On August 16, 2019, the D.C. Circuit Court of Appeals affirmed a denial of class certification to a proposed class of shippers seeking to recover damages from Class 1 railroads for an alleged price-fixing conspiracy. The decision is the latest in a nearly decade-long class certification saga at the forefront of a nationwide trend by federal courts to more rigorously scrutinize class certification in antitrust cases. This Dechert OnPoint provides background on the case, briefly summarizes the D.C. Circuit’s decision, and offers key takeaways.
In re Rail Freight Fuel Surcharge Antitrust Litigation involves an alleged conspiracy by four Class 1 railroad companies to coordinate their fuel surcharge programs as means to impose price increases on their shipping customers. Railroads sometimes impose fuel surcharges on top of the costs of shipping to compensate for increases in the price of fuel. Plaintiffs allege that the railroad defendants conspired to impose and enforce broadly similar fuel surcharges, which allegedly exceeded additional fuel costs, thereby engaging in a price-fixing conspiracy in violation of the Sherman Act.
The district court initially certified a direct purchaser class of customers in 2012.1 After an interlocutory appeal, the D.C. Circuit vacated the district court’s class certification decision.2 In doing so, the D.C. Circuit focused on Rule 23’s requirement that common questions “predominate” over individual ones, and in particular whether plaintiffs could demonstrate “antitrust impact,” an essential element of an antitrust claim - that is, whether plaintiffs “can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.”3 The D.C. Circuit found that plaintiffs’ expert’s economic model, which was essential to plaintiffs’ proof, was deficient in that it predicted that class members were injured even if their pricing was based on contracts negotiated before the formation of the alleged conspiracy.4 The court also rejected the district court’s finding that the expert model was sufficiently “workable” and “plausible,” explaining that it is the “role of the district court to scrutinize the evidence before granting certification.”5
On remand, and after permitting supplemental expert reports, the district court denied class certification in 2017.6 Again focusing on the issue of antitrust impact, the district court found that that plaintiffs had failed to satisfy Rule 23’s predominance requirement because of shortcomings in plaintiffs’ expert’s damages model. Specifically, the court highlighted that the expert model could not adequately account for: “(1) intermodal traffic, which was subject to competitively negotiated formulas established during the pre-class period and were never changed, (2) legacy shippers, for which [plaintiffs’ expert’s] damages model finds unexplainable overcharges; and (3) the large number of uninjured shippers in the class, which makes it impossible for plaintiffs to satisfy the “all or virtually all” standard for predominance.”7
The D.C. Circuit Opinion
In a 3-0 decision, the D.C. Circuit affirmed the district court’s denial of class certification, finding no abuse of discretion in the district court’s conclusion that plaintiffs had failed to satisfy Rule 23’s predominance requirement.8 The court focused on the district court’s conclusion that plaintiffs’ damages model could not serve as classwide proof of injury because it indicated that nearly 13% of class members actually predicted “negative overcharges,” meaning they suffered no injury.9
The D.C. Circuit also concluded that plaintiffs’ other evidence - including documentary evidence and testimony from another expert witness - was insufficient to show injury for the class members that showed no injury under plaintiffs’ economic models.10 The court was not swayed by evidence that some of those uninjured class members might have been more “more vulnerable” to any conspiracy, because it did not “attempt to identify which of the small shippers, or what percentage of them, were in fact harmed by the alleged conspiracy.”11
In sum, the court found that the large number of uninjured class members (in excess of 2,000) meant that plaintiffs had failed to satisfy the predominance requirement.12 As the court concluded, “[g]iven the need in this case for at least 2,037 individual determinations of injury and causation, the district court did not abuse its discretion in denying class certification” on predominance grounds.13
1. Courts are demanding more and more rigorous showings from plaintiffs before certifying classes, particularly with respect to predominance and “antitrust impact.”
The D.C. Circuit’s first Rail Freight class certification was notable for the analytical rigor with which it examined plaintiffs’ class certification evidence, and in the particular shortcomings of plaintiffs’ expert econometric models. We remarked at the time that the D.C. Circuit’s decision reflected an increasingly rigorous trend in the scrutiny of antitrust class certification after the Supreme Court’s decision in Comcast v. Behrend.14 The district court’s subsequent denial of class certification - and the D.C. Circuit’s acceptance of an interlocutory appeal to affirm that denial - continue that trend. Indeed, the district court’s opinion (which totaled more than 100 pages) shows that district courts have received the message loud and clear that class certification requires a rigorous analyses of all of the parties’ evidence and arguments.
2. Courts continue to grapple with how many uninjured class members are “too many” to certify an antitrust class.
The D.C. Circuit’s 2013 class certification opinion drew significant attention for its hard line approach to uninjured class members, and particularly its explanation that plaintiffs were required to “show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.”15 Courts around the country have taken somewhat different stances on whether the presence of uninjured class members is enough to defeat class certification.16 Interestingly, the district court had adopted a somewhat more lenient view than the D.C. Circuit’s formulation, concluding that it was sufficient for plaintiffs to show that “virtually all” class members were injured, and permitting a “de minimis” number of uninjured class members.17 The D.C. Circuit, recognizing that the district court had departed from its earlier standard, ultimately declined to reaffirm its earlier position. Instead, the D.C. Circuit noted that the approximately 13% of the class that was uninjured was a far higher proportion than in other cases that authorized certification notwithstanding the presence of some uninjured class members.18 The court also emphasized that the plaintiffs had not provided any “winnowing mechanism” to later identify those uninjured class members.19
Because defendants often are able to identify at least some categories of class members that may be uninjured (or for whom injury cannot be established through common evidence), class certification decisions may turn on the district court’s views on just how many uninjured class members are “too many” to certify the class. And that question, in turn, may pivot on the type of proof needed to distinguish uninjured class members that did suffer injury.
3. The Court declined to address the question of whether “reliable” evidence in the class certification context means something more than “admissible” evidence.
While the district court ruled that plaintiffs’ expert’s econometric model was sufficiently reliable to survive a Daubert challenge, the parties disputed before the district court whether it was necessary to make an additional assessment as to whether that evidence was sufficiently reliable to satisfy the requirements of Rule 23.20 The district court concluded that such an assessment is required, denying class certification in part because “reliability under Rule 23 is a higher standard than reliability under Daubert” and that its concerns “undermine[d] the reliability of [plaintiffs’ expert’s] damages model.”21 Plaintiffs, on their part, had argued that the district court’s role in assessing the reliability of evidence should be limited to questions of admissibility at the class certification stage.22
The D.C. Circuit declined to weigh in on the dispute, explaining that the expert’s “damages model, even if sufficiently reliable, [did] not prove classwide injury.”23 The court noted that, even if the model were deemed reliable, it still showed no injury for approximately 13% of class members, which left plaintiffs “with no common proof of those essential elements of liability” for those class members.24 As a result, the court sidestepped the question, raised by recent Supreme Court class certification decisions, of the extent to which courts should evaluate the quality and weight of evidence at class certification beyond resolving any Daubert admissibility challenges raised by the parties. The answer to that question will have potentially-significant consequences for how defendants choose to challenge evidence put forward by plaintiffs in support of class certification.