Wednesday, January 25, 2012

Class Certification Improperly Denied in Hospital Merger Challenge

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

A federal district court abused its discretion when it denied certification to a class of direct purchasers of hospital services in an action challenging a hospital merger, the U.S. Court of Appeals in Chicago has ruled.

Because the denial of class certification was erroneous as a matter of both fact and law, the district court's denial of class certification (2010-1 Trade Cases ¶77,001) was vacated and the matter remanded for further proceedings.

Perfect v. Good Evidence

The degree of uniformity that the district court demanded simply was not required for class certification under Rule 23(b) (3) of the Federal Rules of Civil Procedure, the appellate court ruled. The court explained “it is important not to let a quest for perfect evidence become the enemy of good evidence.”

Antitrust Impact on Proposed Class

The central issue under Rule 23(b) (3) was whether the purchasers could show on a class-wide basis the antitrust impact of the merged entity's actions on the proposed class. Common questions clearly predominate in regard to whether the merger violated federal antitrust law, the appellate court decided. The district court incorrectly applied Rule 23(b)(3)'s predominance requirement when it made uniformity of nominal price increases following the merger a condition for class certification. The plaintiffs’ expert, an economist who specialized in the health care industry, could use common evidence and his proposed methodology to estimate the antitrust impact, if any, of the merger on the members of that class.

Admissibility of Economic Analysis

In addition, the district court failed to determine whether the defense expert's report and opinions were admissible under Federal Rule of Evidence 702 before ruling on the motion for class certification. Before the hearing on class certification, the plaintiffs moved to exclude the report of a private consulting economist. The plaintiffs argued that the expert’s “economic analyses are fundamentally defective” and that the expert’s opinion “should be stricken as a whole.”

The district court's refusal to rule on the plaintiffs' Daubert motion was an error, since the expert’s opinions were critical to the district court's decision. The expert’s report and testimony laid the foundation for the merged entity’s entire argument in opposition to class certification, and the district court relied on the expert’s reasoning when making its decision.

The decision is Messner v. Northshore University Healthsystem, 2012-1 Trade ¶77,763.

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