Sunday, April 13, 2008

Class Certification of Buyers of Canadian Cars Reversed, Vacated

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Certification of classes seeking injunctive relief under federal antitrust laws and damages under 20 state antitrust and consumer protection laws against automobile manufacturers was improper, a divided U.S. Court of Appeals in Boston has decided. The putative classes alleged that the manufacturers had conspired to avoid price competition by keeping motor vehicles intended for sale in Canada out of the U.S. market.

A grant of certification to the purchasers seeking injunctive relief under federal law (2006-1 Trade Cases ¶75,289) was reversed, and that claim was dismissed. Certification of the state antitrust claims was vacated and remanded to federal district court for reconsideration and for determination of several issues concerning the existence of federal jurisdiction.

Injunctive Relief Class

The proposed injunctive relief class, which consisted of consumers nationwide who had purchased cars in Canada, sought an injunction that would: (1) require the manufacturers to honor warranties in the United States on all new motor vehicles sold in Canada; (2) prohibit them from blacklisting Canadian exporters; (3) prohibit them from exchanging information such as blacklists and methods for avoiding export sales; (4) block chargebacks to Canadian dealers; (5) stop the tracking of Canadian cars' vehicle identification numbers; (6) prohibit U.S. manufacturers from penalizing U.S. dealers for buying or selling Canadian vehicles; (7) prohibit trade associations from discouraging or acting to prevent Canadian exports; and (8) ban the manufacturers' withholding of safety recall information based on a vehicle's export status.

The consumers lacked standing to pursue injunctive relief because no live controversy existed, the court stated. The consumers did not face a threat of injury both real and immediate, as was required for Article III standing. An exchange rate anomaly in which the U.S. dollar hit an apex between 1998 and 2003 that had not been seen in the previous 50 years, allegedly precipitating massive arbitrage opportunities for selling Canadian cars in the United States had long since ceased, according to the court.

The subsequent fall in the value of the U.S. dollar alone eliminated any realistic current threat. Any claim that exchange rates could again tilt in favor of the United States dollar substantially enough to create additional arbitrage opportunities was merely speculative and hypothetical. Because no live controversy existed, dismissal of the claim was appropriate, the court concluded.

State Law Damages Classes

The consumers pursuing state law damages claims had not yet established that common evidence could be used to prove the impact of the alleged conspiracy on them on a classwide basis and that common questions predominated in the litigation, the appellate court decided.

Whereas the lower court held that submissions by the putative classes' expert witnesses on this issue sufficed for purposes of showing common proof of impact—even though they "might be insufficient under some states' laws"—the appellate court majority disagreed with this conclusion.

A searching inquiry into the viability of the consumers' theory of injury was necessary, in the appellate court's view, because that theory was so novel and complex. It required the consumers to demonstrate that the manufacturers' actions resulted in an increase in dealer invoice prices and suggested retail prices in the United States to sort out the effects of any permissible vertical restraints from the effects of the alleged impermissible horizontal conspiracy. Only then could the consumers offer some means of determining that each member of the class was in fact injured. It was unclear to the appellate court how the consumers intended to make this connection.

Incomplete Damages Model

The lower court's acceptance of an incomplete damages model, based upon the incomplete record before it at the time, no longer sufficed, in the appellate court's view. Given that two years had passed and virtually all discovery in the case had been completed since the court's initial certification ruling, the time was more appropriate for the trial court to conduct that inquiry.

By now, the consumers should have worked out their models and formulas and the trial court should have a complete record before it from which to test the viability of the consumers' novel theory for proving common impact, the appellate court observed.

The decision is In re: New Motor Vehicles Canadian Export Antitrust Litigation, 2008-1 Trade Cases ¶76,100.

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