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Third Circuit: “Rigorous Analysis” Required for Class Certification in Antitrust Cases

The US Court of Appeals for the Third Circuit recently concluded in In re Lamictal Direct Purchaser Antitrust Litigation that a district court’s reliance on average prices to determine class-wide impact was insufficient. Instead, courts must conduct a rigorous analysis of the facts, evidence and expert testimony at the class certification stage of litigation.

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THE LATEST: Class Certification Denied – Indirect Purchases Fail to Substantiate Link between Higher Input Costs and Higher Product Prices

Indirect purchaser plaintiffs’ motion for class certification in a lithium ion battery suit was denied for failing to show concrete evidence linking increased input costs to increased end-product prices; theoretical inference is not enough.

  • The US District Court for the Northern District of California denied a motion for class certification for a proposed class of indirect purchasers of lithium ion batteries. In re: Lithium Ion Batteries Antitrust Litigation, Case No. 13-MD-2420 (N.D. Cal. Mar. 5, 2018).
  • An expert witness for indirect purchaser plaintiffs (IPPs) calculated a 100 percent pass-through rate of price increases on lithium ion batteries to end use products, resulting in an estimated $573 million in damages for the proposed class (or approximately $1.7 billion in treble antitrust damages).
  • Defendants countered by arguing that the expert’s claim of pass-through of supracompetitive pricing was insufficiently substantiated because there was no direct connection between changing input costs and changing end-product prices. Simply put, there was no overcharge attributable to battery cost.
  • The court agreed and held that without more than theory about how much, if any, antitrust harm passed through to IPPs, class certification would be denied.
  • In indirect purchaser cases, courts will focus on the pricing dynamics of the products actually purchased by the plaintiffs in relation to alleged cost increases of components of those products. Courts are concerned not only with the fact of pass-through, but also whether the overcharge caused prices to change to the plaintiffs and the class.
  • Future indirect purchaser plaintiffs hoping to get past the class certification phase must show concrete evidence, not merely theory, about pass-through of supracompetitive pricing. This will likely be difficult for end users in cases involving numerous inputs.

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Third Circuit Remands Class Certification Ruling in Blood Reagents Price-Fixing Case

On Wednesday, April 8, 2015, the Third Circuit Court of Appeals vacated a district court’s order certifying a class of direct purchasers of blood reagents in a price-fixing suit against Ortho-Clinical Diagnostics Inc.  In re Blood Reagents, case number 12-4067.  Plaintiffs allege that Ortho-Clinical Diagnostic Inc. (Ortho) and a producer of blood reagents, violated Section 1 of the Sherman Act by conspiring with the only other U.S. producer of reagents, Immucor Inc., to raise prices of blood reagents on numerous occasions throughout the 2000s.  Immucor settled with plaintiffs in 2012.  In September 2011, the plaintiffs moved to certify a class of direct purchasers, and the district court held a hearing in July 2012.  To support their arguments for class certification, the plaintiffs relied on expert testimony to create their damages model and antitrust impact analysis.  Although Ortho challenged the reliability of the expert testimony, the district court certified the class and held that the testimony “could evolve to become admissible” at trial.  In re Blood Agents, 283 F.R.D. 222, 243-245 (E.D. Pa. 2012).  Ortho’s arguments went to the merits and were not persuasive at the class certification stage.  Id. at 240-41.  In making this ruling, the court relied on the Third Circuit decision of Behrand v. Comcast Corp., 655 F.3d 182 (3d. Cir. 2011).  Ortho appealed.

The Third Circuit vacated this class certification decision and remanded the case back to the lower court.  Since the district court’s ruling, the Supreme Court overturned Behrand and the “could evolve” standard relied on by the lower court in this case.  Comcast v. Behrand, 133 S.Ct. 1426 (2013).  Instead, the Supreme Court emphasized that the class certification analysis must be rigorous.  Id. at 1432.  Therefore, the Third Circuit determined that this “rigorous analysis” applied to expert testimony critical to proving class certification.  It held that if challenged expert testimony is critical to class certification, then plaintiffs cannot rely on this challenged testimony to show conformity with the class certification requirements unless they also establish, and the trial court finds, that the testimony satisfies the standard for expert testimony set forth in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).  According to the Third Circuit’s order, on remand, the district court must first determine which, if any, of Ortho’s attacks on the expert’s reliability challenge the aspects of the expert testimony offered by the plaintiffs to satisfy class certification requirements.  Then, if necessary, the lower court must perform a Daubert analysis on this testimony before deciding whether to certify the class.

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Sixth Circuit Vacates Class Certification in Detroit Nurses Antitrust Case

On January 6, 2014, the Sixth Circuit vacated a class certification order for reconsideration in light of the Supreme Court’s 2013 decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013).  In re VHS of Michigan, Inc., No. 13-0013 (6th Cir. Jan. 6, 2014).  In Comcast, the Supreme Court reversed a grant of class certification on the ground that the plaintiffs had failed to demonstrate that damages could be proven on a classwide basis because their damages model was inconsistent with their theory of liability.

Pre-Comcast, the plaintiffs in VHS filed a class action complaint alleging two theories of liability under the Sherman Act: (1) a “per se” claim that the defendant hospitals conspired to depress the wages of the plaintiff nurses, and (2) a “rule-of-reason” claim that the defendants exchanged information about nurse wages in order to reduce competition.  Subsequently, the district court granted the defendants’ motion for summary judgment on the per se claim.

Post-Comcast, the defendants moved to exclude the plaintiffs’ expert witness’s testimony, which was based on the assumption that the plaintiffs could prove both of their claims, and the district court denied the defendants’ motion without considering the potential impact of Comcast on its decision.  The district court later certified the class on the rule-of-reason claim, and the defendants appealed.  Because the district court did not take Comcast into account in its certification decision, and because the parties failed to analyze the issue before the district court, the Sixth Circuit held that it would be premature to accept an appeal.  Instead, it vacated the district court’s order and directed the court to reconsider its certification decision in light of Comcast.

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Court Certifies Class in Hospital Merger Antitrust Lawsuit

On December 10, 2013, Judge Edmond Chang of the Northern District of Illinois certified a class of plaintiffs who filed a proposed class action against NorthShore University Health System (formerly Evanston Northwestern Healthcare) on behalf of all end-payors who purchased inpatient and outpatient healthcare services directly from NorthShore.

In 2000, Evanston Northwestern acquired rival Highland Park Hospital.  The FTC successfully challenged the consummated merger in 2004, but did not order divestiture because the hospitals had already been merged and was functioning as a single entity for several years.  After the FTC’s decision, the plaintiffs brought their class action, alleging that NorthShore illegally monopolized the market and caused the plaintiffs and the putative class to pay artificially inflated prices for healthcare services.

A previously assigned judge denied the plaintiffs’ motion for class certification, holding that the plaintiffs had failed to satisfy the Rule 23(b)(3) “predominance” prerequisite to class certification – i.e., that there are questions of law or fact common to class members that predominate.  Fed. R. Civ. P. 23(b).  On interlocutory appeal, the Seventh Circuit held that the plaintiffs did satisfy predominance, then vacated the district court’s order and remanded.

On remand, Judge Chang held that the only remaining issue as to class certification was whether  the plaintiffs had satisfied the Rule 23(b)(3) “superiority” prerequisite to class certification, i.e., that a class action must be “superior to other available methods for fairly and efficiently adjudicating the controversy.”  Fed. R. Civ. P. 23(b)(3).  NorthShore argued that  the plaintiffs failed to satisfy the superiority prerequisite because: 1) arbitration is superior to class action litigation (with respect to the payors who NorthShore alleged are bound by arbitration provisions in the payor contracts); 2) managed care organizations have an interest in individually controlling any claim against NorthShore; and 3) class certification would be unmanageable because a trial would require “hundreds of mini-trials analyzing many individual [NorthShore contracts with payors]”.  Judge Chang disagreed, finding, among other things, that the parties disagreed as to whether all of NorthShore’s contracts with payors even contained arbitration provisions.  Moreover, Judge Chang noted that the payors had not yet taken a position as to whether they wanted to exercise their individual right to control the litigation, despite ample opportunity to do so.  Finally, Judge Chang commented that the “Seventh Circuit credited the ability of the plaintiffs’ expert . . . to use common evidence to show that all of the class members suffered some antitrust impact,” which would eliminate the need for hundreds of mini-trials on liability.  Accordingly, Judge Chang found that the plaintiffs had satisfied the superiority prerequisite and certified the class.

This is a unique case because most hospital mergers are challenged pre-consummation, where an injunction is the only remedy available to plaintiffs.  In fact, this is the first private antitrust class action related to a hospital merger.

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Supreme Court Comcast Decision Makes Antitrust Class Action Certification More Difficult

by David L. Hanselman, Stefan M. Meisner and Daniel Powers

The Supreme Court’s decision in Comcast Corporation v. Behrend, an antitrust case involving a class of more than two million current and former cable television subscribers in the Philadelphia area, raises the bar for plaintiffs to obtain certification of antitrust class actions.

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