Eastern District Of Virginia Wades Into “Grey Area”; Certifies Class Of Thirty-Five Direct Purchaser Plaintiffs
On August 21, 2020, Judge Rebecca Beach Smith of the United States District Court for the Eastern District of Virginia certified a class of thirty-five direct purchasers. In Re Zetia (Ezetimibe) Antitrust Litigation, 19-cv-00014 (E.D. Va. Aug. 21, 2020). Plaintiffs, direct purchasers of the branded drug Zetia, alleged that defendant pharmaceutical manufacturers engaged in an unlawful reverse-payment settlement whereby the manufacturer of the branded drug Zetia agreed to pay a generic manufacturer approximately $800 million to delay its launch of a generic for Zetia for nearly five years. Zetia is a drug that prevents cholesterol by inhibiting the buildup of plaque in arteries. The issue before the district court was whether Rule 23 class certification was proper of a direct-purchaser class of only thirty-five members. In finding it was, the court found it credible that many class members would not find it financially worthwhile to pursue the case on their own and that judicial economy would be best served by certification.
The instant case stems from patent litigation involving Defendants Merck & Company, Inc., Merck Sharp & Dohme Corporation, Schering-Plough Corporation, Schering Corporation, and MSP Singapore Company LLC (collectively, “Merck”) and Defendants Glenmark Pharmaceuticals Limited and Glenmark Generics Inc., U.S.A. (collectively “Glenmark”). In 2006, Merck, the manufacturer of the branded drug Zetia, sued Glenmark, the first generic manufacturer, for alleged infringement of Merck’s RE’721 patent. Plaintiffs allege that rather than proceed to trial, Merck and Glenmark settled even though Merck later conceded that the patent was invalid. Plaintiffs allege that, absent the unlawful settlement, generic drugs would have entered the market much sooner. They also allege damages based on the supracompetitive prices they paid for more expensive versions of the drug.
Plaintiffs sought to certify a direct purchaser class including all persons or entities within the United States who purchased Zetia from Defendants between July 2012 and June 2017. Plaintiffs later filed an amended motion for certification, which reduced the class period by two years and decreased the number of proposed class members from seventy to sixty-five. Defendants argued that the proposed direct-purchaser class could not satisfy the requirements of Federal Rule of Civil Procedure 23, especially with regards to numerosity. The magistrate judge found that the proposed class should be reduced by twenty-three to account for the direct purchaser rule announced in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and further reduced to account for seven retailer plaintiffs that had initiated their suits, leaving a proposed class of only thirty-five members. Nevertheless, while acknowledging that the proposed class size fell squarely within a “grey area” for certification, the magistrate judge recommended certification.
The district court reviewed the magistrate’s recommendation that the court certify a direct purchaser class of thirty-five members. In doing so, the district court noted that class sizes over forty were generally considered to be sufficiently numerous, while classes with less than twenty members were generally found to be too small to satisfy the requirements of Rule 23(a)(1). Citing Ansari v. New York University, 179 F.R.D. 112, 114-15 (S.D.N.Y. 1998). The court identified several criteria, however, that it concluded supported certification, including the practicability of joinder based on judicial economy, geographic dispersion, ability, and motivation to file individual suits, financial resources, and potential for relief on class members. Specifically, the court found it credible that many class members would not find it financially worthwhile to pursue the case on their own and that judicial economy would be best served by certification. The court also determined that, although the proposed class consisted of large and sophisticated businesses, geographic dispersion weighed against joinder as a practical alternative.
While the court’s analysis focused on the numerosity requirement, the court also considered the other elements of Rule 23 and found that they had been sufficiently established. Defendants argued that the three proposed class representatives were neither adequate nor typical because one had been involved in criminal prosecution and recently filed for Chapter 11 bankruptcy, the second was alleged to be a shell company controlled by class counsel, and the third had not suffered an antitrust injury. The court analyzed each proposed representative in turn and found that none of defendants’ objections defeated certification. Accordingly, the court certified a class of thirty-five direct purchasers.
The decision suggests that at least some courts may be willing to certify small classes in antitrust class actions even where the alleged injury impacts only a small group provided that plaintiffs can show that class certification still would promote judicial economy and efficiency.