Opinion ID: 4527827
Heading Depth: 2
Heading Rank: 1

Heading: The Analysis Required to Certify a Class

Text: Federal Rules of Civil Procedure 23(a) and (b) set the requirements for class certification. Rule 23(a) requires that
all members is impracticable (numerosity); (2) there must be questions of law or fact common to the class (commonality); (3) the claims or defenses of the representative parties must be typical of the claims or defenses of the class (typicality); and (4) the named plaintiffs must fairly and adequately protect the interests of the class (adequacy of representation, or simply adequacy). Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 590–91 (3d Cir. 2012) (citation and internal quotation marks omitted). Rule 23(b)(3), as relevant here, “requires that (i) common questions of law or fact predominate (predominance), and (ii) the class 10 action is the superior method for adjudication (superiority).” Id. (citation omitted). GSK and Teva challenge only the District Court’s predominance finding. Stated more expansively, a plaintiff “must ‘demonstrate that the element of [the legal claim] is capable of proof at trial through evidence that is common to the class rather than individual to its members.’” Marcus, 687 F.3d at 600 (alteration in original) (quoting Hydrogen Peroxide, 552 F.3d at 311). “Because the nature of the evidence that will suffice to resolve a question determines whether the question is common or individual, a district court must formulate some prediction as to how specific issues will play out in order to determine whether common or individual issues predominate in a given case.” Id. (citation omitted). “If proof of the essential elements of the cause of action requires individual treatment, then class certification is unsuitable.” Hydrogen Peroxide, 552 F.3d at 311 (citation omitted). To determine whether the putative class has satisfied predominance (indeed, all applicable Rule 23 requirements), the District Court must conduct a “rigorous analysis” of the evidence and arguments presented. Id. at 309 (quoting Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 161 (1982)). That involves three key aspects. First, the court must “find[]” that the requirements of Rule 23 are met and any “[f]actual determinations supporting Rule 23 findings must be made by a preponderance of the evidence.” Id. at 307. Second, “the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits.” Id; see also Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011) (“That [overlap] cannot be helped.”); Marcus, 687 F.3d at 591 (“Rule 23 gives no license to shy away from making factual findings that are necessary to determine whether the Rule’s requirements have been met.”). Third, the court must consider “all relevant evidence and arguments,” including “expert 11 testimony, whether offered by a party seeking class certification or by a party opposing it.” Hydrogen Peroxide, 552 F.3d at 307. If, after all that, the Court is convinced by a preponderance of the evidence that the plaintiffs’ claims are capable of common proof at trial, then the predominance requirement is satisfied.
The Direct Purchasers contend that they need not prove antitrust injury at this stage, but rather it suffices if they show only that injury is capable of common proof at trial. True enough. See Hydrogen Peroxide, 552 F.3d at 311–12. But they go further and say that our case is controlled by a comment in Tyson Foods v. Bouaphakeo, 136 S. Ct. 1036 (2016), that suggests an even lower standard for predominance whereby that criterion is satisfied unless no reasonable juror could believe the common proof at trial. In Tyson Foods, the Supreme Court was reviewing a motion to decertify a class brought under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201 et seq., after a jury had already rendered a verdict in favor of the plaintiff class. In considering whether representative evidence was sufficient to satisfy the predominance requirement, the Court wrote that “[t]he District Court could have denied class certification on this ground only if it concluded that no reasonable juror could have believed that the employees spent roughly equal time donning and doffing” their protective gear. Tyson Foods, 136 S. Ct. at 1049 (emphasis added). According to the Direct Purchasers, this means that so long as their evidence of class-wide antitrust injury could sustain a jury finding, they meet the predominance requirement. But contrary to the Direct Purchasers’ assertion, Tyson Foods does not control our case, and its no-reasonable-juror 12 statement certainly does not overturn our longstanding rule announced in Hydrogen Peroxide, and reiterated in many a case, that a putative class must demonstrate that its claims are capable of common proof at trial by a preponderance of the evidence. See, e.g., Modafinil, 837 F.3d at 248–49; Marcus, 687 F.3d at 591; In re K-Dur Antitrust Litig., 686 F.3d 197, 219–20 (3d Cir. 2012) (subsequent history omitted). First, Tyson Foods was discussing representative evidence in the FLSA context, a unique labor situation in which, often due to inadequate record keeping, “a representative sample [of employees] may be the only feasible way to establish liability.” Tyson Foods, 136 S. Ct. at 1040; see also Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 685–88 (1946). In those cases, the accuracy and representativeness of the sample is critical, for each class member must be able to rely on that evidence in his own trial to prove liability under the FLSA. Tyson Foods, 136 S. Ct. at 1048. Indeed, the only two Courts of Appeals to pick up on this language did so in that context. See Senne v. Kan. City Royals Baseball Corp., 934 F.3d 918, 940–41 (9th Cir. 2019) (holding in an FLSA case that the “no reasonable juror” standard applies to admissible expert testimony at the class certification stage); Monroe v. FTS USA, LLC, 860 F.3d 389, 400 (6th Cir. 2017) (suggesting in an FLSA case, albeit in dicta, that Tyson Foods’s “no reasonable juror” comment “concerned how district courts should assess the representativeness of an expert’s statistical average for class certification purposes”). Second, the Court in Tyson Foods was asked to decertify a class after the jury had rendered a verdict in favor of the plaintiff class, but, finding the jury could reasonably have relied on the representative evidence, it declined to do so. 136 S. Ct. at 1047–48. Here, by contrast, the District Court reviewed the class certification motion on a blank slate. Our non-FLSA class certification decisions that postdate Tyson Foods have reiterated that district courts are 13 required, per Hydrogen Peroxide, to resolve factual determinations by a preponderance of the evidence at the class certification stage. 3 See, e.g., Ferreras v. Am. Airlines, Inc., 946 F.3d 178, 183 (3d Cir. 2019) ; Mielo v. Steak 'n Shake Operations, Inc., 897 F.3d 467, 483–84 (3d Cir. 2018); Harnish v. Widener Univ. Sch. of Law, 833 F.3d 298, 304 (3d Cir. 2016). We hold that our standard—plaintiffs must prove their claim is capable of common proof by a predominance of the evidence—continues to apply to class certification determinations outside of the FLSA context. With that in mind, we turn to the Direct Purchasers’ claim. The injury element is at issue here. Recall that their theory of liability is that they suffered an antitrust injury because but for the reverse-settlement agreement, each would have paid less for lamotrigine than it actually did. This requires the Direct Purchasers to prove by a preponderance of the evidence that they could establish, through common proof at trial, facts supporting an antitrust injury, namely: 1) GSK would have launched an AG but for the reverse-settlement; and 2) as a result, all class members would have paid less for lamotrigine in this but-for world. If each individual class member could rely on this same proof to prove the elements of its claim, then the injury is capable of common proof at trial.
Are Capable of Common Proof GSK and Teva opposed certification, arguing before the District Court that the Direct Purchasers were unable to show that injury is capable of common proof at trial because their proof impermissibly relies on averages, which, in a market 3 We recognize that whether the Tyson Foods no-reasonablejuror standard should control was not squarely presented in those cases. 14 characterized by individual negotiations and a discountedbrand competition strategy, masks the fact that many—up to one-third of the entire class—likely paid no more, or even less, for lamotrigine than they would have if GSK had launched an AG. Because each class member could not rely on the same common evidence to show injury, individual issues predominate; hence they contend the District Court erred by accepting the Direct Purchasers’ expert testimony that relied on these averages without conducting a rigorous analysis of the competing expert reports and resolving the competing factual disputes on which the reports rely. We agree that a more rigorous analysis is needed. The District Court refused to “address the multi-leveled microeconomic analysis of what each Defendant would or would not have possibly done in the but-for world, and instead focuse[d] on whether the presence of the Contracting Strategy raises individualized issues that defeat predominance.” In re Lamictal Indirect Purchaser & Antitrust Consumer Litig., No. 12-CV-00995, 2018 WL 6567709, at  (D.N.J. Dec. 12, 2018). Without that inquiry, it is impossible to determine whether the Contracting Strategy raised individualized issues. The Direct Purchasers’ expert, Dr. Russell Lamb, opined that evidence common to the proposed class as a whole “demonstrates that the prices paid by all or nearly all proposed Class members for lamotrigine tablets were impacted (artificially inflated) by the allegedly illegal agreement between GSK and Teva,” and thus the class was “injured by the Defendants’ alleged[ly] anticompetitive conduct.” J.A. 487–88. This “common evidence” includes: (1) economic literature showing that, on average, prices of generics are lower as more enter the market; (2) Teva’s own general pricing forecast tending to discount a generic by 50% without competition, but by 65% when facing an additional competitor; and (3) transaction-level sales data showing that the average 15 actual price paid was consistent with these predictions. Lamb also created a model purporting to show the price each purchaser would have paid absent the settlement, and he opined that the prices would have been lower both had GSK just launched an AG 4 and had it launched an AG along with the Contracting Strategy. But, as GSK and Teva accurately point out, that model still relies on an average hypothetical price, which again fails to account for individual negotiations or the effect of GSK’s Contracting Strategy on each Direct Purchaser. GSK and Teva’s expert, Dr. James Hughes, countered that it is “not possible, absent individualized inquiry, to determine whether any particular member of the proposed [c]lass suffered injury in the form of higher prices as a result of the alleged anticompetitive conduct.” J.A. 265–66. He rebutted many of Dr. Lamb’s findings, primarily criticizing the use of averages—contending that Lamb committed “meaningful error” when he assumed an aggregate “actual” price that he applied to all class-members, which failed to acknowledge that purchasers paid “dramatically different prices,” dropped charge-backs and discounts, and ignored low “outlier” prices. Further, Dr. Hughes criticized Dr. Lamb’s reliance on general forecasting documents using average prices, rather than lamotrigine-specific prices. Hughes created his own model, using lamotrigine-specific prices from Teva company documents, to show that, when accounting for Teva’s preemptive response to the Contracting Strategy, the price of 4 While the parties dispute whether GSK would have used both strategies—launching an AG and engaging in the Contracting Strategy—simultaneously, Lamb conducted a “sensitivity analysis” as part of his model purporting to show that, either way, the price of lamotrigine would have been lower absent the settlement agreement. 16 lamotrigine was likely lower for some purchasers than it would have been had GSK launched an AG. Based on this, Hughes found that 25 of the 33 generic-only purchasers likely paid the same or lower prices in the actual world under the Contracting Strategy than they would have paid had GSK launched an AG. In effect, the amount each purchaser would have paid absent the settlement required an individual analysis because Teva did not respond to the Contracting Strategy uniformly. Here, the District Court abused its discretion when it assumed, absent a rigorous analysis, that averages are acceptable. As is clear from the dueling expert reports, the acceptability of averages depends largely on the answer to several factual predicates, most importantly: 1) whether the market is characterized by individual negotiations; 2) whether Teva preemptively lowered its pricing in response to the Contracting Strategy; and 3) whether and to what extent GSK, absent the settlement agreement, would or could have pursued both the Contracting Strategy and an AG. The Court did not resolve these factual disputes, which would have required it to weigh the competing evidence and make a prediction as to how they would play out at trial. Further, much of each expert’s analysis turned on his sources of evidence for pricing and discounting data, many of which were in tension. It was up to the District Court to scrutinize the evidence to determine what was credible and could be used in the expert analysis. This lack of analysis perhaps was due to the Court’s assumption that antitrust injury here occurred “at the moment the price of generic lamotrigine was artificially inflated by the no-AG agreement, even if GSK’s Contracting Strategy later on possibly eroded some or all of the inflated price.” Lamictal, 2018 WL 6567709, at . But that assumption misunderstood GSK and Teva’s argument—the prices were never inflated to begin with because Teva preemptively lowered its prices before launching; thus some Direct Purchasers never suffered 17 an overcharge. But the District Court cannot simply make that assumption—rather, whether Teva preemptively lowered its prices is a factual matter hotly contested by the parties. And the Court was required to resolve that dispute by a preponderance of the evidence. Thus, contrary to the District Court’s belief, addressing the micro-level analysis here, even though it touches on the merits, was necessary in order to determine whether the Direct Purchasers, in light of the competing expert reports and evidence, could show that common issues predominated by a preponderance of the evidence. While averages may be acceptable where they do not mask individualized injury, see Gates v. Rohm & Haas Co., 655 F.3d 255, 266 (3d Cir. 2011), we cannot determine whether that occurred here because of the lack of analysis. Accordingly, we vacate and remand for the District Court to analyze the evidence and arguments submitted as part of class certification.