While the U.S. Supreme Court and federal courts of appeals have in recent years demanded rigorous scrutiny before authorizing certification of class actions, the Supreme Court of Canada has charted a different course. In a trio of recent decisions in antitrust class actions, Canada’s high court rejected key U.S. precedents on the scope and nature of class actions, forcing companies to defend against the same types of allegations under distinctly different legal regimes on each side of the border.

The three cases decided by the Canadian court, which all involved allegations of price-fixing, are:

In each case, plaintiffs had filed a class action in Canada on the heels of a similar class action filed in the United States. The Supreme Court of Canada addressed four issues that have been critical to antitrust class actions on both sides of the border, and deviated in several places from the path charted by the U.S. Supreme Court.

Indirect Purchasers May Sue Under Canada’s Antitrust Law

In Pro-Sys, the Supreme Court of Canada ruled that a defendant is generally precluded from asserting a passing-on defense in an antitrust class proceeding (i.e., the Court largely adopted the U.S. Supreme Court’s ruling in Hanover Shoe). But Canada’s court rejected the U.S. Supreme Court’s Illinois Brick rule that bars indirect-purchaser suits under federal antitrust law, and held instead that an indirect purchaser may assert a cause of action under Canada’s Competition Act. In concluding that an indirect-purchaser class action may be certified in the common-law provinces in Canada—i.e., those other than Quebec—the Court echoed Justice Brennan’s dissent in Illinois Brick, concluding that “the same policies of insuring the continued effectiveness of the [antitrust] action and preventing wrongdoers from retaining the spoils of their misdeeds favor allowing indirect purchasers to prove that overcharges were passed on to them.”

The Pro-Sys Court acknowledged the potential risk of double recovery when parallel claims are brought by direct and indirect purchasers, either as part of the same action or in multiple jurisdictions. But the Court noted that “legislation restricts individual recovery for damages for violations to just two years,” making it impractical for potential Canadian indirect plaintiffs to sit on their claims until resolution of an earlier direct purchaser suit. Where multiple suits are brought, a defendant may present evidence of the potential for overlapping recovery to the trial judge, who may modify any damage award accordingly.

In Infineon, the Supreme Court of Canada held that similar principles apply under Quebec’s civil-law regime. Accordingly, indirect-purchaser class actions also may be filed in that province.

Canada Does Not Require Rigorous Analysis Of Class Certification Requirements Prior To Certifying A Class

In Pro-Sys, the Supreme Court of Canada addressed the “rigorous” approach to class certification that the U.S. Supreme Court has reiterated is necessary under Federal Rule of Civil Procedure 23—most recently in Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend. The Canadian court rejected the U.S. approach.

To the contrary, the court held that a plaintiff seeking class certification in Canada’s common-law provinces does not need to prove with evidence at the class-certification stage that the class-certification requirements are met, nor does the court need to resolve “conflicting facts and evidence at the certification stage.” Rather, in Canada a would-be class representative need only adduce a “credible” or “plausible” methodology to prove the issues of loss and liability on a class-wide basis.

More specifically, in an antitrust class action, “the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class.” The methodology must be “grounded in the facts” and “there must be some evidence of the availability of the data.”

But the Canadian court did not give a completely free pass to plaintiffs at the class-certification stage. Instead, the court suggested, certification remains “a meaningful screening device” (including the requirement that an expert’s methodology offer a “realistic prospect” of establishing class-wide loss).

In Infineon, the Supreme Court of Canada held that the standard for class certification in Quebec is even lower because the evidentiary burden is “less demanding” under the Civil Code. In a total departure from U.S. precedent, a Quebecois plaintiff must present merely an “arguable case that an injury was suffered”—and need not do so by presenting expert testimony. In fact, “presentation of expert evidence is not the norm at the [class-action] authorization stage in Quebec.” (Defense lawyers in Quebec tell us that class-action trials are far more common than they are here; this comparatively loose approach to class certification may explain why.)

Canadian Courts May Exercise Jurisdiction Over Companies Alleged To Be Part Of Foreign-Based Conspiracies.

Another significant aspect of the Canadian high court’s decision in Infineon was the conclusion that Quebec courts could exercise jurisdiction over companies accused of entering into price-fixing arrangements outside of Canada, so long as there is some indication of injury or “economic damage” to a consumer in Quebec.
Similarly, in Sun-Rype, the Court ruled that if plaintiffs adequately allege that defendants conduct business in Canada, make sales in Canada, and conspire to fix prices on products sold in Canada, Canadian courts could adjudicate the claims regardless of where the challenged conduct had taken place. As the Court put it: “The respondents have not demonstrated that it is plain and obvious that Canadian courts have no jurisdiction over the alleged anti-competitive acts committed in this case.”

Some Good News On Ascertainability In Canada?

The Supreme Court of Canada did refuse to approve certification of a class action in one of the three cases. In rejecting class treatment for the indirect-purchaser class action in Sun-Rype, the court focused on the plaintiffs’ failure to establish “some basis in fact” that an identifiable class existed. In particular, the plaintiffs in Sun-Rype did not offer any evidence to show that two or more persons could prove that they purchased a product actually containing high-fructose corn syrup during the class period.

This holding parallels a recent trend in U.S. courts of taking Rule 23’s ascertainability requirement seriously—with the most prominent examples being the Third Circuit’s recent decisions in Hayes and Carrera—decisions we have previously discussed in some detail. That said, it does not appear that the inquiry is as stringent in Canada as it is in Hayes and Carrera; although those U.S. decisions rejected the use of self-identification alone as a means of demonstrating the existence of an identifiable class in those cases, the Canadian Sun-Rype decision may leave that door open.

Potential Implications

While the full impact of these rulings will become apparent only over time—and future litigation—some implications already are clear. As an initial matter, plaintiffs’ lawyers are likely to be emboldened by these rulings. Indirect-purchaser suits are now expressly permitted in Canada. It will be easier to certify class actions in Canada than the U.S. now that the Canadian high court has expressly rejected the type of “rigorous analysis” mandated by the U.S. Supreme Court in Dukes and Comcast. And foreign defendants with no presence in Canada may be required to defend competition class actions in Quebec, and possibly other provinces, that are filed by plaintiffs alleging that they suffered losses in those jurisdictions that were caused by a price-fixing scheme entered into entirely outside Canada.

More generally, these decisions may lead Canada’s class-action system to see more litigation progress further along towards trial as fights that previously took place at the class-certification stage now get pushed down the road to summary judgment or trial. When it comes to class actions—like the Winter Olympics—our neighbor to the north is one to watch.

When the Comcast Corp. v. Behrend decision came down, my colleagues summarized the Supreme Court’s ruling.  Since then, I’ve put together an analysis of the decision and its potential implications.  Lexis has now published the piece as a part of its ongoing Emerging Issues Analysis series.  It is available here:  2013 Emerging Issues 6992 ($).  Enjoy.

It’s rare for a court to appoint its own expert in a class action. But Judge Gleeson of the Eastern District of New York is poised to do precisely that in order to help him decide whether to grant final approval to the $7.25 billion proposed class settlement of antitrust claims by retailers challenging Visa’s and MasterCard’s interchange fees. Some observers say that the proposed class settlement in the case—In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, No. 1:05-md-01720—would be the largest class settlement of private antitrust claims in U.S. history.

In November, Judge Gleeson granted preliminary approval to the proposed settlement, which reportedly calls for $6.05 billion to be distributed to class members and for a $1.2 billion reduction in future interchange fees. Several major retailers and trade associations are expected to object to final approval of the settlement, after having objected to preliminary approval.

Judge Gleeson recently asked the parties if they had any objection to having law professor Alan Sykes—a leading law-and-econ scholar—advise the court “with respect to any economic issues that may arise in connection with the forthcoming motion for final approval of the proposed settlement.”

The complexity and multi-billion-dollar stakes of this case may have motivated Judge Gleeson to seek guidance from an independent expert regarding whether the proposed class settlement should be approved under Federal Rule of Civil Procedure 23(e). We haven’t seen judges evaluating other class action settlements—which generally present less complicated issues than this settlement appears to raise—consider appointing their own experts to assess the settlement’s fairness.

An important and recurring issue in class actions is whether a district court must consider particular merits issues when deciding whether to certify a class under Federal Rule of Civil Procedure 23. Today, in Comcast Corp. v. Behrend (pdf), No. 11-864, the Supreme Court reversed the certification of an antitrust class action because the district court failed to conduct a “rigorous analysis” of whether the testimony of the plaintiffs’ damages expert satisfies Rule 23(b)(3)’s requirement that “questions of law or fact common to class members predominate” over individualized questions. The lower courts had concluded that they were unable to scrutinize the expert’s damages model because that would involve examining the merits of the underlying antitrust claims.

The plaintiffs in Behrend had sought to certify a class action involving federal antitrust claims against Comcast. Rule 23(b)(3), which governs class actions for money damages, requires a plaintiff to show that common questions of law or fact predominate over individualized questions. Accordingly, the plaintiffs were required to show that the “antitrust impact” of the alleged violation could be proved at trial through evidence common to the class and that the damages could be measured on a classwide basis through a “common methodology.” Although the plaintiffs presented four theories of antitrust impact, the district court accepted only one. And although the plaintiffs’ damages expert conceded that his economic model for damages did not measure damages flowing from that single theory of antitrust impact, the district court nonetheless certified the class. The Third Circuit affirmed, declining to consider Comcast’s objection to the expert’s model because doing so would require delving into the merits of the underlying claims.

The Supreme Court reversed by a 5-4 vote, holding that the plaintiffs had failed to satisfy Rule 23(b)(3)’s predominance requirement. Writing for the majority, Justice Scalia explained that the Third Circuit erred in refusing to take a “close look” at the methodology underlying the proposed classwide-damages model. As the Court explained, courts must consider challenges to class certification even if those challenges would also be pertinent to the merits. The majority noted that district courts considering whether a plaintiff has satisfied Rule 23(b)(3) must conduct a “rigorous analysis” that will frequently “overlap with the merits of the plaintiff’s underlying claim,” because determining whether common questions predominate over individualized ones “generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.” The majority then explained that because the plaintiffs’ damages model in this case failed to measure only those damages that would be attributable to the sole theory of classwide antitrust liability, the plaintiffs had failed to prove that damages could be measured on a classwide basis. Because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class,” the majority held that class certification was improper.

Justices Ginsburg and Breyer, joined by Justices Sotomayor and Kagan, dissented. They first explained that they believed that review had been improvidently granted because the Court had granted certiorari to consider a question—whether Daubert objections to expert testimony must be resolved at the class-certification stage—that in their view had not been preserved for review. The dissenting justices next expressed their view that the reach of the Court’s holding is limited because the plaintiffs had failed to argue that predominance would be satisfied even if damages could not be shown on a classwide basis. Finally, the dissenting justices explained their view that, as a matter of substantive antitrust law, the plaintiffs’ damages methodology was sufficient to support class certification.

The Behrend decision is important for any business that may be the target of class actions. Among other things, Behrend confirms that district courts must scrutinize plaintiffs’ evidentiary showing that common questions will predominate over individualized ones—including questions relating to damages—even if any challenges to that showing overlap with the merits of the underlying claims.

A number of courts recently have weighed in on a question we’ve blogged before—whether lawsuits by state attorneys general seeking restitution on behalf of private citizens are subject to removal under the Class Action Fairness Act of 2005 (pdf) (“CAFA”). These rulings have broad implications for the litigation of these quasi-class actions.  They also are of substantial importance to determining whether securities fraud actions filed by state attorneys general are precluded by the federal Securities Litigation Uniform Standards Act of 1998 (pdf) (“SLUSA”). Continue Reading Are Quasi-Class Action Suits By State AGs Removable Under CAFA (Or, For Securities Fraud Cases, Barred By SLUSA)?