Applying Econometrics to Address Class Certification

• Pages: 341-370

341

CHAPTER 13

APPLYING ECONOMETRICS TO ADDRESS CLASS

CERTIFICATION

Under the Federal Rules of Civil Procedure, class action lawsuits,

including antitrust class actions, can proceed only if certain conditions

specified in Rule 23 are met.

1

While Rule 23(a) identifies a number of

requirements for class certification (including numerosity, commonality,

typicality, and adequacy of representation), the Rule 23(b)(3)

requirement that common questions of fact or law predominate is the

issue usually addressed with econometric analysis.

2

In particular, because

econometric analysis can be used to control for numerous individual

variables that affect pricing, it is widely recognized as an acceptable

methodology for showing antitrust impact, or injury (i.e., determining the

“but for” price by isolating the effect of allegedly wrongful conduct on

price). Econometric analysis has increased in importance at the class

certification phase, as recent court decisions have increased significantly

plaintiffs’ evidentiary burden under Rule 23, requiring them to show

more than “possible” methods for demonstrating impact and recognizing

that the class certification analysis may touch on some merits issues.

3

Most courts in recent class certification rulings have closely and

critically examined the econometric analyses offered by plaintiffs in

1

. FED. R. CIV. P. 23.

2

. FED. R. CIV. P. 23(a)(2) requires there to be questions of law or fact

common to the class, and FED. R. CIV. P. 23 (b)(3) requires that questions

of law or fact common to class members predominate over any questions

affecting only i ndividual members. The “commonality” requirement of

Rule 23(a)(2) is largely subsumed by the predominance requirement.

3

. See, e.g., Comcast Corp. v. Behrend, 569 U.S. __, 133 S. Ct. 1426, 1432

(2013); In re Hydrogen Peroxide Antitr ust Litig. , 552 F.3d 305 (3d Cir.

2008); In re T FT-LCD (Flat Panel) Antitrust Litig., 267 F.R.D. 583 (N.D.

Cal. 2010); In re IPO Sec. Litig., 471 F.3d 24 (2d Cir. 2006); Gariety v.

Grant Thornton LLP, 368 F.3d 356 (4th Cir. 2004). Cf. Wal-Mart Stores,

Inc. v. Dukes, 564 U.S. _ _, 131 S. Ct. 2541 (2011) (Plaintiff must be

prepared to prove that the requirements of Rule 23 are in fact satisfied;

such proof may entail some overlap with the merits of the underlying

claim.).

342 Econometrics

support of class certification and given greater weight to criticisms

offered by defendants with respect to, for example, the validity of factual

assumptions underlying the plaintiffs’ econometric analysis. This means

that more in-depth econometric analysis, including greater factual

support, will likely be required at the class certification phase of a case.

4

This chapter begins with a brief discussion of the applicable legal

standard under Rule 23. It presents the econometric issues that frequently

arise in the context of class certification, including the use of simple

statistics and the application of regression analysis. Finally, it provides

two case studies that illustrate the application of econometric analysis to

class certification in antitrust cases.

A. Legal and Economic Framework

At the class certification stage, courts must evaluate under Rule

23(b)(3) whether the plaintiffs will be able to prove their claims through

predominantly common, as opposed to individualized, evidence. In

antitrust cases, so-called “conduct” issues, such as (1) whether

defendants engaged in cartel activities, (2) whether defendants

improperly delayed generic entry, or (3) whether a defendant

monopolized a relevant market, are generally recognized as being subject

to proof by evidence common to the class.

5

The battleground at the class

certification stage therefore depends on whether plaintiffs can prove

antitrust injury, or impact, through classwide proof. Recent cases suggest

that damages, long thought not to be subject to the predominance

analysis,

6

must also be provable through classwide evidence.

7

These new

4

. See, e.g., recent cases cited in note 3, supra.

5

. In re Scrap Metal Antitrust Litig., 527 F.3d 517 , 535 (6th Cir. 2008); In

re Vitamins Antitrust Litig., 209 F.R.D. 251, 264 -65 (D.D.C. 2002).

6

. See, e.g., Paper Sys. Inc. v. Mitsubishi Corp., 193 F.R.D. 601, 615 (E.D.

Wis. 2000); see In re Potash Antitrust Litig., 159 F.R.D. 682, 697 (D.

Minn. 1995) (holding that “individualized analysis [of damages] is not by

itself sufficient to preclude certification when liability can be determined

on a class-wide basis”); Ruiz v. Stewart Assocs., 171 F.R.D. 238, 243

(N.D. Ill. 1997) (concluding that variation in damages among proposed

class members “does not overco me the predominance of co mmon

questions established here”).

7

. See, e.g., Comcast Cor p. v. Behrend , 569 U.S. ___, 133 S. Ct. at 1433

(vacating class certification where “model failed to measure damages

resulting from the particular antitrust injury on which petitioners’ liability