Philip B. Nelson with Henry B. McFarland and David D. Smith wrote the chapter on class certification in the ABA Section of Antitrust Law’s ECONOMETRICS (2005), which was cited in the Third Circuit’s Hydrogen Peroxide decision.

Hydrogen Peroxide Decision has Important Implications For Class Certification Disputes

The Third Circuit’s recent decision In re: Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir. Dec. 30, 2008) addresses the type of economic analysis that should be considered in class certification disputes. This decision is part of a trend that has increased the analytical burden that plaintiffs bear when they ask that a class be certified. In particular, courts are increasingly likely to carefully scrutinize expert testimony and to require detailed and rigorous empirical evidence before certifying a class.

The decision sets forth three requirements for certifying a class. First, a court must find by a preponderance of the evidence that each requirement of Rule 23 is met. Second, a court must resolve all factual and legal disputes relevant to class certification, including disputes that touch on the merits of the case. Third, the court must consider all relevant evidence and arguments affecting class certification, including expert testimony.

The decision says that while plaintiffs do not have to prove antitrust impact at the certification stage, they do have to demonstrate that impact can be proven by evidence that is common to the class. Moreover, that demonstration requires substantial empirical support. The court found that such a demonstration was not made in this case. For example, Plaintiff’s expert did not explain how he would show common impact even though some plaintiffs experienced decreasing or constant prices when the proposed class purportedly suffered from increased prices.

The Third Circuit states that while weighing expert testimony may not always be necessary, a court has a duty to resolve disputes between experts concerning Rule 23 requirements. Courts may not refuse to resolve these disputes because they may overlap with a consideration of the merits of the case. Moreover, courts may resolve these disputes only “after considering all relevant evidence submitted by the parties.”

The decision furthers the trend toward increased scrutiny of class action allegations. Plaintiffs that are preparing to litigate likely will need to anticipate that courts will seriously evaluate their expert economist’s theories relating to class certification. This increased scrutiny should lead all parties to a litigation to increase the economic analysis they employ in support of their motions.

Additional Articles in Spring 2009 Issue of Economists Ink

Implications of Energy Capital for Discounting Lost Profits

Comparing China's New Antimonopoly Law and India's Amended Competition Act

EI News and Notes