Sunday, July 24, 2011

SDNY Dismisses Class Action Claim under Illinois State Law, Distinguishing Shady Grove

            The SDNY recently considered a motion to dismiss the third amended class-action complaint alleging federal and state antitrust violations by major record labels in selling music over the internet.  In re Digital Music Antritrust Litigation, 2011 WL 2848195 (S.D.N.Y. July 18, 2011, No. 06 MD 1780). 

            Plaintiffs had added a claim under Illinois antitrust law on behalf of all Illinois-resident indirect purchasers.  The Illinois statute at issue authorized a suit for damages by an injured private party, but provided that only the State Attorney General, not a private party, could “maintain a class action in any court of this State for indirect purchasers asserting claims under this Act.”

            Applying Shady Grove Orthopedic Assoc. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010), the court first concluded that Rule 23 applied to the situation, but reached a different conclusion from Shady Grove on whether Rule 23 in this instance “abridge[d], enlarge[d], or modif[ied] a substantive right.”  As to that question, the court held that Justice Stevens’ concurrence in Shady Grove formed the “narrowest grounds” and was therefore controlling over Justice Scalia’s plurality opinion.  

            Under Justice Stevens’ analysis of §2072(b), then, the court held:

[The Illinois indirect-purchaser] statute provides a procedure that is “so bound up with the state-created right or remedy that it defines the scope of that substantive right or remedy.” Shady Grove, 130 S.Ct. at 1450 (Stevens, J., concurring in part and concurring in the judgment). Therefore, applying the federal rule to override this process would be “an application of a federal rule that effectively abridges, enlarges, or modifies a state-created right or remedy” and is disallowed. Id. at 1451. Unlike the New York law at issue in Shady Grove, its limitation is not contained in a generally applicable procedural rule but, rather, in the same paragraph of the same statute that creates the underlying substantive right. In re Wellbutrin, 756 F.Supp.2d at 677. It applies only to that statute. Id. “Furthermore, courts have observed that the Illinois statute represents a policy judgment as to the feasibility of managing duplicative recovery, which the legislature has entrusted to the Attorney General but not to individual indirect purchasers.” Id. That policy judgment is substantive.

            Thus, the court dismissed plaintiffs’ claim on behalf of indirect purchasers under Illinois law.  (Numerous other claims, however, remain pending.)


Class Actions, Federal Rules of Civil Procedure, MDLs, Recent Decisions | Permalink


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