November 07, 2018

Third Circuit: Six Factors Decide Rule 23(a)(1) Numerosity

Adam E. Polk – October 27, 2016

On September 13, 2016, the U.S. Court of Appeals for the Third Circuit issued an opinion specifying the appropriate means of analyzing Rule 23(a)(1)’s numerosity requirement in In Re Modafinil Antitrust Litigation, No. 15-3475 (3d Cir. Sept. 13, 2016). The Third Circuit held that courts should consider six factors to determine whether numerosity is satisfied:

1. Judicial economy;

2. Class members’ motivation to litigate as joined plaintiffs;

3. The financial resources of class members;

4. The geographic dispersion of class members;

5. The ability to identify future claimants; and

6. Whether the claims are for injunctive relief or damages.

According to the court, judicial economy and the class members’ motivation to litigate as joined plaintiffs—the first two factors—bear the most weight in the analysis. Because it found the District Court erred in analyzing those two factors, the court remanded for further analysis.

In Re Modafinil is a so-called pay-for-delay antitrust case involving a branded drug called Provigil. Plaintiffs allege that Provigil’s manufacturer, Cephalon, provided consideration to four generic manufacturers in exchange for those manufacturers’ agreement to refrain from market entry for a period of time, preserving Provigil’s exclusivity. The putative class consists of 22 pharmaceutical wholesalers who bought the branded drug from Cephalon at prices they allege were artificially inflated above competitive levels. The district court rejected defendants’ argument that the proposed 22 member class was not sufficiently numerous, reasoning that (1) judicial economy weighed in favor of certification because refusing to certify the class at a late stage of the litigation would delay trial, necessitate further discovery, and cause individual plaintiffs to file in other jurisdictions; and (2) the motivation to litigate individually factor was neutral because some of the individual claims were worth less than $1 million.

The Third Circuit reversed and specified that courts should consider the six factors listed above in determining whether Rule 23(a)(1)’s numerosity requirement is satisfied. To the Third Circuit, the first two factors are “of primary importance” in the analysis and the district court’s judicial economy and motivation analyses were both flawed. Regarding judicial economy, the Third Circuit found that it was improper to consider the late stage of the litigation because such a rule “would place a thumb on the scale in favor of a numerosity finding” because class certification decisions are often delayed in complex class actions. Regarding individual motivation, the Third Circuit held that, because some of the individual class members had claims worth over $1 billion before trebling, they were “likely to have the ability and incentive to bring suit as joined parties . . . .” The appeals court remanded the case for further analysis.

Adam E. Polk is with Girard Gibbs in San Francisco, California.


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Adam E. Polk – October 27, 2016