First Circuit Reverses Class Certification Based On Presence Of Uninjured Class Members In Certified Class
10/31/2018On October 15, 2018, the United Stated Court of Appeals for the First Circuit, in an opinion by Judge William J. Kayatta, reversed a district court’s certification of a class of indirect purchasers of the drug Asacol, holding that, under Federal Rule of Civil Procedure 23, a class cannot be certified when a non-trivial portion of class members were not injured in fact, absent some “reasonable and workable plan” to segregate those members from the rest of the class. In re Asacol Antitrust Litig., No. 18-1065, 2018 WL 4958856, at *11 (1st Cir. Oct. 15, 2018).
Defendant manufactures and sells Asacol, an anti-inflammatory drug. In 2013, as its patent on Asacol was set to expire, defendant pulled the product from the market and introduced a new variation of the drug under the name Delzicol. Defendant’s patent for Delzicol extended years after the expiration of its Asacol patent. Plaintiffs, union-sponsored medical plans, brought state antitrust and consumer protection law claims on behalf of a class of indirect purchasers of Delzicol or another patented variant, claiming that this conduct was an anticompetitive scheme to unlawfully forestall generic competition and that they were overcharged for their purchases as a result. Defendant objected to certification of the class because, inter alia, some putative class members, motivated by brand loyalty or other factors, would not have purchased a generic Asacol substitute even if its prices were lower and were thus not injured by the allegedly anticompetitive withdrawal of Asacol in favor of Delzicol.
Plaintiffs conceded the possibility that some uninjured persons would be included in the certified class but argued that the presence of a “de minimis” number of uninjured class members should not necessarily preclude certification. Plaintiffs proposed that the issue of uninjured class members could be addressed by establishing a post-judgment process to identify injured persons through affidavits and removing all others from the class with the assistance of a claims administrator. Based on both sides’ expert reports, the district court presumed that approximately 10% of the class members would not have switched to a generic. Nevertheless, the district court found that the number of uninjured class members was “de minimis” and that the uninjured persons could be excluded with the assistance of a claims administrator. Based on this, the district court certified the class, explaining that a sworn affidavit or declaration by a consumer that they would have purchased a less expensive generic drug in lieu of Asacol or Delzicol would be sufficient to establish injury, even if it were “introduced ‘at the liability stage.’” Defendant petitioned for interlocutory review of the certification decision under F.R.C.P. 23(f).
The First Circuit, noting a circuit split on the treatment of putative classes with uninjured members and the desirability of providing guidance on likely future cases in its Circuit, accepted the petition and reversed. As an initial matter, the First Circuit rejected defendant’s argument that the named plaintiffs lacked Article III standing to pursue claims on behalf of class members whose claims arose under the laws of states in which the named plaintiffs had not resided or made a purchase. The Court held that, although there were some differences among the various state law claims, class standing does not require that the class representatives’ claims be identical to all class members. Rather, the class representatives must have a sufficient “personal stake in the adjudication of the class members’ claims.” Here, the Court found, the monopolization theory and elements of the various state law claims were sufficiently similar that the named representatives had such a personal stake in pursuing those claims, with the single exception of claims under N.Y. Gen. Bus. Law 349(a), which requires proof of deception, an element not found in the named plaintiffs’ state law claims. Thus, the First Circuit found the named plaintiffs had established Article III standing to represent the entire class, except for these New York law claims.
Turning to the Rule 23 inquiry, the Court began with Rule 23(b)(3)’s predominance requirement that any dissimilarities within the class must be dealt with in both a fair and efficient manner. To be fair and efficient, any adjudication of individualized issues must be both “administratively feasible” and “protective of defendants’ Seventh Amendment and due process rights.” At the time of class certification, the district court must be certain of the existence of a “reasonable and workable plan for how [the opportunity to cull uninjured class members] will be provided in a manner that is protective of the defendant’s constitutional rights and does not cause individual inquiries to overwhelm common issues.” The panel concluded that plaintiffs’ proposal to sort out uninjured class members after final judgment via affidavit was neither fair nor efficient. Because defendant would not have the opportunity to challenge an essential element of liability — the alleged injuries of each class member — until after trial, the use of affidavits presented disabling issues of admissibility, and challenges to proffered affidavits or other proof of injury would likely lead to individual issues overwhelming common ones.
As a fallback, plaintiffs also argued that their damages expert could calculate class-wide impact in a way that took into consideration the fact that a portion of the class suffered no injury, and this would prevent the imposition of damages in excess of the class-wide net overcharge to consumers. Thus, any difficulty in allocating the net overcharge among class members, even uninjured class members, plaintiffs argued, would not affect defendant’s rights. The Court rejected this “no harm, no foul” argument as well, warning that accepting it would put the courts on a “slippery slope, at risk of escalating disregard of the difference between representative civil litigation and statistical observations of tendencies and distributions.” The “core principle” of class actions, Judge Kayatta wrote, is that they are “an aggregation of individual claims, and do not create a class entity or re-apportion substantive claims.”
The role of uninjured class members in class certification decisions is one of surpassing importance; it is frequently at issue in antitrust class actions and its resolution can lead to vast swings in a defendant’s potential exposure. The Asacol decision is an important and thoughtful contribution to the law on this subject. As the Asacol panel recognized, different circuits have approached this issue differently. Some Circuits, such as the Second Circuit, address the problem of uninjured class members through the lens of “standing” to sue under Article III of the Constitution, reasoning that “no class may be certified that contains members lacking Article III standing” and requiring that classes be defined so that anyone within it possesses standing. The majority of Circuits, however, focus on Rule 23’s predominance factor — whether class-wide injury can be established through common proof and the degree to which individualized inquiry as to injury will be necessary. Further, while some Circuits, for example, the Fifth, have clearly stated that class certification requires a finding that injury-in-fact can be established for “every” class member through proof common to the class, the Seventh and Ninth Circuit arguably allow district courts to certify an antitrust class that contains not “a great many” uninjured members (although they have not clearly defined “a great many”). The Asacol decision makes clear that creative efforts to make injury determinations not based on class-wide proof will continue to receive serious scrutiny in the First Circuit. Given the different approaches and the importance of the issue to both plaintiffs and defendants, we look forward to further guidance on this issue from the other Circuits and potentially the Supreme Court.