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May 25, 2023

Fishing for a Circuit Split over Uninjured Class Members

Key takeaways from the Ninth Circuit’s en banc opinion in Olean.

By Dan Goldman and Ryan Fraser

Does Federal Rule of Civil Procedure 23(b)(3) permit the certification of a class that potentially includes more than a de minimis number of uninjured class members? In a widely followed appeal in an antitrust class action last year, the Ninth Circuit en banc answered yes to this question. Over a sharp dissent authored by Judge Lee, joined by Judge Kleinfeld, the majority in Olean Wholesale Grocery Cooperative, Inc. v. Bumble Bee Foods LLC, 31 F.4th 651 (2022), affirmed the district court’s order granting class certification notwithstanding evidence that potentially up to 28 percent of the class did not suffer an antitrust injury.

Both the dissent and the Olean defendants, in their recently denied petition for certiorari, accused the Olean majority of creating a circuit split between the Ninth Circuit, on the one hand, and the District of Columbia and First Circuits, on the other hand. Id. at 691 (“the majority opinion needlessly creates a split with other circuits that have endorsed a de minimis rule”); Petition for a Writ of Certiorari, StarKist Co., Dongwon Indus. Co., Ltd. v. Olean Wholesale Grocery Coop., Inc. et al., 2022 WL 3284604, at *16–17 (U.S. Aug. 8, 2022); StarKist Co. v. Olean Wholesale Grocery Coop., Inc., 143 S. Ct. 424 (Nov. 14, 2022). But a closer examination of Olean, in combination with a D.C. Circuit decision, a First Circuit decision, and a more recent Ninth Circuit decision, reveals that the concerns about a circuit split were overstated and likely explains why the Supreme Court declined to review Olean. Those decisions are the D.C. Circuit’s decision in In re Rail Freight Fuel Surcharge Antitrust Litigation, 934 F.3d 619 (D.C. Cir. 2019), the First Circuit’s in In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018), and the more recent Ninth Circuit decision in Van v. LLR, Inc., 61 F.4th 1053 (9th Cir. 2023).

The presence of uninjured class members has been and will continue to be raised by defendants to defeat class certification. The guidance from Olean, when read together with Rail Freight, Asacol, and Van, is that unless there is a manageable way to segregate injured from uninjured class members, courts will not certify classes with indisputably more than a de minimis number of uninjured class members. But if the existence of more than a de minimis number of uninjured class members is disputed, courts will not let the potential existence of uninjured class members stand in the way of certification, particularly when the motion for class certification is supported by an expert who survives a Daubert challenge.

Summary of Olean

In Olean, purchasers of tuna filed a class action alleging that the defendant suppliers had colluded to fix prices in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 15, and California’s Cartwright Act, Cal. Bus. & Prof. Code §§ 16700 et seq. The class action was litigated contemporaneously with a criminal antitrust investigation by the U.S. Department of Justice that resulted in guilty pleas from two defendant corporations and three tuna industry executives, and a guilty verdict against Bumble Bee’s former chief executive officer. Olean, 31 F.4th at 662. The plaintiff tuna purchasers comprised three putative classes: (1) “direct purchasers,” such as “nationwide retailers and regional grocery stores”; (2) “indirect purchasers” who “bought bulk-sized tuna products”; and (3) individual end purchasers. Id. The defendant suppliers appealed the district court’s ruling certifying all three classes, and a panel of the Ninth Circuit vacated the district court’s order and remanded. Id. The Ninth Circuit then took the case en banc.

Before delving into the merits of the defendants’ challenges to class certification, the Olean majority outlined the standard that district courts are required to apply in assessing whether the plaintiff has met the predominance requirement. The Olean majority stated that “[w]hen individualized questions relate to the injury status of class members, Rule 23(b)(3) requires that the court determine whether individualized inquiries about such matters would predominate over common questions.” Id. at 668. Next, based on the text of Rule 23(b)(3), the Olean majority rejected “the dissent’s argument that Rule 23 does not permit the certification of a class that potentially includes more than a de minimis number of uninjured class members,” and stated that Rail Freight’s and Asacol’s announcements of a de minimis rule were confined to “particular facts of the cases before them.” Id. at 669 n.13 (emphasis added).

As in most antitrust class action certification opinions, the heart of the appeal dealt with whether the plaintiffs proposed a method of assessing class-wide damages through expert testimony. Plaintiffs’ expert, Dr. Russell Mangum, “constructed a statistical model using a multiple regression analysis,” in which he first identified numerous variables that could affect the price of tuna, e.g., “input costs” and “seasonal effects.” Id. at 671. Next, Dr. Mangum “isolated” the “effect of these explanatory variables on the prices paid by” the direct purchasers, “which allowed the model to isolate the effect that the conspiracy by itself had on the prices paid by” the direct purchasers. Id. When “all the tuna sale transactions were aggregated, and the explanatory variables . . . were controlled for,” Dr. Mangum’s model showed that direct purchasers paid 10.28 percent more for tuna during the conspiracy period than they did during “the benchmark periods,” i.e., before and after the conspiracy period. Id.

The defendants’ expert, Dr. John Johnson, offered multiple criticisms of Dr. Mangum’s methodology, most importantly that Dr. Mangum’s use of a pooled regression model was improper. To substantiate his critique, Dr. Johnson used the same variables in Dr. Mangum’s model to “evaluate overcharge based on each individual customer” and concluded that the model did not show a statistically significant overcharge for 169 members (or 28 percent) of the 604 members of the direct purchaser class. Id. at 672. This analysis formed the basis for the defendant suppliers’ argument that 28 percent of the class members did not suffer an injury.

In rebuttal, Dr. Mangum explained that Dr. Johnson’s model produced these results because of an inadequate sample size for many of the 169 direct purchasers. Id. at 674 (“[A]ccording to Dr. Mangum, no regression model could yield a statistically significant estimate for many of those 169 direct purchasers on such an individual purchaser-by-purchaser basis, because 61 of those purchasers did not make any purchases during the benchmark periods, and many of the other purchasers had not undertaken a sufficient number of transactions during either the benchmark periods or collusion period to yield statistically significant results.” (emphasis in original)).

The Olean majority held that the district court did not err in crediting “Dr. Mangum’s rebuttal of Dr. Johnson’s critique.” Nor, according to the Olean majority, was the district court required to “resolve a dispute between the parties as to whether 28 percent of the class did not suffer antitrust impact,” id. at 680, to hold that “the evidence was capable of showing that the [direct purchasers] suffered antitrust impact on a class-wide basis.” Id. at 681.

In dissent, Judge Lee, joined by Judge Kleinfeld, accused the majority of “needlessly” creating a circuit split based on the D.C. Circuit’s decision in Rail Freight and the First Circuit’s decision in Asacol, which the dissent claimed endorsed the de minimis rule that the majority rejected. Id. at 692. The dissent argued that “Rule 23 allows a de minimis number of uninjured members but no more” and claimed that “the majority’s opinion will invite plaintiffs to concoct oversized classes stuffed with uninjured class members.” Id. Noting the rarity of class action trials and that a decision granting class certification is almost always a precursor to a settlement, the dissent also argued that the district court should have resolved the dispute over whether almost a third of the class was uninjured under Rule 23. Id. at 688 (“But the dispute over the number of uninjured class members overlaps with Rule 23(b)(3)’s predominance requirement as well as Rule 23(a)’s lower threshold commonality requirement. Simply put, a plaintiff cannot prove that common issues predominate if one out of three putative class members suffered no harm.”).

Did Olean Create a Circuit Split?

A closer examination of Rail Freight and Asacol reveals that the Olean dissenters’ concerns about a circuit split were overblown, which is confirmed by the more recent Ninth Circuit decision in Van. Critically, in both Rail Freight and Asacol, it was undisputed in the district court that there were significant percentages of class members that were uninjured.

Rail Freight involved a putative antitrust class action brought by over 16,000 shippers alleging that freight railroad companies “conspired to fix rate-based fuel surcharges.” Rail Freight, 934 F.3d at 620. The plaintiffs’ expert’s damages model showed that of the total class population of 16,065, “2,037 members of the proposed class—or 12.7 percent—suffered ‘only negative overcharges’ and thus no injury from any conspiracy.” Id. at 623–24. The D.C. Circuit affirmed the district court’s ruling that such a large percentage of uninjured class members precluded a finding of predominance. Id. at 625 (“As the [district] court explained, the ‘few reported decisions’ involving uninjured class members ‘suggest that 5% to 6% constitutes the outer limits of a de minimis number.’ The 12.7 percent figure, in this case, is more than twice that approximate upper bound reflected in analogous caselaw.” (internal citation omitted)).

In Asacol, the First Circuit addressed the presence of uninjured class members in connection with an antitrust class action alleging that the defendant pharmaceutical manufacturer violated federal antitrust laws by preventing entry of generic competition. Both the plaintiffs’ expert and the defendants’ expert opinions addressed the question of what portion of class members would not have, in the “but for” world of a competitive market, switched to the lower-priced generic alternative. Critically, the plaintiffs’ expert opined that “the market share of [the] generic . . . would have grown to approximately 88.8% within a year of generic entry, and would then have risen to about 91.4% thirty-one months after generic entry.” Based on this concession, the district court concluded that “around 10% of the class members” would not have been injured by the end of the relevant period. Id. The First Circuit reversed the district court’s order granting class certification because the presence of “thousands” of uninjured class members meant that the plaintiffs had not met the predominance requirement. Id.

Finally, Van, which the Ninth Circuit decided on March 13, 2023, involved a class action under Alaska’s Unfair Trade Practices and Consumer Protection Act against a retailer that allegedly charged sales tax to a class of consumers “when none was owed.” Van, 61 F.4th at 1058. “Both parties and the district court agree[d] that any class member who received a discount in an amount greater than or equal to the improper sales tax for the purpose of offsetting the improper sales tax” suffered no damages. Id. at 1068. Undisputed evidence showed that of the 72,373 total transactions at issue, there were 13,680 discounted transactions (18.9 percent), at least 18 of which were provided to class members “for the purposes of offsetting the improperly assessed sales tax.” Id. The district court certified the class, finding that the “number of proposed class members for whom” it could be “presently” determined “received a discount to offset the sales tax being billed” was “de minimis.” Id. (emphasis added). The Ninth Circuit reversed, explaining as follows:

[The retailer] invoked an individualized issue—that retailer discounts left some class members uninjured—and provided evidence that at least some class members lack meritorious claims because of this issue, thus summoning the specter of class-member-by-class-member adjudication.
13,680 discounts were provided to class members. [The retailer’s] evidence, even though it consisted of only a small number of invoices, was sufficient to prove that an inquiry into the circumstances and motivations behind each of the 13,680 discounts might be necessary. This inquiry, which could potentially involve up to 13,680 depositions and months of trial, certainly cannot be described as de minimis.

Id. at 1069.

Key Takeaways

First, the claim that Olean created a circuit split is unconvincing. Olean held that a class can be certified if it “potentially includes more than a de minimis number of uninjured class members” not that the class can be certified if it is undisputed that the class includes more than a de minimis number of uninjured class members. As shown by Van, putative classes that contain an indisputable amount of uninjured class members will not be certified.

Second, in addition to identifying the percentage of uninjured class members, it is also relevant for certification purposes whether the plaintiff can present a manageable method for segregating uninjured class members, e.g., amending the class definition to exclude them or developing a mechanism by which they can be identified during the claims administration process. If the only way to identify uninjured class members is to engage in individualized, class member-related discovery, that will weigh heavily against certification.

Third, unless the percentage of uninjured class members is undisputed, whether the potential existence of uninjured class members will defeat class certification will depend, in part, on whether the plaintiff’s expert survives a Daubert challenge. The district court in Olean sua sponte ruled that both Dr. Mangum’s and Dr. Johnson’s opinions were admissible under Federal Rule of Evidence 702, but neither side formally filed a Daubert motion. See In re Packaged Seafood Prods. Antitrust Litig., 332 F.R.D. 308, 321 (S.D. Cal. 2019). If the plaintiff’s expert employs a reliable methodology under Daubert to rebut a defendant’s expert’s testimony with respect to the existence of uninjured class members, a district court following Olean will be hard-pressed to find that the potential presence of uninjured class members will defeat certification.

Dan Goldman is a partner with Bienert Katzman Littrell & Williams LLP in San Clemente, California. Ryan Fraser is an associate with the firm in its Los Angeles, California, office.


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