Corporations worldwide are frequent targets of class or group actions. The respondents to Norton Rose Fulbright’s 2015 Litigation Trends Annual Survey – primarily general counsel – indicated that the increasing number of class or group actions and a more litigious business environment were the most important issues impacting companies.1 Class action lawsuits were listed as the top litigation issue by respondents in the US, Canada, and Australia.2
A quarter of all respondents reported at least one class or group action pending against their companies in the preceding 12 months, with survey participants from the US comprising 80 percent of that number. And 71 percent of those who reported a class action had more than one filed against their companies during that period. Of those who have had a class or group action brought against their companies, 30 per cent indicated that one or more were certified.
Although the volume of reported antitrust/competition class or group actions in the survey was significantly less than other categories (labor/employment, consumer, securities, or mass tort), the expense of litigating antitrust class actions and the ultimate threat of automatic treble damages under the US antitrust laws ensures that those cases become the focus of C-Suite attention.
On the US antitrust class action front, courts have been grappling with class certification determinations in the wake of the Supreme Court's decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Court had been expected to use Comcast as an opportunity to resolve a circuit split on whether courts must decide challenges to experts at the class certification stage, but the majority opinion never got that far. Instead, it resolved the case based on predominance grounds, holding that the expert's methodology for calculating damages was too far removed from the liability theory of antitrust impact that was accepted for class-action treatment to support a finding that proof of damages could be determined on a class-wide basis.
In the absence of a means of proving class-wide damages, individual questions would predominate at trial, which precluded class certification. The Comcast Court thus confirmed that plaintiffs must come forward with a specifically tailored (and presumably reliable) methodology to prove class damages at trial before they can win class certification under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
The next question on the horizon is whether Comcast allows certification of an overly broad class, i.e., a class in which not all class members have been injured. The District of Columbia Circuit Court of Appeals, in an antitrust case alleging that the defendants colluded to raise fuel surcharge rates, held that all class members must have suffered injury for a class to be certified.3
The Rail Freight defendants argued that the plaintiffs’ damages model, which purported to quantify the injury-in-fact to all class members attributable to the defendants’ allegedly collusive conduct, was defective because the methodology also detected injury where none could exist. The model yielded similar results when applied to shippers who were subject to legacy contracts during the class period and were bound by rates negotiated before any conspiratorial behavior was alleged to have occurred. If accurate, the court found that fact would “shred the plaintiffs’ case for certification.”
The court explained that the plaintiffs were required to show that they could prove, through common evidence, that all class members were in fact injured by the alleged conspiracy. Without that ability, the requirement that questions common to the class predominate at trial would not be met because individual trials would be necessary to establish whether a particular shipper had suffered harm from the alleged price fixing scheme.
Although the court did not require proof at the certification stage of the precise amount of damages incurred by each class member, the court did expect the common evidence to show all class members suffered some injury. Noting that “the case law was far more accommodating to class certification” before Comcast, the court vacated and remanded the trial court’s decision certifying a class for reconsideration in light of Comcast.
More recently, the First Circuit Court of Appeals took a narrower view of Comcast, finding that Comcast does not require that plaintiffs show at the class certification stage that all alleged class members had suffered injury, but only requires that at class certification, the damages calculation must reflect the liability theory.4 Nexium was a pay-for-delay case against drug manufacturers brought by indirect purchasers under state antitrust laws alleging that Nexium manufacturers settled patent infringement cases by paying generic manufacturers to delay the launch of their products.
The Nexium court, in a two-to-one decision, set out three principles relevant to the question of whether a class can include uninjured class members. First, a class action is improper unless the theory of liability is limited to the injury caused by the defendants. Second, the class definition must be sufficiently definite to allow the class members to be ascertainable. And third, where an individual claims process will be conducted at the liability and damages phases of the litigation, the payout of the amount for which the defendants would be held liable must be limited to injured parties.
Applying those principles, the court held that at the certification stage, a trial court need only be satisfied that it will be possible to establish before judgment a mechanism for distinguishing the injured from the uninjured class members. The court reasoned that at the class certification stage, it will not be feasible in many cases to entirely separate the injured from the uninjured class members.
The dissenting member of the three-judge panel agreed with the predicate principle of the majority’s opinion—that it is possible to certify a class that includes uninjured members provided that the trial court identifies a feasible method for culling the uninjured class members before entry of a judgment—but disagreed with its application of that principle. The dissent would require plaintiffs and the trial court to identify specifically a feasible culling method before certifying a class.
The dissent also noted that during the time that the interlocutory appeal from class certification was pending, the lower court tried most of the pending liability issues in the case, and the trial concluded with a defense verdict just as the First Circuit’s decision was about to issue. Further action on the Nexium class decision is therefore unlikely.
The Supreme Court, however, in June 2015 granted certiorari in Tyson Foods, Inc. v. PEG Bouaphakeo, No. 14-1146, to determine whether a class may be certified that contains hundreds of members who were not injured and have no legal right to damages. The Tyson case was a collective action certified under the Fair Labor Standards Act and under Rule 23(b)(3) of the Federal Rules of Civil Procedure.
A petition for writ of certiorari is also pending (as of this writing) before the Supreme Court in Dow Chemical Co. v. Industrial Polymers, Inc., No. 14-1091, which arises from a US$1.1 billion judgment in an antitrust class action alleging coordinated price announcements. One of the questions presented in the Dow petition for certiorari is whether courts may presume class-wide injury from an alleged price-fixing agreement, even when prices are individually negotiated and individual purchasers frequently succeed in negotiating away allegedly collusive overcharges and would not have been injured.
While class actions in other jurisdictions across the globe are in their infancy, the United States Supreme Court, with the benefit of decades of experience, has in recent years reinforced more stringent requirements for class certification and that trend is expected to continue.