Thursday, December 22, 2011

Third Circuit Upholds $295 Million Settlement Class in De Beers Diamond Antitrust Suits

The Third Circuit has released an important case involving settlement classes, Sullivan v. DB Investments, Inc., No. 08-2784 et al. (3d Cir. Dec. 21, 2011) (en banc).  Professor Samuel Issacharoff, of New York University Law School, was one of the attorneys who argued for plaintiffs.

The plaintiffs alleged antitrust and other violations in “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.”

“On March 31, 2006, the District Court . . . conditionally certif[ied] both the Direct and Indirect Purchaser settlement classes under Rules 23(b)(2) and 23(b)(3), and . . . preliminarily approve[d] 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.”

On appeal, a divided panel of the court initially determined that the District Court abused its discretion in certifying the nationwide class of litigants. The court then vacated this opinion and granted rehearing en banc.

The court’s en banc opinion affirmed the district court’s order, holding that the predominance requirement for certification of the settlement class was met:

“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  prices – in violation of federal antitrust law, and the antitrust, consumer protection, or unjust enrichment laws of every state and the District of Columbia.  In this respect, . . . , 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 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.‘”  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 court distinguished Wal-Mart Stores Inc. v. Dukes:

“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.”

The en banc court also affirmed the award of attorneys’ fees to plaintiffs’ counsel of approximately $73 million, or about 25% of the $293 million principal settlement fund.

Judge Scirica concurred, writing “separately to address this case in the wider context of the evolving law on settlement classes.”

Judge Jordan, joined by Judge Smith, dissented, characterizing the majority’s ruling as “in certifying a class action, it makes no difference whether the class is defined to include members who lack any claim at all.”


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