Third Circuit, En Banc, Approves Settlement Class Containing Members Who Lack “Viable Claim”

The U.S. Court of Appeals for the Third Circuit has issued an en banc opinion in Sullivan v. DB Investments, Inc. affirming a District Court’s certification of two nationwide settlement classes. In sum, though the multiplicity of states’ laws would affect the predominance inquiry in a litigated nationwide class action, in the settlement context, the Circuit eased the burden somewhat by declining to require a showing that each class member possess “a viable claim” based upon what would have been the applicable state statute or law.

The consolidated cases alleged federal and state antitrust, consumer protection, and other claims against De Beers SA and its competitors on behalf of direct and indirect purchasers. The district court had certified a nationwide settlement class of indirect purchasers pursuant to Rule 23(b)(3), concluding that the predominance requirement was satisfied despite that certain states precluded claims by indirect purchasers. On appeal, a panel of the Third Circuit vacated the certifications, concluding that the predominance requirement was not satisfied because certain states prohibited indirect-purchaser claims. The Court of Appeals granted a petition for rehearing en banc and vacated the panel’s prior order.

In reaching the conclusion that each class member need not possess a viable claim, the en banc opinion reiterated three “guideposts” for the predominance inquiry. First, commonality should be “informed by the defendant’s conduct as to all class members,” not by whether each plaintiff has a colorable claim for relief. Second, “variations in state law do not necessarily defeat predominance” when “a sufficient constellation of common issues binds class members together.” Third, “concerns regarding variations in state law largely dissipate when a court is considering the certification of a settlement class” because, by definition, there will not be a trial to manage.

Rejecting the imposition of a “new requirement” into the predominance inquiry, the Court cited the Supreme Court’s recent opinion in Dukes v. Walmart to support the proposition that the certifying court should focus on “whether the defendant’s conduct was common as to all class members, not on whether each plaintiff has a ‘colorable’ claim.” The Court further explained that the Dukes Court rejected a finding of predominance when the defendant does not engage in a common course of conduct with the class. As applied to the proposed nationwide indirect-purchaser settlement class, the Court reasoned that common questions about De Beers’s alleged misconduct to the class members predominated. The Court emphasized that the predominance inquiry should not focus on whether the indirect purchasers could pursue valid claims, but on whether common issues of law or fact predominate. Furthermore, the Court explained that, although its opinion in Hydrogen Peroxide acknowledged that an inquiry into the merits of the plaintiffs’ claims is necessary, that inquiry is not to determine whether their claims are valid, but rather to determine whether elements of the claims can be provided through common evidence.

The Court explicitly rejected the dissent’s suggested imposition of a requirement that all class members demonstrate their ability to sustain a cause of action. The Court reasoned that such a requirement would force district courts to conduct a Rule 12(b)(6) analysis of all claims of all plaintiffs and absent class members to determine whether they possess a valid claim, which in some instances “would necessitate an intensive, fifty-state cataloguing of differences in state law at any early stage of the proceedings, and without the benefit of a developed record.”

In sum, the Court concluded that differences in states’ law that may render some plaintiffs’ claims invalid does not defeat a finding of predominance in a settlement class as long as common issues of fact or law predominate, i.e., whether the defendant’s conduct was common as to all class members.

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