Tuesday, July 26, 2011

Indirect Purchaser Suits after the Class Action Fairness Act

Posted by D. Daniel Sokol

My colleague Bill Page (University of Florida Law) has posted Indirect Purchaser Suits after the Class Action Fairness Act.

ABSTRACT: Until 2005, indirect purchaser class actions were filed and remained almost exclusively in state courts while direct purchaser class actions alleging the same core conduct proceeded in federal court. Because federal courts usually lacked subject matter jurisdiction over the state-law claims, and state courts lacked subject matter jurisdiction over the federal claims, no single court could hear all of the cases. In earlier studies of indirect purchaser litigation, I found that this dispersed and inefficient system provided little benefit to consumers who actually paid an overcharge. First, many courts declined to certify consumer suits as class actions under the standards of the applicable rules of civil procedure, because it was impractical to prove impact on consumers on a class-wide basis; individual issues of impact, in other words, predominated over class issues. Second, even courts that did certify classes found it impractical to distribute most of the settlement funds to consumers who actually suffered harm, instead relying on dubious coupon and cy pres distributions. Indirect purchaser suits provided no added deterrence, because direct purchasers almost always sued for the full overcharge.

In 2005, Congress enacted the Class Action Fairness Act in an effort to limit the obvious costs of duplicative state-law class actions. That statute’s most important innovation was to relax the criteria for federal diversity jurisdiction in ways that permit federal courts to hear most antitrust class actions brought under state law. State-law indirect purchaser class actions are now almost always either filed in federal court by plaintiffs or removed there by defendants. Once pending in federal district courts, class actions under numerous states’ laws are often consolidated for pretrial proceedings along with direct purchaser actions based on the same conduct. Under this mechanism, federal courts applying primarily federal standards determine the suitability of the putative classes representing all of the multilayer interests in the case for class treatment.

In this Article, I consider whether these procedural and jurisdictional changes have improved the performance of indirect purchaser class action litigation in the United States. I examine all of the reported decisions on class certification since 2005, comparing the results in direct and indirect purchaser classes where possible. I find that the federal courts have certified these class actions at roughly the same rate as state courts in the earlier periods. In virtually all of the controversies, both direct and indirect purchasers sued; courts certified almost all of the direct purchaser classes, but only slightly more than half of the indirect purchaser classes. In the indirect purchaser decisions, the grounds for certification or refusing to certify were essentially the same as the state courts applied in the earlier periods. Although the consolidation of multiple state-law class actions in federal court for pretrial proceedings has undoubtedly reduced the direct costs of private enforcement, the cases give little reason to think that substantially more consumers are receiving meaningful compensation as a result of the Class Action Fairness Act.


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