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Circuit Split on Certification: How far can evidence of price-fixing carry antitrust plaintiffs?

Manufacturers of containerboard and corrugated products have asked the Supreme Court to weigh in on a Circuit split concerning the impact of negotiated prices on class certification in antitrust cases brought under Section 1 of the Sherman Act.  Petitioners filed for a writ of certiorari on December 30, 2016, arguing that the Seventh Circuit in Kleen Products LLC, et al. v. International Paper Company, et al., Nos. 15-2385, 15-2386 (7th Cir. Aug. 4 2016), erred in two related ways, both of which flow from the fact that prices of the containerboard products at issue in the case tend to be individually negotiated. 

In Kleen Products, the Seventh Circuit held that evidence of price-fixing permits a presumption of antitrust impact even where the prices of products are individually negotiated.  The Seventh Circuit further concluded that the need for individualized inquiries to determine damages does not defeat the predominance requirement in class certification—a finding that had a considerable impact on the ability of the plaintiffs to certify a class.  Petitioners argue that both holdings are in error, and that the second flows from the first: “[B]ecause the Seventh Circuit has allowed plaintiffs to presume, rather than to prove, that all class members were injured, individualized inquiries also will be needed to ensure that the many uninjured class members do not recover damages.”  (Petition at 32.)

The first issue—the presumption of antitrust impact where evidence of price-fixing is found—creates a split between the First, Fifth, and Eighth Circuits, which do not apply such a presumption, and Tenth and now Seventh Circuits, which do.  The Seventh Circuit explained that, even if prices were negotiated individually on a transaction-by-transaction basis, it was “reasonabl[e]” for the district court to presume that the “starting point for those negotiations would be higher” in the presence of market manipulation.  This tracks the reasoning of the Tenth Circuit in In re Urethane Antitrust Litigation, 768 F.3d 1245 (10th Cir. 2014), where the court of appeals held that “price-fixing affects all market participants, creating an inference of class-wide impact even when prices are individually negotiated.”  By contrast, such an inference has been rejected in the First, Fifth, and Eighth Circuits:

  • First Circuit, In re New Motor Vehicles Canadian Export Antitrust Litigation, 522 F.3d 6 (1st Cir. 2008): “Too many factors play into an individual negotiation to allow an assumption—at least without further theoretical development—that any price increase or decrease will always have the same magnitude of effect on the final price paid.”
  • Fifth Circuit, Robinson v. Texas Automobile Dealers Association, 387 F.3d 416 (5th Cir. 2004): The assumption that an “additional charge . . . artificially increases the final purchase price for every consumer in the class” “defies the realities of the haggling that ensues in the American market when one buys a vehicle.”
  • Eighth Circuit, Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005): “‘In making the determination as to predominance, of utmost importance is whether impact should be considered an issue common to the class and subject to generalized proof, or whether it is instead an issue unique to each class member, and thus the type of question [that] might defeat the predominance requirement of Rule 23(b)(3).’” (quoting Fifth Circuit in Alabama v. Blue Bird Body)

Petitioners argue that the second issue—whether common issues can be said to predominate where plaintiffs’ allegations necessitate individualized damages inquiries—also reflects a divide among the Circuits.  The Seventh Circuit appeals court agreed with Petitioners-Appellants that, under the law of Comcast v. Behrend, “individualized damages do foreclose predominance if plaintiffs present no classwide method to adjudicate damages tethered to their theory of antitrust violations and if resolving those individualized damages issues would overwhelm questions common to the class.”  But the court held that it was sufficient for plaintiffs’ expert to put forth a means of estimate aggregate classwide damages, which could later be individually allocated. 

This tracks the reasoning of the Tenth Circuit’s In re Urethane court, which held that, because “the existence of a conspiracy [is] the overriding issue” in price-fixing cases, the existence of common questions as to the existence of the conspiracy outweighs lack of predominance in damages where “even the market involves a diversity in products, marketing, and prices.”  Petitioners characterize it as a “certify-first-and-ask-questions-later approach to predominance,” which conflicts with the approach employed in the Second, Fourth, and Fifth Circuits.  In the Second Circuit, for example, case law recognizes that “while the fact that damages may have to be ascertained on an individual basis is not, standing alone, sufficient to defeat class certification, . . . it is nonetheless a factor that we must consider in deciding whether issues susceptible to generalized proof ‘outweigh’ individual issues.”

Petitioners emphasized that the Court should take this opportunity to review the discrepancy in authority among Circuits, since interlocutory appeal (which the Seventh Circuit granted below) is not liberally permitted, and since defendants generally find it easier and less costly to settle actions of this magnitude once the lower courts have certified a class.  The questions presented in this case, they argued, will rarely reach the Supreme Court.

If the Supreme Court hears it, this case has the potential to definitively shape the malleable predominance requirement in antitrust class actions.  We’ll be following the progress of this Petition.