imageHave class actions — after a steady decline under the Roberts Court — begun a come-back?

I believe they have. And I offer here, and in the next post, three reasons they will continue to rebound.

The outsize influence of Justice Scalia

Justice Antonin Scalia disliked class actions. He advocated putting a spotlight on class cases and then wrote opinions that made class cases harder to certify and more difficult to win. More than any other jurist, he reduced the effectiveness of Rule 23 as a means to deter and remedy wrongs that hurt large numbers of people but didn’t justify an individual lawsuit. He even questioned their legitimacy.

Justice Scalia’s focus on class actions and his ability to deliver majorities opposing them led to existential worries. The ABA Section of Antitrust Law devoted its Spring 2016 issue of Antitrust to the question of “Class Actions on the Precipice?” Verbal strutting by forces opposing class actions prevailed.*

But with Justice Scalia’s death on February 13, 2016, the tide at last turned. And it did so quickly.

The settlement of a large price-fixing class action provided the first evidence of receding water. On February 26, Dow Chemical surrendered hope that the Court would review and then toss a $1.2 billion verdict and judgment. Dow agreed to pay the class $835 million t0 settle.

Another blow fell on March 22. The Court, by a 6-2 margin, upheld the use of “statistical evidence, or so-called representative evidence,” to prove “classwide liability” for overtime pay. Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1046 (2016).

The dissenters cited Justice Scalia’s 5-4 majority opinion in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), in claiming that the Court had grievously erred by “redefining the predominance standard” for class certification under Rule 23(b)(3).

The skeptics of class actions have lost their strongest judicial ally. The disappearance of his outsize influence as a rallying point and the absence of him as a leader weaken the class skeptics’ cause. They also increase the likelihood of a class action rebound.

The Seventh Circuit surge

One court of appeals has steadfastly defended class actions against those who would curtail use of the class action mechanism. The Seventh Circuit’s previously defiant stance may swiftly become the norm.

A decision on August 4, 2016, shows the way forward.

Writing for a unanimous panel, Chief Judge Diane Wood dispatched a series of defense arguments that have given other courts of appeals more trouble.

In Kleen Products LLC v. Int’l Paper Co., No. 15-2385 (7th Cir. Aug. 4, 2016), buyers of “containerboard” accused  firms that held 74 percent of the market of conspiring to raise prices. The scheme cut manufacturing capacity, limited inventory, and pushed up the “Pulp & Paper Week” index that “is widely used within the industry as a benchmark.” Id., slip op. at 6.

The district court granted class certification over vigorous objections . It rejected the containerboard makers’ arguments that class plaintiffs hadn’t carried their burden of meeting the “predominance” and “superiority” requirements of Rule 2(b)(3). The Seventh Circuit affirmed the district court in all respects. I will highlight a few of them.

Common impact of conspiracy on class

Chief Judge Wood does such a stellar job with the all-important common impact issue that I will not try to improve on them.

In order to secure class certification, the Purchasers had to demonstrate (not merely allege) that there is proof common to all class members, and that this proof would show that they suffered “injuries that reflect the anticompetitive effect of either the violation or the anticompetitive acts made possible by the violation.” James Cape & Sons Co. v. PCC Const. Co., 453 F.3d 396, 399 (7th Cir. 2006); see Brunswick Corp. v. Pueblo Bowl-O- Mat, Inc., 429 U.S. 477 (1977). Purchasers tendered extensive evidence that, if believed, would be enough to prove the existence of the alleged con- spiracy. Not surprisingly, it is largely circumstantial. But they offered voluminous written materials of various types, which in the aggregate pointed to the existence of both agreement and actions to violate the antitrust laws. Indeed, Defendants do not contest that the existence of the conspiracy could be (perhaps had to be) proven by evidence common to the class.

The more difficult question (though not too difficult in the end) is whether the common evidence could show the fact of injury on a classwide basis. See Messner, 669 F.3d at 819 (“The ability to use such common evidence and common methodology to prove a class’s claims is sufficient to support a finding of predominance on the issue of antitrust impact for certification under Rule 23(b)(3).”). At base, Defendants argue that it is not enough for Purchasers to prove aggregate injury and one aggregate overcharge, without allocating how much of that overcharge was paid by each individual class member. They urge that Purchasers have the burden of showing that every class member must prove at least some impact from the alleged violation. For that proposition, they rely on In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 311 (3d Cir. 2008), and In re Rail Freight Fuel Surcharge Antitrust Litigation, 725 F.3d 244, 252 (D.C. Cir. 2013). While we have no quarrel with the proposition that each and every class member would need to make such a showing in order ultimately to recover, we have not insisted on this level of proof at the class certification stage. To the contrary, we said in Suchanek v. Sturm Foods, Inc., 764 F.3d 750 (7th Cir. 2014), that “[i]f the [district] court thought that no class can be certified until proof exists that every member has been harmed, it was wrong.” Id. at 757; see also Parko v. Shell Oil Co., 739 F.3d 1083, 1084–85 (7th Cir. 2014); McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 491 (7th Cir. 2012). There is no evidence to make us think that the class defined by the district court either excludes too many purchasers or contains troublesome internal conflicts, either of which would indicate it should be rejected. We therefore move on to the adequacy of the Purchasers’ showing that the conspiracy had an effect on the prices they paid.

The parties have jousted over the need for some kind of “but-for” analysis, by which Defendants mean an expert con- struction of a hypothetical market free of any anticompetitive restraint, to which the actual market can be compared. See Blades v. Monsanto Co., 400 F.3d 562, 569 (8th Cir. 2005). That might be one way in which a plaintiff could satisfy its burden, but we think that the formulation is too narrow. What is essential is whether the class can point to common proof that will establish antitrust injury (in the form of cartel pricing here) on a classwide basis. Like the district court, we are satisfied that Purchasers have done so.

The Purchasers built up their case with several types of evidence. First, expert Harris’s report showed that the structure of the containerboard market was conducive to successful collusion. He pointed to the concentration of manufacturers; the vertical integration of the market; the capital-intensive manufacturing process (which affected the pace and likelihood of new entry); weak competition from imported containerboard; no good substitutes for the product; a low elasticity of demand; and a standardized, commodity product. These are all well accepted characteristics of a market that is subject to cartelization. See, e.g., In re Text Messaging Antitrust Litig., 782 F.3d 867, 872 (7th Cir. 2015); Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 859–60 (7th Cir. 2012) (en banc); In re High Fructose Corn Syrup Litig., 295 F.3d 651, 657 (7th Cir. 2002); Jack Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 710–11 (7th Cir. 1984).

I have run out of electrons for now and will finish up in the next post.


* The cover note for the issue asserted that “consumers . . . will pay for the litigation process and the settlement recoveries in the form of higher prices”, suggested “the substitution of restitution in place of class actions”, and asked “whether the costs are worth the benefit”.