In Re: Hydrogen ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
12-30-2008
In Re: Hydrogen
Precedential or Non-Precedential: Precedential
Docket No. 07-1689
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-1689
IN RE: HYDROGEN PEROXIDE
ANTITRUST LITIGATION
Arkema Inc., Arkema France S.A.,
FMC Corp., Kemira Chemicals
Canada, Inc., Kemira OYJ,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 05-cv-0666
and MDL No. 1682
(Honorable Stewart Dalzell)
Argued April 17, 2008
Before: SCIRICA, Chief Judge,
AMBRO and FISHER, Circuit Judges.
(Filed December 30, 2008)
STEVEN E. BIZAR, ESQUIRE (ARGUED)
LANDON Y. JONES III, ESQUIRE
THOMAS P. MANNING, ESQUIRE
HOWARD D. SCHER, ESQUIRE
Buchanan Ingersoll & Rooney
1835 Market Street, 14th Floor
Philadelphia, Pennsylvania 19103
Attorneys for Appellants,
Arkema Inc. and Arkema France SA
MICHAEL I. FRANKEL, ESQUIRE
Dechert LLP
Cira Centre, 18th Floor
2929 Arch Street
Philadelphia, Pennsylvania 19104
Attorney for Appellant,
FMC Corporation
JEFFREY S. CASHDAN, ESQUIRE
STEPHEN P. CUMMINGS, ESQUIRE
CHRISTINE A. HOPKINSON, ESQUIRE
CATHERINE M. O’NEIL, ESQUIRE
King & Spalding
1180 Peachtree Street
Atlanta, Georgia 30309
2
JOANNA J. CLINE, ESQUIRE
BARBARA W. MATHER, ESQUIRE
Pepper Hamilton
3000 Two Logan Square
18th & Arch Streets
Philadelphia, Pennsylvania 19103
Attorneys for Appellants,
Kemira OYJ and Kemira Chemicals Canada, Inc.
GREGORY K. ARENSON, ESQUIRE (ARGUED)
ROBERT N. KAPLAN, ESQUIRE
Kaplan Fox & Kilsheimer
805 Third Avenue, 22nd Floor
New York, New York 10022
ANTHONY J. BOLOGNESE, ESQUIRE
Bolognese & Associates
Suite 320, Two Penn Center Plaza
1500 John F. Kennedy Boulevard
Philadelphia, Pennsylvania 19102
WILLIAM P. BUTTERFIELD, ESQUIRE
Cohen Milstein Hausfeld & Toll
West Tower, Suite 500
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attorneys for Appellees,
Artco Chemical, Inc., Astro Chemicals, Inc.,
3
Borden & Remington Corporation, Chem/Ser, Inc.,
EMCO Chemical Distributors, Inc.,
Finch Pruyn and Company, Inc.,
Interstate Chemical Company, Lensco Products, Inc.,
Lincoln Paper & Tissue, LLC, Ohio Chemical Services,
Inc., James R. Pacific, Robert Chemical Company, Inc.,
Safer Textile Processing Corporation, Young Chemical
Company, City of Philadelphia, Borough of Middletown
and Middletown Borough Authority
STEVEN A. KANNER, ESQUIRE
Freed Kanner London & Millen
2201 Waukegan Road, Suite 130
Bannockburn, Illinois 60015
Attorney for Appellees,
Direct Purchaser Plaintiffs and
EMCO Chemical Distributors, Inc.
OPINION OF THE COURT
SCIRICA, Chief Judge.
At issue in this antitrust action are the standards a district
court applies when deciding whether to certify a class. We will
vacate the order certifying the class in this case and remand for
proceedings consistent with this opinion.
4
In deciding whether to certify a class under Fed. R. Civ.
P. 23, the district court must make whatever factual and legal
inquiries are necessary and must consider all relevant evidence
and arguments presented by the parties. See Newton v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166, 167 (3d
Cir. 2001) (citing Szabo v. Bridgeport Machs., Inc., 249 F.3d
672, 676 (7th Cir. 2001); Manual for Complex Litigation (Third)
§ 30.1 (1995)). In this appeal, we clarify three key aspects of
class certification procedure. First, the decision to certify a class
calls for findings by the court, not merely a “threshold showing”
by a party, that each requirement of Rule 23 is met. Factual
determinations supporting Rule 23 findings must be made by a
preponderance of the evidence. Second, the court must resolve
all factual or legal disputes relevant to class certification, even
if they overlap with the merits—including disputes touching on
elements of the cause of action. Third, the court’s obligation to
consider all relevant evidence and arguments extends to expert
testimony, whether offered by a party seeking class certification
or by a party opposing it.
I.
Purchasers of hydrogen peroxide and related chemical
products brought this antitrust conspiracy action against
chemical manufacturers.1 An inorganic liquid, hydrogen
1
Named as defendants were Arkema, Inc., Arkema France
S.A., FMC Corp., Degussa Corp., Degussa GmBH, Kemira
Chemicals Canada, Inc., Kemira OYJ, Solvay America, Inc.,
5
peroxide is used most prominently as a bleach in the pulp and
paper industry with smaller amounts appearing in chemicals and
laundry products, environmental applications, textiles, and
electronics. Hydrogen peroxide is available in solutions of
different concentrations and grades depending on its intended
use. Major concentrations are 35, 50, and 70 percent. The
grades, roughly in order from least- to most-expensive, are:
standard, food/cosmetic (which must meet FDA standards),
electronic, and propulsion. All defendants sold the standard
grade, but not all defendants sold all other grades. Defendants
sold different amounts of each of the grades. Each grade has
different supply and demand conditions because the grades are
sold to end-users in a variety of industries with different
economic characteristics. According to defendants, the different
grades are not economic substitutes for each other, but plaintiffs
disagree. Prices diverge dramatically among grades; electronic
or propulsion grade can be as much as five times more
Solvay Chemicals, Inc., Solvay S.A., EKA Chemicals, Inc.,
Akzo Nobel, Inc., and Akzo Nobel Chemicals International B.V.
Degussa Corp. and Degussa GmBH are now known as Evonik
Degussa Corp. and Evonik Degussa GmBH, respectively. The
following defendants are no longer participating in this appeal
because plaintiffs voluntarily dismissed them after settlement:
Evonik Degussa Corp., Evonik Degussa GmBH, EKA
Chemicals, Inc., Akzo Nobel, Inc., Akzo Nobel Chemicals
International B.V., Solvay S.A., Solvay America, Inc., and
Solvay Chemicals, Inc.
6
expensive than standard grade.
The other two products at issue are sodium percarbonate
and sodium perborate, together known as persalts, which are
granular solids containing hydrogen peroxide used primarily as
detergents. Among the defendants, only Solvay produced and
sold sodium percarbonate in the United States during the class
period. Solvay Chemicals, Degussa Corp., and FMC sold
sodium perborate in the United States during the class period.
Akzo, Arkema, and Kemira did not sell or produce sodium
perborate in the United States during the class period.
After the United States Department of Justice and the
European Commission began investigating possible violations
of the antitrust laws in the hydrogen peroxide industry,2 several
plaintiffs filed class action complaints against producers of
hydrogen peroxide and persalts under § 4 of the Clayton Act, 15
U.S.C. § 15, alleging a conspiracy in restraint of trade violating
§ 1 of the Sherman Act, 15 U.S.C. § 1. The Judicial Panel on
2
European Commission regulators charged eighteen
hydrogen peroxide manufacturers with price-fixing on January
31, 2005. In 2006, two defendants in this action, Solvay S.A.
and Akzo Nobel Chemicals International, B.V., agreed to plead
guilty in the United States to price-fixing in the hydrogen
peroxide market for the period July 1, 1998 to December 1,
2001. Solvay also agreed to plead guilty to price-fixing sodium
perborate sold to one customer from June 1, 2000 to December
1, 2001.
7
Multidistrict Litigation transferred all cognate federal actions to
the United States District Court for the Eastern District of
Pennsylvania, which consolidated the cases. See In re Hydrogen
Peroxide Antitrust Litig., 374 F. Supp. 2d 1345 (J.P.M.L. 2005).
The consolidated amended complaint alleged that during an
eleven-year class period (January 1, 1994–January 5, 2005)
defendants (1) communicated about prices they would charge,
(2) agreed to charge prices at certain levels, (3) exchanged
information on prices and sales volume, (4) allocated markets
and customers, (5) agreed to reduce production capacity, (6)
monitored each other, and (7) sold hydrogen peroxide at agreed
prices.
The District Court denied defendants’ motion to dismiss
the complaint for failure to state a claim. Following extensive
discovery,3 plaintiffs moved to certify a class of direct
purchasers of hydrogen peroxide, sodium perborate, and sodium
percarbonate, over an eleven-year class period. In support of
class certification, plaintiffs offered the opinion of an
economist. Defendants, opposing class certification, offered the
opinion of a different economist. Defendants separately moved
to exclude the opinion of plaintiffs’ economist as unreliable
under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.
3
Defendants assert, and plaintiffs do not dispute, that they
provided to plaintiffs all available sales transactions and other
market data relevant to how hydrogen peroxide and persalts
were bought and sold during the class period.
8
579 (1993). Concluding plaintiffs’ expert’s opinion was
admissible and supported plaintiffs’ motion for class
certification, the District Court certified a class of direct
purchasers of hydrogen peroxide, sodium perborate, and sodium
percarbonate under Fed. R. Civ. P. 23(b)(3). See In re
Hydrogen Peroxide Antitrust Litig., 240 F.R.D. 163 (E.D. Pa.
2007). The District Court identified seven issues to be tried on
a class-wide basis: (1) whether defendants and others engaged
in a combination and conspiracy to fix, raise, maintain, or
stabilize prices; allocate customers and markets; or control and
restrict output of hydrogen peroxide, sodium perborate, and
sodium percarbonate sold in the United States; (2) the identity
of the participants in the alleged conspiracy; (3) the duration of
the alleged conspiracy and the nature and character of
defendants’ acts performed in furtherance of it; (4) the effect of
the alleged conspiracy on the prices of hydrogen peroxide and
persalts during the class period; (5) whether the alleged
conspiracy violated the Sherman Act; (6) whether the activities
alleged in furtherance of the conspiracy or their effect on the
prices of hydrogen peroxide and persalts during the class period
injured named plaintiffs and the other members of the class; and
(7) the proper means of calculating and distributing damages.
The class was defined as:
All persons or entities, including state, local and
municipal government entities (but excluding
defendants, their parents, predecessors,
successors, subsidiaries, and affiliates as well as
9
federal government entities) who purchased
hydrogen peroxide, sodium perborate, or sodium
percarbonate in the United States, its territories, or
possessions, or from a facility located in the
United States, its territories, or possessions,
directly from any of the defendants, or from any
of their parents, predecessors, successors,
subsidiaries, or affiliates, at any time during the
period from September 14, 1994 to January 5,
2005.
We granted defendants’ petition for an interlocutory
appeal under Fed. R. Civ. P. 23(f).4
II.
Class certification is proper only “if the trial court is
satisfied, after a rigorous analysis, that the prerequisites” of Rule
23 are met.5 Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161
4
The District Court had jurisdiction under 28 U.S.C. §§ 1331,
1337. We have jurisdiction under 28 U.S.C. § 1292(e) and Fed.
R. Civ. P. 23(f).
5
Although the Supreme Court in the quoted statement
addressed Fed. R. Civ. P. 23(a), there is “no reason to doubt”
that the language “applies with equal force to all Rule 23
requirements, including those set forth in Rule 23(b)(3).” In re
Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 33 n.3 (2d Cir.
10
(1982); see Beck v. Maximus, Inc., 457 F.3d 291, 297 (3d Cir.
2006); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
615 (1997) (Rule 23(b)(3) requirements demand a “close look”).
“A class certification decision requires a thorough examination
of the factual and legal allegations.” Newton, 259 F.3d at 166.6
2006).
6
A class action is
an exception to the usual rule that litigation is
conducted by and on behalf of the individual
named parties only. Class relief is peculiarly
appropriate when the issues involved are common
to the class as a whole and when they turn on
questions of law applicable in the same manner to
each member of the class. For in such cases, the
class-action device saves the resources of both the
courts and the parties by permitting an issue
potentially affecting every [class member] to be
litigated in an economical fashion under Rule 23.
Falcon, 457 U.S. at 155 (quotation marks and citations omitted)
(alteration in original) (quoting Califano v. Yamasaki, 442 U.S.
682, 700–01 (1979)).
Class certification under Rule 23 has two primary
components. The party seeking class certification must first
establish the four requirements of Rule 23(a): “(1) the class is so
numerous that joinder of all members is impracticable
[numerosity]; (2) there are questions of law or fact common to
11
The trial court, well-positioned to decide which facts and
legal arguments are most important to each Rule 23 requirement,
possesses broad discretion to control proceedings and frame
issues for consideration under Rule 23. See Amchem, 521 U.S.
at 630 (Breyer, J., concurring in part and dissenting in part)
(recognizing that the decision on class certification may
implicate “highly fact-based, complex, and difficult matters”).
But proper discretion does not soften the rule: a class may not be
certified without a finding that each Rule 23 requirement is met.
Careful application of Rule 23 accords with the pivotal status of
class certification in large-scale litigation, because
denying or granting class certification is often the
defining moment in class actions (for it may
sound the “death knell” of the litigation on the
part of plaintiffs, or create unwarranted pressure
the class [commonality]; (3) the claims or defenses of the
representative parties are typical of the claims or defenses of the
class [typicality]; and (4) the representative parties will fairly
and adequately protect the interests of the class [adequacy].”
Fed. R. Civ. P. 23(a). If all four requirements of Rule 23(a) are
met, a class of one of three types (each with additional
requirements) may be certified. See Fed. R. Civ. P.
23(b)(1)–(3). (Rule 23 received stylistic revisions effective
December 1, 2007. Fed. R. Civ. P. 23 advisory committee’s
note, 2007 Amendment. We quote the restyled version; its
changes are immaterial to this appeal.)
12
to settle nonmeritorious claims on the part of
defendants) . . . .
Newton, 259 F.3d at 162; see id. at 167 (“Irrespective of the
merits, certification decisions may have a decisive effect on
litigation.”); see also Coopers & Lybrand v. Livesay, 437 U.S.
463, 476 (1978). In some cases, class certification “may force
a defendant to settle rather than incur the costs of defending a
class action and run the risk of potentially ruinous liability.”
Fed. R. Civ. P. 23 advisory committee’s note, 1998
Amendments. Accordingly, the potential for unwarranted
settlement pressure “is a factor we weigh in our certification
calculus.” Newton, 259 F.3d at 168 n.8. The Supreme Court
recently cautioned that certain antitrust class actions may present
prime opportunities for plaintiffs to exert pressure upon
defendants to settle weak claims. See Bell Atl. Corp. v.
Twombly, 127 S. Ct. 1955, 1967 (2007).
III.
Here, the District Court found the Rule 23(a)
requirements were met, a determination defendants do not now
challenge. Plaintiffs sought certification under Rule 23(b)(3),
which is permissible when the court “finds that the questions of
law or fact common to class members predominate over any
questions affecting only individual members, and that a class
action is superior to other available methods for fairly and
13
efficiently adjudicating the controversy.” 7 Fed. R. Civ. P.
23(b)(3). The twin requirements of Rule 23(b)(3) are known as
predominance and superiority.
Only the predominance requirement is disputed in this
appeal. Predominance “tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation,”
Amchem, 521 U.S. at 623, a standard “far more demanding”
than the commonality requirement of Rule 23(a), id. at 623–24,
“requiring more than a common claim,” Newton, 259 F.3d at
187. “Issues common to the class must predominate over
individual issues . . . .” In re The Prudential Ins. Co. of Am.
7
See Fed. R. Civ. P. 23(b)(3) advisory committee’s note,
1966 Amendment (“The court is required to find, as a condition
of holding that a class action may be maintained under this
subdivision, that the questions common to the class predominate
over the questions affecting individual members. It is only
where this predominance exists that economies can be achieved
by means of the class-action device.”).
Rule 23(b)(3) identifies some “matters pertinent to these
findings”: “(A) the class members’ interests in individually
controlling the prosecution or defense of separate actions; (B)
the extent and nature of any litigation concerning the
controversy already begun by or against class members; (C) the
desirability or undesirability of concentrating the litigation of the
claims in the particular forum; and (D) the likely difficulties in
managing a class action.” Fed. R. Civ. P. 23(b)(3)(A)–(D).
14
Sales Practices Litig., 148 F.3d 283, 313–14 (3d Cir. 1998).
Because the “nature of the evidence that will suffice to resolve
a question determines whether the question is common or
individual,” Blades v. Monsanto Co., 400 F.3d 562, 566 (8th
Cir. 2005), “‘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,’” In re New Motor Vehicles Can. Exp. Antitrust Litig., 522
F.3d 6, 20 (1st Cir. 2008) [hereinafter New Motor Vehicles]
(quoting Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288,
298 (1st Cir. 2000)).8 “If proof of the essential elements of the
cause of action requires individual treatment, then class
certification is unsuitable.” Newton, 259 F.3d at 172.
Accordingly, we examine the elements of plaintiffs’ claim
“through the prism” of Rule 23 to determine whether the District
Court properly certified the class. Id. at 181.
A.
The elements of plaintiffs’ claim are (1) a violation of the
antitrust laws—here, § 1 of the Sherman Act, (2) individual
injury resulting from that violation, and (3) measurable
damages. 15 U.S.C. § 15; Am. Bearing Co. v. Litton Indus., Inc.,
729 F.2d 943, 948 (3d Cir. 1984); Blades, 400 F.3d at 566.
8
See Sandwich Chef, Inc. v. Reliance Nat’l Indem. Ins. Co.,
319 F.3d 205, 218 (5th Cir. 2003) (Rule 23(b)(3) requires the
court to “consider how a trial on the merits would be conducted
if a class were certified”).
15
Importantly, individual injury (also known as antitrust impact)
is an element of the cause of action; to prevail on the merits,
every class member must prove at least some antitrust impact
resulting from the alleged violation. Bogosian v. Gulf Oil Corp.,
561 F.2d 434, 454 (3d Cir. 1977); see Newton, 259 F.3d at 188
(In antitrust and securities fraud class actions, “[p]roof of injury
(whether or not an injury occurred at all) must be distinguished
from calculation of damages (which determines the actual value
of the injury)”).
In antitrust cases, impact often is critically important for
the purpose of evaluating Rule 23(b)(3)’s predominance
requirement because it is an element of the claim that may call
for individual, as opposed to common, proof. See New Motor
Vehicles, 522 F.3d at 20 (“In antitrust class actions, common
issues do not predominate if the fact of antitrust violation and
the fact of antitrust impact cannot be established through
common proof.”); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294,
302 (5th Cir. 2003) (“[W]here fact of damage cannot be
established for every class member through proof common to
the class, the need to establish antitrust liability for individual
class members defeats Rule 23(b)(3) predominance.”); see also
Blades, 400 F.3d at 572 (“[P]roof of conspiracy is not proof of
common injury.”).
Plaintiffs’ burden at the class certification stage is not to
prove the element of antitrust impact, although in order to
prevail on the merits each class member must do so. Instead, the
task for plaintiffs at class certification is to demonstrate that the
16
element of antitrust impact is capable of proof at trial through
evidence that is common to the class rather than individual to its
members. Deciding this issue calls for the district court’s
rigorous assessment of the available evidence and the method or
methods by which plaintiffs propose to use the evidence to
prove impact at trial. See Fed. R. Civ. P. 23 advisory
committee’s note, 2003 Amendments (“A critical need is to
determine how the case will be tried.”); see, e.g., In re
Linerboard Antitrust Litig., 305 F.3d 145, 155 (3d Cir. 2002)
(“reject[ing] the contention that plaintiffs did not demonstrate
that sufficient proof was available, for use at trial, to prove
antitrust impact common to all the members of the class”).
Here, the District Court found the predominance
requirement was met because plaintiffs would be able to use
common, as opposed to individualized, evidence to prove
antitrust impact at trial. On appeal, defendants contend the
District Court erred in three principal respects in finding
plaintiffs satisfied the predominance requirement: (1) by
applying too lenient a standard of proof for class certification,
(2) by failing meaningfully to consider the views of defendants’
expert while crediting plaintiffs’ expert, and (3) by erroneously
applying presumption of antitrust impact under Bogosian, 561
F.2d at 454–55.
We review a class certification order for abuse of
discretion, which occurs if the district court’s decision “rests
upon a clearly erroneous finding of fact, an errant conclusion of
law or an improper application of law to fact.” Newton, 259
17
F.3d at 165. “[W]hether an incorrect legal standard has been
used is an issue of law to be reviewed de novo.” In re Initial
Pub. Offerings Sec. Litig., 471 F.3d 24, 32 (2d Cir. 2006)
[hereinafter IPO] (citation omitted).9
B.
We summarize briefly the evidence and arguments
offered to the District Court. As noted, both plaintiffs and
defendants presented the opinions of expert economists.
Importantly, the experts disagreed on the key disputed
predominance issue—whether antitrust impact was capable of
proof at trial through evidence common to the class, as opposed
to individualized evidence.
Plaintiffs’ expert, John C. Beyer, Ph.D., offered an
opinion purporting to show that “there is common proof that can
9
See Koon v. United States, 518 U.S. 81, 100 (1996) (“A
district court by definition abuses its discretion when it makes
an error of law.”); Regents of Univ. of Cal. v. Credit Suisse First
Boston (USA), Inc., 482 F.3d 372, 380 (5th Cir. 2007)
(“Whether the district court applied the correct legal standard in
reaching its decision on class certification . . . is a legal question
that we review de novo.” (quoting Allison v. Citgo Petroleum
Corp., 151 F.3d 402, 408 (5th Cir. 1998)) (quotation marks
omitted); Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d Cir.
2000) (“Because we are evaluating the District Court’s legal
interpretation of a federal rule, our review is plenary.”).
18
be used to demonstrate that the alleged conspiracy to raise
prices, restrict output and allocate customers would have
impacted all purchasers of hydrogen peroxide, sodium
perborate, and sodium percarbonate.” Beyer’s “market analysis”
suggested that conditions in the hydrogen peroxide industry
favored a conspiracy that would have impacted the entire class.
First, hydrogen peroxide and persalts are fungible,
undifferentiated commodity products, which means producers
compete on price, not quality or other features. Second,
production is heavily concentrated in a small group of
manufacturers.10 Third, there are high barriers to entry in the
industry and no close economic substitutes, preventing any
competitors from entering the market and undercutting prices.
Fourth, defendants’ geographic markets overlapped, so that
purchasers would have benefitted from price competition if not
for the alleged conspiracy.
Beyer also observed a “pricing structure” in the hydrogen
peroxide industry which, he contended, showed prices across
producers, grades and concentrations of hydrogen peroxide, and
10
As defendants note, however, DuPont—not a named
defendant—was a major producer of hydrogen peroxide (with
about 25 percent market share) during the beginning of the class
period until it left the market in 1999.
19
end uses moved similarly over time. 11 This, according to Beyer,
suggested a conspiracy would have impacted all class members:
My analysis of the similarity in price movements
over time indicates that hydrogen peroxide prices
charged by different manufacturers are affected
by the same market forces of supply and demand
. . . . These similarities in movement are
sometimes referred to as “pricing structure” or
“structure to prices.” This analysis confirms that
prices would have behaved similarly, in a
consistent and generalized manner[,] to a
conspiracy to fix prices at artificially high levels
[and] to restrict output or to allocate customers.
Beyer also pointed to coordinated increases in list prices by
defendants as evidence of common impact.
Beyer identified two “potential approaches” to estimating
damages on a class-wide basis: (1) benchmark analysis, which
would compare actual prices during the alleged conspiracy with
prices that existed before the class period; and (2) regression
analysis, through which it “may be possible . . . to estimate the
relationship between price of hydrogen peroxide, sodium
perborate, and sodium percarbonate and the various market
forces that influence prices, including demand and supply
11
Beyer also contended sodium perborate sales exhibited a
pricing structure over the “long-term trend.”
20
variables.” These methods, according to Beyer, could be used
to estimate the prices plaintiffs would have faced but for the
conspiracy. Beyer stated that “sufficient reliable data” exist to
allow him to employ one or both of the potential approaches.
Defendants offered the opinion of their own expert
economist, Janusz A. Ordover, Ph.D., to “provide an
independent expert assessment of whether certification of the
proposed class of Plaintiffs is appropriate in this matter.”
Specifically, Ordover set out to address “whether, assuming a
conspiracy of the kind described in the Complaint, the Plaintiffs
will be able to show, through common proof, that all or virtually
all of the members of the proposed class suffered economic
injury caused by the alleged conspiracy.” Ordover also
“opine[d] on whether a formulaic approach exists by which
impact could be demonstrated and damages to the class could be
reasonably calculated.” Ordover responded to and disputed
many of Beyer’s opinions.
First, Ordover disputed Beyer’s finding that hydrogen
peroxide and persalts are fungible, contending that the “various
grades of hydrogen peroxide . . . [and persalts] have different
supply characteristics and face different demand conditions.
The existence of supply and demand characteristics that are
specific to the various grades and uses requires individualized
assessment of the impact of the alleged conspiracy at least
across these different grades and uses. Consequently, a finding
of class-wide impact from the alleged conspiracy cannot be
inferred from the mere fact of the conspiracy and from common
21
evidence.” Second, Ordover alleged that, over the eleven-year
proposed class period, “the industry experienced prolonged
periods of increasing capacity, increasing production, and an
overall trend of declining real and nominal prices in the face of
stable or increasing costs.” Ordover disputed Beyer’s pricing
structure analysis, contending “there is no tendency for prices
charged to individual customers to move together, which
indicates that the alleged conspiracy cannot be shown to have
had class-wide impact,” necessitating individualized inquiries to
determine whether a customer incurred impact.
Ordover also found some of defendants’ price-increase
announcements were ineffective—actual prices did not follow
the purported announcements—suggesting list prices could not
be used to measure antitrust impact on a basis common to the
class. Ordover observed that a number of contracts for the sale
of hydrogen peroxide were individually negotiated, with a
variety of contract terms. And deposition testimony from named
plaintiffs indicated list prices were sometimes disregarded.
Ordover opined that the statistical methods by which Beyer
proposed to demonstrate common impact and damages were not
feasible. Given the record of prices and output in the industry
and the apparent influence of individualized factors on pricing,
“class-wide assessment of impact based on aggregate price
information [was] impossible,” and any formulaic approach to
determine a set of “but-for prices” would have to incorporate a
multitude of different “variables,” defeating any reasonable
notion of proof common to the class.
22
Significantly, Ordover presented empirical analysis of the
data on individual sales transactions and found that different
customers purchasing the two most common grades and three
most common concentrations from the same hydrogen peroxide
producer in a given year were as likely to experience a decline
in actual prices over the year as an increase, while other
similarly situated customers experienced no change in price.
Defendants contend this disparity goes to the core of the
predominance issue—plaintiffs and their expert, Beyer, failed to
“explain . . . how or which common proof could be used to
determine that the alleged conspiracy impacted customers whose
prices declined, as well as customers whose prices increased or
stayed the same, over the same time period.” 12 Br. of Appellant
at 5. Beyer, according to defendants, only “promised” to come
up with a method to overcome this obstacle, without showing or
even suggesting how it might be done. Defendants contend the
market analysis is “generic” and note it would apply equally to
a large number of industries. With respect to the pricing
structure analysis, they contend Beyer’s use of average prices,
rather than those of individual transactions, to show pricing
structure, was erroneous because it glossed over differences in
actual prices. The theme of defendants’ argument is that the
12
See ABA Section of Antitrust Law, Econometrics 210
(2005) (“Generally, when the prices for some customers are
going up while the prices of other customers are not, there is
reason to doubt that the different customers (class members) are
experiencing a common impact.”).
23
data, which Ordover analyzed, rebut Beyer’s “theory” that
common proof was feasible. Beyer’s and Ordover’s analyses
are irreconcilable.
In addition to presenting Ordover’s testimony, defendants
moved to exclude Beyer’s testimony as unreliable, citing
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993).13 The District Court denied the Daubert motion in its
memorandum and order certifying the class.
C.
The District Court concluded the predominance
requirement was met. It held that “[e]ither [Beyer’s] market
13
Before the District Court, both parties agreed Fed. R. Evid.
702 and Daubert should be applied to assess whether Beyer’s
testimony should be admitted for consideration. On appeal,
neither party argues otherwise, and defendants do not now
challenge the District Court’s denial of the Daubert motion.
(The District Court stated that “because the evidence is here
offered for the limited purpose of class certification, our inquiry
is perhaps less exacting than it might be for evidence to be
presented at trial.”) As we explain, however, a district court’s
conclusion that an expert’s opinion is admissible does not
necessarily dispose of the ultimate question—whether the
district court is satisfied, by all the evidence and arguments
including all relevant expert opinion, that the requirements of
Rule 23 have been met.
24
analysis or the pricing structure analysis would likely be
independently sufficient at this stage. Plaintiffs and Dr. Beyer
have provided us with both. Despite defendants’ claims to the
contrary, we should require no more of plaintiffs in a motion for
class certification.” Because hydrogen peroxide is fungible, the
court found, “purchasing decisions [are] made primarily on the
basis of price rather than quality or specific properties,” and
“price is by far the most significant means of competition among
producers and an agreement to control prices will seriously
hinder competition.” The court rejected defendants’ objection
that different grades and concentrations of hydrogen peroxide
called into question its fungibility. The prices of the grades and
concentrations were related to each other, so in the view of the
court, the differences would not preclude common proof of
antitrust impact. Defendants’ high combined market share
meant that “no competitor who was not a member of the
conspiracy would be able to take up the slack and keep prices
stable.” The high barriers to entry and lack of economic
substitutes implied “a conspiracy such as the one alleged here
[could] continue indefinitely with limited risk that a new
competitor would enter the market and undercut the agreed-
upon prices.” Also, the court accepted Beyer’s opinion that
“prices in the hydrogen peroxide industry moved similarly over
time and the industry exhibited structure in pricing.” The court
added that it believed “plaintiffs would be able to show antitrust
impact on all purchasers merely by showing that defendants kept
list prices that were artificially high because of their
conspiracy.”
25
The District Court held that it was sufficient that Beyer
proposed reliable methods for proving impact and damages; it
did not matter that Beyer had not completed any benchmark or
regression analyses, and the court would not require plaintiffs to
show at the certification stage that either method would work.
IV.
A.
Defendants contend the District Court applied too lenient
a standard of proof with respect to the Rule 23 requirements by
(1) accepting only a “threshold showing” by plaintiffs rather
than making its own determination, (2) requiring only that
plaintiffs demonstrate their “intention” to prove impact on a
class-wide basis, and (3) singling out antitrust actions as
appropriate for class treatment even when compliance with Rule
23 is “in doubt.”
Although it is clear that the party seeking certification
must convince the district court that the requirements of Rule 23
are met, little guidance is available on the subject of the proper
standard of “proof” for class certification.14 The Supreme Court
has described the inquiry as a “rigorous analysis,” Falcon, 457
U.S. at 161, and a “close look,” Amchem, 521 U.S. at 615, but
14
The burden of proof rests on the movant. See Unger v.
Amedisys Inc., 401 F.3d 316, 320 (5th Cir. 2005) (“The party
seeking certification bears the burden of establishing that all
requirements of Rule 23 have been satisfied.”).
26
it has elaborated no further.
1.
The following principles guide a district court’s class
certification analysis. First, the requirements set out in Rule 23
are not mere pleading rules. Szabo, 249 F.3d at 675–77. The
court may “‘delve beyond the pleadings to determine whether
the requirements for class certification are satisfied.’” Newton,
259 F.3d at 167 (quoting 5 James Wm. Moore et al., Moore’s
Federal Practice § 23.61[5]); see Beck, 457 F.3d at 297 (same);
see also Johnston v. HBO Film Mgmt., Inc., 265 F.3d 178, 189
(3d Cir. 2001) (district court properly “examine[d] the factual
record underlying plaintiffs’ allegations in making its
certification decision”).15
15
See 5 James Wm. Moore et al., Moore’s Federal Practice
§ 23.61[1] (3d ed. 2008) (“Pleading requirements are distinct
from the requirements for certifying a case as a class action. A
court may not and should not certify a class action without a
rigorous examination of the facts to determine if the certification
requirements of Rule 23(a) and (b) have been met.” (citation
omitted)); Szabo, 249 F.3d at 675 (“The proposition that a
district judge must accept all of the complaint’s allegations
when deciding whether to certify a class cannot be found in Rule
23 and has nothing to recommend it.”); see also Unger, 401
F.3d at 321) (“The plain text of Rule 23 requires the court to
‘find,’ not merely assume, the facts favoring class certification.”
(quoting Fed. R. Civ. P. 23(b)(3))); Gariety v. Grant Thornton,
27
LLP, 368 F.3d 356, 365 (4th Cir. 2004) (“If it were appropriate
for a court simply to accept the allegations of a complaint at face
value in making class action findings, every complaint asserting
the requirements of Rule 23(a) and (b) would automatically lead
to a certification order, frustrating the district court’s
responsibilities for taking a ‘close look’ at relevant matters, for
conducting a ‘rigorous analysis’ of such matters, and for making
‘findings’ that the requirements of Rule 23 have been satisfied.”
(citations omitted)); Tardiff v. Knox County, 365 F.3d 1, 4–5
(1st Cir. 2004) (“It is sometimes taken for granted that the
complaint’s allegations are necessarily controlling; but class
action machinery is expensive and in our view a court has the
power to test disputed premises early on if and when the class
action would be proper on one premise but not another.”). In
Szabo, the Court of Appeals for the Seventh Circuit offered this
persuasive explanation:
The reason why judges accept a complaint’s
factual allegations when ruling on motions to
dismiss under Rule 12(b)(6) is that a motion to
dismiss tests the legal sufficiency of a pleading.
Its factual sufficiency will be tested later—by a
motion for summary judgment under Rule 56, and
if necessary by trial. By contrast, an order
certifying a class usually is the district judge’s last
word on the subject; there is no later test of the
decision’s factual premises (and, if the case is
28
An overlap between a class certification requirement and
the merits of a claim is no reason to decline to resolve relevant
disputes when necessary to determine whether a class
certification requirement is met. Some uncertainty ensued when
the Supreme Court declared in Eisen v. Carlisle & Jacquelin,
417 U.S. 156, 177 (1974), that there is “nothing in either the
language or history of Rule 23 that gives a court any authority
to conduct a preliminary inquiry into the merits of a suit in order
to determine whether it may be maintained as a class action.”
Only a few years later, in addressing whether a party may bring
an interlocutory appeal when a district court denies class
certification,16 the Supreme Court pointed out that “the class
determination generally involves considerations that are
‘enmeshed in the factual and legal issues comprising the
plaintiff’s cause of action.’” Livesay, 437 U.S. at 469 (quoting
Mercantile Nat’l Bank v. Langdeau, 371 U.S. 555, 558 (1963)).
As we explained in Newton, 259 F.3d at 166–69, Eisen is best
understood to preclude only a merits inquiry that is not
necessary to determine a Rule 23 requirement. Other courts of
settled, there could not be such an examination
even if the district judge viewed the certification
as provisional).
249 F.3d at 675–76.
16
This case pre-dated Fed. R. Civ. P. 23(f), which provides
for interlocutory appeals from class certification orders.
29
appeals have agreed.17 Because the decision whether
17
See, e.g., New Motor Vehicles, 522 F.3d at 24 (“It is a
settled question that some inquiry into the merits at the class
certification stage is not only permissible but appropriate to the
extent that the merits overlap the Rule 23 criteria.”); Oscar
Private Equity Invs. v. Allegiance Telecom, Inc., 487 F.3d 261,
268 (5th Cir. 2007) (“Eisen did not drain Rule 23 of all rigor.
A district court still must give full and independent weight to
each Rule 23 requirement, regardless of whether that
requirement overlaps with the merits.”); Regents of Univ. of
Cal., 482 F.3d at 380 (“[W]e may address arguments that
implicate the merits of plaintiffs’ cause of action insofar as those
arguments also implicate the merits of the class certification
decision.”); IPO, 471 F.3d at 41 (“With Eisen properly
understood to preclude consideration of the merits only when a
merits issue is unrelated to a Rule 23 requirement, there is no
reason to lessen a district court’s obligation to make a
determination that every Rule 23 requirement is met before
certifying a class just because of some or even full overlap of
that requirement with a merits issue.”); Gariety, 368 F.3d at 366
(“[W]hile an evaluation of the merits to determine the strength
of plaintiffs’ case is not part of a Rule 23 analysis, the factors
spelled out in Rule 23 must be addressed through findings, even
if they overlap with issues on the merits.”); Szabo, 249 F.3d at
677 (“[N]othing in the 1966 amendments to Rule 23, or the
opinion in Eisen, prevents the district court from looking
beneath the surface of a complaint to conduct the inquiries
30
identified in that rule and exercise the discretion it confers.”);
see also 7AA Charles Alan Wright, Arthur R. Miller & Mary
Kay Kane, Federal Practice and Procedure § 1785 (3d ed.
2005), at 379; Geoffrey P. Miller, Review of the Merits in Class
Action Certification, 33 Hofstra L. Rev. 51, 63 (2004) (“It
would be bizarre to conclude that the framers of Rule 23 would
have set forth a careful set of prerequisites for class certification
only to deny trial courts the ability to apply those prerequisites
in a factually-based and reasoned manner.”); New Motor
Vehicles, 522 F.3d at 17 (“It would be contrary to the ‘rigorous
analysis of the prerequisites established by Rule 23 before
certifying a class’ to put blinders on as to an issue simply
because it implicates the merits of the case.” (quoting Smilow v.
Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 38 (1st Cir. 2003))).
When a district court properly considers an issue overlapping
the merits in the course of determining whether a Rule 23
requirement is met, it does not do so in order to predict which
party will prevail on the merits. Rather, the court “determine[s]
whether the alleged claims can be properly resolved as a class
action.” Newton, 259 F.3d at 168; see IPO, 471 F.3d at 39 n.10.
A concern for merits-avoidance “should not be talismanically
invoked to artificially limit a trial court’s examination of the
factors necessary to a reasoned determination of whether a
plaintiff has met her burden of establishing each of the Rule 23
class action requirements.” Castano v. Am. Tobacco Co., 84
F.3d 734, 744 n.17 (5th Cir. 1996) (quoting Love v. Turlington,
31
to certify a class “requires a thorough examination of the factual
and legal allegations,” id. at 166, the court’s rigorous analysis
may include a “preliminary inquiry into the merits,” id. at 168,
and the court may “consider the substantive elements of the
plaintiffs’ case in order to envision the form that a trial on those
issues would take,” id. at 166 (quoting 5 Moore’s Federal
Practice § 23.46[4]) (quotation marks omitted). See id. at 168
(“In reviewing a motion for class certification, a preliminary
inquiry into the merits is sometimes necessary to determine
whether the alleged claims can be properly resolved as a class
action.”).18 A contested requirement is not forfeited in favor of
the party seeking certification merely because it is similar or
even identical to one normally decided by a trier of fact.
733 F.2d 1562, 1564 (11th Cir. 1984)) (quotation marks
omitted).
18
Chiang v. Veneman, 385 F.3d 256, 262 (3d Cir. 2004),
decided after Newton and Johnston, cited Eisen for the
proposition that “in determining whether a class will be
certified, the substantive allegations of the complaint must be
taken as true.” No supporting analysis of Rule 23 jurisprudence
accompanied this statement, which contradicts and conflicts
with Newton, Johnston, and Szabo (which we relied upon in
Newton). “To the extent that the decision of a later panel
conflicts with existing circuit precedent, we are bound by the
earlier, not the later, decision.” United States v. Monaco, 23
F.3d 793, 803 (3d Cir. 1994).
32
Although the district court’s findings for the purpose of class
certification are conclusive on that topic, they do not bind the
fact-finder on the merits.19
The evidence and arguments a district court considers in
the class certification decision call for rigorous analysis. A
party’s assurance to the court that it intends or plans to meet the
requirements is insufficient. See id. at 191 (“[W]here the court
finds, on the basis of substantial evidence as here, that there are
serious problems now appearing, it should not certify the class
merely on the assurance of counsel that some solution will be
found.” (quoting Windham v. Am. Brands, Inc., 565 F.2d 59, 70
(4th Cir. 1977)) (quotation marks omitted); Wachtel v. Guardian
Life Ins. Co., 453 F.3d 179, 184, 186 (3d Cir. 2006) (the
requirement that a district court include in its class certification
order “a clear and complete summary of those claims, issues, or
19
“[T]he determination as to a Rule 23 requirement is made
only for purposes of class certification and is not binding on the
trier of facts, even if that trier is the class certification judge.”
IPO, 471 F.3d at 41 (citing Gariety, 368 F.3d at 366); see id. at
39 (“A trial judge’s finding on a merits issue for purposes of a
Rule 23 requirement no more binds the court to rule for the
plaintiff on the ultimate merits of that issue than does a finding
that the plaintiff has shown a probability of success for purposes
of a preliminary injunction.”); Unger, 401 F.3d at 323 (“[T]he
court’s determination for class certification purposes may be
revised (or wholly rejected) by the ultimate factfinder . . . .”).
33
defenses subject to class treatment” provides for the “full and
clear articulation of the litigation’s contours at the time of class
certification”).
Support for our analysis is drawn from amendments to
Rule 23 that took effect in 2003. First, amended Rule
23(c)(1)(A) altered the timing requirement for the class
certification decision. The amended rule calls for a decision on
class certification “[a]t an early practicable time after a person
sues or is sued as a class representative,” while the prior version
had required that decision be made “as soon as practicable after
commencement of an action.” We recognized in Weiss v. Regal
Collections, 385 F.3d 337, 347 (3d Cir. 2004), that this change
in language, though subtle, reflects the need for a thorough
evaluation of the Rule 23 factors—for this reason the rule does
not “require or encourage premature certification
determinations.” We explained:
Fed. R. Civ. P. 23 directs that certification
decisions be made “at an early practicable time.”
Fed. R. Civ. P. 23(c)(1)(a). This recent
amendment replaced the language of the old rule:
The former “‘as soon as practicable’ exaction
neither reflect[ed] prevailing practice nor
capture[ed] the many valid reasons that may
justify deferring the initial certification decision.”
See Fed. R. Civ. P. 23(c)(1)(a) Advisory
Committee Notes. . . .
Allowing time for limited discovery
34
supporting certification motions may . . . be
necessary for sound judicial administration. See
[Newton, 259 F.3d at 166] (“[I]t may be necessary
for the Court to probe behind the pleadings before
coming to rest on the certification question.”)
(quoting [Falcon, 457 U.S. at 160]) . . . .
Id. at 347–48 n.17; see Gariety, 368 F.3d at 365 (noting the
change).20 Relatedly, in introducing the concept of a “trial
20
The Advisory Committee’s note explains:
Time may be needed to gather information
necessary to make the certification decision.
Although an evaluation of the probable outcome
on the merits is not properly part of the
certification decision, discovery in aid of the
certification decision often includes information
required to identify the nature of the issues that
actually will be presented at trial. In this sense it
is appropriate to conduct controlled discovery into
the “merits,” limited to those aspects relevant to
making the certification decision on an informed
basis. Active judicial supervision may be
required to achieve the most effective balance that
expedites an informed certification determination
without forcing an artificial and ultimately
wasteful division between “certification
discovery” and “merits discovery.”
35
plan,” the Advisory Committee’s 2003 note focuses attention on
a rigorous evaluation of the likely shape of a trial on the issues:
Fed. R. Civ. P. 23 advisory committee’s note, 2003
Amendments.
As the Standing Committee on Rules of Practice and
Procedure explained in its report proposing this amendment, the
new language
authorizes the more flexible approach many
courts take to class-action litigation, recognizing
the important consequences to the parties of the
court’s decision on certification. The current
rule’s emphasis on dispatch in making the
certification decision has, in some circumstances,
led courts to believe that they are overly
constrained in the period before certification. A
certain amount of discovery may be appropriate
during this period to illuminate issues bearing on
certification, including the nature of the issues
that will be tried; whether the evidence on the
merits is common to the members of the proposed
class; whether the issues are susceptible to
class-wide proof; and what trial-management
problems the case will present.
Report of the Judicial Conference Committee on Rules of
Practice and Procedure to the Chief Justice of the United States
and Members of the Judicial Conference of the United States 10
(2002) [hereinafter Committee Report].
36
A critical need is to determine how the case will
be tried. An increasing number of courts require
a party requesting class certification to present a
“trial plan” that describes the issues likely to be
presented at trial and tests whether they are
susceptible of class-wide proof.
Fed. R. Civ. P. 23 advisory committee’s note, 2003
Amendments.
Additionally, the 2003 amendments eliminated the
language that had appeared in Rule 23(c)(1) providing that a
class certification “may be conditional.” 21 The Advisory
Committee’s note explains: “A court that is not satisfied that the
requirements of Rule 23 have been met should refuse
certification until they have been met.” The Standing
Committee on Rules of Practice and Procedure advised:
The provision for conditional class certification is
deleted to avoid the unintended suggestion, which
some courts have adopted, that class certification
may be granted on a tentative basis, even if it is
unclear that the rule requirements are satisfied.
Committee Report, supra, at 12; see 5 Moore’s Federal Practice
21
Although the language allowing for “conditional”
certification has been removed, Fed. R. Civ. P. 23(c)(1)(C)
provides that “[a]n order that grants or denies class certification
may be altered or amended before final judgment.”
37
§ 23.80[2] (“The 2003 amendment clarifies that courts should
not grant certification except after searching inquiry, and that
courts should not rely on later developments to determine
whether certification is appropriate.”).
While these amendments do not alter the substantive
standards for class certification, they guide the trial court in its
proper task—to consider carefully all relevant evidence and
make a definitive determination that the requirements of Rule 23
have been met before certifying a class. See IPO, 471 F.3d at 39
(2003 amendments “arguably combine to permit a more
extensive inquiry into whether Rule 23 requirements are met
than was previously appropriate”); Oscar, 487 F.3d at 267
(noting that these “subtle changes” reflect that “a district court’s
certification order often bestows upon plaintiffs extraordinary
leverage, and its bite should dictate the process that precedes
it”).
To summarize: because each requirement of Rule 23
must be met, a district court errs as a matter of law when it fails
to resolve a genuine legal or factual dispute relevant to
determining the requirements.
2.
Class certification requires a finding that each of the
requirements of Rule 23 has been met.22 See Unger, 401 F.3d
22
As the Court of Appeals for the First Circuit has explained,
[Some] circuits’ use of the term ‘findings’ in this
38
at 321 (“The plain text of Rule 23 requires the court to ‘find,’
not merely assume, the facts favoring class certification.”);
Gariety, 368 F.3d at 365 (Rule 23(b)(3) requires the court to
find predominance). Factual determinations necessary to make
Rule 23 findings must be made by a preponderance of the
evidence. In other words, to certify a class the district court
must find that the evidence more likely than not establishes each
fact necessary to meet the requirements of Rule 23. See
Teamsters Local 445 Freight Div. Pension Fund v. Bombardier
Inc., 546 F.3d 196, 202 (2d Cir. 2008).
In reviewing a district court’s judgment on class
certification, we apply the abuse of discretion standard. A
district court abuses its discretion in deciding whether to certify
a class action if its “decision rests upon a clearly erroneous
finding of fact, an errant conclusion of law or an improper
application of law to fact.” In re Gen. Motors Corp. Pick-Up
Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 783 (3d Cir.
1995) (citation and quotation marks omitted); see Newton, 259
F.3d at 165. Under these Rule 23 standards, a district court
context should not be confused with binding
findings on the merits. The judge’s consideration
of merits issues at the class certification stage
pertains only to that stage; the ultimate factfinder,
whether judge or jury, must still reach its own
determination on these issues.
New Motor Vehicles, 522 F.3d at 24.
39
exercising proper discretion in deciding whether to certify a
class will resolve factual disputes by a preponderance of the
evidence and make findings that each Rule 23 requirement is
met or is not met, having considered all relevant evidence and
arguments presented by the parties. The abuse of discretion
standard requires the judge to exercise sound discretion—failing
that, the judge’s decision is not entitled to the deference
attendant to discretionary rulings.
If a class is certified, “the text of the order or an
incorporated opinion must include (1) a readily discernible,
clear, and precise statement of the parameters defining the class
or classes to be certified, and (2) a readily discernible, clear, and
complete list of the claims, issues or defenses to be treated on a
class basis.” Wachtel, 453 F.3d at 187; see Fed. R. Civ. P.
23(c)(1)(B).
B.
Although the District Court properly described the class
certification decision as requiring “rigorous analysis,” some
statements in its opinion depart from the standards we have
articulated. The District Court stated, “So long as plaintiffs
demonstrate their intention to prove a significant portion of their
case through factual evidence and legal arguments common to
all class members, that will now suffice. It will not do here to
make judgments about whether plaintiffs have adduced enough
evidence or whether their evidence is more or less credible than
defendants’.” With respect to predominance, the District Court
40
stated that “[p]laintiffs need only make a threshold showing that
the element of impact will predominantly involve generalized
issues of proof, rather than questions which are particular to
each member of the plaintiff class.” (quoting Lumco Indus., Inc.
v. Jeld-Wen, Inc., 171 F.R.D. 168, 174 (E.D. Pa. 1997)). As we
have explained, proper analysis under Rule 23 requires rigorous
consideration of all the evidence and arguments offered by the
parties. It is incorrect to state that a plaintiff need only
demonstrate an “intention” to try the case in a manner that
satisfies the predominance requirement. Similarly, invoking the
phrase “threshold showing” risks misapplying Rule 23. A
“threshold showing” could signify, incorrectly, that the burden
on the party seeking certification is a lenient one (such as a
prima facie showing or a burden of production) or that the party
seeking certification receives deference or a presumption in its
favor. So defined, “threshold showing” is an inadequate and
improper standard. “[T]he requirements of Rule 23 must be
met, not just supported by some evidence.” IPO, 471 F.3d at 33;
see e.g., id. at 40, 42 (rejecting the view that a party seeking
certification need only make “some showing” with respect to the
Rule 23 requirements).
Citing Cumberland Farms, Inc. v. Browning-Ferris
Industries, 120 F.R.D. 642, 645 (E.D. Pa. 1988), the District
Court reasoned, “[i]t is well recognized that private enforcement
of [antitrust] laws is a necessary supplement to government
action. With that in mind, in an alleged horizontal price-fixing
conspiracy case when a court is in doubt as to whether or not to
41
certify a class action, the court should err in favor of allowing
the class.” See also Eisenberg v. Gagnon, 766 F.2d 770, 785
(3d Cir. 1985) (citing Kahan v. Rosenstiel, 424 F.2d 161, 169
(3d Cir. 1970)) (advising that in a “doubtful” case when
presented with a putative securities class action, court should
err, if at all, in favor of certification). These statements invite
error. Although the trial court has discretion to grant or deny
class certification, the court should not suppress “doubt” as to
whether a Rule 23 requirement is met—no matter the area of
substantive law. Accordingly, Eisenberg should not be
understood to encourage certification in the face of doubt as to
whether a Rule 23 requirement has been met. Eisenberg pre-
dates the recent amendments to Rule 23 which, as noted, reject
tentative decisions on certification and encourage development
of a record sufficient for informed analysis. See Fed. R. Civ. P.
23 advisory committee’s note, 2003 Amendments (“A court that
is not satisfied that the requirements of Rule 23 have been met
should refuse certification until they have been met.”). We
recognize the Supreme Court has observed that “[p]redominance
is a test readily met in certain cases alleging consumer or
securities fraud or violations of the antitrust laws.” Amchem,
521 U.S. at 625. But it does not follow that a court should relax
its certification analysis, or presume a requirement for
certification is met, merely because a plaintiff’s claims fall
within one of those substantive categories. See Fed. R. Civ. P.
23(b)(3) advisory committee’s note, 1966 Amendment (“Private
damage claims by numerous individuals arising out of concerted
antitrust violations may or may not involve predominating
42
common questions.”); Robinson v. Tex. Auto. Dealers Ass’n,
387 F.3d 416, 420–21 (5th Cir. 2004) (“There are no hard and
fast rules . . . regarding the suitability of a particular type of
antitrust case for class action treatment. Rather, the unique facts
of each case will generally be the determining factor governing
certification.” (citations and quotation marks omitted)).
“[A]ctual, not presumed, conformance” with the Rule 23
requirements remains necessary. Newton, 259 F.3d at 167
(quoting Falcon, 457 U.S. at 160); see, e.g., E. Tex. Motor
Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 405 (1977)
(although a putative class may bring a type of claim that
“typically” involves common questions of law or fact, “careful
attention to the requirements of [Rule 23] remains . . .
indispensable”).
To the extent that the District Court’s analysis reflects
application of incorrect standards, remand is appropriate. We
recognize that the able District Court did not have the benefit of
the standards we have articulated. Faced with complex, fact-
intensive disputes, trial courts have expended considerable effort
to interpret and apply faithfully the requirements of Rule 23.
One important reason for granting interlocutory appeals under
Fed. R. Civ. P. 23(f) is to address “novel or unsettled questions
of law” like those presented here. Newton, 259 F.3d at 164; see
Fed. R. Civ. P. 23 advisory committee’s note, 1998
Amendments (cases in which “the certification decision turns on
a novel or unsettled question of law” are among the best
candidates for interlocutory appeal).
43
C.
Defendants contend the District Court erred as a matter
of law in failing to consider the expert testimony of defendants’
expert, Ordover, instead deferring to the opinion of plaintiffs’
expert, Beyer. Plaintiffs do not dispute that a district court may
properly consider expert opinion with respect to Rule 23
requirements at the class certification stage, but maintain that in
this case the District Court considered and rejected Ordover’s
opinion and defendants’ arguments based on it.
In addressing defendants’ Daubert motion to exclude
Beyer’s opinion, the court discussed whether it should consider
Ordover’s opinion in deciding whether Beyer’s opinion was
admissible. The court stated it would be improper to “weigh the
relative credibility of the parties’ experts”—in other words, to
weigh Ordover’s opinion against Beyer’s—for the purpose of
deciding whether to admit or exclude Beyer’s opinion.
Concluding Beyer’s opinion was admissible, the court denied
the Daubert motion. But in addressing the Rule 23
requirements, the court did not confront Ordover’s analysis or
his substantive rebuttal of Beyer’s points. Nor did the court
address Ordover’s finding of substantial price disparities among
similarly situated purchasers of hydrogen peroxide. The court
appears to have assumed it was barred from weighing Ordover’s
opinion against Beyer’s for the purpose of deciding whether the
requirements of Rule 23 had been met. This was erroneous.
44
1.
Expert opinion with respect to class certification, like any
matter relevant to a Rule 23 requirement, calls for rigorous
analysis. See West, 282 F.3d at 938.23 It follows that opinion
testimony should not be uncritically accepted as establishing a
Rule 23 requirement merely because the court holds the
testimony should not be excluded, under Daubert or for any
other reason. See IPO, 471 F.3d at 42 (rejecting the view that
“an expert’s testimony may establish a component of a Rule 23
requirement simply by being not fatally flawed” and instructing
that “[a] district judge is to assess all of the relevant evidence
admitted at the class certification stage and determine whether
each Rule 23 requirement has been met, just as the judge would
resolve a dispute about any other threshold prerequisite for
23
See Kermit Roosevelt III, Defeating Class Certification in
Securities Fraud Actions, 22 Rev. Litig. 405, 425 (2003)
(“Critical evaluation of an expert’s opinion as to what
conclusions the evidence supports will frequently bring courts
close upon the merits, but it is no more than Rule 23 demands.
An expert who testifies, for example, that every plaintiff has
suffered injury is in effect testifying that injury may be
established by common proof. However, the decision as to
whether the elements of a claim are susceptible to common
proof is for the judge and may not be handed off to experts.”
(footnote omitted)).
45
continuing a lawsuit”); 24 Blades, 400 F.3d at 569–70, 575
(affirming denial of class certification where the district court
denied defendants’ Daubert motion and “considered all expert
testimony offered by both sides in support of or in opposition to
class certification” and “afforded that testimony such weight as
[it] deemed appropriate”). Under Rule 23 the district court must
be “satisfied,” Falcon, 457 U.S. at 161, or “persuaded,” IPO,
471 F.3d at 41, that each requirement is met before certifying a
class. Like any evidence, admissible expert opinion may
persuade its audience, or it may not. This point is especially
important to bear in mind when a party opposing certification
offers expert opinion. The district court may be persuaded by
the testimony of either (or neither) party’s expert with respect to
whether a certification requirement is met. Weighing
conflicting expert testimony at the certification stage is not only
permissible; it may be integral to the rigorous analysis Rule 23
demands. See Blades, 400 F.3d at 575 (“[I]n ruling on class
certification, a court may be required to resolve disputes
concerning the factual setting of the case,” including “the
resolution of expert disputes concerning the import of evidence
concerning the factual setting—such as economic evidence as to
business operations or market transactions”); West, 282 F.3d at
24
The District Court found the Court of Appeals for the
Second Circuit’s opinion in IPO arguably imposes a higher
burden on a party seeking certification than our circuit’s case
law. We find IPO consistent with a proper application of our
circuit’s standards.
46
938 (cautioning that neglecting to resolve disputes between
experts “amounts to a delegation of judicial power to the
plaintiffs, who can obtain class certification just by hiring a
competent expert”); see also Cordes & Co. Fin. Servs. v. A.G.
Edwards & Sons, Inc., 502 F.3d 91, 106–07 (2d Cir. 2007)
(analyzing the opinions of plaintiffs’ and defendants’ experts);
In re Polymedica Corp. Sec. Litig., 432 F.3d 1, 5–6, 19 (1st Cir.
2005) (vacating class certification order but finding no error in
the “level of inquiry” the district court applied under Rule 23
when it “went well beyond the four corners of the pleadings,
considering both parties’ expert reports and literally hundreds of
pages of exhibits focused on market efficiency”).25
Resolving expert disputes in order to determine whether
a class certification requirement has been met is always a task
for the court—no matter whether a dispute might appear to
implicate the “credibility” of one or more experts, a matter
resembling those usually reserved for a trier of fact. Rigorous
analysis need not be hampered by a concern for avoiding
25
In New Motor Vehicles, the Court of Appeals for the First
Circuit analyzed the opinions of both plaintiffs’ and defendants’
experts. 522 F.3d at 20–21. It also observed that in Polymedica
and In re Xcelera.com Securities Litigation, 430 F.3d 503 (1st
Cir. 2005), the district court and the court of appeals had
“rigorously tested the evidence submitted by both sides” with
respect to the fraud-on-the-market presumption. New Motor
Vehicles, 522 F.3d at 25.
47
credibility issues; as noted, findings with respect to class
certification do not bind the ultimate fact-finder on the merits.
A court’s determination that an expert’s opinion is persuasive or
unpersuasive on a Rule 23 requirement does not preclude a
different view at the merits stage of the case.
That weighing expert opinions is proper does not make
it necessary in every case or unlimited in scope. As the Court of
Appeals for the Second Circuit instructed,
To avoid the risk that a Rule 23 hearing will
extend into a protracted mini-trial of substantial
portions of the underlying litigation, a district
judge must be accorded considerable discretion to
limit both discovery and the extent of the hearing
on Rule 23 requirements. But even with some
limits on discovery and the extent of the hearing,
the district judge must receive enough evidence,
by affidavits, documents, or testimony, to be
satisfied that each Rule 23 requirement has been
met.
IPO, 471 F.3d at 41. In its sound discretion, a district court may
find it unnecessary to consider certain expert opinion with
respect to a certification requirement, but it may not decline to
resolve a genuine legal or factual dispute because of concern for
an overlap with the merits. Genuine disputes with respect to the
Rule 23 requirements must be resolved, after considering all
relevant evidence submitted by the parties. See West, 282 F.3d
48
at 938 (“Tough questions must be faced and squarely decided,
if necessary by holding evidentiary hearings and choosing
between competing perspectives.”); Szabo, 249 F.3d at 676
(district court must “resolve the disputes before deciding
whether to certify the class”); IPO, 471 F.3d at 41 (Rule 23 calls
for “definitive assessment” of its requirements); id. at 42
(rejecting the view that “a district judge may not weigh
conflicting evidence and determine the existence of a Rule 23
requirement just because that requirement is identical to an issue
on the merits”).
2.
Plaintiffs contend the District Court’s acceptance of their
expert’s opinion was consistent with In re Linerboard Antitrust
Litigation, 305 F.3d 145 (3d Cir. 2002), an antitrust conspiracy
action in which we affirmed class certification. There are a
number of surface similarities between this case and Linerboard.
Plaintiffs’ expert, Beyer, also appeared as an expert for the
plaintiffs in Linerboard, and in both cases he presented an
analysis of the industry and a “structure in pricing” analysis. Id.
at 153. As in Linerboard, Beyer here proposed to demonstrate
antitrust impact through the use of “benchmarks” and “multiple
regression analysis.” Id. at 153–54. In affirming the district
court’s grant of class certification in Linerboard, we concluded
that Beyer, along with another expert for the plaintiffs,
“effectively utilized supporting data, including charts and
exhibits, to authenticate their professional opinions that all class
members would incur” antitrust impact. Id. at 155.
49
In Linerboard we did not address whether such expert
opinion offered by the party opposing class certification would
have been properly considered by the district court in the
exercise of its discretion. But defendants here presented expert
opinion disputing much of the evidence and argument plaintiffs
offered for certification—specifically, Ordover disputed Beyer’s
characterizations of the market and the alleged pricing structure.
Defendants contend Ordover raised substantial doubts, not
considered by the District Court, about whether common proof
would be available for plaintiffs to demonstrate antitrust impact
at trial.
We do not question plaintiffs’ general proposition, which
the District Court accepted, that a conspiracy to maintain prices
could, in theory, impact the entire class despite a decrease in
prices for some customers in parts of the class period, and
despite some divergence in the prices different plaintiffs paid.
But the question at class certification stage is whether, if such
impact is plausible in theory, it is also susceptible to proof at
trial through available evidence common to the class. When the
latter issue is genuinely disputed, the district court must resolve
it after considering all relevant evidence. Here, the District
Court apparently believed it was barred from resolving disputes
between the plaintiffs’ and defendants’ experts. Rule 23 calls
for consideration of all relevant evidence and arguments,
including relevant expert testimony of the parties. Accordingly,
we will vacate the order certifying the class and remand for
50
proceedings consistent with this opinion.26
D.
Defendants contend the District Court, by relying on
Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3d Cir. 1977),
erroneously presumed the predominance requirement was met.
In Bogosian, also a Clayton Act § 4 case in which plaintiffs
sought class certification, the district court had denied class
certification on the assumption that the issue of antitrust impact
would have to be proven on an individual, as opposed to
common, basis. 561 F.2d at 454. Finding that assumption
erroneous, we reasoned that “when an antitrust violation impacts
upon a class of persons who do have standing, there is no reason
in doctrine why proof of the impact cannot be made on a
common basis so long as the common proof adequately
demonstrates some damage to each individual. Whether or not
fact of damage can be proven on a common basis therefore
depends upon the circumstances of each case.” Id. Applying
the concept, we continued:
If, in this case, a nationwide conspiracy is proven,
the result of which was to increase prices to a
class of plaintiffs beyond the prices which would
26
The current record suggests it may be possible to overcome
some obstacles to class certification by shortening the class
period or by fashioning sub-classes. See Fed. R. Civ. P.
23(c)(5).
51
obtain in a competitive regime, an individual
plaintiff could prove fact of damage simply by
proving that the free market prices would be
lower than the prices paid and that he made some
purchases at the higher price. If the price
structure in the industry is such that nationwide
the conspiratorially affected prices at the
wholesale level fluctuated within a range which,
though different in different regions, was higher
in all regions than the range which would have
existed in all regions under competitive
conditions, it would be clear that all members of
the class suffered some damage, notwithstanding
that there would be variations among all dealers
as to the extent of their damage.
Id. at 455; see Newton, 259 F.3d at 179 n.21 (“In antitrust class
actions, injury may be presumed when it is clear the violation
results in harm to the entire class.”); Linerboard, 305 F.3d at
151–53.
In Linerboard, we found a “strong argument [could] be
made that the Bogosian concept of presumed impact was
properly applied” on the facts of that case. Id. at 152. Plaintiffs
had alleged a horizontal conspiracy by manufacturers to restrict
supply and raise prices of linerboard, the paper lining used in
corrugated cardboard boxes and sheets. Id. Over a two-year
period, defendants allegedly had agreed to idle their plants to
reduce inventories to a twenty-year low and boost prices. Id. at
52
150–51. During the two-year class period, prices had risen by
ninety percent. See id. at 152 (“Coincident with [defendants’]
interference with the normal market forces, linerboard prices in
the eastern United States rose in six consecutive price increases,
from a low of around $270 to $290 per ton in third quarter 1993
to $530 per ton by April 1995.”). The record in this case is
different. Although the price of hydrogen peroxide rose at some
points during the lengthy class period, the price was lower, not
higher, at the end of the class period than at the beginning. And
the evidence, as interpreted by defendants’ expert, shows that
through much of the class period the production of hydrogen
peroxide was increasing rather than decreasing. Moreover, there
was an active dispute between the experts as to the “price
structure in the industry” to which Bogosian refers. Defendants
cited, for example, Ordover’s empirical analysis showing
substantial price disparities among similarly situated customers.
Accordingly, defendants contended, it was far from “clear the
violation result[ed] in harm to the entire class,” Newton, 259
F.3d at 179 n.21. It is not apparent that the District Court
considered, or believed it had the authority to consider, all the
evidence in the record with respect to this dispute.
While the District Court found the Bogosian presumption
applied, it also relied on Beyer’s analysis. Cf. Linerboard, 305
F.3d at 155 (“[T]his was not a case where plaintiffs relied solely
on presumed impact and damages.”). As in Linerboard,
plaintiffs here stress that they do not rely merely on Bogosian’s
presumption to support class certification, but also on their
53
expert’s analysis. Plaintiffs do not contend a bare allegation of
a price-fixing conspiracy, in the absence of supporting evidence
and analysis, suffices to support class certification consistent
with a proper “rigorous analysis” under Rule 23. We emphasize
that “[a]ctual, not presumed, conformance” with the Rule 23
requirements is essential. Newton, 259 F.3d at 167 (quoting
Falcon, 457 U.S. at 160) Falcon, 457 U.S. at 160; Newton, 259
F.3d at 167. Applying a presumption of impact based solely on
an unadorned allegation of price-fixing would appear to conflict
with the 2003 amendments to Rule 23, which emphasize the
need for a careful, fact-based approach, informed, if necessary,
by discovery. See Fed. R. Civ. P. 23 advisory committee’s note,
2003 Amendments (“[D]iscovery in aid of the certification
decision often includes information required to identify the
nature of the issues that actually will be presented at trial.”).
The District Court, upon review of all the evidence
consistent with this opinion, may again consider whether the
reasoning in Bogosian is compatible with the record of this case.
See In re Salomon Analyst Metromedia Litig., 544 F.3d 474,
485–86 (2d Cir. 2008) (remanding for opportunity for party
opposing class certification to present evidence rebutting the
fraud-on-the-market presumption, because Rule 23 requires a
“definitive assessment” as to the predominance requirement).
V.
For the foregoing reasons, we will vacate the class
certification order and remand for proceedings consistent with
54
this opinion.
55