Steve Morrison

January 30, 2013

Page 1 of 9

Nelson Mullins Riley & Scarborough LLP

Memorandum
To: / Steve Morrison
From: / Brandon S. Smith
Date: / January 30, 2013
Re: / Case Law on Recent Class Action Cases

Class Certification Prerequisites

Behrand v. Comcast Corp., 655 F.3d 182 (3d Cir. 2011), certiorari granted, 133 S.Ct. 24 (2012).

Facts: Plaintiffs, regional customers of Comcast, brought an antitrust class action alleging that Comcast obtained a monopoly via transactions with competitors for the allocation of regional cable markets. Id. at 186. Plaintiffs alleged that Comcast engaged in conduct excluding and preventing competition. Id.

Specifically, the plaintiffs claimed that Comcast had perpetrated an anticompetitive "clustering scheme" whereby Comcast "concentrated their operations in regional geographic areas by acquiring cable systems in regions where the MSO [Multi-System Operators] already had a significant presence." Id. at 187. Because of this clustering scheme, the plaintiffs claimed that Comcast "harmed the class by eliminating competition, raising entry barriers to potential competition, maintaining increased prices for cable services at supra-competitive levels, and depriving subscribers of the lower prices that would result from effective competition." Id. Plaintiffs claimed that they pay too much "for their non-basic video programming cable service." Id. The district court certified the class and Comcast appealed certification under Fed. R. Civ. P. 23(f).

Issue: Whether the district court properly satisfied the standards for class certification in determining that questions of fact or law common to class members predominate sufficiently to satisfy Rule 23(b)(3) and as set forth in In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008). Comcast argued that the district court exceeded its discretion in determining that plaintiffs established by a preponderance of evidence that they would be able to prove through common evidence (1) class-wide antitrust impact and (2) a common methodology to quantify damages on a class-wide basis. Id.

Holding: The Third Circuit held that the district court did not abuse its discretion (1) in concluding that a "market structure analysis was susceptible to proof at trial through available evidence common to class;" (2) in determining "that anticompetitive effect of clustering of cable television services on over-builder competition was capable of proof at trial through evidence that was common to class;" and (3) in determining that "common methodology was available to measure and quantify damages on class-wide basis." Id. at 184.

Reasoning: First, the Third Circuit acknowledged that because the "relevant geographic market is a component of substantive antitrust law . . . plaintiffs must demonstrate that the defendant possessed market power in the relevant geographic market." Id. at 192. Because defining the relevant geographic market "is an issue of the merits . . . [a]t the class certification stage, a court need only be satisfied that issues—including the definition of a geographic market—will be capable of proof through evidence common to the class." Id. The court reasoned that the district court "need only decide by a preponderance of the evidence that when addressed on the merits the class may be able to prove through commonevidence that the relevant geographic market" is themarket at issue. Id.at 194 (emphasis added). The court concluded that "this determination did not exceed the court's permissible discretion" because the lower court did not fix the relevant geographic market per se, but that its "determination was made solely for the purposes of class certification" not binding on the merits. Id.

Second, the Third Circuit affirmed the lower court's determination that the anticompetitive effect of clustering was capable of proof at trial through common class evidence. Id. at 195. The circuit court concluded that the plaintiffs presented sufficient evidence through its expert's findings and "empirical studies conducted by governmental agencies and private researchers." Id. The circuit court found that when the antitrust impact alleged by the plaintiffs is "plausible in theory" and "susceptible to proof at trial through available evidence common to the class" the lower court is within its discretion to certify the class. Id. at 198. The court rejected Comcast's argument that plaintiffs' expert had inherent flaws in his analysis and methodology, stating that Comcast had misconstrued this stage of the litigation because it asked the court for a decision on the merits as to whether there was actual or potential competition. Id. at 200.

Third, the court explained that plaintiffs satisfied their burden under the predominance requirement by demonstrating that the damages were capable of measurement on a class-wide basis using common proof. Id. Comcast asserted that the findings by plaintiffs' expert did not isolate damages for individual theories of harm and that the expert based his damages theory on a cumulative effect. Id. at 203. The court noted that while complex and individual questions of damages may weigh against a predominance finding, some variation of damages among the class will not defeat certification. Id. at 204. The court reasoned that:

At the class certification stage we do not require that Plaintiffs tie each theory of antitrust impact to an exact calculation of damages, but instead that they assure us that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.

Id. at 206.

Comcast challenged the methodology used by plaintiffs' expert, namely the expert's model and specifications. Id. at 207. The court concluded that Comcast's argument attacked the merits of the methodology and had "no place in the class certification inquiry." Id. at 206.

The Supreme Court granted certiorari, in part, regarding the following question: “Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” Comcast Corp. v. Behrand, 133 S.Ct. 24 (2012).

Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011).

Facts: Female employees of Wal-Mart brought a Title VII action against Wal-Mart alleging sex discrimination and seeking injunctive and declaratory relief, back pay, and punitive damages. The named plaintiffs represented 1.5 million members of the certified class. Plaintiffs alleged that the "company discriminated against them on the basis of their sex by denying them equal pay or promotions."Id. at 2547. Plaintiffs claimed that the discrimination they faced was common to allWal–Mart's female employees and that there was "a strong and uniform corporate culture" of discrimination. Id. at 2548. Plaintiffs alleged that Wal-Mart permitted "bias against women to infect, perhaps subconsciously, the discretionary decisionmaking of each one of Wal–Mart's thousands of managers—thereby making every woman at the company the victim of one common discriminatory practice." Id.

Issue: Whether the lower court properly certified plaintiffs' class under Fed. R. Civ. P. 23(a) and 23(b)(2).

Holding: The Supreme Court held that the lower court did not properly certify the plaintiffs' class under Fed. R. Civ. P. 23(a) and 23(b)(2).

Reasoning: The Court identified the commonality requirement as "the crux" of the case. Id. at 2550. The Court reasoned that the evidence presented by members of the putative class did not rise to level of "significant proof" that Wal-Mart operated under general policy of discrimination. Id.The Court observed that "class members' claims depend upon a common contention such that the determination of its truth or falsity will resolve an issue that is central to the validity of each [claim] in one stroke." Id. at 2551. The Court concluded that the plaintiffs did not demonstrate "the capacity of class wide proceedings to generate common answers to common questions of law or fact that are apt to drive the resolution of the litigation." Id.

Next, the Court found that the lower court erred in certifying the plaintiffs' claims for backpay under Fed. R. Civ. P. 23(b)(2). Id. at 2557. The Court reasoned that monetary relief may not be certified under Rule 23(b)(2) "where the monetary relief is not incidental to the declaratory or injunctive relief." Id. The Court reasoned that "because the necessity of that litigation will prevent backpay from being 'incidental' to the classwide injunction, respondents' class could not be certified even assuming, arguendo, that 'incidental' monetary relief can be awarded to a 23(b)(2) class." Id. Rather, the Court concluded that Rule 23(b)(3) is the proper place for monetary claims. Id.

Lastly, the Court found that the lower court erred in its "novel project" to use a "Trial by Formula" which ran afoul of the rules because the court certified the class on the premises that Wal-Mart could not litigate its statutory defenses to individual claims. Id. at 2561.

Connecticut Retirement Plans and Trust Funds v. Amgen Inc., 660 F.3d 1170 (2011), certiorari granted, 132 S.Ct. 2742 (2012).

Facts: Investors brought this securities fraud class action against Amgen and its individual officers and directors. Id. at 1172. Plaintiffs alleged that Amgen made misstatements and failed to disclose safety information about two Amgen products used to treat anemia and therefore violated Sections 10(b) and 20(a) of the Securities Exchange Act. Id. Plaintiffs indentified four actionable misstatements by Amgen: (1) that Amgen downplayed FDA concerns about its products before an FDA meeting with a group of oncologists; (2) that Amgen concealed details about a clinical trial that was cancelled over concerns that Amgen's product increased tumor growth in a small number of patients; (3) that Amgen exaggerated onlabel safety of its product; and (4) that Amgen misrepresented its marketing practices by claiming that it promoted its products solely for onlabel uses when in fact Amgen promoted significant off label use in violation of federal drug statutes. Id. at 1172-73. Plaintiffs alleged that these misstatements and omissions inflated the price of Amgen's stock when plaintiffs purchased it and, when Amgen did make corrective disclosures, this caused Amgen's stock price to fall. Id. The district court certified the class and this appeal followed. Id. at 1172.

Issue: Whether the district court properly certified the class based on the fraud-on-the-market presumption of reliance.

Holding: The court held that the district court did not abuse its discretion in certifying the class because proving materiality is not a precondition to invoke the fraud-on-the-market presumption of reliance at the class certification stage. In addition, the district court correctly refused to consider truth-on-the-market defense at class certification stage.

Reasoning: The court reasoned "were it not for the fraud-on-the-market presumption, a plaintiff seeking class certification would be required to show the impossible—reliance by each individual prospective class member who bought the stock." Id. at 1172. The court stated "proof of materiality, like all other elements of a 10b–5 claim, is a merits issue that abides the trial or motion for summary judgment." Id. The court reasoned that the more reasonable requirement for "materiality" is that the plaintiff "must plausibly allege—but need not prove at this juncture—that the claimed misrepresentations were material." Id. The court noted:

If the misrepresentations turn out to be material, then the fraud-on-the-market presumption makes the reliance issue common to the class, and class treatment is appropriate. But if the misrepresentations turn out to be immaterial, then every plaintiff's claim fails on the merits (materiality being a standalone merits element), and there would be no need for a trial on each plaintiff's individual reliance. Either way, the plaintiffs' claims stand or fall together—the critical question in the Rule 23 inquiry.

Id. at 1175.

Amgen argued that the district court erred by not allowing it to rebut the fraud-on-the-market presumption at the class certification stage with evidence that its alleged misrepresentations "could not have affected the stock price—the so-called 'truth-on-the-market' defense." Id. at 1177. The court reasoned that this defense is a method of refuting the materiality of an alleged misrepresentation.Id. The court concluded that because "materiality is a merits issue to be reached at trial or by summary judgment motion if the facts are uncontested. . . . [The] only elements a plaintiff must prove at the class certification stage are whether the market for the stock was efficient and whether the alleged misrepresentations were public—issues that Amgen does not contest here." Id.

The Supreme Court granted certiorari regarding the following question: Whether securities plaintiffs must establish at the class certification stage that the alleged misrepresentation upon which they relied was "material." Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, 132 S.Ct. 2742 (2012).

Class Arbitration

Sutter v. Oxford Health Plans LLC, 675 F.3d 215 (3d. Cir. 2012), certiorari granted, 133 S.Ct. 786 (2012).

Facts: Oxford Health Plans, LLC moved to vacate the arbitrator's award authorizing class arbitration of this dispute regarding Oxford's alleged failure to make prompt and accurate reimbursement payments to physicians participating in a primary care physician agreement. Id. at 215.Oxford drafted a Primary Care Physician Agreement with the plaintiff which contained "a broad arbitration clause." Id. at 217. Neither the arbitration clause nor any other provision of the agreement made express reference to class arbitration. Id. The clause at issue stated: "No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator." Id. The arbitrator construed the clause in favor of class arbitration in the absence of a class arbitration exclusion. Id. Oxford appealed the district court's decision to uphold class arbitration.

Issue: Whether Stolt–Nielsen S.A. v. Animal Feeds International Corp., 130 U.S. 1758 (2010), prohibits class arbitration under a broad arbitration agreement that makes no reference to class arbitration.

Holding: The Third Circuit affirmed the district court's denial of Oxford's motion to vacate the award, holding that the arbitrator did not exceed his powers by construing the parties' arbitration agreement to authorize class arbitration.

Reasoning: The court acknowledged that "an arbitrator may exceed his powers by ordering class arbitration without authorization." Id. at 220. The court recognized that in Stolt–Nielsen, "the Supreme Court held that arbitrators may not infer parties' consent to class arbitration procedures solely from the fact of their agreement to arbitrate" and "an arbitrator lacks the power to order class arbitration unless there is a contractual basis for concluding that the parties agreed to that procedure." Id. (citing Stolt–Nielsen, 130 S.Ct. at 1775). The court pointed out the fact that the Supreme Court did not "establish a bright line rule that class arbitration is allowed only under an arbitration agreement that incants 'class arbitration' or otherwise expressly provides for aggregate procedures." Id. Here, the court examined the specific process used by the arbitrator in construction of the clause and observed:

[T]he arbitrator construed the text of the arbitration agreement to authorize and require class arbitration. Then he observed that an express carve-out for class arbitration would have made it unavailable even under the clause's otherwise broad language. As the arbitrator later articulated when he revisited his construction of the clause in light of Stolt–Nielsen, the lack of an express exclusion was merely corroborative of his primary holding that the parties' clause authorized class arbitration; it was not the basis of that holding. Thus, the arbitrator did not impermissibly infer the parties' intent to authorize class arbitration from their failure to preclude it.

Id. at 224. The court concluded thatthe arbitrator endeavored to interpret the parties' agreement within the bounds of the law, and the court could not conclude that his interpretation "was totally irrational" because "nothing more is required under § 10(a)(4) of the Federal Arbitration Act" as to this issue. Id. at 224-25.

The Supreme Court granted review of the following question: whether, under Stolt-Nielsen, an arbitrator acts within his powers pursuant to the FAA by determining that parties affirmatively agreed to authorize class action arbitration solely on the use of broad contractual language precluding litigation and mandating arbitration of any dispute arising under a contract. Oxford Health Plans LLC v. Sutter, 133 S.Ct. 786 (2012).

In re Am. Exp. Merchs. Litig., 667 F.3d 204 (2d Cir 2012), certiorari granted, 133 S.Ct. 594 (2012).

Facts: Merchants filed this antitrust class action against American Express ("Amex"). The plaintiffs' claim related to Amex's distinction between charge cards and credit cards. Id. at 207. Plaintiffs alleged that charge cards holders were generally "more affluent than credit cardholders, and a vastly higher percentage of charge cards than credit cards are held by businesses and used for business travel and other corporate purposes." Id. The plaintiffs claimed that Amex forced them to make a choice of "either paying supracompetitive merchant discount fees on Amex's new mass market products or lose a significant portion of the sales they receive from traditional Amex card users." Id.

At the heart of the appeal is the following provision contained in the Agreement with the merchants and Amex:

IF ARBITRATION IS CHOSEN BY ANY PARTY WITH RESPECT TO A CLAIM, NEITHER YOU NOR WE WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM IN COURT OR HAVE A JURY TRIAL ON THAT CLAIM. . . . FURTHER, YOU WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION. THE ARBITRATOR'S DECISION WILL BE FINAL AND BINDING. NOTE THAT OTHER RIGHTS THAT YOU WOULD HAVE IF YOU WENT TO COURT MAY ALSO NOT BE AVAILABLE IN ARBITRATION.

Id. at 209. Based on this clause, Amex argued that the merchants were precluded from bringing a class action. Id. at 210. The district court granted Amex's motion to compel arbitration and concluded that all the substantive antitrust claims were subject to arbitration, thereby dismissing plaintiffs' cases against Amex. Id.