In Re New Motor Vehicles Can. Export Anti. Lit.

United States Court of Appeals
For the First Circuit

No. 07-2257

IN RE: NEW MOTOR VEHICLES
CANADIAN EXPORT ANTITRUST LITIGATION,

WILLIAM H. BROWN, ET AL.,
Plaintiffs, Appellees,

v.

AMERICAN HONDA, ET AL.,
Defendants, Appellants.

No. 07-2258

IN RE: NEW MOTOR VEHICLES
CANADIAN EXPORT ANTITRUST LITIGATION,

WILLIAM H. BROWN, ET AL.,
Plaintiffs, Appellees,

v.

GENERAL MOTORS CORPORATION, ET AL.,
Defendants, Appellants.

No. 07-2259

IN RE: NEW MOTOR VEHICLES
CANADIAN EXPORT ANTITRUST LITIGATION,

WILLIAM H. BROWN, ET AL.,
Plaintiffs, Appellees,

v.

FORD MOTOR COMPANY, ET AL.,
Defendants, Appellants.
 APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

Torruella, Circuit Judge,
Selya, Senior Circuit Judge,
and Lynch, Circuit Judge.

William J. Kayatta, Jr. with whom Clifford H. Ruprecht, Pierce
Atwood LLP, James C. Egan, Jr., Kirsten A. Lockhart, Carrie M.
Anderson, and Weil Gotshal & Manges were on brief for appellants
Chrysler LLC, Chrysler Motors LLC, Chrysler Canada Inc., and
Mercedes-Benz USA LLC.
Richard C. Godfrey, P.C., David J. Zott, P.C., Daniel E.
Laytin, and Kirkland & Ellis LLP were on brief for appellants
General Motors Corp. and General Motors of Canada, Ltd.
Margaret M. Zwisler, William R. Sherman, and Latham & Watkins
LLP were on brief for appellants Ford Motor Company and Ford Motor
Company of Canada, Ltd.
John H. Rich III, Perkins Thompson, P.A., Robert A. Van Nest,
Ragesh K. Tangri, Rachael E. Meny, Daniel Purcell, and Keker & Van
Nest, LLP were on brief for appellants American Honda and Honda
Canada Inc.
Peter Sullivan, Joshua Lipton, Gibson Dunn & Crutcher LLP,
Harold J. Friedman, Laurence H. Leavitt, and Friedman Gaythwaite
Wolf & Leavitt LLP were on brief for appellant Nissan North
America, Inc.
Joseph J. Tabacco, Jr. with whom Glen DeValerio, Peter A.
Pease, Todd A. Seaver, Matthew D. Pearson, Berman DeValerio Pease
Tabacco Burt & Pucillo, Michael M. Buchman, J. Douglas Richards,
Pomerantz Haudek Block Grossman & Gross, LLP, Robert S. Frank, and
Harvey & Frank were on brief for appellees.

March 28, 2008

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 LYNCH, Circuit Judge. This multi-district consumer

action alleges a conspiracy by automobile manufacturers to

illegally block lower-priced imports from Canada, which is alleged

to have inflated the price of new cars sold in America. We granted

this interlocutory appeal under Federal Rule of Civil Procedure

23(f) from the district court's certifications of (1) a nationwide

plaintiff class seeking injunctive relief under section 16 of the

Clayton Act and Rule 23(b)(2), and (2) a class seeking damages

under the antitrust and consumer protection laws of twenty states

and Rule 23(b)(3).

Interlocutory appeals from class certification under Rule

23(f) are especially appropriate where the plaintiffs' theory is

novel or where a doubtful class certification results in financial

exposure to defendants so great as to provide substantial

incentives for defendants to settle non-meritorious cases in an

effort to avoid both risk of liability and litigation expense.

Tardiff v. Knox County, 365 F.3d 1, 3 (1st Cir. 2004); Waste Mgmt.

Holdings, Inc. v. Mowbray, 208 F.3d 288, 293 (1st Cir. 2000); see

also West v. Prudential Sec., Inc., 282 F.3d 935, 937 (7th Cir.

2002) ("The effect of a class certification in inducing settlement

to curtail the risk of large awards provides a powerful reason to

take an interlocutory appeal."). The defendants assert that the

amount at stake in the damages classes alone, counting treble

damages, could be as much as $3 billion, and these classes include

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roughly thirteen million car purchasers. There is no reliable

means for measuring the size of the injunctive class, but it is

potentially massive.1

By the same token, an erroneous failure to certify a

class where individual claims are small may deprive plaintiffs of

the only realistic mechanism to vindicate meritorious claims. See,

e.g., Tardiff, 365 F.3d at 7 (citing Amchem Prods., Inc. v.

Windsor, 521 U.S. 591, 617 (1997)). All of these concerns are very

much implicated here.

We summarize our holdings. We reverse the certification

of the injunctive class under the Clayton Act for lack of a live

controversy and order dismissal of the claim. Because there is no

jurisdiction under the Clayton Act, we remand to the district court

for determination of the several issues concerning the existence of

federal jurisdiction. On the representation of the parties that

there is diversity jurisdiction over at least some of the state

damages claims, we review the certification of the damages classes.

We vacate that certification; the district court is free to

reconsider the class certification orders on a more complete

record.

1
The district court observed that "it is reasonable to
infer that the proposed federal injunctive class numbers in the
millions"; the defendants have represented to the district court
that the proposed class includes "more than a hundred million
American consumers." In re New Motor Vehicles Canadian Export
Antitrust Litig. (Motor Vehicles IV), No. MDL 1532, 2006 WL 623591,
at *2 & n.19 (D. Me. Mar. 10, 2006).

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 I.

Background

The extensive background of this case is recited in many

thoughtful decisions of the district court. See, e.g., In re New

Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles I),

307 F. Supp. 2d 136 (D. Me. 2004) (dismissing federal antitrust

damages claims); In re New Motor Vehicles Canadian Export Antitrust

Litig. (Motor Vehicles II), 335 F. Supp. 2d 126 (D. Me. 2004)

(asserting pendent personal and supplemental subject matter

jurisdiction over state law claims); In re New Motor Vehicles

Canadian Export Antitrust Litig. (Motor Vehicles III), 350 F. Supp.

2d 160 (D. Me. 2004) (denying in part motion to dismiss); In re New

Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles

IV), No. MDL 1532, 2006 WL 623591 (D. Me. Mar. 10, 2006)

(certifying federal injunctive relief class); In re New Motor

Vehicles Canadian Export Antitrust Litig. (Motor Vehicles V), 235

F.R.D. 127 (D. Me. 2006) (certifying six exemplar state damages

classes); In re New Motor Vehicles Canadian Export Antitrust Litig.

(Motor Vehicles VI), 241 F.R.D. 77 (D. Me. 2007) (supplemental

order on certification of state damages classes); In re New Motor

Vehicles Canadian Export Antitrust Litig. (Motor Vehicles VII), 243

F.R.D. 20 (D. Me. 2007) (order certifying class action and

appointing class counsel); In re New Motor Vehicles Canadian Export

Antitrust Litig. (Motor Vehicles VIII), 243 F.R.D. 17 (D. Me. 2007)

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(memorandum order in support of class certification order). Before

describing the class certification issues, we sketch the outline of

the underlying case.

The plaintiffs' claim is that from at least 2001 through

2003, the currency exchange rate differential between the strong

United States dollar and the cheaper Canadian dollar created

arbitrage opportunities2 in the gray market3 to sell lower-priced

Canadian cars in the United States. These arbitrage opportunities

arose from the difference between the price at which a broker could

buy a vehicle in Canada (plus the costs of exporting the vehicle to

the United States) and the price at which the broker could resell

the vehicle, whether to a dealer or consumer, in the United States.

These arbitrage opportunities were enhanced by liberal trade

agreements and the harmonization of automotive safety and

environmental standards between the two countries in the 1990s. As

a result, an exporter could make most new cars sold in Canada

physically indistinguishable from comparable models sold in the

United States by replacing the speedometer and odometer with gauges

2
Arbitrage describes the practice of simultaneously buying
and selling identical securities, currency, or other assets in
different markets, "with the hope of profiting from the price
difference in those markets." Black's Law Dictionary 112 (8th ed.
2004).
3
A gray market is one "in which the seller uses legal but
sometimes unethical methods to avoid a manufacturer's distribution
chain and thereby sell goods (esp. imported goods) at prices lower
than those envisioned by the manufacturer." Black's Law Dictionary
989 (8th ed. 2004).

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that measured miles instead of kilometers. All of these

circumstances converged in what plaintiffs refer to as a "perfect

storm" of cross-border arbitrage opportunities.

Plaintiffs allege that individual automobile

manufacturers engaged in business practices, both legal and

illegal, designed to restrict the flow of Canadian cars into the

United States. Manufacturers allegedly refused to honor warranties

on Canadian cars in the United States and discouraged dealers from

installing domestic gauges on Canadian cars; they mandated "no

export" clauses in sales agreements between dealers and consumers

and required Canadian dealers to conduct due diligence into whether

potential customers were likely to export their cars out of Canada;

and they withheld information about safety recalls from exporting

customers. Manufacturers also allegedly imposed disciplinary

measures on Canadian dealers who sold to exporting customers. When

Canadian cars were discovered in the United States, automakers

would impose a "chargeback," a monetary penalty sometimes amounting

to thousands of dollars, on the Canadian dealer who sold the car;

manufacturers threatened to withhold inventory of desirable models

from offending dealerships; and they threatened to terminate

dealerships that sold to exporters.

Plaintiffs allege that these business practices had the

effect of suppressing the supply of Canadian cars in the United

States. This stifling of supply led to increases in two key prices

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in the domestic United States automobile market: the Manufacturer's

Suggested Retail Price ("MSRP") and the dealer invoice price. The

MSRP represents the retail price presented to the public. The

dealer invoice price represents the manufacturer-determined net

wholesale price to dealers.4 Both the MSRP and the list dealer

invoice price are determined annually by manufacturers and apply

nationally. Under plaintiffs' theory, these two prices in turn

define the bargaining parameters for the price actually paid by

consumers. Actual sales prices vary according to individual

negotiations between dealers and consumers, but plaintiffs assume

that negotiated prices fall within the range between the dealer

invoice price and the MSRP.

4
Plaintiffs distinguish between list and effective dealer
invoice prices. The list dealer invoice price is determined
annually for the national market by the manufacturers. Effective
dealer invoice prices reflect dealer- or region- specific
incentives provided by the manufacturers. Similarly, the effective
MSRP takes into account direct manufacturer-to-consumer incentives,
such as cash back offers. This distinction is crucial to
plaintiffs' theory of antitrust impact.

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 Defendants5 take the position that the business practices

described above amount to vertical restraints between manufacturers

and their dealers that do not violate the antitrust laws.

Plaintiffs, however, allege that defendants violated section 1 of

the Sherman Act by conspiring to coordinate their anti-export

business practices across the industry in response to increased

arbitrage opportunities after 2000. Plaintiffs allege that

defendants accomplished the illegal conspiracy over the course of

several meetings and through dissemination of best practices and

other information through the dealer associations. These illegal

horizontal agreements allegedly enhanced the effectiveness of the

extant legal vertical restraints. According to plaintiffs' theory,

"but for" the illegal horizontal conspiracy and its suppression of

inter-brand competition, American consumers would have paid lower

prices and have thus suffered antitrust-type injury.

For example, the plaintiffs allege that Ford's 2002

Windstar LX minivan had an MSRP of $16,448 (USD) in Canada and

$22,340 (USD) in the United States -- a difference of 26%. The

5
Defendants on appeal include Ford Motor Company, Ford
Motor Company of Canada, Ltd., General Motors Corp., General Motors
of Canada, Ltd., Honda Motor Co., Honda Canada, Inc., Nissan North
America, Inc., Chrysler LLC, Chrysler Motors LLC, Chrysler Canada
Inc., and Mercedes-Benz USA, LLC. In addition, the plaintiffs
named two automobile dealers' associations, the domestic National
Automobile Dealers Association ("NADA") and the Canadian Automobile
Dealers Association ("CADA"). Two automakers originally named as
defendants are no longer in the case: Toyota Motor Sales U.S.A.,
Inc. entered into a settlement agreement with plaintiffs, and
plaintiffs voluntarily dismissed BMW of North America, LLC.

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MSRP for a 2002 Lexus SC430 was 13% lower in Canada than in the

United States. Plaintiffs claim that if the car-makers had not

conspired to impede arbitrageurs from exporting Canadian cars to

the United States, the manufacturers could not maintain these

pricing gaps and instead would have been forced to compete by

lowering prices across the United States.

To summarize, plaintiffs' theory of antitrust impact

operates in two stages. In the first stage, the horizontal

conspiracy allowed the manufacturers to maintain artificially

inflated national MSRPs and dealer invoice prices within the United

States. In the second stage, the higher official pricing resulted

in higher purchase prices paid by individual consumers.

Throughout the proceedings in the district court, the

defendants have denied any conspiracy. They have also argued that

even if such a conspiracy existed, it would not have impacted the

domestic market in any case due to the effects of the entirely

legal vertical restraints.6 Defendants have also argued that

contrary to plaintiffs' theory, there would have been no flood of

Canadian cars into the United States given the number of new cars

sold in Canada, the limited opportunities for arbitrage, and the

small size and spottiness of the gray market. Defendants assert

that even if there were some impact on MSRPs and dealer invoice

6
The district court has not decided this issue, deeming it
a merits inquiry that it would be premature to resolve at the class
certification stage. Motor Vehicles V, 235 F.R.D. at 131 n.10.

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prices in the American market, there was no widespread antitrust

impact on consumers, and plaintiffs have no viable theory to show

either causation or damages that would apply to the plaintiff

classes.

II.

Nationwide Injunctive Relief Plaintiff Class

Defendants challenge the certification of the injunctive

class on the basis that plaintiffs lack standing to sue for

injunctive relief under the federal antitrust laws. Because

standing is a threshold consideration, the resolution of which may

render subsequent arguments irrelevant, we discuss it first.7

Warth v. Seldin, 422 U.S. 490, 498-99 (1975).

Plaintiffs seek federal injunctive relief pursuant to

section 16 of the Clayton Act on behalf of a nationwide class under

Rule 23(b)(2) for alleged violations of section 1 of the Sherman

Act. Section 16 makes available injunctive relief "against

threatened loss or damage by a violation of the antitrust laws."

15 U.S.C. § 26; see also Cargill, Inc. v. Monfort of Colo., Inc.,

7
Plaintiffs object that defendants cannot raise a standing
challenge to the Rule 23(b)(2) class on appeal because they failed
to present the argument to the district court. For their part,
defendants claim they previously raised the issue in oral argument.
Either way, courts must be vigilant about compliance with standing
requirements regardless of what the parties argue, see Pagán v.
Calderón, 448 F.3d 16, 26 (1st Cir. 2006), and must remain so
throughout the entire life cycle of a case. See generally II
Areeda & Hovenkamp, Antitrust Law ¶ 335b, at 289 (2d ed. 2000).
The issue has not been waived.

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479 U.S. 104, 110-11 (1986). Plaintiffs allege that injunctive

relief is necessary because the conspiracy is ongoing and will

continue unless enjoined by the court.

Specifically, plaintiffs seek an injunction that would

require defendants to honor warranties in the United States on all

new motor vehicles sold in Canada; enjoin the defendants from

blacklisting Canadian exporters; enjoin the defendants from

exchanging certain information with each other, including

blacklists and methods for avoiding export sales; enjoin

chargebacks to Canadian dealers; enjoin the tracking of Canadian

cars' Vehicle Identification Numbers ("VINs"); enjoin American

manufacturers from penalizing American dealers for buying or

selling Canadian vehicles; enjoin the Canadian Automobile Dealers'

Association ("CADA") and the National Automobile Dealers'

Association ("NADA") from discouraging or acting to prevent

Canadian exports; and enjoin the defendants from withholding safety

recall information based on a vehicle's export status. Motor

Vehicles IV, 2006 WL 623591, at *1-2.

On March 10, 2006, the district court issued an order

certifying a nationwide injunctive class under Rule 23(b)(2).8 Id.

8
The court found the injunctive relief class met the
requirements of Rule 23(a) -- numerosity, commonality, typicality,
and adequacy -- then turned to the requirements of Rule 23(b)(2).
Fed. R. Civ. P. 23(a); Motor Vehicles IV, 2006 WL 623591, at *2-6.
Rule 23(b)(2) allows for class actions when "the party opposing the
class has acted or refused to act on grounds that apply generally
to the class, so that final injunctive relief or corresponding

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at *1. In doing so, the court noted that a national injunction was

the only relief available to members of the proposed class who

reside in twenty-seven states because the court had previously

dismissed a proposed nationwide class for damages under the federal

antitrust laws as well as state-law damages claims for all but

twenty-three states and the District of Columbia. Id. at *7. The

district court has, with the agreement of the parties, stayed

determination of class notice issues pending this appeal.

The district court addressed the scope of standing to

seek injunctive relief under section 16 of the Clayton Act in the

course of analyzing the typicality requirement of Rule 23(a)(3).

Motor Vehicles IV, 2006 WL 623591, at *3-4. Defendants had argued

that some named plaintiffs did not have standing to sue for an

injunction because not all named plaintiffs actually paid an

overcharge due to the alleged conspiracy, and some actually paid

less because of it. Id. at *3.

The court correctly held that a plaintiff seeking relief

under section 16 need not show actual antitrust damages but only a

"threatened loss or damage." 15 U.S.C. § 26; see also Cargill, 479

declaratory relief is appropriate respecting the class as a whole."
Fed. R. Civ. P. 23(b)(2). The court held that the defendants fall
within the language of Rule 23(b)(2) because they had acted or
refused to act on grounds generally applicable to the class. Motor
Vehicles IV, 2006 WL 623591, at *7. The court further held that
the proposed class satisfied the rule's requirement that injunctive
relief be "appropriate . . . with respect to the class as a whole."
Id. at *7-10.

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U.S. at 111; Ocean State Physicians Health Plan, Inc. v. Blue Cross

& Blue Shield of R.I., 883 F.2d 1101, 1106 (1st Cir. 1989). This

in turn means that the requirements for standing for injunctive

relief are less stringent than those under section 4 of the Clayton

Act, 15 U.S.C. § 15, for standing to pursue damages claims. Cia

Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404, 407-

08 (1st Cir. 1985) ("Congress empowered a broader range of

plaintiffs to bring § 16 actions because the standards to be met

are less exacting than those under § 4; under § 16, a plaintiff

need show only a threat of injury rather than an accrued injury.").

Plaintiffs must demonstrate "a significant threat of

injury from an impending violation . . . or from a contemporary

violation likely to continue or recur." Mid-West Paper Prods. Co.

v. Cont'l Group, Inc., 596 F.2d 573, 591 (3rd Cir. 1979) (quoting

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130

(1969)) (internal quotation marks omitted). The threatened injury

must be an injury for which the plaintiff would be entitled to

compensation if the injury actually occurred. Cargill, 479 U.S. at

110-13. There is no doubt that the types of injuries alleged here

-- consumers paying artificially inflated prices due to antitrust

violations -- are antitrust injuries. Reiter v. Sonotone Corp.,

442 U.S. 330, 339 (1979); see also Motor Vehicles IV, 2006 WL

623591, at *3 ("Higher prices for consumers resulting from

antitrust violations are antitrust injuries.").

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 The district court rejected the defendants' standing

argument, reasoning that whether or not the named plaintiffs

suffered an actual overcharge, "[t]hey confront or confronted a

threatened loss or damage resulting from restrictions on

competition . . . [that] the antitrust laws were designed to

prevent." Id. at *4. The district court relied on two

propositions that are now called into question. First, the court

reasoned that "whether exchange rates during some periods [within

the class period] temporarily made Canadian cars more expensive and

therefore not price competitive, does not affect the standing of

these plaintiffs to seek an injunction against continuation of such

a conspiracy."9 Id. (emphasis added). Second, the court noted in

an opinion now two years old that "[t]here is no indication that

exchange-related arbitrage opportunities have permanently ended."

Id.

As the defendants point out on appeal, the standing issue

emanates from Article III's requirement that there remain a live

case or controversy throughout the course of a litigation. Golden

v. Zwickler, 394 U.S. 103, 108-09 (1969). If a named plaintiff

9
The district court noted the defendants' position that
because the complained-of export restrictions operated to restrict
the flow of American cars into Canada as well as vice versa,
consumers buying cars in the United States during periods when the
value of the Canadian dollar and the prices of Canadian cars rose
were actually protected from higher domestic prices. Plaintiffs'
expert conceded that the defendants' two-way restrictions could
protect American consumers in such a scenario. Motor Vehicles IV,
2006 WL 623591, at *3 n.23.

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fails to establish such a continuing controversy, she normally may

not invoke the power of the federal courts to seek relief on her

own behalf or that of other members of a putative class. O'Shea v.

Littleton, 414 U.S. 488, 494 (1974); see also Sosna v. Iowa, 419

U.S. 393, 402 (1975) ("There must not only be a named plaintiff who

has . . . a case or controversy at the time the complaint is filed,

and at the time the class action is certified by the District Court

. . . but there must be a live controversy at the time this Court

reviews the case."). Under certain circumstances, a court may find

that the requisite controversy exists "between a named defendant

and a member of the class represented by the named plaintiff, even

though the claim of the named plaintiff has become moot" due to

that plaintiff's individual circumstances. Sosna, 419 U.S. at 402.

The defendants contend that even if the named plaintiffs

had standing to seek injunctive relief at some time in the past,

circumstances have changed such that there is no longer a live

controversy between named plaintiffs and the defendants to bolster

plaintiffs' standing to seek injunctive relief. We agree.

Section 16's requirement of "threatened injury," 15

U.S.C. § 26, dovetails with Article III's requirement that in order

to obtain forward-looking relief, a plaintiff must face a threat of

injury that is both "'real and immediate,' not 'conjectural' or

'hypothetical.'" O'Shea, 414 U.S. at 494 (quoting Golden, 394 U.S.

at 109-10). "Past exposure to illegal conduct does not in itself

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show a present case or controversy regarding injunctive relief

. . . if unaccompanied by any continuing, present adverse effects."

Id. at 495-96.

As with the other elements of standing, it is plaintiffs

who, by invoking federal jurisdiction, bear the burden of

establishing the presence of a threat of injury. McInnis-Misenor

v. Me. Med. Ctr., 319 F.3d 63, 67 (1st Cir. 2003) (citing Bennett

v. Spear, 520 U.S. 154, 167-68 (1997)). "There must be some

immediacy or imminence to the threatened injury." Id. at 68

(citing City of Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983)).

Plaintiffs have failed to establish the continuing

presence of the requisite threatened injury. The "perfect storm"

that allegedly precipitated massive arbitrage opportunities for

selling Canadian cars in the United States ceased long ago.

Plaintiffs' theory of antitrust violation posits that exceptional

arbitrage opportunities arose early in this decade due to a

combination of relaxed trade restrictions between the United States

and Canada, physical harmonization of cars manufactured for the two

markets, and a differential between the values of American and

Canadian currencies. The last factor has varied since the

beginning of the class period, and plaintiffs themselves measure

windows of actual arbitrage opportunity in large part according to

undulations in exchange rates.

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 After the district court certified the injunctive class,

it ordered the parties to make submissions regarding proposed end

dates for the damages classes. Plaintiffs' expert submitted an

affidavit indicating that arbitrage opportunities for Canadian cars

significant enough to impact United States prices for new vehicles

ended in May 2003. The district court accordingly adopted April

30, 2003 as the endpoint for the state damages classes. Motor

Vehicles VI, 241 F.R.D. at 79. Plaintiffs have not made any effort

since the district court's ruling to demonstrate whether or when

prevailing conditions -- primarily, exchange rates between Canada

and the United States -- might reasonably be expected once again to

resemble those during the class period. This is for good reason,

as the value of the United States dollar relative to the Canadian

dollar in the years 1998-2003 hit an apex unseen in at least the

last half century.10 In the nearly five years since April 2003, the

time at which plaintiffs concede actual injury to the damages

classes abated, the exchange rate has fallen in favor of the

10
We take judicial notice of these undisputed facts.
Between 1950 and the present, it has generally cost between $0.96
and $1.40 Canadian dollar ("CAD") to purchase one United States
dollar ("USD"). During that period, the exchange rate has risen
significantly above $1.40 CAD to $1.00 USD only once for any length
of time. This occurred between the years 1998 and 2003, when the
rate ranged between $1.40 and $1.61 CAD to $1.00 USD. 5E
Historical Statistics of the United States 5-572 to 5-574 (S.
Carter et al. eds., 2006); Federal Reserve Statistical Release:
H i s t o r i c a l R a t e s f o r C a n a d a ,
http://www.federalreserve.gov/releases/h10/hist/dat00_ca.htm. This
deviation corresponds with the period during which plaintiffs'
alleged arbitrage opportunities occurred.

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Canadian dollar.11 In the circumstances of this case, that alone

eliminates any realistic current threat.

The speculative nature of the claim that exchange rates

could one day create additional arbitrage opportunities is

reinforced by a second contingency inherent in the plaintiffs'

theory of threatened future harm. In order for antitrust injury to

befall a class member, she must also intend to purchase a new car

at a time when arbitrage opportunities are ripe for exploitation.

The district court certified an injunctive class defined as "[a]ll

persons . . . who purchased or leased or intended to purchase or

lease a new motor vehicle manufactured by a defendant from a United

States dealer during the period from January 1, 2001, to March 10,

2006." The complaint names thirty-six individuals who bought or

leased new cars in the United States during the class period.

Nowhere, however, does the complaint make any allegation regarding

a named plaintiff's intention to buy or lease another new vehicle

within such a time frame as could be deemed imminent. The fact

that the injunctive class has been restricted to a period of time

11
The exchange rate on April 30, 2003 was $1.43 CAD to
$1.00 USD, and as of publication of this opinion, the exchange rate
has not once returned to that level. Instead, the relative value
of the domestic dollar has been in more or less steady decline. On
September 28, 2007, the value of the Canadian dollar surpassed that
of the United States dollar. As of February 1, 2008, the exchange
rate was $0.90 CAD to $1.00 USD. Federal Reserve Statistical
Release: Historical Rates for Canada,
http://www.federalreserve.gov/releases/h10/hist/dat00_ca.htm.

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covering 2001 to early 2006 underscores the speculative nature of

the plaintiffs' hypothetical future injury.

In McInnis-Misenor v. Maine Medical Center, this court

inquired whether the plaintiff faced an "immedia[te] or imminen[t]"

threat of injury that would support standing in federal court. 319

F.3d at 68. We held that standing was lacking where any possible

injury to the plaintiff was "contingent on several events which may

or may not happen." Id. at 72. Here, there is nothing to suggest

that any named plaintiff harbors an "imminent" intention to buy a

new car in coincidence with another "perfect storm" of arbitrage-

friendly market conditions.

Plaintiffs attempt to revive the controversy by arguing

that the defendants' conspiracy to hinder cross-border sales is

ongoing. Even if this were true, the argument ignores the point

that the relevant question is whether plaintiffs suffer a realistic

threat of injury stemming from those alleged antitrust violations.

An antitrust violation and standing are distinct and independently

necessary prerequisites for the relief sought by the injunctive

class. See II Areeda & Hovenkamp, Antitrust Law ¶ 335f, at 297 (2d

ed. 2000); cf. SAS of P.R., Inc. v. P.R. Tel. Co., 48 F.3d 39, 43

(1st Cir. 1995).

The Rule 23(b)(2) class is vacated for lack of a live

controversy between the parties such as would justify an injunctive

remedy. The injunctive relief claim is dismissed.

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 III.

Jurisdiction over Remaining Plaintiff Classes

The claim for injunctive relief under the Clayton Act

provided the federal jurisdictional spine of this case. That basis

for federal jurisdiction is now gone, and the question of federal

jurisdiction over the state-law damages claims presents itself. It

may be that the district court could retain jurisdiction over the

state damages claims on either of two theories, but we leave it to

the district court to decide on remand whether there is

jurisdiction.12

The parties and the district court have referred to

diversity, see 28 U.S.C. § 1332,13 as a basis for maintaining the

state damages classes in federal court. To this point in the

proceedings, however, the state damages claims have been analyzed

as within the court's supplemental jurisdiction based on the

presence of the federal claim. See, e.g., Motor Vehicles II, 335

12
Although the defendants challenge plaintiffs' standing to
maintain the injunctive class, neither side addressed to this court
any of the jurisdictional issues that might arise in the event that
we vacated the federal injunctive class. We do not purport to
raise an exhaustive checklist of questions to address on remand,
but advert to some salient issues.
13
The Class Action Fairness Act of 2005 ("CAFA"), Pub. L.
109-2, 119 Stat. at 4 (amending 28 U.S.C. § 1332) was enacted after
the complaints in this action were filed. The existence of
diversity jurisdiction must therefore, under the express terms of
the CAFA, be determined under the pre-CAFA diversity statute. See
CAFA § 9, 119 Stat. 14 ("[CAFA] shall apply to any civil action
commenced on or after the date of enactment of this Act.").

-21-
F. Supp. 2d 126.14 Whether the diversity basis is sound has not

been tested.

At oral argument, the defendants pointed out that

proceeding on the basis of diversity jurisdiction would require

analysis of each individual state-based class. Defendants also

conceded that diversity could provide an independent basis for

federal jurisdiction for at least some of the state-law damages

classes. The district court has not had the opportunity to assess

whether each state class satisfies the requirements of § 1332 and

may do so on remand.

The district court may, in the alternative, consider

whether to exercise its discretion to continue exerting

supplemental jurisdiction, see 28 U.S.C. § 1367, over the state

damages claims. See Rodríguez v. Doral Mortgage Corp., 57 F.3d

1168, 1177 (1st Cir. 1995) ("In an appropriate situation, a federal

court may retain [supplemental] jurisdiction over state-law claims

notwithstanding the early demise of all foundational federal

claims."). In weighing this option, the district court should

14
In its September 7, 2004 order addressing supplemental
jurisdiction over the state-law claims, the district court in
addition asserted pendent personal jurisdiction over certain
Canadian defendants based on the personal jurisdiction created by
the federal antitrust claim. Motor Vehicles II, 335 F. Supp. 2d at
128; see also In re New Motor Vehicles Canadian Export Antitrust
Litig., 307 F. Supp. 2d 145, 147-48 (D. Me. 2004) (finding personal
jurisdiction over certain Canadian defendants). To the extent that
the district court relied on the existence of the federal claim,
personal jurisdiction may yet be an issue on remand.

-22-
consider "the totality of the attendant circumstances," including

considerations of judicial economy, fairness to the parties, and

the nature of the applicable state law. Id.

On the assumption that there is some basis for federal

jurisdiction over at least some remaining state class claims, we

turn to the certification of the state damages classes.

IV.

Standards of Review of Class Certification Decisions

We review class certification rulings, including those

for damages classes, for abuse of discretion. Mowbray, 208 F.3d at

295. This standard has teeth:

An abuse occurs when a court, in making a
discretionary ruling, relies upon an improper
factor, omits consideration of a factor entitled
to substantial weight, or mulls the correct mix
of factors but makes a clear error of judgment in
assaying them. An abuse of discretion also
occurs if the court adopts an incorrect legal
rule.

Id. (citation omitted). Furthermore, a class certification appeal

"can pose pure issues of law reviewed de novo." Tardiff, 365 F.3d

at 4. Review of mixed questions of law and fact varies from non-

deferential review for law-dominated issues to deferential clear-

error review for fact-dominated ones. In re PolyMedica Corp. Sec.

Litig. (PolyMedica), 432 F.3d 1, 4 (1st Cir. 2005) (citing Johnson

v. Watts Regulator Co., 63 F.3d 1129, 1132 (1st Cir. 1995)).

Intertwined with the scope of our review on appeal is the

question of how far a district court should go in testing legal and

-23-
factual premises at the class certification stage. When such

premises are disputed, the court may "probe behind the pleadings,"

Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982), to

"formulate some prediction as to how specific issues will play out"

in order to assess whether the proposed class meets the legal

requirements for certification, Mowbray, 208 F.3d at 298. In

short, "a court has the power to test disputed premises [at the

certification stage] if and when the class action would be proper

on one premise but not another." Tardiff, 365 F.3d at 4-5. Here,

the premises are challenged as to both steps of plaintiffs' theory.

In performing this predictive function and in

"[e]xercising its broad discretion, . . . the district court must

evaluate the plaintiff's evidence . . . critically without allowing

the defendant to turn the class-certification proceeding into an

unwieldy trial on the merits." PolyMedica, 432 F.3d at 17.

However, as both we and other circuit courts have emphasized,

weighing whether to certify a plaintiff class may inevitably

overlap with some critical assessment regarding the merits of the

case. See, e.g., Regents of the Univ. of Cal. v. Credit Suisse

First Boston (USA), Inc., 482 F.3d 372, 380 (5th Cir. 2007), cert.

denied, ___ U.S. ___, 2008 WL 169504 (Jan. 22, 2008). It would be

contrary to the "rigorous analysis of the prerequisites established

by Rule 23 before certifying a class" to put blinders on as to an

issue simply because it implicates the merits of the case. Smilow

-24-
v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 38 (1st Cir. 2003).

Our review of a Rule 23(f) appeal necessarily includes "review [of]

the merits of the district court's theory of liability insofar as

they also concern issues relevant to class certification." Credit

Suisse, 482 F.3d at 381.

V.

State Damages Classes

A. Procedural History

Applying Illinois Brick v. Illinois, 431 U.S. 720 (1977),

the district court dismissed the plaintiffs' federal antitrust

damages claims in March 2004 because plaintiffs were indirect

purchasers. Motor Vehicles I, 307 F. Supp. 2d at 137. Illinois

Brick embodies a policy judgment that the reach of damages for

federal antitrust violations does not extend to indirect

purchasers, even if they have suffered some impact in fact. See II

Areeda & Hovenkamp, supra, ¶ 395, at 554-55.

After dismissal of the federal damages claim, plaintiffs

filed a second amended complaint which added damages claims under

common and statutory law for all fifty states and the District of

Columbia. Motor Vehicles III, 350 F. Supp. 2d at 168, 207. After

considering for each disputed state15 whether plaintiffs had pled

facts sufficient to state a claim under that state's laws, the

15
The defendants did not move to dismiss all the state
claims, and the plaintiffs consented to the dismissal of some of
the state claims. Motor Vehicles III, 350 F. Supp. 2d at 168, 175.

-25-
district court dismissed the state law damages claims for all but

twenty-three states and the District of Columbia. Id. at 168. The

propriety of that dismissal is not now before us. This appeal is

from three orders that did certify state damages classes.

Before discovery was completed, the plaintiffs moved on

July 29, 2005, to certify six exemplar classes of state damages

claims.16 On May 12, 2006, the court preliminarily certified five

of the six exemplar state damages classes under Rule 23(b)(3) and

asked for additional materials regarding the date on which the

class period should end. Motor Vehicles IV, 235 F.R.D. at 129.17

On March 21, 2007, the court issued a supplemental order concluding

that the class period for the state damages claims should end on

April 30, 2003, and certifying fifteen additional state damages

classes for a total of twenty. Motor Vehicles VI, 241 F.R.D. at

79, 84. On June 15, 2007, the court issued an order and

explanatory memorandum under Rule 23(c)(1)(B) defining the class

and class claims, issues, and defenses. Motor Vehicles VII, 243

F.R.D. 17; Motor Vehicles VIII, 243 F.R.D. 20.

16
The district court had requested, in a March 15, 2005
order, that each side designate three exemplar states. The
plaintiffs selected Maine, Kansas, and Vermont, and the defendants
chose California, New Mexico, and Tennessee.
17
The Kansas class was not certified because plaintiffs
conceded that the class representative had not in fact been injured
by the alleged conspiracy and thus lacked standing. Motor Vehicles
V, 235 F.R.D. at 131.

-26-
 1. Requirements for Class Certification

To certify the statewide damages classes, the district

court had to evaluate whether the four threshold requirements of

Rule 23(a) were met, as well as whether Rule 23(b)(3)'s two

additional prerequisites were satisfied. Amchem, 521 U.S. at 614;

Smilow, 323 F.3d at 38. Rule 23(a) requires that (1) there be

numerosity, (2) there be common questions of law or fact, (3) the

class representative's claims be typical of the class, and (4) the

representative's representation of the class be adequate. Fed. R.

Civ. P. 23(a). To certify a class under Rule 23(b)(3), a judge

must further find "that the questions of law or fact common to

class members predominate over any questions affecting only

individual members" ("predominance"), and that "a class action is

superior to other available methods for fairly and efficiently

adjudicating the controversy" ("superiority"). Fed. R. Civ. P.

23(b)(3). In classes certified under Rule 23(b)(3), the Rules

"invite[] a close look at the case before it is accepted as a class

action." Amchem, 521 U.S. at 615 (quoting B. Kaplan, Continuing

Work of the Civil Committee: 1966 Amendments of the Federal Rules

of Civil Procedure (I), 81 Harv. L. Rev. 356, 390 (1967)).

The court held that numerosity was not disputed and that

adequacy was established. Motor Vehicles V, 235 F.R.D. at 130,

141. It also concluded that a class action was by far the superior

method for proceeding. Id. at 148. The real dispute revolved

-27-
around whether common evidence could be used to prove the impact of

the alleged conspiracy on U.S. consumers ("common impact") and any

resulting damages ("common proof of damages"). Id. at 129, 132.18

The court noted it did not yet have enough evidence to determine

the merits question of whether the plaintiff classes actually

suffered antitrust or consumer protection injury. It repeatedly

emphasized it would address that question later on a proper record

-- for example, at summary judgment.19 Id. at 131, 136, 139.

As the district court noted, there is some overlap among

the certification criteria of commonality, Rule 23(a)(2),

18
To establish an antitrust claim, plaintiffs typically
must prove (1) a violation of the antitrust laws, (2) an injury
they suffered as a result of that violation, and (3) an estimated
measure of damages. Sullivan v. Nat'l Football League, 34 F.3d
1091, 1103 (1st Cir. 1994). For a class action to be appropriate,
"plaintiffs need to demonstrate that common issues prevail as to
[both] the existence of a conspiracy and the fact of injury."
Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005). If
these two elements are established by common proof, the measure of
damages can sometimes be left to individual proof, as we discuss
further below.
The element of injury in the antitrust context is often
referred to as "impact" or "fact of damage." Alabama v. Blue Bird
Body Co., 573 F.2d 309, 317 & n.18 (5th Cir. 1978). It is the
causal link between the antitrust violation and the damages sought
by plaintiffs. Sullivan, 34 F.3d at 1103. It thus requires both
injury-in-fact and a showing that the injury is the result of the
antitrust activity. Cordes & Co. Fin. Servs., Inc. v. A.G. Edwards
& Sons, Inc., 502 F.3d 91, 106 (2d Cir. 2007).
19
The court reiterated in its March 21, 2007 order that it
would not "make a final determination of the existence of antitrust
impact at the certification stage." Motor Vehicles VI, 241 F.R.D.
at 80 (emphasis added). "Whether an illegal agreement halting
Canadian imports (or removing their threat) produced antitrust
causation or retail purchase price impact remains to be proven at
trial or demonstrated at summary judgment." Id. at 82 n.5.

-28-
typicality, Rule 23(a)(3), and predominance, Rule 23(b)(3). Id. at

130 n.4 ("[I]f the proof of impact is not common across the class,

then not only is the named plaintiffs' claim of injury not typical,

but the predominance assessment is also affected."); see also

Amchem, 521 U.S. at 623 n.18 (predominance and typicality are

similar in some respects); 6 A. Conte & H.B. Newberg, Newberg on

Class Actions § 18:8, at 24 n.2 (4th ed. 2002). The questions in

this case of common impact (antitrust-type causation) and common

proof of damages are relevant to all three criteria.

Rule 23(a)'s requirement of commonality is a low bar, and

courts have generally given it a "permissive application." 7A C.A.

Wright et al., Federal Practice and Procedure § 1763, at 221 (3d

ed. 2005). The district court did not have trouble finding

sufficient commonality in this case. The court pointed to the

common questions of whether there was a conspiracy; if so, whether

it affected either dealer invoice prices or MSRPs; and whether

there was any violation of state antitrust or consumer protection

laws. Motor Vehicles V, 235 F.R.D. at 130; see also 6 Conte &

Newberg, supra, § 18:5, at 14 & n.3 (gathering cases that hold that

"allegations concerning the existence, scope, and efficacy of an

alleged conspiracy present questions adequately common to class

members to satisfy the commonality requirement").

"[T]he predominance criterion is far more demanding,"

however, than the commonality requirement. Amchem, 521 U.S. at

-29-
624. Under the predominance inquiry, "a district court must

formulate some prediction as to how specific issues will play out

in order to determine whether common or individual issues

predominate in a given case." Mowbray, 208 F.3d at 298. In

antitrust class actions, common issues do not predominate if the

fact of antitrust violation and the fact of antitrust impact cannot

be established through common proof. See Blades v. Monsanto Co.,

400 F.3d 562, 566 (8th Cir. 2005). The district court did not find

predominance and typicality as easily established as commonality.

The court chose to analyze under the heading of typicality whether

plaintiffs were asserting sufficiently common proof of impact,

Motor Vehicles V, 235 F.R.D. at 130-40, and it considered under the

heading of predominance whether any resulting damages would

likewise be established by sufficiently common proof, id. at 142-

45. In consideration of these issues, the district court relied on

the submissions of the parties' experts.

2. Submissions of Expert Witnesses

Plaintiffs relied primarily on their expert Professor

Robert E. Hall of Stanford University and the Hoover Institute,

who, along with the defense expert, assumed that plaintiffs'

allegations of conspiracy were true. In his July 2005 report,

Professor Hall noted that collectively the defendants' sales

accounted for 89% of the U.S. market and 84% of the Canadian

market. He concluded that "if defendants were unable to impose

-30-
export restraints or were less effective in imposing them, they

would [have] lower[ed] U.S. [dealer] invoice prices and MSRPs for

most, if not all, of their vehicles." Expert Report of Robert E.

Hall, Ph.D. ¶ 51. Even though retail sales of cars are

individually negotiated, Professor Hall opined that class members

would have experienced common impact from the changed MSRPs and

dealer invoice prices because a change in these prices would shift

the entire negotiating range, benefitting (or harming) essentially

all consumers.

Professor Hall initially proposed two different

approaches to establishing common evidence of damages to class

members. The first approach would be to rely on statistical

models ("Nash equilibriums") used in the auto industry to predict

market outcomes. Under his second approach, a benchmark method,

the U.S.-Canadian market would be evaluated against a comparable

market not affected by the challenged conduct. Both approaches,

Professor Hall asserted, would account for "heterogeneity across

vehicles, dealers, consumers, and time, [and] they can be used to

identify cars or time periods for which there are no damages." Id.

¶ 62. Professor Hall also asserted that data existed that would

allow him to implement these models, though the most detailed data

were in the hands of defendants.

The defense expert, Professor Joseph P. Kalt of Harvard

University, filed his expert report on September 30, 2005. Even

-31-
assuming a conspiracy, he disputed that there was any common impact

on either the national manufacturer-to-dealer prices or the

individual dealer-to-consumer sales. His critique focused on a

description of the actual gray market for Canadian vehicles in the

United States, which he asserted was spotty, erratic, and too

insignificant to affect the national market, even absent any

collusive activity. He also criticized Professor Hall for not

distinguishing between the effects of the manufacturers' legal

vertical restraints and those of the alleged horizontal conspiracy.

As to damages, he disputed that there were any common methods of

proof and asserted that Professor Hall's suggested approach of

employing Nash equilibriums was just "an empty phrase." Expert

Report of Joseph P. Kalt, Ph.D. 63-64.

In reply to Professor Kalt's critique, Professor Hall

submitted a rebuttal report on December 20, 2005. He took issue

with Professor Kalt's conclusions regarding the gray market20 and,

applying regression analysis to Professor Kalt's data on arbitrage

opportunity and export activity, concluded that "a larger price gap

[between Canadian and United States car prices] is associated with

greater export activity and that this relationship is not the

result of randomness." Rebuttal Report of Robert E. Hall, Ph.D.

20
Professor Kalt had described the contours of the gray
market in 2000, 2001, and 2002. Professor Hall argued that the
gray market in 2001 and 2002 would reflect the impact of the
alleged horizontal conspiracy and that the relevant arbitrage
opportunities were not present in 2000.

-32-
¶ 25. Specifically, his regressions suggested that "a $1,000

increase in the price gap for a given model [of car] is, on

average, associated with an increase in exports of at least 33

percent." Id. ¶ 24. The minor increase in gray market sales in

2001-2002 despite the conceded greater arbitrage opportunities,

then, did not indicate the lack of a conspiracy, but rather

suggested an effective one.

Professor Hall argued that a Nash equilibrium model could

distinguish the effects of unilateral restraints from those of any

horizontal conspiracy, and he also suggested that further discovery

might reduce the need for modeling by yielding direct evidence on

the effectiveness of the unilateral and alleged horizontal

constraints. He stated that he had offered preliminary

mathematical formulas at his deposition to establish the viability

of both this approach and the approach of his proposed damages

model, and he included the preliminary damages model in his

rebuttal report. Professor Hall again asserted his view that there

were methods based on common evidence, such as the econometric

model he was proposing, that could account for the "major

dimensions in which damages might vary among potential class

members." Id. ¶ 50.

3. Typicality and Predominance

On this evidence, the district court preliminarily

certified five exemplar state classes. The court held that the

-33-
presentation by Professor Hall, supported by extrinsic economic

studies, sufficed for purposes of showing common proof of impact.21

The court found "unexceptionable" the plaintiffs' theory that other

things being equal, a restriction on the supply of lower-priced

cars coming into the United States market will exert an upward

pressure on domestic car prices. Motor Vehicles V, 235 F.R.D. at

137. This pressure will apply both to the prices dealers pay to

manufacturers and to the prices paid by consumers to dealers.

While individual negotiations may determine the final price, the

starting point for most negotiations is the MSRP, and the final

purchase price for most consumers is between the dealer invoice

price and the MSRP. Id. In effect, the overall negotiating range

would be elevated, resulting in higher consumer prices across the

board. Id. at 138-39. The court accepted some of these

contentions as adequate to demonstrate that the named plaintiffs'

claims would be typical of the class, although the court was

careful to note that it was not then deciding whether plaintiffs'

proof of impact was sufficient to withstand a motion for summary

judgment. Id. at 139.

21
For example, Professor Hall cited a study showing that
dealers tend to pass on to consumers at least some pricing
incentives given by manufacturers. Motor Vehicles V, 235 F.R.D. at
137 (citing M. Busse et al., $1000 Cash Back: Asymmetric
Information in Auto Manufacturer Promotions 45 (Nat'l Bureau of
Econ. Res. Working Paper Series No. 10887, 2004)).

-34-
 The court was also careful to note that the proffered

common proof of impact might be insufficient under some states'

laws. Id. at 132. The court sua sponte examined the laws of five

of the exemplar states to determine what level of proof of consumer

impact each state required and what inferences were acceptable to

show impact.22 The court concluded that there was a range.

California, at one end, permitted "an inference of antitrust

impact, even as to indirect purchasers, from the existence of the

conspiracy."23 Id. at 135; see also id. ("In the consumer context,

at least a portion of the illegal overcharge by a manufacturer will

presumably be passed on by the independent distributors to consumer

class members in the form of higher prices." (quoting Global

Minerals & Metals Corp. v. Superior Court, 7 Cal. Rptr. 3d 28, 44-

45 (Ct. App. 2003)) (internal quotation marks omitted)).

Maine was at the other end of the spectrum, requiring

evidence, not inference, of impact. While the Maine antitrust

statute explicitly permits recovery for indirect injury, Me. Rev.

Stat. Ann. tit. 10, § 1104, the Maine Law Court has not yet

commented on what indirect purchasers must show to establish impact

or causation. Motor Vehicles V, 235 F.R.D. at 132. The district

22
The parties filed briefs on these issues of state
substantive law before the March 21, 2007 order. The court found
that the parties' briefing did not cause it to change its prior
views.
23
Defendants say this is not an accurate representation of
California law, but do not press the point on appeal.

-35-
court turned to Maine superior court decisions, which the court

summarized as holding that "indirect purchasers in Maine must

produce specific proof that they paid higher prices as a result of

the conspiracy (in the face of the possibility that all such

increases were absorbed at the retailer level)." Id. at 134; see

also id. ("Because indirect purchasers must demonstrate that

overcharges have been passed on to them, such claims present an

entirely separate level of evidence and proof than that found in a

direct purchaser claim." (quoting Melnick v. Microsoft Corp., Nos.

CV-99-709, CV-99-752, 2001 WL 1012261, at *6 (Me. Super. Ct. Aug.

24, 2001))). Likewise, the Maine consumer protection statute, Me.

Rev. Stat. Ann. tit. 5, §§ 205-A to 214, allows indirect purchasers

to recover, but injury is not presumed. Motor Vehicles V, 235

F.R.D. at 135 (citing State v. Weinschenk, 868 A.2d 200 (Me.

2005)).

The court also discussed the states that fell between

those two poles. New Mexico, it concluded, seems to allow indirect

purchasers to establish antitrust impact through correlation

analysis. See id. at 136. Tennessee and Vermont have not yet

fully addressed the question. See id. The court noted that in

states like Maine where the passing on of an antitrust or consumer

protection injury to indirect purchasers cannot be presumed,

plaintiffs might have difficulty proving injury to individual

-36-
consumers if their common proof can establish only an inference of

injury. See id. at 139.

Turning to the question of predominance under Rule

23(b)(3), the court found there were at least five common disputed

issues weighing in favor of class certification.24 Id. at 142.

Defendants argued that the lack of common impact at both stages of

plaintiffs' theory and the lack of common proof of damages defeat

predominance. The court reiterated that it had found plaintiffs'

proposal to prove impact through common proof preliminarily

sufficient, and it pointed out that the existence of a common

disputed issue weighs in favor of class certification, not against

it. Id. at 142 (citing Tardiff, 365 F.3d at 4-5). The adequacy of

plaintiffs' proof of common impact, and whether the impact even

constitutes cognizable antitrust or consumer protection injury,

"are merits determinations that are common in each [state] class"

and would be resolved at trial. Id.

24
Those issues were:
(a) Was there a horizontal agreement to
restrict supply?
(b) Was it illegal under that particular
state's laws?
(c) . . . Did the illegal agreement have
antitrust or consumer protection impact in that
state as the plaintiffs propose to prove it?
(d) If so, is that impact sufficient to
confer standing under the particular state's
laws?
(e) How long did the conspiracy and its
impact last?
Motor Vehicles V, 235 F.R.D. at 142 (footnote omitted).

-37-
 The court also disagreed that the question of individual

damages defeats the predominance of common questions. First, the

court noted that "[w]here, as here, common questions predominate

regarding liability, then courts generally find the predominance

requirement to be satisfied even if individual damages issues

remain." Id. at 143 (quoting Smilow, 323 F.3d at 40). Second, the

court stated that it would not determine at the class certification

stage whether plaintiffs' method of proving damages was adequate.

Id. at 144. The mere fact that there are differences among members

of a class regarding their individual amounts of damages does not

preclude class certification. Smilow, 323 F.3d at 40 ("The

individuation of damages in consumer class actions is rarely

determinative under Rule 23(b)(3)."); 7AA Wright et al., supra,

§ 1781, at 235. Often those variations can be determined according

to a universal mathematical or formulaic calculation, obviating the

need for evidentiary hearings on each individual claim. Smilow,

323 F.3d at 40. Plaintiffs proposed to use such an approach here.

Motor Vehicles V, 235 F.R.D. at 143-44. The district court noted

that it was "not overwhelmed by the plaintiffs' offer of damage

calculation models," but it "conclude[d] that damages [were] not

yet a ground to deny certification." Id. at 144-45; see also id.

at 145 n.63 (specifying some of the problems plaintiffs' damages

models faced).

-38-
 Finally, the district court raised the question of the

end date for the damages classes. Id. at 140. Another round of

expert reports ensued, accompanied by briefing repeating many of

the same arguments. The court focused on the choice of end date in

its March 21, 2007 order; it commented that the defendants'

additional critiques did not alter its views that a class should be

certified.25 Motor Vehicles VI, 241 F.R.D. at 80-82. Over

defendants' insistence that the court determine whether the

"alleged horizontal conspiracy actually impacted American car

prices," the court refused to reexamine the issue -- as well as the

related issue of "what vertical restraints the individual

manufacturers maintained, their legality and their effect" -- at

that time. Id. at 80-82 & n.5. On June 15, 2007, the court

entered an order of class certification in compliance with Rule

23(c)(1)(B).

B. Defendants' Appeals from Certification of the Damages
Classes

In challenging the certification of the state damages

classes, defendants primarily argue that the district court did not

25
In a footnote, the district court explained that it
believed it had complied with the First Circuit requirement that
the district court "formulate some prediction as to how specific
issues will play out," Mowbray, 208 F.3d at 298, that it conduct a
"rigorous analysis" of the Rule 23 criteria, Smilow, 323 F.3d at
38, and that it test the disputed premises "early on," Tardiff, 365
F.3d at 4. Motor Vehicle VI, 241 F.R.D. at 81 n.7. The court
noted that PolyMedica did not mandate a particular level of fact-
finding by the district judge at the certification stage. Id.

-39-
engage in a sufficiently searching inquiry into the relevant merits

issues. It is a settled question that some inquiry into the merits

at the class certification stage is not only permissible but

appropriate to the extent that the merits overlap the Rule 23

criteria. Falcon, 457 U.S. at 160; PolyMedica, 432 F.3d at 6;

Mowbray, 208 F.3d at 297-98. It is less settled what degree of

merits inquiry is required at the class certification stage, and

the Supreme Court has not yet addressed the issue.

Our sister circuits agree that when class criteria and

merits overlap, the district court must conduct a searching inquiry

regarding the Rule 23 criteria, but how they articulate the

necessary degree of inquiry ranges along a spectrum which suggests

substantial differences. The Second, Fourth, Fifth, and Seventh

Circuits coalesce around the more rigorous end of this spectrum,

forbidding district courts from relying on plaintiffs' allegations

of sufficiently common proof and requiring the courts to make

specific findings that each Rule 23 criterion is met. Miles v.

Merrill Lynch & Co. (In re Initial Pub. Offering Sec. Litig.), 471

F.3d 24, 33, 41 (2d Cir. 2006) [hereinafter In re IPO] (requiring

a "definitive assessment of Rule 23 requirements," including the

resolution of relevant factual disputes); Unger v. Amedisys Inc.,

401 F.3d 316, 321-22 (5th Cir. 2005) (requiring courts to find

facts favoring class certification through the use of "rigorous,

though preliminary, standards of proof"); Gariety v. Grant

-40-
Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004) (requiring that

"the factors spelled out in Rule 23 . . . be addressed through

findings"); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675-76

(7th Cir. 2001) (requiring "whatever factual and legal inquiries

are necessary under Rule 23" to "resolve the disputes before

deciding whether to certify the class"). These circuits' use of

the term "findings" in this context should not be confused with

binding findings on the merits. The judge's consideration of

merits issues at the class certification stage pertains only to

that stage; the ultimate factfinder, whether judge or jury, must

still reach its own determination on these issues. In re IPO, 471

F.3d at 39; Gariety, 368 F.3d at 366.

On the other end of the spectrum, the Third and Eighth

Circuits sometimes require an inquiry into and preliminary

resolution of disputes, but they do not require findings and do not

hold that such inquiry will always be necessary. Blades, 400 F.3d

at 567, 575 (holding that sometimes courts will be required to

resolve factual disputes preliminarily at the class certification

stage but voicing caution); Newton v. Merrill Lynch, Pierce, Fenner

& Smith, Inc., 259 F.3d 154, 166 (3d Cir. 2001) ("A class

certification decision requires a thorough examination of the

factual and legal allegations."); id. at 168 ("In reviewing a

motion for class certification, a preliminary inquiry into the

-41-
merits is sometimes necessary to determine whether the alleged

claims can be properly resolved as a class action.").

This court has grappled with this issue as well. We have

said in Smilow that "a district court must conduct a rigorous

analysis" of Rule 23's prerequisites, 323 F.3d at 38, and in

Mowbray that "a district court must formulate some prediction as to

how specific issues will play out," 208 F.3d at 298. See also

Tardiff, 365 F.3d at 4-5 (noting that the common presumption at

early stages of litigation that "the complaint's allegations are

necessarily controlling" does not apply in class certification

situations because "class action machinery is expensive and in our

view a court has the power to test disputed premises early on if

and when the class action would be proper on one premise but not

another").

In PolyMedica, a securities class action, we said that

the court "was entitled to look beyond the pleadings in its

evaluation" of both the question of class certification generally

and the applicability of the fraud-on-the-market presumption

specifically, even though those questions overlapped with the

merits of the case. PolyMedica, 432 F.3d at 6. The fraud-on-the-

market presumption in securities class actions allows plaintiffs to

establish the necessary element of reliance through common proof.

If the market is efficient, the theory goes, market prices will

incorporate all publicly available information, including material

-42-
misrepresentations, so that an investor who buys or sells stock in

reliance on the integrity of the market price is in fact buying or

selling stock in reliance on the material misrepresentations. See

id. at 7-8. Because common issues would no longer predominate in

a securities class action if plaintiffs could not at trial

establish reliance through the common proof of the fraud-on-the-

market presumption, courts at the class certification stage probe

the factual basis of the fraud-on-the-market presumption to make

sure it will be a viable form of proof in a given case.

In both PolyMedica and its companion case, Stuebler v.

Xcelera.Com (In re Xcelera.Com Sec. Litig.), 430 F.3d 503 (1st Cir.

2005), we, along with the district court, rigorously tested the

evidence submitted by both sides to determine whether the fraud-on-

the-market presumption was reasonably applicable, specifically

whether the plaintiffs would be able to demonstrate that the market

was efficient. At the class certification stage, we noted,

plaintiffs needed to present "basic facts" that the fraud-on-the-

market presumption could be invoked, even though its actual

applicability was to be resolved at trial. PolyMedica, 432 F.3d at

19. Our review of the district court's determination of whether or

not the fraud-on-the-market presumption could be invoked was based

not on the level of detail in the district court's explanation, but

on "whether the evidence supports its determination to apply the

presumption." Xcelera, 430 F.3d at 512. In Xcelera, for example,

-43-
the district court actively evaluated the testimony of two

competing experts and preliminarily credited the plaintiffs'

expert, a determination this court upheld -- after surveying the

expert testimony ourselves -- on clear error review. Id. at 512-

16.

PolyMedica and Xcelera could be read, but we think not

properly, as limiting this requirement that district courts probe

into the viability of the premises of plaintiffs' theory of injury

to cases employing only legal presumptions of injury. Under this

circuit's approach, in our view, a searching inquiry is in order

where there are not only disputed basic facts, but also a novel

theory of legally cognizable injury. Plaintiffs cannot make their

case without common proof of causation, and they can only prove

causation through common means if their novel theory is viable;

that viability in turn depends on their ability to establish --

whether through mathematical models or further data or other means

-- the key logical steps behind their theory. Such reliance on a

novel theory to establish a primary element of a claim necessitates

a more searching inquiry into whether plaintiffs will be able to

prove the pivotal elements of their theory at trial. This is

especially so when a case implicates the sort of factors that we

have deemed important in the Rule 23(f) calculus, namely, when the

granting of class status "raises the stakes of litigation so

-44-
substantially that the defendant likely will feel irresistible

pressure to settle." Mowbray, 208 F.3d at 293.

We do not need to resolve now whether "findings"

regarding the class certification criteria are ever necessary, but

we do hold that when a Rule 23 requirement relies on a novel or

complex theory as to injury, as the predominance inquiry does in

this case, the district court must engage in a searching inquiry

into the viability of that theory and the existence of the facts

necessary for the theory to succeed.

Contrary to defendants' assertions, the district court

did not believe itself limited by Eisen v. Carlisle & Jacquelin,

417 U.S. 156 (1974), to non-merits inquiries. Instead, the court

attempted to meet its obligations under PolyMedica, Mowbray, and

our other cases to conduct a rigorous analysis at the certification

stage. See Motor Vehicles V, 241 F.R.D. at 81 n.7. The court's

ability to probe into the viability of plaintiffs' proffered theory

and to formulate some predictions as to how key issues in this

novel and complex case would develop was hampered, however, by the

incomplete record at the time, as well as by the fact that

plaintiffs' expert had not yet fully formulated all aspects of his

analysis. The court pointed out that it was ruling on class

certification before discovery was completed and was relying upon

the plaintiffs' representation that they would fill in the gaps in

their evidence with further discovery and further work. It

-45-
repeatedly said that it was willing to take another look at these

questions when the record was more complete.26

This court has had little occasion to discuss the timing

of the issuance of class certification orders, much less of damages

classes under Rule 23(b)(3). See Mowbray, 208 F.3d at 299 n.7.

Rule 23(c)(1)(A) says only that the court must act "at an early

practicable time." Rule 23(c)(1)(C) also provides that a class

certification order may be altered or amended before final

judgment.27 A district court which has taken an initial look at the

merits is not foreclosed from later entertaining, post-discovery,

a summary judgment motion from defendants asserting that plaintiffs

cannot establish the requisite antitrust and consumer protection

impact through common means. See 3 Conte & Newberg, supra, § 7:15,

at 48-57. Indeed, it is not uncommon to defer final decision on

certifications pending completion of relevant discovery. Id.

§ 7:16, at 57-59.

26
Defendants attempt to answer this problem by saying these
statements demonstrate that the district court failed to inquire
adequately into the record; that answer is a mismatch with the
problem presented of an incomplete record and of incomplete work by
the plaintiffs' expert.
27
The 2003 amendments to Rule 23 deleted the provision
allowing class certifications to be conditional. The advisory
committee notes explain that "[a] court that is not satisfied that
the requirements of Rule 23 have been met should refuse
certification until they have been met." This does not prevent a
judge from modifying its certification if it becomes clear, as the
case develops, that the class action vehicle is in fact
inappropriate.

-46-
 When the decision on class certification is made before

full class discovery has been completed, as here, it is necessarily

more predictive. As the Eighth Circuit has noted, the decision may

require revisiting upon completion of full discovery. Blades, 400

F.3d at 567; see also Gariety, 368 F.3d at 368.

In another case, this posture of certification being

decided before completion of class discovery might not raise any

concerns. In this case it does because of the novelty and

complexity of the theories advanced and the gaps in the evidence

proferred. The district court expressed multiple times its concern

about the adequacy of several of plaintiffs' showings and expressed

a willingness to revisit the question once it had a better record

in front of it. We share those concerns.

Plaintiffs' theory of impact on indirect purchasers is

both novel and complex. Injury in price-fixing cases is sometimes

not difficult to establish. Plaintiffs do not, however, advance

such a price-fixing theory. Rather, the plaintiffs' theory is that

the higher prices are the result of a "but-for" world. In step one

of plaintiff's theory, but for the defendants' illegal stifling of

competition, the manufacturers would have had to set dealer invoice

prices and MSRPs lower to avoid losing sales to the lower-priced

Canadian cars coming across the border for resale in the United

States. In step two, the higher dealer invoice prices and MSRPs

-47-
enabled by this stifling of competition resulted in injury to

consumers in the form of higher retail prices.

The first step of plaintiffs' theory requires

demonstrating that the defendants' actions did result in an

increase in dealer invoice prices and MSRPs in the United States.

This in turn depends on at least two factors. First, there would

have had to be, in this but-for world, a flood of significantly

lower-priced Canadian cars coming across the border for resale in

the United States during times of arbitrage opportunities, enough

cars to cause manufacturers to take steps to protect the American

market from this competition by decreasing nationally set prices.

As plaintiffs themselves note, without a very large number of cars

poised to cross the border, a nationwide impact on the automobile

market of the sort required by plaintiffs' theory is implausible,

and the theory collapses. In our view, plaintiffs' expert

Professor Hall had not yet, at the time of class certification,

fully answered such potentially relevant questions as how the size

of the but-for influx of cars would be established or how large

that influx would have to be to affect the national market

sufficiently to raise effective dealer invoice prices and MSRPs.

Second, the plaintiffs must be able to sort out the

effects of any permissible vertical restraints from the effects of

the alleged, impermissible horizontal conspiracy. This question

was raised below but was not fully addressed. Professor Hall

-48-
asserted in a purely conclusory manner that the effects could be

separated out using the concept of Nash equilibriums. If

plaintiffs do not have a viable means for distinguishing between

these two sets of effects, they cannot show that it was the

horizontal conspiracy that caused the impact on the domestic

national market upon which their theory depends.28

As for the second step of plaintiffs' theory, it must

include some means of determining that each member of the class was

in fact injured, even if the amount of each individual injury could

be determined in a separate proceeding. Predominance is not

defeated by individual damages questions as long as liability is

still subject to common proof. Tardiff, 365 F.3d at 6; Smilow, 323

F.3d at 40; 6 Conte & Newberg, supra, § 18:27, at 91. This is

because the class action can be limited to the question of

liability, leaving damages for later individualized determinations.

See Tardiff, 365 F.3d at 7; Smilow, 323 F.3d at 41; 6 Conte &

28
While these are both questions that are themselves
susceptible to common proof (the potential size of the gray market
and the distinction between the effects of horizontal and vertical
restraints), they go to the viability of a novel theory upon which
plaintiffs rely to establish an element of their claim through
common means. In that sense, these factual questions are akin to
the question of market efficiency in securities class actions
employing the fraud-on-the-market presumption of reliance. Cases
like PolyMedica and Xcelera demonstrate that such factual bases of
theories of common proof are appropriately, although preliminarily,
tested at the class certification stage.

-49-
Newberg, supra, § 18:53, at 179 & n.10, § 18:56, at 190-92.29

Establishing liability, however, still requires showing that class

members were injured at the consumer level. It is unclear to us

how plaintiffs intend to make this connection.

The plaintiffs might intend to use their damages model to

prove both fact of damages and the measure of those damages. If

so, the district court would need enough information to evaluate

preliminarily whether the proposed model will be able to establish,

without need for individual determinations for the many millions of

potential class members, which consumers were impacted by the

alleged antitrust violation and which were not. See, e.g., Blades,

400 F.3d at 570 (affirming denial of class status where the actual

prices paid by class members could not be determined via common

proof because "[t]he amount of premiums paid, if any, is relevant

to a determination of impact . . . and is not merely an assessment

of the amount of damages, which may be properly ascertained at a

later time"); Newton, 259 F.3d at 187-88 (affirming denial of class

status where plaintiffs had not only provided no model formula for

measuring damages, but more fundamentally had also not demonstrated

the fact of damages). "The ability to calculate the aggregate

amount of damages," as plaintiffs propose to do here, "does not

29
The district court noted that "some states permit
consumers to recover the full purchase price once liability is
proven," further simplifying the calculation of individual damages
awards. Motor Vehicles V, 235 F.R.D. at 143 n.53.

-50-
absolve plaintiffs from the duty to prove each [class member] was

harmed by the defendants' practice." Newton, 259 F.3d at 188.

The district court, while expressing skepticism regarding

plaintiffs' proposal for measuring damages, relied on this court's

consideration in Smilow of an incomplete damages model. It noted

that in Smilow, this court had accepted as sufficient a

representation by plaintiffs' expert that he "could fashion" a

computerized method of calculating class damages. Motor Vehicles

V, 235 F.R.D. at 144 (quoting Smilow, 323 F.3d at 40) (internal

quotation marks omitted). The proposed computerized model in

Smilow would draw from the defendant's records, which listed the

consumers who were charged the allegedly illegal fees. Smilow, 323

F.3d at 40-41. That is, the model would have relied on data that

clearly established which consumers suffered injury. Professor

Hall similarly claimed that data in defendants' hands would provide

the information he would need for his damages model; whether that

data will be sufficient to establish consumer-level impact for each

class member is a question that can now be answered with discovery

completed.

Plaintiffs seem to rely on an inference that any upward

pressure on national pricing would necessarily raise the prices

actually paid by individual consumers. There is intuitive appeal

to this theory, but intuitive appeal is not enough. Even if it is

fair to assume that hard bargainers will usually pay prices closer

-51-
to the dealer invoice price and poor negotiators will usually pay

prices closer to the MSRP, a minimal increase in national pricing

would not necessarily mean that all consumers would pay more. Too

many factors play into an individual negotiation to allow an

assumption -- at least without further theoretical development --

that any price increase or decrease will always have the same

magnitude of effect on the final price paid. Even if Professor

Hall's proposed models could determine when MSRPs and dealer

invoice prices were affected for which models and to what degree,

it is a further question whether it can be presumed that all

purchasers of those affected cars paid higher retail prices.

Some courts have allowed a presumption of class-wide

impact in price-fixing cases when "the price structure in the

industry is such that nationwide the conspiratorially affected

prices at the wholesale level fluctuated within a range which,

though different in different regions, was higher in all regions

than the range which would have existed in all regions under

competitive conditions." Winoff Indus. Inc. v. Stone Container

Corp. (In re Linderboard Antitrust Litig.), 305 F.3d 145, 151 (3d

Cir. 2002) (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 455

(3d Cir. 1977)). If effective dealer invoice prices in the real

world were equal to or greater than the effective MSRPs in the but-

for world -- that is, if the entire negotiating range in the but-

for world would have been below the entire negotiating range in the

-52-
real world -- it would be easier to presume that all consumers

suffered impact. The district court discussed the Bogosian

presumption in its May 12, 2006 order, Motor Vehicles V, 235 F.R.D.

at 138 n.35, but plaintiffs disclaim any intent to rely on the

Bogosian model.

It is true that the validity of plaintiffs' theory is a

common disputed issue. Cf. Tardiff, 365 F.3d at 4-5. It will be

for the fact finder to decide whether this theory is persuasive.

At the class certification stage, however, the district court must

still ensure that the plaintiffs' presentation of their case will

be through means amenable to the class action mechanism. We are

looking here not for hard factual proof, but for a more thorough

explanation of how the pivotal evidence behind plaintiff's theory

can be established. If there is no realistic means of proof, many

resources will be wasted setting up a trial that plaintiffs cannot

win.

In sum, the district court's oft-expressed instinct that

aspects of plaintiffs' theory remained to be developed dovetails

with our own. At the time of class certification, more work

remained to be done in the building of plaintiffs' damages model

and the filling out of all steps of plaintiffs' theory of impact.

Time has now passed: it is almost two years since the district

court's May 12, 2006 order, and all discovery was scheduled to be

completed by March 3, 2008. The plaintiffs should now have the

-53-
evidence they need to put their best foot forward, and they have

had additional time to work out their models and formulas. The

district court should now have a complete record before it from

which to test the viability of plaintiffs' novel theory for proving

common impact.

We thus vacate and remand the certification of the state

damages classes so that the district court, which has handled this

case admirably so far, may reconsider those class certification

orders in light of this opinion and the more fully developed

record.

We reverse in part, vacate in part, remand in part, and

order dismissal of the Clayton Act injunctive relief claim. All

parties shall bear their own costs.

-Concurring and Dissenting Opinion Follows-

-54-
 TORRUELLA, Circuit Judge, (Concurring in part, Dissenting

in part). Although I concur with the majority regarding the

injunctive class, I respectfully dissent from the discussion of the

state damages classes.30 In my view, the opinion erodes the

discretion which we are required to afford to the district court in

class certification proceedings. A district court's decision to

certify a class is reviewed under the deferential abuse of

discretion standard. See Smilow, 323 F.3d at 37 ("Orders

certifying or decertifying a class are reviewed for abuse of

discretion.") (citing Califano v. Yamasaki, 442 U.S. 682, 703

(1979)); see also Blyden v. Mancusi, 186 F.3d 252, 269 (2d Cir.

1999) ("A district court's decision to certify a class is reviewed

for abuse of discretion, and '[a] reviewing court must exercise

even greater deference when the district court has certified a

class than when it has declined to do so.'" (citation omitted)).

Rule 23 grants the district court broad discretion to

determine whether a class should be certified. Fed. R. Civ. P. 23.

Our review is, therefore, focused on whether the district court

properly applied the criteria set out in Rule 23. See Mowbray, 208

F.3d at 295 ("An abuse occurs when a court, in making a

discretionary ruling, relies upon an improper factor, omits

consideration of a factor entitled to substantial weight, or mulls

30
I agree that the case is properly remanded to the district
court so that it can first establish whether there is jurisdiction
under § 1332 or § 1367.

-55-
the correct mix of factors but makes a clear error of judgment in

assaying them."). Importantly, a district court remains free at a

later stage to modify or even decertify a class if later evidence

disproves the plaintiffs' assertions regarding, for example, the

predominance of common issues. See Falcon, 457 U.S. at 160 ("Even

after a certification order is entered, the judge remains free to

modify it in the light of subsequent developments in the

litigation."); In re Visa Check/MasterMoney Antitrust Litig., 280

F.3d 124, 141 (2d Cir. 2001).

In this case, the district court addressed all of the

Rule 23 requirements: numerosity of the class members; commonality

of the questions of law or fact; typicality of the claims or

defenses; adequacy of representation; predominance of common

questions; and the superiority of the class action as an

adjudicative vehicle. And, as required in this circuit, the

district court "conduct[ed] a rigorous analysis of the

prerequisites established by Rule 23," Smilow, 323 F.3d at 38, and

"formulate[d] some prediction as to how specific issues w[ould]

play out in order to determine whether common or individual issues

predominate," Mowbray, 208 F.3d at 298.

The majority does not question the rigor with which the

court conducted its analysis. Indeed, the opinion applauds the

court's "attempt[] to meet its obligations . . . to conduct a

rigorous analysis at the certification stage." Slip op. at 44.

-56-
Rather, the basis for the majority's remand on the certification of

the damages classes is the insufficiency of evidence available to

the district court. Although the opinion faults the timing of the

certification (and, thus the incompleteness of the record), I am

concerned that in vacating and remanding the certification order

for reconsideration with additional evidence from the plaintiffs,

the opinion stands for the proposition that we now require a high

level of fact-finding before certification.

I agree with the district court that our case law does

not "mandat[e] a particular level of factfinding by the district

judge at the certification stage." Motor Vehicles VI, 241 F.R.D.

at 82 n.7. On the contrary, in PolyMedica, we stated that:

The question of how much evidence . . . is
necessary for a court to accept the [theory of
reliance] at the class certification stage is
therefore one of degree. District courts must
draw these lines sensibly . . . . We have no
illusions that this line-drawing is easy.
Knowing the high stakes in the class-
certification decision, the parties will try
to move the court in different directions,
with plaintiffs arguing for less evidence
. . . and defendants for more . . . the
district court must evaluate the plaintiff's
evidence . . . critically without allowing
the defendant to turn the class certification
proceeding into an unwieldy trial on the
merits.

432 F.3d at 17 (emphasis added). The district court drew those

lines sensibly in this case. We are not entitled to second-guess

that decision in the absence of evidence that it engaged in an

-57-
abuse of discretion. Our decision to vacate and remand the

certification of the damages classes to allow the district court

the benefit of full discovery, effectively overrides the district

court's assessment of how much evidence it needed to certify the

class. Under the banner of a "novel and complex" theory in a class

certification proceeding, we now appear to require district courts

to fully vet and test the underpinnings of a plaintiff's legal

theory. See slip op. at 44 ("[I]n our view, a searching inquiry is

in order where there are not only disputed basic facts, but also a

novel theory of legally cognizable injury.").

At issue in this case are questions regarding the

plaintiffs' theory of impact. Although the district court admitted

some concern about whether the plaintiffs' proof of impact would be

"sufficient to withstand a motion for summary judgment or for

judgment as a matter of law at trial," Motor Vehicles V, 235 F.R.D.

at 139, the district court properly remained focused on the

certification requirements and concluded that "the plaintiffs'

proof does meet the commonality and typicality standard." Id. The

majority even admits that these questions regarding the plaintiffs'

theory of impact "are themselves susceptible to common proof (the

potential size of the gray market and the distinction between the

effects of horizontal and vertical restraints)." Slip op. at 48

n.29. The opinion goes on, however, to conclude that a more

-58-
searching inquiry into the factual basis of that theory is required

here. I disagree.

In this case, the questions regarding the viability of

the plaintiffs' theory of impact are not limited to certification

issues, but go to the merits of the plaintiffs' claim. I disagree

with the majority's reading of PolyMedica and Xcelera, which they

cite in support of their position that "factual bases of theories

of common proof are appropriately, although preliminarily, tested

at the class certification stage." Id. PolyMedica and Xcelera

were securities class actions in which the plaintiffs sought to use

the fraud-on-the-market presumption to demonstrate market

efficiency. Those class actions were brought under § 10(b) of the

Securities Exchange Act of 1934, and Rule 10b-5 promulgated

thereunder, which require that each plaintiff prove that he or she

individually relied on the alleged misrepresentation. A

requirement of individualized reliance "would effectively preclude

securities fraud class actions under Rule 23(b)(3) [because]

[i]ndividual issues of reliance would necessarily overwhelm the

common ones." Xcelera, 430 F.3d at 507. The applicability of the

fraud-on-the-market theory is central to the appropriateness of the

class action as a vehicle for litigation: under the theory,

plaintiffs are no longer required to prove individualized reliance.

See PolyMedica, 432 F.3d at 18-19 (vacating and remanding the class

certification after concluding that the district court had

-59-
committed error in adopting the incorrect definition of "market

efficiency," one of the elements for invoking the fraud-on-the-

market presumption). In this antitrust case, the majority points

to no legal error committed by the district court in assessing the

appropriateness of certification.

In remanding the certification of the damages classes for

reconsideration with the benefit of additional evidence, the

majority conflates the dispute as to the viability of the

plaintiffs' theory with the specific inquiries required at class

certification. As we noted in PolyMedica, "a court has the power

to test disputed premises early on if and when the class action

would be proper on one premise but not another." PolyMedica, 432

F.3d at 6 (quoting Tardiff, 365 F.3d at 4-5) (emphasis added).

Indeed, insofar as those premises are not preclusive of the class

action as a vehicle, we have no basis for requiring a district

court to inquire further into the merits of the case. While the

plaintiffs' theory of antitrust impact is novel and complex, it,

unlike the fraud-on-the-market theory, is not determinative of

whether a class action is proper or not. Indeed, the identified

uncertainties within the plaintiffs' theory challenge only the

ability of the plaintiffs (as a group) to successfully prove their

theory of impact. Slip op. at 46-49. In this case, an inquiry

that tests each stage of the plaintiffs' theory is, in effect, an

assessment of the case's merits. As such, we are putting the cart

-60-
before the horse and turning the class certification stage into a

motion for summary judgment proceeding -- the appropriate juncture

at which to fully vet the viability of the plaintiffs' theory. In

so holding today, I fear that we are removing the underpinnings of

the discretion we grant district courts to draw sensible lines and

further blurring the distinction between the certification inquiry

and a trial on the merits. I believe this course is erroneous and

contrary to established precedent, and thus dissent.

-61-