Please E-mail suggested additions, comments and/or corrections to Kent@MoreLaw.Com.
Help support the publication of case reports on MoreLaw
Date: 10-17-2018
Case Style:
Teamsters Union v. Warner Chilcott Limited
Case Number: 18-1065
Judge: William J. Kayatta Jr.
Court: United States Court of Appeals For the First Circuit
Plaintiff's Attorney: J. Mark Gidley, with whom Peter J. Carney, Dana Foster, Matthew S. Leddicotte, Jaclyn Phillips, Maxwell J. Hyman, Robert A. Milne, Jack E. Pace III, Bryan D. Gant, Kelly Newman
Defendant's Attorney: Justin N. Boley, with whom Kenneth A. Wexler, Tyler J. Story, Wexler Wallace LLP, Tyler W. Hudson, Eric D. Barton, David Barclay, Wagstaff & Cartmell, LLP, Nathaniel L. Orenstein, Todd A. Seaver, Berman Tabacco, Daniel E. Gustafson, Karla M. Gluek, Michelle J. Looby, Joshua J. Rissman, Gustafson Gluek PLLC, Jeffrey L. Kodroff, William G. Caldes, John A. Macoretta, Spector Roseman Kodroff & Willis, P.C., Peter J. Mougey
Description:
MoreLaw Performance Marketing
If It Does Not Work, It Is Free!
Drug manufacturer Warner Chilcott Limited pulled one of its products -- Asacol -- from the
market just months before the drug's patent protection expired.
Warner simultaneously introduced a similar but not exactly
identical substitute drug called Delzicol, the patent protection
for which ran years longer. This coordinated withdrawal and entry
of the two drugs allegedly precluded generic manufacturers from
introducing a generic version of Asacol, which would have provided
a lower-cost alternative to Warner's drugs Delzicol and Asacol HD,
a version of Asacol that was also still under patent protection.
Crying foul, the named plaintiffs in this case filed a class action
alleging a violation of the consumer protection and antitrust laws
of twenty-five states and the District of Columbia. On plaintiffs'
motion, the district court certified a class of all Asacol
purchasers who subsequently purchased Delzicol or Asacol HD in one
of those twenty-six jurisdictions. In so doing, the court found
that approximately ten percent of the class had not suffered any
injury attributable to defendants' allegedly anticompetitive
behavior. Nevertheless, the district court determined that those
uninjured class members could be removed in a proceeding conducted
by a claims administrator. We find this approach to certifying a
class at odds with both Supreme Court precedent and the law of our
circuit. We therefore reverse.
- 4 -
I.
Asacol is a pharmaceutical drug that treats mild to
moderate ulcerative colitis, a chronic inflammatory bowel
disorder. Developed and first manufactured by Procter and Gamble
Pharmaceuticals, Asacol debuted on the market in 1992 and received
the protection of two patents. Those patents expired on July 30,
2013. In 2008, Procter and Gamble brought a new variation of
Asacol to market, dubbed Asacol HD, which treated moderate, but
not mild, ulcerative colitis. This new drug differed from Asacol
in two key ways: it included twice the dosage, and it replaced
Asacol's single-layer coating with a dual-layer coating. Asacol
HD's patent protection extended years beyond that of Asacol. In
2009, Warner Chilcott purchased Procter and Gamble's
pharmaceutical portfolio, which included both Asacol and Asacol
HD.
On March 18, 2013, only a few months shy of the end of
Asacol's patent protection, Warner stopped selling and marketing
Asacol. On the same day, Warner introduced a new drug: Delzicol.
Delzicol, like Asacol, treats ulcerative colitis. The two drugs
contain the same active ingredient and dosage, and sold for the
same price. Unlike Asacol, Delzicol comes in a capsule that does
not contain dibutyl phthalate ("DBP"). DBP is a plasticizer, the
safety of which appears to have been the subject of a dialogue
between the FDA and Asacol's manufacturers.
- 5 -
On June 22, 2015, several plaintiffs (collectively
"plaintiffs," "named plaintiffs," or "class representatives")
filed suit on their own behalf and on behalf of a putative class.
These plaintiffs are all union-sponsored benefit plans that paid
for the purchases of Asacol HD and Delzicol. In their operative
complaint, plaintiffs allege that Warner harbored an
anticompetitive motivation for its conduct. According to the
complaint, Warner's aim in pulling Asacol from the market and
introducing Delzicol was to preclude the possibility of market
entry of generic drugs, which would have cut into Warner's profits.
State law provides the mechanism for this preclusion. Under most
state substitution laws, pharmacists can fill a prescription by
substituting a generic drug for the prescribed brand drug, but
only if the brand drug is listed as a "reference" drug for the
generic. This automatic substitution, plaintiffs say, provides
the "only viable cost-efficient means" for new generics to
"compet[e] with brand drugs." But even a small alteration to the
brand drug, such as substituting a tablet form for a capsule form,
can prevent a generic equivalent from using the discontinued form
as a reference drug. Thus, by pulling Asacol, Warner effectively
prevented generic drugs that would have used Asacol as a reference
drug from entering the market after the expiration of Asacol's
- 6 -
patents.1 And the introduction of a similar, but not wholly
equivalent, drug -- Delzicol -- with the potential for longer
lasting patent protection, allowed Warner to substantially retain
its market share. Thus, plaintiffs contend, Warner forced
consumers into a "hard switch" and maintained its monopoly power
unencumbered by competition from generic entry. Plaintiffs'
theory of liability rests on a Second Circuit decision that
condemns similar such conduct. See New York ex rel. Schneiderman
v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015).
The named plaintiffs and the putative class members
purchased Warner's products not from Warner directly, but from
third party intermediaries. That means that they cannot sue Warner
for damages under the federal antitrust law. Illinois Brick Co.
v. Illinois, 431 U.S. 720, 736 (1977). Plaintiffs therefore seek
recovery under the laws of twenty-five states and the District of
Columbia that allow indirect purchasers to challenge
anticompetitive conduct by manufacturers whose products consumers
acquire through intermediaries.2 All twenty-six jurisdictions,
1 A number of our recent opinions provide comprehensive overviews of the regulatory framework that governs the introduction of generic drugs. See In re Nexium (Esomeprazole) Antitrust Litig., 842 F.3d 34, 40-42 (1st Cir. 2016); In re Loestrin 24 Fe Antitrust Litig., 814 F.3d 538, 542-43 (1st Cir. 2016); In re Nexium Antitrust Litig., 777 F.3d 9, 15-16 (1st Cir. 2015). 2 Like the district court and the parties, we will use "states" informally in the remainder of this opinion to refer to both states and the District of Columbia.
- 7 -
according to plaintiffs, generally interpret state law restraints
on anticompetitive activity consistently with federal courts'
interpretation of federal antitrust law, but have "Illinois Brick
repealer" laws allowing antitrust damage actions by indirect
purchasers against manufacturers.
Plaintiffs moved for class certification on behalf of a
class of all similarly situated indirect purchasers, including any
individual consumers who purchased the relevant Warner products
from drug retailers in the twenty-six jurisdictions. Plaintiffs
designed the class to include only those persons or entities that
both purchased Asacol prior to July 31, 2013 -- the approximate
date on which Asacol's patent protection expired -- and also
purchased either Asacol HD or Delzicol after July 31, 2013. Both
sides introduced expert evidence regarding the propriety of class
certification.
The district court granted plaintiffs' motion for class
certification. Rejecting Warner's argument to the contrary, the
district court concluded that the named plaintiffs had standing to
prosecute claims on behalf of class members under various state
laws even if the named plaintiffs themselves had not made purchases
in all those states. Any difference between the claims of the
named plaintiffs and those of unnamed class members was a matter
for consideration under Rule 23, and not a matter of Article III
standing, the court ruled.
- 8 -
Moving to the Rule 23 analysis, the district court first
found that plaintiffs' proposed class satisfied the four elements
of Rule 23(a): numerosity, commonality, typicality, and adequacy.
See Fed. R. Civ. P. 23(a). The district court also concluded that
the proposed class passed muster under Rule 23(b)(3) because
common questions predominated over individual questions and a
class action presented a superior method for resolving plaintiffs'
claims.
In making those determinations, the district court
grappled with a problem that has been the source of much debate
among the circuits: the presence of uninjured class members. The
district court presumed that approximately ten percent of class
members had not been injured by Warner's allegedly anticompetitive
conduct because, even had a lower-priced generic alternative been
available, these consumers would not have switched to it.3 The
court based this conclusion on the reports of both sides' experts.
Those experts used the experiences of similar pharmaceutical
products as benchmarks from which to infer likely market dynamics
had a lower-priced generic form of Asacol been introduced.
Defendants' expert, Dr. Bruce Strombom, pointed to a benchmark
product in which the prevalence of consumers who stuck with the
3 Plaintiffs make no explicit claim that the price of Delzicol and Asacol HD would have been lower had generic versions of Asacol been available.
- 9 -
higher-priced brand decreased to 10.6% within approximately three
years after generic entry. Dr. Rena Conti, plaintiffs' expert,
looked to different benchmark products, from which she concluded
that the market share of generic Asacol would have grown to
approximately 88.8% within a year of generic entry, and would then
have risen to about 91.4% thirty-one months after generic entry.
From these two reports, the district court presumed that "by the
end of the relevant period, somewhere around 10% of the class
members would have opted for Asacol HD or Delzicol even in the
presence of generic Asacol." In re Asacol Antitrust Litig., 323
F.R.D. 451, 482 (D. Mass. 2017).
The district court nevertheless concluded that the
number of these uninjured class members was "de minimis." The
district court also accepted plaintiffs' contention that they
could remove these uninjured persons from the class with the
assistance of a so-called claims administrator. Our opinion in
Nexium, plaintiffs argue, permitted such a process. See In re
Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015).
The district court's order certifying the class raises
issues on which circuits are split and that are likely to arise in
other cases in this circuit before an appeal from a final judgment
would -- if ever -- ripen in this case. A panel of this court
therefore found "special circumstances" justifying the grant of
leave to pursue an interlocutory appeal under Rule 23(f). See
- 10 -
Fed. R. Civ. P. 23(f); Waste Mgmt. Holdings, Inc. v. Mowbray, 208
F.3d 288, 293-94 (1st Cir. 2000). In accord with this grant,
Warner presents two primary challenges. First, it argues that,
because the named plaintiffs only made purchases in four states,
they lack Article III standing to assert claims under the laws of
states in which they did not make purchases. Second, Warner takes
issue with the district court's decision to certify a class
containing uninjured class members.
II.
We review de novo the existence of Article III standing
required to invoke the jurisdiction of a federal court. See
Anderson ex rel. Dowd v. City of Boston, 375 F.3d 71, 92 (1st Cir.
2004). The named plaintiffs in this case indisputably have
standing to litigate their own claims against Warner. They
plausibly allege an injury in the form of lost money fairly
traceable to an allegedly unlawful supra-competitive price, and
seek classic redress in the form of a damage award. See generally
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). Nor does
the standing requirement of Article III erect any impediment to
the named plaintiffs' ability to litigate as class representatives
materially identical claims by other persons under the same laws
- 11 -
under which the named plaintiffs' claims arise. Gratz v.
Bollinger, 539 U.S. 244, 267 (2003).
Warner challenges, instead, the named plaintiffs'
standing to bring claims on behalf of class members whose claims
arise under the laws of the twenty-two states within which no named
plaintiff has either resided or purchased the relevant Warner
products during the class period. These states, apparently, apply
their relevant law only to claims that arise out of purchases made
within the state or by state residents. Therefore, says Warner,
because no named plaintiff can successfully bring a claim under
the laws of any of those twenty-two states, they necessarily lack
standing to bring such claims as representatives of persons who
might sue successfully in those states.
One might think that we could reject this argument merely
by observing that whether a plaintiff may represent persons who
themselves have standing to bring the claims alleged is a question
to be addressed under Rule 23, rather than a question of standing.
After all, that is how one would presumably proceed in seemingly
analogous situations outside of Rule 23. For example, in deciding
whether a fiduciary, a parent, a personal representative, or a
partner may prosecute a claim on behalf of another person, courts
generally focus not on whether the putative representative
independently satisfies Article III standing, but rather on
whether that party qualifies under the applicable law as a
- 12 -
representative of the one who does have standing. See, e.g., Sam
M. ex rel. Elliot v. Carcieri, 608 F.3d 77, 83 n.5 (1st Cir. 2010);
Goodwin v. C.N.J., Inc., 436 F.3d 44, 49 (1st Cir. 2006); Pérez v.
Clinica Dr. Perea, 915 F.2d 1556, 1990 WL 151307, at *3 (1st Cir.
July 9, 1990) (unpublished); Levin v. Berley, 728 F.2d 551, 555
56 (1st Cir. 1984). And sometimes the authority for such a person
to bring a suit as a representative of another resides in the
Federal Rules of Civil Procedure. See, e.g., Fed. R. Civ.
P. 17(c)(2) (allowing a "next friend" to sue on behalf of a minor
with no requirement that the next friend possess standing to bring
such a claim on behalf of herself or himself).
Precedent, though, forecloses such a simple and quick
answer. See Warth v. Seldin, 422 U.S. 490, 502 (1975); Blum v.
Yaretsky, 457 U.S. 991, 1000-01 (1982); see also 1 William B.
Rubenstein, Newberg on Class Actions § 2:5 (5th ed. 2012) ("In a
class action suit with multiple claims, at least one named class
representative must have standing with respect to each claim.").
In Blum, the Supreme Court confronted an effort by two plaintiffs
to represent a class of Medicaid patients challenging the decisions
of a state committee to transfer them to different levels of
nursing home care, allegedly without sufficient procedural
safeguards. The two named plaintiffs, who had been threatened
with transfers to lower levels of nursing care, also sought to
press the claims of persons who might object to being transferred
- 13 -
to facilities providing higher levels of care. 457 U.S. at 1000
02. The named plaintiffs had not been transferred or threatened
with transfers to facilities providing higher levels of care.
Furthermore, the conditions under which transfers to such
facilities occurred were sufficiently different from transfers to
facilities providing lesser care "that any judicial assessment of
their procedural adequacy would be wholly gratuitous and
advisory." Id. at 1001. For that reason, the plaintiffs lacked
"the necessary stake in litigating conduct . . . to which [the
plaintiffs] ha[d] not been subject." Id. at 999.
In keeping with this precedent, we have trained our
Article III focus in class actions on "the incentives of the named
plaintiffs to adequately litigate issues of importance to them."
Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset
Acceptance Corp., 632 F.3d 762, 770 (1st Cir. 2011). This focus
is in many respects simply an application to aggregate litigation
of the basic Article III requirement that a plaintiff possess "such
a personal stake in the outcome of the controversy as to assure
. . . concrete adverseness." Baker v. Carr, 369 U.S. 186, 204
(1962).
Nothing in this precedent, though, suggests that the
claims of the named plaintiffs must in all respects be identical
to the claims of each class member. See Gratz, 539 U.S. at 262
68. Requiring that the claims of the class representative be in
- 14 -
all respects identical to those of each class member in order to
establish standing would "confuse[] the requirements of
Article III and Rule 23." Fallick v. Nationwide Mut. Ins. Co.,
162 F.3d 410, 421 (6th Cir. 1998). Indeed, such an approach would
render superfluous the Rule 23 commonality and predominance
requirements because any case that survived such a strict
Article III analysis would by definition present only common
issues. So the question of standing is not: Are there differences
between the claims of the class members and those of the class
representative? Rather, the pertinent question is: Are the
differences that do exist the type that leave the class
representative with an insufficient personal stake in the
adjudication of the class members' claims? Here, with one
exception, we think not.
Importantly, the claims of the named plaintiffs parallel
those of the putative class members in the sense that, assuming a
proper class is certified, success on the claim under one state's
law will more or less dictate success under another state's law.
Even while arguing that there may be a few subtle differences in
the attitudes of some state courts toward such claims, Warner
concedes that the "parties do agree that Plaintiffs' liability
theories as to monopolization are limited to a construction of
state antitrust laws that parallel the federal Sherman Act." Under
those parallel laws, all plaintiffs who were forced to pay a higher
- 15 -
price in the absence of generic competition have a substantial and
shared interest in proving that the higher price was the result of
unlawful monopolizing conduct that is redressable by an award of
damages. And the fact that judgments for some class members will
nevertheless enter under the laws of states other than the states
under which any of the class representatives' judgments will enter,
where those laws are materially the same, has no relevant bearing
on the personal stake of the named plaintiffs in litigating the
case to secure such judgments. See Morrison v. YTB Int'l, Inc.,
649 F.3d 533, 536 (7th Cir. 2011) (holding that a state law's limit
to in-state events is an "application of choice-of-law principles
[that] has nothing to do with standing" (emphasis in original)).
Indeed, the fact that the judgments will enter under different
statutes is such a minor point of difference that in individual
actions it might not even preclude a finding of issue preclusion.
B&B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1306
(2015); see also Smith v. Bayer Corp., 564 U.S. 299, 310 (2011)
(rejecting the proposition "that the source of law is all that
matters" in determining whether two issues differ).
It is true that, in order to prevail on their claims,
the named plaintiffs need not prove where a class member resides,
or where the class member made a purchase. But that same thing
could be said of the named plaintiffs' need to prove that any class
member made a purchase anywhere, even in the states under which
- 16 -
the named plaintiffs' claims arise. As we have previously
observed, "[i]n a properly certified class action, the named
plaintiffs regularly litigate . . . claims of other class members
based on transactions in which the named plaintiffs played no
part." Plumbers' Union, 632 F.3d at 769.
Warner does argue that the applicable laws in a few
states actually do have added substantive elements that the named
plaintiffs will have no interest in proving: First, the laws of
three states require proving some effect on intrastate commerce,
see In re Flonase Antitrust Litig., 610 F. Supp. 2d 409, 415-16
(E.D. Pa. 2009) (Tennessee); Sun Dun, Inc. v. Coca-Cola Co., 740
F. Supp. 381, 396-97 (D. Md. 1990) (District of Columbia); In re
Microsoft Corp. Antitrust Litig., 2003 WL 22070561, at *2 (D. Md.
Aug. 22, 2003) (Maryland); Second, some states treble damages,
compare, e.g., Nev. Rev. Stat. § 598A.210(2) (providing for treble
damages); Wis. Stat. § 133.18(1)(a) (same) with Fla. Stat.
§ 501.211(2) (providing only for actual damages) and Mass. Gen.
Laws ch. 93A, § 11 (requiring proof of willful conduct as a
predicate to trebling); and, Third, New York's consumer protection
statute requires proof of deception, see Stutman v. Chem. Bank,
731 N.E.2d 608 (N.Y. 2000).
Warner, though, makes no showing that an effect on
intrastate commerce will even be a disputed issue. Trebling, in
turn, seems irrelevant to our inquiry unless it is not
- 17 -
automatically applied to the common surcharge that the named
plaintiffs have ample self-interest in proving. So that leaves
Warner's unopposed contentions that New York law may require proof
of deception, and that trebling in Massachusetts apparently
requires proof of willfulness. As to the latter, plaintiffs base
their relatively novel common monopolization claim on a theory
that expressly requires proof of a "specific intent to monopolize,"
as "distinguished from growth or development as a consequence of
a superior product, business acumen, or historic accident."
Actavis, 787 F.3d at 651 (quoting Verizon Commc'ns, Inc. v. Law
Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)). They
expressly allege in pursuit of their own claims that Warner acted
willfully. Nor does Warner claim that plaintiffs need not prove
an intent to monopolize. So, whether or not such proof is
ultimately required, the named plaintiffs certainly have a
substantial stake in proving up a case that is, as a practical
matter, unreliably distinguishable from proving willfulness.
That leaves only Warner's contention that, under N.Y.
Gen. Bus. Law § 349(a), the named plaintiffs have an insufficient
stake in the claim of New York class members because that law
requires proof of deception. Plaintiffs offer no response to this
argument at all. The complaint's list of common issues and its
statement of its causes of action include no suggestion that they
intend to prove deception (suggesting that they indeed see no stake
- 18 -
in doing so). We therefore find that plaintiffs have waived any
opposition to Warner's argument that plaintiffs lack standing to
sue on behalf of those who can claim no basis for relief other
than under New York law. In so doing, we put off to another day
how to apply Article III standing principles to a case in which a
putative class representative has a personal stake in proving most
but not all of the elements of a class member's claim.
Finding Article III standing otherwise satisfied in this
case is in accord with the decisions of our sister circuits that
have considered similar issues. See Langan v. Johnson & Johnson
Consumer Cos., 897 F.3d 88, 92-96 (2d Cir. 2018); see also
Morrison, 649 F.3d at 536. Our conclusion is in line with our
prior precedent, in which we required only that a plaintiff make
a single purchase in order to satisfy standing for a claim brought
under multiple state laws. See Nexium, 777 F.3d at 31-32. It
also accords with direction from the Supreme Court that, once the
named plaintiff establishes injury and membership in the class,
the inquiry should shift "from the elements of justiciability to
the ability of the named representative to 'fairly and adequately
protect the interests of the class.'" Sosna v. Iowa, 419 U.S.
393, 403 (1975) (quoting Fed. R. Civ. P. 23(a)). Therefore, it is
to that inquiry that we now turn our focus.
- 19 -
III.
Satisfied that we have subject matter jurisdiction, we
consider next the district court's finding that plaintiffs'
proposed class meets the requirement of Rule 23(b)(3) that
"questions of law or fact common to class members predominate over
any questions affecting only individual members." Fed. R. Civ.
P. 23(b)(3). We review that decision for abuse of discretion. In
re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6,
17 (1st Cir. 2008). Within this ambit, we review pure issues of
law de novo and "fact-dominated" issues for clear error. Id.
In considering the propriety of class certification in
this case, we again deal with an issue that strikes at the heart
of the competing considerations raised by some class actions: the
proper treatment of uninjured class members at the class
certification stage. Proof of injury, also called "injury-in
fact," is a required element of a plaintiff's case in an action
such as this one. New Motor Vehicles, 522 F.3d at 19 n.18.
Plaintiffs' class nevertheless includes consumers who would have
continued to purchase a brand drug for various reasons, even if a
cheaper, generic version had been available.
On appeal, both parties argue that the district court's
estimate that approximately ten percent of the class was uninjured
is wrong: Plaintiffs say it is too high and Warner says it is too
low. The district court record suggests that many of these
- 20 -
specific challenges were not preserved. See Clauson v. Smith, 823
F.2d 660, 666 (1st Cir. 1987) (stating that "points which were not
seasonably advanced below" are waived on appeal). In any event,
having reviewed the parties' competing critiques, we find no clear
material error in the district court's factual approximation. See
Nexium, 777 F.3d at 17 (reviewing factual findings for "clear
error"). So, the question thus becomes: Can a class be certified
in this case even though injury-in-fact will be an individual
issue, the resolution of which will vary among class members?
To answer this question, the parties agree that we must
direct our attention to the requirement of Rule 23(b)(3) that
common issues must predominate over individual issues in order to
certify a class. See Amgen, Inc. v. Connecticut Ret. Plans & Tr.
Funds, 568 U.S. 455, 469 (2013). The aim of the predominance
inquiry is to test whether any dissimilarity among the claims of
class members can be dealt with in a manner that is not
"inefficient or unfair." Id. (citing Richard A. Nagareda, Class
Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97,
107 (2009)). Inefficiency can be pictured as a line of thousands
of class members waiting their turn to offer testimony and evidence
on individual issues. Unfairness is equally well pictured as an
attempt to eliminate inefficiency by presuming to do away with the
rights a party would customarily have to raise plausible individual
challenges on those issues.
- 21 -
In assessing efficiency and fairness, we have recognized
that a class may be certified notwithstanding the need to
adjudicate individual issues so long as the proposed adjudication
will be both "administratively feasible" and "protective of
defendants' Seventh Amendment and due process rights." Nexium,
777 F.3d at 19. In Nexium itself, the court found a possible
mechanism available to avoid both inefficiency and unfairness.
The court reasoned that, "if unrebutted," a consumer's testimony
that "given the choice, he or she would have purchased the generic"
would be "sufficient to establish injury in an individual suit."
Id. at 20. It therefore concluded that "similar testimony in the
form of an affidavit or declaration would be sufficient in a class
action" when introduced "at the liability stage." Id. at 20-21.
The district court in this case sought to track Nexium,
finding that "prior to judgment, it will be possible to establish
a mechanism for distinguishing the injured from the uninjured class
members." In re Asacol Antitrust Litig., 323 F.R.D. at 481
(quoting Nexium, 777 F.3d at 19). Pointing to a proposal advanced
by plaintiffs, the district court described the mechanism to which
it referred as follows: "[i]n a Court-approved notice, Class
members will be asked to submit a claim form, along with data and
documentation that may be deemed necessary for consideration. The
Claims Administrator will evaluate each claim pursuant to a formula
proposed by Plaintiffs and approved by the Court." Id. at 479.
- 22 -
Plaintiffs' actual proposed mechanism also noted that
"[i]ndividual Class members will have an opportunity to contest
the calculations, and the Court will review the Claims
Administrator's report, making any changes it believes are
necessary."
One can only guess what data and documentation may be
deemed necessary, what the formula will be, and how the claims
administrator will decide who suffered no injury. Nevertheless,
the district court was convinced that Nexium blesses such a scheme.
We disagree.
Nexium held that "unrebutted testimony" contained in
affidavits would suffice as a mechanism for identifying who was
injured and who was not injured. Id. at 21 (emphasis added). If
unrebutted, such testimony in an affidavit could be used prior to
trial to obtain summary judgment, thereby efficiently and fairly
removing the issue of injury-in-fact from the case for trial. See
Fed. R. Civ. P. 56(c)(1)(A), (c)(4); see also, e.g., Kuperman v.
Wrenn, 645 F.3d 69, 80 (1st Cir. 2011) (finding that a party
prevailed on an issue on summary judgment on the basis of an
unrebutted affidavit). In Nexium itself, neither our court nor
the district court ever learned whether the defendants would in
fact rebut any affidavits. The possibility that unrebutted
affidavits could be used was raised sua sponte for the first time
in the majority opinion. By the time that opinion was issued, the
- 23 -
case had been tried without the benefit of our holding and, having
won, the defendants indeed chose not to challenge the inclusion of
any class members, by that point presumably enjoying the breadth
of their win. See generally In re Nexium (Esomeprazole) Antitrust
Litig., 842 F.3d 34, 40-42 (1st Cir. 2016).
Here, though, the record is clear that plaintiffs do not
propose to rely on unrebutted testimony to eliminate the question
of injury-in-fact before trial. And, unlike in Nexium, defendants
have expressly stated their intention to challenge any affidavits
that might be gathered. Nor do plaintiffs point to any basis in
the record for deeming all such challenges to be so implausible as
to warrant a finding that we can consider the issue to be
uncontested. Warner has explained that some class members stopped
taking (and will therefore have no record of purchasing) Asacol
anywhere between 2009 and 2012, and some class members when asked
will admit a preference for DBP-free medication such as Delzicol.
Additionally, some class members would not have switched to a
generic because they had no co-pay, and therefore were not price
sensitive. So whatever one thinks of Nexium's sua sponte positing
in the face of the defendants' silence that unrebutted affidavits
might be both available and sufficient, see Nexium 777 F.3d at 36
(Kayatta, J., dissenting), here we have no basis for venturing
such a prediction (nor did the district court do so).
- 24 -
Our inability to fairly presume that these plaintiffs
can rely on unrebutted testimony in affidavits to prove injury
in-fact is fatal to plaintiffs' motion to certify this case.
Testimony that is genuinely challenged, certainly on an element of
a party's affirmative case, cannot secure a favorable summary
judgment ruling disposing of the issue. Fed. R. Civ. P. 56(a).
And the affidavits would be inadmissible hearsay at trial, leaving
a fatal gap in the evidence for all but the few class members who
testify in person. Nor have the plaintiffs provided any basis
from which we could conclude that the number of affidavits to which
the defendants will be able to mount a genuine challenge is so
small that it will be administratively feasible to require those
challenged affiants to testify at trial.
We also reject any invitation to rewrite Nexium as
sanctioning the use of inadmissible hearsay to prove injury to
each class member at or after trial. The fact that plaintiffs
seek class certification provides no occasion for jettisoning the
rules of evidence and procedure, the Seventh Amendment, or the
dictate of the Rules Enabling Act, 28 U.S.C. § 2072(b). See Tyson
Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1048 (2016) (evidence
may not be used in a class action to give "plaintiffs and
defendants different rights in a class proceeding than they could
have asserted in an individual action"). A "claims
administrator's" review of contested forms completed by consumers
- 25 -
concerning an element of their claims would fail to be "protective
of defendants' Seventh Amendment and due process rights." Nexium,
777 F.3d at 19. Plaintiffs' proposed claims process provides
defendants no meaningful opportunity to contest whether an
individual would have, in fact, purchased a generic drug had one
been available. A "class cannot be certified on the premise that
[the defendant] will not be entitled to litigate its statutory
defenses to individual claims." Wal-Mart Stores, Inc. v. Dukes,
564 U.S. 338, 367 (2011). Here, we have more than a statutory
defense; rather, we have a challenge to a plaintiff's ability to
prove an element of liability. And although Halliburton permitted
class certification based on a proper presumption furnished by the
applicable law, even if the presumption might be rebutted as to
individual plaintiffs in a few instances, Halliburton Co. v. Erica
P. John Fund, Inc., 134 S. Ct. 2398, 2412 (2014), here we have no
such presumption.
Relatedly, this is not a case in which a very small
absolute number of class members might be picked off in a
manageable, individualized process at or before trial. Rather,
this is a case in which any class member may be uninjured, and
there are apparently thousands who in fact suffered no injury.
The need to identify those individuals will predominate and render
an adjudication unmanageable absent evidence such as the
unrebutted affidavits assumed in Nexium, or some other mechanism
- 26 -
that can manageably remove uninjured persons from the class in a
manner that protects the parties' rights. See Nexium, 777 F.3d at
30 ("We thus define 'de minimis' in functional terms."). And, as
we have already explained, the process on which the district court
relied is not such a mechanism.
Plaintiffs' fallback argument, urged most prominently on
appeal, is that, at trial, they will prove "class-wide impact"
with the testimony of their expert, Dr. Conti, and with defendants'
own documents and admissions. But plaintiffs point to no documents
or admissions that would support a finding that all class members
suffered injury. So this argument on appeal comes down to their
claim that they will prove class-wide impact at trial with the
testimony of their expert, Dr. Conti.
To support this alternative approach, plaintiffs point
to the approval in Tyson Foods of the plaintiffs' use of an expert
report that calculated each individual employee's average time
spent "donning and doffing" protective equipment for the purpose
of establishing the employees' total hours worked in an overtime
compensation case under the Fair Labor Standards Act. 136 S. Ct.
at 1042-43. Here, plaintiffs contend that, "[c]onsistent
with . . . the guidance in Tyson Foods[], plaintiffs will prove
classwide antitrust impact at trial using representative
evidence." Such evidence relies on Dr. Conti's calculation that
a generic substitute drug would have achieved approximately ninety
- 27 -
percent market penetration in a but-for world, from which, in part,
the district court estimated that about ten percent of the class
was likely brand loyal and thus uninjured. For several reasons,
plaintiffs' reliance on Tyson Foods falls short of the mark.
To begin with, using the average time it takes a person
to don and doff clothes to estimate how long it takes a given
individual to do so (as in Tyson Foods) is quite different than
saying, for example, that a given person wore certain clothes
merely because most but not all others did so. If statistically
valid, an average multiplied by the total number of individuals
likely equals the actual total time spent by all. But Dr. Conti's
estimate that a generic drug would achieve roughly ninety percent
market penetration, if used to prove that each individual would
have likely purchased the generic drug and was thus injured by
defendants' conduct, leads to the demonstrably wrong conclusion
that one hundred percent of individuals were injured. And that is
a contention that Dr. Conti's opinion itself rejects.
In Tyson Foods, the Court pointed out that under the
controlling substantive law, the proffered representative evidence
would be admissible and sufficient to prove injury in any
individual class member's individual trial. See Tyson Foods, 136
S. Ct. at 1047 (quoting Anderson v. Mt. Clemens Pottery Co., 328
U.S. 680, 687 (1946), for the proposition that, under the Fair
Labor Standards Act, "an employee has carried out his burden" if
- 28 -
he produces evidence demonstrating the amount of improperly
compensated work "as a matter of just and reasonable inference").
Here, plaintiffs point to no such substantive law that would make
an opinion that ninety percent of class members were injured both
admissible and sufficient to prove that any given individual class
member was injured. And whether such evidence would actually be
"sufficient to sustain a jury finding," id. at 1048, is far from
self-evident. See, e.g., Guenther v. Armstrong Rubber Co., 406
F.2d 1315, 1318 (3d Cir. 1969) ("[A]s we see it there was no
justification for allowing plaintiff's case on that so-called
probability hypothesis to go to a jury."); see also United States
v. Veysey, 334 F.3d 600, 604-06 (7th Cir. 2003) (reviewing the
academic literature and case law surrounding the use of statistical
evidence); United States v. Hannigan, 27 F.3d 890, 896-901 (3d
Cir. 1994) (Becker, J., concurring in the judgment) (similar);
Laurence H. Tribe, Trial by Mathematics: Precision and Ritual in
the Legal Process, 84 Harv. L. Rev. 1329 (1971) (discussing the
use of statistical evidence in litigation). Indeed, plaintiffs do
not even grapple with the question of whether federal or state law
provides the relevant rule of decision. And without making such
showings, plaintiffs cannot meet their burden to "'affirmatively
demonstrate . . . compliance' with Rule 23." Comcast Corp. v.
Behrend, 569 U.S. 27, 33 (2013) (quoting Wal-Mart Stores, Inc.,
564 U.S. at 350).
- 29 -
Plaintiffs argue that we should nevertheless approve of
their proposed approach because it protects Warner from any
practical harm that might otherwise be caused by removing questions
of individual injury-in-fact from the jury. Warner would only be
found liable and forced to pay damages if the jury found that
Warner's actions unlawfully raised the price paid by consumers by
a specified amount, and if the jury also determined the percentage
of sales for which that price surcharge would not have been paid
but for the illegal conduct. The total aggregate damages award
would therefore in theory net out all purchases by brand loyal
consumers as a group. The fact that some of that money might then
be paid to uninjured people should be of no concern to Warner, say
plaintiffs.
This argument confuses different types of aggregate
damages scenarios. See 4 William B. Rubenstein, Newberg on Class
Actions § 12:2 (5th ed. 2012). In some cases, the total damage
caused by the defendant is independent of the number and identity
of people harmed. Newberg gives as an example a trustee's theft
of money from a pension fund. Id. Such a case perhaps might be
tried as a class action without causing any harm to the defendant
no matter how the recovered funds are allocated among the
beneficiaries (although there would still be the question whether
Article III nevertheless precludes per se the knowing use of a
civil suit to make an award to an uninjured person, see Tyson
- 30 -
Foods, 136 S. Ct. at 1053 (Roberts, C.J., concurring). In many
other instances, as here, the aggregate damage amount is the sum
of damages suffered by a number of individuals, such that proving
that the defendant is not liable to a particular individual because
that individual suffered no injury reduces the amount of the
possible total damage. Furthermore, here the district court has
reasonably presumed that determining whether any given individual
was injured (and therefore has a claim) turns on an assessment of
the individual facts concerning that person. In such a case, the
defendant must be offered the opportunity to challenge each class
member's proof that the defendant is liable to that class member.
See Wal-Mart Stores, Inc., 564 U.S. at 366-67. Whether that
opportunity precludes class certification turns on whether such
challenges are reasonably plausible in a given case and whether
the plaintiff cannot demonstrate that allowing for such challenges
in a manner that protects the defendant's rights will be manageable
and superior to the alternatives. See Fed. R. Civ. P. 23(b)(3).
Accepting plaintiffs' proposed procedure for class
litigation would also put us on a slippery slope, at risk of an
escalating disregard of the difference between representative
civil litigation and statistical observations of tendencies and
distributions. Once one accepts plaintiffs' "no harm, no foul"
position there would be no logical reason to prevent a named
plaintiff from bringing suit on behalf of a large class of people,
- 31 -
forty-nine percent or even ninety-nine percent of whom were not
injured, so long as aggregate damages on behalf of "the class"
were reduced proportionately. Such a result would fly in the face
of the core principle that class actions are the aggregation of
individual claims, and do not create a class entity or re-apportion
substantive claims. See 1 William B. Rubenstein, Newberg on Class
Actions § 1:1 (5th ed. 2012) (stating that Rule 23 is
"fundamentally a procedural device" that allows a representative
to "litigate on behalf of many absent class members" but cannot
"abridge, modify, or enlarge any substantive right" (emphasis in
original)); see also Tyson Foods, 136 S. Ct. at 1048 (noting that
a class action cannot enlarge class members' substantive rights
and thus basing the availability of evidence in a class action on
what would be available "in an individual action"); In re Deepwater
Horizon, 739 F.3d 790, 828 (5th Cir. 2014) (Garza, J., dissenting)
("Rule 23's aggregation function cannot be used to create new
rights and then settle claims brought under them." (internal
quotation marks omitted)).
We recognize that there remains the problem of how to
deal with conduct that inflicts small amounts of damage on large
numbers of people. Certainly Rule 23 serves as an important tool
to address many such situations. See Mace v. Van Ru Credit Corp.,
109 F.3d 338, 344 (7th Cir. 1997) ("The policy at the very core of
the class action mechanism is to overcome the problem that small
- 32 -
recoveries do not provide the incentive for any individual to bring
a solo action."); Castano v. Am. Tobacco Co., 84 F.3d 734, 748
(5th Cir. 1996) (noting that "negative value" suits provide the
"most compelling rationale for finding superiority in a class
action"). But that fact grants us no license to create a
Rule 23(b)(3) class in every negative value case by either altering
or reallocating substantive claims or departing from the rules of
evidence. Moreover, there are other tools available to address
the problem of low-value, high-volume claims that pose individual
issues of causation. Regulators may sue, see, e.g., FTC v.
Actavis, Inc., 570 U.S. 136, 141 (2013); governments may bring
parens patriae claims, see, e.g., New Hampshire v. Purdue Pharma,
No. 17-cv-427, 2018 WL 333824, at *1 (D.N.H. Jan. 9, 2018);
substantive laws may provide presumptions available to all class
members, see, e.g., Halliburton, 134 S. Ct. at 2411-12; and private
lawyers may marshal the threats of res judicata and fee shifting
to induce aggregate settlements when liability is clear.
In reaching our conclusion, we acknowledge the
divergence evident in the manner in which our sister circuits have
addressed the treatment of uninjured putative class members.
Framing the issue of uninjured class members through the lens of
Article III, the Second Circuit opined that "no class may be
certified that contains members lacking Article III standing," and
required that the class "be defined in such a way that anyone
- 33 -
within it would have standing." Denney v. Deutsche Bank AG, 443
F.3d 253, 264 (2d Cir. 2006).4
In Halvorson v. Auto-Owners Insurance Co., 718 F.3d 773
(8th Cir. 2013), the Eighth Circuit announced the same standing
requirement articulated by the Second Circuit, but also seemed to
ground its analysis in the predominance requirement of
Rule 23(b)(3). It thus denied class certification because the
"individual inquiries" necessary to determine which class members
were uninjured would "overwhelm questions common to the class."
Id. at 779 (quoting Comcast Corp., 569 U.S. at 34); see Neale v.
Volvo Cars of N. Am., LLC, 794 F.3d 353, 366 (3d Cir. 2015) ("[I]t
is . . . not clear to us whether the Eighth Circuit's standing
analysis rests on Article III or Rule 23.").
More clearly viewing the issue of uninjured class
members through the prism of Rule 23(b)(3) predominance, the D.C.
Circuit vacated the certification of a class because the plaintiffs
had failed to "show that they can prove, through common evidence,
that all class members were in fact injured by the alleged
conspiracy." See In re Rail Freight Fuel Surcharge Antitrust
Litig.-MDL No. 1869, 725 F.3d 244, 252 (D.C. Cir. 2013) (emphasis
added); see also Nexium, 777 F.3d at 24 n.20 (characterizing Rail
4 In Denney, the Second Circuit found that each member of the class had suffered an injury-in-fact, and thus held that the class satisfied Article III standing. 443 F.3d at 265.
- 34 -
Freight as requiring that plaintiffs "'show that they can prove'
-- not that they have proved" -- that all class members were in
fact injured (emphasis in original)).
The Fifth Circuit has similarly held that "where fact of
damage cannot be established for every class member through proof
common to the class, the need to establish antitrust liability for
individual class members defeats Rule 23(b)(3) predominance."
Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003).
And the Third Circuit, expressly and closely following New Motor
Vehicles, has joined this majority view. See In re Hydrogen
Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008).5
The Seventh Circuit does appear to have signaled a
willingness to allow a district court to certify a damages class
containing not "a great many" uninjured members without requiring
that there be a mechanism for eventually culling out the uninjured.
Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 825 (7th
Cir. 2012); Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672, 677
78 (7th Cir. 2009). The Ninth Circuit recently arguably adopted
5 Because our circuit precedent clearly requires that there exist "some means of determining that each member of the class was in fact injured," New Motor Vehicles, 522 F.3d at 28, we have been able to finesse the question whether Article III's standing requirement imposes any barrier to the certification of a class that will at judgment have uninjured members. See Nexium, 777 F.3d at 32 ("To the extent that it is necessary that each and every member of the class who secures a recovery also has standing, the requirement will be satisfied -- only injured class members will recover.").
- 35 -
a similar rule, although to some uncertain extent it seems to rely
in great part on a notion that being "exposed to" injurious conduct
can serve a proxy for common injury. See Torres v. Mercer Canyons
Inc., 835 F.3d 1125, 1137 (9th Cir. 2016). Neither circuit,
though, has explained what not "a great many" means. See, e.g.,
Messner, 669 F.3d at 825 ("There is no precise measure for 'a great
many.'"). And if it means only that there can be a few unusual
class members who can be picked off by the defendant, then neither
case rests too far outside the mainstream. See Halliburton, 134
S. Ct. at 2412.
In any event, in no case cited above, nor in any case to
which plaintiffs have directed our attention, has a federal court
affirmed a damages judgment in a class action against a defendant
who was precluded from raising genuine challenges at trial to the
assertion of liability by individual members of a class that was
known to have members who could not be presumed to be injured.
Nor has either party drawn to our attention any federal court
allowing, under Rule 23, a trial in which thousands of class
members testify. We see no reason to think that this case should
be the first such case.
IV.
The rule we reiterate today, consistent with our prior
holding in Nexium, strikes a balance that is faithful to the
requirements of Article III and Rule 23, while remaining cognizant
- 36 -
of the practical realities of class actions. We have not
previously required every class member to demonstrate standing
when a class is certified, nor do we do so today. See Nexium, 777
F.3d at 32; see also Neale, 794 F.3d at 362; DG ex rel. Stricklin
v. Devaughn, 594 F.3d 1188, 1197 (10th Cir. 2010); Kohen, 571 F.3d
at 676-77. We also agree that it would "put the cart before the
horse," Kohen, 571 F.3d at 676, to read Rule 23 to require that a
plaintiff demonstrate prior to class certification that each class
member is injured. But certainly where injury-in-fact is a
required element of a claim, as it is in an antitrust action, see
New Motor Vehicles, 522 F.3d at 19 n.18, a class cannot be
certified based on an expectation that the defendant will have no
opportunity to press at trial genuine challenges to allegations of
injury-in-fact. Cf. Wal-Mart Stores, Inc., 564 U.S. at 367. And
to determine whether a class certified for litigation will be
manageable, the district court must at the time of certification
offer a reasonable and workable plan for how that opportunity will
be provided in a manner that is protective of the defendant's
constitutional rights and does not cause individual inquiries to
overwhelm common issues. These plaintiffs have plainly not enabled
the district court to articulate such a plan. See New Motor
Vehicles, 522 F.3d at 20 ("Under the predominance inquiry, 'a
district court must formulate some prediction as to how specific
issues will play out in order to determine whether common or
- 37 -
individual issues predominate in a given case.'" (quoting Mowbray,
208 F.3d at 298)).
Outcome: For the foregoing reasons, we reverse the decision of
the district court granting class certification, and remand for
further proceedings in accord with this opinion.
Plaintiff's Experts:
Defendant's Experts:
Comments: