En Banc Third Circuit to Review Challenge to Nationwide

October 6, 2010

The Third Circuit has granted rehearing en banc in a case that could clarify the standards for certifying settlement classes under Rule 23(b)(2) and (b)(3).  The case raises the question of whether Rule 23(b)(3)’s predominance-of-common-questions requirement should be assessed differently in a settlement than in a litigation.

On August 27, 2010, the Third Circuit granted the plaintiffs’ petition for rehearing en banc in Sullivan v. DB Investments, Inc.-a group of consolidated cases alleging federal and state antitrust, consumer protection, and unjust enrichment claims on behalf of direct and indirect purchasers of gem-quality diamonds against the De Beers family of companies.  The court vacated a three-judge panel’s July 13, 2010 decision that upset a $295 million settlement with stipulated injunctive relief between two nationwide settlement classes and the defendants.  The case is scheduled to be reargued before the en banc court on February 23, 2011.

As reported in an earlier  Montgomery McCracken Class Action Bulletin, the three-judge panel’s majority opinion rejected the district court’s certification of a nationwide settlement class under Rule 23(b)(3) because the class included members from states that bar indirect purchasers from recovering money damages for state law antitrust violations.  The majority concluded, “It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.”  The appellate court rejected the argument that, in a class action settlement, parties could avoid the problems of differing state laws by agreeing to waive the effects of those differences.

The Sullivan panel majority also vacated the district court’s Rule 23(b)(2) class certification for the settlement’s stipulated injunctive relief because the record contained evidence (largely offered by the plaintiffs’ experts) that the market for gem-quality diamonds had become more competitive in recent years-thereby divesting class members of standing to seek injunctive relief.

The plaintiffs’ petition for rehearing en banc argued that the panel decision conflicted with an earlier Third Circuit decision, In re Warfarin Sodium Antitrust Litigation, 391 F.3d 516 (3d Cir. 2004), in which the court affirmed the certification of a nationwide settlement class of indirect purchasers for antitrust, consumer protection, and unjust enrichment claims.  In Warfarin Sodium, the plaintiffs alleged that DuPont engaged in anticompetitive and deceptive conduct by misrepresenting that its drug Coumadin was safer and more effective than a competitor’s generic version.  The Sullivan majority viewed Warfarin Sodium as different because, despite the multitude of varying state law claims asserted in the case, there was one claim (under Delaware’s consumer protection law) that plaintiffs asserted on behalf of all consumer class members across the country.

By reviewing the Sullivan case en banc, the Third Circuit can determine whether the Warfarin Sodium decision’s more permissive approach to nationwide settlement classes or the Sullivan majority’s more restrictive approach is proper-or whether the assertion of a single unifying claim on behalf of all nationwide class members makes a difference in the approach a court takes.  The court may also provide guidance on how Rule 23(b)(3)’s predominance requirement should be assessed when a settlement class certification is sought.