As my colleague Don Frederico noted in his January 24th post, a divided First Circuit panel recently affirmed the district court’s class certification decision in In re Nexium Antitrust Litigation.  In so doing, the First Circuit weighed in on a critical issue that arises in many class cases:  is class certification proper where certain members of the class have not suffered injury?

In re Nexium involved claims alleging that the plaintiffs and others similarly situated paid supracompetitive prices for a prescription drug as a result of anticompetitive behavior between the manufacturer of the drug and its generic drug competitors.  As thoroughly detailed in an earlier post on this blog, the district court certified the class, finding that the presence of some uninjured consumers in the class did not defeat a showing of predominance. On appeal, the majority of the First Circuit panel agreed, holding that “class certification is permissible even if the class includes a de minimis number of uninjured parties.” 

In reaching this conclusion, the majority relied on three uncontroversial class certification principles.  The majority first observed that class certification is “improper unless the theory of liability is limited to the injury caused by defendants.”   The court then noted that “the definition of the class must be ‘definite,’” or ascertainable.  Finally, the court noted that “the payout of the amount for which the defendants were held liable must be limited to injured parties,” and that, in order to certify a class, “the court must be satisfied that, prior to judgment, it will be possible to establish a mechanism for distinguishing the injured from the uninjured class members” in an “administratively feasible” way that is “protective of defendants’ Seventh Amendment and due process rights.”

Having set this uncontroversial framework, the majority then applied the framework in a novel fashion – likely unique to the evidence presented and the facts of the case – to affirm class certification.  The court rejected the defendants’ argument that the presence of uninjured class members should defeat class certification in that case because plaintiffs had not conceded, and defendants had not shown, that a mechanism for excluding these class members could not be developed.  The court concluded that defendants’ argument on this point was simply “speculation,” and raised, sua sponte, the possibility that uninjured class members could be excluded by submission of affidavits.  The majority concluded that the affidavit process would not introduce individualized issues that would predominate over common issues where there were only a “de minimis number of uninjured members” in the certified class.  The court further determined that the defendants would not be harmed by the presence of these uninjured class members because these members could be excluded prior to judgment:  “the defendants will not pay, and the class members will not recover, amounts attributable to uninjured class members.”

The court then rejected the defendants’ argument that more than a de minimis number of class members were uninjured.  Accepting the notion that the presence of a more-than-de minimis number of uninjured class members would defeat class certification, the court concluded that “plaintiffs’ evidence has shown that the vast majority of class members were probably injured” and that defendants’ argument on this point also amounted to mere “speculation.”  Because the court found “no basis” for concluding that there were a significant number of uninjured class members based on the unique facts of the case, the court concluded that common issues would “truly predominate.”

Judge Kayatta dissented.  He observed that the “majority correctly recognizes that certification of a class that includes uninjured consumers hinges on there being a method of identifying and removing those consumers prior to entry of judgment, and than any such method must be both administratively feasible and protective of the defendants’ Seventh Amendment and due process rights.”  Noting that the district court did not identify any method for excluding uninjured class members, Judge Kayatta wrote that the court should vacate the order and remand to the district court to determine whether class certification would be proper under these principles.  He then went on two decry two particular aspects of the majority’s opinion.  First, he noted that the affidavit procedure proposed by the majority was “untested by the adversary system, unexamined by any trial judge, and fashioned without awareness of its fit to the parties’ needs and goals.”  Second, he “t[ook] issue with the majority’s suggestion that when a proposed class includes some uninjured members who will have to be removed post-certification, it is the defendants who bear the burden of demonstrating that it cannot be done.”

As Judge Kayatta’s dissent points out, the majority’s opinion is worrisome in that it suggests that affidavits may be sufficient to deal with the problem of uninjured class members and further suggests that defendants have the burden of disproving the propriety of class certification.  In many instances, the use of affidavits would not be administratively feasible because it would necessarily entail individual-by-individual trials.  Even more seriously, the use of affidavits without the opportunity for individualized cross-examination or other challenges to the content of the affidavits is inconsistent with defendants' due process rights.  Further, it has long been clear – and the majority even concedes – that plaintiffs bear the burden of proving that class certification is proper.  However, there are steps that defendants can take that will minimize the significance of the majority’s opinion in In re Nexium.  As the majority makes abundantly clear, given the procedural background of the case, there was no evidence regarding the administrative burden of a trial-by-affidavit procedure.  Further, the defendants failed to develop substantial evidence showing that there were a significant number of uninjured class members.  It is doubtful whether In re Nexium applies outside these unique circumstances. Following In re Nexium, Defendants should seek to develop evidence on these points in opposing class certification.