May 26, 2015 Articles

Whether to Opt Out of Antitrust Class Actions: A Four-Step Checklist

What is your company's process for deciding whether to opt out of antitrust class actions?

By Charles H. Samel and Cori Gordon Moore – May 26, 2015

From the headlines: “Jury Awards Costco $110 Million in LCD Price-Fixing Trial”; “Google Sues Visa, MasterCard after Opting Out of $5.7B Antitrust Settlement.”

There is nothing new about corporate victims of antitrust violations, such as price-fixing or monopolization, asserting their rights and attempting to recover treble damages. For a single antitrust claim, a corporate plaintiff can potentially recover tens or even hundreds of millions of dollars in damages through settlement or trial in cases initiated on their own or by opting out of antitrust class actions and litigating directly against the defendants. What seems to have changed, however, is that the historical reluctance of corporations to sue important suppliers or customers has diminished. At the same time, U.S. and global cartel and antimonopoly enforcement has steadily increased. This has resulted in a greater number of investigations, grand juries, criminal indictments, fines, penalties, and prison sentences—as well as follow-on civil litigation, including class actions—against the alleged perpetrators than ever before. See U.S. Dep’t of Justice, Antitrust Division, Workload Statistics 2004–2013; U.S. Dep’t of Justice, Antitrust Division, Division Update—Criminal Program (Spring 2014).


There is also nothing new about corporate law departments searching for ways to generate measurable value for their companies, including through antitrust litigation. Years ago, DuPont formalized what it called a “legal recovery program” in order “to proactively assert the company’s rights by recovering lost value which can positively contribute to profitability.” LexisNexis, The Profitable Legal Department—How Legal Departments Can Prosper by Generating Revenue for Their Company—2010 Research Report 10. Between 2004 and 2008, DuPont reported more than $1 billion in total recoveries, some of which resulted from antitrust litigation. Id. at 9–10. In what may be an emerging trend, however, corporate plaintiffs have become more proactive about opting out of antitrust class actions to obtain what they believe will be individual settlements or trial verdicts in greater amounts than they would have received as class members. For instance, in the cartel class action against the manufacturers of liquid-crystal-display (LCD) panels, more than 75 companies—including Apple, Best Buy, Dell, Costco, and Kodak—opted out of a class action and pursued direct recovery through individual settlements and, for several plaintiffs, trials. Marisa Kendall, “Antitrust Opt Outs Open Doors for Defense Lawyers,” The Recorder (Sept. 19, 2014).

The potential upside to pursuing antitrust claims individually versus as a member of a class is significant. Federal law, and the laws of many states, allow victims to recover damages for price-fixing, monopolization, and other conduct that harms competition and causes purchasers to pay more for inputs (or goods they resold), or sellers to receive less for sales of their own products from purchasers, than in the absence of the antitrust violations. In addition to potential actions against suppliers for price-fixing or other antitrust violations that could cause your company to incur an unlawful overcharge, antitrust claims can also arise against your customers if they conspire with other purchasers or exercise monopsony power and unlawfully suppress the prices your company is able to charge for its products or services. Even though we refer to suppliers, the same procedures and analyses discussed in this article apply equally to buy-side or sell-side claims.

Plaintiffs in recent price-fixing cartel cases have presented evidence that the anticompetitive conduct of the defendants caused the prices to be at least 10 percent to 20 percent higher than what they would have been in the absence of collusion. Jerome Murphy, Joshua C. Stokes & Matthew J. McBurney, “So You’re Thinking of Opting Out . . . Considerations for Corporate Plaintiffs in Price-Fixing Cases,” The Antitrust Couns., June 2014. Compensatory damages awarded at trial for the amount of the overcharge are automatically trebled, and successful antitrust plaintiffs also recover their reasonable attorney fees and costs of the action.

Antitrust Class Actions 101
Private antitrust actions to recover damages can be filed by individual plaintiffs, by groups of plaintiffs, or as class actions. A potential antitrust plaintiff may be a direct purchaser, which means that the plaintiff purchased the product for which it was allegedly overcharged directly from one or more of the defendants, or an indirect purchaser, which means the plaintiff purchased the product from a wholesaler, retailer, or other intermediary. With limited exceptions, only private plaintiffs that are direct purchasers may recover damages for violations of federal antitrust laws as a result of the Supreme Court’s decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). On the other hand, many states have enacted so-called “Illinois Brick repealer” statutes and permit private indirect purchasers to sue for damages. See generally Indirect Purchaser Lawsuits, A State-By-State Survey (Eric J. McCarthy et al. eds., American Bar Association, Section of Litigation 2010); Indirect Purchaser Litigation Handbook (American Bar Association, Section of Antitrust Law 2007). All things being equal, indirect purchaser lawsuits typically are more vulnerable than direct purchaser claims, to the defenses that the plaintiffs lack standing, or the claims at issue are not susceptible to common proof and therefore cannot be certified as a class action. Id.

Typically, a class definition will read something like this: “All persons who purchased widgets directly, or indirectly, from one or more of the named defendants in the United States during the time period [dd/mm/yyyy] to [dd/mm/yyyy],” which usually describes the four-year period immediately prior to the filing of the complaint and corresponds to the applicable statute of limitations for damages actions under federal antitrust law. Assuming your company falls within the class definition and has not filed an action previously for the same claims, you have three options:

(1) Do nothing. You will remain a member of the class and be bound by the result, win or lose.

(2) Opt out of the class early before any class certification decision or settlement is made. You will not be bound by the result and will preserve your ability to pursue an individual action immediately or at some later time (provided, in the absence of any tolling agreement with the defendants, you file within the applicable limitations period).

(3) Remain in the class—and defer the opt-out decision—until such time as the class is certified by the court either to proceed to litigating the merits of the claims or for settlement purposes, whichever comes first. If a class is certified to proceed or for settlement purposes, you will typically receive a notice explaining the deadline and procedure you must follow to opt out. For class actions certified for settlement purposes for less than all defendants, there may be multiple opportunities to opt out, and companies may decide to remain in settlement classes with some defendants and opt out as to the remainder.

The Checklist

Step 1: Monitoring for New Class Actions
Our advice: Do not wait to receive a class action notice to identify potential antitrust class actions in which your company is a putative class member. First, the class notice likely will not arrive for many months, or maybe years, after the action was filed, and it will be after the court has given at least preliminary approval to certify a class. By that time, much may already have happened in the lawsuit. If the class is not certified, the notice will never arrive, and you may not be aware of your right to file an individual action. Moreover, without a company-wide procedure in place, the law department may not even be aware that a class notice was received by another part of your company, such as procurement or finance. Indeed, that is often the case because it is the contact name and address of those departments that are typically on the invoice, purchase order, or other documents that evidence the purchase of the product from the defendant.

Since the Class Action Fairness Act of 2005 (28 U.S.C. §§ 1332(d), 1453, 1711–15) became law, many (perhaps most) antitrust class actions have been litigated in federal court, and many of those have been centralized by the Judicial Panel for Multidistrict Litigation (JPML) and assigned to a single federal court for pretrial proceedings. The JPML publishes a list of pending antitrust class actions that it has centralized. Consider implementing a system to identify new antitrust putative class actions when they are filed by assigning someone in your group responsibility to subscribe to daily emails from Competition Law360, or a similar publication, which reports every new antitrust class action, usually the day after it is filed. The email from Competition Law360 will typically also include the complaint as an attachment, where you will find the proposed class definition. If you want to be even more proactive, you can assign someone to monitor legal news (again Competition Law360 will likely be sufficient) for announcements of government investigations and settlements that are often followed by the filing of civil antitrust class actions.

Step 2: Identifying Potential Opt-Out Opportunities
Once you have identified a new antitrust class action and determined that your company falls within the proposed class definition, you should investigate the answers to three questions that will help you determine whether or not the case presents a viable opportunity for the company to file its own case or opt out from the class at some later point in time. Even if your company eventually decides not to opt out, the data you’ve gathered will assist you when and if there is an opportunity to file a claim for a portion of the settlement fund, if the case is settled, or for your company’s share of the verdict, if the case is tried successfully as a class action. The data will also make responding to a document subpoena you may later receive in the class case more efficient.

Potential damages? The potential recoverable damages (before trebling) will be the “overcharge” your company paid, which is typically measured by estimating the amount by which the prices your company paid exceeded the prices that would have been paid in the absence of the anticompetitive conduct (which is known as the “but for” or “competitive” price). So the first question for you to answer is whether the potential damages are significant enough to warrant expending further resources to analyze whether or not to opt out.

To answer that question, identify sources of information about purchases of the product at issue (or the finished product if the affected product is a component), both from the defendants named in the complaint and any other suppliers during the relevant time period and in the specified geographic territory, and compile the data. From the complaint, gather information that is available about the amount of damages or the overcharge (usually expressed as a percentage of the purchase price) that is being alleged by the named plaintiffs in the putative class action. If you know the amount of money the company spent and the alleged percentage the plaintiffs claimed represents an unlawful overcharge, then you can formulate a rough estimate of the potential damages—at least the order of magnitude—and that information should enable you to determine whether it makes economic sense, given your available resources, to continue to analyzing the case as an opt-out opportunity or not. This exercise will also identify the key people at your company (who are potential witnesses) with knowledge of the product, defendants, and business relationships past, present, and future, all of which may be factors in the opt-out decision.

Strategic business relationships? If the estimated damages are substantial enough to justify further investment of resources, then, by definition, one or more of the companies that are named as the alleged antitrust conspirators in the class action complaints are important suppliers of the company. The second question is whether there are business reasons that would prevent your company from litigating antitrust claims against one or more of the defendants. To answer this question, identify the defendants named in the complaint from which the company has made purchases and any stakeholders within the company who have (or want to have) relationships with those suppliers. Obtain copies of your agreements with any of the defendants and analyze them for provisions that relate to litigation between the parties—for example, clauses purporting to waive class actions or calling for mandatory arbitration.

At this stage, you are attempting to determine whether, for strategic business reasons, the stakeholders decide that opting out is simply a “no-go” because the company would never sue one or more of the defendants under any circumstances. In that case, the company could then decide whether to litigate against only certain defendants or to remain in the class.

If your company decides that opt-out litigation is going to be a non-starter for whatever reason, then you could take advantage of the company’s close relationship with one or more of the suppliers to settle your claim apart from the class, perhaps on terms that are more favorable to that supplier, or on terms that modify the business relationship with the supplier in some way, rather than being based on some measure of damages. See Jason S. Dubner & James A. Morsch, “Turning Your Legal Department into a Profit Center: Opting Out of Class Action Litigation,” The Antitrust Couns., Oct. 2007.

There may be an advantage for the supplier defendants to resolve claims with large purchasers on favorable terms separately to “remove” those purchases from the class damages calculation. Or your stakeholders could decide that they simply would rather remain in the class and take a more passive approach to preserve the status quo of the existing business relationships with the defendants that supply the company while still participating in any recovery class counsel may ultimately secure.

Strength of legal claims? Finally, at this stage, there is a third question you should ask before investing any further resources in the opt-out decision: How strong are the legal claims on the face of the complaint? This is the time to conduct a preliminary analysis of key legal issues in the relevant jurisdiction, including, for example, the relative likelihood of obtaining class certification or defeating the defendants’ motions for summary judgment. Experienced antitrust litigation counsel will be able to assist you—with a modest level of effort—to determine whether the case is likely to “have legs” based on the plaintiffs’ counsel, the judge to which the case has been assigned, the factual allegations in the complaint, the legal theories being advanced, and other factors.

Step 3: Deciding Whether to Opt Out of the Class
At this point, you should consider conducting a more rigorous analysis of the potentially recoverable damages. Ideally, retaining a non-testifying expert to quantify potential damages specifically for your company, although it may involve incremental out-of-pocket expenses, will permit a more informed decision about, first, whether to opt out, and then later, if the option materializes, whether to accept a settlement offer or go to trial. Deciding whether or not to opt out involves the evaluation of competing considerations. There are benefits to opting out, but there may be costs as well.

Benefit: greater potential recovery. Class counsel may make decisions about the geographic market, product market, class period, class definition, or damages methodology that might be contrary to or different from the strategic decisions you would make in an individual opt-out action. For instance, the damages methodology that your company would use in a separate action is likely to be much more refined and individually tailored than the “one-size-fits-all” damages methodology that class counsel prepares for the calculation of class-wide damages to demonstrate to the court that damages are susceptible of common proof (which the court likely will require in order to certify the class). Brandon J.B. Boulware & Jeremy M. Shur, “Opting Out of an Antitrust Class Action: Should Your Company Do It and, If So, When?,” The Antitrust Couns., Dec. 2011. Your company may also want to negotiate nonmonetary remedies, such as go-forward business terms, that would not be widely applicable to other members of the class.

Analyzing whether the potential recovery may be greater in an opt-out action is dynamic and likely depends on case-specific factors, such as the defendants; jurisdiction and likely jury pool; judge; nature of the claims, including the likelihood of class certification; identity of class counsel, or other factors that may influence the probability of whether or not the potential recovery will be more favorable in an opt-out action. It does not appear that anyone has undertaken and published a comprehensive empirical study that analyzes and quantifies the financial success of opt-out plaintiffs. However, there are a number of anecdotal illustrations. For instance, in the In re Vitamins Antitrust Litigation class action, the proposed class settlement amount for direct purchasers was $1.17 billion. Seventy-five percent of the class opted out and recovered more than $2 billion (David A. Balto, Opting Out of Class Action Litigation), and Tysons Foods reported recovering five times its estimated claim (id. n.1 (citing Krysten Crawford, “No More Mr. Nice Guy,” Corporate Counsel, June 1, 2004). Opt-out plaintiffs in the methionine and lysine cartel cases reported recovering significantly greater amounts through individual settlements than they would have recovered had they remained in the class (id.); direct purchasers of corrugated containers and sheets reported the same (Boulware & Shur, supra).

Benefit: greater ability to control litigation and trial venue. If your company remains in the class, it will have little or no control over the course of the litigation. An absent class member may have a different philosophy about, or even an outright disagreement with, the litigation methods and strategies of class counsel. In some cases, class counsel may have failed to assert legal theories in the manner most advantageous to the individual opt-out plaintiff or may have taken positions that conflict with those that the opt-out plaintiff has been advocating in other litigation. An opt-out plaintiff can eliminate that conflict by excluding itself from the class.

In addition, an opt-out plaintiff can decide what additional discovery it should pursue from the defendants, rather than being compelled to rely on only the discovery taken by class counsel. At the same time, it’s a win-win because the opt-out plaintiff can also rely on the discovery obtained by class counsel.

There is another advantage for the company if you opt out and the case is ultimately tried to a jury. Your company will be able to try the case in the jurisdiction in which you filed the action, regardless of whether or not the JPML assigned the multidistrict litigation to another judicial district for pretrial proceedings. In a case tried as a class action, the named plaintiffs and class counsel choose the trial venue when they file; absent class members have no control over where their case is tried.

Benefit: greater ability to control the business relationship with defendants. This factor cuts both ways—the stronger the relationship with one or more of the defendants, the more likely that the volume of the opt-out plaintiff’s purchases of the affected products will be significant and may lead it to cooperate less freely with those defendants. On the other hand, sometimes the potential of a greater recovery is outweighed by the risk of alienating a key supplier or customer, and a strong, broad-based business partnership between the opt-out plaintiff and one or more of the defendants may provide a greater opportunity and incentive for a resolution of the dispute that will be more efficient than class litigation.

In those circumstances, the settlement can be tailored to the ongoing mutual interest of the companies. It may be beneficial to involve key defendants in discussions when your company is considering whether to opt out and use the decision itself as a point of negotiation. In any event, you should be proactive about maintaining the business relationship between your company and the defendants, if that is a goal that is important to you, because it will be of no concern to class counsel.

Incremental costs of an opt-out strategy. In deciding whether to opt out, you will need to analyze the additional legal fees and costs that your company will incur as a result of excluding itself from the class. Your company should consider the incremental cost of the time of in-house counsel and company employees, and the disruption to normal business operations, that will likely result from the decision to litigate the case as an opt-out plaintiff. For instance, unlike absent class members, opt-out plaintiffs will likely need to take affirmative steps and incur additional costs in various aspects of the discovery process. Opt-out plaintiffs also may need to retain their own expert witnesses and submit expert reports, brief and argue summary judgment motions, participate in settlement negotiations and mediation, and then prepare for and try the case.

All of these activities will require a substantial investment from your company, but there are a variety of ways to reduce the company’s net cost of litigation. For example, opt-out counsel may be open to various alternative-fee agreements, including a pure contingent fee or a tiered contingent fee. If your company is interested in eliminating other litigation costs and is looking for additional funding, the company (or its law firm) may be able to negotiate for and obtain third-party financing for all or a large portion of the costs of the litigation (including expert fees), in the form of a nonrecourse loan that would be payable only from a recovery. In addition, if there are other similarly situated opt-out plaintiffs, there may be common-interest protected opportunities to share work product and divide expenses for discovery, document databases, motion briefing, and, perhaps most important, expert witnesses.

Step 4: Weighing the Timing of the Opt-Out Decision
It is important to analyze whether or not to opt out early in the litigation, even if the deadline for such a decision may not take place until many months or even years later. Class members may have as few as 60 to 90 days after notice to opt out of the class. So, getting ahead of the analysis earlier in the case is critical to making the most informed decision if the deadline is short. The advantages and disadvantages of making an early decision or a later decision to opt out may, of course, vary from case to case.

Advantages of a later decision. If a class is certified and a settlement is reached with one or more of the defendants, then the court will set the date for a class member to opt out of the settlement. The court will set that date when it preliminarily approves the settlement, as well as the form of notice to members of the class or settlement class, and sets a date for a “fairness” hearing at which the court will decide whether or not to give its final approval to the settlement. The opt-out deadline can vary with each case but will be included in the notice. It is critical to identify and calendar any opt-out deadlines—once the deadline has passed, it is virtually impossible to obtain a second chance.

Waiting until this stage will usually arm the company with the most complete information—documents, depositions, expert reports, and substantive court rulings—with which to make a decision about opting out (and at the lowest relative cost). In addition, awaiting class certification before opting out may allow an opt-out plaintiff to avoid potential statute of limitations issues associated with early opt-outs. See Paula Blizzard, Justina Sessions & Daniel Gordon, “So Your Suppliers Conspired Against You: An Antitrust Class Action Opt-Out Primer,” Competition, J. Antitrust & Unfair Competition L. Section of the State Bar of Cal., Fall 2014, at 48, 49–51; Elaine Metlin & Daniel Schaefer, Voting with Your Feet: The Decision to Opt Out of a Global Cartel Class Action and Bring Your Own Case 3–6 (Dickstein Shapiro LLP, Jan. 9, 2012); Joseph W. Bell & Mitchell J. Rapp, “The Opt-Out Decision in Price-Fixing Cases,” Competition Law360, July 21, 2010. Because the claims of absent members generally are tolled until a decision on class certification (at least under federal law), opting out after class certification may revive expired claims that were viable at the time the named plaintiffs filed the class action complaint. Thus, waiting to opt out until after class certification may remove any uncertainty as to claims that may have been forfeited in the intervening period.

Finally, in reaching the decision about whether or not your company should opt out at a later point in time, you will need to revisit your earlier legal and factual analysis and carefully evaluate the probability that your company, in its individual action, will prove liability and recover damages greater than what it might receive by remaining in the class. One important factor is whether subsequent events have improved your chances for success. For instance, one or more of the defendants may have admitted liability or pled guilty in a related criminal proceeding. Similarly, one more of the defendants may also be required, or willing, to cooperate with civil plaintiffs in the proof of their cases.

Advantages of an earlier decision. While taking the wait-and-see approach has its advantages for a class member that eventually opts out, it could also expose the opt-out plaintiff to the risk that the court will order it to reimburse class counsel for a portion of the fees and costs incurred by class counsel to prosecute the early stages of the case. See Robert E. Bloch & Joseph R. Baker, Legal and Practical Considerations Influencing Whether and When to Opt Out of a Class Action 6 (Mayer Brown LLP Jan. 9, 2012); Bernard Persky & Gregory Asciolla, “The Advantages of Not Opting Out of Class Action Litigation,” The Antitrust Couns., Feb. 2008. And waiting until substantial discovery has been completed will likely result in the court not allowing an opt-out plaintiff to seek pertinent information independently and cross-examine witnesses for the opposition in depositions if those witnesses have already been deposed. You also run the risk that early settlements with one or more defendants could deplete the settlement funds available for those defendants to pay later opt-out plaintiffs or result in other liquidity or bankruptcy risks. Those factors need to be taken into account and weighed accordingly in making your decision about whether to opt out at an earlier stage in the case.

Conclusion
Antitrust claims that have been included in putative class actions potentially represent a substantial asset of your corporation. It therefore makes sense to put a process in place, and some resources toward the effort, to identify these potential claims, analyze their value, and determine how closely to monitor them. At some point, the corporation may want to analyze and decide how best to maximize the value of that asset and, given all of the relevant considerations, whether that value is best maximized by remaining a member of the class or going it alone to obtain one-on-one recoveries from the defendants through settlement or verdict. The answer to that question will undoubtedly vary from case to case and, in some cases, even from defendant to defendant in the same alleged cartel. The analysis of whether and when to pull the trigger and opt out should also be an important part of your process. It is hoped that the checklist and the authorities cited in this article will provide you and your antitrust litigation counsel with a starting point to develop your own program.

Keywords: litigation, corporate counsel, antitrust, class action, opt out


Chuck Samel is a litigation partner in the Los Angeles, California, office of Perkins Coie LLP. Cori Gordon Moore is a litigation partner in the firm's Seattle, Washington, office.