The U.S. Court of Appeals for the D.C. Circuit recently held that a trial court did not abuse its discretion in denying class certification on the ground that common issues did not predominate where individual determinations of injury and causation would be required for at least 2,2017 of the 16,065 putative class members.
Accordingly, the D.C. Circuit affirmed the trial court’s denial of class certification.
A copy of the opinion in In re Rail Freight Fuel Surcharge Antitrust Litigation is available at: Link to Opinion.
The plaintiffs were customers of the four largest freight railroads in the United States (collectively, “defendants”). The plaintiffs sued the defendants alleging that they violated section 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to fix rate-based fuel surcharges. They also sought treble damages under section 4 of the Clayton Act, 15 U.S.C. § 15.
The plaintiffs moved to certify a class under Fed. R. Civ. P. 23(b)(3). The proposed class consisted of all shippers who paid rate-based fuel surcharges for unregulated services purchased from the defendants between July 1, 2003 and Dec. 31, 2008.
To show that causation, injury, and damages could be proved on a classwide basis, the plaintiffs invoked two regression models constructed by their economist expert.
After the trial court initially certified the class, the D.C. Circuit vacated the certification order on interlocutory review and remanded the matter for reconsideration in light of the United States Supreme Court decision in Comcast Corp. v. Behrend, 569 U.S. 27 (2013).
In so ruling, the D.C. Circuit explained that common questions “cannot predominate where there exists no reliable means of proving classwide injury in fact.” The Court further expressed concern with the trial court’s failure to address “the damages model’s propensity towards false positives,” which left the D.C. Circuit with no way of knowing whether “the overcharges the damages model calculates for class members [are] any more accurate than the obviously false estimates it produces for legacy shippers.”
Finally, the D.C. Circuit stressed that Rule 23, as construed in Comcast, requires a “hard look at the soundness of statistical models that purport to show predominance.”
On remand, after permitting supplemental discovery and expert reports, the district court denied class certification.
The plaintiffs then filed a petition for permission to appeal the class-certification decisions under Rule 23(f), which was granted by a motions panel of the D.C. Circuit.
On appeal, after initially confirming that it had jurisdiction, the D.C. Circuit analyzed Rule 23, which “sets forth various requirements of the certifications of class actions.”
As you may recall, “Rule 23(a) provides four ‘prerequisites’ for any class certification, including that there must be ‘questions of law or fact common to the class.’”
“If these prerequisites are met, Rule 23(b)(3) permits certification if, among other things, ‘questions of law or fact common to class members predominate over any questions affecting only individual members.’”
A “common” question is one that is “capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” An “individual” question is one for which “members of a proposed class will need to present evidence that varies from member to member.”
“The party seeking class certification ‘must affirmatively demonstrate’ that the commonality and predominance requirements are satisfied.”
The plaintiffs asserted claims under section 4 of the Clayton Act, which provides treble damages to any person “injured in his business or property by reason of anything forbidden in the antitrust laws.” To establish liability under section 4, each plaintiff must not only prove an antitrust violation, but also an injury to its business or property and a causal relation between the two.
“Without common proof of injury and causation, section 4 plaintiffs cannot establish predominance.”
Here, the D.C. Circuit ruled that the economist expert’s model “does not prove classwide injury.”
Specifically, the model indicated that the proposed class consisted of 16,065 shippers, and the plaintiffs alleged that a conspiracy injured every one of them. However, the damages model also indicated that 2,037 members of the proposed class — or 12.7 percent — suffered “only negative overcharges” and therefore no injury from any conspiracy.
Thus, the trial court “held that the need for ‘individualized inquiries to determine which of at least 2,037 (and possibly more) class members were actually injured by the alleged conspiracy,’ . . . precluded a finding of predominance.”
The D.C. Circuit found no abuse of discretion in this assessment of predominance by the trial court.
The plaintiffs argued that their model only measured negative damages because of normal prediction error, but the D.C. Circuit ruled that the trial court’s determination was not clearly erroneous where it found that prediction error could not “account for all – or even a substantial portion of – the 2,047 shippers that the model shows to be uninjured.”
The plaintiffs next argued that predominance does not require common evidence extending to all class members. However, the D.C. Circuit noted that in the initial appeal it held that, to establish predominance, the plaintiffs must “show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.”
Moreover, even assuming the trial court “correctly recognized a de minimis exception to the general rule that, for claims under section 4 of the Clayton Act, causation and injury must be ‘capable of classwide resolution,’” the district court also “reasonably concluded that such a de minimis exception would not encompass this case.”
The D.C. Circuit noted that in reaching its ruling, the trial court explained that the “few reported decisions” involving uninjured class members “suggest that 5% to 6% constitutes the outer limits of a de minimis number,” which is less than half the 12.7 percent at issue in this case.
Moreover, the D.C. Circuit noted, the trial court “considered raw numbers as well as percentages: six percent of a ‘class totaling only fifty-five’ members might be de minimis, but 12.7 percent of this class yields ‘2,037 uninjured class members’ (according to the common proof), all of whom would need individualized adjudications of causation and injury.”
Additionally, the trial court stressed that the plaintiffs proposed no way, short of individual trials, “to reduce this number and segregate the uninjured from the truly injured.”
Under these facts, the D.C. Circuit found no abuse of discretion by the trial court.
Finally, the D.C. Circuit observed that “[i]n [In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018)], the First Circuit noted the absence of even a single case ‘allowing, under Rule 23, a trial in which thousands of class members testify.’”
The First Circuit declined to create the “first such case,” as did the D.C. Circuit.
Accordingly, “[g]iven the need in this case for at least 2,037 individual determinations of injury and causation,” the D.C. Circuit held that the trial court “did not abuse its discretion in denying class certification on the ground that common issues do not predominate.”