Despite the annual slow down in appellate courts (as in the rest of the world) at this time of year, December 2011 has seen a spate of major antitrust decisions being handed down. As I know from experience, antitrust cases are about as complex as it comes, and as a result, they often require long opinions to decide. It may be that these decisions’ release dates might have something to do with busy judges putting off these time-consuming decisions to the end of the year, but wanting to get them out before they became part of year-end unresolved case statistics. But that would only be a guess.

In any event, major decisions have recently come down at the federal level from the 3rd and 11th Circuits, and on the state level from Florida’s 4th District Court of Appeal.

The 4th DCA’s decision in MYD Marine Distributor, Inc. v. International Paint Ltd. (released on December 14, 2011) takes on the U.S. Supreme Court’s major decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), which requires plaintiffs pleading claims based on antitrust conspiracies to include detailed factual allegations supporting the assertion that the defendants entered into an unlawful agreement, and Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007), which set down standards for pleading that a conspiracy harmed competition. The 4th DCA held that both decisions apply to cases filed in Florida state court asserting claims under the Florida Antitrust law. But it also held that MYD’s complaint, which alleged that its competitor marine paint distributors had conspired with one another as well as with the manufacturer of a premium paint for boats to have MYD cut off as a distributor of that paint because MYD was undercutting their prices. 

The 11th Circuit’s decision, FTC v. Phoebe Putney Health System, Inc. (released on December 9, 2011) threw a wrench in the Federal Trade Commision’s campaign to take on consolidation among large healthcare facilities that threaten competition and contribute to rising healthcare costs. In the Phoebe Putney case, the FTC sought to enjoin the acquisition by a public hospital of its only competitor in Dougherty County, Georgia, and thereby create a monopoly in that market.

In an opinion authored by Judge Tjoflat, the 11th Circuit agreed that the transaction would create a monopoly but affirmed the dismissal of the FTC’s case, holding that the “state action doctrine” made antitrust laws inapplicable and rendered the FTC powerless to challenge the transaction. In essence, the court held that in authorizing public hospitals like Phoebe Putney to acquire other hospitals, the Georgia legislature had contemplated and authorized even acquisitions that created monopolies. The state action doctrine therefore exempted the transaction from antitrust scrutiny. This decision essentially forecloses the FTC and DOJ from challenging any merger in Georgia involving a public hospital, and its reasoning could result in foreclosing challenges to acquisitions involving public hospitals in other states as well. 

The 3rd Circuit’s en banc decision in Sullivan v. DB Investments, Inc. (released on December 20, 2011), is a significant decision dealing with antitrust class actions brought by alleged “indirect purchasers” of price-fixed goods. The en banc court held that it is appropriate (at least in the settlement context) to certify a nationwide class of indirect purchasers asserting antitrust claims under the laws of all 50 states, even though class members from certain states did not have the right to sue for damages for antitrust violations.

A more thorough discussion of Sullivan follows. 

The 3rd Circuit Says It’s Okay to Put Ohio in the Same Class as Michigan(!)

In Sullivan v. DB Investments, Inc. (3d Cir. Dec. 20, 2011)(en banc), the Third Circuit, sitting en banc, voted 7-2 to affirm a district court’s certification of a class action and approval of a class settlement in an antitrust case against the De Beers diamond empire. Before rehearing en banc was granted, a panel of the 3rd Circuit had reversed the approval of the settlement, with Judge Jordan writing the panel’s decision (joined by Judge Ambro) and Judge Rendell writing a concurrence in which she agreed with the majority that the case should be remanded for further findings by the district court, but disagreed with just about everything else.

Interestingly, the en banc majority decision was written by Judge Rendell, who had now decided that it was proper to simply affirm the district court, and Judge Ambro (along with 5 other judges), who now agreed with Judge Rendell. Perhaps even more notable was the majority’s inclusion of Judge Scirica, the author of the 3rd Circuit’s blockbuster 2008 decision in In re Hydrogen Peroxide Antitrust Litigation, which set out a markedly more stringent standard of proof for certifying classes in antitrust cases. Judge Jordan, remaining steadfast in his view of the case, wrote the dissent, in which Judge Smith joined. 

You may be familiar with the gist of what the case was about. According to widely published reports, De Beers was engaged in cartel practices for many years, in which it agreed with competitors to fix diamond prices by restricting the supply of diamonds in the marketplace, and tightly controlling distribution. While De Beers’ practices had been known for some time, De Beers had evaded the jurisdiction of U.S. courts, including in the Sullivan case for the first 3 years of the litigation. But in 2004, with its dominance of the world wholesale market for diamonds slipping, De Beers opted to submit to U.S. jurisdiction and settle the pending litigation against it.

That’s where it got messy. One unique aspect of antitrust law is its distinction between so-called direct purchasers and indirect purchasers. Under the U.S. Supreme Court’s landmark 1977 decision, Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), only a direct purchaser (i.e. the first purchaser of a price-fixed product from a member of the price-fixing conspiracy) may sue for damages under the federal antitrust laws. Indirect purchasers may sue under federal law for injunctive relief. They may also sue for damages under the antitrust and/or consumer protection statutes of some but not all states.

Sullivan was one of several class actions pending in various courts. De Beers wanted to settle all of them, and was particularly concerned about settling the indirect purchaser suits. It agreed to settle all indirect purchaser claims for $250 million (and the direct purchaser claims for $22.5 million). As class certification had not yet been addressed at the time, the settlement depended on the court agreeing to certify a nationwide class of indirect purchasers for settlement purposes.

A number of indirect purchasers objected to the class certification. The major issue was this: some of the indirect purchasers came from states in which the antitrust and/or consumer protection statutes would allow them to sue for damages, while others came from states where they had no right to sue for damages. And the class included both types of indirect purchaser, with the settlement allocating compensation equally to both groups. So an indirect purchaser from, say, Michigan (or for that matter, Florida), where an indirect purchaser can sue for damages, could object to being lumped with purchasers from states such as Ohio which could not not have sued for damages, but would nonetheless share in the settlement compensation equally with the Michigan purchaser.

The issue on appeal was whether the variations in the state laws applicable to different members of the class deprived the class of the cohesiveness required to satisfy the predominance test, which requires that the issues of law and fact shared by all class members predominate over issues that are not shared by all class members. And as I’ve discussed previously, the general trend over the last several years has been increased scrutiny of class certification decisions.

Yet, Judge Rendell, whose concurrence with the panel decision said that the case needed to be remanded for further findings, wrote for the en banc majority that there was no question that the certification should be affirmed, and the varied state laws made no difference:

[T]he predominance inquiry should be easily resolved here based on De Beers‘s conduct and the injury it caused to each and every class member, and that the straightforward application of Rule 23 and our precedent should result in affirming the District Court‘s order certifying the class.

And she was joined not only by Judge Ambrose, who had joined in the panel majority decision holding that the class could not be certified, but also by Judge Scirica, who authored the 3rd Circuit’s leading decision subjecting class certification decisions in antitrust cases to increased scrutiny. What gives? 

Although there is some precedent for upholding certification of nationwide classes despite variations among the state law claims of class members even with litigation classes, I think the primary reason for this outcome is that the en banc court felt that there is a big difference between the analysis for certifying litigation classes to pursue the merits and the analysis for certification of classes for settlement purposes only. In Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) the U.S. Supreme Court held that the Rule 23 requirements for certification must be met for settlement classes just as for litigation classes. But it added the caveat that in certifying a settlement class, courts need not consider whether it would be “manageable” to try the class members’ claims in a single trial.

But what exactly that means is open to varying interpretations. On one extreme, almost any argument about individualized issues could be characterized as a mere management concern that does not matter in the settlement context. On the other extreme, the caveat could be rendered virtually meaningless if settlement class certification is evaluated with the full rigor used to analyze litigation class certification.

In my view, the reason that the majority was so confident that the indirect purchaser class was properly certified, more than anything, was that it believed that Amchem‘s caveat should be given signficant meaning and weight. In that light, it was not difficult to find significant commonality among the class members’ claims. The vast majority of the factual issues underlying all of the class members’ claims were common issues about whether the defendants engaged in a price-fixing scheme and whether it resulted in higher prices than would have prevailed if not for the scheme. Since a settlement class was at issue, that commonality was enough, and the variations in state law could be marginalized as mere “management” issues.

The dissent, on the other hand, was not willing to discount the variations in the class members’ claims merely because the certification was of a settlement class. To the dissenters, it seems, allowing the class members from Ohio to be part of the class and share in the settlement was tantamount to expanding their rights under state law. Professor Kevin Walsh, who critiques the decision on his blog, takes a similar view.

But I think the main take-away from Sullivan is much simpler. It is that there is a real and significant difference between the standard that must be met to certify a settlement class from the standard for certifying a litigation class. Judge Scirica’s concurrence, which reads like a learned treatise on class certification in the settlement context, makes this point even clearer.

  • Brian

    The greater unjustice is dragging this out. We overpaid for diamonds, send a check.