The Propriety and Inevitability of Netting in Antitrust Class Actions

Posted on Mar 9, 2023

Sam Fineberg

I. Introduction

To receive class certification under Rule 23 of the Federal Rules of Civil Procedure (FRCP), an antitrust class must demonstrate constitutional standing, statutory standing, and the requisite characteristics for class certification.[1] Although  constitutional standing is a low threshold,  antitrust standing and class certification are not.[2] In particular, disagreements persist about the definition of the “antitrust injury” necessary for antitrust standing. Specifically, it is unclear whether mere participation in a single transaction involving allegedly anticompetitive behavior  is sufficient to constitute antitrust injury, or whether plaintiffs must additionally show that they suffered a net loss as a result of such participation, either in a single engagement or across multiple transactions.[3]  

One’s approach to defining antitrust injury  implicates both  statutory standing and class certification.[4] In particular, a class that includes both individuals who were net beneficiaries of the same conduct that, on net, harmed other members, might render certain plaintiffs inadequate class representatives,[5] A plaintiff suffers net harm if, as a result of participation in a single transaction, or across multiple transactions, total losses exceed total benefits. Suppose, for example, that two merchants agree to depress prices to undermine competitors, and thereafter overprice their own products. Suppose further that a plaintiff who shopped at both merchants throughout the period in question. Some would say that whether that plaintiff, overall, overpaid or underpaid for goods during that period is irrelevant since simply transacting in goods whose prices the defendants have manipulated constitutes antitrust injury. Others, however, would contend that plaintiff has only suffered antitrust injury if all of the losses from underpaying exceed the savings from overpaying. These same principles would equally apply regarding whether someone who purchased a single item during the period had underpaid or overpaid. The consequences of this disagreement are significant. Statutorily, an antitrust suit lacks merit if the plaintiff has not suffered antitrust injury. The same deficiency also calls into question whether, as FRCP 23(b)(3) mandates, a class seeking monetary damages has common issues that predominate over those of an individual nature. Some courts have held that a threshold proportion (whose precise measure is uncertain) of class members who did not suffer injury defeats predominance.[6]

Courts must therefore be more willing to engage in nuanced and substantive considerations regarding the propriety of using netting as a benchmark for antitrust injury. This contextual approach will more aptly balance the interests of the litigants and the goals of the antitrust laws. Nonetheless, regardless of a court’s decision in that matter, it will have to contend with netting principles during the class–certification process.

II. The Case for Netting

There is a convincing case that the net harm standard for antitrust injury is inappropriate, especially prior to class certification.[7] To do so, one could argue, would, by requiring plaintiffs to demonstrate more than mere participation in a transaction involving anticompetitive conduct, but also resulting net losses, place an unduly-onerous burden on plaintiffs, making it more difficult to vindicate meritorious claims This would be especially troubling given what many see as a contemporary increase in market power concentration.[8] Doctrinally, there are reasons to be wary of using the net harm standard for antitrust injury as a risk to antitrust laws’ compensatory function.[9] There is also a basis to contend that courts would be skeptical of attempts to defeat class certification on the basis of a class containing net beneficiaries, since, as some judges have held, any resulting intraclass conflicts would not be fundamental so as to defeat adequacy and predominance. [10]  

Yet, despite any arguments to the contrary, courts should be more willing to analyze antitrust injury with reference to net harm. This is not a novel concept, as even in antitrust class actions such as those involving “tying” allegations, courts espouse such an approach.[11]  Indeed, damages and injuries are, across many areas of law, concepts with an inextricable link that arguably bespeaks the use of the same standards when evaluating each component in the antitrust context.[12]

In addition, using net harm as an evaluative basis for antitrust injury advances the optimal deterrence that seems to be primary aim of the antitrust awards.[13] Moreover, even for those who contend that antitrust damages serve a primarily compensatory function, the aforementioned link between injuries and damages is generally stronger in the compensatory context, thereby making a compelling case for using the net harm standard for antitrust injury. [14]

From a practical point of view, the sheer frequency of antitrust class actions, given their immense scope and duration, has in recent years seemingly inundated federal district courts, engendering judicial inefficiencies.[15] Adjacent to this consideration is the fact that class certification often places particular pressure on defendants to settle, regardless of a claim’s merits.[16] Moreover, concerns regarding the adoption of a more demanding approach to defining antitrust injury seem to be overstated. Denying certification to a class due to the membership of too many net beneficiaries would not foreclose the ability for those in the latter camp to bring separate suits, either individually or as a class.[17] In fact, some contend that “[f]ewer plaintiffs with more at stake would be more likely to sue than a larger number of plaintiffs with less at stake.”[18] Furthermore, even if a netting analysis were to implicate merits issues, it would be consonant with prevailing doctrine. Recent jurisprudential developments sanction, and sometimes encourage, the consideration of  issues that implicate the merits of a claim prior to class certification. Although courts cannot “engage in free-ranging merits inquiries at the certification stage,”[19] they must nonetheless conduct a “rigorous analysis. . .[which] will frequently entail ‘overlap with the merits of the plaintiff’s underlying claim.’”[20]

III. The Persistent Relevance of Netting

Even if a court does not adopt the net harm standard  for antitrust injury, it may still have to consider netting when certifying a class. To demonstrate antitrust standing, a plaintiff must provide a reasonable estimate of damages and cannot engage in “guesswork,” but should instead use relevant data to do so.[21] It follows that to provide a “just and reasonable” estimate of damages that contemplates net injury necessitates at least some calculation of net harm. Similarly, in an adequacy analysis—regardless of how a court defines antitrust injury—it may still evaluate whether a class with net beneficiaries and members who suffered net harm have conflicting interests, in which case the representative plaintiff could be inadequate.[22] A prerequisite to that inquiry is determining whether net beneficiaries exist.

IV. Conclusion

Whether to use a net harm standard for antitrust injury is the source of much debate. Given its alignment with the fundamental goals of antitrust laws and the practical realities of antitrust class actions, the net harm standard for antitrust injury is, overall, more appropriate than the disregard thereof, and should thus receive greater implementation. Nonetheless, it appears that, for antitrust class actions, courts will need to grapple with the concept of net harm and the process of netting harms against benefits, regardless of how they approach antitrust injury. Courts must navigate these doctrinal matters within the context of the procedural dictates that govern class actions, an endeavor which has proven to be increasingly difficult.

 

[1] Gelboim v. Bank of Am. Corp., 823 F.3d 759, 770 (2d Cir. 2016). Some courts, before looking to Federal Rule of Civil Procedure 23, evaluate whether a class has “class standing.” See In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 458 (S.D.N.Y. 2018).

[2] In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 593 (S.D.N.Y. 2018).

[3] The Supreme Court has defined “antitrust injury” as an "injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).

[4] 299 F. Supp 3d at 593.

[5] Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group L.P., 247 F.R.D. 156, 177 (C.D. Cal. 2007) (quoting Pickett v. Iowa Beef Processors, 209 F.3d 1276, 1280 (11th Cir. 2000)). The District Court of the Central District of California takes its conviction even further, contending that, to its knowledge, “no circuit approves of class certification where some class members derive a net economic benefit from the very same conduct alleged to be wrongful by the named representatives of the class, let alone where some named plaintiffs derive such a benefit.” Allied Orthopedic Appliances, 247 F.R.D. at 177. See also Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1190 (11th Cir. 2003) ("To our knowledge, no circuit has approved of class certification where some class members derive a net economic benefit from the very same conduct alleged to be wrongful by the named representatives of the class."). It is important to note that driving the Valley Drug court’s conclusion regarding adequacy and net beneficiaries was the fact that the demand of the product in question was inelastic such that even a drop in its price would not lead to elevated levels of sales. Id.

[6] See e.g., United Food & Commer. Workers Unions & Emplrs. Midwest Health Bens. Fund v. Warner Chilcott Ltd. (In re Asacol Antitrust Litig.), 907 F.3d 42, 58 (1st Cir. 2018); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d. Cir. 2008). Some courts are more focused on the impact of putatively uninjured class members on the class’s Article III standing vis-a-vis the requirement that a class “be defined in such a way that anyone within it would have standing.” In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 593 (S.D.N.Y. 2018) (citing Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006). See also Halvorson v. Auto-Owners Ins. Co., 718 F.3d 773, 779 (8th Cir. 2013) (citing Denney and seemingly adopting its Article III–centric analysis of putatively uninjured class members and the connection thereof to class certification).

[7] See e.g., Estrada v. Bashas' Inc., 2014 U.S. Dist. LEXIS 44544, *15–*16 (D. Ariz. 2014).

[8] Council Of Econ. Advisers, Issue Brief: Benefits Of Competition And Indicators Of Market Power (2016), https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160502_competition_issue_brief_updated_cea.pdf;Lina M. Kahn, The End of Antitrust History Revisited, 133 Harv. L. Rev. 1655, 1656 (2020) (reviewing Tim Wu, The Curse of Bigness: Antitrust In The New Gilded Age (2018)). 

[9] Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. , 429 U.S. 477, 485–86 (1977).

[10] See In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 590 (S.D.N.Y. 2018).

[11] In re Delta/AirTran Baggage Fee Antitrust Litig., 317 F.R.D. 675, 685 (N.D. Ga. 2016) (citing Astrazeneca AB v. UFCW (In re Nexium Antitrust Litig.), 777 F.3d 9, 27 (1st Cir. 2015)). For an opposing perspective on the relevance of offsetting benefits to the context that the foregoing cases implicate–an overcharge–see In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 594 (S.D.N.Y. 2018)(“we are skeptical of In re Nexium's holding that a single impacted payment is sufficient to establish antitrust injury, both as a general matter and as specifically applied to this action.).” See also Collins v. International Dairy Queen, 59 F. Supp. 2d 1312 (M.D. Ga. 1999); Kypta v. McDonald's Corp., 671 F.2d 1282, 1285 (11th Cir.), cert. denied , 459 U.S. 857 (1982) ("injury resulting from a tie-in must be shown by establishing that. . . .plaintiff indeed suffered net economic harm"); Accord Midwestern Waffles, Inc. v. Waffle House, Inc., 734 F.2d 705, 712 (11th Cir. 1984).

[12] See e.g., Albemarle Paper Co. v. Moody, 422 U.S. 405, 418-19 (1975) (quoting Wicker v. Hoppock, 6 Wall. 94, 99 (1867)). See also Robert D. Blair & William H. Page, Speculative Antitrust Damages, 70 Wash. L. Rev. 423, 424 (1995); Los Angeles Memorial Coliseum Commn. V. Nat'l Football League, 791 F.2d 1356, 1366–68 (9th Cir. 1986).

[13] Robert D. Blair et al., Resale Price Maintenance and the Private Antitrust Plaintiff, 83 Wash. Univ. L. Q. 657, 668 (2005) (“The doctrine [of antitrust standing] has an economic rationale[,] restrict[ing] the universe of compensable claims to those that form a part of the optimal penalty, and. . .concentrate[ing] the right to recover in those who can most efficiently identify the antitrust violation and seek redress."). Some disagree, instead arguing that the primary function of antitrust laws is to compensate victims who suffered harm as a result of violations thereof. See infra, note 9.

[14] See Blair, supra note 12. 5 Herbert Hovenkamp & Phillip E. Areeda, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶340a (5th ed. 2022).

[15] Joshua Davis, UC Hastings Coll. of the L. & Rose Kohles Clark, Huntington Nat’l. Bank, 2021 Antitrust Annual Report: Class Actions in Federal Court 8 fig. 4 (2021). A rather sizeable portion of all antitrust class actions that reached a settlement from 2009 to 2021 took over three years from the date of filing to do so; the percentage of all antitrust class actions that took over five years to settle was also large, as 87% took at least 3 years from the date of filing to settlement, and 54% of all antitrust cases took at least 5 years. The mean time for an antitrust case to go from filing to settlement has similarly risen a precipitous 40% during the same period. Id.

[16] Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 162 (3d Cir. 2001) (“[D]enying or granting class certification is often the defining moment in class actions (for it may. . . create unwarranted pressure to settle nonmeritorious claims on the part of defendants.”). See also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 559-60 (2007) (“[T]he threat of [post-certification] discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings.”). See also In re Rail Freight Fuel Surcharge Antitrust Litig. - Mdl No. 1869, 725 F.3d 244, 250 (D.C. Cir. 2013) (“The decision to certify an antitrust class has the potential to place ‘substantial pressure on the defendant to settle independent of the merits of the plaintiffs' claims.’”). Some commentators have even argued that the mandate for treble damages in private antitrust actions might incentivize parties to seek out firms which they believe are acting in an anticompetitive manner, since the expected damages from a successful antitrust suit outweigh the costs that those parties would suffer as a result of exposure to that anticompetitive behavior. See William Breit & Kenneth G. Elzinga, Private Antitrust Enforcement: The New Learning, 28 Econ. 405, 430 (1985).

[17] See Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1194 (11th Cir. 2003). There is also reason to doubt the presupposition that to adopt a net harm standard for antitrust injury would necessarily preclude class certification. See In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d 430, 595 (S.D.N.Y. 2018) (concluding that, even if such a standard for net harm were adopted, it would not defeat predominance).

[18] Joshua P. Davis & David F. Sorensen, Chimerical Class Conflicts in Federal Antitrust Litigation: The Fox Guarding the Chicken House in Valley Drug, 39 U.S.F. L. Rev. 141, 146 (2004).  

[19] Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 466 (2013).

[20] Comcast Corp. v. Behrend, 569 U.S. 27, 33–34 (2013) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)). See also In re Rail Freight Fuel Surcharge Antitrust Litig. - MDL No. 1869, 934 F.3d 619, 626 (D.C. Cir. 2019) (“[D]istrict courts considering class certification [may not] defer questions about the number and nature of any individualized inquiries that might be necessary to establish liability.”).

[21] Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 303 (5th Cir. 2003).

[22] Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1193 (11th Cir. 2003). See also In re Delta/AirTran Baggage Fee Antitrust Litig., 317 F.R.D. 675, 685. In both of the foregoing cases, the courts found net harm to be germane to the analysis, which FRCP 23(a)(4) mandates as a prerequisite for class certification, as to whether the plaintiffs are adequate representatives of the class, but irrelevant to establishing antitrust injury.