The Sixth Circuit yesterday upheld an $11.5 million jury award to a class of Northeastern Ohio scrap metal "generators". The generators alleged that scrap "processors" conspired not to compete with each other on bids for the ferrous and non-ferrous stuff the generators generated. The result? Lower prices for their scrap. About, oh, $11.5 million worth in lower prices.
After automatic trebling under the Sherman Act, the verdict became $34.5 million. The district court reduced that figure by the amount of pre-trial settlements, entering judgment for $23,036,000. In re Scrap Metal Antitrust Litig., No. 06-4511 (6th Cir. May 15, 2008).
The processors’ appeal encapsulates several risks that antitrust class actions pose — even when, as in Scrap, the defendants didn’t seriously contest liability.
The "most critical question", according to the court, concerned the admissibility of expert testimony on damages under Daubert. The court made long work of the challenge but got the outcome right: the expert adequately explained his methodology, assumptions, and adjustments to allow the jury to accept or reject his conclusions. The hard-working jury — don’t juries do a splendid job? — in fact bought some of the testimony and disregarded the rest; the finding of $11.5 million in underpayments to the class fell below what the expert opined to.
But Blawgletter’s favorite parts of the opinion related to the fundaments of class actions alleging a price-fixing conspiracy. To wit:
- Fact of class-wide damage. Under Federal Rule of Civil Procedure 23(b)(3), common questions of law or fact must predominate over issues individual to class members. Conspiracy cases always involve a common question about whether the defendants conspired, but what about damages? A long line of decisions holds that predominance exists if, but only if, the plaintiffs seeking class certification also demonstrate how they will prove that the conspiracy hurt all class members and, in the aggregate, by how much. They typically make that showing through an economics expert’s opinion that (a) the conspiracy caused all class members to overpay or undercharge for the relevant good or service and (b) reliable methods exist for computing the minimum percentage overcharge or underpayment to each class member. The Sixth Circuit upheld the sufficiency of the expert’s testimony about the "fact of damage" to the entire class. Correctamundo.
- Aggregate award. The verdict in a price-fixing class action awards a total amount to the class. Defendants hate that. In this case, the defendants deemed the verdict and judgment an endorsement of "fluid recovery" — a cy pres concept that allows distribution of class action recoveries to people other than class members. The Sixth Circuit pointed out that an aggregate award doesn’t mean the money will go to non-class members. We would further note that fluid recovery happens, if at all, only after eligible class members get their full share of an award. In a sense, once the jury awards damages to the class, the defendants have nothing to say about who should receive the benefit of it.
The Scrap decision ringingly confirms both the viability and importance of class litigation challenging conspiracies to thwart competition. Booyah!