Third Circuit Confirms that Rigorous Analysis is Required for All Aspects of Class Certification Decision

January 1, 0001


In an important decision in an antitrust action, the Third Circuit Court of Appeals recently confirmed that a district court must engage in a rigorous analysis of all of Rule 23’s requirements. See in re Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir. Dec. 30, 2008) (Scirica, C.J.). The Third Circuit thus reversed the district court’s decision that certification was permissible based solely on a “threshold showing” that common questions “predominated” in the litigation. The Third Circuit also confirmed that a district court is not barred at the class certification stage from assessing disputed issues of fact and expert opinion. On the contrary, to the extent that factual and expert disputes affect certification, the district court must resolve those disputes, on which plaintiffs have the burden of proof. This decision is part of a nationwide trend by circuit courts of demanding that a district court engage in the rigorous analysis required by Rule 23. See, e.g., In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6 (1st Cir. 2008) (vacating class certification order because district court failed to undertake rigorous analysis of plaintiffs’ theory of the common impact suffered by the putative class); Cordes & Co. Fin. Servs. v. A.G. Edwards & Sons, Inc., 502 F.3d 91 (2d Cir. 2007) (finding that district courts should “kick the tires” in evaluating expert opinions in determining class certification); In re Initial Public Offering Sec. Lit., 471 F.3d 24, 32-40 (2d Cir. 2006) (denying class certification and discrediting earlier decisions that found that expert reports that were not “fatally flawed” met a plaintiff’s burden under Rule 23); Blades v. Monsanto Co., 400 F.3d 562 (8th Cir. 2005) (requiring district courts to examine the merits in determining whether class certification is appropriate). This decision is significant not only for future antitrust cases, but for all federal court cases in which certification is sought.

Hydrogen Peroxide involved a putative class of purchasers who alleged that a group of chemical manufacturers had engaged in a price-fixing conspiracy with respect to different grades of hydrogen peroxide, some of which were used in the consumer context for food and cosmetics, others of which were used in manufacturing, electronics, and textiles. The district court had certified the class under Rule 23(b)(3) based on its finding “that questions of law or fact common to class members predominate” and that a class action was a superior method for adjudicating the issue. Id. at 13-14.

The defendant chemical manufacturers brought an interlocutory appeal of the class certification order, asserting that the district court abused its discretion in concluding that the plaintiffs met their burden of proving that common questions “predominated” in the litigation. Id. at 14. The defendants argued that the district court erred in (1) “applying too lenient a standard of proof for class certification”; (2) “failing meaningfully to consider the view of defendants’ expert while crediting plaintiffs’ expert”; and (3) “erroneously applying presumption of antitrust impact” or individual injury. Id. at 17.

The Third Circuit agreed on all grounds, and reversed and vacated the certification order. The Third Circuit held that the district court failed to engage in a sufficiently rigorous analysis of whether class certification was appropriate Id. at 41. “[B]ecause each requirement of Rule 23 must be met, a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements.” Id. at 38.

The Third Circuit also held that even though “‘[p]redominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws,’” district courts are not permitted to presume that the requirements of Rule 23 have been met simply because of the subject matter of the lawsuit. Id. at 42 (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625 (1997)). The Third Circuit likewise found that the “threshold showing” the district court had found sufficient to certify the class was “an inadequate and improper standard” and that it “could signify, incorrectly, that the burden on the party seeking certification is a lenient one . . . or that the party seeking certification receives deference or a presumption in its favor.” Id. In reaching this decision, the Third Circuit further limited its decision in Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3d Cir. 1977), in which the Court found that antitrust impact could be supported by common proof and which led some subsequent courts to find that in antitrust cases, individual injury could be presumed. Id. at 51-54.

The Third Circuit also explained that a district court must look beyond the pleadings and engage in a “‘thorough examination of the factual and legal allegations.’” Id. at 27, 32 (citing Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir. 2001)). Rejecting the district court’s view that certification does not involve any inquiry into the merits, the Third Circuit held that where there is a factual dispute between the parties affecting the propriety of class certification, the district court should (indeed, must) look to the factual record and resolve the dispute based on a consideration of all relevant evidence: “Although the district court’s findings for the purpose of class certification are conclusive on that topic, they do not bind the fact-finder on the merits.” Id. at 33. The court also confirmed that plaintiffs carry the burden of proof on disputed issues of fact.

Finally, the Third Circuit found that the district court failed to apply a similarly rigorous analysis of the parties’ expert opinions, and failed to resolve genuine disputes between the experts implicating Rule 23’s requirements. Id. at 45, 48. Although necessary at the certification stage, that determination on the experts’ competing opinions is, again, preliminary and will not preclude the fact finder from re-examining those experts’ persuasiveness or credibility when deciding the merits of the case. Id.

For these reasons, Hydrogen Peroxide is an important development and confirms that district courts must look beyond the pleadings to determine whether plaintiffs have satisfied their burden of proving that a class should be certified under Rule 23.