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Third Circuit Gives Failing Grade To Indirect Purchasers Seeking National Class For State Antitrust Claims

Posted  July 26, 2010

The U.S. Court of Appeals for the Third Circuit has ruled that state antitrust laws’ treatment of indirect purchaser claims are too disparate to meet the predominance and commonality requirements of Rule 23.

In Sullivan v. DB Investments Inc., plaintiffs alleged anticompetitive conduct in the diamond industry by the De Beers group of companies, the South African conglomerate synonymous with diamond production and distribution. Settlement discussions led to separate agreements for two plaintiff classes, one class for direct purchasers with federal law claims and one class for indirect purchasers with state law claims, for a total of $295 million.  De Beers agreed not to contest certification of the settlement classes and sought to dispose of claims in all 50 states and the District of Columbia.  The U.S. District Court for the District of New Jersey approved the settlements under Rule 23.

And that’s where things got interesting.

The settlement process allowed class members to object to the proposed agreement, and 36 members of the indirect purchaser class filed objections.  The objecting indirect purchasers argued that many jurisdictions limit or deny the right of indirect purchasers to antitrust damages. For example, New York State provides a cause of action for indirect purchasers while New Jersey does not.  Nevertheless, the district court overruled the objection because the facts were similar for all indirect purchasers and De Beers itself had requested release from claims in all jurisdictions.

On appeal, the Third Circuit rejected the lower court’s reasoning and emphasized the diverse landscape of state antitrust law.  The 50 states are split over whether indirect purchasers can pursue antitrust claims for damages.  Roughly half of the states have enacted laws contrary to the spirit of the Supreme Court’s 1977 decision in Illinois Brick v. Illinois, which foreclosed indirect purchasers from suing for damages under federal antitrust law.  According to the Third Circuit, the district court exceeded its discretion “to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.”

The Third Circuit was not persuaded by the plaintiffs’ arguments that differing state laws made trial management difficult or that De Beers had stipulated to a national class.  The court replied that the “lack of substantive rights cannot be wished away by the promise of easier litigation management,” and the parties cannot claim they have “stipulated out of existence defects in the commonality and predominance of the class claims.”  In addition, the court recognized federalism concerns implicit in a federal court creating legal rights under state law where none had previously existed.

So where does this leave other nation-wide class certifications under state antitrust law?  The Third Circuit remanded the case back to the district court to limit the indirect purchaser class to those jurisdictions that provide such a legal right.

What the Third Circuit could not answer, however, is the question of how other circuits will deal with this issue.

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