The Use of Econometrics in Class Certification

• Pages: 179-224

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CHAPTER VIII

THE USE OF ECONOMETRICS IN CLASS

CERTIFICATION

A. Introduction

Econometric analysis can be useful to help satisfy certain of the

requirements of Rule 23 of the Federal Rules of Civil Procedure, which

governs class certification.1 In particular, because econometric analysis

allows one to control for hundreds of individual variables, it can be used

to defeat the argument that individual issues predominate, which relates

directly to Rule 23(b)(3). As a practical matter, a proper regression

analysis may allow a court to certify a class that would otherwise appear

not to meet the requirements of Rule 23(b)(3). For instance, in two

similar cases involving the sale of cattle, a class was certified where

1. Rule 23 imposes a number of different requirements on a potential class.

Rule 23(a) requires a class to demonstrate numerosity, commonality,

typicality, and adequacy of representation. Rule 23(b) requres that the

proposed class action meet at least one of the following criteria:

(1) the prosecution of separate actions by or against individual

members of the class would create a risk of:

(A) inconsistent or varying adjudications with respect to

individual members of the class which would establish incompatible

standards of conduct for the party opposing the class or;

(B) adjudication with respect to individual members of the class

which would as a practical matter be dispositive of the interests of the

other members not parties to the adjudications or substantially impair

their ability to protect their interests; or

(2) the party opposing the class has acted or refused to act on

grounds generally applicable to the class, thereby making appropriate

final injunctive relief or corresponding declaratory relief with respect to

the class as a whole; or

(3) the court finds that the questions of law or fact common to

the members of the class predominate over any questions affecting only

individual members, and that a class action is superior to other available

methods for the fair and efficient adjudication of the controversy.

FED. R. CIV. P. 23(b).

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plaintiffs offered a workable statistical analysis, but certification was

denied where the lack of a suitable mathematical formula suggested that

generalized proof was not available.2 However, econometric analysis is

not a magic bullet that can be used to ensure class certification. If a

plaintiff sets forth a regression analysis that suffers from theoretical or

empirical flaws, a court may find that the requirements of Rule 23(b)(3)

are not met.

This chapter begins with a discussion of the legal standard set forth

by Rule 23(b)(3). It then discusses the econometric issues that frequently

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

statistics and the application of regression analysis.

B. Legal Issues

Federal Rule of Civil Procedure 23(b)(3) permits class certification

“if the court finds that the questions of law or fact common to the

members of the class predominate over any questions affecting only

individual members, and that a class action is superior to other available

methods for the fair and efficient adjudication of the controversy.”3 The

predominance inquiry examines whether a proposed class is “sufficiently

cohesive to warrant adjudication by representation.”4 Plaintiffs, who

carry the burden of proof, satisfy the predominance requirement of Rule

23(b)(3) by presenting “generalized evidence” that “proves or disproves

an element on a simultaneous, class-wide basis, since such proof obviates

the need to examine each class member’s individual position.”5

2. Compare Pickett v. IBP, Inc., No. 96-A-1103-N, 2001 U.S. Dist. LEXIS

22453, at *30 (M.D. Ala. Dec. 21, 2001) (certifying class), with In re

Beef Indus. Antitrust Litig., 1986-2 Trade Cas. (CCH) ¶ 67,277 (S.D.

Tex. June 3, 1986) (denying class certification).

3. FED. R. CIV. P. 23(b)(3). In addition to satisfying at least one of the

subsections of Rule 23(b), the plaintiff must also meet the four

preliminary requirements of Rule 23(a): (1) the class is so numerous that

joinder of all members is impracticable, (2) there are questions of law or

fact common to the class, (3) the claims or defenses of the representative

parties are typical of the claims or defenses of the class, and (4) the

representative parties will fairly and adequately protect the interests of the

class. FED. R. CIV. P. 23(a).

4. Amchem Prods. v. Windsor, 521 U.S. 591, 623 (1997).

5. In re Potash Antitrust Litig., 159 F.R.D. 682, 693 (D. Minn. 1995).

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“Common questions need only predominate; they need not be dispositive

of the litigation.”6

In class action treble damages litigation alleging price-fixing

conspiracies in violation of Section 1 of the Sherman Act, econometric

evidence can be used to establish, or rebut, Rule 23(b)(3)’s

predominance requirement. Although the Supreme Court has stated that

predominance is “readily met in certain cases alleging . . . violations of

the antitrust laws,”7 defendants sometimes have shown that one or more

of the elements of an antitrust claim is not subject to common proof.

A private action for damages under Section 4 of the Clayton Act

requires proof that (1) defendants violated the antitrust laws, and (2) the

alleged violations caused injury to plaintiffs’ “business or property,”

resulting in (3) quantifiable damages.8 Because proof of a violation

standing alone will not establish civil liability, plaintiffs must also show

that the alleged violation caused them injury-in-fact. While the existence

of a price-fixing conspiracy is ordinarily amenable to common proof,9

6. Id.

7. Amchem Prods., 521 U.S. at 625 (dictum).

8. See, e.g., In re Linerboard Antitrust Litig., 203 F.R.D. 197, 214 (E.D. Pa.

2001); In re Lorazepam & Clorazepate Antitrust Litig., 202 F.R.D. 12, 29

(D.D.C. 2001); In re Playmobil Antitrust Litig., 35 F. Supp. 2d 231, 245

(E.D.N.Y. 1998).

9. Frequently, allegations of conspiracy relate “solely to defendants’

conduct, and as such, proof for these issues will not vary among class

members.” Potash, 159 F.R.D. at 694; see Lumco Indus. v. Jeld-Wen,

Inc., 171 F.R.D. 168, 172 (E.D. Pa. 1997) (stating that the “focus of

inquiry will be on . . . defendants’ words and actions; it will not vary

among individual class members”); In re NASDAQ Market-Makers

Antitrust Litig., 169 F.R.D. 493, 519 (S.D.N.Y. 1996) (holding that the

“relevant proof of [a single conspiracy] will not vary among class

members, and clearly presents a common question fundamental to all

class members”). However, courts have found that plaintiffs failed to

offer a method of proving conspiracy with common evidence where, for

example, the evidence of conspiracy was specific to particular geographic

areas and the alleged conspiracy was national in scope, e.g., Alabama v.

Blue Bird Body Co., 573 F.2d 309 (5th Cir. 1978), or the evidence of

conspiracy related to individual transactions and the purported class

would have encompassed many such transactions, e.g., Windham v.

American Brands, Inc., 565 F.2d 59 (4th Cir. 1977).