The Third Circuit’s recent decision in In re Hydrogen Peroxide Antitrust Litigation1 (“Hydrogen Peroxide”) signals something of a “sea change” in a district court’s role in assessing a motion for class certification and the burden placed upon plaintiffs to satisfy the requirements of Rule 23 of the Federal Rules of Civil Procedure. In particular, the most critical part of the holding is with respect to the “predominance” requirement of Rule 23(b)(3), applicable to many certification decisions, where plaintiffs must now show, by a preponderance of the evidence, that they have a viable methodology for establishing each element of their underlying claims using common available proof. These more exacting standards put the Third Circuit in line with the modern trend in the Second, Fourth, Fifth and Seventh Circuits.
A Survey of the Circuits
In the Third Circuit, prior to Hydrogen Peroxide, case law addressing plaintiffs’ burden at the class certification stage, including the predominance requirement, was inconsistent, at best. Although the Third Circuit pronounced that district courts were required to assess whether all of the Rule 23 requirements were met, plaintiffs only needed to make a “threshold showing.”2 District courts assessing class certification motions were authorized to “make whatever factual and legal inquiries [were] necessary” to analyze whether plaintiffs satisfied this relatively low burden.3 Yet, district courts would not “credit [p]laintiffs’ evidence over [d]efendants’ or vice versa.”4 According to the Third Circuit, district courts were not required to examine whether plaintiffs could prove the allegations in their complaints but, instead, needed only to be “assure[d]” that plaintiffs’ attempts to prove their allegations would “predominantly involve common issues of fact and law.”5
In contrast, the standard for class certification in other Circuits has been more rigorous. For example, the Second Circuit rejected the idea that only “some showing” that the Rule 23 requirements are satisfied is necessary.6 Instead, the Second Circuit has made clear that a district court is obliged to make a determination that every Rule 23 requirement is met “by a preponderance of the evidence.”7 The district court’s obligation to assess whether each requirement is met is not diminished in any way “just because of some or even full overlap of that requirement with a merits issue.”8
Moreover, issues concerning expert witnesses have grown in importance at the class certification stage. The Second Circuit has held that a district court may not rely upon expert testimony to establish a component of Rule 23 “simply [because it is] not fatally flawed.”9 This is consistent with the Eighth Circuit’s decision in Blades v. Monsanto Co.,10 in which the court held that “in ruling on class certification, a court may be required to resolve disputes concerning the factual setting of a case. This extends to resolution of expert disputes.” With respect to the certification process, courts likewise may be called upon to resolve challenges to an expert’s qualifications in accordance with Daubert v. Merrell Dow Pharmaceuticals, Inc.11 (“Daubert”). For instance, in Rhodes v. E.I. DuPont de Nemours & Co.,12 the federal district court in West Virginia found that it “must satisfy itself that the facts, data, principles, and methods undergirding the expert opinions offered in support of class certification are…reliable prior to relying on those opinions during class certification” and, therefore, ordered a preliminary Daubert hearing to “test plaintiffs’ key experts’ methodology and assumptions.”13
The Second Circuit has cautioned that “[a] district judge is to assess all of the relevant evidence admitted at the class certification stage and determine whether each Rule 23 requirement has been met, just as the judge would resolve a dispute about any other threshold prerequisite for continuing a lawsuit.”14
The Fourth, Fifth and Seventh Circuits have made similar rulings. The Fourth Circuit has held that “while an evaluation of the merits to determine the strength of plaintiffs’ case is not part of the Rule 23 analysis, the factors spelled out in Rule 23 must be addressed through findings, even if they overlap with issues on the merits.”15 In Unger v. Amedisys, Inc.,16 the Fifth Circuit stated that the district court’s standard of proof was “too lax” and the district court must go “beyond the pleadings” to “understand the claims, defenses, relevant facts, and applicable substantive law in order to make a meaningful determination of certification issues.” The Seventh Circuit has held that “a judge should make whatever factual and legal inquiries are necessary under Rule 23” and the “judge must make a preliminary inquiry into the merits” if necessary to resolve a dispute over a Rule 23 requirement.17
The Hydrogen Peroxide Decision
Hydrogen Peroxide involved claims that manufacturers of hydrogen peroxide and other chemicals engaged in a horizontal conspiracy to fix prices over an eleven-year period. Plaintiffs moved to certify a class of direct purchasers of the chemicals. In connection with the class certification process, as is typically the case, the parties focused on the “predominance” requirement of Federal Rule 23(b)(3), which requires the court to find, among other things, that “questions of law or fact common to class members predominate over any questions affecting only individual members.”18 “If proof of the essential elements of the cause of action requires individual treatment, then class certification is unsuitable.”19
The parties in Hydrogen Peroxide submitted expert opinions of economists, who had differing views concerning the nature and structure of the relevant market and whether purchasers paid an overcharge for the chemicals as a result of the alleged conspiracy. The lower court certified the class, holding that plaintiffs were required only to make a threshold showing that antitrust impact will predominantly involve common proof.20 The district court did not weigh the competing expert testimony and instead simply held that plaintiffs’ expert opinion was sufficient to establish the predominance of common issues.21 In particular, the district court ruled that plaintiffs’ expert proposed reliable methodologies for proving antitrust impact and damages and the expert’s failure to conduct a benchmark or regression analysis to test his proposed methodologies was not fatal to plaintiffs’ motion for class certification.22 In other words, the district court accepted plaintiffs’ expert’s theories for proving impact and damages, but did not require plaintiffs to test the theories or show that they would actually work.
On appeal, the Third Circuit first rejected outright the notion that plaintiffs need only make a “threshold showing” that the requirements of Federal Rule 23(b) are met.23 Instead, the Court made clear that Rule 23 requires “rigorous consideration of all of the evidence and arguments.”24 Second, the court held that district courts “must resolve all factual and legal disputes between the parties, even if they overlap with the merits” and district courts err as a matter of law if they fail to do so.25 A party’s assurances to the court that “it intends or plans to meet the requirements is insufficient.”26 A district court’s factual determinations that the Rule 23 requirements are met must be supported by a preponderance of the evidence, which requires the district court to “find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23.”27
Third, the Court ruled that the district court must rigorously examine and weigh expert opinions, which “should not be uncritically accepted as establishing a Rule 23 requirement.”28 The fact that plaintiffs’ expert’s opinion is not eligible for exclusion pursuant to Daubert or for any other reason is not itself a reason for a district court to credit plaintiffs’ expert over defendants.29 According to the Third Circuit:
[T]he district court may be persuaded by the testimony of either (or neither) party’s expert with respect to whether a certification requirement is met. Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.30 The Third Circuit clarified, however, that while a district court’s findings are conclusive for purposes of class certification, “they do not bind the fact-finder on the merits.”31 Thus, litigants need not be concerned that an adverse finding of fact at the class certification stage will become law of the case for purposes of the merits.
The Hydrogen Peroxide court also specifically addressed the predominance requirement of Rule 23. The Court clarified that “[i]f proof of the essential elements of the cause of action [at issue] requires individual treatment, then class certification is unsuitable.”32 Accordingly, with respect to the Sherman Act claim before it, the Hydrogen Peroxide court ruled that the task for plaintiffs at class certification is to demonstrate that each element of a claim under Section 1 of the Sherman Act is:
…capable of proof at trial through evidence that is common to the class rather than individual to its members. Deciding this issue calls for the district court’s rigorous assessment of the available evidence and the methods or methods by which plaintiffs propose to use the evidence….33
Thus, to satisfy the predominance requirement of Rule 23(b)(3), plaintiffs must establish a viable methodology for using common available evidence to prove each element of a Section 1 claim under the Sherman Act—that is: (i) a conspiracy; (ii) harm to competition in a relevant geographic and product market; (iii) antitrust impact (also known as injury); and (iv) damage.
In Hydrogen Peroxide, the Third Circuit focused particularly on the element of antitrust impact in connection with the predominance inquiry. The Third Circuit ruled that, in addition to considering whether plaintiffs’ impact theory was plausible on its face, the district court must determine whether it also was “susceptible to proof at trial through available evidence common to the class.”34
If the issue is disputed, as it was in Hydrogen Peroxide, the Third Circuit directed that it must be resolved by the district court based on all relevant evidence.35 The Third Circuit ruled that by failing to consider defendants’ expert opinion, which raised “substantial doubts” about whether “common proof would be available for plaintiffs to demonstrate antitrust impact at trial,” the district court in Hydrogen Peroxide erred as a matter of law; therefore, the case was vacated and remanded on the ground that the district court applied an improper standard for evaluating plaintiffs’ class certification motion.36
Relying on Hydrogen Peroxide, the Third Circuit recently overturned two district court decisions granting class certification. In Hohider v. United Parcel Service, Inc.,37 the Western District of Pennsylvania certified a class of employees alleging violations of the Americans with Disability Act (“ADA”) by United Parcel Service. The Third Circuit ruled that the district court failed properly to consider whether plaintiffs satisfied the requirements of Federal Rule 23 with respect to each of the substantive elements of plaintiffs’ claim under the ADA.38 In particular, the Third Circuit noted that the district court failed to evaluate “what substantive elements are necessary to prove plaintiffs’ theories of discrimination,” including whether each member of the putative class is a “qualified” individual with a disability and whether each member had received a reasonable accommodation within the meaning of the ADA.39 The Third Circuit specifically recognized that the district court’s analysis of the Rule 23 factors necessarily should have touched on the merits of the plaintiffs’ claim and the district court’s failure to consider the elements of the claim in the context of Rule 23 was reversible error.40
Likewise, in Nafar v. Hollywood Tanning Systems, Inc.,41 the District of New Jersey certified a nationwide class of consumers who purchased indoor tanning services from Hollywood Tanning Systems alleging violations of New Jersey’s consumer fraud act, among others. The Third Circuit reversed and remanded because, inter alia, the district court focused solely on the uniformity of the alleged misrepresentations by Hollywood Tanning Systems concerning the benefits of indoor tanning in connection with the predominance inquiry required under Rule 23(b)(3). The district court failed thoroughly to analyze the causation element of the statutory violation within the context of the Rule 23 inquiry. In particular, the district court did not consider or resolve factual disputes regarding the extent to which class members knew of the health risks associated with the tanning systems at issue and the extent to which such knowledge would have impacted their behavior.42 On remand, the Third Circuit directed the lower court to consider such evidence, which was key to assessing whether individual issues predominate.43
Implications On Future Litigation
Hydrogen Peroxide, UPS, and Hollywood Tanning Systems teach that to defeat certification, defendants must be particularly attuned to plaintiffs’ proffer of evidence in support of class certification. Not only is it incumbent on plaintiffs to present a viable methodology for proving each element of a claim by a preponderance of the evidence, but plaintiffs must do so using common available evidence. That is, at the time of class certification, the plaintiffs must have “in hand” the evidence upon which they intend to rely to satisfy the Rule 23 requirements.
As a practical matter, it also is particularly important to draw a distinction between attacking an expert’s conclusions and attacking an expert’s methodologies and the viability thereof. Poking “holes” in an expert’s results or conclusions alone is not necessarily the most effective way to attempt to defeat class certification. Instead, defendants should attempt to show that an expert’s methodology is flawed or unreliable because: (i) it will not prove at trial what plaintiffs contend it will prove; or (ii) the expert does not have at his or her disposal common available evidence required by the proposed methodology.
In light of Hydrogen Peroxide, district courts now shoulder an increased responsibility to resolve all issues of fact that relate to Rule 23 requirements. Accordingly, several changes can be anticipated by litigants. First, given that district courts are now required rigorously to consider the factual presentations by the parties, discovery in aid of class certification can be expected to be more extensive—both by plaintiffs and defendants. The notion of discovery limited to class certification issues may become a thing of the past. In addition, as a result of the more extensive discovery process, class certification motions likely will be made later in the litigation after fact discovery has been completed or almost completed. Also, because district courts must now resolve any “battle of the experts,” we can expect that district courts will often require an evidentiary hearing as part of the certification process. The hearing will enable the district court judge directly to assess an expert’s credibility and the strength of any proposed methodologies.
In sum, the modern trend of more rigorous review of class certification motions has been embraced by the Third Circuit. Although the class certification process will be more intensive than in the past, on balance this should lead to better and more consistent results.