United States: First Circuit Reverses Class Certification Where Individualized Inquiries Would Be Required To Identify And Exclude Uninjured Class Members

Plaintiffs frequently seek to certify class actions where the proposed classes contain a significant number of uninjured persons. The First Circuit recently reversed the certification of such a class in In re Asacol Antitrust Litigation, concluding that a class cannot be certified where the "individual inquiries" necessary to resolve whether each class member has suffered an injury-in-fact "overwhelm common issues." When such inquiries are needed to ensure that a defendant's due process and jury trial rights are honored, a plaintiff cannot satisfy Rule 23(b)(3)'s predominance requirement. The court also rejected the plaintiff's proposal to outsource these individualized inquiries to claims administrators.

We discuss the opinion in detail after the jump, but here are key takeaways for busy readers:

  • The decision explains why a proposed damages class likely fails the predominance test—and therefore cannot be certified—if there are more than a negligible number of uninjured class members and there is no administratively feasible way to weed out those uninjured class members without individualized inquiries.
  • The use of affidavits by class members to establish injury (or any other element of their claim) does not suffice to avoid individualized inquiries so long as the defendant plans to contest those affidavits, because a class cannot be certified on the premise that a defendant will not be entitled to challenge a class member's ability to prove the elements of his or her claim.
  • Policy justifications for consumer class actions cannot relax the requirements of Rule 23 or defendants' due process and jury trial rights.


In Asacol, the plaintiffs alleged that the defendant drug manufacturers engaged in anticompetitive conduct by withdrawing one of their drugs, Asacol, from the market shortly before the drug's patent protection expired and replacing it with a similar but not identical drug that was still under patent protection (as well as continuing to offer a different version of Asacol called "Asacol HD" that also was still under patent protection). The plaintiffs contended that, by doing so, the defendants blocked generic drug manufacturers from introducing a lower-cost generic version of Asacol. The plaintiffs were all union-sponsored benefit plans that purchased Asacol and one of its substitutes from third parties rather than directly from the manufacturer; plaintiffs were accordingly barred by the Illinois Brick doctrine from suing under federal antitrust law. Instead, they sued under the consumer-protection laws of twenty-five states and the District of Columbia that allow antitrust damage actions by indirect purchasers.

Plaintiffs moved to certify a class of indirect purchasers who both purchased Asacol prior to the expiration of its patent protection and purchased one of the defendants' substitute drugs. Based on the expert evidence submitted by the parties, the district court concluded that approximately 10% of the proposed class members could not possibly have been injured because they "would have opted for [the defendants' brand-name drugs] even in the presence of generic Asacol." But the district court nonetheless certified the proposed class, accepting plaintiffs' contention that a claims administrator could identify uninjured persons and separate them out from the class if defendants were found liable.

The First Circuit authorized an interlocutory appeal under Rule 23(f) to address two issues: (1) whether the plaintiffs—who purchased the drugs in only four of the twenty-six jurisdictions—could represent a class including purchasers from all of the other jurisdictions; and (2) whether the district court erred in certifying a class containing thousands of uninjured individuals.

The First Circuit's ruling

In an opinion by Judge Kayatta, the court of appeals reversed the district court's certification order. On the first issue, the court agreed for the most part with the district court that the plaintiffs could potentially represent a class of purchasers from all of the jurisdictions (with one exception). But the scope of that holding was very narrow: the court reached that conclusion only because each state's law was "materially the same." Indeed, the takeaway for defendants is that, in cases involving state-law claims, they should consider challenging the ability of a putative class representative in one state to represent consumers from other jurisdictions if there are any material differences among the relevant states' laws. The First Circuit confirmed as much by excluding one jurisdiction, New York, from the proposed class, because New York law requires the additional element of "proof of deception" and the named plaintiffs had no standing to litigate that element of the New York class members' claims.

The court of appeals' resolution of the second issue has much broader significance. As a starting point, the court found no basis in the record to quarrel with the district court's estimate that 10% of class members were uninjured. The court then framed the question as follows: "Can a class be certified in this case even though injury-in-fact will be an individual issue, the resolution of which will vary among class members?"

The court correctly held that the answer is no. As the court explained, to certify a class "notwithstanding the need to adjudicate individual issues," the proposed class-wide resolution of claims must be "both 'administratively feasible' and 'protective of defendants' Seventh Amendment and due process rights." The latter test could not be satisfied by the plaintiffs' proposal to have a claims administrator resolve disputes over claims forms, because a defendant has the right to litigate those issues before an Article III court (either the judge or a jury), not a third-party claims administrator. And the proposed claims process was separately infeasible because it "provide[d] defendants no meaningful opportunity to contest whether an individual would have, in fact, purchased a generic drug had one been available." Quoting the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes, the First Circuit emphasized that a "'class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.'" And the court correctly recognized that Dukes's reasoning is not limited to "statutory defenses," but includes any "challenge to a plaintiff's ability to prove an element of liability."

The court also cabined the sua sponte suggestion by an earlier First Circuit panel in In re Nexium Antitrust Litigation that unrebutted affidavits submitted by class members might provide a mechanism to identify uninjured class members. Judge Kayatta, who had dissented in Nexium, made clear that this suggestion applies only when the affidavits or similar evidence are in fact "unrebutted," and not when, as in this case, "defendants have expressly stated their intention to challenge any affidavits that might be gathered." The court pointed out that such affidavits "would be inadmissible hearsay at trial" if the class members did not "testify in person," and accordingly refused to "sanction[] the use of inadmissible hearsay to prove injury to each class member at or after trial." In a line that we expect class-action defendants to cite regularly in the future, the First Circuit declared: "The fact that plaintiffs seek class certification provides no occasion for jettisoning the rules of evidence and procedure, the Seventh Amendment, or the dictate of the Rules Enabling Act, 28 U.S.C. § 2072(b)."

The court then rejected a number of the fallback arguments made by the plaintiffs in support of the certification order. The court first concluded that the plaintiffs were misusing statistics and misreading the Supreme Court's opinion in Tyson Foods, Inc. v. Bouaphakeo when they contended that, because the evidence showed that approximately 90% of class members would have purchased a generic drug, the same evidence would suffice to show that any particular class member was likely to have purchased a generic drug. As the court pointed out, that fallacious reasoning leads to the "demonstrably wrong conclusion that one hundred percent of individuals were injured." Accordingly, the First Circuit explained, the statistical evidence presented in Asacol is entirely unlike the representative evidence before the Supreme Court in Tyson Foods, which would have been "admissible and sufficient to prove injury in any individual class member's individual trial." (The First Circuit's reasoning also is consistent with our colleague's observation that the scope of the holding in Tyson Foods is limited; statistical evidence or inferences cannot be used to circumvent a defendant's ability to litigate individual defenses to class members' claims.)

Second, the Court rejected the plaintiffs' argument that if the defendant is found liable and forced to pay damages, it shouldn't matter if some of those damages go to uninjured class members if, for example, the court just "reduced proportionately" the aggregate damages award by the percentage of uninjured class members. Citing the Chief Justice's concurrence in Tyson Foods, the Court expressed skepticism that this fluid recovery approach would work even in cases where the total damages amount is fixed, in light of "the question whether Article III nevertheless precludes per se the knowing use of a civil suit to make an award to an uninjured person." The Court did not need to reach that question in this case, however, because any class-wide damages judgment would depend on the number of injured individuals, and the defendants would be entitled to challenge each class member's claim of injury. The Court explained that plaintiffs' proposed approach would place courts "at risk of an escalating disregard of the difference between representative civil litigation and statistical observations of tendencies and distributions," in violation "of the core principle that class actions are the aggregate of individual claims, and do not create a class entity or re-apportion substantive claims."

Third, the court also refused to bend the protections of Rule 23, due process, and the Seventh Amendment in service to a request for class certification aimed at remedying alleged "conduct that inflicts small amounts of damage on large numbers of people." That is, of course, the traditional justification for consumer class actions, but as the First Circuit explained, "that fact grants us no license to create a Rule 23(b)(3) class in every negative value case by either altering or reallocating substantive claims or departing from the rules of evidence." The court further noted that there are "other tools available" besides private class actions to police alleged misconduct of this kind.

The court concluded by noting the "divergence evident in the manner in which our sister circuits have addressed the treatment of uninjured putative class members." Noting that some circuits have addressed the issue under Article III standing and others under the rubric of Rule 23(b)(3) predominance, the First Circuit "finesse[d] the question" and any differences in outcomes among the circuits by stating that it was enough that no federal court has allowed, "under Rule 23, a trial in which thousands of class members testify" or "affirmed a damages judgment in a class action against a defendant who was precluded from raising genuine challenges at trial to the assertion of liability by individual members of a class that was known to have members who could not be presumed to be injured." That said, the Court's analysis appears to be rooted substantially in Rule 23(b)(3) predominance.

Judge Barron "join[ed] [the Court's] opinion in full," but wrote a separate concurrence to further explain why the decision in Nexium was distinguishable. First, Judge Barron noted that the proposed claims-processing mechanism in this case would "be deployed only 'post-judgment,'" which would violate the defendants' Seventh Amendment right to have a jury decide each class member's claim of injury. Second, Judge Barron underscored that the plaintiffs had "not shown that the number of potentially uninjured class members could be winnowed down through common means of proof," given that class members "do not come pre-identified as brand loyal or price sensitive." While Judge Barron hypothesized that in some cases plaintiffs might use purchasing records or other evidence to identify injured class members without individualized testimony, he agreed with the other members of the panel that the plaintiffs here had made no such showing.

In short, the decision in Asacol is a welcome articulation of key principles governing class certification—and in particular provides substantial authority explaining why proposed classes that contain more than a negligible number of uninjured class members should fail Rule 23(b)(3)'s predominance requirement.

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