The opinion
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
Nos. 08-2784/2785/2798/2799/
2818/2819/2831/2881
_____________
SHAWN SULLIVAN;
ARRIGOTTI FINE JEWELRY;
JAMES WALNUM, on behalf of themselves
and all others similarly situated,
v.
DB INVESTMENTS, INC; DE BEERS S.A.;
DE BEERS CONSOLIDATED MINES, LTD; DE BEERS
A.G.;
DIAMOND TRADING COMPANY; CSO VALUATIONS
A.G.;
CENTRAL SELLING ORGANIZATION; DE BEERS
CENTENARY A.G.
DAVID T. MURRAY, Appellant in 08-2784
(Pursuant to Fed. R. App. P. 12(a))
SUSAN M. QUINN, Appellant in 08-2785
(Pursuant to Fed. R. App. P. 12(a))
MARVIN L. UNION; TIM HENNING;
NEIL FREEDMAN; KYLIE LUKE; WILLIAM
BENJAMIN COFFEY, Jr., Appellants in 08-2798
(Pursuant to Fed. R. App. P. 12(a))
AARON PETRUS, Appellant in 08-2799
(Pursuant to Fed. R. App. P. 12(a))
JANET GIDDINGS, Appellant in 08-2818
(Pursuant to Fed.R.App.P. 12(a))
FRANK ASCIONE; ROSAURA BAGOLIE;
MATTHEW DELONG; SANDEEP GOPALAN;
MANOJ KOLEL-VEETIL; MATTHEW METZ;
ANITA PAL; DEB K PAL; JAY PAL;
PETER PERERA; RANGESH K. SHAH; ED
MCKENNA; THOMAS VAUGHAN,
Appellants in 08-2819
(Pursuant to Fed.R.App.P. 12(a))
KRISTEN DISHMAN; MARGARET MARASCO,
Appellants in 08-2831
(Pursuant to Fed.R.App.P. 12(a))
JAMES B. HICKS, Appellant in 08-2881
(Pursuant to Fed. R. App. P. 12(a))
_______________
Appeals from the United States District Court
for the District of New Jersey
(D.C. Civil No. 2-04-cv-02819)
District Judge: Honorable Stanley R. Chesler
_______________
2
No. 08-2785 Argued on January 28, 2010
Nos. 08-2784/2798/2799/2818/2819/2831/2881 Submitted
Under Third Circuit L.A.R. 34.1(a) on January 28, 2010
Before: RENDELL and JORDAN, Circuit Judges, and
AMBROSE*, District Judge.
_______________
Reargued En Banc
on February 23, 2011
Before: SCIRICA, RENDELL, AMBRO, FUENTES,
SMITH, FISHER, CHAGARES, JORDAN and VANASKIE,
Circuit Judges.
(Opinion Filed December 20, 2011)
_____________
John J. Pentz, III, Esq. [ARGUED]
Class Action Fairness Group
2 Clock Tower Place - Ste. 260G
Maynard, MA 01754
Counsel for Non Party-Appellant
Howard J. Bashman, Esq. [ARGUED]
2300 Computer Avenue - Ste. G-22
Willow Grove, PA 19090
_______________
*Honorable Donetta W. Ambrose, United States District
Court Judge for the Western District of Pennsylvania, sitting
by designation.
3
George M. Plews, Esq.
Christopher J. Braun, Esq.
Plews Shadley Racher & Braun LLP
1346 N. Delaware Street
Indianapolis, IN 46202
Counsel for Non Party-Appellant Susan M. Quinn
William Bernstein, Esq.
Eric B. Fastiff, Esq.
Lieff, Cabraser, Heimann & Bernstein
275 Battery Street - 30th Fl.
Embarcadero Center West
San Francisco, CA 94111
Joseph D. Cooper, Esq.
Tracy R. Kirkham, Esq.
Cooper & Kirkham
357 Tehama Street - 2nd Fl.
San Francisco, CA 94103
Counsel for Plaintiff-Appellee Shawn Sullivan
Craig C. Corbitt, Esq.
Zelle, Hofmann, Voelbel & Mason
44 Montgomery Street - Ste. 3400
San Francisco, CA 94104
Samuel Issacharoff, Esq. [ARGUED]
New York University Law School
40 Washington Square South
New York, NY 10012
4
Steven A. Katz, Esq.
Korein Tillery
505 North 7th Street
Suite 3600, United States Bank Plaza
St. Louis, MO 63101
Susan G. Kupfer, Esq.
Glancy, Binkow & Goldberg
One Embarcadero Center - Ste. 760
San Francisco, CA 94111
John A. Maher, Esq.
450 Springfield Avenue
Summit, NJ 07901
Joseph J. Tabacco, Jr., Esq.
Berman, DeValerio, Pease, Tabacco, Burt & Pucillo
425 California Street - Ste. 2100
San Francisco, CA 94104
Counsel for Plaintiffs-Appellees Arrigotti Fine Jewelry
Shawn Sullivan and James Walnum
Jessica Biggio, Esq.
Skadden, Arps, Slate, Meagher & Flom
4 Times Square
New York, NY 10036
Francis Ciani-Dausch, Esq.
Tara S. Emory, Esq.
Steven C. Sunshine, Esq.
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, N.W.
Washington, DC 20005
5
Matthew P. Hendrickson, Esq.
Skadden, Arps, Slate, Meagher & Flom
4 Times Square, Room 33-228
New York, NY 10036
Counsel for Defendant-Appellee DeBeers SA
Ben Kinzler, Esq.
Diamond Manufacturers & Importers Association of America
Suite 2000
580 Fifth Avenue
New York, NY 10036
Robert J. LaRocca, Esq.
Kohn Swift & Graf
One South Broad Street, Suite 2100
Philadelphia, PA
Joanne Zack, Esq.
Bonio & Zack
15 St. Asaphs Road
Bala Cynwyd, PA 19004
Counsel for Non-Party Amicus Appellee
Diamond Manufacturers and Importers Association of
America
Edward W. Harris, III, Esq.
Taft, Stettinius & Holister
One Indiana Square - Ste. 3500
Indianapolis, IN 46204
6
Robert A. Skirnick, Esq.
Meredity, Cohen, Greenfogel & Skirnick
One Liberty Plaza - 35th Fl.
New York, NY 10006
Jared Stamell, Esq.
Stamell & Schager
One Liberty Plaza -35th Fl.
New York, NY 10006
Counsel for Non Party-Appellees Anco Ind. Diamond
Corp.; Amer Diamond Tool & Gauge Inc. And British
Diamond Import Co.
Cecilia L. Gardner, Esq.
Jewelers Vigilance Committee
25 West 45th Street - Ste. 1406
New York, NY 10035
Counsel for Non Party-Amicus Appellee Jewelers
Vigilance Comm.
Scott W. Browne, Esq.
Browne & Browne
2380 Eastex Freeway
Beaumont, TX 77703
Kenneth E. Nelson, Esq.
1100 Main Street - Ste. 2900
Kansas, City, MO 64105
Edward F. Siegel, Esq.
27600 Chagrin Blvd. - Ste. 340
Cleveland, OH 44122
Counsel for Non Party-Appellants William Benjamin
7
Coffey, Jr., Marvin L. Union, Tim Henning, Neil Freeman
and Kylie Luke
Christpher A. Bandas, Esq.
Bandas law Firm
500 North Shoreline - Ste. 1020
Corpus Christie, TX 78471
Counsel for Non Party-Appellant Aaron Petrus
Robert E. Margulies, Esq.
Margulies Wind
3 Second Street
Plaza 10, Ste. 1201
Jersey City, NJ 07311
Jeffrey L. Weinstein, Esq.
518 E. Tyler Street
Athens, TX 75751
Counsel for Non Party-Appellant Janet Giddings
Ricky E. Bagolie, Esq.
Bagolie Friedman Injury Lawyers
660 Newark Avenue
Jersey City, NJ 07306
Andrea Boggio, Esq.
Bryant University
1150 Douglas Pike - Ste. F
Smithfield, RI 02917
Counsel for Non Party-Appellants Frank Ascione,
Rosaura Bagolie, Matthew Delong, Ed McKenna
Peter Perera, Thomas Vaughan
8
Robert J. Gaudet, Jr., Esq. [ARGUED]
RJ Gaudet & Associates
791 Fifth Avenue
Suite 7230
Seattle, WA 98104
Counsel for Non Party-Appellants Sandeep Gopalan,
Manoj Kolel-Veetil, Matthew Metz, Anita Pal, Deb K. Pal,
Jay Pal and Rangesh K. Shah.
Eric L. Cramer, Esq.
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103
Counsel for Non Party-Amicus Appellee
American Antitrust Institute
Kristen Dishman
16 14th Avenue
Wareham, MA 02571
Pro Se
Margaret Marasco
14 Lakeview Avenue - #85
Lynn, MA 01904
Pro Se
James B. Hicks
Hicks Parks
824 Wilshire Blvd. - Ste. 200
Los Angeles, CA 90017
Pro Se
______________
9
OPINION OF THE COURT
_______________
RENDELL, Circuit Judge, with whom Circuit Judges
SCIRICA, AMBRO, FUENTES, FISHER, CHAGARES
and VANASKIE, join.
At issue on appeal in this class action litigation is the
propriety of the District Court‘s certification of two
nationwide settlement classes comprising purchasers of
diamonds from De Beers S.A. and related entities (―De
Beers‖).1 The settlement provided for a fund of $295 million
to be distributed to both the direct and indirect purchasers:
the direct purchasers were to receive $22.5 million of the
fund, while the indirect purchasers would receive $272.5
1
The Settlement involved five individual class actions
pending in federal court and two other class suits pending in
state court. The individual federal suits presently before us
are: Sullivan v. DB Investments, Inc., Index No. 04-cv-02819
(D.N.J.); Null v. DB Investments, Inc., Madison Co. No. 05-
L-209 (Madison County, Ill. Cir. Ct., removed to S.D. Ill.);
Leider v. Ralfe, No. 01-CV-3137 (S.D.N.Y.); Anco Industrial
Diamond Corp. v. DB Investments, Inc., No. 01-cv-04463
(D.N.J.); and British Diamond Import Co. v. Central
Holdings Ltd., No. 04-cv-04098 (D.N.J.). The two other class
actions pending in state court pertinent to the Settlement and
this set of appeals are: Hopkins v. De Beers Centenary A.G.,
San Francisco County No. CGC-04-432954 (Cal. Super. Ct.),
and Cornwell v. DB Investments, Inc., Maricopa Co. No.
CV2005-2968 (Ariz. Super. Ct.).
10
million. A panel of our Court held that the District Court‘s
ruling was inconsistent with the predominance inquiry
mandated by Federal Rule of Civil Procedure 23(b)(3), and
remanded the matter for further proceedings. See Sullivan v.
DB Investments, Inc., 613 F.3d 134 (3d Cir. 2010), reh’g en
banc granted and vacated by Sullivan v. DB Investments, Inc.,
619 F.3d 287 (3d Cir. 2010). We then granted the plaintiffs‘
petition for rehearing en banc and vacated the prior order.
Accordingly, we address anew the propriety of the District
Court‘s certification of the direct and indirect purchaser
classes pursuant to Federal Rule of Civil Procedure 23(b)(2)
and 23(b)(3), and also consider for the first time the
objections raised to the fairness of the class settlement.2
We believe that the predominance inquiry should be
easily resolved here based on De Beers‘s conduct and the
injury it caused to each and every class member, and that the
straightforward application of Rule 23 and our precedent
should result in affirming the District Court‘s order certifying
the class. But the objectors to the class certification and our
dissenting colleagues insist that, when deciding whether to
certify a class, a district court must ensure that each class
member possesses a viable claim or ―some colorable legal
claim,‖ (Dissenting Op. at 10). We disagree, and
accordingly, we will reason through our analysis in a more
2
Because the Panel found the certification of the class to be
flawed, it did not reach the Rule 23 fairness objections to the
settlement, distribution plan, and fee award, or the District
Court‘s resolution of these objections. See Sullivan, 613 F.3d
at 142 n.6. Because we now conclude that the District
Court‘s certification of the proposed settlement was
appropriate, we will also address these issues.
11
deliberate manner in order to explain why the addition of this
new requirement into the Rule 23 certification process is
unwarranted.
I. Factual & Procedural Background
A. Present Litigation & Settlement Proceedings
The allegations in the present case arose from De
Beers‘s undisputed position as the dominant participant in the
wholesale market for gem-quality diamonds throughout much
of the twentieth century.3 It is alleged that, beginning in 1890
and continuing through the filing of the Complaints at issue in
this appeal, De Beers coordinated the worldwide sales of
diamonds by, inter alia, executing output-purchase
agreements with competitors, synchronizing and setting
production limits, restricting the resale of diamonds within
certain geographic regions, and directing marketing and
advertising. Through its coordinated network of diamond
producers, De Beers was able to value diamonds according to
certain physical characteristics and to then control the
quantity and prices of diamonds in the marketplace by strictly
regimenting sales to preferred wholesalers, known as
3
The vacated Panel Opinion describes the history,
progression to power, and eventual market dominance of De
Beers and its related entities in greater detail. See Sullivan,
613 F.3d at 138-39. For the sake of brevity, we provide a
summary.
12
―sightholders.‖4 Sightholders resold these diamonds to
jewelry manufacturers and retailers – either as rough
diamonds or as cut, polished, and finished stones – and
constituted De Beers‘s primary channel for distribution of its
diamonds.5
Between 2001 and 2002, plaintiffs brought suit
complaining that De Beers‘s aforementioned business
4
Sightholders are selected by De Beers‘s subsidiary
Diamond Trading Company (―DTC‖) based upon specific
criteria, ―including their financial standing and reliability,
their market position, their distribution ability, their
marketing ability, and their compliance with Diamond
Trading Company Diamond Best Practice Principles.‖
(App‘x 1438.) In 2006, DTC had ninety-three sightholders,
nine of which had head offices in the United States and
seventy-six of which had sales offices in the country. (Id.)
Sightholders sell both rough and polished diamonds, as well
as diamond jewelry. (Id.) By way of example, the retailer
Tiffany & Co. is a majority-owner of the South African
sightholder Rand Precision Cut Diamonds, which sells
polished diamonds and manufactures jewelry for sale in
Tiffany stores. (Id. 1438-39.)
5
The process by which De Beers sold its rough diamonds
entailed a ―diamond pipeline,‖ which began with the sale of
rough diamonds and ended with the purchase of retail
diamond jewelry by consumers. The participants in the
diamond pipeline included rough stone wholesalers, cutters
and polishers of rough diamonds, finished stone wholesalers,
diamond jewelry manufacturers and wholesalers, and
retailers.
13
practices contravened state and federal antitrust, consumer
protection, and unjust enrichment laws, and constituted unfair
business practices and false advertising under common law
and relevant state statutes. Specifically, the plaintiffs alleged
that De Beers exploited its market dominance to artificially
inflate the prices of rough diamonds; this, in turn, caused
reseller and consumer purchasers of diamonds and diamond-
infused products to pay an unwarranted premium for such
products. The initial two price-fixing lawsuits were filed in
the United States District Courts for the District of New
Jersey and the Southern District of New York in 2001, and
five subsequent lawsuits were initiated in federal and state
courts in other parts of the country.6 Three of the lawsuits
6
The theories of recovery in the individual cases are as
follows: Anco Industrial was filed on behalf of all direct
purchasers of rough diamonds pursuant to Clayton Act §§ 4
and 16, 15 U.S.C. §§ 15 and 26, to prevent and restrain
violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-
2. British Diamond was filed on behalf of direct purchasers
of polished diamonds pursuant to Clayton Act §§ 4 and 16, 15
U.S.C. §§ 15 and 26, to prevent and restrain violations of §§ 1
and 2 of the Sherman Act, 15 U.S.C. §§ 1-2. Cornwell was
filed on behalf of all purchasers of diamonds in Arizona
pursuant to Ariz. Rev. Stat. Ann. § 44-1402 for
monopolization of the market for diamonds, and under § 44-
1403 for establishment, maintenance or use of monopoly.
Hopkins was filed on behalf of California residents who
purchased diamonds in California pursuant to Cal. Bus. &
Prof. Code § 16720, et seq., alleging engagement in a
continuing unlawful restraint of trade; pursuant to § 17200, et
seq., for violation of the unfair competition law; and under
California common law for monopolization and attempted
14
were filed in state court in Arizona, California, and Illinois,
respectively; the last was then removed to the United States
District Court for the Southern District of Illinois. The five
suits in federal court were subsequently all transferred to and
consolidated in the United States District Court for the
District of New Jersey, and are presently before us.
The plaintiffs in the seven cases are best characterized
as falling within one of two types of purchaser classes. The
first category includes direct purchasers of gem diamonds,
who purchased directly from De Beers or one of its
monopolization. Leider was filed on behalf of consumers
who purchased diamonds or diamond jewelry pursuant to the
Wilson Tariff Act, 15 U.S.C. §§ 8-11; under § 16 of the
Clayton Act, 15 U.S.C. § 26, for injunctive relief in
connection with §§ 1 and 2 of the Sherman Act, and for
damages for violations of § 2 of the Sherman Act; pursuant to
federal and New York state common law for damages and
injunctive relief; under N.Y. Gen. Bus. §§ 349-350; and under
New York‘s Donnelly Act and the antitrust laws of fifteen
other states and the District of Columbia. Null was filed on
behalf of all purchasers of De Beers diamonds pursuant to
815 Ill. Comp. Stat. § 505/1, et seq., and § 510/2, alleging
unfair methods of competition and unfair or deceptive acts or
practices, and, in the alternative, pursuant to the consumer
fraud and deceptive practice laws of the various states where
purchases of diamonds were made. Sullivan was filed on
behalf of a class of all persons and businesses in the United
States who purchased polished diamonds indirectly from De
Beers pursuant to §§ 1 and 2 of the Sherman Act for
injunctive relief, and pursuant to state antitrust and deceptive
practices acts for monetary relief.
15
competitors (―Direct Purchaser Class‖ or ―Direct
Purchasers‖). These plaintiffs advanced claims of price-
fixing and monopolization pursuant to §§ 1 and 2 of the
Sherman Act, and sought monetary and injunctive relief
under §§ 4 and 16 of the Clayton Act. The second category
of plaintiffs consists of indirect purchasers of rough or cut-
and-polished diamonds; this category of consumers, jewelry
retailers and other middlemen acquired diamonds from
sightholders or other direct purchasers, rather than directly
from De Beers or its competitors (―Indirect Purchaser Class‖
or ―Indirect Purchasers‖). While both categories of
purchasers alleged the same antitrust injury and sought
injunctive relief pursuant to § 16 of the Clayton Act, the
Indirect Purchasers sought damages pursuant only to state
antitrust, consumer protection, and unjust enrichment statutes
and common law.
As it had for well over a half-century, De Beers
initially rejected the plaintiffs‘ assertion that courts in the
United States possessed personal jurisdiction over it and its
associated entities, arguing that it never transacted business
directly in the United States. De Beers refused to appear in
the lawsuits, resulting in defaults or default judgments being
entered against it in each of the filed cases with the exception
of Cornwell. While continuing to insist that these default
judgments were unenforceable, counsel for De Beers
approached plaintiffs‘ counsel in May 2005 to discuss
settlement of the Indirect Purchasers‘ claims. These
discussions yielded an agreement to settle Sullivan, Hopkins,
Null, and Cornwell (the ―Indirect Purchaser Settlement‖),
with De Beers agreeing to establish a settlement fund of $250
million to be distributed to class members, and further
agreeing not to contest certification of a settlement class of
16
indirect purchasers.7 The settlement also provided for a
stipulated injunction, enjoining De Beers from engaging in
certain conduct violative of United States antitrust laws.
Pursuant to the settlement, De Beers would consent to the
District Court‘s jurisdiction for the limited purpose of
fulfilling the terms of the settlement and enforcement of the
injunction.
The District Court entered an order on November 30,
2005, preliminarily approving the Indirect Purchaser
Settlement and conditionally certifying a settlement class of
Indirect Purchasers pursuant to Federal Rule of Civil
Procedure 23(b)(2) – for purposes of entering the stipulated
injunction – and 23(b)(3) – in order to distribute the
settlement fund to class members.
De Beers then entered into settlement discussions with
plaintiffs‘ counsel for the Direct Purchasers in Anco and
British Diamond, ultimately reaching an agreement in March
2006. The latter agreement paralleled the Indirect Purchaser
Settlement in that De Beers agreed to not contest certification
of a Direct Purchaser settlement class, to abide by
substantively identical injunctive relief as imposed under the
Indirect Purchaser Settlement, and to establish a $22.5 million
fund to satisfy the Direct Purchasers‘ claims. As part of this
settlement, De Beers also agreed to increase the Indirect
Purchaser Settlement fund by $22.5 million to accommodate
those putative class members characterized as Indirect
Purchasers in the lawsuits filed by the Direct Purchasers who
had not participated in the Indirect Purchaser Settlement.
7
The Leider plaintiffs subsequently reached agreement with
the parties to the Indirect Purchaser Settlement to resolve that
matter in accordance with the terms of the Settlement.
17
On March 31, 2006, the District Court modified its
November 30, 2005 Order to conditionally certify both the
Direct and Indirect Purchaser settlement classes under Rules
23(b)(2) and 23(b)(3), and to preliminarily approve a
combined settlement fund for both classes totaling $295
million, of which $22.5 million was allotted to Direct
Purchasers and $272.5 million was allocated to the Indirect
Purchaser claims. The combined settlement also provided for
entry of a stipulated injunction, which required De Beers to,
inter alia, comply with and abide by federal and state antitrust
laws, to limit its purchases of diamonds from third-party
producers, to abstain from setting or fixing the prices of
diamonds sold by third-party producers, to desist from
restricting the geographic regions within which sightholders
could resell De Beers diamonds, and barred De Beers from
purchasing diamonds in the United States for the principal
purpose of restraining supply. Notably, De Beers agreed to
subject itself to personal jurisdiction in the United States for
purposes of enforcing the combined settlement agreement.
B. Special Master & Objections
After granting preliminary approval to the combined
settlement agreement, the District Court referred the case to a
Special Master pursuant to Rules 23, 53, and 54 of the
Federal Rules of Civil Procedure to consider and recommend
a plan for dissemination of the Notice of Settlement, a
distribution plan for members of the Indirect and Direct
Purchaser settlement classes, division of the fund between the
Indirect Purchaser reseller and consumer subclasses, the
amount of incentive awards for named plaintiffs, and the fee
requests filed by plaintiffs‘ counsel. After two years of
proceedings, the Special Master authored several lengthy
Report and Recommendations finding the settlement fair,
18
reasonable, and adequate based upon the parties‘ agreement
to seek the certification of the following two nationwide
Settlement Classes:
(i) The ―Direct Purchaser Class.‖ All
natural persons and legal entities located in the
United States who purchased any Gem
Diamond directly from a Defendant or
Defendants‘ Competitors (including any entity
controlled by or affiliated with any such party)
from September 20, 1997 to the date of
settlement class certification. The class shall
exclude Defendants, the officers, directors or
employees of any Defendant, any entity in
which any Defendant has a controlling interest,
any affiliate of any Defendant, Defendants‘
Competitors, any person or entity which is or
was a Sightholder for the time period(s) during
which such person or entity had Sightholder
status, any federal, state or local governmental
entity, and any judicial officer presiding over
this Settlement, and any member of the judicial
officer‘s family and court staff; and
(ii) The ―Indirect Purchaser Class.‖ All
natural persons and legal entities located in the
United States who purchased any Diamond
Product from January 1, 1994 to the date of
settlement class certification, provided that any
purchases of any Gem Diamond made directly
from a Defendant (including any entity in which
any Defendant has a controlling interest and any
affiliate of any Defendant) or Defendants‘
competitors (including any entity controlled by
19
or affiliated with any such party) shall be
excluded. The class shall also exclude
Defendants, the officers, directors or employees
of any Defendant, any entity in which any
Defendant has a controlling interest, any
affiliate of any Defendant, any federal, state or
local governmental entity, and any judicial
officer presiding over this Settlement, and any
member of the judicial officer‘s family and
court staff.
(App‘x 270 (quoting September 4, 2007 Report and
Recommendation of Special Master Alfred M. Wolin
(―R&R‖) at 21, App‘x 1433-34).) The Indirect Purchaser
Class was further subdivided into two subclasses for purposes
of effectuating the Settlement Agreement:
(1) The ―Indirect Purchaser Reseller Subclass,‖
consisting of all members of the Indirect Purchaser
Class who purchased any diamond product for resale;
and
(2) The ―Indirect Purchaser Consumer Subclass,‖
consisting of all members of the Indirect Purchaser
Class who purchased any diamond product for use and
not for resale.
(Id. 270-71.)8
8
The Indirect Purchaser Consumer Subclass is estimated to
contain between 67 and 117 million members, while the
Indirect Purchaser Reseller Subclass contains an estimated
38,152 members. The Direct Purchaser Class is estimated to
contain approximately 130 members. (App‘x 275 n.1.)
20
After reviewing the record, the competing econometric
reports furnished by several experts, and other reliable data,
the Special Master recommended that, apart from the $22.5
million allocated to the Direct Purchaser Class,9 the Indirect
Purchaser Settlement Fund of $272.5 million should be
allocated 50.3%, approximately $137.1 million, to the
Resellers Subclass, and 49.7%, approximately $135.4 million,
to the Consumers Subclass.10 (App‘x 1508.) Unlike Direct
9
The Special Master advised that distribution of the Direct
Purchaser Settlement Fund be conducted on a pro rata basis
and that each Direct Class member receive the Net Settlement
amount multiplied by the quotient of the Adjusted Purchases
of the claimant divided by the aggregate Adjusted Purchases
of all approved direct purchaser claims. The Adjusted
Purchases of a claimant would be calculated by multiplying
the amount paid for Rough Diamonds by 1.22 (the average
Rough to Polished Matrix factor), and adding the total
amount paid for Polished Diamonds. (App‘x 1533-34.)
10
The Special Master recommended that the Indirect
Purchaser Consumer Subclass receive a pro rata share of the
Indirect Purchaser Settlement Fund, calculated by multiplying
the Net Consumer settlement fund amount by the quotient of
a consumer‘s total recognized diamond claim divided by the
total recognized diamond claims of all consumers. (App‘x
1547.) In contrast, a Reseller Subclass member‘s claim
would be calculated in a three step process: (1) all of the
claimant‘s diamond purchases are converted to the common
metric of polished wholesale value and adjusted to reflect the
number of years each Reseller operated during the class
period; (2) claims are weighted by applying the absorption
weighting factor derived from a fixed effects regression
21
Purchasers, who purchased diamonds only, Indirect
Purchasers generally purchased jewelry and other products
containing diamonds; given this, the Special Master
attempted to ascertain the cost of the diamonds in the final
purchased product separate and apart from the cost of other
components. The Special Master further recommended that
claims that would result in de minimis recoveries from the
settlement fund – equating to less than ten dollars11 – not be
paid in light of high administrative costs.12
With respect to plaintiffs‘ counsel‘s request for
analysis for each type of diamond purchase; and (3) the
claimant‘s pro rata share of the Reseller Subclass settlement
fund is the ratio of the claimant‘s ―absorption adjusted
purchases‖ to the sum of all claimants‘ ―absorption adjusted
purchases.‖ (Id. 1575.)
11
The Special Master‘s report noted that Indirect Purchaser
Consumer claims aggregating less than $165 for mixed stone
jewelry or products, and less than $95 for diamond only
jewelry or products, would be considered de minimis. (App‘x
1547-48.)
12
Additionally, the Special Master recommended a four-
part notification program – entailing direct notice, publication
notice, ―earned media outreach‖ in the form of press releases
and news reporting, and electronic notice – finding that it
provided notice ―in a reasonable manner to all class members
who would be bound by the proposed settlement.‖ (App‘x
1518-27 (quoting Fed. R. Civ. P. 23(e)).) The District Court
adopted this recommendation and method of notification in
its October 1, 2007 Order.
22
attorneys‘ fees and reimbursement of litigation expenses, the
Special Master recommended a percentage of recovery
approach with a lodestar cross-check, and concluded that the
request for 25% of the settlement fund in fees, and for under
1% of the fund in expenses, was fair, reasonable, and
adequate.13 The Special Master further decided that the
$220,000 in incentive awards sought on behalf of class
representatives was appropriate in light of the benefits
conferred upon the class and the risks incurred in engaging in
litigation.
In response to the preliminary certification of the
Settlement Agreement and the Special Master‘s
recommendations, the District Court received twenty separate
objections on behalf of thirty-seven objectors. All of the
objectors were members of the Indirect Purchaser Class; none
of the Direct Purchasers objected to the Settlement.14 Fifteen
of the twenty objections opposed class certification of the
settlement, four objected to the stipulated provision for
injunctive relief, six opposed the allocation and distribution of
the Settlement Funds, and nine objected to the provisions for
attorneys‘ fees. As required by the Federal Rules, the District
Court conducted a Fairness Hearing in the matter on April 14,
2008. Fed. R. Civ. P. 23(e)(2).
The objectors challenging the propriety of certifying
13
The District Court rejected the Special Master‘s
recommendation of adding a percentage of the interest earned
on the total settlement fund to the total attorneys‘ fees.
14
Four objectors were members of the Indirect Purchaser
Reseller Subclass and thirty-three objectors belonged to the
Indirect Purchaser Consumer Subclass. (App‘x 272.)
23
the two settlement classes raised two primary arguments.
First, the objectors contended that a nationwide class of
Indirect Purchasers should not be certified under Rule
23(b)(3) for purposes of administering a monetary settlement
of state law claims because significant differences existed
among the various antitrust, consumer protection, and unjust
enrichment laws of the relevant state jurisdictions.
Specifically, the objectors argued that the substantive law of
many states prohibits indirect purchasers from recovering
damages for antitrust injuries, exposing the class to
particularized legal variations and precluding a finding that
common questions of law or fact predominated over
individual issues.15 Second, the objectors challenged the
certification of both Direct and Indirect Purchaser classes for
purposes of implementing injunctive relief pursuant to Rule
23(b)(2). The objectors asserted that the market for rough
gem diamonds had become competitive during the course of
the instant litigation, rendering an injunction to enforce
compliance with antitrust laws superfluous, and divesting the
Indirect Purchasers of antitrust standing to seek relief.
Other objections challenged the fairness and adequacy
of the Settlement and the plan of allocation for the Indirect
Purchaser Settlement Fund as between the Reseller and
Consumer Subclasses, averring that each class member would
15
A related objection was filed on grounds that the equal
allocation of the Indirect Purchaser Settlement Fund without
consideration of a claimant‘s state of controlling law was
improper since some states purportedly prohibited recovery
by indirect purchasers. These objectors asserted that class
members from states permitting indirect purchaser recovery
should be entitled to greater monetary compensation.
24
collect only $1-2 in exchange for their full release of claims
against De Beers if every single putative class member
requested compensation; also, they might receive nothing
under the de minimis provision in the Settlement. Objectors
also urged that the award of attorneys‘ fees to plaintiffs‘
counsel was excessive and unreasonable in a default
judgment case with minimal litigation.
C. Acceptance and Certification of Class Settlement
In its May 22, 2008 Opinion, the District Court
considered and rejected each of the objections. Responding
to the Rule 23(b)(3) objections, the Court concluded that
differences in state antitrust and consumer protection statutes
did not override class commonalities. Observing that
―‗predominance is a test readily met in certain cases alleging
consumer or securities fraud or violations of the antitrust
laws,‘‖ (App‘x 276 (quoting Amchem Prods., Inc. v. Windsor,
521 U.S. 591, 625 (1997))), the District Court noted that ―at
the class certification stage, the Court need not concern itself
with whether Plaintiffs can prove their allegations‖ so long as
they ―‗make a threshold showing that the elements of impact
will predominantly involve generalized issues of proof, rather
than questions which are particular to each member of the
plaintiff class,‘‖ (id. 277 (quoting In re Linerboard Antitrust
Litig., 305 F.3d 145, 152 (3d Cir. 2002)).) In this regard, the
District Court presented the following operative factual and
legal inquiries that, in its view, constituted common questions
that predominated over individual issues in the litigation:
(a) Whether Defendants combined or
conspired with others to fix, raise,
stabilize and maintain the prices of
polished diamonds;
25
(b) Whether Defendants monopolized or
combined or conspired with others to
monopolize the supply of polished
diamonds;
(c) Whether Defendants‘ conduct caused the
prices of polished diamonds to be
maintained at higher levels than would
exist in a competitive market;
(d) Whether Plaintiffs and the Classes are
entitled to injunctive relief; and
(e) Whether Defendants‘ conduct caused
injury to the business or property of
Plaintiffs and the other Class and
Subclass Members and, if so, the
appropriate class-wide measure of
damages.
(App‘x 276 (alterations omitted).) The District Court also
stressed that all class members shared a common
jurisdictional question pertaining to De Beers‘s refusal to
submit to the jurisdiction of United States courts and the
potential burden of confirming domestic contacts for purposes
of establishing personal jurisdiction. (Id. 279.)
Considering the nature of De Beers‘s central role in the
alleged diamond conspiracy, the Court determined that each
class member shared ―a similar legal question arising from
whether De Beers engaged in a broad conspiracy‖ aimed at
affecting diamond prices in the United States; concurrently,
all class members shared common factual issues pertaining to
the form, duration, and extent of the conspiracy. (App‘x 278-
26
79.) The Court concluded that the totality of common issues
predominated over individual questions, and, as a result, the
objectors‘ assertion that disparities in state law precluded a
nationwide class settlement was unavailing. In its analysis,
the Court emphasized the expense, complexity, and
imprecision of weighing the relative strengths of different
state law claims, the policy interest in securing an expedient
resolution to the disparate claims of the Direct and Indirect
Purchasers, and De Beers‘s insistence upon a release of all
potential damage claims in all fifty states.
With respect to the Rule 23(b)(2) analysis for
injunctive relief, the District Court rejected the objectors‘
assertion that both of the purchaser classes faced no risk of
future harm. The Court observed that De Beers had stipulated
to the injunction and ―waived the right to demand proof of
substantive elements of the claims‖ advanced by plaintiffs,
namely, that De Beers‘s ongoing conduct would continue to
anti-competitively increase the price of all diamonds on the
market. (App‘x 285.) Accordingly, the Court determined
that injunctive relief was appropriate and would benefit all
classes and subclasses.
Having ruled that the Rule 23(b) elements were
satisfied, the District Court then responded to the other
objections relating to the fairness and adequacy of the
Settlement and the plan of allocation and distribution, as well
as to objections pertaining to attorneys‘ fees. The District
Court conducted a fairness evaluation of the final settlement
by applying and weighing the fairness factors set forth in
Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), ―being mindful
of the heightened standard of review in place for a settlement-
only class that has not yet been entirely certified.‖ (App‘x
288-89.) The Court concluded that the final settlement
27
agreement and the plan of allocation were fair, reasonable,
and adequate. The District Court also reviewed the attorneys‘
fees application pursuant to Gunter v. Ridgewood Energy
Corp., 223 F.3d 190 (3d Cir. 2000), similarly finding the
Special Master‘s recommendation for 25% of the settlement
fund in fees to be fair, reasonable, and adequate.
Accordingly, the District Court entered a final order on
May 22, 2008, certifying the Direct and Indirect Purchaser
Classes under Rules 23(b)(2) and 23(b)(3). The Direct
Purchaser Class consists of all sightholders who purchased
rough gem diamonds directly from De Beers between
September 20, 1997 and March 31, 2006. The Indirect
Purchaser Class includes all Indirect Purchasers who acquired
gem diamonds between January 1, 1994 and March 31, 2006,
regardless of whether De Beers or one of its competitors
supplied the diamonds.16 The Court‘s order further included
the previously agreed-upon injunction, which is to remain in
effect for five years from the date of its issuance. The
objectors then filed the appeals presently before us.
D. Proceedings On Appeal
On appeal, a divided panel of this Court initially
determined that the District Court abused its discretion in
certifying the nationwide class of litigants. We vacated this
Opinion and granted rehearing en banc. While we do not
16
As the Panel Opinion noted, the parties did not explain,
nor did the record reveal, any reason for the disparity in the
time periods covered by the Settlement between the Indirect
and Direct Purchaser classes. See Sullivan, 613 F.3d at 143
n.8. We do not consider this difference pertinent to the
appeals.
28
usually discuss the analysis contained in a vacated opinion,
we do so here because the Panel‘s decision reflected,
accepted, and elaborated upon one or more of the views
advanced by the objectors, with which we take issue. Our
dissenting colleagues also embrace certain of these views.
Addressing the objectors‘ challenge to the District
Court‘s finding of predominance under Rule 23(b)(3), the
Panel undertook a wide-ranging fact-finding review of state
antitrust statutes, noting that the variance among states ―is
mainly a function of whether a state has chosen to follow the
Sherman Act principles regarding standing laid down by the
Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720
(1977).‖ Sullivan, 613 F.3d at 146. There, the Supreme
Court decided that only direct purchasers possessed standing
under the federal Sherman Act to sue for monetary damages
incurred from an antitrust injury. The Panel observed that
some states follow this framework and prohibit monetary
recovery for indirect purchasers, while other states have
enacted statutes known as ―Illinois Brick repealers,‖ which
extend antitrust standing to indirect purchasers and
consumers.17 Id. As a result, the Panel found that ―only some
of th[e] jurisdictions recognize the claims for which recovery
is sought,‖ and that such distinctions reflected ―fundamental
policy differences among the several states.‖ Id. at 147, 149.
Based on its belief that many members of the Indirect
Purchaser Class lacked a substantive right to recover
damages, the Panel decided that ―no question of law or fact
17
Based on its assessment, the Panel found that at least
twenty-five states and the District of Columbia possess
Illinois Brick repealer statutes or have judicially extended
antitrust standing to indirect purchasers.
29
regarding their legal rights is uniform throughout the class,‖
thereby defeating a finding of predominance. Id. at 149.
The Panel then considered the various state consumer
protection and unjust enrichment claims implicated by the
District Court‘s certification, again noting several variations
among jurisdictions: differences in whether indirect
purchasers may invoke consumer protection and unjust
enrichment statutes to gain antitrust relief; variations in the
extent of elements of proof necessary to establish unjust
enrichment or consumer fraud; and dissimilarities in whether
a plaintiff must lack an adequate remedy at law to bring an
equitable claim. Id. at 150-51. Based upon these
discrepancies, the Panel decided that ―evidence of price-
fixing and monopolization does not give rise in every state to
an unjust enrichment or consumer protection claim for
indirect purchasers,‖ defeating predominance and rendering
the District Court‘s certification of a nationwide class an
abuse of discretion. Id. at 151.
The Panel further observed that the District Court‘s
certification order contravened the Rules Enabling Act, 28
U.S.C. § 2072(b), by extending antitrust remedies not rooted
in state substantive law to putative class members. Id. The
Panel expressly rejected the plaintiffs‘ argument that De
Beers‘s willingness to stipulate to liability in all fifty states
should suffice for the District Court‘s predominance inquiry,
holding instead that such an approach would invite collusive
settlements. Id. In the same vein, the Panel expressed
concern that the District Court sacrificed principles of
federalism in favor of obtaining an expedient settlement by
certifying the nationwide class ―despite the fact that only
some of those jurisdictions recognize the claims for which
recovery is sought.‖ Id. at 152. Finding that certain states
30
categorically deny to indirect purchasers a right to antitrust
recovery as a matter of substantive law, the Panel concluded
that the instant certification ―wrongly allowed the sovereignty
of the states to be subordinated to De Beers‘s desire to resolve
all indirect purchaser claims simultaneously.‖ Id.
Finally, the Panel rejected the District Court‘s
certification of the Indirect Purchaser Class under Rule
23(b)(2) for the purpose of awarding injunctive relief under
§ 16 of the Clayton Act, 15 U.S.C. § 26. Relying upon expert
reports written to identify a methodology for calculating
damages, the Panel concluded that De Beers‘s market share
fell from approximately 65% in 2000 to 45% in 2006, and
determined that, as a result, plaintiffs face ―no significant
threat of future antitrust harm in the absence of the injunction
because . . . the market has become increasingly competitive
from 2006 onward.‖ Id. at 157-58. Accordingly, the Panel
found that plaintiffs lacked antitrust standing under § 16 of
the Clayton Act and vacated the District Court‘s order
certifying the injunctive class.
The Panel Opinion remanded the matter to the District
Court to consider whether ―a more limited class of indirect
purchasers is appropriate under Rule 23,‖ and instructed the
District Court to more precisely identify ―a readily
discernible, clear, and complete list of the claims, issues or
defenses to be treated on a class basis.‖ Id. at 154 (quoting
Fed. R. Civ. P 23(c)(2)). The Panel noted that the Court
failed to clearly delineate the precise state law claims subject
to class treatment and did not explicitly state whether the
claims advanced apply to the Indirect Purchasers‘ antitrust,
consumer protection, or unjust enrichment claims, or to some
combination of the three. Accordingly, the Panel directed the
District Court to ―identify with particularity both the
31
prerequisites for membership in the class and the issues or
claims that will be resolved on a class-wide basis.‖ Id. at 155.
In response, Appellees Shawn Sullivan, Arrigotti Fine
Jewelry, and James Walnum petitioned for rehearing, urging
that the Panel Opinion was inconsistent with our precedent
governing class action settlements. In support, they raised
several arguments. First, they contended that the Panel‘s
demand that all class members assert at least one ―uniform‖
claim in order for disparate state claims to be settled at once
contravened our clear holdings in Warfarin and Prudential.
(See Pet. of Appellees for Reh‘g or Reh‘g En Banc 2.) Next,
they urged that the Panel‘s extensive inquiry into the legal
viability of plaintiff‘s claims at the class certification stage
improperly adjudicated the merits of the asserted claims and
undermined the ―strong judicial policy in favor of class action
settlement.‖ (Id. (citation omitted).) Finally, the Appellees
observed that the Panel‘s methodology supplanted the District
Court as primary fact-finder and unilaterally reached factual
conclusions based upon evidence unrelated to the subject at
issue. (Id. 3-4.)
We granted the petition for the entire Court to address
these issues.
II. Jurisdiction And Standard of Review
The District Court exercised federal question
jurisdiction over the Direct Purchasers‘ Sherman Act antitrust
claim for damages pursuant to § 4 of the Clayton Act, 15
U.S.C. § 15, and over both the Direct and Indirect Purchasers‘
claims for injunctive relief under § 16 of the same Act, 15
U.S.C § 26. Original jurisdiction over the federal claims also
arose under 28 U.S.C. §§ 1331 and 1337(a). The District
32
Court possessed supplemental jurisdiction over the Indirect
Purchasers‘ state-law antitrust, consumer protection, and
unjust enrichment claims pursuant to 28 U.S.C. § 1367. We
review final orders of the District Court pursuant to 28 U.S.C.
§ 1291.
―Our role as an appellate court is to ascertain whether
or not the trial judge clearly abused his or her discretion in
approving or rejecting a settlement agreement.‖ Ehrheart v.
Verizon Wireless, 609 F.3d 590, 593 (3d Cir. 2010). A
district court abuses its discretion if its ―‗decision rests upon a
clearly erroneous finding of fact, an errant conclusion of law
or an improper application of law to fact.‘‖ In re Hydrogen
Peroxide Antitrust Litig., 552 F.3d 305, 312 (3d Cir. 2008)
(quoting In re Gen. Motors Corp. Pick-Up Truck Fuel Tank
Prods. Liab. Litig., 55 F.3d 768, 783 (3d Cir. 1995) (―GM
Truck‖)). ―If the court‘s analysis on these points is correct,
[however,] then ‗it is fair to say that we will ordinarily defer
to its exercise of discretion‘ embodied in the findings on
predominance and superiority.‘‖ Linerboard, 305 F.3d at
149-50 (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434,
448 (3d Cir. 1977)); see also United Steel, Paper & Forestry,
Rubber, Mfg. Energy, Allied Indus. & Serv. Workers Int’l
Union v. ConocoPhillips Co., 593 F.3d 802, 807 (9th Cir.
2010) (―We review . . . the underlying determination whether
the predominance requirement of Rule 23(b)(3) has been
satisfied for abuse of discretion.‖) (citation omitted).
―Whether an incorrect legal standard has been used is an issue
of law to be reviewed de novo.‖ Id. (citation omitted).
The District Court‘s ―determination that the settlement
was fair, reasonable, and adequate‖ is likewise reviewed for
abuse of discretion. In re Cendant Corp. Litig., 264 F.3d 201,
231 (3d Cir. 2001).
33
III. Discussion
At issue on appeal is the District Court‘s approval of
the class settlement agreement and certification of the Indirect
Purchaser Class pursuant to Rule 23(b)(3) and both the Direct
and Indirect Purchaser Classes under Rule 23(b)(2). We
begin by discussing the standards for certifying a settlement
class and will address the pertinent objections in light of the
District Court‘s – and the vacated Panel‘s – Opinions. We
will then consider the objections pertaining to the fairness of
the settlement, the plan of allocation, and the attorneys‘ fees
award, which we have not previously addressed.18
A. Certification Pursuant to Rule 23
As we have consistently observed, ―Rule 23 is
designed to assure that courts will identify the common
interests of class members and evaluate the named plaintiffs‘
and counsel‘s ability to fairly and adequately protect class
interests.‖ In re Comm. Bank of N. Va., 622 F.3d 275, 291
(3d Cir. 2010) (―Comm. Bank II‖) (quoting GM Truck, 55
F.3d at 799) (alterations omitted). In turn, before approving a
class settlement agreement, ―a district court first must
determine that the requirements for class certification under
Rule 23(a) and (b) are met.‖ In re Pet Food Prods. Liab.
18
As mentioned above, because the Panel concluded that
certification was inappropriate, it did not reach the Special
Master‘s recommendations or the objections to the
distribution plan and fee award. Sullivan, 613 F.3d at 142
n.6. In light of our finding that class certification is
appropriate, we assess these objections for the first time.
34
Litig., 629 F.3d 333, 341 (3d Cir. 2010). Rule 23(a) contains
four threshold requirements, which every putative class must
satisfy:
(1) the class is so numerous that joinder of all
members is impracticable; (2) there are
questions of law or fact common to the class;
(3) the claims or defenses of the representative
parties are typical of the claims or defenses of
the class; and (4) the representative parties will
fairly and adequately protect the interests of the
class.
Fed. R. Civ. P. 23(a); see also Amchem, 521 U.S. at 613.
Upon finding each of these prerequisites satisfied, a district
court must then determine that the proposed class fits within
one of the categories of class actions enumerated in Rule
23(b).
As mentioned, Rule 23(b)(2) authorizes class actions
seeking injunctive relief in instances where the defendant
―has acted or refused to act on grounds that apply generally to
the class, so that final injunctive relief . . . is appropriate
respecting the class as a whole.‖ Fed. R. Civ. P. 23(b)(2); see
In re Comm. Bank of N. Va. (Comm. Bank I), 418 F.3d 277,
302 n.14 (2005). Separately, certification pursuant to Rule
23(b)(3) seeking monetary compensation is permitted where
(1) ―questions of law or fact common to class members
predominate over any questions affecting only individual
members,‖ and (2) ―a class action is superior to other
available methods for fairly and efficiently adjudicating the
controversy.‖ Fed. R. Civ. P. 23(b)(3); see Collins v. E.I.
DuPont de Nemours & Co., 34 F.3d 172, 180 (3d Cir. 1994).
These twin requirements are commonly referred to as
35
predominance and superiority. We address the certification
of the damages class first before turning to the certification
for injunctive relief.
1. Predominance of Common Legal or Factual Issues
Under Rule 23(b)(3)
The objectors challenge the District Court‘s Rule
23(b)(3) analysis with regard to the state law claims asserted
by the Indirect Purchasers against De Beers. The District
Court concluded that differences in state law did not override
predominantly common factual and legal issues presented by
De Beers‘s integral role in perpetuating the alleged
conspiracy. Rejecting this view, the objectors argue that the
existence of substantive variations in the state antitrust laws
underlying the Indirect Purchaser damages claims should
preclude a court from finding that common issues affecting
the class as a whole predominate. They also urge that
differences among state consumer protection and unjust
enrichment laws would likewise preclude a finding of
predominance. Our dissenting colleagues focus on this issue
as well, and adopt a specific requirement that every class
member has ―some colorable legal claim‖ in order for a
district court to certify a class. (Dissenting Op. at 10.) In our
view, this requirement would result in a radical departure
from what Rule 23 envisions and what our precedent
demands, and it founders for many reasons.19
a. Legal Framework
19
The objectors also challenge the District Court‘s
purported failure to identify the state law claims that should
receive class treatment under the existing certification order,
as we discuss below.
36
The predominance inquiry ―‗tests whether proposed
classes are sufficiently cohesive to warrant adjudication by
representation,‘‖ In re Ins. Broker. Antitrust Litig., 579 F.3d
241, 266 (3d Cir. 2009) (quoting Amchem, 521 U.S. at 624),
and assesses whether a class action ―would achieve
economies of time, effort, and expense, and promote
uniformity of decision as to persons similarly situated,‖ Fed.
R. Civ. P. 23(b)(3) advisory committee‘s note to 1966
amendment. See also 2 William Rubenstein, Alba Conte &
Herbert Newberg, Newberg on Class Actions, § 4:25 (4th ed.
2010) (―[T]he predominance test asks whether a class suit for
the unitary adjudication of common issues is economical and
efficient in the context of all the issues in the suit.‖). Parallel
with Rule 23(a)(2)‘s commonality element, which provides
that a proposed class must share a common question of law or
fact, Rule 23(b)(3)‘s predominance requirement imposes a
more rigorous obligation upon a reviewing court to ensure
that issues common to the class predominate over those
affecting only individual class members. Ins. Broker., 579
F.3d at 266. ―Hence, we consider the Rule 23(a)
commonality requirement to be incorporated into the more
stringent Rule 23(b)(3) predominance requirement, and
therefore deem it appropriate to ‗analyze the two factors
together, with particular focus on the predominance
requirement.‘‖ Id. (quoting In re Warfarin Sodium Antitrust
Litig., 391 F.3d 516, 528 (3d Cir. 2004)); see also Danvers
Motor Co., Inc. v. Ford Motor Co., 543 F.3d 141, 148 (3d
Cir. 2008) (―[T]he commonality requirement is subsumed by
the predominance requirement.‖).
From our case law, we can distill at least three
guideposts that direct the predominance inquiry: first, that
commonality is informed by the defendant‘s conduct as to all
37
class members and any resulting injuries common to all class
members; second, that variations in state law do not
necessarily defeat predominance; and third, that concerns
regarding variations in state law largely dissipate when a
court is considering the certification of a settlement class. We
address each of these guideposts in turn. Then, we turn to
case law demonstrating that Rule 23(b)(3) does not, as urged
by the objectors and the dissent, require individual class
members to individually state a valid claim for relief. Next,
we address the flaws inherent in the framework proposed by
the dissent. Finally, we discuss why an important by-product
of the class action device – settlement of all potential claims –
supports the decision we reach here.
i) Precedent Regarding Predominance:
Defendant’s Conduct and Class
Members’ Injuries
Our precedent provides that the focus of the
predominance inquiry is on whether the defendant‘s conduct
was common as to all of the class members, and whether all
of the class members were harmed by the defendant‘s
conduct. Our reasoning in Warfarin is instructive on this
point. The claims asserted there were remarkably similar to
the specific claims at issue here. There, we considered the
propriety of the certification of a settlement class arising out
of DuPont Pharmaceuticals‘ alleged dissemination of
misleading information about a competitor‘s product. 391
F.3d at 522. The plaintiffs averred that DuPont engaged in
anticompetitive conduct that allowed it to maintain a 67%
market share and to charge supracompetitive prices, in
violation of federal antitrust law, the antitrust statutes of
38
Illinois Brick repealer states,20 the consumer protection and
deceptive practices statutes of all fifty states and the District
of Columbia, and the common law prohibitions on unjust
enrichment and tortious interference of every jurisdiction. Id.
at 523-25. After reaching a class settlement with the
defendant and receiving the district court‘s preliminary
approval, objections were lodged contesting the certification
of a single nationwide class of plaintiffs. The objectors
argued that such certification was inappropriate due to
inconsistencies in state antitrust and consumer fraud statutes‘
provision of statutory standing to assert antitrust claims and
eligibility for treble or punitive damages recovery, and the
relative weakness of certain consumer claims. Id. at 529-31.
Guided by the Supreme Court‘s observation that
―[p]redominance is a test readily met in certain cases alleging
consumer[ ] fraud or violations of the antitrust laws,‖ we
stated:
This case falls squarely into that category:
plaintiffs have alleged that DuPont engaged in a
broad-based campaign, in violation of federal
and state consumer fraud and antitrust laws, to
deceive consumers, TPPs, health care
professionals, and regulatory bodies into
believing that generic warfarin sodium was not
an equivalent alternative to Coumadin. These
allegations naturally raise several questions of
law and fact common to the entire class and
which predominate over any issues related to
20
As mentioned, certain states have enacted statutes known
as ―Illinois Brick repealers,‖ which extend antitrust standing
to indirect purchasers and consumers. See supra n.17.
39
individual class members, including the
unlawfulness of DuPont‘s conduct under federal
antitrust laws as well as state law, the causal
linkage between DuPont‘s conduct and the
injury suffered by the class members, and the
nature of the relief to which class members are
entitled.
Id. at 528. In light of DuPont‘s allegedly deceptive ―broad-
based, national campaign conducted by and directed from
corporate headquarters,‖ we emphasized that proof of liability
of DuPont‘s conduct ―depends on evidence which is common
to the class members‖ because ―liability depends on the
conduct of DuPont, and whether it conducted a nationwide
campaign of misrepresentation and deception, [and] does not
depend on the conduct of individual class members.‖ Id. As
a result, we affirmed the District Court‘s ruling that class
members shared predominantly common issues as to the
conduct of the defendants despite possessing claims arising
under differing state laws. Id. at 530.21
21
Contrary to the objectors‘ and the Panel‘s view that
Warfarin‘s analysis is inapplicable because the plaintiffs in
that case purportedly shared a common claim under the
Delaware Consumer Fraud Act, our holding in Warfarin did
not address the Delaware statute in analyzing predominance.
391 F.3d at 528-29. Indeed, Warfarin did not consider
whether every class member even possessed a claim under
Delaware law, nor did it undertake a choice-of-law analysis to
determine whether all members in the nationwide class could
assert a claim under the Delaware statute. Rather, we simply
concluded that any claims arising under the varying state laws
and the Delaware statute could be proved with common
40
We applied a similar approach in Insurance
Brokerage, where, in evaluating a challenge to certification of
a settlement class on the basis of predominance, we
determined that the elements of a Sherman Act violation for
concerted anticompetitive activity focused upon ―the conduct
of the defendants.‖ 579 F.3d at 268. Noting the presence of
several shared questions of law and fact – including, among
others, whether the defendants conspired to allocate a
particular market, whether the conduct actually reduced
competition in the market by consolidating the industry, and
whether the conspiratorial conduct raised premiums for all
members of the class – we concluded that ―common questions
abound with respect to whether the defendants engaged in
illegal, concerted action.‖ 579 F.3d at 268. As a result, we
held that ―individual issues d[id] not overwhelm the common
ones.‖22 Id.; see also Linerboard, 305 F.3d at 162
(―[C]ommon issues [ ] predominate here because the inquiry
evidence, thereby supporting a finding of predominance. Id.
22
A comparable approach is evidenced in our decision in
Prudential, where we affirmed the district court‘s finding of
predominance based upon the central issue in the case – a
common nationwide scheme of deceptive conduct by the
defendant to defraud millions of customers. 148 F.3d at 315.
Similarly, in Linerboard, we noted that the ―critical inquiry
will be whether defendants successfully concealed the
existence of the alleged conspiracy,‖ and ―the fact of
concealment [ ] is the polestar in an analysis of fraudulent
concealment.‖ 305 F.3d at 163 (emphasis in original).
Because it was the defendant‘s conduct that demanded
attention, we found that ―allegations of proof are all common
to the defendants, not the plaintiffs.‖ Id.
41
necessarily focuses on defendants‘ conduct, that is, what
defendants did rather than what plaintiffs did.‖) (citation &
quotations omitted); cf. In re LifeUSA Holding Inc., 242 F.3d
136, 145-46 (3d Cir. 2001) (reversing certification of
litigation class where plaintiffs‘ claims arose ―not out of one
single event or misrepresentation,‖ but out of ―non-
standardized and individualized sales ‗pitches‘‖).
In this regard, we note the dissent‘s misreading of the
Supreme Court‘s recent opinion in Wal-mart Stores Inc. v.
Dukes, 131 S. Ct. 2541 (2011) as supporting its thesis that an
inquiry into the existence or validity of each class member‘s
claim is required at the class certification stage. To the
contrary, Dukes actually bolsters our position, making clear
that the focus is on whether the defendant‘s conduct was
common as to all of the class members, not on whether each
plaintiff has a ―colorable‖ claim. In Dukes, the Court held
that commonality and predominance are defeated when it
cannot be said that there was a common course of conduct in
which the defendant engaged with respect to each individual.
But commonality is satisfied where common questions
generate common answers ―apt to drive the resolution of the
litigation.‖ 131 S. Ct. at 2551. That is exactly what is
presented here, for the answers to questions about De Beers‘s
alleged misconduct and the harm it caused would be common
as to all of the class members, and would thus inform the
resolution of the litigation if it were not being settled.
Specifically, here, plaintiffs allege that De Beers
engaged in anticompetitive activity by exploiting its 65%
share of the diamond market and control of the world‘s
supply of rough diamonds to impose rigid constraints on the
sale and resale of those diamonds. This conduct resulted in a
common injury as to all class members – inflated diamond
42
prices – in violation of federal antitrust law, and the antitrust,
consumer protection, or unjust enrichment laws of every state
and the District of Columbia.23 In this respect, as in Warfarin
and Insurance Brokerage, De Beers‘s asserted price-fixing
and monopolization conduct lies at the core of plaintiffs‘
claims, as do the common injuries which all class members
suffered as a result. Based upon our case law, we can distill
that ―each class member shares a similar legal question
arising from whether De Beers engaged in a broad conspiracy
that was aimed to and did affect diamond prices in the United
States.‖ (App‘x 278-79 (emphasis added).) Evidence for this
legal question would entail generalized common proof as to
―the implementation of De Beers‘[s] conspiracy, the form of
the conspiracy, and the duration and extent of the
conspiracy.‖ (Id. 278.)
The plaintiffs likewise share common factual
questions as to whether De Beers ―acted in concert to
artificially fix, maintain, and stabilize prices and to
monopolize trade and commerce in the market for polished
diamonds,‖ and whether said activity resulted ―in an inflation
in the prices of diamonds sold to consumers.‖ (Id. 278-79.)
These allegations are unaffected by the particularized conduct
of individual class members, as proof of liability and liability
itself would depend entirely upon De Beers‘s allegedly
23
No one seriously disputes that De Beers‘s alleged
conduct, if true, was anticompetitive and violated state
antitrust laws. Our disagreement with the dissent arises
solely out of the question whether certain class members‘
potential inability to satisfy some states‘ statutory standing
requirements should have precluded the District Court from
certifying the settlement class in this case.
43
anticompetitive activities. Indeed, the presence of these
questions stemming solely from De Beers‘s asserted behavior
and the fact that all class members purchased diamonds is an
apt illustration of why the predominance test is ―readily met
in certain cases alleging consumer [ ] fraud or violations of
the antitrust laws.‘‖24 Ins. Broker., 579 F.3d at 266 (quoting
Amchem, 521 U.S. at 624); see generally Fed. R. Civ. P.
23(b)(3) advisory committee‘s notes to 1966 amendment
(providing that ―a fraud perpetrated on numerous persons by
the use of similar misrepresentations may be an appealing
situation for a class action‖). Considering this presentation of
common issues, a finding that common inquiries
predominated over individual questions particular to any
putative class member appears reasonably within the
discretion of the District Court.
The dissent urges that according to our view, the class
is ―practically limitless.‖ (Dissenting Op. at 9.) This is
plainly incorrect: the limits are found in the conduct of the
defendant and the injuries sustained by class members as a
result of the conduct. These provide sufficient class contours.
The instant class is not made up of ―everyone on earth,‖
―regardless of diamond purchases.‖ (Dissenting Op. at 8 n.5.)
Instead, each member is a Direct or Indirect Purchaser,
harmed by what De Beers did. These class members,
24
As we noted in Insurance Brokerage, we do not presume
here ―that common issues necessarily predominate in every
antitrust case.‖ 579 F.3d at 267 n.26 (citing Hydrogen
Peroxide, 552 F.3d at 321-22). Here, we merely conclude
that the District Court was free to determine that common
issues of law or fact stemming from De Beers‘s conduct in
this instance satisfied the predominance requirement.
44
moreover, possess a legally cognizable injury acknowledged
in hornbook law, as their injuries are real, and stem not from
simply feeling ―wronged,‖ as the dissent suggests (Dissenting
Op. at 8), but from De Beers‘s alleged anti-competitive
conduct, conduct which antitrust laws forbid.
ii) Precedent Regarding Variations in
State Law
Furthermore, our precedent provides that ―variations in
the rights and remedies available to injured class members
under the various laws of the fifty states [do] not defeat
commonality and predominance.‖ Warfarin, 391 F.3d at 529
(quoting In re Prudential Ins. Co. Am. Sales Practice Litig.
Agent Actions, 148 F.3d 283, 315 (3d Cir. 1998)). This is so
because ―‗a finding of commonality does not require that all
class members share identical claims,‘‖ and predominance is
not considered deficient merely ―because claims were subject
to the [varying] laws of fifty states.‖ Id. ―‗Predominance
under Rule 23(b)(3) cannot be reduced to a mechanical,
single-issue test‘‖; rather, ―‗[a]s long as a sufficient
constellation of common issues binds class members together,
variations in the sources and application‘‖ of applicable laws
will not foreclose class certification. Linerboard, 305 F.3d at
162-63 (quoting with approval Waste Mgmt. Holdings, Inc. v.
Mowbray, 208 F.3d 288, 296 (1st Cir. 2000) (rejecting
argument that variations in twenty states‘ laws concerning
reliance, waiver, and statutes of limitations defeated
predominance)); see also Smilow v. Sw. Bell Mobile Sys., Inc.,
323 F.3d 32, 39 (1st Cir. 2003) (―Rule 23(b)(3) requires
merely that common issues predominate, not that all issues be
common to the class.‖) (emphasis added). Thus, it is not
surprising that we can find no support in our Court‘s
jurisprudence for the proposition that commonality and
45
predominance are defeated merely because available rights
and remedies differ under the several laws that form the basis
for the class claims.25
We have never required the presentation of identical or
uniform issues or claims as a prerequisite to certification of a
class. Rather, our jurisprudence evinces a pragmatic response
to certifications of common claims arising under varying state
laws. In Prudential, we addressed the certification of a
settlement class arising under federal securities law and
varying state law formulations of common law fraud, breach
of contract, bad faith, negligent misrepresentation,
negligence, unjust enrichment, and breach of state consumer
fraud statutes. 148 F.3d at 315. We emphasized our
willingness to certify nationwide classes where differences in
state law fell ―into a limited number of predictable patterns,‖
and any deviations ―could be overcome at trial by grouping
similar state laws together and applying them as a unit.‖ Id.
As such, we affirmed the district court‘s decision to subsume
the relatively minor differences in state law within a single
25
Other courts have similarly declined to examine the
controlling substantive law pertinent to asserted claims at the
class certification stage. See, e.g., Schumacher v. Tyson
Fresh Meats, Inc., 221 F.R.D. 605, 612 (D.S.D. 2004)
(―Where federal claims and common law claims are
predicated on the same factual allegations and proof will be
essentially the same, ‗even if the law of different states might
ultimately govern the common law claims – an issue that
need not and is not decided at this juncture – certification of
the class for the whole action is appropriate.‘‖) (quoting
Walsh v. Chittenden Corp., 798 F. Supp. 1043, 1055 (D. Vt.
1992)) (alteration omitted).
46
class. Id.; see also Ins. Broker., 579 F.3d at 271 (noting that
―subclasses are appropriate ‗where a class is found to include
subclasses divergent in interest‘‖) (citation & alteration
omitted).
Similarly, in GM Truck, we approved the certification
of nationwide (b)(3) litigation classes where ―the laws of the
50 states could be reduced to [several] general patterns,
providing the framework for sub-classes if the nationwide
action had proven unmanageable.‖ 55 F.3d at 817-18
(discussing In re School Asbestos Litig., 789 F.2d 996, 1010
(3d Cir. 1986)). Observing that ―we [could not] conceive that
each of the forty-nine states [ ] represented here has a truly
unique statutory scheme,‖ we determined that a nationwide
class ―could have been properly certified.‖ Id. This
alternative to outright rejection of certification of a
nationwide class was deemed to be especially fitting because
it could ―surmount[ ] some of the individual issues while
retaining some of the substantive advantages of the class
action.‖ Id. at 818.
Echoing this approach, our fellow Courts of Appeals
have agreed that, for purposes of litigation classes, ―if the
applicable state laws can be sorted into a small number of
groups, each containing materially identical legal standards,‖
then certification of subgroups ―embracing each of the
dominant legal standards can be appropriate.‖ Klay v.
Humana, Inc., 382 F.3d 1241, 1262 (11th Cir. 2004); see also
Walsh v. Ford Motor Co., 807 F.2d 1000, 1017 (D.C. Cir.
1986) (R.B. Ginsburg, J.) (holding that class certification is
appropriate where state law variations can be grouped by
similar legal doctrines).
Where ―a sufficient constellation of common issues
47
binds class members together,‖ Linerboard, 305 F.3d at 162-
63, differences in state law treatment of indirect purchaser
claims likely fall into a handful of clearly discernible
statutory schemes. Nothing in our case law or the language
of Rule 23 commands that everyone in a class must allege
precisely identical or ―uniform‖ causes of action, see
Sullivan, 613 F.3d at 149, and statutory variations do not
defeat predominance in the presence of other exceedingly
common issues.26 Instead, as Prudential and GM Truck
explain, where a defendant‘s singular conduct gives rise to
one cause of action in one state, while providing for a
different cause of action in another jurisdiction, the courts
may group both claims in a single class action. This tactic in
litigation advances the laudatory purposes of the class action
device, ―preserv[ing] the resources of both the courts and the
parties by permitting issues affecting all class members to be
litigated in an efficient, expedited, and manageable fashion.‖
Allison v. Citgo Petrol. Corp., 151 F.3d 402, 410 (5th Cir.
1998).
iii) Certification of Settlement Classes:
Diminished Concern Regarding
Variations in State Law
But we need not rely merely on certifications
involving actual litigation of the class issues for the
proposition that differing state laws do not defeat
26
We do not reach this conclusion so as to allow district
courts to ―shirk‖ the requirements of Rule 23 when certifying
the class, as the dissent suggests. (Dissenting Op. at 21 n.13.)
We do not ignore the differences in state law, but rather find,
based on our precedent, that those differences do not defeat
predominance.
48
commonality or predominance. The correct outcome is even
clearer for certification of a settlement class because the
concern for manageability that is a central tenet in the
certification of a litigation class is removed from the
equation. Indeed, the class settlement posture of this case
largely marginalizes the objectors‘ concern that state law
variations undermine a finding of predominance.
In Warfarin, we rejected an objection essentially
indistinguishable from the one advanced here, namely, that
―variations in and inconsistencies between the state consumer
fraud and antitrust laws of the fifty states defeat the
commonality and predominance requirements of Rule 23.‖
391 F.3d at 529. In light of the Supreme Court‘s guidance
that a district court ―[c]onfronted with a request for
settlement-only class certification‖ need not inquire whether
the case ―would present intractable management problems,‖
Amchem, 521 U.S. at 620, in Warfarin, we delineated a ―key‖
distinction between certification of a class for settlement
versus certification for purposes of litigation, 391 F.3d at 529.
Specifically, we observed that, in the settlement context,
variations in state antitrust, consumer protection and unjust
enrichment laws did not present ―the types of insuperable
obstacles‖ that could render class litigation unmanageable.27
Id. (citing Prudential, 148 F.3d at 315). We emphasized, as a
result, that ―variations [in state laws] are irrelevant to
27
In conducting the analysis in Warfarin, we expressly
distinguished the Seventh Circuit‘s decision in In re
Bridgestone/Firestone Inc., 288 F.3d 1012 (7th Cir. 2002), in
which certification of a nationwide class arising under the tort
laws of all fifty states was sought for purposes of litigation,
rather than settlement. 391 F.3d at 529.
49
certification of a settlement class‖ since a settlement would
eliminate the principal burden of establishing the elements of
liability under disparate laws. Id.; see, e.g., Davis v. J.P
Morgan Chase & Co., 775 F. Supp. 2d 601, 609 (W.D.N.Y.
2011) (―[S]tate-law distinctions impact trial manageability,
which is relevant principally with respect to litigation at
trial.‖) (citing Warfarin, 391 F.3d at 529-30); In re Lupron
Mktg & Sales Practices Litig., 228 F.R.D. 75, 92 (D. Mass.
2005) (finding that ―differences in the state consumer
protection laws‖ implicate manageability concerns and do not
pose an obstacle to certification of a settlement class).
Hence, our consideration of varying laws in the
context of predominance has primarily focused on
manageability of a litigation class. This is a particularly
important point, as the objectors seem to conflate the
predicate predominance analysis for certification of a
settlement class with that required for certification of a
litigation class, relying exclusively upon cases implicating the
manageability obstacles inherent in class litigation. See, e.g.,
Sacred Heart Health Sys., Inc. v. Humana Mil. Healthcare
Servs., Inc., 601 F.3d 1159, 1180 (11th Cir. 2010); Cole v.
Gen. Motors Corp., 484 F.3d 717, 724 (5th Cir. 2007). The
Panel likewise referenced authority that focused on the
manageability issues pertinent to certification of litigation
classes in rejecting the settlement class certification. See
Sullivan, 613 F.3d at 151 (quoting Clay v. Am. Tobacco Co.,
188 F.R.D. 483, 501 (S.D. Ill. 1999) (discussing
―unmanageable‖ nature of varying state unjust enrichment
laws)).
Because we are presented with a settlement class
certification, ―we are not as concerned with formulating some
prediction as to how [variances in state law] would play out at
50
trial, for the proposal is that there be no trial.‖ Ins. Broker.,
579 F.3d at 269 (internal citations & quotations omitted). As
such, we simply need not inquire whether the varying state
treatments of indirect purchaser damage claims at issue would
present the type of ―insuperable obstacles‖ or ―intractable
management problems‖ pertinent to certification of a
litigation class.28 Comm. Bank I, 418 F.3d at 299; Warfarin,
391 F.3d at 529. The proposed settlement here obviates the
difficulties inherent in proving the elements of varied claims
at trial or in instructing a jury on varied state laws, and ―the
difference is key.‖29 Warfarin, 391 F.3d at 529.
28
We are aware that there may still be circumstances, as we
and other Courts of Appeals have noted, where ―‗[i]n a multi-
state class action, variations in state law may swamp any
common issues and defeat predominance.‘‖ Klay v. Humana,
Inc., 382 F.3d 1241, 1261 (11th Cir. 2004) (quoting Castano
v. Am. Tobacco Co., 84 F.3d 734, 741 (5th Cir. 1996)). But
these decisions are inapplicable here, as the certification
orders at issue pertained to litigation classes and were
preoccupied with the attendant manageability aspects of
certification. More explicitly, the courts expressed unease
that if ―more than a few of the laws of the fifty states differ,
the district judge would face an impossible task of instructing
a jury on the relevant law,‖ and noted ―the difficulties in
trying the [ ] claims on a class basis.‖ Id. (citation &
quotations omitted). Unlike those situations ―where the
certification inquiry [is] set against the backdrop of an
impending trial,‖ Ins. Broker., 579 F.3d at 269, the settlement
context here does not present equivalent concerns.
29
Unsurprisingly, we are not alone in recognizing the ―key‖
distinction between certification for settlement purposes
51
Accordingly, while we are cognizant of our responsibility to
―protect absentees by blocking unwarranted or overbroad
class definitions,‖ Comm. Bank II, 622 F.3d at 291, state law
variations are largely ―irrelevant to certification of a
settlement class,‖ Warfarin, 391 F.3d at 529.30
versus litigation, and ―courts are more inclined to find the
predominance test met [in the settlement context], even when
there are differences in applicable state laws.‖ Ersler v.
Toshiba Am., Inc., No. CV-07-2304, 2009 WL 454354, at *4
(E.D.N.Y. Feb. 24, 2009) (citing In re Grand Theft Auto
Video Game Consumer Litig., 251 F.R.D. 139, 158 (S.D.N.Y.
2008)); see, e.g., In re Mexico Money Transfer Litig., 267
F.3d 743, 746-47 (7th Cir. 2001) (noting that while
certification of litigation classes arising under varying
consumer fraud statutes is often inappropriate, the same is not
true for settlement classes where ―no one need draw fine lines
among state-law theories of relief‖); In re Inter-Op Hip
Prosthesis Liability Litig., 204 F.R.D 330, 347 (N.D. Ohio
2001) (―[W]hen taking the proposed settlement [ ] into
consideration for purposes of determining class certification,
individual issues which are normally present in . . . litigation
become irrelevant, allowing the common issues to
predominate.‖) (citation & quotations omitted).
30
Although we will not here speculate as to the type of
―situations where variations in state laws are so significant so
as to defeat commonality and predominance even in a
settlement class certification,‖ Warfarin, 391 F.3d at 530, we
are confident that the several common questions of law or
fact arising from a ―single central issue‖ – namely, De
Beers‘s alleged anticompetitive conduct and the resulting
injury caused to each class member – predominate over any
52
iv) Rule 23(b)(3) and our Precedent do
not Require that Individual Class
Members State a Valid Claim
At bottom, we can find no persuasive authority for
deeming the certification of a class for settlement purposes
improper based on differences in state law. The objectors and
our dissenting colleagues nevertheless insist that, despite the
prevalence of the shared issues of fact and law stemming
from the defendant‘s conduct common as to all class
members and each class member‘s resulting injury, states‘
inconsistent treatment of indirect purchaser damages claims
overwhelms the commonalities. They advocate this because
approximately twenty-five states have not extended antitrust
standing to indirect purchasers through Illinois Brick repealer
statutes or judicial edict; likewise, some uncertain number of
states do not permit an end-run around antitrust standing
through claims based on consumer protection and/or unjust
enrichment statutes. (See Quinn Supp. Br. on Reh‘g En Banc
21-22.) It follows then, they argue, that a large proportion of
the Indirect Purchaser Class lacks any valid claims under
applicable state substantive law, and, therefore, cannot
―predominantly‖ share common issues of law or fact with
those Indirect Purchasers actually possessing valid claims.31
issues concerning individual class members, Prudential, 148
F.3d at 314 (citation & quotations omitted).
31
As noted, the Panel conducted an extensive review of
relevant state statutes and reached the conclusion that
―indirect purchasers do not have a right to recover in all
states, and, therefore, no question of law or fact regarding
their legal rights is uniform throughout the class.‖ Sullivan,
613 F.3d at 149.
53
In turn, they insist that a district court must undertake a
thorough review of applicable substantive law to assure itself
that each class member has ―at least some colorable legal
claim‖ (Dissenting Op. at 10) or ―has a valid claim‖ (Quinn
Supp. Br. at 16) before certifying a settlement.
But this focus is misdirected. The question is not what
valid claims can plaintiffs assert; rather, it is simply whether
common issues of fact or law predominate. See Fed. R. Civ.
P. 23(b)(3). Contrary to what the dissent and objectors
principally contend, there is no ―claims‖ or ―merits‖ litmus
test incorporated into the predominance inquiry beyond what
is necessary to determine preliminarily whether certain
elements will necessitate individual or common proof. Such
a view misreads Rule 23 and our jurisprudence as to the
inquiry a district court must conduct at the class certification
stage. An analysis into the legal viability of asserted claims is
properly considered through a motion to dismiss under Rule
12(b) or summary judgment pursuant to Rule 56, not as part
of a Rule 23 certification process. See Comm. Bank II, 622
F.3d at 303 (―[T]he Rule 23 requirements ‗differ in kind from
legal rulings under Rule 12(b)(6).‘‖) (quoting Szabo v.
Bridgeport Machs., Inc., 249 F.3d 672, 676 (7th Cir. 2001)).
To adopt the position of the dissent and the objectors is
to introduce a Rule 12(b)(6) inquiry as to every claim in the
class before a class may be certified. But Rule 23 makes
clear that a district court has limited authority to examine the
merits when conducting the certification inquiry:
Although an evaluation of the probable outcome
on the merits is not properly part of the
certification decision, discovery in aid of the
certification decision often includes information
54
required to identify the nature of the issues that
actually will be presented at trial. In this sense it
is appropriate to conduct controlled discovery
into the ―merits,‖ limited to those aspects
relevant to making the certification decision on
an informed basis.
2003 Amendments to Rule 23 (emphasis added); see also
Hassine v. Jeffes, 846 F.2d 169, 178 (3d Cir. 1988) (―The
ability of a named plaintiff to succeed on his or her individual
claims has never been a prerequisite to certification of the
class.‖). A court may inquire whether the elements of
asserted claims are capable of proof through common
evidence, but lacks authority to adjudge the legal validity or
soundness of the substantive elements of asserted claims. Put
another way, a district court may inquire into the merits of the
claims presented in order to determine whether the
requirements of Rule 23 are met, but not in order to determine
whether the individual elements of each claim are satisfied.
Citing our holdings in Hydrogen Peroxide and Newton
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154
(3d Cir. 2001), the objectors argue that the District Court
abused its discretion by failing to establish as part of the
certification process that each class member possessed a valid
claim under the applicable substantive laws.32 (See Quinn Br.
at 17.) But these cases do not stand for this proposition. We
explained in Hydrogen Peroxide that an examination of the
32
The Panel echoed the objectors‘ position, concluding after
examining the laws of fifty states that many jurisdictions
―categorically foreclosed‖ a legal right to recover on the
merits to indirect purchasers. Sullivan, 613 F.d at 151 n.14.
55
elements of plaintiffs‘ claim is sometimes necessary, not in
order to determine whether each class member states a valid
claim, but instead to determine whether the requirements of
Rule 23 – namely, that the elements of the claim can be
proved ―through evidence common to the class rather than
individual to its members‖ – are met. 552 F.3d at 311-12. In
Newton, we similarly stated that a court may ―delve beyond
the pleadings to determine whether the requirements for class
certification are satisfied,‖ and held that a court‘s rigorous
certification analysis may include a ―preliminary inquiry into
the merits.‖ 259 F.3d at 167 (citations & quotations omitted).
But we did not state that an inquiry into the merits was
necessary in order to prove that each class member has state a
valid claim as a prerequisite to class certification. Rather, the
Rules and our case law have consistently made clear that
plaintiffs need not actually establish the validity of claims at
the certification stage.33
33
The marginal role played by the question of ―validity‖ of
claims in class settlement certification situations is further
evidenced by considering our subsequent Prudential decision.
See In re Prudential Ins. Co. of Am. Sales Practice Litig., 261
F.3d 355, 366 (3d Cir. 2001) (―Prudential II‖). There, we
released all state-law claims – including unnamed claims –
―arising from the same nucleus of operative facts as the
claims‖ actually considered by the Court without adjudicating
the validity of those other allegations. Id. We observed that
―a judgment pursuant to a class settlement can bar later
claims based on the allegations underlying the claims in the
settled class action‖ even where the ―precluded claim was not
presented, and could not have been presented, in the class
action itself.‖ Id. (citations omitted). We reasoned that while
our ―power to release those claims as part of a judgment‖ may
56
Moreover, the merits inquiry is particularly
unwarranted in the settlement context since a district court
need not ―envision the form that a trial‖ would take, Newton,
259 F.3d at 167, nor consider ―the available evidence and the
method or methods by which plaintiffs propose to use the
evidence to prove‖ the disputed element at trial, Hydrogen
Peroxide, 552 F.3d at 312. In fact, the absence of evidentiary
and trial manageability concerns that initially motivated our
instruction to conduct a preliminary merits inquiry in the
predominance context reinforces the ―key‖ distinction
between certification of a litigation and settlement class.
Warfarin, 391 F.3d at 529. As such, the objectors‘ focus on
the legal strengths and weaknesses of class members‘ claims
misconstrues the requirements of Rule 23.34 See Newton, 259
―seem anomalous,‖ ―we have endorsed the rule because it
‗serves the important policy interest of judicial economy by
permitting parties to enter into comprehensive settlements
that ‗prevent relitigation of settled questions at the core of a
class action.‘‖ Id. (quoting TBK Partners, Ltd. v. Western
Union Corp., 675 F.2d 456, 460 (2d Cir. 1982)). As such, the
unidentified prospective claims could be included in the
settlement without adjudication of their validity since they
arose from the identical fraudulent scheme perpetrated by the
defendant.
34
The objectors‘ associated argument that the predominance
inquiry presupposes that every putative class members
possesses at least a single valid cause of action likewise
misses the point. While Rule 23 may presuppose that every
class member does actually allege a predominantly common
claim against a defendant, Rule 23 does not mandate that each
57
F.3d at 167-69.
Even still, the objectors and the dissent urge that the
absence of one particular element for some class members –
statutory standing – means that these members cannot state a
valid claim, and therefore, the class cannot be certified.
While it may be correct that states abiding by Illinois Brick
require a plaintiff to be a direct purchaser as one element of
an antitrust or consumer protection claim, the possibility that
some of the Indirect Purchasers in the instant class might be
unable to establish this element at trial is beside the point.
This element, often confusingly denoted as a statutory
standing requirement, is not jurisdictional.35 Statutory
standing is distinct from jurisdictional standing in that
―Article III standing is required to establish a justiciable case
or controversy within the jurisdiction of the federal courts,‖
whereas ―lack of antitrust standing affects a plaintiff‘s ability
to recover, but does not implicate the subject matter
jurisdiction of the court.‖ Gerlinger v. Amazon.com Inc., 526
F.3d 1253, 1256 (9th Cir. 2008) (citation omitted); see e.g.,
Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir. 2003)
of these claims must be shown capable of prevailing on the
merits at the certification stage.
35
To further clarify, we use the term ―statutory standing‖ to
refer to the possession of a viable claim or right to relief, not
to a jurisdictional requirement. See generally Steel Co. v.
Citizens for a Better Env’t, 523 U.S. 83, 89 (1998) (―It is
firmly established in our cases that the absence of a valid (as
opposed to arguable) cause of action does not implicate
subject-matter jurisdiction,‖ and ―jurisdiction is not defeated
by the possibility that the averments might fail to state a cause
of action‖) (citations and alterations omitted).
58
(noting that ―statutory standing under the antitrust laws is not
a prerequisite to federal subject matter jurisdiction‖);
Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774, 778
(7th Cir. 1994) (―[D]espite the suggestive terminology,
‗antitrust standing‘ is not a jurisdictional requirement and is
therefore waivable.‖). Accordingly, statutory standing is
simply another element of proof for an antitrust claim, rather
than a predicate for asserting a claim in the first place.
Here, the supposed lack of one element necessary to
prove a violation on the merits – statutory standing – does not
establish a concomitant absence of other predominantly
common issues. See Prudential, 148 F.3d at 315 (affirming a
district court‘s certification of a settlement class despite the
fact that some objectors challenged the settlement on the
grounds that some plaintiffs could not establish reliance – a
necessary element of their state-law fraud claims). This is
especially true in the settlement context where no proof on
the merits need be adduced. See Linerboard, 305 F.3d at
162-63 (―‗[T]he mere fact that such concerns [of
individualized factual and legal determinations] may arise and
may affect different class members differently does not
compel a finding that individual issues predominate over
common ones.‘‖) (quoting Mowbray, 208 F.3d at 296).
Common questions as to the nature of De Beers‘s ―conduct
under federal antitrust laws as well as state law‖ and ―the
causal linkage between [De Beers‘s] conduct and the injury
suffered by the class members‖ may still be found to
predominate. See Warfarin, 391 F.3d at 528; see also Pet
Food, 629 F.3d at 342 (―[T]he predominance requirement
was satisfied because the same set of core operative facts and
theory of proximate cause apply to each member of the
59
class.‖) (internal quotations omitted).36
v) The Dissent’s Proposed Framework
The dissent‘s proposed framework mistakenly places
the cart before the horse by requiring the District Court to
establish the validity of the disputed elements of the asserted
claims – namely, the viability of indirect purchaser actions
under state substantive laws – prior to certifying the class.
Under this approach, the dissent seems to require that class
members show that they can state a valid claim for relief. But
the Rule 23 inquiry does not, and should not, involve a Rule
(12)(b)(6) inquiry. 37
36
The Panel analyzed the antitrust claims separately from
the consumer protection and unjust enrichment claims,
seemingly concluding that plaintiffs could only prevail if each
putative class member alleged either a ―uniform‖ antitrust
cause of action, a ―uniform‖ consumer protection cause of
action, or a ―uniform‖ unjust enrichment claim. Sullivan, 613
F.3d 146, 150. We will not read into Rule 23 this heightened
threshold requirement that plaintiffs must allege an identical
cause of action, when all that is required is that common
issues of law or fact predominate over questions particular to
individual class members.
37
The dissent describes this requirement in varied ways:
under their view, class members who, ―according to the plain
terms of controlling law have no claim at all‖ (Dissenting Op.
at 16 n.11), have ―no legal claim‖ (Id. at 1), have ―no cause of
action,‖ (Id. at 4), have a claim ―clearly lacking a colorable
basis‖ (Id. at 15), or have a claim ―nonexistent as a matter of
substantive law‖ (Id. at 13), are barred from partaking in this
class action settlement. The problem with this requirement,
60
Were we to require district courts to ensure that ―each
member of a settlement class has a valid claim‖ in order to
establish predominance, (Quinn Supp. Br. at 16), or that each
class member has a ―colorable legal claim,‖ district courts
would be obligated at the class certification stage to, sua
sponte, conduct a thorough Rule 12(b)(6) analysis of every
statutory and common-law claim to ensure that each plaintiff
– including absent class members – possesses a valid cause of
action or a ―colorable claim‖ under the applicable federal or
state substantive law. Such an inquiry into the merits goes
beyond the requirements of Rule 23, for Rule 23 does not
require a district court to determine whether class members
individually have a colorable claim – one that ―appear[s] to
be true, valid, or right. (Dissenting Op. at 10 n.8.) In
addition to exceeding the plain requirements of Rule 23, in
nationwide class settlements, such as the one here, and even if
limited to a statutory standing inquiry, this analysis would
necessitate an intensive, fifty-state cataloguing of differences
in state law at an early stage of the proceedings, and without
the benefit of a developed record.38 Despite the dissent‘s
however, is that in order to separate class members
possessing an ―existent‖ legal claim from those possessing a
―nonexistent‖ one, district courts would have to perform a
Rule 12(b)(6) inquiry into each class member‘s claim.
38
At the same time, it is by no means clear that the dissent‘s
proposed analysis could be cabined to only consider the
differing statutory standing requirements in the process of
evaluating the validity of claims. As discussed supra,
statutory standing for indirect purchasers is treated as but one
element of a cause of action, rather than a jurisdictional
requirement, as the dissent mistakenly suggests. If a district
61
view, Rule 23 does not require such an intensive cataloguing
of each class member‘s claim in order to establish
predominance. Even more troublesome, this merits analysis
might not actually answer the salient question of whether
common issues of fact or law actually predominate over
individual ones.
Moreover, district courts undertaking the scrupulous
review of state laws could not ensure the validity of each
individual claim without first settling upon the precise state
law governing each of the putative class members‘ claims.
This choice-of-law analysis would be particularly difficult in
a nationwide class action where an array of factors beyond
the residence of the class members must be considered,
including, inter alia, the location of the parties and the
purchased items, and the place of contracting and
performance. See generally Berg Chilling Sys., Inc. v. Hull
Corp., 435 F.3d 455, 467 (3d Cir. 2006). The Seventh Circuit
rightly noted that ―choice-of-law issues in nationwide class
actions are rarely so uncomplicated that one can delineate
clear winning and losing arguments at an early stage in the
litigation‖; ―the legal uncertainty resulting from the
complicated choice-of-law issues‖ would unduly complicate
the process for establishing predominance under Rule 23.
Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745, 750 (7th Cir.
court were required to evaluate the statutory standing element
to assess a claim‘s viability, logic and consistency suggest
that the court should also consider other aspects of a claim for
Rule 12(b)(6) and other deficiencies. This approach would
delay proceedings in the trial court, as it would require the
parties to engage in ill-timed, protracted merits litigation at
the class certification stage.
62
2006). As a result, many courts find it ―inappropriate to
decide choice of law issues incident to a motion for class
certification.‖ See, e.g., In re Kirschner Med. Corp. Sec.
Litig., 139 F.R.D. 74, 84 (D. Md. 1991); Singer v. AT&T
Corp., 185 F.R.D. 681, 691 (S.D. Fla. 1998) (―It is well-
established that consideration of choice of law issues at the
class certification stage is generally premature.‖).
Even were a district court to properly ascertain the
applicable law after conducting the choice-of-law inquiry, it
would likely encounter unsettled legal questions, further
undermining its ability to assess the viability of some class
members‘ claims and increasing the costs of administration.
By way of example, in Warfarin, we remarked on the
―unsettled question of law as to whether Tennessee‘s antitrust
statutes . . . cover only violations occurring in intrastate
commerce or extend to cover violations occurring in interstate
commerce as well.‖ 391 F.3d at 530 n.12. Relegating the
issue to a footnote, we did not think it necessary to pry into
the legal merits of the Tennessee claims in approving the
class settlement. In another instance, the Fifth Circuit
confronted the unresolved question of whether Louisiana
antitrust law granted standing to indirect purchasers of
consumer products as part of the class certification process,
and asked the Louisiana Supreme Court to accept certification
of the question. See Free v. Abbott Labs, Inc., 176 F.3d 298,
298-99 (5th Cir. 1999). When the state court declined, the
Fifth Circuit was ―le[ft] to fathom Louisiana‘s unsettled
antitrust law.‖ Id. By requiring district courts to assess the
validity of unsettled state law claims at the certification stage,
we would needlessly introduce additional legal uncertainty
63
into a certification process that does not demand it.39
39
Application of the proposed inquiry to the instant matter
demonstrates the likely obstacles the District Court would
encounter under this approach. The objectors present Ohio‘s
statutory regime as emblematic of the impropriety of the type
of class settlement certification at issue here. Citing the Ohio
Supreme Court‘s decision in Johnson v. Microsoft Corp., 834
N.E.2d 791 (Ohio 2005), they urge that Ohio law prohibits all
indirect purchaser claims asserting violations of Ohio antitrust
law, common law claims for unjust enrichment where a
purchaser cannot establish that he conferred a benefit upon a
defendant, and claims alleging violations of the Ohio
Consumer Sales Practices Act predicated upon monopolistic
pricing practices. (Quinn Br. at 60-61.) As a result, they
insist that, ―[d]irectly contrary to the district court‘s
[certification], an Ohio class member does not have a valid
claim under Ohio law.‖ (Id. at 61.) The objectors contend
that a similar problem exists for other Illinois Brick states.
This inference is flawed for several reasons. First, the
objectors fail to engage in the type of choice-of-law exercise
necessitated by their proposed approach – the evaluation of
whether an Ohio class member is asserting a claim pursuant
to Ohio law or pursuant to the law of a repealer state or a state
affording an alternative basis for recovery. Undoubtedly, this
analysis would present significant hurdles and potentially
alter the presumed outcome. Second, although Johnson
provides that an indirect purchaser lacking an antitrust claim
under Illinois Brick cannot circumvent this limitation by
relying upon the Ohio consumer protection statute, the Ohio
Supreme Court did not, nor could it, preclude consumer
protection claims predicated on fraud or deception. As the
plaintiffs point out, the claims settled here include allegations
64
We raise the following questions to further
demonstrate the error of the proposed framework adopted by
our dissenting colleagues. If the dissent‘s ―colorable legal
claim‖ test is a threshold inquiry for commonality, why
should the court not consider every potential disqualifier from
one‘s having a ―colorable legal claim?‖ For example, in any
class certification case, should the court consider whether all
potential class members complied with applicable pre-notice
requirements under the relevant substantive law? Should the
court consider whether every potential class member
exhausted her administrative remedies under the relevant
substantive law? Should the court evaluate whether each
class member‘s claim complies with the applicable statute of
limitations? The answers to these questions most certainly
implicate whether a litigant, in a class action or otherwise, has
a ―colorable legal claim.‖ These questions, moreover, show
how flawed, from an administrative, logical, and practical
of fraud and deception separate from the antitrust allegations,
suggesting that some avenue of recovery arising from the
same defendant conduct remains available to indirect
purchasers even in Ohio. (See Pls.‘ Br. in Response to
Quinn‘s Response to Class Counsel‘s Mot. for Leave to File
Record Excerpts 13-14.) Finally, if the court is to evaluate
the viability of plaintiffs‘ statutory standing element under
Ohio law at the class certification stage, the objectors
presented no sensible reason why the court should not
likewise inspect the viability of every other aspect of an
antitrust, consumer protection, or unjust enrichment claim,
such as statutes of limitation, conditions precedent to suit, and
the like. We do not doubt that such an exhaustive analysis
would produce absurd results and cause undue delay in our
trial courts.
65
standpoint, the dissent‘s and objectors‘ approach really is. No
class would ever be certified because it would be impossible
to demonstrate that every class member has a ―colorable legal
claim.‖ (Dissenting Op. at 10.) More than this, it would gut
commonality, for, most certainly, individual issues would
then predominate. There would simply be no class that could
meet this commonality and predominance test.
vi) Settlements
Finally, were we to mandate that a class include only
those alleging ―colorable‖ claims, we would effectively rule
out the ability of a defendant to achieve ―global peace‖ by
obtaining releases from all those who might wish to assert
claims, meritorious or not. We need not take judicial notice
of the fact that plaintiffs with non-viable claims do
nonetheless commence legal action. Here, in an effort to
avoid protracted litigation and future relitigation of settled
questions in federal and state courts across numerous
jurisdictions, De Beers pursued a global settlement and
demanded a release of potential damage claims in all fifty
states. See Prudential, 148 F.3d at 326 n.82 (noting that
release of all claims ―serves the important policy interest of
judicial economy by permitting parties to enter into
comprehensive settlements that prevent relitigation of settled
questions at the core of a class action‖) (citation & quotations
omitted). Specifically, De Beers sought ―global peace‖ in a
settlement covering plaintiffs in every federal and state case,
as well as potential plaintiffs who had not yet filed cases in
either federal or state court. See generally Klein v. O’Neal,
Inc., 2009 WL 1174638, at *3 (N.D. Tex. Apr. 29, 2009) (―In
a class action settlement setting, defendants seek and pay for
global peace-i.e., the resolution of as many claims as
possible.‖); In re Vioxx Prods. Liability Litig., 574 F. Supp.
66
2d 606, 613 (E.D. La. 2008) (quoting In re Guidant Corp.
Implantable Defibrillators Prods. Liability Litig., MDL No.
05-1708, 2008 WL 682174, at *3 (D. Minn. 2008) (noting
that the parties ―contemplated a global settlement covering
Plaintiffs from both the MDL and state cases, and included
Plaintiffs whose cases had been filed or transferred to the
MDL, Plaintiffs whose cases were filed outside the MDL in
state court proceedings, and potential Plaintiffs who had not
yet filed their cases‖)). The parties entered a mutual
agreement and sought certification of a settlement class with
the aim of avoiding countless individual suits in diverse
jurisdictions.
Our dissenting colleagues disparage the concept of
―global peace‖ as if it were an impermissible objective in
using the class action device. From a practical standpoint,
however, achieving global peace is a valid, and valuable,
incentive to class action settlements. Settlements avoid future
litigation with all potential plaintiffs – meritorious or not. If
the dissent‘s position were adopted, there would be no
settlements, collusive or otherwise. First of all, litigating
whether a claim is ―colorable‖ and defending who is in and
who is not in the class would be an endless process,
preventing the parties from seriously getting to, and engaging
in, settlement negotiations. And, as discussed above, the
―individualized‖ nature of the task would doom the class
certification process from the outset. Second, since releases
would necessarily be limited to the qualifying class members,
those ultimately excluded would no doubt go right back into
court to continue to assert their claims. No defendants would
consider settling under this framework, for they could never
be assured that they have extinguished every claim from
67
every potential plaintiff.40
As applied here, the objectors‘ approach would subject
De Beers to numerous individual suits brought by claimants
excluded from the class, undermining ―the strong
presumption in favor of voluntary settlement agreements,
which we have explicitly recognized with approval.‖
Ehrheart, 609 F.3d at 594 (citing Pennwalt Corp. v. Plough,
676 F.2d 77, 79-80 (3d Cir. 1982)). ―This presumption is
especially strong in class actions and other complex cases . . .
because they promote the amicable resolution of disputes and
lighten the increasing load of litigation faced by the federal
courts.‖ Id. (citations omitted). By contrast, requiring a class
to assert uniform or identical questions of law or fact and to
preemptively demonstrate their legal viability ―would
seriously undermine the possibility for settling any large,
multi district class action.‖ Prudential II, 261 F.3d at 367.
Apart from imposing immense administrative costs, the
extraordinary requirement that class members individually
possess a ―colorable legal claim‖ would make it increasingly
difficult to approve nationwide class settlements entailing
predominantly common issues but arising under varying state
40
Of course, some global settlements may nevertheless be
rejected for failing to meet the requirements of Rule 23. In
Ortiz v. Fibreboard Corp., 528 U.S. 815 (1999), the Supreme
Court rejected a global settlement in a mandatory class action
based on a limited fund theory under Rule 23(b)(1)(B).
There, the plaintiffs seeking class certification failed to
demonstrate that the fund available to pay claims was limited
beyond the fund amount agreed to by the parties. There, the
requirements of Rule 23(b)(1)(B) were not met; here, the
requirements of Rule 23(b)(3) are met.
68
laws. The resulting framework would likely siphon the
various state law claims from federal class actions, and
defendants seeking to settle ―in such suits would always be
concerned that a settlement of the federal class action would
leave them exposed to countless suits in state court despite
settlement of the federal claims.‖ Id.; see also Pet Food, 629
F.3d at 342 (―[A]bsent class certification, the Court may be
faced with litigating over 100 individual lawsuits all of which
would arise out of the same set of operative facts.‖).
Rather than ―concentrating the litigation of the claims‖
in a superior single action, Fed. R. Civ. P. 23(b)(3)(C), this
would serve to frustrate ―[t]he core purpose of Rule
23(b)(3),‖ which ―is to vindicate the claims of consumers and
other groups of people whose individual claims would be too
small to warrant litigation,‖ Amchem, 521 U.S. at 617.
b. Rules Enabling Act & Federalism Concerns
The objectors further contend that the District Court‘s
certification of the settlement class was flawed because it
―recognized as valid, for purposes of Rule 23, claims that are
not recognized as valid under applicable state law.‖ (Quinn
Supp. Br. at 28.) Accordingly, they argue, the order ran afoul
of the Rules Enabling Act, which provides that the rules of
procedure ―shall not abridge, enlarge or modify any
substantive right.‖ 28 U.S.C. § 2072(b).41 We cannot agree.
41
The Panel agreed with this characterization, holding that
―the order contravenes the Rules Enabling Act‖ because it
―extends antitrust remedies that, in many instances, have no
root in state substantive law.‖ Sullivan, 613 F.3d at 149. The
Panel rejected the argument that De Beers‘s willingness to
stipulate to liability obviated this concern, noting that a court
69
In Prudential, we approved a district court‘s
certification of a proposed settlement despite objections that
the certification modified or abridged state law rights. 148
F.3d at 324 (discussing 962 F. Supp. 450, 461-62 (D.N.J.
1997)). We agreed with the district court that ―approval of a
settlement under Rule 23 merely recognizes the parties‘
voluntary compromise of their rights and does not itself affect
their substantive state law rights.‖ Id. (citation & alterations
omitted). As a result, we also agreed with the district court‘s
assessment that the proposed settlement could not violate the
Rules Enabling Act since a ―court‘s approval of a voluntary
settlement, by nature a compromise of rights, does not affect
substantive state rights.‖ Prudential, 962 F. Supp. at 462.
It is well established that ―settlement agreements are
creatures of private contract law.‖ See, e.g., Bauer v. Trans.
Sch. Dist. of City of St. Louis, 255 F.3d 478, 482 (8th Cir.
2001). ―A district court is not a party to the settlement, nor
may it modify the terms of a voluntary settlement agreement
between parties.‖ Ehrheart, 609 F.3d at 593 (emphasis
added). Thus, a district court‘s certification of a settlement
simply recognizes the parties‘ deliberate decision to bind
themselves according to mutually agreed-upon terms without
engaging in any substantive adjudication of the underlying
causes of action. In the absence of a finding that plaintiffs are
actually entitled to relief under substantive state law, we
reiterate that a court does not ―abridge, enlarge, or modify
was obligated even in the settlement context to ensure that all
of Rule 23‘s requirements were met and could not
―effectively grant[ ] relief to individuals to whom De Beers
had no antitrust liability.‖ Id. The dissent repeats this
argument.
70
any substantive right‖ by approving a voluntarily-entered
class settlement agreement. § 2072(b).
In the same vein, we disagree with the contention that
the District Court violated principles of federalism by
extending to the plaintiffs a substantive right that they could
not have asserted in state court.42 As an initial matter, the
District Court‘s approval of the parties‘ settlement should not
be considered a recognition or expansion of substantive rights
unavailable in a particular state.43 See supra. In this regard,
42
The Panel agreed with this argument, noting that certain
states‘ ―categorical refus[al] to allow indirect purchasers to
bring a price-fixing claim‖ was ―not trivial‖ and represented
―fundamental policy differences among the several states.‖
Sullivan, 613 F.3d at 152, 148. The Panel concluded that
these state interests were in effect ―subordinated to De
Beers‘s desire to resolve all indirect purchaser claims
simultaneously‖ and ―in a quest to clear the queue in court.‖
Id. at 152 (citation & quotations omitted).
43
The dissent concludes that approving class certification
here endorses the enlargement of substantive rights because
had some class members brought these claims individually in
state court, they would ―be immediately shown the exit.‖
(Dissenting Op. at 30.) This is incorrect, for the state court
would not automatically dismiss them without a motion from
De Beers. More significantly, nothing would prevent De
Beers from settling those claims in lieu of moving to dismiss
them, and doing so in that scenario would not be an
enlargement of substantive rights.
In responding to this point, the dissent equates an objection
to class certification with a motion to dismiss, but such
71
the disputed certification order did not subordinate the states‘
interests, as it did not in fact validate any asserted claims
purportedly rejected by the states.44
Moreover, consideration of the policy imperatives
underlying Illinois Brick confirms that the District Court‘s
certification of a settlement class here did not infringe upon
federalism principles. Illinois Brick‘s restriction on indirect
purchaser recovery was motivated by prudential concerns for
manageability; it does not reflect a categorical policy
judgment that indirect purchasers do not merit antitrust
protection. As we previously highlighted, the Illinois Brick
treatment demonstrates the very flaw in its position. Class
certification and motions to dismiss involve two distinct (and
different) standards, and the former does not permit as
extensive an inquiry into the merits as the latter does. (See
Dissenting Op. at 30 n.21.)
44
The dissent decries this position, contending that
including Indirect Purchasers in the class who could not, on
an individual basis, state a claim for recovery impermissibly
modifies the rights of those Indirect Purchasers who could
recover individually. In so asserting, the dissent assumes that
the size of the settlement fund would be the same if the
Indirect Purchasers who cannot recover individually were
excluded from the class. Surely this cannot be the case, for
the settlement amount to which De Beers has agreed must be
based in large part on the number of potential class members
and on securing global peace. Had those Indirect Purchasers
who could not recover individually been excluded, we
seriously doubt that the Indirect Purchaser settlement fund
would still be $272.5 million.
72
Court offered ―three policy reasons for its holding‖:
(1) a risk of duplicative liability for defendants
and potentially inconsistent adjudications could
arise if courts permitted both direct and indirect
purchasers to sue defendants for the same
overcharge; (2) the evidentiary complexities
and uncertainties involved in ascertaining the
portion of the overcharge that the direct
purchasers had passed on to the various levels
of indirect purchasers would place too great a
burden on the courts; and (3) permitting direct
and indirect purchasers to sue only for the
amount of the overcharge they themselves
absorbed and did not pass on would cause
inefficient enforcement of the antitrust laws by
diluting the ultimate recovery and thus
decreasing the direct purchasers' incentive to
sue.
Howard Hess Dental Labs Inc. v. Dentsply Intern., Inc., 424
F.3d 363, 369-70 (3d Cir. 2005) (citing Illinois Brick, 431
U.S. at 730-35, 740-43).45 Nevertheless, the Supreme Court
45
Other Courts of Appeals have recognized a similar
functional focus in the Supreme Court‘s decision. See, e.g.,
Freedom from Religion Found., Inc. v. Chao, 433 F.3d 989,
991 (7th Cir. 2006) (―An example of the prudential
limitations on standing is the judge-made ‗indirect purchaser‘
doctrine of antitrust law,‖ which is premised on minimizing
complicated litigation), rev’d on other grounds, Hein v.
Freedom from Religion Found., Inc., 551 U.S. 587 (2007);
County of Oakland v. City of Detroit, 866 F.2d 839, 852 (6th
Cir. 1989) (―The question of whether a plaintiff has standing
73
acknowledged that its aversion to administering indirect
purchaser recoveries undoubtedly ―denie[d] recovery to those
indirect purchasers who may have been actually injured by
antitrust violations.‖ Illinois Brick, 431 U.S. at 746.46
Here, contrary to the dissent‘s and the objectors‘
argument, the District Court‘s certification order did not
undermine these prudential considerations. De Beers‘s
agreement to a specified recovery payment – and the
interrelated removal of a need to ascertain and prove the
amount of passed-on overcharges – marginalizes the first two
Illinois Brick concerns for duplicative liability and
complexity in ascertaining the passed-on overcharges. The
third prudential concern is similarly inapposite since the
Direct Purchaser Class pursued and approved a separate
settlement agreement and there is no indication that the
Indirect Purchaser Settlement undermined ―the direct
purchasers‘ incentive to sue.‖ Dentsply, 424 F.3d at 370.
to sue under the antitrust laws depends largely on prudential
considerations.‖).
46
States on both sides of the indirect purchaser restriction
have likewise appreciated the pragmatic origins of and
purposes served by Illinois Brick. See, e.g., Lorix v.
Crompton Corp., 736 N.W.2d 619, 624 (Minn. 2007) (noting
that antitrust standing ―has prudential limits based on
remoteness of injury and complexity of proof‖); Comes v.
Microsoft Corp., 646 N.W.2d 440, 449 (Iowa 2002) (―[T]he
Illinois Brick court was wholly concerned with the
complexity of litigation and the possibility of multiple
liability.‖); Abbott Labs, Inc. v. Segura, 907 S.W.2d 503, 506-
07 (Tex. 1995) (discussing the prudential policy concerns
underlying Illinois Brick).
74
Indeed, the immediate relief offered by the instant settlement
appears to offer the most ―[ ]efficient enforcement of the
antitrust laws,‖ id., when compared to the highly uncertain
result the plaintiffs would encounter by engaging in
protracted litigation against a party with a long track record of
avoiding the jurisdiction of courts in the United States. See
generally Comment, The Diamond Cartel, 56 Yale L.J. 1404,
1411 (1947) (discussing De Beers‘s avoidance of effective
antitrust prosecution in light of ―the twin difficulties of
obtaining jurisdiction over the foreign corporations and of
retaining within the court‘s reach tangible assets sufficient to
enforce a decree‖).
Accordingly, we reject the assertion that the District
Court inappropriately subordinated state sovereignty in
certifying the class.
c. Identification of Class Claims
Pursuant to Rule 23(c)(1)(B)
Apart from our disagreement with the objectors‘
arguments regarding commonality and predominance, we
similarly reject the view that the District Court‘s Order in this
case failed to satisfy all of Rule 23(c)(1)(B)‘s substantive
requirements.
As we have explicated, Rule 23(c) provides that a
certification order ―must include (1) a readily discernible,
clear, and precise statement of the parameters defining the
class or classes to be certified, and (2) a readily discernible,
clear, and complete list of the claims, issues or defenses to be
treated on a class basis.‖ Hydrogen Peroxide, 552 F.3d at
320-21 (citation & quotations omitted); see also Fed. R. Civ.
P. 23(c)(1)(B) (―An order that certifies a class action must
75
define the class and the class claims, issues, or defenses. . .
.‖). The District Court‘s Order ―easily meets the
requirements of Rule 23(c)(1)(B) with respect to the
definition of the class itself.‖ Wachtel ex rel. Jesse v.
Guardian Life Ins. Co. of Am., 453 F.3d 179, 188 (3d Cir.
2006). The Court properly delineated the parameters of the
Indirect Purchaser Class, defining class members as any
purchasers of any diamond product in the United States
except for those who purchased directly from De Beers or its
competitors. (App‘x 270.)
As to the second prong of the above test, the
contention is raised that the Court‘s Order did not ―explicitly
define which claims, issues, or defenses are to be treated on a
class basis.‖ Wachtel, 453 F.3d at 189. We disagree with this
characterization, as the settlement posture of this class action
makes our decision on this front particularly simple. As we
noted in Wachtel, a ―critical‖ purpose of Rule 23(c)(1)‘s
requirement of a ―full and clear articulation of the litigation‘s
contours at the time of class certification‖ was the ―need [ ] to
determine how the case will be tried‖ through presentation of
―a ‗trial plan‘ that describes the issues likely to be presented
at trial and tests whether they are susceptible to class-wide
proof.‖ 453 F.3d at 186 (quoting Fed. R. Civ. P. 23(c)(1)(A)
advisory committee‘s note) (quotations omitted). In the
settlement context, however, this concern evaporates, ―for the
proposal is that there be no trial.‖ Comm. Bank II, 622 F.3d
at 291 (citing Amchem, 521 U.S. at 620). As such, we agree
with the Seventh Circuit‘s sentiment that ―[g]iven the
settlement, no one need draw fine lines among [the various]
theories of relief.‖ Mexico Money, 267 F.3d at 747.
The District Court‘s Order identified six common legal
or factual issues it reasonably found to ―predominate‖ over
76
individual questions and susceptible to class treatment, (see
App‘x 276); the Court also expressly included in its Opinion
a background section titled ―Underlying Claims, Cases &
Parties,‖ which laid out in depth all the claims asserted in
each individual suit to be resolved by the class settlement,
(App‘x 263-65). See also supra note 6. It is undisputed that
the Settlement Agreement resolves and releases each and
every one of these asserted claims and issues, obviating any
need to ―cobble together‖ some uncertain category of issues
to be tried as a class. Wachtel, 453 F.3d at 189. ―[N]o
particular format is necessary in order to meet the substantive
requirement of [Rule 23(c)], and we will not set aside
substantively conforming certification orders purely over
matters of form.‖ Id. at 188 n.10. The District Court‘s
Opinion ―facilitate[d] meaningful appellate review of [this]
complex certification decision[ ]‖ by providing us with ample
guidance as to the ―contours‖ of the settlement.‖ Id. at 186.47
47
We find additional support for our conclusion from the
First Circuit‘s recent ruling in In re Pharmaceutical Industry
Average Wholesale Price Litigation, 588 F.3d 24 (1st Cir.
2009). There, the Court remarked that ―Rule 23(c)(1)(B) was
added . . . to help appellate courts reviewing an order better
understand the district court‘s decision,‖ and to allow
―appellate courts, attorneys, and parties [to] proceed with
more information and mutual understanding.‖ Id. at 40
(citing Wachtel, 453 F.3d at 186-87). As a result, the Court
upheld a district court‘s certification order that ―plainly
defined the class and the class claims, issues, and defenses in
sufficient detail,‖ ―devoted many pages to the class‘s factual
allegations against the defendant,‖ ―carefully analyzed the
proposed class‘s suitability for certification, again explaining
the issues common to the class,‖ and also ―discussed the state
77
Accordingly, we conclude that the District Court did
not run afoul of the requirements of Rule 23(c)(1)(B) and
properly certified the two classes of claims.
2. Injunctive Relief Pursuant to Rule 23(b)(2)
In addition to certifying the Direct and Indirect
Purchaser Classes under Rule 23(b)(3), the District Court
further certified the purchaser classes pursuant to Rule
23(b)(2) for the purpose of awarding injunctive relief under §
16 of the Clayton Act, 15 U.S.C. § 26.48 (App‘x 285.)
Plaintiffs alleged that, in the absence of injunctive relief, De
Beers‘s anticompetitive conduct would continue to cause the
consumer protection statutes underlying the class‘s claims,
noting differences among them.‖ Id. Likewise here, the
District Court clearly defined the class, listed six common
claims and issues, devoted significant discussion to the
factual allegations, analyzed the class‘s suitability for
certification by explaining the predominantly common issues,
and noted the differences among the various statutes
implicated in the claims. As succinctly stated by our fellow
Court of Appeals, ―[t]hat is enough.‖ Id. at 41.
48
15 U.S.C. § 26 reads in pertinent part:
Any person, firm, corporation, or association
shall be entitled to sue for and have injunctive
relief, in any court of the United States having
jurisdiction over the parties, against threatened
loss or damage by a violation of the antitrust
law . . . when and under the same conditions
and principles as injunctive relief against
threatened conduct that will cause loss or
damage is granted by courts of equity.
78
entire membership of all classes to pay artificially inflated
prices. The objectors counter that class members lack
antitrust standing to seek injunctive relief because they cannot
demonstrate a significant threat of injury from an impending
violation of the antitrust laws. In support, they point to expert
reports submitted in 2008 for the targeted purpose of
identifying a common methodology benchmark for
calculating damages; these reports suggested that the market
for rough diamonds became more competitive in the interim
between mid-2006 and 2008, in concert with De Beers‘s
weakening position in the market.49 In making this argument,
the objectors reject the District Court‘s conclusion that De
Beers‘s willful entry into the settlement removed the
plaintiffs‘ burden to establish the likelihood of future injury.
(See App‘x 285.)
In contrast to the damages provision of § 4 of the
Clayton Act, ―‗Section 16 has been applied more expansively,
both because its language is less restrictive than that of § 4 . .
. and because the injunctive remedy is a more flexible and
adaptable tool for enforcing the antitrust laws than the
damage remedy. . . .‘‖50 McCarthy v. Recordex Serv., Inc., 80
49
After evaluating the mentioned expert reports, the Panel
agreed with the objectors that plaintiffs no longer faced ―a
significant threat of future antitrust harm in the absence of the
injunction,‖ and, therefore, lacked antitrust standing under §
16 of the Clayton Act. Sullivan, 613 F.3d at 157-58.
50
Section 16 provides in pertinent part:
Any person, firm, corporation, or association
shall be entitled to sue for and have injunctive
relief, in any court of the United States having
jurisdiction over the parties, against threatened
79
F.3d 842, 856 (3d Cir. 1996) (quoting Schoenkopf v. Brown &
Williamson Tobacco Corp., 637 F.2d 205, 210 (3d Cir.
1980)). Because actions seeking injunctive relief under § 16
do ―not present the countervailing considerations – such as
the risk of duplicative or ruinous recoveries and the spectre of
a trial burdened with complex and conjectural economic
analyses,‖ plaintiffs need not ―satisfy the direct purchaser
requirement as a condition of seeking injunctive relief.‖ In re
Warfarin Sodium Antitrust Litig., 214 F.3d 395, 400 (3d Cir.
2000) (Warfarin I) (quoting Mid-West Paper Prods Co. v.
Continental Group, Inc., 596 F.2d 573, 594 (3d Cir. 1979))
(quotations omitted). Instead, to establish the need for
injunctive relief, plaintiffs must generally demonstrate three
uncomplicated prerequisites: ―a threat of loss‖; that the injury
in question ―is of the type the antitrust laws were intended to
prevent‖; and ―a significant threat of injury from a violation
of the antitrust laws.‖ Id. at 399 (citations & quotations
omitted; alterations added).
Despite this burden, it is well established that ―parties
to a suit have the right to agree to anything they please in
reference to the subject matter of their litigation, and the
court, when applied to, will ordinarily give effect to their
agreement, if it comes within the general scope of the case
made by the pleadings.‖ Sansom Comm. by Cook v. Lynn,
735 F.2d 1535, 1548 (3d Cir. 1984) (quoting Pac. R.R. v.
loss or damage by a violation of the antitrust
laws, . . . when and under the same conditions
and principles as injunctive relief against
threatened conduct that will cause loss or
damage is granted by courts of equity.
15 U.S.C. § 26.
80
Ketchum, 101 U.S. 289, 297 (1879) (quotations & alterations
omitted)). In turn, ―[a]s the Supreme Court has recognized, a
district court may ‗provide broader relief in an action that is
resolved before trial than the court could have awarded after a
trial.‘‖ In re Agent Orange Prod. Liability Litig., 818 F.2d
179, 185 (2d Cir. 1987) (quoting Local No. 93, Int’l Assoc. of
Firefighters v. City of Cleveland, 478 U.S. 501, 525 (1986)
(alterations omitted). Accordingly, district courts are
afforded wide discretion to give effect to joint compromises
that timely advance the interests of the parties without
wasteful litigation.51 In exercising this discretion, the District
Court here could reasonably approve a mutually agreed-upon
stipulation enjoining conduct within the Court‘s jurisdiction
regardless of whether the plaintiffs could have received
identical relief in a contested suit by satisfying each of the
aforementioned requirements at trial.
Yet because of the class nature of the instant suit, the
District Court‘s approval of the stipulated injunction borne
out of a class settlement did need to satisfy an additional test.
Specifically, Rule 23(b)(2) authorizes class certification only
when ―the party opposing the class has acted or refused to act
51
Unsurprisingly, a paucity of case law addresses the issue
of whether parties to a lawsuit may consent to the issuance of
an injunction that is agreeable to all parties without a court‘s
asking whether the prerequisites of Rule 23(b)(2) have been
satisfied. This dearth of precedent is to be expected since it
would be highly illogical for a defendant to dispute an
injunction to which it in fact agreed, and for a plaintiff
beneficiary to object to an injunction entered for its benefit.
Curiously, the latter situation is presented here.
81
on grounds generally applicable to the class, thereby making
appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole.‖ Fed.
R. Civ. P. 23(b)(2).52 Important to the analysis ―is that the
relief sought . . . should benefit the entire class,‖ and ―the
putative class [must] ‗demonstrate that the interests of the
class members are so like those of the individual
representatives that injustice will not result from their being
bound by such judgment in the subsequent application of
principles of res judicata.‘‖ Baby Neal for and by Kanter v.
Casey, 43 F.3d 48, 59 (3d Cir. 1994) (quoting Hassine, 846
F.2d at 179). ―[I]njunctive actions, seeking to define the
relationship between the defendant and the ‗world at large,‘
will usually satisfy the requirement.‖ Id.
Here, we have no difficulty concluding that Rule
23(b)(2)‘s requirement that De Beers‘s alleged conduct be
―generally applicable to the class‖ was satisfied. Indeed,
much of our discussion of ―predominance‖ in the previous
section of this Opinion specifically emphasized the common
elements of the complained of conduct that are equally
applicable to ―the class as a whole.‖ See supra. As the
District Court discussed, the plaintiffs alleged that De Beers‘s
anticompetitive behavior ―caused the entire membership of all
classes to pay artificially inflated prices,‖ and that, in the
52
―This rule applies when the putative class seeks injunctive
or declaratory relief, and ‗does not extend to cases in which
the appropriate final relief relates exclusively or
predominantly to money damages,‘‖ as with a certification
pursuant to Rule 23(b)(3). Beck v. Maximus, Inc., 457 F.3d
291, 301 (3d Cir. 2006) (quoting Fed. R. Civ. P. 23(b)(2)
advisory committee‘s note).
82
absence of injunctive relief, all classes would continue to pay
artificial premiums. (App‘x 285.) These claims demonstrate
shared interests between the members of the putative class,
and, these allegations, if proven, would support injunctive
relief respecting the class as a whole. Likewise, the parties‘
mutual decision to settle claims ―on grounds generally
applicable to the class‖ complies with the text of Rule
23(b)(2) and should be respected.
In reaching this decision, we also reject the objectors‘
request that we engage in fact-finding as to whether all class
members could show an imminent threat of prospective
antitrust injury. Due to the settlement posture of this case,
which controls, we need not concern ourselves with this issue.
Moreover, the District Court never addressed the question of
whether changes in the market negatively affected De Beers‘s
ability to extract higher rents from diamond sightholders and
subsequent purchasers.53 Without the benefit of the District
53
The objectors urge, based on the damages methodology
expert reports, that De Beers‘s market share fell to
approximately 46% in 2006, and, therefore, posed little
continuing threat of future antitrust harm. (Quinn Br. 19.)
Although the experts mentioned that De Beers lost its
dominant share of an increasingly competitive market, the
experts never opined – as the objectors contend – that
plaintiffs face no significant threat of future antitrust harm.
Were we to conduct our own independent analysis, we might
draw a very different conclusion as to De Beers‘s asserted
ability to inflict future harm: we might decide that De Beers‘s
ongoing leadership position – considering its purported 46%
market share in the diamond market – afforded it ample
opportunity to influence diamond prices, posing an ongoing
83
Court‘s factual findings on the matter in any event, ―[w]e
deem it inappropriate to treat this question without any
evidence having been presented on [it] and without the
benefit of the findings and opinion of the district judge.
Merola v. Atl. Richfield Co., 515 F.2d 165, 173 (3d Cir.
and significant threat of antitrust injury. See generally United
States v. Continental Can Co., 378 U.S. 441, 459 (1964)
(discussing defendant‘s ―dominant position‖ based upon a
43%-46% market share in a highly concentrated industry).
The objectors place far too much stock in De Beers‘s
purported market share, ignoring one of the basic tenets in
assessing market power: ―Obviously no magic inheres in
numbers; the relative effect of percentage command of a
market varies with the setting in which that factor is placed.‖
Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 612
(1953).
Curiously, the objectors and the Panel also rejected the
plaintiffs‘ contention that the injunction entered by the
District Court in 2006 – an injunction directly tailored to
fostering competition – played any role in the increasingly
competitive market. Sullivan, 613 F.3d at 157. The Panel
opined that although the mid-2006 competitive increases
―roughly coincided with the District Court‘s issuance of the
injunction,‖ this coincidence did not support the reasonable
deduction that the injunction ―played a meaningful role in
producing those competitive gains.‖ Id. at 157-58. An
equally logical inference would be that increased competition
approximating the issuance of the injunction evidenced the
efficacy of the relief. That said, we will abstain from
extrapolating broad legal conclusions of market
competitiveness from data narrowly focused on damages
methodology.
84
1975).
At bottom, we hold that the District Court acted within
its discretion in accepting De Beers‘s stipulation to the
injunctive relief.
B. Fairness of the Class Action Settlement & the Plan of
Allocation
Apart from contesting the certification of the
settlement class, the objectors raise two other arguments as to
the fairness and adequacy of the proposed settlement. First,
they quarrel with the District Court‘s approval of the
settlement as a whole under Federal Rule of Civil Procedure
23(e)‘s requirement that the settlement be ―fair, reasonable,
and adequate.‖ (See Bagolie Br. at 18-28.) Second, the
objectors dispute the fairness and adequacy of the
settlement‘s plan of allocation for a portion of the settlement.
Specifically, they urge that the proposed Indirect Purchaser
Settlement distribution is ―patently unfair‖ and presents ―an
intra-class conflict of interest that renders Class Counsel, as
well as the class representative, inadequate.‖ (See Murray
Consol. Br. at 13; Quinn Br. at 63-64; Petrus Br. at 12-13.)
We address each objection in order.
1. Approval of the Settlement
Before approving a class settlement agreement, a
district court must find that the requirements for class
certification under Rule 23(a) and (b) are met, and must
separately ―determine that the settlement is fair to the class
under [Rule] 23(e).‖ Ins. Broker., 579 F.3d at 257. Rule
23(e) provides that a proposed settlement may only be
approved ―after a hearing and on finding that it is fair,
85
reasonable, and adequate.‖ Fed. R. Civ. P. 23(e)(2). In this
process, ―trial judges bear the important responsibility of
protecting absent class members,‖ and must be ―assur[ed] that
the settlement represents adequate compensation for the
release of the class claims.‖ Pet Food, 629 F.3d at 349
(citation & quotations omitted); see also Ehrheart, 609 F.3d
at 593 (stressing that ―[t]he purpose of Rule 23(e) is to protect
the unnamed members of the class,‖ and that a ―district court
acts as a fiduciary‖ for absent class members) (citing
Warfarin, 391 F.3d at 534). ―[W]here settlement negotiations
precede class certification, and approval for settlement and
certification are sought simultaneously, district courts should
be even ‗more scrupulous than usual‘ when examining the
fairness of the proposed settlement.‖ Warfarin, 391 F.3d at
534 (quoting GM Truck, 55 F.3d at 805).
In assessing the fairness of a proposed settlement, we
have articulated nine well-established primary factors for a
district court to consider in conducting its inquiry:
(1) the complexity, expense and likely duration
of the litigation; (2) the reaction of the class to
the settlement; (3) the stage of the proceedings
and the amount of discovery completed; (4) the
risks of establishing liability; (5) the risks of
establishing damages; (6) the risks of
maintaining the class action through the trial;
(7) the ability of the defendants to withstand a
greater judgment; (8) the range of
reasonableness of the settlement fund in light of
the best possible recovery; [and] (9) the range
of reasonableness of the settlement fund to a
possible recovery in light of all the attendant
risks of litigation.
86
Pet Foods, 629 F.3d at 350 (quoting Girsh v. Jepson, 521
F.2d 153, 157 (3d Cir. 1975)). (internal quotation marks and
alterations omitted).
Furthermore, a district court may consider several
other factors ―illustrative of additional inquiries that in many
instances will be useful for a thoroughgoing analysis of a
settlement‘s terms,‖ id.:
[T]he maturity of the underlying substantive
issues, as measured by experience in
adjudicating individual actions, the
development of scientific knowledge, the extent
of discovery on the merits, and other factors
that bear on the ability to assess the probable
outcome of a trial on the merits of liability and
individual damages; the existence and probable
outcome of claims by other classes and
subclasses; the comparison between the results
achieved by the settlement for individual class
or subclass members and the results achieved—
or likely to be achieved—for other claimants;
whether class or subclass members are accorded
the right to opt out of the settlement; whether
any provisions for attorneys' fees are
reasonable; and whether the procedure for
processing individual claims under the
settlement is fair and reasonable.
Id. (quoting Prudential, 148 F.3d at 323). The ―settling
parties bear the burden of proving that the Girsh factors
weigh in favor of approval of the settlement‖ throughout this
87
analysis.54 Id. (citation omitted). ―Because of the district
court‘s proximity to the parties and to the nuances of the
litigation, we accord great weight to the court‘s factual
findings‖ in conducting the fairness inquiry. Prudential, 148
F.3d at 317.
The District Court in this instance engaged in a
thorough review of the Girsh factors, holding that the relevant
considerations on balance weighed in favor of a finding of
fairness under Rule 23(e). We conclude that the Court did
not abuse its discretion in finding the settlement to be fair,
reasonable, and adequate.
a. Complexity, Expense, and Likely Duration of
the Litigation
The first Girsh factor ―captures the probable costs, in
both time and money, of continued litigation.‖ Warfarin, 391
F.3d at 536 (citation omitted). The District Court found that
this litigation ―would have been difficult, as multiple parties,
multiple claims, extensive jurisdictional problems, and
complicated discovery would be involved.‖ (App‘x 289.)
54
We have separately observed that ―an initial presumption
of fairness‖ may apply when reviewing a proposed settlement
where: ―(1) the settlement negotiations occurred at arm‘s
length; (2) there was sufficient discovery; (3) the proponents
of the settlement are experienced in similar litigation; and (4)
only a small fraction of the class objected.‖ Warfarin, 391
F.3d at 535 (quoting In re Cendant Corp. Litig., 264 F.3d
201, 232 (3d Cir. 2001) (―Cendant‖). The District Court did
not consider or rely upon this presumption in assessing
fairness. Because we find no error in the Court‘s thorough
analysis, we will likewise disregard this presumption.
88
The Court further discussed the likelihood of extensive
motion practice as to jurisdiction, the lifting of default
judgments, statute of limitations issues, and the concern for
protecting foreign litigants in United States courts. (Id. 289-
90.)
We agree with the District Court‘s conclusion that
litigation of the numerous legal and factual issues discussed
would have inevitably contributed to the expense and
duration of the proceedings. Faced with the uncertainty
arising from the existing defaults and De Beers‘s ongoing
denial of personal jurisdiction, the settlement provided
substantial and immediate relief to the class without further
expense. Moreover, extended motion practice ―would not
only further prolong the litigation but also reduce the value of
any recovery to the class.‖ Warfarin, 391 F.3d at 536.
Accordingly, this first factor favors the settlement.
b. The Reaction of the Class to the Settlement
The second Girsh factor ―attempts to gauge whether
members of the class support the settlement,‖ by considering
the number of objectors and opt-outs and the substance of any
objections. Prudential, 148 F.3d at 318. The District Court
determined that the reaction of the class was overwhelmingly
positive,55 and noted that all twenty of the objections
55
The Court noted that, as of March 31, 2008, it had
received 433,891 claims forms from all classes – nine from
members of the Direct Purchaser Class and 433,882 from the
Indirect Purchaser Class, with 431,380 from the Consumer
Subclass and 2,502 from the Reseller Subclass. (App‘x 291.)
The Court also stated that five requests for exclusion had
been received from the Direct Purchaser Class and 139 from
89
pertained to the Indirect Purchaser Class, with all but four
objections relating to the consumer subclass, which consists
of between 67 and 117 million members. (App‘x 290-91.)
We agree with the District Court‘s observation that the
minimal number of objections and requests for exclusion are
consistent with class settlements we have previously
approved, and we are satisfied that the District Court acted
within its discretion in finding this factor to favor settlement.
c. The Stage of the Proceedings and the
Amount of Discovery Completed
The third Girsh factor ―captures the degree of case
development that class counsel had accomplished prior to
settlement,‖ and allows the court to ―determine whether
counsel had an adequate appreciation of the merits of the case
before negotiating.‖ Warfarin, 391 F.3d at 537 (citation,
quotations & alterations omitted). The District Court
thoroughly discussed the development of this case prior to
settlement, highlighting the extensive factual discovery of
industry participants, consumers, and experts in the field; the
retention of economic experts; the review of publicly
available information; the experiences of counsel who had
previously sued De Beers for price-fixing; and the analysis of
proceedings relating to De Beers‘s other contractual
entanglements in the field. (App‘x 292.) The Court further
the Indirect Purchaser Class (66 from the Reseller Subclass
and 69 from the Consumer Subclass). (Id.) The Court
received no objections from any direct purchasers and also
noted that notice was provided to the United States Attorney
General and the Attorney Generals of all fifty states, with
none seeking to participate in the proceedings. (Id. 290-291,
1449-1450.)
90
observed that several of the individual suits had been in
litigation for years before negotiation of the settlement, and
emphasized that classes had been certified in several
individual suits after significant factual investigation and
legal development. (Id.) The Court committed no error in
concluding that counsel adequately appreciated the merits of
the case prior to reaching a settlement, and we agree that this
factor favors approval of the settlement.
d. The Risks of Establishing Liability
The fourth Girsh factor ―examine[s] what the potential
rewards (or downside) of litigation might have been had class
counsel decided to litigate the claims rather than settle them.‖
Cendant, 264 F.3d at 237. As already highlighted, the
District Court discussed at length the various difficulties
plaintiffs would likely encounter in attempting to collect on
default judgments in foreign jurisdictions, observing that the
Court‘s monetary judgments would likely be perceived as
―beyond its authority‖ and ―effectively void.‖ (App‘x 294-
95.) The objectors‘ misguided contention that no risk of
establishing liability exists entirely disregards the potential
drawbacks of litigating and attempting to collect in foreign
jurisdictions, including the extensive motion practice and
expense such an uncertain tactic would entail. We are also
influenced by De Beers‘s track record of rejecting United
States jurisdiction over its legal affairs and the fact that De
Beers has continued to deny any wrongdoing even in reaching
a settlement agreement in this matter. Accordingly, we
discern no error in the District Court‘s conclusion that this
factor favors settlement.
e. The Risks of Establishing Damages
91
As with the fourth Girsh factor, ―this inquiry attempts
to measure the expected value of litigating the action rather
than settling it at the current time.‖ Cendant, 264 F.3d at
238-39 (citation & quotations omitted). The District Court
found that entry of a default judgment against De Beers
would prompt the court to ―conduct such hearings or order
such references as it deems necessary and proper‖ to ascertain
the amount of damages since the damages had not presently
been established with certainty. (App‘x 296 (quoting Fed. R.
Civ. P. 55(b)).) The expert reports submitted by the various
parties indicated that these proceedings would likely entail a
―battle of the experts,‖ with each side presenting its figures
and defenses to the other side‘s proposals. (Id. 297.)
Because of the ―uncertainty attendant to such a battle,‖ the
District Court determined this factor to weigh in support of
settlement, (id.), and the objectors do not contest this finding
on appeal. Accordingly, we find no flaw in the District
Court‘s decision that the additional ―risk in establishing
damages‖ counsels in favor of approval of the settlement.
Cendant, 264 F.3d at 239.
f. The Risks of Maintaining the Class Action
Through Trial
The sixth Girsh factor ―measures the likelihood of
obtaining and keeping a class certification if the action were
to proceed to trial‖ in light of the fact that ―the prospects for
obtaining certification have a great impact on the range of
recovery one can expect to reap from the class action.‖
Warfarin, 391 F.3d at 537 (internal quotations & citation
omitted). Class certification is tenuous, as a ―district court
retains the authority to decertify or modify a class at any time
during the litigation if it proves to be unmanageable.‖ Id.
(citation omitted). As we have discussed supra, although the
92
size and variety of issues implicated in this nationwide class
action do not present an obstacle to certification of a
settlement class, ―there is a significant risk that such a class
would create intractable management problems if it were to
become a litigation class, and therefore be decertified.‖ Id.
Accordingly, we agree with the District Court that the
considerable risk of maintaining the class action through trial
weighed in favor of settlement.56
g. Ability of Defendants to Withstand a Greater
Judgment
The seventh Girsh factor considers ―whether the
defendants could withstand a judgment for an amount
significantly greater than the settlement.‖ Warfarin, 391 F.3d
at 537-58 (citation, quotations, & alteration omitted). The
District Court observed that ―little fact-finding has been done
on this issue,‖ and noted that the parties did not dispute De
Beers‘s ability to withstand a greater judgment. (App‘x 298-
56
The objectors aver that drawing a distinction between
settlement and litigation classes ―would create two standards
for class certification‖ although ―the federal rules do not
provide for such a difference.‖ (Bagolie Br. at 25.) This
argument patently disregards our clear and consistent
precedent on the subject. While the standards for class
certification are the same for both settlement and litigation
classes, certification in the former context need not consider
―whether the case, if tried, would present intractable
management problems, for the proposal is that there be no
trial.‖ Comm. Bank II, 622 F.3d at 291 (citing Amchem, 521
U.S. at 620). This added risk is of utmost significance in
determining whether a settlement would best serve the
interests of the class.
93
99.) Even so, the Court found this factor to neither favor nor
disfavor the proposed settlement because ―it would be
extremely difficult, if not impossible, to collect a judgment
from De Beers.‖ (Id.) The objectors contend that the District
Court made insufficient findings as to De Beers‘s market
capitalization, which suggested an ability to withstand a much
higher judgment, and, therefore, should have weighed this
factor against the settlement. (Bagolie Br. at 26-27).
In comparing the value of settlement versus trial, we
must be careful to judge the fairness factors ―against the
realistic, rather than theoretical, potential for recovery after
trial.‖ In re Global Crossing Sec. & ERISA Litig., 225 F.R.D.
436, 461 (S.D.N.Y. 2004). In this regard, a finding that an
immediate settlement is preferable to the high unlikelihood of
collecting a theoretical judgment against De Beers appears
entirely reasonable. Moreover, a defendant‘s ability to
withstand a much higher judgment does not necessarily
―mean that it is obligated to pay any more than what the
[class members] are entitled to under the theories of liability
that existed at the time the settlement was reached.‖
Warfarin, 391 F.3d at 538. That said, ―[t]he proponents of a
settlement bear the burden of proving that the Girsh factors
weigh in favor of approval,‖ and we have previously found
that defendants‘ speculative ability to pay ―substantially more
than they did under the Settlement‖ cut against approval,
―albeit only moderately.‖
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