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
-2-
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
-3-
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).
-4-
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)
-5-
(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).
-6-
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
-7-
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.
-8-
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.
-9-
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.
-10-
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.
-11-
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
-12-
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.
-13-
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.").
-14-
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.
-15-
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
-16-
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.
-17-
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.
-18-
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.
-19-
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.
-20-
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-