Antitrust and Unfair Competition Law

Competition: Spring 2014, Vol. 23, No. 1


JUDGES SPEAK OUT: THE MAKE-OR-BREAK MOMENT OF CERTIFYING A CLASS With Judges Marsha Berzon, Virginia Phillips, John Wiley, and Curtis Karnow

Moderated by Penelope Preovolos;1 Edited by Penelope A. Preovolos and Dominique-Chantale Alepin

Grant or denial of class certification is often the make-or-break moment for both sides in antitrust, unfair competition and other complex cases. In the past three years, the Supreme Court has issued a series of important class certification decisions, including Wal-Mart v. Dukes,2 Amgen v. Connecticut Retirement Plants & Trust Funds,3 and Comcast v. Behrend.4 Comcast reversed the decision to certify a class in an antitrust case challenging the defendant’s allegedly anticompetitive practices in building its cable network. The Comcast decision sparked a sharp dispute between the majority, which held that the plaintiff must prove both classwide impact and the ability to prove damages on a classwide basis at the class certification stage, and the dissent, which argued that individual issues respecting damages do not preclude class certification. This trio of Supreme Court decisions has generated wide-spread commentary—and controversy—regarding the legal standards that plaintiffs and defendants must satisfy, and how the case law will play out in the real world in federal and state courts.

Thus, on October 24, 2013, Judges Marsha Berzon,5 Virginia Phillips,6 John Wiley7 and Curtis Karnow8 spoke at the 23rd Annual Golden State Antitrust and Unfair Competition Law Institute on the topic of class certification. They discussed their "real world" experience adjudicating class actions after Walmart, Amgen and Comcast, and suggested best practices for plaintiffs and defendants in moving for and opposing class certification.

What follows is an edited version of their remarks.

I. Panel Discussion

Moderator: In light of Comcast, are we now going to see a requirement in every case that damages can be proven on a class-wide basis?

Judge Phillips: I think that the answer is yes. If you look at the cases that have come down since Comcast was issued, you can see that emphasis on proving damages on a class-wide basis even in areas other than antitrust, primarily in the employment context. There is an increasing focus on the ability of the plaintiff at the certification stage to tether the damages analysis to a liability analysis. I expect the issue to be raised by the defense in the context of employment, products liability and other cases during class certification proceedings.

[Page 50]

Moderator: What are best and worst practices for plaintiffs and defendants in approaching the element of predominance after Comcast?

Judge Karnow: State courts follow class action precedent set by the federal courts but only as a matter of practicality, since there are many more federal than state court class action decisions. But in Jolly v. Eli Lilly & Co.,9 the California Supreme Court made it clear that California state courts are not required to follow federal law on class certification. So while federal cases are interesting, state judges look at them and state court litigants continue to cite them, if they conflict with other state law, the state court can treat them as advisory. So what Justice Scalia did in Comcast isn’t necessarily something state court judges will go along with.

In addition, some federal courts have tried to walk away from some of the holdings of Comcast. Judge Posner, the Ninth Circuit and the Sixth Circuit have all issued decisions in which they attempt to distinguish Comcast. These courts have also discussed more generally how to interpret Comcast and have tried to limit its impact. There really are two ways that Comcast has been read. The first is the tethering issue—that the damages analysis must have a close relationship with the liability theory. I think it is obvious that this is required. And Judge Posner and some other people have interpreted Comcast as not going much beyond this holding. The second interpretation, that the plaintiff must be able to prove damages on a classwide basis, would be a novel interpretation of California law. That requirement would be inconsistent with Sav-On Drugs v. Superior Court.10 In Sav-On Drugs, although the opinion did not employ the notion of a "liability class" (state courts generally do not use that term), the court held that individual damages issues did not preclude certification.

In general, state courts tend to be more practical. They focus on whether it makes sense in the long run to certify some issues, even if not all the issues (including damages) are ascertainable on a class-wide basis. The question for state court trial judge is: What will trial look like? In some cases, individual damage issues may not complicate the trial. Thus, individual damages issues may not defeat certification. In fact, in some cases, there are advantages to certifying a class on particular issues including liability, statute of limitations, preemption, etc. There are several items that are more useful to decide on a class-wide basis. In some cases, a trial court judge may certify a class but separate the damages issues to be dealt with by a different process, such as giving it to a referee or sending it back to the agency.

Class certification really comes down to practicality and manageability. I think the most important do’s and don’ts that I can suggest in this context are: in class certification motions, plaintiffs especially tend to ignore the damages issues. Many do not want to talk about damages issues at class certification. I think the impact of Comcast is that they are going to have to. What’s the impact? What’s the trial going to look like? How are you going to approach the damages issues in this case? And depending on the outcome of that discussion, damages issues may or may not inhibit certification in the end.

[Page 51]

Judge Phillips: One of the practical issues that has arisen in federal court is the tension between conducting sufficient discovery on class certification issues and bringing the class certification motion "as early as practical" as the rule requires. For example, in the Central District, the local rule requires that the motion for certification must be brought within ninety days after the filing of the lawsuit. But there is a need, especially after Comcast, to develop the evidence sufficiently through discovery to present expert evidence to satisfy a Daubert analysis. Performing sufficient discovery in ninety days on these issues would be impractical. Now, several judges in the Central District have their own rule abrogating the local rule and providing relief from the requirement of filing a class certification motion in ninety days. My general practice is to set the deadline for filing the class certification motion at the time of the Rule 16 scheduling conference. At that time, I have a chance to listen to the parties about the discovery needed before filing a well-briefed motion for class certification. I believe that this will be a significant problem confronting both sides. In order to address the emphasis on predominance that’s set out in Comcast, significantly more discovery is going to be needed. Thus, class certification motions may be pushed out far past what the local rules currently require.

Moderator: Has the ability to have a trial as to liability on the class level followed by individual damages trials changed following Comcast? Or do courts just need to determine if that procedure would be efficient and consider predominance issues?

Judge Phillips: Actually, I think Comcast suggests, and some circuit courts have also held, that liability classes are the right approach. I think, practically, we are going to see more decisions that certify the class as to liability only.

Moderator: What more general advice would you give plaintiffs in thinking about moving for class certifications and defendants in opposing class certification?

Judge Wiley: My advice would be to take advantage of the sophistication of your opposing counsel. For example, in the complex litigation division in Los Angeles, we have only six to eight judges. But we get all the class actions in Los Angeles County now. These cases cover a wide range of types of class actions, and the exposure can be enormous. This means we have many cases to handle. Everyone in this room will be litigating against someone else in this room, and you are all sophisticated lawyers. Exploit that. It helps when the parties have met and conferred and agreed on the key issues that divide them. So work with your opposing counsel and discuss the issues that are really central to the case. Try to agree on the settlement value of the case, and if you can, great. But if you can’t, try to agree on what divides you, on the key issues in the case. By discussing the issues at the heart of the matter, you can avoid needless discovery. In my experience, neither plaintiffs nor defendants are really wild about discovery. It’s expensive and not that fulfilling. In some instances, you may need discovery because a fact issue is central to the case. But that does not happen in the majority of cases.

I encourage the parties to come together and think up creative ways to presenting your issue to the court. Perhaps it’s the case that the procedures contemplated by the Federal Rule or Code of Civil Procedure do not fit with your strategy for resolving the action. The parties should work on measures to crystalize the issues and get them resolved. Be highly rational and highly interactive, and develop a procedure that will help reduce the uncertainty so that both sides look at the judgment, if the case goes the distance, as having the same distribution of probable outcomes. Once everybody agrees on what the case is worth, it should settle in a rational world.

[Page 52]

There is a cost-benefits analysis for both sides. For example, either party may start off with a motion for judgment on a question of law, or a motion on proper damage calculations or preemption. And then after both sides agree on what the filing date is, request a case management conference. During that conference, the parties should discuss openly with the judge the discovery needed to fully brief the motion, filing deadlines, and a schedule for oral argument.

Judge Karnow: I have two pieces of advice on this. First, plaintiffs should fess up to whatever the individual issues are. Sometimes plaintiffs feel that the class certification motion is not going to succeed unless all the issues are common. That’s just not true. It is an issue of predominance. So coming clean about that and putting together a trial plan on the individual issues assists your case greatly.

Second, consider having a staggered class certification procedure that deals with discovery and motion practice to reduce discovery costs. The parties can file motion papers first and then decide what discovery to take. Then discovery is a function of just what the papers raise rather than massive discovery for fear of what may be coming from the other side. This approach can really reduce the cost of the certification. It does extend the time period to do this, but it is something to think about. Anything you can come up with out of the box that seems to make sense, we will do to reduce costs.

Judge Phillips: I would echo what has already been said. Also, with some frequency, I see motions where it’s clear that plaintiff’s counsel aren’t qualified. That may be surprising, but I see a fair number. It’s not just because they have never litigated a class action before. Sometimes the basics are overlooked, including the fact that the motion to certify encompasses class members that were not identified in the complaint. There is a total mismatch between the class alleged in the complaint and the class the motion seeks to certify. In these cases, I encourage counsel to meet and confer and discuss the issues to streamline things a bit further.

Moderator: How does the Ninth Circuit review class certification orders? What should litigants be thinking about in the district court regarding a possible appeal on class certification issues?

Judge Berzon: Rule 23(f) permits an interlocutory appeal with regard to class certification by either side, but it is entirely permissive on the part of the court of appeals. Although there is verbiage in a number of decisions that granting an interlocutory appeal is relatively rare, my impression is that we grant them with some frequency.

The Ninth Circuit articulated some standards for granting an interlocutory appeal on a Rule 23(f) motion in 2005 in Chamberlan v. Ford Motor Company.11 Those standards are: (1) whether the class certification question is a death knell for either side; (2) whether there is an unsettled and fundamental issue of class certification law; and (3) whether the district court’s decision is manifestly unjust. One item to highlight, there are a number of defendants who claim that not granting the Rule 23(f) appeal will cost them a great deal of wasted money and prejudice them in the litigation. But the Ninth Circuit in Chamberlain was very skeptical about the proposition that the Ford Motor Company would encounter any huge hardship if their appeal was not heard. So litigants should point to more than simply the money and time they will lose if they expect the Ninth Circuit to grant their interlocutory appeal.

[Page 53]

Practically speaking, the way the Ninth Circuit judges decide which Rule 23(f) interlocutory appeals to grant is that the judges have monthly motions panels during which we review a wide variety of pending motions. We sit for around three days with several hundred motions. Staff attorneys present each motion to us one by one, and we decide whether to grant or deny all motions. When staff attorneys present a Rule 23(f) motion, I take the motion home with me, as it is usually too much to absorb on the spot. At the time the motion is presented to us by the staff attorney, we know nothing about the underlying case except what the parties have briefed and what the staff attorney presents. That is why I view it as important to review the papers separately.

In terms of practical advice for litigants who may consider a 23(f) appeal, first, litigants should make very clear in their 23(f) papers why the applicable standards are met. And while litigating the issue in district court, try to tee up, in particular: (1) whatever evidence there may be that the class certification decision is going to determine the outcome of the case; and (2) a clear and ascertainable separate legal question beyond the usual morass of Rule 23(a) and (b) factors.

Moderator: What should counsel for each side focus on when presenting or challenging expert evidence on class certification issues? And how do Daubert v. Merrell Dow Pharmaceuticals12 and Sargon Enterprises, Inc. v. University of Southern California13 factor into your advice?

Judge Karnow: I addressed Sargon recently in an article published in the ABTL Journal entitled, "Sargon and the Science of Reliable Experts," (Spring 2013). In that article, I tried to think through what the California Supreme Court was trying to do in Sargon. My sense is that although we do not quite know what the Court was trying to tell us in Sargon, two things are going to happen as a result of Sargon.

There are a lot of people on the defense side who have written articles stating that Sargon signified a sea change creating a different paradigm. These authors have claimed that, following Sargon, all state court judges should act like federal court judges in terms of weighing the admissibility of evidence. But I do not believe that to be the case. The notion that there is a huge division between state and federal judges on what comes in and what stays out is a cartoon version of what actually happens. The implication of Daubert and Sargon is that state court judges are hopefully going to be spending more time trying to figure out whether or not there really is a basis for the expert’s testimony.

From my perspective, the more difficult issue is not whether to admit this expert evidence at trial, but how to determine whether to admit it during class certification. It is not possible during class certification proceedings to have an eight day Rule 402 hearing as occurred in Sargon. Practically speaking, the issue of class certification will be discussed for one to two hours, sometimes much less (15-20 minutes) if you are in law and motion and don’t have a complex judge assigned. So how should we handle these issues during motion practice?

My suggestion is that judges should look to the expert declaration to verify that two things are true: first, that the underlying theories are actually scientific; and second, that the logic that the expert has used to go from the underlying theory to his or her conclusions is clear. Both of those criteria must be satisfied by the declaration. And declarations must carry their own water. The judge should be able to figure out the facts that are being assumed, and how logic and logic alone takes him or her from the assumptions and the scientific theory to the conclusions that the expert reached.

[Page 54]

Judge Wiley: I have two follow ups on this topic. First, what is a Sargon test exactly? Second, how do both sides take advantage of it?

First, practically speaking, Sargon puts expert evidence to the "stink" test. If the experts’ theory really stinks, his or her testimony will not be considered. In Sargon, the expert concluded that although the company was a start-up and had not made very much money, if given a chance, it would have made several times its worth (millions upon millions). That was the theory, and the expert cited to a bunch of so-called "methodology" to support that theory.

But the trial judge, aided by, on the defense side, the former dean of the Stanford Law School who was briefing the case, said, "This is simple, and it’s stupid. It stinks, really stinks." The judge listened to testimony and argument over eight days and concluded that the expert’s conclusions really did not hold water and wrote a lengthy decision on the topic.

Now, superior court judges don’t do that all that often. They do not have time to toss off 30-40 pages on a motion. And it’s pretty simple at the end of the day. If you are opposing an expert, you have to figure out how to explain to the trial judge, "This really stinks. It is just another hired gun coming in to do whatever the client wants, trying to mislead the jury with a bunch of scientific mumbo-jumbo." Sargon is pretty simple. It takes a lot of homework because you need to understand the expert’s testimony perfectly in order to boil it down and say "See, if you put it simply, it’s just dumb." That can be powerful. Perhaps it is the key issue in the case. Or maybe it is a causation case, and that’s where the parties really disagree. Maybe what the parties really disagree on is which experts are going to get to testify.

Moderator: Plaintiffs often argue that the California Supreme Court has held that at the class certification stage, the judge should not examine the merits. What is your guidance to state court litigants and how does that differ from class certification proceedings in federal court, where the United States Supreme Court has told judges to do a deep dive into the facts?

Judge Wiley: When parties come to me in the complex division, I tell them that the complex division affords them the opportunity to develop a process to fit their case. Although the default is to file a class certification motion, that may be the least inventive thing you can do with your case. Although filing a class certification motion may be the right way to go, if there is another issue that is really dividing you, I encourage litigants not to worry about class certification and instead to proceed to the issue where there is the most disagreement. My goal is to make a ruling on that issue and then have the parties appeal it if they want to.

Judge Karnow: With respect to the specific question about getting into the merits on motions for class certification, I am not sure there’s a huge difference between state and federal practice. Judges will try to avoid it but sometimes they cannot. Sometimes the judge must figure out what the merits are before he or she can truly examine whether the class should be certified. So if you have to look at the merits, you have to do it. In a recent case, I looked at the merits during a decision on a motion for class certification. And in that case, the plaintiff was dissatisfied with my decision and appealed my ruling to the First District. But the First District agreed with my approach. So the bottom line is that whether you are in state or federal court, sometimes you have to address the merits.

[Page 55]

Moderator: Many of us thought that the issue in Comcast was whether the court was required to make Daubert findings. In federal court, what is the role of Daubert at the class certification stage? How should expert testimony be examined? And how should litigants address issues that arise with expert testimony? Are there circumstances where the court should hold an evidentiary hearing?

Judge Phillips: I frequently see, at a minimum, expert declarations. And on at least one occasion, I held an evidentiary hearing based on expert declarations for both sides. So I would echo what has already been said about making sure that the expert declarations are as detailed as necessary to explain the expert’s findings to someone who is not as familiar as counsel with the case and the underlying facts. Litigants should be sure to submit a declaration from an expert and not a declaration from counsel explaining what an expert would testify to if one had been hired. I, and several other judges, have held that type of declaration to be insufficient.

One of the questions that confronts defense counsel is whether to attack on Daubert grounds the sufficiency of the evidence of plaintiff’s expert declaration, or to submit their own expert declaration in evidence. My advice depends on how strongly you feel about the weakness of what’s been submitted by the plaintiff. But generally, I would both attack the sufficiency of plaintiff’s expert declaration and submit one from the defense.

I would like to address two more points about Comcast. One of the things that struck me in Comcast and some of the circuit court discussions on this issue is that there is an assumption that the trial court erred. Some people postulate that because in Comcast there was an overlap of the merits discussion and the class certification discussion on predominance, the trial court assumed that it couldn’t reach the merits to the extent that it had to in making a ruling on predominance for class certification purposes. I am not sure that the trial court actually made those assumptions. There may have been other reasons why the trial court did not reach the merits. Perhaps those issues had not been presented to the trial court.

Second, I recognize there is a tension between usurping the jury’s function on some of these issues and the gatekeeping function of Daubert in deciding what evidence is necessary just at the certification stage. But as the Third Circuit pointed out, a showing that common issues predominate is necessary for class certification. While we do not necessarily have to answer whether there is sufficient evidence to prove the particular element of the case for purposes of class certification, the trial court must conclude that common issues predominate.

Judge Berzon: From an appellate perspective, under Rule 23(f), the circuit court can only review issues pertaining to class certification. So we are jurisdictionally bound on an interlocutory appeal to reach the merits only to the extent necessary to decide the class certification question. As Judge Phillips just said, the question with regard to expert evidence or any other evidence is really just whether there is a common question (in the Rule 23(a) context) and whether common issues predominate (in the 23(b) context).

[Page 56]

The other major Supreme Court case that was decided last year in the context of class actions was Amgen v. Connecticut Retirement Plans and Trust Funds14 The Supreme Court’s decision was very forceful in holding that trial courts may not directly reach the merits of the case at the class certification stage. Indeed, Amgen held that there are circumstances where the ultimate result may be that the plaintiff class loses uniformly, but if the plaintiff will lose uniformly, that is not a reason to deny class certification.

One of the things I have seen is a tendency, even by the plaintiffs, to want more than just a decision on class certification. The plaintiffs do not want to go back to the district court if they are going to lose on the merits. They are looking to the Ninth Circuit to determine whether they are going to lose on the merits. We steadfastly refuse on an interlocutory appeal to do that; the only question we can answer is whether class certification was properly denied. We cannot provide an advisory opinion on whether they are going to lose on the merits.

Moderator: Let’s turn to the subject of class settlements. What do the litigants do right and what do they do wrong at the preliminary settlement approval stage of a class action?

Judge Karnow: I am one of those judges who has not yet approved a class action settlement the first time around. At the time of final approval, all objections must be heard. So the first stage—when a settlement is presented for preliminary approval—must involve heavy lifting in order to ensure that the settlement will be ready in the final stages. At the preliminary approval stage, I see many problems that need fixing. First, the motion for certification of the settlement class and preliminary approval of the settlement lack transparency. The attorneys have not done a good job explaining what the deal involves, or they are hiding something, advertently or inadvertently. Such hidden items include attorneys’ fees and the payout to individual class members. Sometimes, it is impossible to tell how much money will be provided to the class overall. In some instances, when everything is worked out, the defendant gets all the money back and the plaintiffs’ attorneys are paid $20 million. Transparency can be a big problem.

The attorneys must also be transparent to allow the judge to examine the result to determine if it is fair. I call this the "Kullar" problem which is named after a case in the First District, Kullar v. Foot Locker Retail, Inc.15 The Court of Appeals held in Kullar that the trial judge must make an independent evaluation of the merits of the case and its strengths and weaknesses to figure out whether the result is fair. Judges may not take the attorneys’ word that the result is fair and that this is a good deal for the parties. Judges must examine how much work the attorneys did and what evidence both parties have. The judge must have enough information to be able to walk through the same thing the attorneys walk through to be able to figure out if this is a good deal or not.

Judges fulfill an important role when it comes to approving a settlement because by the time of settlement review, there is no adversarial input. And settlement of a class action is a really big deal. Judges must do extra work at this point but must be assisted with information from the attorneys. So that is why transparency is so important.

[Page 57]

The second problem that may need fixing is that attorneys think and write in legalese. Many of the materials that are to be presented to the class members are not written in a manner that can be understood by the class. So with these notices, I try to look at them from the perspective of someone in the class. It should be written at a tenth-grade education level and should be understood by those who are not lawyers. Try to give your proposed notice to someone who is fairly smart but not a lawyer and ask them whether they can understand it. Can they figure out how much money they are likely to get? Can they scope this out?

As an example, I recently reviewed a couple of notices out of the Southern District of New York received by my father that were thousands of pages long. At that length, it would take me weeks to go through them to figure out what was involved and why my father was being included as a member of the class. So take your law hat off and give the notice to somebody who is not in the business and see if they can figure out what you wrote.

Judge Phillips: I will start with what people do right. First is an example from a recent case which settled for $300,000. Now that’s quite small, but the attorneys did a great job. The fees were capped at $75,000, but the plaintiffs’ attorneys also submitted their bills so I could review what work they had performed. The parties submitted papers persuading me that most of the class members would qualify. And the defendant agreed to pay above and beyond the $300,000 (up to $12,000 in costs). The number of class members turned out to be quite a bit smaller, so they were going to get a pretty fair amount.

What I usually do when I encounter a proposed preliminary settlement that is inadequate in one way or another is deny the motion without prejudice. And sometimes, I will issue a lengthy order pointing to what has and has not been satisfied. I note that there are specified factors that I am supposed to have enough information on so that I can make a reasonable determination. The parties must submit declarations based on personal knowledge to tell me about the strengths and weaknesses of the plaintiff’s case; the risks, expense, and likely duration of future litigation; the amount that’s offered in settlement; how it’s really going to break down to in terms of individual claims as best as can be determined; the extent of the discovery; the parties’ stake in the proceedings; the experience and the views of counsel; the reaction of class members to the extent known at that stage; and what claims are being made in the litigation.

Sometimes, the issue I encounter is that the proposed settlement release language releases many claims that are not covered in the litigation. And in many cases, the notice is unduly confusing and the time lines are slanted against giving members enough time to object. There are other big warning signs that can indicate collusion on behalf of the plaintiff and defendant. Perhaps there is no declaration from defense counsel. Or maybe the parties have included a clear sailing provision where the amount that each class member will get is disproportionate to the attorney’s fees. Or maybe there is a reversion of funds to the defendants. And one final thing I have to remind parties of is that if it is a nationwide class, they must notify the Attorney General and the Attorneys General of all the states.

Resolution is sometimes difficult as settlement represents the end of the case. Counsel want to be done with the case and it can be tempting for the judge to also quickly approve the settlement because it has been on their docket for quite some time. But I try to address all the factors and ensure that the settlement is fair. Counsel and judges have a fiduciary duty to look out for the silent class members.

[Page 58]

Judge Berzon: From the federal appellate perspective, the court of appeals will only review a settlement if there is an objector appealing the approval of the settlement. Something of a professional class of objector lawyers has developed who have their own motives in objecting to settlements. And my observation of what the court of appeals is looking at in these cases is whether the settlement passes the smell test. The smell test often revolves around the fees and around a sense of whether the district court did a careful job of considering the fee amount, whether the fees drive the settlement, and whether what is being provided to the class is a result of the weakness of the case or perhaps something more nefarious.

[Page 59]



1. Ms. Preovolos is a partner at Morrison & Foerster LLP in San Francisco, California and a former Chair of the Section.

2. 131 S. Ct. 2541 (2011)

3. 133 S. Ct. 1184 (2013)

4. 133 S. Ct. 1426 (2013)

5. Judge, Ninth Circuit Court of Appeals.

6. Judge, United States District Court, Central District California.

7. Judge of the Superior Court of the State of California.

8. Judge of the Superior Court of the State of California.

9. 44 Cal.3d 1103 (1988)

10. 538 P.2d 739 (1975)

11. 402 F.3d 952 (9th Cir. 2005)

12. 509 U.S. 579 (1993)

13. 55 Cal. 4th 747 (2012)

14. 133 S.Ct. 1184 (2013)

15. 168 Cal.App.4th 116 (2008)

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