Settlement of Diamond Resale Price Fixing Claims Upheld

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

Approval of a proposed $295 million settlement of class action resale price fixing claims against a group of entities related to the world's principal diamond producer was proper, according to an en banc decision of the U.S. Court of Appeals in Philadelphia.

The federal district court approving the settlement did not err in granting certification of nationwide settlement classes consisting of direct purchasers of gem diamonds and indirect purchasers of rough or cut-and-polished diamonds (2008-2 Trade Cases ¶76,304), the appellate court held.

Class Certification

The proposed classes satisfied each of the four requirements enunciated in Federal Rule of Civil Procedure 23(a) as prerequisites to certification—numerosity, commonality, typicality, and adequacy of representation—as well as the predominance and superiority requirements of Rule 23(b)(3).

Predominance was easily shown based on the diamond producer’s alleged conduct and the injury it caused to each and every class member, the appellate court held. The plaintiffs also sufficiently showed that certification under Rule 23(b)(2), which applied to claims seeking injunctive or declaratory relief, was appropriate.

The appellate court rejected an argument advanced by objectors to the settlement that certification of a nationwide settlement class was improper based on differences in state law with respect to indirect purchaser standing.

Rule 23 made clear that a district court had limited authority to examine the merits of individual claims when conducting the certification inquiry. Such an inquiry was "particularly unwarranted in the settlement context" since a district court did not need to envision the form that a trial would take or consider the available evidence and methods proposed for proving the disputed element at trial, the court stated. Thus, the district court did not “inappropriately subordinate” state sovereignty in certifying the class.

Settlement

The proposed settlement was fair, adequate, and reasonable, the appellate court confirmed. It was in the best interests of the settlement classes, and was the product of arm's-length, serious, and informed negotiations between experienced and knowledgeable counsel.

The lower court did not err in approving class counsel's plan of allocation. Rejected was an argument that the previously-noted differences in state law mandated a differential allocation in the percentage of recovery within the indirect purchaser consumer settlement fund.

Dissent

A dissenting opinion contended that the predominance requirement for class certification was not satisfied because the lower court had not ensured that each class member possessed a viable or colorable legal claim.

By allowing indirect purchasers who had no standing to sue under their state's antitrust laws to be part of the settlement class, the appellate majority has created a “come one, come all” environment that “sets the class action ship in [the Ninth] Circuit badly adrift,” the dissent argued.

The decision is Sullivan v. DB Investments, Inc., 2011-2 Trade Cases ¶77,736.

$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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