Class Action Approved in Vertical Price Restraint Case Against Babies ‘R’ Us, Manufacturers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Philadelphia yesterday granted class certification in an action against retail chain Babies ‘R’ Us, Inc. for allegedly conspiring with manufacturers to inflate prices for certain baby products in violation of federal antitrust law.

The action was brought by 13 consumers, who contended that Babies ‘R’ Us conspired with the manufacturers—such as Peg Perego USA, Inc. and BabyBjorn, AB—also named as defendants in the suit to restrict competition in the markets for strollers, baby carriers, and other baby products, from Internet discounting.

Protection from Internet Discounters

According to the complaining consumers, Babies ‘R’ Us demanded protection from Internet discounters and entered into agreements with the suppliers to combat the problem. As a result, the manufacturers purportedly adopted vertical price restraints and enforced these restraints against Internet retailers. It was also alleged that the manufacturers gave preferential treatment to Babies ‘R’ Us—their biggest customer.

The court certified subclasses that included “Babies ‘R’ Us customers who bought a certain brand and type of baby product during a certain period of time—roughly from 1999 to 2006—because the case involved separate alleged conspiracies. The court did, however, tweak some of the subclass definitions and dismiss some of the claims.

Dismissal of Some Claims

A claim against Kids Line LLC, a manufacturer of baby bedding and accessories, was dismissed without prejudice because the plaintiffs lack standing. None of the plaintiffs bought bedding set from Babies ‘R’ Us. Further, one named plaintiff was dismissed because the subclass for Peg-Perego products was limited to strollers and the named plaintiff bought only a Peg-Perego high chair. Another named plaintiff was dismissed because she bought her BabyBjorn carrier before the subclass period began. She thus fell outside the subclass.

Impact of “Watershed Decisions”

The court recognized “two watershed decisions” that were significant hurdles for the plaintiffs. The first was Leegin Creative Leather Products, Inc. v. PSKS, Inc., 2007-1 CCH Trade Cases ¶ 75,753, 127 S.Ct. 2705 (2007), where the Supreme Court declared that vertical price restraints are not per se illegal anymore but instead are evaluated under a rule of reason standard. Leegin did not preclude the class claims. The court decided that elements of the plaintiffs’ antitrust claims were “capable of proof at trial through evidence that is common to the class rather than individual to its members” as required by the second watershed decision—In re Hydrogen Peroxide Antitrust Litig., 2008-2 CCH Trade Cases ¶76,453, 552 F.3d 305 (3d Cir. 2008).

The Third Circuit's decision in the Hydrogen Peroxide case requires district courts to conduct a rigorous analysis when considering whether to certify a proposed class. According to the district court, before certifying a class courts must make a definitive determination that the requirements of Rule 23 of the Federal Rules of Civil Procedure.

Requirements of Federal Rule of Civil Procedure 23

Despite the tough standard adopted by the Third Circuit, the court concluded that the plaintiffs carried their burden under the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a) and the predominance requirement of Rule 23(b)(3) of the Federal Rules of Civil Procedure. Under Rule 23(b)(3), the plaintiffs showed “that the questions of law or fact common to class members predominate over any questions affecting only individual members.” The court found predominance satisfied for each element of the plaintiffs' antitrust claims.

The plaintiffs also offered a viable method whereby damages can be reasonably estimated based on common evidence, as required by Hydrogen Peroxide.

Notice to Consumers

The plaintiffs were ordered submit a proposed form of notice to class members by August 14, explaining their rights. The defendants will have to file objections to the proposed form of notice by August 28.

The decision in Carol McDonough v. Toys ‘R’ Us, Inc., Civil Action No. 06-0242, will appear at 2009-2 CCH Trade Cases ¶ 76,675.