Ninth Circuit Reverses Class Certification Based On District Court’s Failure To Resolve Factual Issues Relating To Uninjured Class Members
On April 6, 2021, the United States Court of Appeals for the Ninth Circuit vacated a district court order certifying three classes in a multi-district antitrust case alleging a price-fixing conspiracy by producers of packaged tuna, finding that the district court erred in determining that plaintiffs had satisfied to the predominance requirement of Federal Rule of Civil Procedure 23(b)(3). Olean Wholesale Grocery Coop v. Bumble Bee Foods, No. 19-56514 (9th Cir. Apr. 6, 2021). Specifically, the Court concluded that the district court abused its discretion in declining to resolve whether plaintiffs’ proposed use of statistical evidence to establish classwide impact swept a substantial number of uninjured purchasers into the putative class. A class cannot be certified, the Court held, when it contains more than a “de minimis” number of uninjured purchasers.
Plaintiff purchasers of tuna products brought a putative class action lawsuit against the three largest domestic producers of packaged tuna, who together account for over 80% of all branded packaged tuna sales in the United States. Plaintiffs alleged that defendants colluded to artificially inflate the prices of their tuna products by engaging in various forms of anti-competitive conduct, including by agreeing to (i) fix the net and list prices for tuna, (ii) limit promotional activity for packaged tuna, and (iii) exchange sensitive or confidential business information in furtherance of the conspiracy.
Plaintiffs moved for class certification of three different classes of direct and indirect purchasers of tuna. Experts for each of the three proposed classes presented similar regression analyses, which purported to show that the alleged price fixing conspiracy harmed all, or nearly all, of the proposed class members. Plaintiffs argued that analyses showed that classwide impact could be established by common proof and thus met their burden to establish predominance under Rule 23(b)(3). Defendants argued that plaintiffs’ models were improper because, inter alia, they used an average estimated price overcharge such that every purchaser in the proposed class was injured in the same fashion. Defendants offered their own experts’ analyses to show that a substantial number of putative class members suffered no injury. The district court certified the class over defendants’ objections, concluding that defendants’ challenges to plaintiffs’ methods were “ripe for use at trial” but “not fatal to a finding of classwide impact.” Defendants petitioned for an interlocutory appeal of the certification decision under Rule 23(f), which the motions panel granted. The Ninth Circuit merits panel, comprised of Judges Patrick J. Bumatay, Andrew D. Hurwitz, and Andrew J. Kleinfeld, reversed and remanded for further consideration in the Ninth Circuit’s opinion.
The Ninth Circuit began by holding that plaintiff has the burden of establishing predominance under Rule 23(b)(3) by a “preponderance of the evidence,” the standard used in other circuits but which had not previously been adopted by the Ninth Circuit. The Court then turned to an in-depth examination of the parties’ expert analyses on the issue of predominance. With regard to the direct purchaser class, the Ninth Circuit explained that defendants’ expert analyses, which used a unique overcharge coefficient for a sample of class members, showed that only 72% of the sample paid an inflated price (i.e., 28% suffered no injury), in contrast to plaintiffs’ expert’s finding that only 5.5% of the putative direct purchaser class suffered no overcharge. The district court’s failure to resolve this dispute, the Ninth Circuit explained, constituted an abuse of discretion because “[i]f a substantial number of class members in fact suffered no injury, the need to identify those individuals will predominate.” Further, although the Court recognized that “a well-defined class may inevitably contain some individuals who have suffered no harm,” the Court concluded that to establish predominance with regard to common impact, the number of uninjured class members must be “de minimis.” The Court cited case law that described 5%–6% as “the outer limits of a de minimis number,” but cautioned that that it was not setting a bright line rule as to the percentage of uninjured class members that would defeat predominance. But, “under any rubric,” the Court concluded, “if Plaintiffs’ model is unable to show impact for more than one-fourth of the class members, predominance has not been met.” In this discussion, the Court emphasized again the importance of resolving all the factual issues necessary to establish the requirements of Rule 23 at the class certification stage, not at trial. “Deferring determination of classwide impact,” the Court warned, “effectively ‘amounts to a delegation of judicial power to the plaintiffs, who can obtain class certification just by hiring a competent expert.’” Because there were only “subtle differences” between the disputes presented by the direct purchaser class and the other two certified classes, the Court reversed and remanded certification of those classes as well.
Judge Hurwitz dissented in part. He agreed with the majority that the district court, not a jury, must resolve factual disputes bearing on predominance. He also agreed that the district court must determine that common questions do in fact predominate before certifying a class, not just that they could predominate at trial. He disagreed, however, with what he characterized as a “numerical cap” on uninjured class members and suggested that the issue of uninjured class members could sometimes be dealt with at the damages stage.
The Ninth Circuit’s decision is an important reminder that the resolution of factual disputes necessary to establish compliance with Rule 23, including “battles of the experts,” must be made at the class certification stage and must be made by the court, not the jury, regardless of either their overlap with the merits of the claims. It is also an important reminder that satisfying the Daubert standard of reliability that governs the admission of expert testimony is not enough when confronted with a dispute between experts on Rule 23 issues; the court must resolve expert disputes necessary to be persuaded by a preponderance of evidence that plaintiff has established predominance.