Foundation Files Amicus Brief in Support of Supreme Court Review of Antitrust Class Certification

The Foundation has filed a friend of the court brief in the U.S. Supreme Court in The Dow Chemical Company v. Industrial Polymers, Inc., on a petition for certiorari from the U.S. Court of Appeals for the Tenth Circuit

The petition arises from a nationwide class action on behalf of a nationwide class of approximately 2,400 industrial purchasers of polyurethane products. Plaintiffs sued under the Sherman Antitrust Act, 15 U.S.C. ‘ 1, and the Clayton Antitrust Act, 15 U.S.C. ‘ 15(a), alleging that defendant polyurethane manufacturers conspired to issue coordinated price increase announcements and tried to make those price increases Astick.@ The Tenth Circuit affirmed a trebled damages judgment exceeding $1 billion. That decision has far reaching consequences for defendants in antitrust class actions.

The central flaw in the Tenth Circuit=s analysis is the court=s use of Ainferences,@ or presumptions, of class wide injury to justify certification of a class in an antitrust suit involving allegations of price fixing. The district court, like other trial courts, used Ashortcuts@ in complex antitrust damages actions B an inference of class wide impact even when prices are individually negotiated and the use of plaintiffs= expert=s models to estimate overcharges and extrapolation from those models to calculate damages for the class to certify the class. Over defendants= objections, the district court certified a class comprised of all industrial purchasers of polyurethane products during the alleged conspiracy period. The district court rejected defendants= argument for decertification, reasoning that the industry=s standardized pricing structure, as reflected in product price lists and parallel price increase announcements, presumably established an artificially inflated baseline for negotiations. Although the trial court was Anot nearly as persuaded that the issue of damages is amenable to class wide proof,@ the Apossibility that individual issues may predominate the issue of damages@ did not preclude certification. There is a consensus among the other circuits that in antitrust cases common proof of both conspiracy and impact are necessary to establish that common issues predominate over individual issues as required by Fed. R. Civ. P. 23(b)(3).

The Tenth Circuit=s affirmance of the class judgment is at odds with several other circuits and with the Supreme Court=s decision in Wal Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011), which requires that class plaintiffs demonstrate that class wide injury can be resolved through common evidence in Aone stroke,@ and should have precluded class certification, because there was ample evidence that the alleged price fixing conspiracy did not injure all class members. The Tenth Circuit itself recognized that, because of the nature of the polyurethane market, industrial purchasers could play manufacturers off against each other and that, as a result, even during the alleged conspiracy, buyers Asometimes avoided price hikes by negotiating with the supplier@ and Asuccessfully avoided damages@ and that should have resulted in denial of class certification in this case.

Nevertheless, the Tenth Circuit affirmed class certification and judgment on the ground that class wide Aimpact@ could be resolved on the basis of an Ainference@ B either an Ainference@ that Aprice fixing@ always causes harm or, alternatively, that a conspiracy to raise the Abaseline prices@ from which negotiations begin always causes harm.

Other circuits have repeatedly held that class wide impact cannot be presumed from the existence of a price fixing conspiracy and plaintiffs must show with common evidence that Aall class members suffered some injury.@ At least two circuits have rejected the Tenth Circuit=s illogical assumption that an increase in the base price harms all class members even when prices are negotiated.

Atlantic Legal=s brief focused on the issue of damages and the Apredominance@ requirement. The Tenth Circuit, along with the Fifth, Sixth, Seventh, and Ninth Circuits, has held that individualized damages issues are not relevant to the predominance requirement of Rule 23(b)(3), in conflict with this Court=s decision in Comcast. The District of Columbia Circuit, in contrast, has held that damages issues are relevant to the assessment of Apredominance@ at the class certification stage.

The certification of the classes in this case, as in many other antitrust, as well as securities and Title VII class actions, and the extraordinary amount of damages awarded plaintiffs virtually ensures that the merits of many such cases will not be litigated, regardless of the underlying merits of plaintiffs= claims, as the Supreme Court recognized in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1752 (2011) (class actions entail Athe risk of >in terrorem= settlements@ because A[f]aced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims@). If the class certification in this case is allowed to stand, it will serve as a template for other class action plaintiffs seeking to have massive antitrust and other cases certified as class actions and to thus coerce defendants to settle without ever trying the merits of the claims. This is significant because ACertification of a large class may so increase the defendant=s potential liability and litigation costs that he may find it economically prudent to settle and abandon a meritorious defense.@ Coopers & Lybrand v. Livesay, 437 U.S. 463, 476 (1978).

It violates due process and the Rules Enabling Act to base class certification and judgment on a presumption that ignores differences among class members, and thus deprives the defendant of the opportunity to litigate its defenses to individual claims, as the Court emphasized in Wal Mart Stores v. Dukes. Under the Tenth Circuit=s ruling, class certification is virtually automatic whenever there is any evidence of collusion concerning pricing behavior and a price fixing conspiracy is alleged. We urged the Court to reaffirm teaching in Comcast v. Behrend and Wal-Mart Stores v. Dukes that Rule 23 class certification must be applied in a manner consistent with fundamental constitutional principles of due process. This case would afford the Supreme Court an opportunity to emphasize the importance of the limitations it placed on class actions in Wal Mart and Comcast.

To view the Foundation=s brief, please click here.