Third Circuit Vacates Nationwide Settlement Class of Indirect Purchasers Due to Varying State Laws

August 5, 2010

A recent Third Circuit decision will make it harder for plaintiffs to get a nationwide class certified for claims under state antitrust, consumer protection, and unjust enrichment laws-at least when the case involves allegations of anticompetitive conduct.  In Sullivan v. DB Investments, Inc., the Third Circuit on July 13 vacated certification of a nationwide settlement class of indirect purchasers of gem-quality diamonds because the district court had improperly analyzed Federal Rule 23(b)(3)’s predominance requirement.  Wholesalers that purchased diamonds directly from the De Beers family of companies sued under federal antitrust law, and jewelry retailers, consumers, and others who bought indirectly sued De Beers under the antitrust, consumer protection, and unjust enrichment laws of all fifty states and the District of Columbia.

The Third Circuit ruled that the district court abused its discretion in certifying a nationwide settlement class of all indirect purchasers under Rule 23(b)(3) because the class included persons from states that do not permit indirect purchasers to sue under their state antitrust laws.  The Third Circuit’s majority opinion concludes, “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.

Differences in state consumer protection and unjust enrichment laws likewise precluded a finding of a predominance of common questions of fact or law on those state law claims.  “Consumer protection and unjust enrichment laws are no more uniform among the fifty states than are antitrust statutes.  In fact, they are less so.”  The Third Circuit determined that, because some states permit indirect purchasers to recover for injury caused by antitrust activity under their state consumer protection law or under an unjust enrichment theory but other states do not, the nationwide class certification-even for settlement purposes-was improper and had to be vacated.

Finally, the court vacated a separate Rule 23(b)(2) certification for injunctive relief because a change in competitive conditions during the nine-year lawsuit eliminated any threat of future antitrust violations and divested class members of standing to seek injunctive relief.

The plaintiffs in the case are seeking rehearing by the original three-judge panel or by the full court en banc.

The Third Circuit’s analysis of the predominance issue in the settlement class context continues the trend in its recent class certification decisions-most notable in its ground-breaking decision in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008)-of insisting that district courts rigorously analyze the facts and law to determine whether a proposed class action satisfies the requirements of Rule 23.  Sullivan v. DB Investments confirms that strict attention to those requirements is necessary, even when the parties propose class certification to implement a negotiated settlement.