$295 Million Antitrust Class Action Settlement with De Beers Rejected

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

The U.S. Court of Appeals in Philadelphia has rejected a $295 million settlement in antitrust class action lawsuits against the De Beers family of companies for anticompetitive practices in the markets for gem-quality diamonds.

A decision certifying nationwide classes of direct and indirect purchasers for settlement purposes (2008-2 Trade Cases ¶76,304) was reversed, and the matter was remanded to the district court for further proceedings.

The purchasers had alleged a conspiracy to fix prices in the wholesale market for gem-quality diamonds through a web of pricing and output-purchase agreements and monopolization by De Beers.

There were two categories of plaintiffs. First, there were direct purchasers that acquired rough gem diamonds directly from De Beers or one of its competitors and asserted federal antitrust claims. The second class was composed of indirect purchasers. These entities and individuals acquired either rough or cut-and-polished gem diamonds but did not do so directly from De Beers or its competitors. They included consumers, jewelry retailers, and middlemen who asserted state law claims as a route to monetary relief because they lacked standing to bring a federal antitrust claim for damages.

Class of Indirect Purchasers

The appellate court remarked that it was tasked with considering for the first time whether a national class of indirect purchaser claimants under state law was sufficiently cohesive to warrant adjudication by representation.

The appellate court decided that the lower court should not have certified a nationwide class of litigants whose claims implicated the laws of multiple jurisdictions, since only some of those jurisdictions recognized the claims for which recovery was sought. It was improper to include in an indirect purchaser class plaintiffs whose claims arose in states that foreclosed indirect purchasers from recovering for price fixing or monopolization.

The parties could not salvage an improper certification order by saying that De Beers has stipulated out of existence defects in the commonality and predominance of the class claims.

The lower court was instructed to entertain on remand any renewed motions to certify classes that, at least as to state law claims, were not nationwide in scope. A certification order would have to sufficiently identify those claims and issues subject to the class treatment.

Injunctive Class

Certification of an injunctive class also was vacated by the appellate court. Objectors successfully argued that the class members did not show an imminent threat of prospective antitrust injury. In order to have standing under Sec. 16 of the Clayton Act, a plaintiff had to establish a prospective threat of loss or damage as a result of conduct prohibited elsewhere in antitrust law. De Beers’ willingness to stipulate to liability was sufficient in and of itself to establish a prospective threat of antitrust harm.

Moreover, the plaintiffs faced no significant threat of future antitrust harm in the absence of the injunction because, according to their experts, the market had become increasingly competitive and there is no longer any guarantee that the prices De Beers set would hold in the marketplace.

The July 13, 2010, decision in Sullivan v. DB Investments, Inc., No. 08-2784, will appear at 2010-2 Trade Cases ¶77,090.

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