Via Howard Bashman, whose client won, comes the Third Circuit’s Sullivan et al. v. De Beers et al. ruling reversing the District of New Jersey’s approval of a massive, nationwide settlement of antitrust claims brought by diamond purchasers against the De Beers cartel. As The Legal Intelligencer put it:
In its 75-page opinion in Sullivan v. DB Investments Inc., the 3rd U.S. Circuit Court of Appeals ruled that the settlement must be vacated because the lower court had improperly certified a nationwide class of indirect purchasers despite recognizing that some of those plaintiffs would be barred from pursuing such indirect claims under the laws of their own states.
As a result, the 3rd Circuit found that a single objector from Texas had identified a fatal flaw in the lower court’s class certification analysis by showing that the common issues did not "predominate."
"The objection regarding the lack of predominance of class issues in this case raises an insurmountable hurdle to certification of the indirect purchaser class," U.S. Circuit Judge Kent A. Jordan wrote.
"Two plaintiffs cannot be joined in a single class to adjudicate the same set of facts when those facts give only one of them a legally cognizable claim," Jordan wrote in an opinion joined by visiting U.S. District Judge Donetta Ambrose of the Western District of Pennsylvania.
U.S. Circuit Judge Marjorie O. Rendell concurred in the judgment, but wrote a separate opinion that said she disagreed with Jordan’s decision to undertake his own analyses of predominance and the plaintiffs’ entitlement to injunctive relief, rather than allowing the lower court on remand to evaluate these issues in the first instance.
Frankly, I’m surprised by the ruling, but it takes some background to explain why.
As described by the Court:
The plaintiffs in the seven cases can be divided into two categories, based on the claims that they assert. The first category consists of direct purchasers that acquired rough gem diamonds directly from De Beers or one of its competitors. The direct purchasers advanced claims of price-fixing and monopolization, citing §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, for which they sought damages and injunctive relief under §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26.
The second category of plaintiffs consists of indirect purchasers, which are entities or individuals that acquired either rough or cut-and-polished gem diamonds but did not do so directly from De Beers or its competitors. Consumers and jewelry retailers fall into this category, as do middlemen who acquired diamonds from sightholders or from another indirect purchaser. The indirect purchasers sought recovery for the same
antitrust injury as did the direct purchasers but brought their claims under state antitrust, consumer protection, and unjust enrichment law. These plaintiffs could only rely on state law as a route to monetary relief because they lack standing to bring a federal antitrust claim for damages under § 4 of the Clayton Act. Illinois Brick Co. v. Illinois, 431 U.S. 720, 735-36 (1977). They did, however, seek injunctive relief for those antitrust violations under § 16 of the Clayton Act. See Mid-W. Paper Prods. Co. v. Cont’l Group, 596 F.2d 573, 594 (3d Cir. 1979) (“Illinois Brick does not preclude indirect purchasers from suing for injunctive relief[,] and … they have standing to sue under § 16 … .”).
That is to say, direct purchasers can all claim together under the same federal antitrust law, but, since federal antitrust law doesn’t permit indirect purchasers to claim, each of those indirect purchasers has to rely on the law of their own states to obtain relief. Those states, however, vary widely in their treatment of indirect purchaser claims: some states reject them (like federal law does), some states expressly permit them, and some states permit them, but with limitations.
The District Court simply lumped all of those indirect purchasers together, hence the reversal. Their claims don’t share enough "commonality."
One possible solution to the problem would have been to set up subclasses for each of the fifty states, but that’s not what happened here, apparently because De Beers wanted the class action settlement to resolve all possible claims in all 50 states. (I suppose we’ll have to put aside, for the moment, why De Beers felt it necessary to resolve indirect purchaser claims in the states which don’t recognize indirect purchaser claims.)
It would not have surprised me if, in the first instance, the Third Circuit had ruled that a national class action can’t be certified — not even for settlement purposes, where the defendants essentially concede a class would be appropriate — if some of the subclasses rely on varied state laws. As noted above, it’s possible to cure that defect, albeit difficult and time-consuming: set up subclasses for indirect purchasers in each state, and compensate them based on the strength of their state’s laws.
But as the majority opinion admitted, the Third Circuit already ruled that it was okay to cobble together disparate state law claims for purposes of a nationwide class action settlement:
We have recognized that “there may be situations where variations in state laws are
so significant so as to defeat commonality and predominance even in a settlement class certification.” In re Warfarin Sodium Antitrust Litig. (Warfarin Sodium II), 391 F.3d 516, 524, 529-30 (3d Cir. 2004) (certifying a class of consumer deception claims under the law of all fifty states while recognizing that the entire class also shared a single, common deception claim under the law of Delaware, where the allegedly deceptive communications had originated). However, neither we nor our sister courts of appeals have considered whether variations among state antitrust statutes are so far-reaching that those differences overshadow commonalities when a class of indirect purchasers seeks certification on a nationwide basis. We must therefore consider for the first time whether a national class of indirect purchaser claimants under state law is “sufficiently cohesive to warrant adjudication by representation.” Amchem, 521 U.S. at 623.
You can read the In re Warfarin opinion here. The most pertinent part was:
[S]everal Appellants argue that the District Court erred when it certified a single nationwide class of plaintiffs because variations in and inconsistencies between the state consumer fraud and antitrust laws of the fifty states defeat the commonality and predominance requirements of Rule 23. Appellants rely principally on the Seventh Circuit’s decision in In re Bridgestone/Firestone Inc., 288 F.3d 1012 (7th Cir.2002) ("Bridgestone"), a case involving the certification of a nationwide class alleging tort claims arising under the laws of all fifty states. However, Bridgestone is distinguishable from the instant matter because that case concerned certification of a class for purposes of litigation, not a class solely for purposes of settlement, which is at issue in this case. 288 F.3d at 1018.
The difference is key. In certification of litigation classes for claims arising under the laws of the fifty states, we have previously noted that the district court must determine whether variations in state laws present the types of insuperable obstacles which render class action litigation unmanageable. See Prudential, 148 F.3d at 315; see also In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir.1986). Thus, for instance, we have stated that a district court should examine whether varying state laws can be grouped by shared elements and applied as a unit in such a way that the litigation class is manageable. Prudential, 148 F.3d at 315; In re Sch. Asbestos Litig., 789 F.2d at 1010. However, when dealing with variations in state laws, the same concerns with regards to case manageability that arise with litigation classes are not present with settlement classes, and thus those variations are irrelevant to certification of a settlement class. See Amchem, 521 U.S. at 620, 117 S.Ct. 2231 (in a settlement-only class certification, "a district court need not inquire whether the case, if tried, would present intractable management problems … for the proposal is that there be no trial").
Nonetheless, we recognize that problems beyond those of just manageability may exist when a district court is asked to certify a single nationwide class action suit, even for settlement purposes, when claims arise under the substantive laws of the fifty states. Although there may be situations where variations in state laws are so significant so as to defeat commonality and predominance even in a settlement class 530*530 certification, this is not such a case.
Was the In re Warfarin situation really so different from De Beers just because there was that single Delaware claim? The Third Circuit back then didn’t think so; instead, it found it "key" that the certification was solely for settlement purposes.
As I described above, De Beers demanded these non-existent state law indirect purchaser claims be released. Whatever the Third Circuit thinks of the merits of that, De Beers sure thought the indirect purchasers in all fifty states had something, and so sought to release those claims. In the absence of some clear, verifiable prejudice to other members of indirect purchaser classes, I just don’t see the need to unwind the settlement, much less do so in a manner that ties the District Court’s hands.
And that’s the key difference between the majority and Judge Rendell’s opinion. Judge Rendell would have vacated the settlement with instructions to the District Court to better develop its reasoning, which would then have had its reasoning reviewed under an "abuse of discretion" standard. The majority, however, has all but precluded the District Court from doing anything but adopting the majority’s analysis of the various state laws, and then going about the laborious — and unwanted by anyone but a single objector — process of determining the availability of relief under each state’s laws.