Opinion ID: 150495
Heading Depth: 3
Heading Rank: 1

Heading: Predominance of Common Legal and Factual Questions

Text: The objectors' primary attack on the class certification and settlement order asserts that variations in state antitrust statutes prevent common class issues from gaining predominance over individual legal issues. 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, 117 S.Ct. 2231.
Under the Sherman Act, to establish antitrust liability for horizontal price-fixing, a plaintiff must show that (1) a defendant entered a contract, combination, or conspiracy with at least one other entity; (2) the agreement constitutes an unreasonable restraint of trade; (3) the agreement produced anticompetitive effects in the relevant market; and (4) the plaintiff was injured as a result. Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 442 (3d Cir.1997) (reiterating elements of proof under § 1 of the Sherman Act). A claim for monopolization requires the plaintiff to prove that (1) the defendant possesses monopoly power in the relevant market and (2) the defendant acquired, maintained, or attempted to acquire or maintain that power through means other than growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) (setting forth the elements of proof under § 2 of the Sherman Act). Many states have enacted antitrust statutes that proscribe the same conduct as the Sherman Act. 14 HERBERT HOVENKAMP, ANTITRUST LAW ¶ 2401a, at 314 (2d ed.2006). While state antitrust statutes frequently track the Sherman Act in terms of their substantive elements of proof, they vary significantly with regard to the standing that they extend to indirect purchasers. The variance is mainly a function of whether a state has chosen to follow the Sherman Act principles regarding standing laid down by the Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). In that case, the Court decided that only direct purchasers of a product or service may sue for an antitrust injury. Id. at 734-36, 97 S.Ct. 2061. The Supreme Court's theory for denying standing to indirect purchasers was that the antitrust laws will be more effectively enforced by concentrating the full recovery for the overcharge in the direct purchasers rather than by allowing every plaintiff potentially affected by the overcharge to sue only for the amount it could show was absorbed by it. Id. at 735, 97 S.Ct. 2061. Hence, the Court viewed direct purchaser standing as the most efficient way to ensure that companies or individuals engaging in anticompetitive conduct were called to account for their actions. Id. at 741, 97 S.Ct. 2061. Some states have elected to follow the Supreme Court's lead in Illinois Brick. See, e.g., Wilson v. Gen. Motors Corp., 190 N.J. 336, 921 A.2d 414, 416-17 (2007); Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 834 N.E.2d 791, 798 (2005); Major v. Microsoft Corp., 60 P.3d 511, 513 (Okla. Civ.App.2002). Other states, however, have diverged from Illinois Brick and have enacted statutes known as  Illinois Brick repealers. Those statutes reject the rule that antitrust recovery is limited to parties that dealt directly with the defendant and instead extend antitrust standing to indirect purchasers, including consumers. See, e.g., CAL. BUS. & PROF. CODE § 16750(a); MICH. COMP. LAWS § 445.778(2); N.Y. GEN. BUS. LAW § 340(6). Finally, a third set of jurisdictions allow indirect purchasers to seek antitrust recovery, but only if the state joins the suit in a parens patriae capacity. See IDAHO CODE §§ 48-108(2),-113(1); Siena v. Microsoft Corp., 796 A.2d 461, 464-65 (R.I.2002). Thus, in some states with Illinois Brick repealers, indirect purchasers may personally advance a claim for antitrust recovery against a defendant, such as De Beers, that has fixed prices. In other states, however, they may do so only with the assent of the state attorney general. And in states without a repealer statute, recovery is usually foreclosed entirely. [10] At least twenty-five states and the District of Columbia have implemented Illinois Brick repealers or extended antitrust standing to indirect purchasers through judicial decision; the remaining states have not. [11] In short, this is not a case in which a class of plaintiffs possesses numerous disparate claims but shares an overriding common cause of action under a common body of law. Instead, all parties agree that the claims within the indirect purchaser class implicate the law in every jurisdiction in the nation and that no jurisdiction provides a claim shared by all, or even by a majority, of the class members. These variations in state antitrust law are not trivial. [12] They represent fundamental policy differences among the several states, and they are in consequence as different as it is possible to be, with some states giving substantive antitrust rights to indirect purchasers, other states giving more limited rights, and others denying such rights altogether. For example, an indirect purchaser located in a state that has an Illinois Brick repealer, such as New York, may sue and recover for a price-fixing or monopolization harm, see N.Y. GEN. BUS. LAW § 340(6), but an identical indirect purchaser in a neighboring state without a repealer, such as New Jersey, may not, see Sickles v. Cabot Corp., 379 N.J.Super. 100, 877 A.2d 267, 276 (2005) (refusing to extend antitrust liability under the New Jersey Antitrust Act to indirect purchasers). It is hard to imagine a greater disparity between two class members. Whereas the New York purchaser may recover for an antitrust violation if he can prove the existence of a price-fixing agreement or monopoly market power resulting in higher prices, the New Jersey purchaser has no legal right to recoveror even to bring a lawsuit regardless of whether he can conclusively prove the existence of a restraint and antitrust impact. Thus, while both purchasers may have felt the effects of the same antitrust conduct, the purchasers do not share common legal or factual issues because the antitrust activity gives rise to a right of action for only one purchaser. See Ins. Brokerage, 579 F.3d at 266 (noting that Rule 23 requires that a class possess at least one issue of law or fact that affects all class members' claims). The natural result of those differences is that there can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact. It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right. [13] Plaintiffs seek to minimize these legal disparities by characterizing them as little more than impediments to litigation that would make trial management difficult but that may safely be ignored for settlement purposes. That argument places management issues above the more basic question of substantive law. It is akin to suggesting that a really good cook, by means of superior kitchen management, can make a cake out of nothing. The lack of substantive rights cannot be wished away by the promise of easier litigation management. Proponents of class certification for any purpose, including settlement, retain the burden of demonstrating that all class members share common legal or factual issues and that those issues predominate over matters requiring individual proof. In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 799 (3d Cir.1995) (holding that nothing in Rule 23 can be read to authorize separate, liberalized criteria for settlement classes). That test presupposes that everyone in the class at least has a cause of action. The variations in state law identified by the objectors preclude the requisite finding of predominance under Rule 23(b)(3) because indirect purchasers do not have a right to recover in all states, and, therefore, no question of law or fact regarding their legal rights is uniform throughout the class. Cf. Prudential, 148 F.3d at 315 (stating that certification of a nationwide class of state-law claims is appropriate if the plaintiffs possess similar rights under the laws of all states such that the court can readily control for differences among various jurisdictions). The predominance requirement of Rule 23 is not the only statutory provision to stand as an obstacle to certification. As just discussed, the District Court's certification order extends antitrust remedies that, in many instances, have no root in state substantive law. As such, the order contravenes the Rules Enabling Act, which prohibits a court from interpreting procedural rules in a manner that creates new substantive rights. See 28 U.S.C. § 2072(b) (stating that federal courts may not interpret procedural rules in a manner that enlarge[s] ... any substantive right); see also Windham v. Am. Brands, Inc., 565 F.2d 59, 65-66 (4th Cir.1977) (cautioning that each plaintiff in a federal antitrust action must offer individual proof of damages and that the failure to require such proof contravenes the Rules Enabling Act by allowing a plaintiff to recover in the absence of individual harm). By certifying a class, the District Court ran afoul of the Act because its order effectively granted relief to individuals to whom De Beers had no antitrust liability. Nor can these foundational problems be overcome, as plaintiffs suggest, by relying upon De Beers's willingness to stipulate to liability in all fifty states. Plaintiffs argue that [w]hen a settlement is reached, the defendant elects not to contest the allegations of the complaint, and district courts are entitled to rely on those allegations to demonstrate commonality. (Plaintiff-Appellees' Ans. Br. at 46.) That is simply incorrect. Independent of any stipulations, district courts are obligated to consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class. Hydrogen Peroxide, 552 F.3d at 320. Were it otherwise, the door would swing wide to collusive settlements. Amchem, 521 U.S. at 620, 117 S.Ct. 2231 (requiring courts to exercise undiluted, even heightened, attention to issues of commonality and predominance in the settlement context because those inquires are designed to protect absentees by blocking unwarranted or overbroad class definitions). Thus, plaintiffs and De Beers cannot salvage an improper certification order by saying that De Beers has stipulated out of existence defects in the commonality and predominance of the class claims. The objections in this case pertain to the predominance of class claims and to the standing of individual class members to bring claims under state law. The District Court had to consider both of those issues, apart from the pleadings and stipulations, when evaluating the motion to certify a class. Hydrogen Peroxide, 552 F.3d at 316. A defendant's decision not to contest the requirements of Rule 23 does not relieve a district court of its independent obligation to ensure that those requirements are satisfied. The District Court did not adequately satisfy that obligation and abused its discretion in finding that common issues of law or fact predominate so as to warrant certification of a nationwide class of state antitrust claims.
A similar problem exists with regard to the District Court's certification of consumer protection and unjust enrichment claims for class-wide treatment. Consumer protection and unjust enrichment laws are no more uniform among the fifty states than are antitrust statutes. In fact, they are less so. Some states without Illinois Brick repealers allow indirect purchasers to invoke consumer protection statutes to gain antitrust relief. See, e.g., Mack v. Bristol-Myers Squibb Co., 673 So.2d 100, 107 (Fla.Dist.Ct.App.1996); Ciardi v. F. Hoffmann-La Roche, Ltd., 436 Mass. 53, 762 N.E.2d 303, 312 (2002); Arthur v. Microsoft Corp., 267 Neb. 586, 676 N.W.2d 29, 37-38 (2004). Other states preclude indirect purchasers from doing so because they have adopted Illinois Brick standing requirements and view any utilization of consumer protection statutes to recover for antitrust harm as circumventing that policy decision. See, e.g., Sickles, 877 A.2d at 277; Major, 60 P.3d at 517; Vacco v. Microsoft, 260 Conn. 59, 793 A.2d 1048, 1064-66 (2002); Blewett v. Abbott Labs., 86 Wash.App. 782, 938 P.2d 842, 844 (1997). A third group requires indirect purchaser consumer protection actions to proceed as parens patriae suits. Blewett, 938 P.2d at 847, while other statutes lack such requirements, see, e.g., D.C.CODE § 28-4509(a); MICH. COMP. LAWS § 445.778(2); N.D. CENT.CODE § 51-08.1-08(3). The common law of unjust enrichment likewise varies among the states, with some jurisdictions mandating proof of elements not required by others. Evidence of antitrust activity may provide a basis for an unjust enrichment claim in some states. See Freeman Indus. LLC v. Eastman Chem. Co., 172 S.W.3d 512, 524-26 (Tenn.2005) (allowing an indirect purchaser price-fixing claim to proceed under an unjust enrichment theory); see also D.R. Ward Constr. Co. v. Rohm & Haas Co., 470 F.Supp.2d 485, 507-08 (E.D.Pa.2006) (same with respect to Arizona law). Other states preclude recovery for antitrust injuries on an unjust enrichment theory. Sperry v. Crompton Corp., 8 N.Y.3d 204, 831 N.Y.S.2d 760, 863 N.E.2d 1012, 1018 (2007); cf. Coastal Envt'l. Specialists, Inc. v. Chem-Lig Int'l, Inc., 818 So.2d 12, 19 (La.Ct.App.2001) (holding that a plaintiff may not invoke unjust enrichment principles to obtain a remedy for a harm that is adequately redressed by other areas of law). With respect to the substantive elements of unjust enrichment, some states require plaintiffs to prove that the defendant's conduct rises to the level of fraud. See Mantiply v. Mantiply, 951 So.2d 638, 655 (Ala.2006); Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex.1992). Others do not. See Rhue v. Rhue, 189 N.C.App. 299, 658 S.E.2d 52, 59 (2008); Anderson v. DeLisle, 352 N.W.2d 794, 796 (Minn.Ct.App.1984). Some allow an unjust enrichment claim only if the plaintiff has no adequate remedy at law. Harris Group, Inc. v. Robinson, 209 P.3d 1188, 1205 (Colo.Ct.App.2009); Harvell v. Goodyear Tire & Rubber Co., 164 P.3d 1028, 1035 (Okla.2006). Others lack that requirement. Jones v. Sparks, 297 S.W.3d 73, 78 (Ky.Ct.App.2009); Williams Twp. Bd. of Supervisors v. Williams Twp. Emerg. Co., Inc., 986 A.2d 914, 923 (Pa.Cmwlth.Ct.2009). In short, the claim of unjust enrichment is packed with individual issues and therefore precludes a finding of predominance in this nationwide class action context. Clay v. Am. Tobacco Co., 188 F.R.D. 483, 501 (S.D.Ill.1999). Amidst the welter of differing statutes and decisions across the country on these issues, at least one thing emerges clearly: evidence of price-fixing and monopolization does not give rise in every state to an unjust enrichment or consumer protection claim for indirect purchasers. Thus, while De Beers's price-control activity, as a practical matter, may have harmed all indirect purchasers, that injury cannot provide a basis for the certification granted here because it does not give rise to a legal right to recovery in all of the jurisdictions implicated by a nationwide class. See Chiang v. Veneman, 385 F.3d 256, 273 (3d Cir.2004) (In order to predominate, the common issues must constitute a `significant part' of the individual cases. (quoting Jenkins v. Raymark Indus., Inc., 782 F.2d 468, 472 (3d Cir.1986))). The District Court therefore abused its discretion when it found that consumer protection and unjust enrichment laws were sufficiently similar to warrant certification as a class. [14] Cf. Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 746-48 (7th Cir.2008) (reversing class certification order in a consumer deception case because, while all consumers had purchased the alleged deceptively marketed product, differences among state law precluded a finding of common legal issues).
It is no mere afterthought to note that, even ignoring the obstacles posed by Rule 23, principles of federalism counsel against certifying a class in this matter. The mandate of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), prevents a district court from invoking federal procedural rules to extend recovery to a state law plaintiff when state courts would not recognize the plaintiff's harm as grounds for relief. Montgomery Ward & Co., Inc. v. Pac. Indem. Co., 557 F.2d 51, 56 n. 8 (3d Cir. 1977) (In giving federal courts `cognizance' of equity suits in cases of diversity jurisdiction, Congress never gave, nor did the federal courts ever claim[,] the power to deny substantive rights created by State law or to create substantive rights denied by State law.). Thus, a district court abuses its discretion when, as happened here, it approves a settlement based on a supposed state law antitrust violation that the plaintiff could not have asserted in state court. Sacrificing the principles of federalism to obtain the benefits of a settlement is a poor trade. Certain states have categorically refused to allow indirect purchasers to bring a price-fixing claim as a matter of substantive law. E.g., Wilson, 921 A.2d at 416-17; Johnson, 834 N.E.2d at 798; Major, 60 P.3d at 513; Abbott Labs., Inc. (Ross Labs. Div.) v. Segura, 907 S.W.2d 503, 507 (Tex.1995). The policy decisions of those states are fundamental aspect[s] of our federal republic and must not be overridden in a quest to clear the queue in court. In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1020 (7th Cir.2002). By allowing the indirect purchasers to effectuate a settlement without regard to those policy decisions, the District Court wrongly allowed the sovereignty of the states to be subordinated to De Beer's desire to resolve all indirect purchaser claims simultaneously. Our holding today is not a repudiation of all nationwide class actions based upon state law. In fact, we have previously approved the use of class litigation as a means of resolving state law claims, recognizing that in certain cases such certification may be entirely proper. See Warfarin Sodium II, 391 F.3d at 529-30 (certifying a nationwide class under state consumer protection statutes on the basis that class members had uniformly been overcharged for the defendant's product and had a right to recover under the law of all fifty states). [15] Nor are we requiring district courts to undertake rigorous state-by-state analyses in all cases. [16] We hold only that a district court abuses its discretion when, as in this case, it certifies a nationwide class of litigants whose claims implicate the laws of multiple jurisdictions, despite the fact that only some of those jurisdictions recognize the claims for which recovery is sought. [17] It may be that the antitrust and consumer protection statutes in a more limited number of states are sufficiently similar that common issues of law or fact would predominate with respect to plaintiffs in those jurisdictions. However, it was improper for the District Court to certify a nationwide class of plaintiffs based on state law when many states withhold antitrust standing from indirect purchasers and where the variability in consumer protection and unjust enrichment law in a context like this is extreme. Accordingly, we will vacate the District Court's certification order under Rule 23(b)(3) and remand this case for further proceedings. On remand, the District Court should entertain renewed motions to certify classes that, at least as to state law claims, are not nationwide in scope, if such motions are made. For example, to obtain certification of an indirect purchaser class, plaintiffs would have to show that all class members share a right to recover for antitrust harms, such that one or more common issues affect all members' claims. We express no opinion regarding whether such a class can be formed or, if it can, which states' laws are sufficiently similar that plaintiffs in those states could be joined as class members. It would, however, be improper for the District Court to include in an indirect purchaser class plaintiffs whose claims arise in states that foreclose indirect purchasers from recovering for price-fixing or monopolization. Of course, the plaintiffs are not required to file new class certification motions, and nothing prevents them from prosecuting their claims in an individual capacity.