In Re Warfarin Sodium Antitrust Litigation , 391 F.3d 516 ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
12-8-2004
In Re: Warfarin
Precedential or Non-Precedential: Precedential
Docket No. 02-3603
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 02-3603, 02-3755, 02-3757 & 02-3758
IN RE: WARFARIN SODIUM ANTITRUST LITIGATION
SEYM OUR EAGEL,
Appellant in No. 02-3603
WILLIE HUTCHINSON, JR.;
VINCENT PALAZZOLA;
ALEX GALPERIN;
SHIRLEY BRUCE;
MADISON W . O’KELLY, JR.;
GAREY L. MCCARTY,
Appellants in No. 02-3755
ALAN SHAPIRO,
Appellant in No. 02-3757
MARY CLEUSMAN,
Appellant in No. 02-3758
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 98-md-1232)
District Judge: The Honorable Sue L. Robinson
Argued October 29, 2003
Before: SCIRICA, Chief Judge, FUENTES, and SMITH,
Circuit Judges.
(Filed: December 8, 2004)
Paul D. Wexler (Argued)
Bragar Wexler Eagel & Morgenstern, LLP
885 Third Avenue, Suite 3040
New York, New York 10022
ATTORNEY FOR APPELLANT SEYMOUR EAGEL
Jeffrey S. Friedman
Silverman & McDonald
1010 North Bancroft Pkwy
Suite 22
Wilmington, DE 19085
Edward Cochran (Argued)
20030 Marchmont Road
Shaker Heights, OH 44122
Hilton F. Tomlinson
Pritchard, McCall & Jones, LLC
505 North 20th Street, Suite 800
Birmingham, AL 35203-2605
Paul Rothstein
626 N.E. 1st Street
Gainesville, FL 32601
N. Albert Bacharach, Jr.
115 NE 6th Avenue
Gainesville, FL 32601
Robert W. Bishop
Bishop & Associates
6520 Glenridge Park, Suite 6
Louisville, KY 40222
ATTORNEYS FOR APPELLANTS WILLIE HUTCHINSON,
JR., VINCENT PALAZZOLA; ALEX GALPERIN; SHIRLEY
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BRUCE; MADISON W. O’KELLY, JR.; GAREY L.
MCCARTY
John J. Pentz (Argued)
2 Clock Tower Place
Suite 260G
Maynard, MA 01754
ATTORNEY FOR APPELLANT ALAN SHAPIRO
J. Arnold Fitzgerald
Andrew F. Tucker (Argued)
375 Second Avenue
Suite 2
Dayton, Tennessee 37321
Sidney Balick
Balick & Balick
711 King Street
Wilmington, DE 19801
ATTORNEYS FOR APPELLANT MARY CLEUSMAN
Bernard Persky (Argued)
Barbara J. Hart
Vaishali Shetty
Goodkind Labaton Rudoff & Sucharow LLP
100 Park Avenue, 12th Floor
New York, New York 10017
ATTORNEYS FOR APPELLEES JOHN KUSNERICK, ET
AL.; SARA ALTMAN; SAMUEL GORDON TISCHLER;
MARIE A. STECKEL; ROBERT BAREISS; JOHN CIVATTE,
JR.; MARY BANTEN; ARKANSAS CARPTENERS’
HEALTH & WELFARE FUND; OPERATING ENGINEERS
LOCAL 312 HEALTH & WELFARE FUND; UNITED FOOD
AND COMM ERCIAL UNION AND EMPLOYERS MIDWEST
HEALTH BENEFITS FUND; UNITED WISCONSIN
SERVICES, INC., now known as COBALT CORPORATION;
LOUISIANA HEALTH SERVICE AND INDEMNITY
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CORPORATION doing business as BLUE CROSS AND BLUE
SHIELD OF LOUISIANA
William R. Kane
Miller, Faucher and Cafferty
18th & Cherry Streets
One Logan Square, 17th Floor
Philadelphia, PA 19103
Alan H. Rolnick
Hanzman & Criden
220 Alhambra Circle, Suite 400
Commercebank Building
Coral Gables, FL 33134
Marvin A. Miller
Miller, Faucher and Cafferty
30 North LaSalle Street
Suite 3200
Chicago, IL 60602
ATTORNEYS FOR APPELLEES JOHN KUSNERICK, ET
AL.; SARA ALTMAN; SAMUEL GORDON TISCHLER;
MARIE A. STECKEL; ARKANSAS CARPTENERS’ HEALTH
& WELFARE FUND; OPERATING ENGINEERS LOCAL 312
HEALTH & WELFARE FUND; UNITED FOOD AND
COMMERCIAL UNION AND EM PLOYERS M IDWEST
HEALTH BENEFITS FUND; UNITED WISCONSIN
SERVICES, INC., now known as COBALT CORPORATION;
LOUISIANA HEALTH SERVICE AND INDEMNITY
CORPORATION doing business as BLUE CROSS AND BLUE
SHIELD OF LOUISIANA
Pamela S. Tikellis
Chimicles & Tikellis
One Rodney Square
P.O. Box 1035, Suite 500
Wilmington, DE 19899
ATTORNEY FOR APPELLEES JOHN KUSNERICK, ET AL.;
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SARA ALTMAN; SAM UEL GORDON TISCHLER; MARIE
A. STECKEL; ROBERT BAREISS; JOHN CIVATTE, JR.
MARY BANTEN.
Richard W. Cohen (Argued)
Lowey, Dannenberg, Bemporad & Selinger
One North Lexington Avenue
The Gateway
White Plains, NY 10601
ATTORNEY FOR APPELLEE UNITED WISCONSIN
SERVICES, INC., now known as COBALT CORPORATION
Donald J. Wolfe, Jr.
Potter, Anderson & Corroon
1313 North Market Street
6th Floor, P.O. Box 951
Wilmington, DE 19899
George D. Ruttinger (Argued)
Crowell & Moring
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2505
ATTORNEYS FOR APPELLEE DUPONT
PHARMACEUTICAL COMPANY
OPINION OF THE COURT
FUENTES, Circuit Judge.
This matter arises out of a consolidated class action suit
seeking injunctive and monetary relief in connection with the sale
of Coumadin, the brand name for the prescription drug warfarin
sodium manufactured and marketed by the DuPont
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Pharmaceuticals Company (“DuPont”). 1 Plaintiffs allege that
DuPont’s anticompetitive behavior and dissemination of false and
misleading information about a lower-priced, readily available
generic competitor caused them to purchase the higher-priced
Coumadin instead of the generic product. At issue in this appeal
is whether the District Court abused its discretion in approving a
$44.5 million nationwide settlement agreement between DuPont
and the fixed co-pay consumers and out-of-pocket consumers
(collectively, the “consumers”) and Third Party Payors (“TPPs”) of
Coumadin, and awarding $10 million in fees to class counsel. 2
Several individual consumers and TPPs challenge the District
Court’s certification of the class and approval of the settlement.
For the reasons discussed below, we conclude that the District
Court did not abuse its discretion in certifying the class or in
approving the settlement, and accordingly we will affirm the
judgment of the District Court.
I. BACKGROUND
A. Factual History
Warfarin sodium is a prescription oral anticoagulant
medication sold in tablet form that is taken by more than 2 million
Americans to treat blood-clotting disorders. DuPont has been the
dominant manufacturer and supplier of warfarin sodium under the
brand name Coumadin, recording sales of approximately $550
million and $464 million, respectively, in 1998 and 1999.
Although DuPont’s Coumadin patent expired in 1962, Coumadin
1
Formerly known as DuPont Merck Pharmaceutical Company (a
partnership between E.I. duPont de Nemours & Company and
Merck & Company).
2
Fixed co-pay consumers refer to those insured consumers who
paid the same price for prescription drugs regardless of whether the
drugs were name-brand or generic. Out-of-pocket consumers
refers to individuals who paid different prices for prescription
drugs depending on whether they were name-brand or generic.
Third Party Payors refer to those entities providing prescription
drug coverage and/or paying or reimbursing part or all of the costs
of prescription drugs.
-6-
remained the only warfarin sodium product available until July
1997, when a generic version of warfarin sodium was released onto
the market following approval by the U.S. Food and Drug
Administration (“FDA”). Class action plaintiffs have alleged that
DuPont, in response to the competition from lower-priced generic
warfarin sodium, disseminated false and misleading information to
consumers, TPPs, and others about the safety and equivalence of
generic warfarin sodium. As a result, plaintiffs allege that
DuPont’s campaign of misrepresentations and omissions caused
consumers and TPPs to buy higher-priced, brand name Coumadin
instead of the lower-priced generic warfarin sodium.
DuPont’s alleged violations are said to have begun when
Barr Laboratories, Inc. (“Barr”) filed a petition with the FDA in
May 1995 seeking approval to manufacture and distribute a generic
warfarin sodium product. In response to Barr’s petition, DuPont
filed a petition for stay with the FDA in October 1996 requesting
that the FDA adopt stricter bioequivalence standards and postpone
approval for all generic warfarin sodium products. The FDA denied
DuPont’s petition, however, on the grounds that the methods in
place for determining bioequivalence were sufficient. At the same
time, DuPont filed a petition with the U.S. Pharmacopeial
Convention, Inc. (“USP”) requesting the adoption of Coumadin’s
content uniformity specifications as the industry standard for
warfarin sodium drugs. The USP rejected this petition.
In March 1997, the FDA approved a generic warfarin
sodium, finding that it was the bioequivalent and therapeutic
equivalent to Coumadin.3 The generic product was released to the
3
When seeking approval from the FDA to market generic drugs,
drug manufacturers typically submit detailed information regarding
the equivalence of the generic version and the previously approved
brand name version. Bioequivalence is established by showing that
the generic drug delivers to the body the same amount of active
ingredient at the same rate and extent as its brand name
counterpart. Once bioequivalence is established, and after the FDA
approves the manufacturing controls and labeling of the generic
substitute, the FDA grants approval for release of the generic drug
to the market.
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market on July 26, 1997 at prices substantially lower than
Coumadin. Plaintiffs allege that DuPont, in the period before and
after Barr’s introduction of generic warfarin sodium, published
false and misleading statements concerning the bioequivalence,
therapeutic safety, and efficacy of generic warfarin sodium. For
instance, DuPont allegedly issued a variety of false and misleading
communications to convince health care professionals, government
agencies, and the public that Coumadin was safer and more
effective than Barr’s generic warfarin sodium product. In addition,
DuPont allegedly revised its promotional computer software system
designed for health care practitioners monitoring patients using
Coumadin to include warnings about switching to generic
substitutes, and created a slide presentation for health care
professionals claiming that the generic drug may not be the
equivalent to Coumadin.
DuPont also allegedly ran a publicity campaign claiming
that Coumadin had tighter than USP content uniformity standards.
DuPont issued a press release, which stated that patients should
receive additional blood tests if switched to generic warfarin
sodium and accused Barr of focusing on producing a cheaper
product to save money while DuPont focused on patient safety and
education. Furthermore, DuPont allegedly created an organization
named the Health Alliance for NTI Patient Safety for the purpose
of lobbying state legislatures, formularies, and pharmacy boards to
exclude NTI drugs from state generic substitution laws.4
Plaintiffs assert that the misrepresentations led consumers,
TPPs, and others to believe that Coumadin was superior to the
generic equivalents, caused millions of prescriptions to be filled
with Coumadin that could have been filled with less expensive
generic drugs, and allowed DuPont to maintain supracompetetive
prices for Coumadin. As evidence that D uPo nt’s
misrepresentations and conduct had an anticompetitive effect,
4
“NTI drugs,” or Narrow Therapeutic Index drugs, are used for
treating severe, life-threatening diseases where a patient’s tolerance
to the drugs are so narrow that too small a dose can be useless and
too large a dose can be dangerous to the patient’s health. Warfarin
sodium is designated by the FDA as an NTI drug.
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plaintiffs cited evidence of the weak market penetration of generic
warfarin sodium as compared to Coumadin. Generally, about 40-
70% of prescriptions for drugs available from multiple sources are
filled with less expensive generic products within one year of
generic availability. However, more than 75% of prescriptions for
sodium warfarin were still filled with Coumadin a year after Barr
introduced its generic version, and DuPont continued to maintain
a 67% market share up until the date the complaints in this matter
were filed.
B. Procedural History
Beginning in 1997, class action complaints were filed in
several federal district courts and were consolidated for pretrial
proceedings by the Judicial Panel on Multidistrict Litigation
(“MDL panel”) before the U.S. District Court for the District of
Delaware. The class actions sought treble damages and injunctive
relief under federal antitrust laws on behalf of a nationwide class
of consumer and TPP purchasers of Coumadin who paid all or part
of the purchase price. In an order dated December 7, 1998, the
District Court dismissed the claims on the grounds that consumer
plaintiffs, as indirect purchasers of Coumadin, lacked standing to
seek injunctive relief and treble damages under the Sherman Act.
See In re: Warfarin Sodium Antitrust Litig., C.A. No. MDL 98-
1232-SLR, 1998 WL 883469 (D. Del. Dec 7, 1998). This Court
reversed the District Court’s decision with respect to injunctive
relief, finding that consumer plaintiffs did have standing under
federal antitrust laws. See In re Warfarin Sodium Antitrust Litig.,
214 F.3d 395 (3d Cir. 2000).
Following our decision, several additional class actions were
filed in Delaware District Court as well as other federal courts by
TPP plaintiffs and a state medicaid agency and were transferred to
the Delaware District Court as tag-along actions pursuant to the
order of the MDL panel. After discussions among counsel, the
parties negotiated and drafted a pretrial case management order
(“CMO”), which the District Court entered on February 22, 2001.
The CMO established a plaintiffs’ Executive Committee,
established procedures for conducting settlement discussions, and
specified when and how to file a consolidated class action
complaint.
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A consolidated class action complaint was filed in the
District Court on March 30, 2001 by consumers and TPPs on
behalf of all similarly situated U.S. consumers who purchased
Coumadin at supracompetitive prices and all similarly situated U.S.
TPPs who paid for the fulfillment of Coumadin prescriptions for
their members or their insureds at supracompetitive prices
beginning in July 1997. Plaintiffs sought an injunction and other
equitable relief under § 16 of the Clayton Act, 15 U.S.C. § 26,5 to
remedy DuPont’s violation of the federal antitrust laws, particularly
§ 2 of the Sherman Act, 15 U.S.C. § 2.6 On behalf of all TPPs,
plaintiffs sought treble damages pursuant to § 4 of the Clayton Act,
15 U.S.C. § 15.7 Plaintiffs also alleged violations of the Delaware
5
15 U.S.C. § 26 states in pertinent part: “Any person, firm,
corporation, or association shall be entitled to sue for and have
injunctive relief, in any court of the United States having
jurisdiction over the parties, against threatened loss or damage by
a violation of the antitrust laws, including sections 13, 14, 18, and
19 of this title, when and under the same conditions and principles
as injunctive relief against threatened conduct that will cause loss
or damage is granted by courts of equity, under the rules governing
such proceedings, and upon the execution of proper bond against
damages for an injunction improvidently granted and a showing
that the danger of irreparable loss or damage is immediate, a
preliminary injunction may issue . . . .”
6
15 U.S.C. § 2 states: “Every person who shall monopolize, or
attempt to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the trade or commerce
among the several States, or with foreign nations, shall be deemed
guilty of a felony, and, on conviction thereof, shall be punished by
fine not exceeding $100,000,000 if a corporation, or, if any other
person, $1,000,000, or by imprisonment not exceeding 10 years, or
by both said punishments, in the discretion of the court.”
7
15 U.S.C. § 15 states in pertinent part: “[A]ny person who shall
be injured in his business or property by reason of anything
forbidden in the antitrust laws may sue therefor in any district court
of the United States in the district in which the defendant resides
or is found or has an agent, without respect to the amount in
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Consumer Fraud Act, 6 Del.C. § 2513; the consumer fraud and
deceptive acts and practices statutes of all fifty states and the
District of Columbia; and the antitrust statutes8 of the “indirect
purchaser” states. Finally, plaintiffs alleged tortious interference
with TPPs’ contracts with health benefit plan members and
pharmacies relating to the substitution of generic warfarin sodium
and alleged unjust enrichment under the laws of all fifty states and
the District of Columbia. The state actions that are still pending
are included in the proposed settlement.
C. Settlement Negotiations and Agreement
Pursuant to the CMO, co-chairs of the Executive Committee
had primary responsibility for submitting motions to the District
Court, engaging in discovery, conducting negotiations with
DuPont, and acting as the spokesperson for the plaintiffs at pretrial
conferences. Any settlement discussions had to be attended by at
least one of the co-chairs, one consumer representative, and one
TPP representative, and no settlement offer could be made or
accepted without the prior consent of all consumer and TPP
representatives on the committee.
Settlement negotiations in the federal actions began in
March 2000 and continued through the next year. The parties
reached an oral agreement on the basic terms of the proposed
controversy, and shall recover threefold the damages by him
sustained, and the cost of suit, including a reasonable attorney's fee
. . . .”
8
Ariz. Rev. Stat. § 44-1401, et seq.; Cal. Bus.& Prof. Code
§ 17200 et seq.; D.C. Code Ann. § 28-4502, et seq.; Fla. Stat. ch.
401; Kan. Stat. Ann. § 50-101, et seq.; Ky. Rev. Stat. Ann.
§ 367.110-310, et seq.; La. Rev. Stat. Ann. § 51:137, et seq.; Me.
Rev. Stat. Ann. tit. 10, § 1101, et seq.; Mass. Ann. Laws, ch. 93A,
et seq.; Mich. Comp. Laws § 445.771, et seq.; Minn. Stat.
§ 325D.49, et seq.; N.J. Stat. Ann. § 56:9-1, et seq.; N.M. Stat.
Ann. § 57-1-1, et seq.; N.Y. Gen. Bus. Law § 340, et seq.; N.C.
Gen. Stat. § 75-1, et seq.; N.D. Cent. Code § 51-08.1-0, et seq.;
S.D. Codified Laws § 37-1, et seq.; Tenn. Code Ann. § 47-25-101,
et seq.; W. Va. Code § 47-18-1, et seq.; Wis. Stat. § 133.01, et seq.
-11-
settlement on April 19, 2001, executed a memorandum of
understanding on May 14, 2001, and entered into a Stipulation of
Settlement and Compromise on July 26, 2001.
Under the proposed settlement, DuPont would pay, for
settlement purposes only, $44.5 million to settle the claims of the
following proposed class:
All consumers or Third Party Payors in the
United States who purchased and/or paid all
or part of the purchase price of Coumadin
dispensed pursuant to prescriptions in the
United States during the period March 1,
1997 through and including August 1, 2001
(“Class Period”). Excluded from the Class
are Defendant and any of its officers and
directors and any governmental entity.
“Third Party Payor” shall mean any non-
governmental entity that is (i) a party to a
contract, issuer of a policy, or sponsor of a
plan, which contract, policy or plan provides
prescription drug coverage to natural persons,
and is also (ii) at risk, pursuant to such
contract, policy or plan, to provide
prescription drug benefits or to pay or
reimburse all or part of the cost of
prescription drugs dispensed to natural
persons covered by such contract policy or
plan.
Upon final approval of the settlement, all pending actions against
DuPont arising from its alleged unlawful marketing and sale of
Coumadin, i.e., both federal MDL proceedings and related state
actions, would be dismissed. DuPont has already paid the $44.5
million into an escrow account which is earning interest for the
benefit of the class.
Under the allocation and distribution plan, the Net
Settlement Fund (“NSF”) is to be distributed to class members who
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filed a proof of claim on or before April 30, 2002.9 The recognized
loss for each class member will be total payments made for
Coumadin (less the amounts received for reimbursements,
discounts, or rebates) multiplied by 15%. Eighteen percent of the
NSF is to be set aside for a “Preferential Fund” out of which the
recognized losses of consumers will be paid first. If the recognized
losses of consumer claimants are fully satisfied from the
Preferential Fund, the unexpended portion will be added to the
NSF for payment of the recognized losses of the TPPs. If instead
consumer losses are not fully satisfied, the unsatisfied amounts will
be paid out of the remainder of the NSF on a pro-rata basis with
TPP claimants.
On August 1, 2001, the District Court granted preliminary
approval of the settlement and conditionally certified the settlement
class. The order approved the plan for providing notice to class
members about the settlement terms. In addition, the District Court
required any class member who wanted to opt-out of the class, or
who wished to object to the proposed settlement but not opt-out of
the class, to do so by December 17, 2001.
D. Notice to Class Members and Response to
Proposed Settlement
Plaintiffs contracted with Complete Claim Solutions, Inc.
(“CCS”), a nationally recognized settlement administrator, to
prepare and implement a notice program. CCS published notices
targeted at both TPP and consumer class-members; set up a call-
center to receive telephone inquiries; prepared, printed, and
distributed notice packets for consumers and TPPs who responded
to the notice; and designed and developed a website for class
members to review and access information about the settlement.
Summary notice of the proposed settlement was published over a
period of three months beginning in August 2001 in selected
publications across the country including USA Today, USA
Weekend, and Parade Magazine, as well as Modern Maturity and
9
The NSF is to be calculated as follows: $44.5 million plus
accrued interest, less court-awarded attorneys’ fees, costs and
expenses, less costs of notice to class members, less costs of
administering the fund, and less taxes.
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Readers Digest, in an effort to reach users of Coumadin who are
generally over the age of 50. The publications had a combined
circulation of approximately 115 million people. The notice was
also published in National Underwriter and Benefits and
Compensation Solutions.
The summary notice informed class members that a
settlement on behalf of the class had been proposed. To make a
claim, consumers were required to submit a form, available on the
website set up by CCS, containing certain identifying information
and proof concerning their use of Coumadin. By January 2002,
there had been over 89,000 telephone inquiries made, over 41,803
visits to the websites and 15,127 forms viewed and/or downloaded.
An additional 7,273 requests for printed notice packets were
received via email. Through June 3, 2002, the administrator had
mailed claim forms to 90,926 potential consumer class members
and received and processed 48,305 consumer claims and 1,055 TPP
claims.
The claims submitted by consumer class members who filed
proof of claim on or before the April 30, 2002 deadline totaled $4.3
million (well within the 18% set aside for them in the Preferential
Fund). Attorneys’ fees and expenses were awarded to counsel for
the consumers and the TPPs in the aggregate amount of $10.8
million. Approximately $2.2 was spent on notice and
administration. This left $27.2 million in the fund for
compensation of TPPs. In addition, by the December 17, 2001 opt-
out and objection deadline, a total of 136 consumers and 10 TPPs
had opted out of the proposed settlement while 11 individual
consumers and consumer groups and two TPPs had filed
objections.
Oral arguments by plaintiffs’ and objectors’ counsel were
presented at a fairness hearing held on January 23, 2002. On
August 30, 2002, the District Court issued an extensive and
detailed Memorandum Opinion and Order (“Final Approval
Order”) certifying the settlement class, approving the settlement,
and dismissing the contentions made by the objectors. Nine of the
consumer objectors now appeal the Final Approval Order.
Cleusman, Shapiro, and Eagel filed individual appeals, while
Hutchinson, Palazzola, Galperin, Bruce, O’Kelley, and McCarthy
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(collectively, “Hutchinson”) filed a joint appeal.
II. DISCUSSION
We review the decision of the District Court to certify the
class and approve the settlement under an abuse of discretion
standard. See In re Cendant Corp. Litig., 264 F.3d 201, 231 (3d
Cir. 2001) (“Cendant”); In re Prudential Ins. Co. of Am. Sales
Practices Litig., 148 F.3d 283, 299 (3d Cir. 1998) (“Prudential”).
An abuse of discretion may be found where 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.” In re
Gen. Motors Corp. Pick-Up Truck Fuel Tanks Prod. Liab. Litig. 55
F.3d 768, 783 (3d Cir. 1995) (“General Motors”). We have
jurisdiction over this appeal under 28 U.S.C. § 1291.
A. Class Certification
To be certified, a class must satisfy the four threshold
requirements of Federal Rule of Civil Procedure 23(a): (1)
numerosity (a “class [so large] that joinder of all members is
impracticable”); (2) commonality (“questions of law or fact
common to the class”); (3) typicality (named parties’ claims or
defenses “are typical . . . of the class”); and (4) adequacy of
representation (representatives “will fairly and adequately protect
the interests of the class”). See also Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 613 (1997). In addition to the threshold
requirements of Rule 23(a), parties seeking class certification must
show that the action is maintainable under Rule 23(b)(1), (2), or
(3). Rule 23(b)(3), the provision at issue in this case, provides for
so-called “opt-out” class actions suits. See Amchem, 521 U.S. at
615. Under Rule 23(b)(3), two additional requirements must be
met in order for a class to be certified: (1) common questions must
“predominate over any questions affecting only individual
members” (the “predominance requirement”), and (2) class
resolution must be “superior to other available methods for the fair
and efficient adjudication of the controversy” (the “superiority
requirement”).
Appellants allege several errors in the District Court’s
certification decision. First, Appellants argue that the Rule 23(a)
commonality and Rule 23(b)(3) predominance requirements were
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not satisfied in this case because of variations in the claims and
injuries of the plaintiffs, specifically between and among the
consumers and TPPs, as well as differences in the laws of the 50
states which form the basis of several of the class’ claims.
Appellants also argue that the certified class does not satisfy the
Rule 23(a) requirement of adequacy of representation because of
the existence of intra-class conflicts of interest, which rendered
class counsel unable to represent the interests of a single class.
After reviewing Appellants’ arguments, and for the reasons
discussed below, we find that the District Court did not abuse its
discretion in certifying a single nationwide class of consumers and
TPPs. 10
1. Commonality and Predominance
Rule 23(a)(2)’s commonality element requires that the
proposed class members share at least one question of fact or law
in common with each other. See Baby Neal ex. rel. Kanter v.
Casey, 43 F.3d 48, 56 (3d Cir. 1994). Rule 23(b)(3)’s
predominance element in turn requires that common issues
predominate over issues affecting only individual class members.
See Fed. R. Civ. P. 23(b)(3). We have previously noted that the
Rule 23(b)(3) predominance requirement, which is far more
demanding, incorporates the Rule 23(a) commonality requirement.
See In re LifeUSA Holding, Inc., 242 F.3d 136, 144 (3d Cir. 2001);
see also Amchem, 521 U.S. at 623-24. Accordingly, we analyze
the two factors together, with particular focus on the predominance
requirement. See In re LifeUSA Holding, Inc., 242 F.3d at 144.
The District Court found that common questions of law and fact
arose from plaintiffs’ complaint, and that such common questions
predominated over any issues affecting only individual class
members. We agree.
As the Supreme Court noted in Amchem, “[p]redominance
is a test readily met in certain cases alleging consumer [] fraud or
violations of the antitrust laws.” Amchem, 521 U.S. at 625. This
case falls squarely into that category: plaintiffs have alleged that
10
We do not understand Appellants as challenging the District
Court’s findings that the class satisfied Rule 23(a)’s numerosity
requirement.
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DuPont engaged in a broad-based campaign, in violation of federal
and state consumer fraud and antitrust laws, to deceive consumers,
TPPs, health care professionals, and regulatory bodies into
believing that generic warfarin sodium was not an equivalent
alternative to Coumadin. These allegations naturally raise several
questions of law and fact common to the entire class and which
predominate over any issues related to individual class members,
including the unlawfulness of DuPont’s conduct under federal
antitrust laws as well as state law, the causal linkage between
DuPont’s conduct and the injury suffered by the class members,
and the nature of the relief to which class members are entitled.
Moreover, proof of liability for DuPont’s conduct under § 2
of the Sherman Act and the Delaware Consumer Fraud statute
depends on evidence which is common to the class members, such
as evidence that DuPont made misrepresentations about Coumadin
and generic warfarin sodium permitting DuPont to monopolize the
market for warfarin sodium and charge supracompetitive prices for
Coumadin, while discouraging class members to purchase the
lower-priced generic competitor. 11 In other words, while liability
depends on the conduct of DuPont, and whether it conducted a
nationwide campaign of misrepresentation and deception, it does
not depend on the conduct of individual class members. See In re
Flat Glass Antitrust Litig., 191 F.R.D. 472, 483-84 (W.D. Pa. 1999)
(noting that the predominance test is met in an antitrust case
because “consideration of the conspiracy issue would, of necessity,
11
As the District Court noted, in order to prove a violation of § 2
of the Sherman Act, plaintiffs must establish that DuPont possessed
monopoly power in the warfarin sodium market and that it willfully
acquired or maintained that power as distinguished from achieving
growth or development as a consequence of a superior product,
business acumen, or historic accident. See United States v.
Grinnell Corp., 384 U.S. 563, 570-71 (1966). To prove a violation
of the Delaware Consumer Fraud statute, plaintiffs must show that
DuPont committed fraud or misrepresentation in connection with
the sale of Coumadin; no proof of individual reliance on the fraud
or misrepresentation is required. See Delaware Consumer Fraud
Statute, 6 Del. C. § 2513; see also S&R Assoc., LP v. Shell Oil
Co., 725 A.2d 431, 440 (Del. Super. Ct. 1998).
-17-
focus on defendants’ conduct, not the individual conduct of the
putative class members”). Similarly, proof of liability does not
depend on evidence that DuPont made deceptive communications
to individual class members or of class members’ reliance on those
communications; to the contrary, DuPont’s alleged deceptive
conduct arose from a broad-based, national campaign conducted by
and directed from corporate headquarters, and individual reliance
on the misrepresentations was irrelevant to liability. See In re
LifeUSA Holding, Inc., 242 F.3d at 144-46 (vacating class
certification in part because plaintiffs’ claims of deceptive
insurance sales practices arose from individual and
nonstandardized presentations by numerous independent agents).
Finally, the fact that plaintiffs allege purely an economic injury as
a result of DuPont’s conduct (i.e., overpayment for warfarin
sodium), and not any physical injury, further supports a finding of
commonality and predominance because there are little or no
individual proof problems in this case otherwise commonly
associated with physical injury claims. See Prudential, 148 F.3d at
315 (noting that “the complexity of a case alleging physical injury
as a result of asbestos exposure differs greatly from a case alleging
economic injury as a result of deceptive sales practices”).
Appellants raise several objections to the District Court’s
finding that the certified class satisfies the commonality and
predominance requirements. We consider each in turn.
First, several Appellants argue that the District Court erred
when it certified a single nationwide class of plaintiffs because
variations in and inconsistencies between the state consumer fraud
and antitrust laws of the fifty states defeat the commonality and
predominance requirements of Rule 23. Appellants rely principally
on the Seventh Circuit’s decision in In re Bridgestone/Firestone
Inc., 288 F.3d 1012 (7th Cir. 2002) (“Bridgestone”), a case
involving the certification of a nationwide class alleging tort claims
arising under the laws of all fifty states. However, Bridgestone is
distinguishable from the instant matter because that case concerned
certification of a class for purposes of litigation, not a class solely
for purposes of settlement, which is at issue in this case. 288 F.3d
at 1018.
The difference is key. In certification of litigation classes
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for claims arising under the laws of the fifty states, we have
previously noted that the district court must determine whether
variations in state laws present the types of insuperable obstacles
which render class action litigation unmanageable. See Prudential,
148 F.3d at 315; see also In re Sch. Asbestos Litig., 789 F.2d 996,
1010 (3d Cir. 1986). Thus, for instance, we have stated that a
district court should examine whether varying state laws can be
grouped by shared elements and applied as a unit in such a way that
the litigation class is manageable. Prudential,148 F.3d at 315; In
re Sch. Asbestos Litig., 789 F.2d at 1010. However, when dealing
with variations in state laws, the same concerns with regards to
case manageability that arise with litigation classes are not present
with settlement classes, and thus those variations are irrelevant to
certification of a settlement class. See Amchem, 521 U.S. at 620(in a settlement-only class certification, “a district court need not
inquire whether the case, if tried, would present intractable
management problems . . . for the proposal is that there be no
trial”).
Nonetheless, we recognize that problems beyond those of
just manageability may exist when a district court is asked to
certify a single nationwide class action suit, even for settlement
purposes, when claims arise under the substantive laws of the fifty
states. Although there may be situations where variations in state
laws are so significant so as to defeat commonality and
predominance even in a settlement class certification, this is not
such a case. We agree with the District Court that the fact that
there may be variations in the rights and remedies available to
injured class members under the various laws of the fifty states in
this matter does not defeat commonality and predominance. In
Prudential, we noted that a “finding of commonality does not
require that all class members share identical claims,” 148 F.3d at
310, and we rejected an objector’s contention that predominance
was defeated because claims were subject to the laws of fifty states,
id. at 315. Moreover, recent decisions elsewhere have certified
nationwide or multistate classes under state laws in actions alleging
overpayment for brand-name prescription drugs. See In re
Lorazepam & Clorazepate Antitrust Litig., 205 F.R.D. 369 (D.D.C.
2002); In re Synthroid Mktg. Litig., 188 F.R.D. 295 (N.D. Ill.
1999). In certifying a nationwide settlement class, the District
-19-
Court was well within its discretion in determining that variations
between the laws of different states were insufficient to defeat the
requirements of Rule 23.
Turning to the next argument, several Appellants object to
the certification of a single, nationwide class because certain class
members may be eligible for treble damages or punitive damages
under their state antitrust laws, while other class members, such as
those from Tennessee, may be eligible for “full consideration”
damages. Under a “full consideration” statute, a consumer can
recover the full purchase price paid, as opposed to receiving
reimbursement of only the overcharges. As we explained above,
however, we cannot say that the District Court abused its discretion
in finding that such variations in state law rights and remedies were
insufficient to defeat commonality and predominance.12 In any
event, we agree with the District Court that any material variations
could be considered in the context of calculating damages as well
as in assessing the fairness of the settlement.
Appellant Hutchinson argues that the District Court erred in
when it certified a single class including both fixed co-pay
consumers and out-of-pocket consumers. According to
Hutchinson, because fixed co-pay consumers suffered no injury or
did not suffer the same injury as out-of-pocket consumers whose
economic loss varied with the conduct of DuPont, the District
Court should either have excluded fixed co-pay consumers from
12
We also note that it appears to be an unsettled question of law
as to whether Tennessee’s antitrust statutes, the Tennessee
Consumer Protection Act (“TCPA”) and the Trade Practices Act
(“TPA”), cover only violations occurring in intrastate commerce or
extend to cover violations occurring in interstate commerce as well.
See FTC v. Mylan Labs., Inc., 62 F. Supp. 2d 25, 51 (D.D.C. 1999)
(“When the challenged conduct occurs before the products arrive
in Tennessee, the conduct is considered interstate in nature and the
TPA and TCPA should not apply.”); see also Richardson v.
Aventis, Civil Action No. 02-4586 (Tenn. Ch. Ct, Rutherford Co.,
May 20, 2003) (holding that the TPA was intended to apply to
predominantly intrastate commerce within Tennessee and is thus
“not applicable to . . . an interstate . . . price-fixing conspiracy”).
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the class or otherwise created a separate sub-class for them. We
disagree. As the District Court noted, fixed co-pay consumers did
possess viable equitable and common law claims for unjust
enrichment as well as claims for injunctive relief against DuPont.
Fixed co-pay consumers therefore suffered a cognizable injury as
a result of DuPont’s allegedly unlawful conduct and posed the
same risk to DuPont as did out-of-pocket consumers. Thus, the
District Court did not err when it included fixed co-pay consumers
with out-of-pocket consumers in the same class.
Finally, several Appellants object to the inclusion of TPPs
in the certified class on the grounds that TPPs did not have
standing to assert antitrust claims, or in the alternative that their
claims were not as strong as those of the consumer plaintiffs.
Despite Appellants’ objections, we find no error in the inclusion of
TPPs in the certified class. Notably, TPPs, like individual
consumers, suffered direct economic harm when, as a result of
DuPont’s alleged misrepresentations, they paid supracompetitive
prices for Coumadin instead of purchasing lower-priced generic
warfarin sodium. Thus, this case is distinguishable from other
product liability class actions, such as Steamfitters Local Union
No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912 (3d Cir.
1999) (“Steamfitters”), and a decision of the Southern District of
New York in In re Rezulin Products Liability Litigation, 171 F.
Supp. 2d 299 (S.D.N.Y. 2001) (“Rezulin”), which were cited by
Appellants. See also Allegheny Gen. Hosp. v. Philip Morris, Inc.,
228 F.3d 429 (3d Cir. 2000).
These cases, as with other similar product liability cases,
involved class action claims by consumers who had suffered
physical injuries from defective products, which in turn resulted in
increased medical costs of covered insureds and increased
payments by TPPs. The injuries suffered by TPPs in those cases,
unlike the direct and independent harm suffered by TPPs in this
matter, were derivative of and dependent on the harm suffered by
consumers. Moreover, we note that the Second Circuit, in
reversing the district court’s decision in Rezulin, recently held that
when insurance companies “allege an injury directly to themselves”
and “the damages–the excess money plaintiffs paid defendants for
the Rezulin that they claim they would not have purchased but for
Defendant’s fraud–were in no way derivative of damages to a
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third-party,” the insurance companies have standing to directly sue
defendants. See Desiano v. Warner-Lambert Co., 326 F.3d 339,
349 (2d Cir. 2003) (recognizing the right of health benefit
providers to recover from drug companies the amounts that were
overpaid due to illegal or deceptive marketing practices).
Therefore, Appellants’ suggestion that TPPs should have been
excluded from the class or categorized in a separate subclass is
without merit, as it well recognized that a purchaser in a market
where competition has been wrongfully restrained has suffered an
antitrust injury, and in this case, TPPs are such purchasers.
Moreover, it should be noted that because TPPs have litigable
claims against DuPont as injured purchasers, their inclusion was a
necessary condition for DuPont to enter into a settlement.
Accordingly, the inclusion of TPPs in the settlement created a
much larger settlement fund available to satisfy the claims of
consumer class members. If TPPs had not been included in the
settlement with DuPont, they could have held back and sued
consumers in subrogation, thereby doubling the detriment to
consumers resulting from the exclusion of TPPs. See In re
Synthroid Mktg. Litig., 264 F.3d 712, 717 (7th Cir. 2001).
2. Typicality
The District Court found that the proposed class satisfied the
requirements of Rule 23(a)(3), which requires that the claims of the
named class representatives be “typical of the claims . . . of the
class.” Fed. R. Civ. P. 23(a)(3). The typicality requirement “is
designed to align the interests of the class and the class
representatives so that the latter will work to benefit the entire class
through the pursuit of their own goals.” Id. However, typicality,
as with commonality, does not require “that all putative class
members share identical claims.” Id.We find no error in the District Court’s determination.
Notably, the claims of the representative plaintiffs arise from the
same alleged wrongful conduct on the part of DuPont, specifically
the alleged misrepresentation and deception regarding the
equivalence of generic warfarin sodium and Coumadin. The
claims also arise from the same general legal theories. As the
District Court noted, the one obvious difference among the various
class members is that some are consumers and some are TPPs.
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However, the named class representatives include members from
each group. Accordingly, the District Court did not abuse its
discretion in finding that Rule 23’s typicality requirement was
satisfied.
3. Adequacy of Representation
Rule 23 also requires that the representative class members
“fairly and adequately protect the interests of the class.” See Fed.
R. Civ. P. 23(a)(4). We have previously noted that the adequacy
inquiry under Rule 23 “has two components designed to ensure that
absentees’ interests are fully pursued.” See Georgine v. Amchem
Prods., Inc., 83 F.3d 610, 630 (3d Cir. 1996), aff’d, Amchem, 521
U.S. at 591. First, the adequacy inquiry “tests the qualifications of
the counsel to represent the class.” Prudential, 148 F.3d at 313(internal citations omitted). Second, it seeks “to uncover conflicts
of interest between named parties and the class they seek to
represent.” See id. Several Appellants argue that the interests of
TPPs, fixed co-pay consumers, and out-of-pocket consumers were
in conflict, and accordingly class counsel was not in a position to
adequately represent the class in settlement negotiations.
Appellants therefore contend that the District Court should have,
at a minimum, certified separate subclasses for consumers and
TPPs, or otherwise not certified the class.
Admittedly, as the District Court noted, class counsel could
have more skillfully defined the class to recognize the differences
between the various groups included within the class. However,
we reject Appellants’ contention that the interests of the class
members were in conflict in such a way that the District Court
abused its discretion in certifying a single class including several
types of injured plaintiffs. As the District Court found, the named
parties, who included consumers and TPPs, as well as consumers
from the indirect purchaser states, all shared the same goal of
establishing the liability of DuPont, suffered the same injury
resulting from the overpayment for warfarin sodium, and sought
essentially the same damages by way of compensation for
overpayment. More importantly, contrary to Appellants’
suggestion, the inclusion of fixed co-pay consumers and TPPs
neither prejudiced out-of-pocket consumers nor reduced their
settlement fund recovery. All class members had the opportunity
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to recover 100% of their “Recognized Loss,” 13 and recovery did not
change depending on the number of people in the class, thereby
creating the problem of “splitting the settlement.” Although some
courts have created subclasses of class action plaintiffs where there
are conflicts of interest among class members, see, e.g., Davis v.
Weir, 497 F.2d 139, 147 (5th Cir. 1974) (noting that subclasses are
generally utilized to eliminate antagonistic interests within a class);
Am. Fin. Sys., Inc. v. Harlow, 65 F.R.D. 94 (D. Md. 1974)
(encouraging combination of subclasses into one class where
interests of class are not antagonistic), we do not believe that this
was required in this case. Appellants have only asserted, rather
than established, an inherent conflict among consumers and
between consumers and TPPs. 14
Moreover, we agree with the District Court that any
potential for conflicts of interest between and among consumers
and TPPs that may have arisen prior to and during the settlement
negotiations were adequately represented by the presence of
separate counsel for consumers and TPPs. The existence of
separate counsel, as well as the operation of the Executive
Committee, provided adequate “structural protections to assure that
differently situated plaintiffs negotiate for their own unique
interests.” Georgine, 83 F.3d at 631 (finding inadequate
representation of different groups of plaintiffs where no such
structural protections existed); see also Amchem, 521 U.S. at 627-
13
Recognized Loss” refers to total payments made for Coumadin
(less the amounts received for reimbursements, discounts, or
rebates) multiplied by fifteen percent.
14
Although we find that the District Court was not required to
certify subclasses in this matter, we pause to note that subclasses
might nonetheless have been usefully employed in this case, and
may be so employed in future cases, even in the absence of
conflicts, to forestall the particular kind of challenge to
certification presented here. Of course, the decision whether to use
subclasses is to be made on a case by case basis by the District
Court, a determination which we review for an abuse of discretion.
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28.15 Accordingly, we find that the District Court did not abuse its
discretion in finding that the class satisfied the adequacy of
representation requirement of Rule 23.
4. Superiority Requirement
Rule 23(b)(3) requires that “a class action [be] superior to
other available methods for the fair and efficient adjudication of
the controversy.” Fed. R. Civ. P. 23(b)(3). The Rule sets out
15
Appellant Shapiro also contests the District Court’s fee award
on the grounds that it exacerbated the intraclass conflict between
consumers and TPPs. The District Court set aside 22.5% of the
total $44 million settlement fund to cover attorneys fees to be
divided according to the discretion of the co-chairs of the
Executive Committee. The District Court dismissed objections
lodged against the award as unpersuasive, explaining that the
distribution of an attorney fee award among counsel is and should
be a “private matter” for the attorneys to resolve amongst
themselves. See Spicer v. Chi. Bd. Operations Exch., 844 F. Supp.
1226, 1256 (N.D. Ill. 1993); Newberg, Attorney Fee Awards § 2.16
(1986). Shapiro renews his arguments here, essentially asserting
that consumer counsel would have had an incentive to win a larger
settlement for their clients if their share of the fees were directly
linked to their clients’ recovery. Because we find that the class was
properly certified, and the Executive Committee structure
adequately represented the interests of all class members in the
settlement negotiations, we see no reason to treat TPP and
consumer counsel as antagonistic constituencies within the
settlement class and deviate from the accepted practice of allowing
counsel to apportion fees amongst themselves. See Prudential, 148
F.3d at 329 n.96 (“[T]he court need not undertake the difficult task
of assessing counsels’ relative contributions.”). Furthermore, as
the District Court noted, not only is there no reason to presume that
TPP and consumer counsel will collect fees in proportion to the
amount of recovery for their respective clients, but the fund is not
allocated between TPPs and consumers in such a way that would
make such a division even possible.
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several factors relevant to the superiority inquiry. 16 The superiority
requirement “asks the court to balance, in terms of fairness and
efficiency, the merits of a class action against those of alternative
available methods of adjudication.” Prudential, 148 F.3d at 316(internal citations and quotations omitted). The District Court
found that the class satisfied the superiority requirements of Rule
23(b)(3), and we find no error in this determination.
Notably, there are a potentially large number of class
members in this matter, including some 2 million consumers and
potentially thousands of TPPs. However, individual consumer
class members have little interest in “individually controlling the
prosecution or defense of separate actions,” Fed. R. Civ. P.
23(b)(3)(A), because each consumer has a very small claim in
relation to the cost of prosecuting a lawsuit. Thus, from the
consumers’ standpoint, a class action facilitates spreading of the
litigation costs among the numerous injured parties and encourages
private enforcement of the statutes. See General Motors, 55 F.3d
at 784. As the District Court noted, this is less true for TPP
members of the class, some of whom have significant individual
claims. However, the TPPs had the option to opt-out of the
proposed settlement if it was in their interest to bring their claims
separately.
Moreover, there were a relatively small number of
individual lawsuits pending against DuPont in this matter, which
indicated to the District Court that there was a lack of interest in
16
Rule 23(b)(3) lists the following factors for consideration by
the courts:
(A) the interest of members of the class in
individually controlling the prosecution or defense of
separate actions; (B) the extent and nature of any
litigation concerning the controversy already
commenced by or against members of the class; (C)
the desirability or undesirability of concentrating the
litigation of the claims in the particular forum; (D)
the difficulties likely to be encountered in the
management of a class action.
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individual prosecution of claims. See Prudential, 148 F.3d at 316;
see also Fed. R. Civ. P. 23(b)(3)(B). Finally, the District Court
found that it was desirable to concentrate litigation in Delaware,
where DuPont had its principal place of business and where several
initial class action lawsuits had been filed. See Prudential, 148
F.3d at 316; see also Fed. R. Civ. P. 23(b)(3)(C).
B. Fairness of the Class Action Settlement
A class action may not be settled under Rule 23(e) without
a determination by the district court that the proposed settlement is
“fair, reasonable and adequate.” General Motors, 55 F.3d at 785(citations and quotations omitted); see also Fed. R. Civ. P.
23(e)(1)(A). We have on several occasions stressed the importance
of Rule 23(e), noting that “the district court acts as a fiduciary who
must serve as a guardian of the rights of absent class members.”
General Motors, 55 F.3d at 785 (citations and quotations omitted);
see also Amchem, 521 U.S. at 623 (noting that the Rule 23(e)
inquiry “protects unnamed class members from unjust or unfair
settlements affecting their rights when the representatives become
fainthearted before the action is adjudicated or are able to secure
satisfaction of their individual claims by a compromise”) (citations
omitted). However, in cases such as this, where settlement
negotiations precede class certification, and approval for settlement
and certification are sought simultaneously, we require district
courts to be even “more scrupulous than usual” when examining
the fairness of the proposed settlement. See General M otors, 55
F.3d at 805. This heightened standard is intended to ensure that
class counsel has engaged in sustained advocacy throughout the
course of the proceedings, particularly in settlement negotiations,
and has protected the interests of all class members. See
Prudential, 148 F.3d at 317.
This Court has identified nine factors to be considered when
determining whether a proposed class action settlement is fair,
reasonable and adequate. See Girsh v. Jepson, 521 F.2d 153, 157
(3d Cir. 1975). These factors are:
(1) The complexity, expense, and likely duration of the
litigation; (2) the reaction of the class to the settlement; (3)
the stage of the proceedings and the amount of discovery
completed; (4) the risks of establishing liability; (5) the risks
-27-
of establishing damages; (6) the risks of maintaining the
class action through the trial; (7) the ability of the
defendants to withstand a greater judgment; (8) the range of
reasonableness of the settlement fund in light of the best
possible recovery; and (9) the range of reasonableness of the
settlement fund to a possible recovery in light of all the
attendant risks of litigation.
Girsh, 521 F.2d at 156-57. The “decision of whether to approve a
proposed settlement of a class action is left to the sound discretion
of the district court,” and we accord great deference to the district
court’s factual findings. Girsh, 521 F.2d at 156. Additionally,
there is an overriding public interest in settling class action
litigation, and it should therefore be encouraged. See General
Motors, 55 F.3d at 784 (“the law favors settlement, particularly in
class actions and other complex cases where substantial judicial
resources can be conserved by avoiding formal litigation”); In re
Sch. Asbestos Litig., 921 F.2d at 1333 (noting that the court
encourages settlement of complex litigation “that otherwise could
linger for years”).
Before turning to the District Court’s application of the
Girsh factors, we resolve a challenge raised by Appellants as to
whether the proposed settlement is entitled to a presumption of
fairness. We have previously directed a district court to apply an
initial presumption of fairness when reviewing a proposed
settlement where: “(1) the settlement negotiations occurred at
arm’s length; (2) there was sufficient discovery; (3) the proponents
of the settlement are experienced in similar litigation; and (4) only
a small fraction of the class objected.” Cendant, 264 F.3d at 232
n.18. Based on the record before it, the District Court determined
that the presumption of fairness properly attached because the
settlement resulted from intense arms-length negotiations between
experienced counsel, came after over three years of active litigation
and discovery, and was objected to by only a small fraction of the
purported class. Several Appellants argue that even if the four
factors were met, the District Court was still not entitled to apply
a presumption of fairness because the settlement negotiations
preceded the actual certification of the class, and thus the District
Court could not assure itself that the negotiations proceeded at
arm’s length or that class counsel vigorously protected the class’
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interests. We disagree. As discussed above, we have satisfied
ourselves that the Rule 23(e) adequacy of representation
requirement was met such that the consumer and TPP plaintiffs,
their respective counsel, as well as the structure of the Executive
Committee protected the class’ interests during the settlement
negotiations. Accordingly, we see no reason in this case to depart
from the presumption of fairness that attached to the proposed
settlement given that the District Court found that the four factors
were met.
We now turn to the Girsh factors, keeping in mind the
heightened standard we use when reviewing the fairness of a
settlement that results from negotiations that preceded formal class
certification, as well as the initial presumption of fairness that the
District Court found attached to the proposed settlement. For the
reasons discussed below, we conclude that the District Court did
not abuse its discretion in determining that the settlement was fair.
1. Complexity, Expense, and Likely Duration of
Litigation
The first factor “captures the probable costs, in both time
and money, of continued litigation.” Cendant, 264 F.3d at 233(citation omitted). We agree with the District Court’s conclusion
that this factor favors settlement because continuing litigation
through trial would have required additional discovery, extensive
pretrial motions addressing complex factual and legal questions,
and ultimately a complicated, lengthy trial. Moreover, it was
inevitable that post-trial motions and appeals would not only
further prolong the litigation but also reduce the value of any
recovery to the class. In a class action of this magnitude, which
seeks to provide recovery for Coumadin consumers and TPPs
nationwide, the time and expense leading up to trial would have
been significant. See Prudential, 148 F.3d at 318.
2. The Reaction of the Class to the Settlement
The second Girsh factor “attempts to gauge whether
members of the class support the settlement.” Prudential, 148 F.3d
at 318. We agree with the District Court that this factor also
supports the proposed settlement. After preliminary approval of
the settlement, individual notice was mailed to over 12,000
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potential TPP class members, and summary notice was published
in newspapers and magazines likely to be read by potential class
members and which had a combined circulation of 115 million. Of
the 1.8 million potential class members, 136 consumers and ten
TPP claimants opted out of the settlement, and 11 consumers or
groups of consumers and two TPP claimants objected to the
proposed settlement. As of June 3, 2002, 48,305 consumer and
1,055 TPP claims had been received and processed by the
administrator. The District Court concluded that the insignificant
number of objections filed weighed in favor of approving the
settlement. Although we have previously noted that the district
court should be “cautious about inferring support from a small
number of objectors in a sophisticated settlement,” General Motors,
55 F.3d at 812 (citations omitted), we agree with the District Court
that the small number of TPP objectors is particularly telling as
they are sophisticated businesses with very large potential claims.
In addressing this second Girsh factor, we consider a related
argument raised by one of the Appellants. Hutchinson argues that
the lack of consumer objectors resulted from inadequate notice to
the consumers, as compared to the notice provided to TPPs. Rule
23(c)(2) specifies that all members of the class should receive “the
best notice practicable under the circumstances, including
individual notice to all members who can be identified through
reasonable effort.” The District Court determined that this
requirement was satisfied by publishing summary notice in
publications likely to be read by consumer claimants along with a
call-center and a website with information and downloadable
forms. Hutchinson, however, argues that notice to consumer
plaintiffs was inadequate in this case as compared to other large
class action suits where individual direct mailing was used. See,
e.g., In re Lorazepam & Clorazepate Antitrust Litig., 205 F.R.D.
369, 381 (D.D.C. 2002); Cendant, 264 F.3d at 226; In re Synthroid
Mktg. Litig., 264 F.3d at 716.
However, even in the absence of any individual notice via
direct mail in this matter, we are satisfied that the District Court
acted within its discretion in determining that “reasonable effort”
was made here to provide “the best notice practicable under the
circumstances.” See Fed. R. Civ. P. 23(c)(2). In particular, we note
that neither the plaintiffs nor DuPont had access to the names and
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addresses of the multitude of people nationwide who purchased
Coumadin because the identity of pharmaceutical purchasers is
confidential information that cannot be disclosed without patient
consent. In addition, we note that consumers in this case who
contacted the administrator or visited the website could request a
copy of the notice by direct mail.
3. Stage of Proceedings and Amount of
Discovery Completed
The third Girsh factor “captures the degree of case
development that class counsel [had] accomplished prior to
settlement. Through this lens, courts can determine whether
counsel had an adequate appreciation of the merits of the case
before negotiating.” Cendant, 264 F.3d at 235 (quoting General
Motors, 55 F.3d at 813). As the District Court found, this litigation
had been pursued by class counsel on several fronts for over three
years before negotiation of the settlement. Prior to consolidation
by the order of the MDL panel, four separate federal actions had
been filed by consumer plaintiffs, and consumers and TPPs
pursued state actions in Illinois, California, Tennessee, New York,
Alabama, and Wisconsin. The settlement agreement was reached
after a year of negotiations which included consultations with
experts. Contrary to Hutchinson’s assertion that the District Court
had virtually nothing to aid its evaluation of the settlement terms,
three years of litigation and discovery resulted in hundreds of
thousands of documents produced by defendant, numerous
depositions, and consultations with experts with which the District
Court was familiar. Based on the type and amount of discovery
undertaken by the parties, the District Court concluded that class
counsel adequately appreciated the merits of the case before
negotiating, and we agree that this factor strongly favors approval
of the settlement. See Prudential, 148 F.3d at 319.
4. & 5. Risks of Establishing Liability and Damages
These factors survey the potential risks and rewards of
proceeding to litigation in order to weigh the likelihood of success
against the benefits of an immediate settlement. Cendant, 264 F.3d
at 237-39; Prudential, 148 F.3d at 319. After evaluating several
possible bars to plaintiffs’ success at trial, the District Court
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concluded that on balance, the fourth and fifth Girsh factors
favored settlement. We discern no error in that determination.
6. Risks of Maintaining Class Action Status
Through Trial
Because “the prospects for obtaining certification have a
great impact on the range of recovery one can expect to reap from
the [class] action,” General Motors, 55 F.3d at 817, this factor
measures the likelihood of obtaining and keeping a class
certification if the action were to proceed to trial. A district court
retains the authority to decertify or modify a class at any time
during the litigation if it proves to be unmanageable. Prudential,
148 F.3d at 321. Although Appellants’ concerns about the
manageability of a multistate class of consumers and TPPs, as we
discussed above, did not pose a problem for the certification of a
settlement class, there is a significant risk that such a class would
create intractable management problems if it were to become a
litigation class, and therefore be decertified. See In re LifeUSA
Holding, Inc., 242 F.3d at 147; Georgine, 83 F.3d at 630. We
agree with the District Court that the significant risk that the class
would be decertified if litigation proceeded weighs in favor of
settlement.
7. Ability to Withstand Greater Judgment
The seventh Girsh factor considers “whether the defendants
could withstand a judgment for an amount significantly greater
than the [s]ettlement.” Cendant, 264 F.3d at 240. The District
Court found that this factor neither favored nor disfavored
settlement because of a lack of evidence in the record about
DuPont’s ability to pay or whether such a consideration factored
into the settlement negotiations. Appellants Cleusman and
Hutchinson contend that the District Court should have inquired
into DuPont’s ability to pay a higher settlement amount in
determining whether the settlement was adequate. Although the
plaintiffs do not dispute that DuPont’s total resources far exceed
the settlement amount, the fact that DuPont could afford to pay
more does not mean that it is obligated to pay any more than what
the consumer and TPP class members are entitled to under the
theories of liability that existed at the time the settlement was
reached. Here, the District Court concluded that DuPont’s ability
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to pay a higher amount was irrelevant to determining the fairness
of the settlement. We see no error here.
8. & 9. The Range of Reasonableness of
Settlement in Light of Best Possible
Recovery and All Attendant Risks of
Litigation
The last two Girsh factors evaluate whether the settlement
represents a good value for a weak case or a poor value for a strong
case. The factors test two sides of the same coin: reasonableness
in light of the best possible recovery and reasonableness in light of
the risks the parties would face if the case went to trial. Prudential,
148 F.3d at 322. In order to assess the reasonableness of a
settlement in cases seeking primarily monetary relief, “the present
value of the damages plaintiffs would likely recover if successful,
appropriately discounted for the risk of not prevailing, should be
compared with the amount of the proposed settlement.” Id. (citing
General Motors, 55 F.3d at 806).
Plaintiff’s expert, Dr. French, estimated recoverable
damages to be as low as $7.1 million and as high as $133.8 million.
The District Court described the methodology utilized by Dr.
French to arrive at those figures and concluded his estimate was
reasonable.17 Appellant Hutchinson now claims, without the
support of expert evaluation, citation, or discovery, that maximum
damages in this case should have been estimated at $400 million
since DuPont made $1.6 billion in sales between 1997 and 1999,
and there was a 25% difference in cost between generic warfarin
sodium and Coumadin. The District Court, after reviewing the
expert report and supporting materials, concluded that Dr. French’s
17
Dr. French’s model assumed that, absent DuPont’s alleged
illegal acts, DuPont’s share of the market would have fallen from
100% to 50% from July 1997 to September 1999, that generic
warfarin sodium would have cost 25% less than Coumadin, and
that DuPont would have charged 2.5% less for Coumadin due to
competition from the generic product. Dr. French’s floor of $7.1
million resulted from his estimation that DuPont would have
vigorously challenged the basis for plaintiffs’ damages at trial.
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estimate of the range of possible damages was reasonable if the
case were to go to trial.
Based on the $400 million figure, Hutchinson argues that
consumers only received 11% of total economic damages, well
below the 30%-70% damages recovered in similar pharmaceutical
industry class actions. According to Dr. French’s figures, however,
the $44.5 million settlement fund is approximately 33% of
available damages and well within a reasonable settlement range
when compared with recovery percentages in other class actions.
See Cendant, 264 F.3d at 241 (approving settlement for 36%-37%
recovery and noting that typical recoveries in securities class
actions range from 1.6% to 14%).18 We find no error in the District
Court’s analysis and hold that these two factors also favor
settlement.
On balance, and in light of the presumption of fairness that
attaches to the settlement, we find that the District Court
adequately addressed the Girsh factors, properly discharged its
fiduciary duty to absent class members, and did not abuse its
discretion in finding the settlement to be fair and reasonable.
C. Plan of Allocation
Several Appellants object to the proposed allocation of
settlement funds under the Plan of Allocation. These arguments
overlap substantially with those made with respect to class
certification, but to the extent that they were not addressed in our
discussion above in Part A, we address them here. These
additional arguments can be characterized into two groups, those
objecting to the inclusion of TPPs in the Plan of Allocation and
those objecting to the inclusion of fixed co-pay consumers in the
Plan of Allocation.
With regards to the first contention, several Appellants
argue, despite the fact that the District Court noted the priority
being given to individual consumers in the structure of the
18
Although it is not determinative here, it is also worth noting
that while Hutchinson claims the settlement fund amount is too
small, every consumer who filed a claim on or before April 30,
2002, will receive 100% of their Recognized Loss.
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settlement, that the settlement is unfairly skewed in favor of TPPs.
Although TPPs are certainly receiving a larger percentage of the
fund than are consumers, this does not translate into an unfair
allocation. As the District Court noted, TPPs paid 67% of
Coumadin costs, while consumers paid for 27%, so TPPs actually
bear the greater share of damages. Moreover, the District Court
stated that the settlement does not favor TPPs. Rather, it is
structured to protect consumers and to create an incentive for them
to submit claims. The settlement allows individual consumers
preferential access to the first 18% of the Net Settlement Fund to
satisfy consumer claims before TPP claimants can recover at all,
and if consumer claims exceed that amount, the remainder of the
82% of the NSF is shared between TPPs and consumers on a pro
rata basis. Because of this favorable allocation, based on the
number of consumer claims the Settlement Administrator has
received, all consumers who have filed claims can expect to receive
100% of their Recognized Loss, while TPP’s will receive only
approximately 35.6% of their Recognized Loss. Moreover, we
note that had the TPPs or a subclass of consumers not been
included in the settlement distribution, the settlement amount
would have presumably been significantly smaller as DuPont
would still have been vulnerable to claims from excluded
purchasers. Consequently, we agree with the District Court that the
inclusion of TPPs in the Plan of Allocation was not unfair to
individual consumers.
As for the second contention, several Appellants object to
the inclusion of fixed co-pay consumers as equal sharers in the
proceeds of settlement. However, by participating in the
settlement, all class members, including consumers with fixed co-
pays, are releasing equitable and common-law claims for unjust
enrichment seeking disgorgement of profits from wrongdoers, and
claims for injunctive relief. Although fixed co-pay consumers have
not suffered monetary damages, it is appropriate that they receive
consideration for the release of the claims they have against
DuPont. Because the Plan of Allocation was agreed to by
consumer and TPP class representatives after extensive, arms-
length negotiations, and because all consumers who filed claims
are likely to receive 100% of their Recognized Losses, the District
Court was persuaded that fixed co-pay consumers be allowed to
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share equally in the distribution of the settlement fund. We find no
error in this determination.
III. CONCLUSION
Because the class satisfies the requirements of Federal Rule
of Civil Procedure 23 and the settlement is fair to the class, we will
affirm the decision of the District Court.
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