Although the case law used to be “far more accommodating to class certification” in actions for money damages, it is now clear that “[c]lass certification is far from automatic”—so said the D.C. Circuit in granting defendants’ motion for interlocutory appeal and vacating a district court order certifying a massive nationwide class in In re: Rail Freight Fuel Surcharge Antitrust Litigation, No. 12-7085, Slip op. 6, 17-18 (D.C. Cir. Aug. 9, 2013). The decision, a victory for Sidley clients, is significant because it confirms that plaintiffs face heightened requirements for obtaining class certification after Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013). Sidley partner Carter Phillips argued the case in the D.C. Circuit on behalf of all of the defendants.
The Rail Freight case was brought by shippers alleging that the nation’s four largest freight railroads conspired to impose rate-based fuel surcharges from July 2003 through the end of 2008. To satisfy Rule 23(b)(3)’s requirement that common questions of law or fact “predominate” over “questions affecting only individual members,” the D.C. Circuit held that plaintiffs must be able to show through common evidence not only that “defendants colluded to raise fuel surcharge rates,” but also that “all class members were in fact injured by the alleged conspiracy.” Slip op. at 12. “Otherwise, individual trials are necessary to establish whether a particular shipper suffered harm” from the alleged price-fixing scheme. Id.
Plaintiffs sought to meet this burden through a regression model that “purports to quantify the injury in fact to all class members attributable” to the alleged conspiracy. Id. at 13. But, according to the D.C. Circuit, “the same methodology also detects injury where none could exist.” Id. When defendants’ expert applied plaintiffs’ model to shipments under “rates negotiated before any conspiratorial behavior is alleged to have occurred,” he found damages similar to those plaintiffs’ expert claimed for shipments under rates that allegedly were affected by the conspiracy. Id. “If accurate,” the D.C. Circuit held, this defect in the model “would shred plaintiffs’ case for certification,” because a class cannot be certified “when there exists no reliable means of proving classwide injury in fact.” Id.
The district court, however, had not addressed this defect. It certified the class based on case law that predated Comcast and suggested that Rule 23(b)(3) is satisfied if plaintiffs’ model is merely “plausible.” Id. at 17. In light of Comcast, the D.C. Circuit held, that will no longer suffice. Instead,“[i]t is now clear that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show” common injury, but “commands it.” Id. at 18. The court therefore vacated the class certification order and remanded for reconsideration in light of Comcast.
The decision reinforces the need for defendants in antitrust class actions to have qualified experts who can test the validity of plaintiffs’ econometric models and experienced defense counsel who can understand the models and explain their deficiencies to both the district court and the court of appeals.
At the same time, the decision emphasizes that interlocutory appeal of class certification decisions is the exception, not the rule. Interlocutory appeal is warranted, the court held, when (1) the decision to certify a class is “questionable” and is accompanied by a “death-knell” in that it places substantial pressure on defendants to settle regardless of the merits of plaintiffs’ claims; (2) the class certification decision presents an “unsettled and fundamental issue of law relating to class actions” that is likely to evade review at the end of the case; or (3) the class certification decision is “manifestly erroneous.” Slip op. at 8 (internal quotations and citations omitted). These categories, the D.C. Circuit held, are “mutually reinforcing, not exclusive,” so “where a single ground for interlocutory appeal might otherwise be shaky, the confluence of other factors may fortify [the] decision” to grant interlocutory review. Id. at 9.
The D.C. Circuit found “such a hybrid rationale here.” Id. The magnitude of plaintiffs’ damages request was so massive that it would threaten the market capitalization of one defendant and exceed the cumulative adjusted net income of all defendants for all of 2003-2011. Id. at 10-12. Potential liability of this magnitude can mark the death knell of the litigation by generating “unwarranted pressure to settle nonmeritorious or marginal claims” even if it “may not threaten the very existence of defendants’ companies.” Id. at 11-12. The class certification decision was deemed questionable in light of the defects the D.C. Circuit found in plaintiffs’ model, and Comcast’s “pronouncements on the role of expert evidence was unavailable to the district court at the time of its decision.” Id. at 9.
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