On December 30, 2008 the Third Circuit Court of Appeals clarified the standard that district courts in that circuit must apply before permitting a class action to proceed.  See In re Hydrogen Peroxide Antitrust Litigation, No. 07-1680, 2008 U.S. App. LEXIS 26871 (3d Cir. Dec. 30, 2008) ("Hydrogen Peroxide").  And, in what is obviously a welcome development for the class action defense bar, the Court of Appeals clarified that the "rigorous analysis" which district courts must apply requires an assessment of all relevant facts and arguments.  In doing so, the Court of Appeals rejected the notion that only a "threshold showing" is required or that a relaxed class certification analysis applies in antitrust cases.   Hydrogen Peroxide, 2008 U.S. App. LEXIS 26871 at *48-49.

The "Rigorous Analysis" Issue

Federal Rule of Civil Procedure Rule 23 requires that a plaintiff seeking to certify a class must demonstrate the class action requirements of numerosity, commonality, typicality, adequacy, predominance, and superiority. Although Rule 23 places the burden of proof on plaintiffs, it offers no guidance on the applicable standard.  In Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982), the United States Supreme Court stated that class certification is proper only "if the trial court is satisfied, after a rigorous analysis, that the prerequisites" of Rule 23 are met.  However, the Supreme Court has never elaborated on what is meant by a "rigorous analysis," leaving courts with little guidance on precisely how to analyze class certification motions.  Complicating the issue is the statement by the United States Supreme Court’s decision in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974) that there is "nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action."

The District Court Refuses to Engage in a Battle of the Experts,  and Certifies a Class of Hydrogen Peroxide Purchasers

In Hydrogen Peroxide, the parties presented the district court with "irreconcilable" expert evidence concerning whether plaintiffs’ proposed class met the class action certification requirement of predominance.  The district court refused to resolve the disputes between plaintiffs’ and defendants’ experts at the class certification stage, even though defendants’ expert demonstrated through an empirical analysis that the required showing of antitrust impact could not be established through common proof.  Instead, the district court accepted plaintiffs’ expert’s opinion that he would (at some later date) be able to demonstrate common impact.  Because the district court held that it was sufficient for plaintiffs’ expert to have proposed a reliable method for proving the certification requirements, even though plaintiffs’ expert had not demonstrated that his proposed method "would work," the court certified a class of purchasers of hydrogen peroxide and related chemical products.

Defendants appealed, arguing, inter alia, that the district court applied too lenient a standard of proof for class certification and failed to meaningfully consider the views of defendants’ expert.

The Third Circuit Court of Appeals Confirms That District Courts Must Conduct A Rigorous Analysis

The Third Circuit Court of Appeals began its opinion by noting that, to certify a class, "the district court must make whatever factual and legal inquiries are necessary and must consider all relevant evidence presented by the parties", even when those inquiries overlap with the merits of  the action, and even when those issue involve expert testimony.  Hydrogen Peroxide, 2008 U.S. App. LEXIS 26871 at *2-3.  See also id at * 33 ("Eisen is best understood to preclude only a merits based inquiry that is not necessary to determine a Rule 23 requirement").  The Court of Appeals found support in the 2003 amendments to Federal Rule of Civil Procedure 23, which it stated should "guide the trial court in its proper task—to consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class." Id. at *43-44.  Finally, the court noted the enormous practical consequences of class certification—in particular, "the potential for unwarranted settlement pressure."

Based on these principles, the Court of Appeals rejected the notion that only a "threshold showing" is required to obtain class certification, and held that "a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements" for certification, including disputes between class certification experts. Id. at *44 and 52.  Thus, at least in the Third Circuit, "[t]he evidence and arguments a district court considers in the class certification decision call for rigorous analysis.  A party’s assurance to the court that it intends of plans to meet the requirements is insufficient."  Id. at *38.

As a result, because the district court refused to resolve the irreconcilable disputes between plaintiffs’ and defendants’ experts, the Court of Appeals vacated and remanded the case to the district court to conduct a truly rigorous analysis before permitting the case to proceed as a class action.

Authored by:

Daniel L. Brown

(212) 332-3879