Federal and State Class Antitrust Actions Should Not Be Tried in a Single Trial

• Publication year: 2014
• Author: By Steve Williams

FEDERAL AND STATE CLASS ANTITRUST ACTIONS SHOULD NOT BE TRIED IN A SINGLE TRIAL

By Steve Williams¹

I. INTRODUCTION

The antitrust remedies provided to direct purchasers by federal law and to indirect purchasers by state law are separate and independent, and neither can infringe on the other.² The Class Action Fairness Act ("CAFA")³ has caused federal antitrust class actions and state antitrust class actions to be litigated together through centralization or coordination in federal courts, typically as part of multidistrict litigation. The tensions between the substantive and procedural aspects of federal and state antitrust law have been recognized since CAFA was enacted, with the issue of whether and how to reconcile the different antitrust regimes being studied without any action by the federal or state legislatures.⁴

In considering this issue, the Antitrust Modernization Commission considered questions including whether Congress should act to address the differences between federal and state antitrust law, whether Congress should preempt Illinois Brick⁵ repealer statutes or overrule Illinois Brick, whether Hanover Shoe⁶ should be overruled or modified to permit allocation of damages between direct and indirect purchaser cases, and whether changes to procedure should be made to facilitate the coordination of state and federal antitrust litigation.⁷ In the absence of action by legislatures and rulemakers to address the tensions CAFA created, courts have fashioned procedures which seek to balance the distinct federal and state claims private plaintiffs assert with the need to conserve judicial resources and to efficiently manage litigation as mandated by Fed. R. Civ. Proc. 1.

Since CAFA, concurrent state and federal antitrust litigation has been prevalent. For example, the electronics industry civil antitrust actions litigated in the Northern District of California over the last twelve years - DRAM, SRAM, Flash, TFT-LCD, GPUs, CRTs, ODDs, and Lithium Ion Batteries — have involved concurrent state and federal antitrust actions. In two of those actions — SRAM and TFT-LCD — the specter of a single trial of the state and federal claims was presented. The parties avoided joint trials in these cases only by settlements shortly before trial — in SRAM a settlement that resulted in a lack of a common defendant in the remaining state and federal actions, and in TFT-LCD a settlement that resolved the state law cases. There can be no doubt that this situation will present itself again, creating tension between the desire of the courts to more efficiently manage litigation and to avoid repetitive trials of the same issues, the desire of defendants who seek finality in the resolution of claims asserted against them, and the need to prevent prejudice to the ability of federal and state plaintiffs to prove their claims.

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Defendants tend to favor a single trial, arguing that a joint trial creates greater efficiencies for the court and the parties and will avoid what defendants call "duplicative damages." In seeking to avoid "duplicative damages," Defendants maintain that only one "overcharge" results from an antitrust violation, and that their liability should be limited to this single "overcharge." This creates a tension with the separate remedies provided under federal law and state law.⁸ Defendants also assert that a single trial involving all claimants will prevent them from being subject to "one-way" collateral estoppel because defendants may be bound by adverse determinations made against them but subsequent plaintiffs are typically not bound by determinations in favor of defendants in a preceding trial.⁹ In plaintiffs' view, the joint trial causes juror confusion and prejudice on issues of liability and damages. Defendants may also view a joint trial as a wedge which may force an allocation of damages between the direct and indirect purchasers, as arguably the presence of parties representing multiple levels in the chain of distribution permits an analysis and determination of which plaintiffs suffered what damages based upon the expert analysis of the indirect purchasers — an analysis which is required under state laws permitting indirect purchaser claims, but which is forbidden for federal antitrust claims under Hanover Shoe.

A primary concern which defendants have raised about joint trials is the possibility that instructing the jury on state law consumer protection claims, which have different standards for liability, will confuse the jury's analysis of the antitrust claims. An additional concern arises when defendants have settled with one group of plaintiffs but not the other. This complicates the cooperation which is typically part of settlements, as a defendant may be obligated to provide cooperation to one set of plaintiffs but that cooperation could benefit the plaintiffs with whom that defendant has not yet settled. Notwithstanding these concerns, joint trials appear to be defendants' general preference.

Direct purchasers object to joint trials with indirect purchasers because a joint trial would necessarily violate the bar on pass-on evidence of Hanover Shoe. Direct purchasers assert that the presence of the indirect purchasers during trial will necessarily cause the jury to conclude that illegal overcharges were passed on by the direct purchasers to the indirect purchasers. Direct purchasers contend that even with limiting instructions, the presentation of their case will be prejudiced and they will be denied a fair trial.¹⁰ Indirect purchasers have similar concerns about jury confusion as they would prefer to have the jury focused on the typical consumer or business at the end of the chain of distribution, who cannot pass on overcharges to a subsequent purchaser. Indirect purchasers assert that presentation of evidence by the direct purchasers about their impact and injury would confuse the jury in evaluating the indirect purchasers' claims of impact and injury, and thus deny them a fair trial.

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In addition, the business practices of vertically integrated companies could lead to cumulative or conflicting presentations of expert analysis of pass through of costs. This has been a concern in the electronics industry antitrust cases in the Northern District of California. For example, one Samsung entity might manufacture a component product such as a cathode ray terminal, which is then sold to another Samsung entity for sale directly to plaintiffs alleging Sherman Act claims, and indirectly to state law plaintiffs. These plaintiffs may have different analyses of the cost issues between the Samsung entities before the first sale outside of the conspiracy, and if the direct purchasers are permitted to go first it would be difficult for the indirect purchasers to present their evidence of pricing without confusing the jury.

Despite all of this, busy federal courts have a strong desire to conduct joint trials of state and federal antitrust actions to further the goal of judicial efficiency. However, it is difficult to envision a joint trial of direct and indirect purchaser claims that would not impair the plaintiffs' claims. Conducting a joint trial would frustrate the paramount intention of Congress and the state legislatures that private enforcement of the antitrust laws be used to deter antitrust cartels and collusion. These issues played out in two post-CAFA cases in the Northern District of California, SRAM and TFT-LCD.

II. SRAM

A. Background

In In re Static Random Access Memory ("SRAM") Antitrust Litigation,¹¹ direct purchaser class plaintiffs and indirect purchaser class plaintiffs asserted claims against a number of defendants involving allegations of price-fixing in the market for static random access memory. As trial approached, the direct purchasers had settled with all defendants except Samsung Electronics Corp. and Cypress Semiconductor Corp. The indirect purchasers had settled with all defendants except Cypress.

The SRAM court sought to try as many common issues as possible, but myriad complications were present. For example, Samsung — which was no longer a defendant in the indirect purchaser case — had previously pled guilty to price fixing in the DRAM market, and evidence of this guilty plea was likely to come in as part of the direct purchaser case. Cypress contended that this evidence would unduly prejudice it, and asked that a separate jury be seated to consider the claims against Cypress to alleviate any potential taint from introduction of the guilty plea. In addition, Samsung had not only settled with the indirect purchasers on terms that included providing cooperation, but was also the amnesty applicant under the Department of Justice's leniency program and thus under the Antitrust Criminal Penalty Enhancement and Reform Act ("ACPERA")¹² had duties to cooperate with the direct purchasers if it hoped to receive the benefit of limited damages under ACPERA.

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