Originally published in V&E Antitrust Updates E-communication, June 27, 2012
On June 25, 2012, the U.S. Supreme Court granted certiorari in Comcast Corp. v. Behrend, No. 11-864 and Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-1160, two cases that will provide important guidance regarding antitrust jurisprudence. In Comcast, the Court will decide the level of inquiry a district court must make on class certification when considering whether plaintiffs can prove damages on a class-wide basis. In Phoebe Putney, the Court will address the scope of the state action doctrine as applied to immunization from the federal antitrust laws.
Comcast Corp. v. Behrend
A district court may certify a class action under Federal Rule of Civil Procedure 23(b)(3) only if the plaintiffs satisfy Rule 23(a)'s numerosity, commonality, typicality, and adequacy prerequisites, and, if the court additionally finds that "the questions of law or fact common to class members predominate over any questions affecting only individual members."1 Last year, the U.S. Supreme Court reiterated in Wal-Mart Stores, Inc. v. Dukes that Rule 23 is not merely a pleading standard, but rather that the trial court must perform "a rigorous analysis" to determine if the requirements of Rule 23(a) have been satisfied.2 On June 25, 2012, the Supreme Court granted certiorari in Comcast Corp. v. Behrend, No. 11-864, which raises another important issue on class certification — whether trial courts must perform a rigorous analysis into the plaintiffs' proposed damages evidence to determine whether plaintiffs can prove damages for the class with common evidence.
In the decision below, a divided panel of the Third Circuit affirmed the trial court's certification of a class. Citing In re Hydrogen Peroxide Antitrust Litigation3 — the Third Circuit's seminal (but pre-Dukes) case on class certification standards — the court held that with respect to antitrust impact and the damages calculation methodology, the plaintiffs need only establish by a preponderance of evidence that they are capable of proving at trial class-wide antitrust impact and that they will be able to measure damages on a class-wide basis using common proof.4 The Court held unanimously that the plaintiffs had shown that they could prove antitrust impact on a class-wide basis, but the court split on whether plaintiffs could show that damages could similarly be proven class-wide. The majority held that the plaintiffs could measure damages for the class with common proof, and it said that petitioner's "arguments are attacks on the merits of the methodology that have no place in the class certification inquiry."5 Judge Jordan dissented from that portion of the court's decision, arguing that petitioner charged different members of the class different prices based on different factors and, therefore, damages to all of the different constituencies of the class could not be proven with common evidence.6
Despite its recognition that Hydrogen Peroxide guided courts to assess more carefully whether antitrust injury or impact could be proven on a class-wide basis, in particular to "delve beyond the pleadings" to determine if the class certification standards have been satisfied,7 the Third Circuit relied on the 1974 ruling of Eisen v. Carlisle & Jacquelin,8 which it viewed as recognizing a limitation on the court's authority to inquire into the merits of a suit in determining whether a class action may be maintained.9 The court applied this same reasoning to its damage calculation methodology holding.10 In seeking certiorari, petitioner asserted that the Third Circuit's reliance on Eisen "to circumscribe the scope of its 'merits' inquiry at the class certification stage" brought it into conflict with other Circuits, and relied on a rationale rejected by the Supreme Court in Dukes.
Petitioner asked the Supreme Court to consider the lower court's decision on both the antitrust impact and the antitrust damages issues. The Supreme Court, however, granted certiorari only as to damages, reformulating the question to focus on whether trial courts must examine plaintiffs' proposed damages evidence to determine if they can prove class-wide damages.
This case could prove consequential for parties in putative class actions in antitrust and other areas. After the Third Circuit's decision in Hydrogen Peroxide, courts had examined closely whether antitrust impact could be proven for the class with common evidence. Defendants often opposed class certification by showing that different potential class members were situated differently, so that some may not have suffered any injury at all. When it came to damages, however, several courts had held that individual determinations about damages are not sufficient to defeat class certification.11 By granting certiorari solely on the question of damages, the Supreme Court is poised to consider how closely a trial court must examine the plaintiffs' damages evidence to determine whether they can prove class-wide damages with common evidence.
Federal Trade Commission v. Phoebe Putney Health System, Inc.
Additionally, the Supreme Court will decide the scope of "state action" antitrust immunity as applied to a Federal Trade Commission (FTC) challenge of a merger between two hospitals in rural Georgia. Most recently in the April 2012 issue of Antitrust News & Notes, we reported that in Federal Trade Commission v. Phoebe Putney Health System, the Eleventh Circuit affirmed a U.S. district court's decision that an alleged merger-to-monopoly involving a Georgia hospital authority facility and a nearby for-profit hospital was immune from antitrust scrutiny based on the state action doctrine.12 This week, the Supreme Court granted the FTC's petition for certiorari and will address (1) whether the Georgia legislature "clearly articulated and affirmatively expressed" a "state policy to displace competition" in the market for hospital services by vesting a local government entity with general corporate powers to acquire and lease out hospitals, and (2) even if the legislature clearly articulated such a state policy, whether that policy is sufficient to validate anticompetitive conduct in this case given that the local government entity did not actively participate in the terms of sale and fails to oversee the hospital's operation.
In this context, the state action doctrine provides that the federal antitrust laws do not apply to anticompetitive conduct of subordinate public entities created by a State if the conduct is authorized through a "state policy to displace competition" that is "clearly articulated and affirmatively expressed" by the legislature.13 This immunity extends to private entities if the private conduct is supervised by the State.14
Here, the FTC alleged that the merger between Phoebe Putney Memorial Hospital, a private nonprofit facility established by a local hospital district, and its only significant competitor, Palmyra Park Hospital, a privately held for-profit hospital, created an illegal monopoly. The FTC further alleged that the hospital district "rubber-stamped" the merger and lacked the intention and practical ability to oversee the private hospitals in a manner intended to displace competition law. In essence, the FTC argued this was a privately negotiated merger which was submitted to the state body to provide an appearance of state approval. While acknowledging the FTC's complaint properly alleges monopoly, the Eleventh Circuit found that Georgia law articulated a state policy sufficient to entitle the hospital authority to state action immunity from antitrust law. When analyzing this doctrine, the Eleventh Circuit asked whether it was "reasonably foreseeable" that Georgia's hospital authority law would allow hospital districts to acquire hospitals and displace competition.
As pointed out by the FTC in its Petition for Certiorari,15 this standard is at odds with numerous other Circuits (Fifth, Sixth, Ninth, and Tenth). The FTC also asserted that the hospital authority's failure to actively participate in the terms of the hospital sale and oversee the hospital's operation disqualifies it from serving as a legitimately immunizing state actor. To underscore the importance of these questions, the FTC indicated that nearly 20 percent of U.S. hospitals are owned by state and local governments. The FTC also mentioned that these state action principles are equally applicable in determining whether government established special districts providing power, water, education, and other services to the public are immune from antitrust law and should, therefore, be resolved by the Supreme Court.
The Supreme Court's decision should settle disagreement among the various circuits as to how, and under what circumstances, state regulation can shield health care companies from federal antitrust laws. And as emphasized by the FTC in its Petition, the Court's holding regarding the state action doctrine may have even wider implications.
1 Fed. R. Civ. P. 23(b)(3).
2 Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011) (internal citations omitted).
3 552 F.3d 305 (3d Cir. 2008)
4 Behrend, 655 F.3d at 197, 200-204.
5 Id. at 206-07.
6 Id. at 222-25 (Jordan, J., concurring in the judgment in part and dissenting in part).
7 Id. at 190 (majority opinion) (citing Hydrogen Peroxide, 552 F.3d at 316-317).
8 417 U.S. 156 (1974).
9 See Behrend, 655 F.3d at 190, 199.
10 Id. at 207.
11 E.g., Klay v. Humana, Inc., 382 F.3d 1241, 1259 (11th Cir. 2004).
12 Federal Trade Commission v. Phoebe Putney Health System, 663 F.3d 1369 (11th Cir. 2011).
13 Town of Hallie v. City of Eau Claire, 471 U.S. 34, 38-39 (1985) (internal citations omitted).
14 California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).
15 Petition for Writ of Certiorari, Federal Trade Commission v. Phoebe Putney Health System, No. 11-1160 (U.S. March 23, 2012), 2012 WL 978177.
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