Wednesday, January 14, 2009

Certification of Class Alleging Chemical Price Fixing Was Premature

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

In an antitrust action against chemical manufacturers for conspiring to fix prices of hydrogen peroxide and two related chemical products, a federal district court’s certification of a group of purchasers of the chemical products constituted an abuse of discretion, the U.S. Court of Appeals in Philadelphia has ruled. The predominance requirement of Federal Rule of Civil Procedure 23(b) (3) had not been met and should not have been presumed, the appellate court decided.

The trial court’s grant of class certification to a class consisting of all persons or entities that purchased hydrogen peroxide, sodium perborate, or sodium percarbonate directly from any of the defendants or affiliates during an 11-year period (2007-1 Trade Cases ¶75,569) was therefore vacated and the matter was remanded.

Predominance, Antitrust Impact

In finding that the proposed class satisfied the predominance requirement because the plaintiffs would have been able to use common evidence to prove antitrust impact at trial, the trial court erroneously applied too lenient a standard of proof, the appellate court stated.

The trial court also failed to consider the views of the defendants’ expert, while crediting the plaintiffs’ expert, and wrongly applied the principle described in Bogosian v. Gulf Oil Corp. (1977-2 Trade Cases ¶61,568), under which antitrust impact could be presumed in certain circumstances.

Identification by the plaintiffs’ expert of two potential approaches to estimating damages on a class-wide basis—benchmark analysis and regression analysis—did not amount to a showing common issued predominated with respect to injury and damages, the appellate court explained.

Intention to Prove Impact

According to the expert, both methods could be used to estimate the prices the plaintiffs would have faced but for the alleged conspiracy. However, the expert had not actually conducted either analysis. Demonstration only of the intention to prove impact on a class-wide basis did not satisfy the requirement of Rule 23. A party’s assurance that it intended to meet the requirements was insufficient.

The lower court also erred in failing to consider the testimony of the defendants’ expert in addressing the Rule 23 requirements, instead deferring to the opinion of the plaintiffs’ expert. The court’s apparent assumption that it was barred from weighing the defense experts’ opinion—which was substantively rebutted many points made by the plaintiffs’ expert—for the purpose of deciding whether the requirements of Rule 23 had been met was wrong, in the appellate court’s view.

In light of Rule 23’s call for consideration of all relevant evidence and arguments, the trial court should have addressed the defense expert’s finding of substantial price disparities among similarly-situated purchasers of hydrogen peroxide—the members of the proposed class.

Presumption of Impact

Finally, by adopting the Bogosian principle to the case, the trial court erroneously presumed that the predominance requirement was met. The record in the instant case was far more mixed than in earlier cases in which the principle had been applied to allow a presumption of common impact. Whereas the evidence in one such case had included an idling of production to reduce inventories to a 20-year low and to boost prices, the evidence in the instant case revealed that (1) production was increasing rather than decreasing through much of the class period and (2) prices were lower at the end of the proposed class period than they were at the beginning.

There was a fundamental dispute between the parties’ experts as to the price structure in the industry.

“Applying a presumption of impact based solely on an unadorned allegation of price fixing would appear to conflict with the 2003 amendments to Rule 23, which emphasize the need for a careful, fact-based approach, informed, if necessary, by discovery,” the court concluded.

The decision is In re Hydrogen Peroxide Antitrust Litigation, 2008-2 Trade Cases ¶76,453.

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