No Injury? No Class. First Circuit Sharply Limits Class Certification in Antitrust Cases When the Class Contains Uninjured Persons, Highlighting a Circuit Split
The First Circuit just addressed one of the recurring issues at the cutting edge of class certification in antitrust cases — whether a class can be certified if it contains a significant number of persons who were not injured. In In re Asacol Antitrust Litigation,1 the Court held that certifying a class with uninjured persons would deny the defendant’s right to challenge whether a plaintiff has suffered antitrust injury, which is an element of every antitrust claim. The Court rejected the workarounds routinely offered by plaintiffs in these cases — that uninjured class members can be removed in the post-judgment claims administrative process, and that defendants have no interest in how the damages are allocated to the class. Finally, the Court emphasized that the federal circuits have split on this question, thus inviting the Supreme Court to review this important issue at the forefront of class certification.
Background of the Case
The underlying antitrust case challenged a so-called “product hopping” strategy involving Asacol, a drug that treats ulcerative colitis. Just a few months before its patent was set to expire, Warner Chilcott, the drug’s manufacturer, pulled Asacol from the market and replaced it with two similar drugs still under patent protection. This allegedly frustrated generic manufacturers from offering generic versions of Asacol. A group of union-sponsored benefit plans that paid for the replacement drugs filed a putative indirect purchaser class action against Warner, alleging that the drug switch was designed to preclude entry of lower-cost generic alternatives to Asacol, thereby maintaining Warner’s monopoly power.
A federal District Court in Massachusetts granted a motion to certify a class of people who purchased Asacol prior to the date on which its patent expired and also purchased one of the patent-protected replacement drugs after that date. Consumer research offered by experts on both sides agreed that about 10% of Asacol customers would not have switched to generics if they had been available, which meant that 10% of class members would not have been injured by the allegedly anticompetitive conduct. Nevertheless, the District Court certified the class, accepting the plaintiffs’ contentions that (a) uninjured class members could be removed post-judgment by a claims administrator, and (b) that the total damages could be reduced by the same 10% to account for the uninjured class members.
The First Circuit’s Opinion
The First Circuit granted interlocutory appeal under Rule 23(f) of the Federal Rules of Civil Procedure and soundly rejected this approach. At the heart of the Court’s opinion is the concern that it would be unfair and violate Warner’s Seventh Amendment rights to prevent Warner from challenging at trial whether individual class members suffered injury in the name of efficiency. Antitrust injury is an element of every antitrust claim, and a defendant with a legitimate defense should be permitted to present its defense before it is held liable to class members that cannot prove an antitrust claim. Allowing a claims administrator to weed out uninjured persons post-judgment would unfairly deny Warner the right to present this defense. The First Circuit also rejected the plaintiffs’ workaround that would reduce the damages by 10% to account for the estimated 10% uninjured class members. Doing so, according to the Court, “flies in the face of the core principal that class actions are the aggregation of individual claims, and do not create a new entity or reapportion substantive claims.”2 The Court rejected the plaintiffs’ argument — often made in these circumstances — that the defendant has no interest in how the damages are allocated among class members.
The First Circuit concluded that denying class certification would not undermine class action policy. The Court recognized that “there remains the problem of how to deal with conduct that inflicts small amounts of damage on large numbers of people.”3 It acknowledged that class certification is intended to address that problem. However, the Court said that concern gives courts no license to alter or reallocate substantive rights. It said there are other tools to address that concern such as lawsuits by regulators, parens patriae suits by governments, and private litigants could use the risk of res judicata and issue preclusion from individual suits to induce aggregate settlements.4
Recognizing that the District Court (understandably) relied on its 2015 Nexium5 opinion for the proposition that the uninjured class members could be dealt with by a claims administrator, the First Circuit made a point to blunt Nexium’s effect. After accepting its holding that testimony contained in affidavits may suffice to prove injury in fact at the trial stage, the First Circuit found that this would nevertheless be infeasible in situations where defendants expressly state an intention to challenge the injury-in-fact claims, as Warner did here. Importantly, Warner not only stated its intention to challenge antitrust injury, but its intention was backed up by strong evidence accepted by the District Court that a large number of unidentified — and probably unidentifiable — class members would not have been injured. Warner’s challenge to class certification would probably have been more difficult if it did not have substantial evidence — including admissions by plaintiffs’ own experts — supporting its defense that class members were not injured.
Where to Draw the Line?
Plaintiffs and defendants often debate whether a class can be certified when it contains uninjured persons and, if so, how many is too many uninjured class members to certify a class. Despite Asacol’s implications, no court has gone so far as to say a de minimus amount of uninjured class members precludes class certification. Courts understand that at some point common issues do predominate over individual questions related to injury. The First Circuit would have been less troubled if only a “few unusual class members” could have been “picked off” by the defendant.6 Nor would it apparently have been troubled if plaintiffs had offered a method, using proof that is common to the class, that would allow eliminating those uninjured class members at trial and prior to a liability determination.
The First Circuit’s opinion highlights the uncertainty across various circuits on where this quantitative threshold lies. Although several circuits, including the Third, Fifth and Eighth, analyze uninjured class members through the lens of Rule 23(b)(3)’s predominance requirement, none have set forth a clear standard on when individual questions regarding injury erode common questions to the point of failure.7 Even in circuits, including the Seventh and Ninth, that will certify a class with some amount of uninjured members, just how many is too many is up for debate.8
We can glean some idea from the cases. The First Circuit (in Asacol) obviously concluded that 10% was not de minimus. In the Rail Freight litigation, the D.C. Circuit reversed an order certifying a class, saying that plaintiffs must show that “all class members were in fact injured.”9 On remand, the district court in Rail Freight found that 12.7% was too high, and cited cases suggesting that 5% to 6% of uninjured class members is the outer limits of de minimus.10 Asacol and Rail Freight also note that the absolute number estimate of uninjured class members is relevant to a practical determination of predominance; a Court can obviously weed out ten clearly uninjured class members more easily than it can two thousand.
For many years, antitrust injury has been one of the most important issues in antitrust cases on class certification. The Asacol opinion reinforces the importance for plaintiffs and defendants to present evidence about whether the proposed class genuinely includes a significant number of uninjured persons and whether those persons can be identified in the liability phase. Neither plaintiffs nor defendants should rely on arguments and policy. Rather, they will need to concentrate on the strength of the evidence about the presence and identifiability of uninjured class members.
In addition, the First Circuit all but encourages the Supreme Court to review this issue. It refers to the “divergence” of views among the different federal circuits.11 Recent Supreme Court cases like Comcast and Tyson Foods potentially included issues about whether a class could be certified if it includes a significant number of uninjured persons, but the Court decided those cases without resolving those issues. This may be the case raising this issue at the forefront of class certification jurisprudence.
1 Information In re: Asacol Antitrust Litigation, No. 18-1065, 2018 WL 4958856 (1st Cir. Oct. 15, 2018).
2Asacol at *10.
5In re Nexium Antitrust Litigation, 777 F.3d 9 (1st Cir. 2015).
6Asacol at *11.
7See In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294 (5th Cir. 2003); Halvorson v. Auto-Owners Insurance Co., 718 F.3d 773 (8th Cir. 2013).
8See Messner v. Northshore Univ. Healthsystem, 669 F.3d 802 (7th Cir. 2012); Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672 (7th Cir. 2009); Torres v. Mercer Canyons Inc., 835 F.3d 1125 (9th Cir. 2016).
9 In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244, 252 (D.C. Cir. 2013).
10In re Rail Freight Fuel Surcharge Antitrust Litig., 292 F. Supp. 3d 14 at 137 (D.D.C. 2017).
11Asacol at *10.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.