question “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.” Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011). By contrast, an individual question is one where members of a proposed class will need to present evidence that varies from member to member. See Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 453 (2016).
Second, the plaintiffs must show that the class fits into one of three categories. See
aggregation-enabling, issues in the case are more prevalent or important than the non-common, aggregation-defeating, individual issues.” Tyson Foods, 577 U.S. at 453 (cleaned up). The requirements of
B
Before it can certify a class, a district court must be “satisfied, after a rigorous analysis, that the prerequisites” of both
We have not yet prescribed the plaintiffs’ burden for proving that the prerequisites of
Applying this test here, the balance of interests in this case favors prescribing the preponderance of the evidence standard. The Supreme Court has made clear that
In carrying the burden of proving facts necessary for certifying a class under
In order for the plaintiffs to carry their burden of proving that a common question predominates, they must show that the common question relates to a central issue in the plaintiffs’ claim. See Wal-Mart, 564 U.S. at 349–50. Therefore, “[c]onsidering whether ‘questions of law or fact common to class members predominate’ begins, of course, with the elements of the underlying cause of action.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 809 (2011) (quoting
The claims at issue here are violations of section 1 of the Sherman Antitrust Act,
Therefore, 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. Id. (cleaned up). Here, the Tuna Purchasers claim that they can establish the existence of antitrust impact through common proof.
C
In making the determinations necessary to find that the prerequisites of
In determining whether the “common question” prerequisite is met, a
A district court must also resolve disputes about historical facts if necessary to determine whether the plaintiffs’ evidence is capable of resolving a common issue central to the plaintiffs’ claims.10 For instance, in a case in which a nationwide class of plaintiff employees alleged nationwide discrimination by their employer, we held that a district court had to resolve factual disputes at certification regarding whether decisions regarding promotions were made at the local level or by upper management. See Ellis, 657 F.3d at 983–84 & n.7. We reasoned that if such decisions were made only at the local level, plaintiffs “would face an exceedingly difficult challenge in proving that there are questions of fact and law common to the nationwide class.” Id. at 983–84. Nevertheless, the district court was not required to resolve factual disputes regarding ultimate issues on the merits, such as “whether women were in fact discriminated against” or whether the defendant “does in fact have a culture of gender stereotyping and paternalism.” Id. at 983; see also id. at 983 n.8. Resolving such issues would “put the cart before the horse” by requiring plaintiffs to show at certification that they will prevail on the merits. Amgen, 568 U.S. at 460.
Therefore, a district court cannot decline certification merely because it considers plaintiffs’ evidence relating to the common question to be unpersuasive and unlikely to succeed in carrying the plaintiffs’ burden of proof on that issue. See id. at 459–60. Rather, Tyson Foods established the rule that if “each class member could have relied on [the plaintiffs’ evidence] to establish liability if he or she had brought an individual action,” and the evidence “could have sustained a reasonable jury finding” on the merits of a common question, Tyson Foods, 577 U.S. at 455, then a district court may conclude that the plaintiffs have carried their burden of satisfying the
Nor can a district court decline to certify a class that will require determination of some individualized questions at trial, so long as such questions do not predominate over the common questions. See
When individualized questions relate to the injury status of class members,
In an analogous context, we
Therefore, we reject the dissent’s argument that
A district court is in the best position to determine whether individualized questions, including those regarding class members’ injury, “will overwhelm common ones and render class certification inappropriate under
We now turn to the Tuna Suppliers’ arguments and consider them in light of this legal framework. We begin with the DPP class, which is the focus of the Tuna Suppliers’ arguments. In order to prevail on their antitrust claim, the DPP class must prove that the Tuna Suppliers engaged in a conspiracy (an antitrust violation), which resulted in antitrust impact in the form of higher prices paid by each member of the class, which in turn led to measurable damages. The question whether each member of the DPP class suffered antitrust impact “is central to the validity of each one of the [DPP] claims.” Wal-Mart, 564 U.S. at 350. The central questions on appeal are whether the expert evidence presented by the DPPs is capable of resolving this issue “in one stroke,” id., and whether this common question predominates over any individualized inquiry. We conclude that the district court did not abuse its discretion in certifying the class.
A
The centerpiece of the DPPs’ claim that each member of the class suffered antitrust impact is economist Dr. Russell Mangum’s expert testimony and report. According to his testimony and report, Dr. Mangum reviewed a comprehensive range of available information to develop an understanding of the nature of the market at issue and the details of the Tuna Suppliers’ price-fixing conspiracy. That information included court filings, the Tuna Suppliers’ guilty pleas, discovery materials such as the Tuna Suppliers’ business records concerning their sales of packaged tuna, deposition testimony, publicly available information regarding the tuna industry, and data regarding supply and demand factors that affect the manufacture, sale and consumption of packaged tuna such as raw material prices and details about customer preferences. After examining the economic structure of the tuna market and the available record evidence concerning the Tuna Suppliers’ behavior, Dr. Mangum determined that the packaged tuna market was conducive to price-fixing, given the Tuna Suppliers’ dominance in the market, the attendant barriers to entry for competitors, the Tuna Suppliers’ use of price lists for their products, and other characteristics of the packaged tuna industry. According to Dr. Mangum, these findings supported a baseline economic theory that the Tuna Suppliers’ collusive behavior would affect the DPPs on a class-wide basis. Dr. Mangum then used a number of different econometric tools to evaluate whether quantitative
Dr. Mangum first performed a pricing correlation test, which demonstrated that the prices of the Tuna Suppliers’ products moved up or down together regardless of product or customer type, and thus supported the proposition that the Tuna Suppliers’ collusion had a common, supra-competitive impact on their prices. Based on this evidence, Dr. Mangum concluded that the Tuna Suppliers’ collusion would result in higher prices that would affect direct purchasers on a class-wide basis, which was consistent with his original theory. This finding is also consistent with “the prevailing [economic] view [that] price-fixing affects all market participants, creating an inference of class-wide impact even when prices are individually negotiated.” In re Urethane, 768 F.3d at 1254. To further explore whether the DPPs were subject to an overcharge caused by the price-fixing conspiracy (rather than by other variables that could affect prices) on a class-wide basis, Dr. Mangum constructed a statistical model using a multiple regression analysis. Regression analyses are used to determine “the relationship between an unknown [dependent] variable [such as price] and one or more independent variables [e.g., transaction characteristics, and supply and demand factors] that are thought to impact the dependent variable.” Id. at 1260 (quotation marks omitted) (citing Michael J. Saks, et al., Reference Manual on Scientific Evidence 179, 181 (2d ed. 2000)). If a regression model uses “appropriate independent [or explanatory] variables,” it can test and isolate the extent to which the actual prices paid by plaintiffs are higher because of a defendant’s collusive behavior. Id. Assuming Dr. Mangum’s regression model met this standard, it could provide further evidence that the DPPs were impacted by the Tuna Suppliers’ collusion on a class-wide basis.
In simple terms, Dr. Mangum first aggregated (or “pooled”) the actual tuna sale transaction data for the Tuna Suppliers’ sales to the DPPs during both the alleged conspiracy period and during benchmark periods before and after the conspiracy. Dr. Mangum then identified a number of variables (referred to as independent or explanatory variables) that could affect the price of tuna, including product characteristics, input costs, customer type, and variables related to consumer preference and demand, such as disposable income, seasonal effects, and geography. The model then isolated (or “controlled for”) the effect of these explanatory variables on the prices paid by DPPs, which allowed the model to isolate the effect that the conspiracy by itself had on the prices paid by DPPs. When all the tuna sale transactions were aggregated, and the explanatory variables (other than the price-fixing conspiracy) were controlled for, the model showed that the DPPs paid 10.28 percent more for tuna during the conspiracy period than they did during the benchmark periods. Dr. Mangum labeled this 10.28 percent as the “overcharge,” meaning the common amount paid by the DPPs resulting from the collusive behavior alone. This result was statistically significant, meaning that there was a less than five percent chance that the higher prices during the price-fixing conspiracy was a product of chance. Thus, by isolating the common overcharge amount, Dr. Mangum’s regression model was further confirmation of his theory that
Dr. Mangum performed several tests (which he referred to as “robustness checks”) to confirm that his regression model was an appropriate tool to be used by the entire DPP class to show common impact. These tests were used to confirm the reliability of the model, and, according to Dr. Mangum, the test results supported his ultimate conclusion that the model could be used to show class-wide injury. First, Dr. Mangum changed the model to evaluate the overcharge specific to each individual defendant. The results showed that prices were still elevated above competitive levels during the collusion period. Second, Dr. Mangum changed the model to evaluate the overcharge specific to certain products with different characteristics, such as fish type and package type. These tests showed that each type of product tested was impacted to a similar degree. Third, Dr. Mangum changed the model to evaluate the overcharge based on customer types.17 This test showed that there were large, statistically significant overcharges for every customer type. These robustness checks confirmed Dr. Mangum’s theory that the DPPs paid an overcharge during the conspiracy period. Finally, Dr. Mangum used the output of the pooled regression model to predict the but-for prices (i.e., what the price of tuna during the conspiracy period would have been without the overcharge caused by the conspiracy), and compared these predicted but-for prices to the actual prices paid by the DPP class. This comparison showed that 94.5 percent of the purchasers had at least one purchase above the predicted but-for price, which again provided further evidence that the conspiracy had a common impact on all or nearly all the members of the DPP class.18 Dr. Mangum therefore concluded that his aggregated regression model provided econometric evidence that the conspiracy resulted in higher prices paid by all or nearly all DPPs. According to Dr. Mangum, the results were strong evidence
In sum, Dr. Mangum’s findings about the tuna market and the Tuna Suppliers’ collusive behavior, his pricing correlation test, his regression model, and his robustness checks all confirmed his theory that the conspiracy resulted in substantial price impacts, and that the impact was common to the DPPs during the collusion period.
B
The Tuna Suppliers attacked Dr. Mangum’s expert report on multiple fronts, but primarily relied on their rebuttal expert, economist Dr. John Johnson, who made multiple criticisms of Dr. Mangum’s methodology. The essence of Dr. Johnson’s critique was that it was not statistically appropriate to use a pooled regression model for transactions in the tuna market, given the multiple individualized differences among class members, such as disparities in negotiating tactics and bargaining power. Dr. Mangum’s use of pooled data, Dr. Johnson alleged, masked these individual differences among class members. Thus, Dr. Johnson claimed, Dr. Mangum’s conclusion that the conspiracy had a class-wide impact based on a uniform overcharge did not reflect the real world.
Dr. Johnson supported this allegation on several grounds. First, Dr. Johnson claimed that a statistical tool called a Chow test20 shows that the data relating to tuna transactions should not be pooled due to individual differences in each purchaser’s transactions. Second, Dr. Johnson criticized Dr. Mangum’s calculation that 94.5 percent of DPPs whose transactional data were included in the model had at least one purchase at a price above the predicted but-for price. According to Dr. Johnson, this calculation was misleading because it was premised on what Dr. Johnson characterized as the faulty assumption that all direct purchasers paid the same 10.28 percent overcharge throughout the proposed class period. Instead, Dr. Johnson performed his own test of Dr. Mangum’s model. As part of this test, Dr. Johnson changed the model to evaluate overcharge based on each individual customer. According to Dr. Johnson, the test showed that of the 604 direct purchasers who bought from the Tuna Suppliers during the proposed class period, the model did not estimate a positive and statistically significant overcharge (attributable to the conspiracy) for 169 direct purchasers (or 28 percent). Therefore, Dr. Johnson argued that the plaintiffs could not rely on the model to demonstrate class-wide impact of the conspiracy.21
In rebuttal, Dr. Mangum rejected Dr. Johnson’s premise that a pooled, aggregated model was inappropriate to use in
this case. Dr. Mangum explained that his technique was a well-known and well-accepted method for examining antitrust impact in markets with individualized differences among purchasers. According to Dr. Mangum, both of the bases for Dr. Johnson‘s challenges to the use of a pooled regression model failed. First, Dr. Mangum claimed that a Chow test should not be used in the manner employed by Dr. Johnson in his report. According to Dr. Mangum, Dr. Johnson‘s Chow test was “designed to fail,” meaning that in this context, the test results would always show that the data relating to tuna transactions should not be pooled. Second, Dr. Mangum asserted that the record contained insufficient transaction data for Dr. Johnson‘s test of the regression model to yield meaningful results. For example, Dr. Mangum acknowledged that the model, as changed by Dr. Johnson to consider purchasers on an individual basis, could not estimate a positive and statistically significant overcharge for 169 direct purchasers. But according to Dr. Mangum, no regression model could yield a statistically significant estimate for many of those 169 direct purchasers on such an individual purchaser-by-purchaser basis, because 61 of those purchasers did not make any purchases during the benchmark periods, and many of the other purchasers had not undertaken a sufficient number of transactions during either the benchmark periods or collusion period to yield statistically significant results. And logically, Dr. Mangum asserted, given the evidence that the defendants were able to inflate prices generally through the conspiracy, that the tuna market was susceptible to collusion, and that the model showed a robust, statistically significant impact of the price-fixing scheme on the tuna market, even the DPP class members for whom Dr. Johnson‘s test did not yield a positive, statistically significant overcharge should be able to rely on the pooled regression model as evidence of impact. Therefore, according to Dr. Mangum, Dr. Johnson erred in concluding that the regression model had no relevance for that 28 percent of class members.
Dr. Mangum also rebutted Dr. Johnson‘s additional critiques. With respect to Dr. Johnson‘s claim that the regression model yielded false positives, Dr. Mangum explained that overcharges imposed by non-defendant tuna suppliers (who were
C
In considering whether the DPPs’ evidence was capable of establishing antitrust impact for the class as a whole, the district court reviewed Dr. Mangum‘s expert testimony and report, the rebuttal testimony and report by Dr. Johnson, and Dr. Mangum‘s reply, and then addressed the parties’ disputes. In doing so, the district court did not make any legal or factual error.
First, the district court considered Dr. Johnson‘s argument that Dr. Mangum‘s pooled regression model masked differences between purchasers, and that when the overcharge is determined for individual DPP class members the model did not show a positive, statistically significant impact for some 28 percent of the class. After reviewing each of the experts’ analyses, the district court credited Dr. Mangum‘s rebuttal of Dr. Johnson‘s critique. Even if the model (when modified by Dr. Johnson to evaluate individual purchasers) did not yield a positive, statistically significant overcharge for some purchasers who had no or too few transactions during the pre-collusion benchmark period, the district court concluded that those purchasers could still rely on the pooled regression model as evidence of the conspiracy‘s impact on similarly situated class members. The court further noted that other evidence in the record, including the guilty pleas and market characteristics, showed that class members suffered a common impact. The district court also considered Dr. Johnson‘s argument that the Chow test showed that Dr. Mangum‘s model cannot be applied to all defendants. The court acknowledged that failure of a statistical test used to determine whether a regression is appropriate should be taken seriously, and could lead a court to reject the model at the class certification stage as not capable of providing class-wide proof. But it also noted that most regressions models will fail one or more tests if enough are run, even if the model itself is statistically sound. Because there was a rational basis
The district court rejected Dr. Johnson‘s additional arguments. With respect to Dr. Johnson‘s claim that the false positives in Dr. Mangum‘s model rendered the model unreliable, the court credited Dr. Mangum‘s explanation that the false positives could be explained by the umbrella effect and that Dr. Johnson had erroneously concluded that some tuna was supplied by non-defendants when in fact the tuna was supplied by defendants. The district court also addressed the dispute over Dr. Mangum‘s selection of the time period for the class, and concluded that Dr. Mangum‘s narrowing of the time frame bolstered the reliability of the model. Finally, the district court rejected Dr. Johnson‘s critique of Dr. Mangum‘s use of a cost index, rather than actual accounting cost data. The court credited Dr. Mangum‘s explanation as to why the use of such an index provided more reliable results than actual cost accounting data, and concluded that his use of a cost index did not undermine the reliability of his methodology or model. After resolving each dispute between the experts, the district court acknowledged that the defendants’ critique of Dr. Mangum‘s model could be persuasive to a jury at trial. But the district court recognized that at this stage of the proceedings, its task was to determine whether Dr. Mangum‘s evidence was capable of showing class-wide impact, not to reach a conclusion on the merits of the DPPs’ claims. After weighing the evidence put forth by the DPPs, including the regression model, the correlation tests, the record evidence and the guilty pleas and admissions entered in this case, the district court concluded there was sufficient evidence to show common questions predominated as to common impact. Therefore, it ruled that this prerequisite to
We conclude that the district court did not abuse its discretion in reaching this conclusion. The court conducted a rigorous analysis of the expert evidence presented by the parties. The district court did not err legally or factually in concluding that Dr. Mangum‘s pooled regression model, along with other evidence, is capable of answering the question whether there was antitrust impact due to the collusion on a class-wide basis, thus satisfying this prerequisite of
IV
We now turn to the Tuna Suppliers’ claims that the district court abused its discretion in determining that the evidence presented by the DPPs proved: (1) that the element of antitrust impact is capable of being established class-wide through common proof, and (2) that this common question predominates over individual questions.22
A
The Tuna Suppliers’ main argument is that the district court abused its discretion in determining that Dr. Mangum‘s model
To the extent that the Tuna Suppliers argue that pooled regression models involve improper “averaging assumptions” and therefore are inherently unreliable when used to analyze complex markets, we disagree. In antitrust cases, regression models have been widely accepted as a generally reliable econometric technique to control for the effects of the differences among class members and isolate the impact of the alleged antitrust violations on the prices paid by class members.23 See, e.g.,
To the extent the Tuna Suppliers and the dissent raise the more focused argument that, in this case, the model‘s output (estimating that the Tuna Suppliers’ conspiracy resulted in a 10.28 percent overcharge for the entire class) cannot plausibly serve as common evidence for all class members given the individualized differences among those class members, we again disagree.25 It is not implausible to conclude that a conspiracy could have a
The dissent argues that Dr. Mangum‘s expert opinion “flies against common sense and empirical evidence,” because large retailers like Walmart likely would have used their bargaining power to negotiate lower prices, and thus may not have paid higher prices because of the Tuna Suppliers’ collusion. Dissent at 72. But the district court is not free to prefer its own views about the economics of the tuna market over the statistical evidence submitted by the plaintiffs, and here the regression model controlled for the variables identified by the dissent. Indeed, Dr. Mangum provided an individualized overcharge estimate for Walmart when he changed the model to evaluate the overcharge based on customer types. This test showed that Walmart paid statistically significant overcharges because of the conspiracy. Provided that the evidence is admissible and, after rigorous review, determined to be capable of establishing antitrust impact on a class-wide basis, it is for the jury, not the court, to decide the persuasiveness of Dr. Mangum‘s evidence in light of “common sense and empirical evidence.”
The Tuna Suppliers rely on In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6 (1st Cir. 2008), for the proposition that a market involving individualized negotiations is inherently incompatible with common impact. This reliance is misplaced.26 In New Motor Vehicles, plaintiffs raised a “novel and complex” theory of how consumers were injured by defendants’ alleged horizontal conspiracy to discourage imports of lower-cost cars from Canada into the United States. Id. at 27. Plaintiffs’ theory proceeded in two steps: (1) “but for the defendants’ illegal stifling of competition,” manufacturers would have set lower prices to compete with Canadian imports; and (2) because the manufacturers did not do so, consumers paid higher retail prices. Id. The First Circuit rejected this theory because plaintiffs failed to demonstrate they had an approach for proving either step. For the first step, plaintiffs had not shown how they would establish that but for the horizontal conspiracy, enough lower-priced Canadian cars would flood into the American market so as to cause manufacturers to decrease their prices. Id. As for the second step, the plaintiffs had not proved their damages model was capable of showing “which consumers were impacted by the alleged antitrust violation and which were not.” Id. at 28. In this regard, the plaintiffs relied on an inference that “any upward pressure on national pricing would necessarily raise the prices actually paid by individual consumers.” Id. at 29. But the First Circuit rejected this inference because “[t]oo many factors play into an individual negotiation to allow an assumption—at least without further theoretical development—that any price increase or
As this explanation of the case makes clear, New Motor Vehicles’ analysis is not applicable here. First, the DPPs’ price-fixing theory is not “novel” or “complex.” Id. at 27. Rather than adopting a theory requiring multiple speculative steps, the DPPs have a simple one-step theory: the Tuna Suppliers conspired to raise tuna prices, resulting in higher prices for all buyers. Second, while the plaintiffs in New Motor Vehicles had not provided a thorough explanation or developed a model showing how they would establish their theory, id. at 29, the DPPs have already offered well-developed expert testimony and regression modeling supporting common impact. The other cases relied on by the Tuna Suppliers are equally inapposite. See, e.g., Blades v. Monsanto Co., 400 F.3d 562, 572 (8th Cir. 2005) (affirming denial of class certification because evidence of a conspiracy to raise prices, without more, could not demonstrate impact across highly localized and highly individualized markets for hundreds of seed varieties, and the plaintiffs had not offered a common method of showing injury); Robinson v. Tex. Auto. Dealers Ass‘n, 387 F.3d 416, 423 (5th Cir. 2004) (reversing class certification where the plaintiffs lacked a plausible theory of how the challenged conduct had consistently affected purchase prices).
The Tuna Suppliers also argue that because the individual plaintiffs pursuing their own antitrust claims showed overcharges both above and below the overcharge indicated by Dr. Mangum‘s model, a uniform 10.28 percent overcharge is implausible. We also reject this argument, because it improperly conflates the question whether evidence is capable of proving an issue on a class-wide basis with the question whether the evidence is persuasive. A lack of persuasiveness is not fatal at certification. See Amgen, 568 U.S. at 459–60. For purposes of determining whether each member of the DPP class can rely on the model to prove antitrust impact, it is irrelevant whether actual sales data shows a specific class member was overcharged by more or less than 10.28 percent. Rather, the question is whether each member of the class can rely on Dr. Mangum‘s model to show antitrust impact of any amount. The district court did not abuse its discretion in finding that each member could. While individualized differences among the overcharges imposed on each purchaser may require a court to determine damages on an individualized basis, see supra Section III.C, such a task would not undermine the regression model‘s ability to provide evidence of common impact. Accordingly, we reject the Tuna Suppliers’ argument that the regression model could not sustain liability in individual proceedings. Rather, “each class member could have relied on [the model] to establish liability if he or she had brought an individual action.” See Tyson Foods, 577 U.S. at 455. We therefore conclude that the district court did not err legally or factually in concluding that Dr. Mangum‘s pooled regression model does not fail on any of the grounds raised by the Tuna Suppliers.27
B
The Tuna Suppliers and the dissent next contend that the district court erred by failing to resolve a dispute between the parties as to whether 28 percent of the class did not suffer antitrust impact. Instead of resolving the dispute between the parties’ experts, the Tuna Suppliers claim, the district court improperly shifted the critical inquiry to the jury. In other words, the Tuna Suppliers argue that to satisfy
In raising this argument, the Tuna Suppliers focus on Dr. Johnson‘s critique of Dr. Mangum‘s model, which stated that when he tested Dr. Mangum‘s model by changing it to evaluate the overcharge specific to each individual member of the DPP class, the test showed that 28 percent of the DPPs could not rely on the model to show an overcharge attributable to the conspiracy. According to the Tuna Suppliers, this evidence indicated that 28 percent of the DPP class did not suffer antitrust impact. And in district court, the Tuna Suppliers argued that “28% of a class—nearly one-third—far exceeds the de minimis number of uninjured class members that some courts have permitted in certifying a class.” Therefore, the Tuna Suppliers argue that the class should not have been certified. Further, the Tuna Suppliers argue that the existence of a large number of uninjured class members raises a question as to whether the class has Article III standing. The Tuna Suppliers contend that because the class cannot be certified (and there are Article III issues) if Dr. Johnson‘s analysis is correct, the district court abused its discretion in failing to resolve the dispute regarding whether Dr. Johnson‘s conclusions about Dr. Mangum‘s model were correct.
We disagree. First, the Tuna Suppliers and the dissent mischaracterize the import of Dr. Johnson‘s critique. Dr. Johnson did not make a factual finding that 28 percent of the DPP class or 169 class members were uninjured. Instead, Dr. Johnson‘s test was aimed at undermining confidence in Dr. Mangum‘s pooled regression model, because class members with no or limited transactions during the benchmark period could not rely on the model to show that they suffered overcharges. At most, this critique supports the more attenuated argument that Dr. Mangum‘s model is unreliable, or would be unpersuasive to a jury. But the district court considered and resolved this methodological dispute between the experts in favor of Dr. Mangum by crediting his rebuttal that even class members with limited transactions during the class period can rely on the pooled regression
The district court‘s conclusion that the Tuna Suppliers could present Dr. Johnson‘s critique at trial did not improperly shift the burden of determining whether the
Neither Dr. Mangum‘s pooled regression model nor Dr. Johnson‘s critique required individualized inquiries into the class members’ injuries. If the jury found that Dr. Mangum‘s model was reliable, then the DPPs would have succeeded in showing antitrust impact on a class-wide basis, an element of their antitrust claim. On the other hand, if the jury were persuaded by Dr. Johnson‘s critique, the jury could conclude that the DPPs had failed to prove antitrust impact on
a class-wide basis.30 In neither case would the litigation raise individualized questions regarding which members of the DPP class had suffered an injury. Although such issues would have to be addressed at the damages stage, the dissent‘s argument that the district court here erred by failing to determine whether questions of individualized damages predominate, Dissent at 74, misses the mark. As noted above, the Tuna Suppliers have not argued that the complexity of damages calculations would defeat predominance here, and as previously explained, there is no per se rule that a district court is precluded from certifying a class if plaintiffs may have to prove
We need not consider the Tuna Suppliers’ argument that the possible presence of a large number of uninjured class members raises an Article III issue, because the Tuna Purchasers have demonstrated that all class members have standing here.32 A plaintiff is required to establish the elements necessary to prove standing “with the manner and degree of evidence required at the successive stages of the litigation.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992). Here, the district court concluded that the DPPs’ evidence was capable of establishing antitrust impact on a class-wide basis. Because antitrust impact—i.e., that the Tuna Suppliers’ collusion had a common, supra-competitive impact on a class-wide basis—is sufficient to show an injury-in-fact traceable to the defendants and redressable by a favorable ruling, the Tuna Purchasers have adequately demonstrated Article III standing at the class certification stage for all class members, whether or not that was required. See TransUnion, 141 S.Ct. at 2208 n.4.
Accordingly, we affirm the district court‘s certification of the DPP class.
V
We next turn to the Tuna Suppliers’ arguments that the district court abused its discretion in determining that the evidence presented by the CFPs and EPPs was capable of proving the element of antitrust impact under California‘s Cartwright Act, thus satisfying the prerequisites of
A
The CFP subclass includes individuals and commercial entities who purchased bulk sized packaged tuna (packages of 40 ounces or more) from six companies (direct purchasers) which had purchased the tuna from the Tuna Suppliers. The CFPs’ theory of antitrust impact proceeds in two steps. First, the CFPs claim that the Tuna Suppliers’ conspiracy resulted in the direct
The CFPs supported this theory with the expert testimony and report of economist Dr. Michael Williams, who employed a methodology substantially similar to that employed by Dr. Mangum. Dr. Williams first conducted a regression analysis to determine the overcharge the CFPs’ suppliers (i.e., the six direct purchasers) incurred because of the Tuna Suppliers’ collusion. Like Dr. Mangum‘s analysis, Dr. Williams‘s regression analysis controlled for the effect of other variables that affected price in order to isolate the effect of the Tuna Suppliers’ collusion. Dr. Williams concluded that COSI overcharged the CFPs’ direct purchasers by 16.6 percent, StarKist by 18.2 percent, and Bumble Bee by 15.3 percent.
Next, Dr. Williams performed a separate regression analysis to determine if those overcharges passed through to the CFPs, and determined that the direct purchasers passed through 92 to 113 percent of their overcharge to the CFPs. Dr. Williams then performed two tests to verify that his estimates applied class-wide, both of which confirmed his theory.
To rebut Dr. Williams‘s analysis, the Tuna Suppliers relied on a critique by economist Dr. Linda Haider. Dr. Haider asserted that Dr. Williams erroneously assumed that all CFPs paid a common overcharge and that the same overcharge was passed through to the individual CFPs. Dr. Haider also contended that some of the CFP class members, such as food preparers and distributors, were not impacted because they could have passed through their overcharges to other purchasers downstream. Finally, Dr. Haider claimed that Dr. Williams‘s model was unreliable because it failed to account for non-defendant tuna purchased by the CFPs’ direct purchasers.
The district court reviewed Dr. Williams‘s report and testimony as well as Dr. Haider‘s critiques, and after resolving the parties’ disputes, concluded that Dr. Williams‘s methodology was valid and capable of resolving the antitrust impact issue in a single stroke, even though the Tuna Suppliers could raise the same critiques at trial to persuade the jury.
On appeal, the Tuna Suppliers argue that the district court abused its discretion in concluding that Dr. Williams‘s methodology satisfied
We also reject the Tuna Suppliers’ argument based on Dr. Haider‘s contention that some CFP class members may have passed on their overcharges to downstream purchasers. Dr. Haider claimed that the CFPs’ ability to prove common impact was problematic because the impact of overcharges on class members who
antitrust impact predominated over individualized questions concerning a passed-on overcharge.
B
The EPP subclass contains individual consumers who purchased the Tuna Suppliers’ products for personal consumption. Thus, like the CFPs, the EPPs are indirect purchasers whose theory of antitrust impact depends on two separate overcharges: first, an overcharge by the Tuna Suppliers to the direct purchasers (i.e., retail stores), and then an overcharge passed on to the EPPs. To carry their burden of showing they could establish class-wide overcharges through common proof, the EPPs offered the testimony of economist Dr. David Sunding, who employed a methodology substantially similar to that employed by Dr. Mangum and Dr. Williams.
Like Drs. Mangum and Williams, Dr. Sunding first conducted a regression analysis to isolate the impact of the collusion on the direct purchasers, which he concluded was an 8.1 percent overcharge from COSI, 4.5 percent from StarKist, and 9.4 percent from Bumble Bee. He then determined that the overcharges passed through to the EPP class members ranged from 65.3 to 135 percent with an estimated pass-through rate of 100 percent for the entire class. Dr. Sunding provided qualitative, quantitative and anecdotal evidence to support his assumption of a pass through rate for the entire class, including an examination of retail scanner data and the Tuna Suppliers’ internal records.
Dr. Haider critiqued Dr. Sunding‘s methodology and findings on many of the same grounds as she criticized Dr. Williams‘s model and conclusions. She also made the additional criticisms that Dr. Sunding‘s methodology produced absurd results because it showed prices that made no economic sense, and that his model ignored, and therefore failed to control for, important factors like loss-leader and focal point pricing. The district court analyzed the evidence and the experts’ disputes, and concluded that Dr. Sunding‘s report and testimony were capable of showing antitrust impact common to the class, for the same reasons explained in the court‘s analysis of Dr. Mangum‘s and Dr. Williams‘s models. The district court determined that Dr. Haider‘s additional critiques were based either on a misreading of Dr. Sunding‘s report, or her own miscalculations.
On appeal, the Tuna Suppliers argue only that Dr. Sunding‘s model and testimony was not capable of proving common impact for all class members because of its use of “averaging assumptions.” This argument fails for the reasons explained above. See supra Section IV.A. Thus, the district court properly considered and rejected Dr. Haider‘s arguments, and determined that Dr. Sunding‘s methodology was capable of proving antitrust impact on a class-wide basis. That is enough to satisfy
VI
In a complex market such as the one at issue here, where different purchasers with different bargaining power purchased a range of products at different prices from different suppliers, commentators have raised reasonable questions whether statistical models are capable of resolving the issue of antitrust impact with common
AFFIRMED.
LEE, Circuit Judge, with whom KLEINFELD, Circuit Judge, joins, dissenting:
Over the past two decades, plaintiffs have notched over $103 billion in settlements from securities class actions alone.1 If we include other types of class actions—wage and hour, consumer lawsuits, antitrust disputes, and many others—that settlement amount almost certainly swells up by tens of billions of dollars more. These settlement sums are staggering because class action cases rarely go to trial. If trials these days are rare, class action trials are almost extinct.2 And it is no wonder why class actions settle so often: If a court certifies a class, the potential liability at trial becomes enormous, maybe even catastrophic, forcing companies to settle even if they have meritorious defenses.
That is why the Supreme Court has urged lower courts to “rigorous[ly]” scrutinize whether plaintiffs have met class certification requirements. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011). The majority opinion, however, allows the district court to certify a class, even though potentially about one out of three class members suffered no injury. But if defendants’ econometrician expert is correct that almost a third of the class members may not have suffered injury, plaintiffs have not shown the predominance of common issues under
The district court acknowledged the dueling experts’ differing opinions on this crucial question but held that it would leave that issue for another day—at trial—because it involves a merits issue that a jury should decide. See In re Packaged Seafood Prods. Antitrust Litig., 332 F.R.D. 308, 325–28 (S.D. Cal. 2019). But as a practical matter, that day will likely never come to pass because class action cases almost always settle once a court certifies a class. A district court thus must serve as a gatekeeper to resolve key issues implicating
Punting this key question until later amounts to handing victory to plaintiffs because this case will likely settle without the court ever deciding that issue. The refusal to address this key dispute now is akin to the NFL declining to review a critical and close call fumble during the waning minutes of the game unless and until the game reaches overtime (which, of course, will likely never occur if it does not decide the disputed call). Such a practice is neither fair nor true to the rule.
I thus respectfully dissent.
* * * * *
The U.S. Department of Justice‘s investigation revealed that the three largest domestic producers of packaged tuna colluded to try to inflate the prices of their products. This class action lawsuit soon followed the criminal indictment. Among the plaintiffs include the direct purchasers of the tuna products, ranging from multibillion dollar chain retailers to small mom-and-pop stores. Not surprisingly, some plaintiffs (such as Walmart) wield substantial negotiating leverage: They can demand lower prices or extract additional promotional credits or rebates that defray the offered price. In contrast, an owner of a bodega likely cannot demand even an audience with the tuna producers, let alone ask for lower prices or more promotional credits.
Despite the varying negotiating power among the plaintiffs, their expert, Dr. Russell Mangum III, concluded that the tuna producers overcharged the direct purchasers by an average of 10.28%. He also suggested that about 5.5% of the class may not have suffered an injury because of this price-fixing. In contrast, the defendants’ expert, Dr. John Johnson, offered an analysis showing that potentially about 28% of the class members suffered no injury.
Faced with this gaping difference between the two experts’ conclusions, the district court acknowledged that Dr. Johnson‘s “criticisms are serious.” In re Packaged Seafood, 332 F.R.D. at 328. But it held that this question should be left for trial because Dr. Mangum‘s method was reliable under Daubert and “capable of showing” class-wide impact. Id. The majority agrees with the district court, ruling that a class can be certified—even if potentially one out of three members suffered no injury—because Plaintiffs’ expert offered a method “capable” of measuring class-wide impact and the district court can winnow out those uninjured members later at trial. But the majority opinion conflicts with
I. The district court did not “rigorously” scrutinize the dueling experts’ opinions about uninjured class members.
While around 10,000 class action lawsuits are filed annually3, class actions are
Among the
The Supreme Court has also reminded us that
Here, the two experts’ contentions centered on
Despite the detailed analysis of the district court, I believe it abused its discretion in committing the same error that we cautioned against in Costco. There, the two dueling experts offered contrasting opinions on whether Costco‘s alleged discrimination was regional or nationwide, which touched upon
And that is exactly what happened here. The district court found plaintiffs’ expert to be reliable under Daubert, but it also conceded that the defendants’ expert offered a “serious” critique of plaintiffs’ expert opinion. The district court ultimately held that resolving this “battle of the experts” was a merits issue. But the dispute over the number of uninjured class members overlaps with
The majority holds that Dr. Mangum‘s estimate of a 10.2% “average” price inflation meets
I believe that creates a false distinction. Nothing in our decision in Costco or the Supreme Court‘s opinion in Wal-mart creates such a difference. If the evidence presented implicates
Admittedly, resolving a battle of dueling experts over highly technical issues may seem like a difficult job for a court. But that tough task is likely even more difficult and daunting for jurors. In the end, a “district judge may not duck hard questions by observing that each side has some support . . . Tough questions must be faced and squarely decided, if necessary by holding evidentiary hearings and choosing between competing perspectives.” Id. After reviewing the evidence, a district court must make findings of fact necessary for determining whether
And here, the expert opinion offered by Plaintiffs to show commonality (though admissible) is not persuasive. The majority contends that the expert‘s model is capable of measuring class-wide impact through an “averaging assumption” of 10.2% price inflation from the price-fixing conspiracy. Put another way, the model assumes that almost all class members suffered an injury because the price-fixing would elevate the list price of tuna for everyone, even if individual class members ultimately paid different prices for the tuna. But the expert‘s assumption flies against common sense and empirical evidence. Powerful retailers (like Walmart) are not passive or ill-informed consumers; they will not sit still when faced with a price increase. They will fiercely negotiate the list price down, or more likely, demand promotional credits or rebates that offset any price increase. See R. Pandey, et al., Factors Influencing Organization Success: A Case Study of Walmart, International Journal of Tourism & Hospitality in Asia Pasific, Vol. 4, No. 2, June 2021. See also Gary Rivlin, Rigged: Supermarket Shelves for Sale, Center for Science in the Public Interest, September 2016, available at cspinet.org/Rigged (last visited January 4, 2021).
Major retailers wield significant power over manufacturing and food companies because they represent the major channel to distribute the food products. If a major retail chain refuses to carry a company‘s product after a pricing dispute, it can significantly affect that company‘s bottom line. As one case study put it, “Walmart has huge bargaining power since . . . it is one of the largest distributors for manufacturing [sic]. For instance, 17% of the total sales of P&G and 38.7% of the total sales of CCA Industries rely on Walmart stores. Without Walmart, these businesses would be unable to operate.” Pandey, supra page 10, at 120.
Large retailers can also extract rebate or promotional concessions from the companies by threatening to place their products at the bottom of the shelves or less-visited aisles where consumers are less likely to notice them. All told, large retailers use this power to “collect more than $50 billion a year in trade fees and discounts from food and beverage companies.” Rivlin, supra page 10, at ii. And “[f]ood manufacturers pay these fees . . . because they have no choice. The stores are the gatekeepers.” Id. at 21.
None of this is to say that Wal-Mart and other retailers achieved those price discounts and promotional credits or rebates here. We simply do not know because Plaintiffs’ expert did not adequately consider
The majority seemingly waves away this difference in negotiating power between the class members by relying on our oft-quoted language that the “need for individualized findings as to amount of damages does not defeat class certification.” Maj. Op. 30 (citing Vaquero v. Ashley Furniture Indus., Inc., 824 F.3d 1150, 1155 (9th Cir. 2016); Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 988 (9th Cir. 2015)).
I believe our court has misconstrued that often-quoted language to create a sweeping rule that gives a free pass to the intractable problem of highly individualized damages analyses. And such a rule also conflicts with the Supreme Court‘s holding that a class action must be capable of being resolved in “one stroke.” Wal-mart, 564 U.S. at 350; see also Comcast, 569 U.S. at 35 (requiring a “rigorous analysis” to confirm that the damages model is “consistent with its liability case“).
We first stated that the “amount of damages is invariably an individual question and does not defeat class action treatment” in Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975). That was a securities fraud class action, and we recognized that “computing individual damages will be virtually a mechanical task” because “the amount of price inflation during the period can be charted.” Id. (emphasis added). Put another way, damages can be easily calculated because it is a plug-and-play exercise: Look at the number of shares bought by each shareholder and the price of the share that day, and compare it to the price inflation caused by the misrepresentation. While each class member may have individualized damages, the damages can be easily calculated for the entire class in “one stroke.” See Wal-mart, 564 U.S. at 350.
Since Barrack, we have applied that concept mostly in employment and wage-and-hour cases. See, e.g., Vaquero, 824 F.3d at 1152 (suing for payment for unpaid hours on non-sales work); Levya v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013) (class action based on wage and hour claims in which defendant‘s “computerized payroll and time-keeping database would enable the court to accurately calculate damages“). Wage-and-hour cases present another mechanical application scenario: a class administrator can easily look at the employer‘s payroll records and calculate the number of hours or wages that each employee was underpaid. At times, however, we have quoted that language without determining whether damages could be calculated mechanically or if the court would have to engage in individualized mini-trials for damages. See, e.g., Yokoyama v. Midland Nat. Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir. 2010) (stating that individualized damages do not defeat class certification in case involving misleading statements in annuities promotional materials).
Finally, the majority suggests that an oversized class with unharmed class members does not pose a practical problem if a method can separate the uninjured from the injured at trial. No harm, no foul, the majority implies. But that cannot be so if a large number of class members (certainly, a third) suffered no injuries. Suppose that 80% of the putative class members suffered no harm. Could a district court still certify a class just because it could later winnow out the 80% who were uninjured? Would
If we allow a court to certify a class in which a large number of putative class members have suffered no injury, we will allow plaintiffs to weaponize
So if a court certifies a class with many uninjured class members, it dramatically expands the potential exposure and artificially jacks up the stakes. It matters little that the uninjured class members can be separated at trial because with “the stakes so large . . . settlement becomes almost inevitable—and at a price that reflects the risk of a catastrophic judgment as much as, if not more than, the actual merit of the claims.” In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1016 (7th Cir. 2002). The opportunity at trial to jettison uninjured members from the certified class is a phantom solution because defendants will have little choice but to settle before then.
II. The majority‘s rejection of a de minimis rule creates a circuit split.
I believe the majority also errs in rejecting a de minimis rule. To be sure, a plaintiff need not show that every single putative class member has suffered an injury. But the number of uninjured class members should be de minimis—based on
Second, allowing more than a de minimis number of uninjured class members tilts the playing field in favor of plaintiffs. By expressly rejecting a de minimis rule, the majority‘s opinion will invite plaintiffs to concoct oversized classes stuffed with uninjured class members—with little fear of having their class certification bids being denied for lack of “predominance” or “commonality.” And in creating these grossly oversized classes, 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.
Finally, the majority opinion needlessly creates a split with other circuits that have endorsed a de minimis rule. The D.C. Circuit, for example, suggested that “5% to 6% constitutes the outer limits of a de minimis number.” In re Rail Freight Fuel Surcharge Antitrust Litig., 934 F.3d 619, 624–25 (D.C. Cir. 2019) (cleaned up). The district court had found that the class of 16,065 members (12.7% of whom were uninjured) failed to meet the predominance requirement because more than a ”de minimis” number were uninjured. Id. at 623–24. The D.C. Circuit on appeal affirmed, ruling that the plaintiffs’ model “even if sufficiently reliable, does not prove classwide injury.” Id. at 623. Put another way, “even assuming the model can reliably show injury and causation for 87.3 percent of the class, that still leaves the plaintiffs with no common proof of those essential elements of liability for the remaining 12.7 percent.” Id. at 623–24
Likewise, the First Circuit suggested that “around 10%” of uninjured class members marks the de minimis border. See In re Asacol, 907 F.3d at 47, 51–58. The First Circuit was perhaps willing to look past “a very small absolute number of class members” who have suffered no injury because they “might be picked off in a manageable, individualized process at or before trial.” Id. at 53. But if “there are apparently thousands who in fact suffered no injury . . . [t]he need to identify those individuals will predominate.” Id. at 53–54.
* * * * *
While this case centers on the narrow issue of price-fixing of canned tuna, its implications extend beyond to a wide sea of class action cases. I fear that today‘s decision will unleash a tidal wave of monstrously oversized classes designed to pressure and extract settlements.
I respectfully dissent.
Notes
Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
- the class is so numerous that joinder of all members is impracticable;
- there are questions of law or fact common to the class;
(continued from page 19)
“Common” and “predominance,” Merriam-Webster Dictionary, available at www.merriam-webster.com/dictionary (last checked on Oct. 21, 2021).
- the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
- the representative parties will fairly and adequately protect the interests of the class.
A class action may be maintained ifThe majority cites the deposition testimony of Plaintiffs’ expert to argue that he considered promotional credits and rebates. Maj. Op. 36, n.16. But the expert added the caveat that he did so only in instances that he “could reliably” calculate the data. He then conceded that he did not include “discount or promotional information” with much of the data but said that “I have done all that I could.” He ultimately concluded that he could measure damages by relying on the average 10.2% “overcharge” analysis in his expert report.Rule 23(a) is satisfied and if . . . (3) 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.