The opinion of the court was delivered by: Legrome D. Davis, J
(Direct Purchaser Class Action)
Presently before the Court is the issue of class certification, and the parties have offered extensive briefing on this issue, including Plaintiffs' Revised Motion for Class Certification (Doc. Nos. 458-59), Defendants' Supplemental Response in Opposition to the Motion for Class Certification (Doc. No. 473), Plaintiffs' Reply in Further Support of their Revised Motion for Class Certification (Doc. No. 474), Defendants' Second Supplemental Brief in Opposition to the Motion for Class Certification (Doc. No. 494), Plaintiffs' Supplemental Memorandum in Support of their Revised Motion for Class Certification (Doc. No. 498), Plaintiffs' Post-Hearing Submission (Doc. No. 508), Defendants' Outline of Evidence Presented at the June 28-30, 2010 Class Certification Hearing (Doc. No. 509), Plaintiffs' Post-Hearing Memorandum in Further Support of their Revised Motion for Class Certification (Doc. Nos. 510 & 514), Defendants' Post-Hearing Memorandum in Further Opposition to the Motion for Class Certification (Doc. No. 513), Plaintiffs' Proposed Findings of Fact and Conclusions of Law (Doc. No. 512), and Defendants' Proposed Findings of Fact and Conclusions of Law (Doc. No. 511).*fn1 For the reasons that follow, Plaintiffs' Motion for Class Certification is denied.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs seek to prosecute claims under the Clayton Act, 15 U.S.C. § 15, alleging a price-fixing conspiracy in violation of the Sherman Act, 15 U.S.C. § 1, on behalf of two groups of class members: (1) all direct purchasers of organotin heat stabilizers ("tins," "tin stabilizers," or "tin products") that purchased tin products between January 1, 1990 and January 31, 2003;*fn2 and (2) all direct purchasers of epoxidized soybean oil ("ESBO" or "ESBO products") that purchased ESBO products between January 1, 1990 and January 31, 2003.*fn3 (Pls.' Mem. Supp. Revised Mot. 1.) When this case was commenced in 2003, several additional groups of products were at issue, including mixed metal heat stabilizers, methacrylate butadiene styrene impact modifiers, acrylic impact modifiers, and acrylic processing aids. On August 31, 2006, this Court issued an Order granting Plaintiffs' Motion for Class Certification upon the condition that Plaintiffs divide their proposed class into six subclasses, one subclass for each of the six groups of products at issue. In that Order, in line with what we believed to be common practice at the time, we declined to balance the credibility of the parties' experts on the issue of the predominance of common evidence demonstrating impact. On December 20, 2006, this Court certified this matter as a class action with six subclasses. An appeal followed, and this Court stayed proceedings. On January 27, 2009, the Third Circuit vacated this Court's December 20, 2006 Class Certification Order and remanded this case for further proceedings "consistent with [its] opinion" in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008).
Four of the groups of products that were originally at issue are no longer at issue because Plaintiffs settled their claims against all Defendants that produced mixed metal heat stabilizers as well as all Defendants that only made methacrylate butadiene styrene impact modifiers and acrylic impact modifiers or acrylic processing aids. Accordingly, when Plaintiffs filed their Revised Motion for Class Certification on September 16, 2009, they sought certification of only two subclasses: tins and ESBO. The remaining Defendants are Arkema Inc., Rohm and Haas Company, The Dow Chemical Company, and Union Carbide Corporation. During the class period, remaining Defendants Arkema and Rohm and Haas sold tins, and remaining Defendants The Dow Chemical Company, Union Carbide Corporation, and Arkema sold ESBO.*fn4 The proposed class representatives for the tin subclass are Crane Group Co., Crane Plastics Manufacturing Ltd., Crane Plastics Siding LLC, Ex-Tech Plastics, Inc., and Heritage Plastics, Inc. The proposed class representatives for the ESBO subclass are Crane Group Co., Ex-Tech Plastics, and Isaac Industries, Inc. On June 28, 29, and 30, 2010, this Court held a class certification hearing where the parties introduced documentary evidence and the testimony of their respective experts. Both parties introduced the testimony of economic experts; Plaintiffs introduced the testimony of Dr. John Beyer, and Defendants introduced the testimony of Mr. David Kaplan. Defendants also introduced the testimony of an industry expert, Dr. John Summers. Based on our review of the evidence and arguments presented, we conclude that Plaintiffs have not met their burden under Rule 23.
As noted above, this Court's prior Order granting class certification was vacated by the Third Circuit Court of Appeals for proceedings consistent with the Hydrogen Peroxide decision. In that decision, the Third Circuit Court of Appeals clarified certain aspects of class certification procedure, Hydrogen Peroxide, 552 F.3d at 307, and we now revisit Plaintiffs' request for certification of the proposed classes in light of the clarification provided. "Class certification is proper only 'if the trial court is satisfied, after a rigorous analysis, that the prerequisites' of Rule 23 are met." Hydrogen Peroxide, 552 F.3d at 309 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982)). Rule 23 is not a pleading rule, and a district court therefore may "delve beyond the pleadings" to determine whether Rule 23's requirements are met. Id. (citations omitted). In fact, a district court "must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits-including disputes touching on the elements of the cause of action." Id. at 307. Moreover, a district court's "obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking class certification or by a party opposing it." Id. "Factual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence." Id. at 320. "In other words, to certify a class the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23." Id.
Under Rule 23, the party seeking class certification must first establish the four requirements of Rule 23(a). If all four requirements of Rule 23(a) are met, a class may be certified under Rule 23(b)(1), 23(b)(2), or 23(b)(3). Our inquiry is focused on Rule 23(b) because the parties to this action have stipulated to the satisfaction of the Rule 23(a) requirements.*fn5 (See Defs.' Class Certification Hr'g Mem. 9; Pls.' Class Certification Hr'g Mem. 9.) Plaintiffs seek certification under Rule 23(b)(3), which is permissible when the court finds that the Rule's twin requirements of predominance and superiority are met: "the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3). Defendants focus their opposition to certification on the requirement of predominance, which "'tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.'" Hydrogen Peroxide, 552 F.3d at 310-11 (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997)). "'Issues common to the class must predominate over individual issues. . . .'" Id. at 311 (quoting In re Prudential Ins. Co. Am. Sales Practice Litig., 148 F.3d 283, 313-14 (3d Cir. 1998)). Thus, "'[i]f proof of the essential elements of the cause of action requires individual treatment, then class certification is unsuitable.'" Id. (quoting Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 172 (3d Cir. 2001)). We therefore "examine the elements of plaintiffs' claim 'through the prism' of Rule 23 to determine whether" a class should be certified. Id. (quoting Newton, 259 F.3d at 181).
The elements of Plaintiffs' antitrust claims are: (1) violation of the antitrust laws-here, violation of § 1 of the Sherman Act; (2) individual injury resulting from that violation; and (3) measurable damages. Id. (citing 15 U.S.C. § 15, Am. Bearing Co. v. Litton Indus., Inc., 729 F.2d 943, 948 (3d Cir. 1984), and Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005)). Defendants stipulate that the existence of the tin and ESBO price-fixing conspiracies is capable of proof at trial using common evidence, so we need not inquire into satisfaction of the predominance requirement with regard to the violation element of Plaintiffs' claims. (See Joint Stipulation, May 18, 2010, Doc. No. 500.) While Defendants contend that individual issues will predominate with regard to the damage element, (see Defs.' Post-Hr'g Mem. 8 n.4), they focus their challenge on the injury element, (see Hr'g Tr. 18:23-19:1, June 28, 2010 AM Session ("We're not going to talk about conspiracy and . . . frankly, we're not going to talk about damages, although if the testimony of Dr. Beyer doesn't support impact, it won't support damages either.")). Accordingly, the key issue for resolution is whether Plaintiffs have demonstrated that individual injury is capable of proof by evidence common to the class.
In antitrust cases, "[p]roof of injury (whether or not an injury occurred at all) must be distinguished from calculation of damages (which determines the actual value of the injury)." Newton, 259 F.3d at 188. The individual injury element is also known as antitrust impact, and "to prevail on the merits, every class member must prove at least some antitrust impact resulting from the alleged violation." Hydrogen Peroxide, 552 F.3d at 311 (citing Bogosian v. Gulf Oil Corp., 561 F.2d 434, 454 (3d Cir. 1997)). "[I]mpact often is critically important for the purpose of evaluating Rule 23(b)(3)'s predominance requirement because it is an element of the claim that may call for individual, as opposed to common, proof." Id. at 311 (citing In re New Motor Vehicles Can. Exp. Antitrust Litig., 522 F.3d 6, 20 (1st Cir. 2008)). "Plaintiffs' burden at the class certification stage is not to prove the element of antitrust impact, although in order to prevail on the merits each class member must do so." Id. "Instead, the task for plaintiffs at class certification is to demonstrate that the element of antitrust impact is capable of proof at trial through evidence that is common to the class rather than individual to its members." Id. at 311-12. "[T]he question at [the] class certification stage is whether, if such impact is plausible in theory, it is also susceptible to proof at trial through available evidence common to the class." Id. at 325. Accordingly, in determining whether Plaintiffs have met their burden, we must rigorously assess the "available evidence and the method or methods by which [P]laintiffs propose to use the evidence to prove impact at trial." See id. at 312 (citations omitted).
A. Plaintiffs' Evidence and Methods
In this case, Plaintiffs claim that all class members were impacted by the alleged conspiracy because they paid higher prices for tins and/or ESBO than they would have in the absence of the conspiracy. They plan to demonstrate impact through some of the same methods that were introduced by the plaintiffs in Hydrogen Peroxide: (1) Defendants' pricing behavior; (2) economic characteristics of the tins and ESBO markets; (3) analysis of pricing structure in these markets; and (4) regression analysis. See id. at 312-14. Defendants challenge each of the methods presented. In accordance with the Hydrogen Peroxide decision, we must now determine whether Plaintiffs have demonstrated that impact is capable of proof at trial on a basis common to the class through the use of the proposed methods. Below, we discuss in turn each of the methods proposed by Plaintiffs.
B. Defendants' Pricing Behavior
We find that Plaintiffs cannot demonstrate antitrust impact on a basis common to the class through reference to list prices and price increase announcements. Plaintiffs point to price lists that some Defendants maintained for tin products,*fn6 as well as price increase announcements that Defendants issued to class members in connection with tin and ESBO Products.*fn7 Plaintiffs argue that the maintenance of price lists alone shows that impact can be proven by common evidence, and they conclude that Defendants' documents show that the "[p]rice increases through price announcements or price lists affected all tins and ESBO customers." (Pls.' Proposed Findings ¶ 32(e); see also Pls.' Post-Hr'g Mem. 8; Pls.' Mem. Supp. Revised Mot. 10.) However, the evidence of record shows that the prices paid by customers did not correspond with Defendants' price increases. Accordingly, the price lists and price increase announcements cannot serve as common evidence of impact. See Hydrogen Peroxide, 552 F.3d at 314 (observing that the defendants' expert "found some of defendants' price-increase announcements were ineffective-actual prices did not follow the purported announcements-suggesting list prices could not be used to measure antitrust impact on a basis common to the class").
Plaintiffs have done no empirical analysis of the actual effect of the price increases upon which they rely. (Hr'g Tr. 85:14-17, June 28, 2010 AM Session (where Dr. Beyer testified that he "did not do an empirical analysis of each and every announced price increase to see to what extent, if at all, transaction prices . . . increased").) Rather, in an attempt to demonstrate that the price increase announcements were effective, Plaintiffs rely on documents collected from Defendants. Some of these documents simply report price increases for tin and ESBO products. (See P161 (Atochem March 10, 2000 monthly report indicating a "[s]tabilizers 6ó/lb [3%] increase"); P164 (July 1, 2002 price increase chart listing the prices charged to Rohm and Haas customers pursuant to an Advastab Reverse Ester price increase of 6%); P165 (June 1, 2002 price increase chart listing the prices charged to Rohm & Haas customers pursuant to a TGA stabilizer price increase of 6%); P298 (August 1999 highlights of operations document reporting that "a five cent a pound price increase is being instituted effective September 1 [for epoxidized soybean oil").) Others report that certain price increases were "holding" without explaining what the authors meant by this. (See P160 (October/November 1996 monthly report stating that "[t]he tin stabilizer price increase has held as has the last increase in epoxidized soybean oil"); P166 (August 2002 monthly comments document stating that "[t]he price increase for 2ME Reverse Ester Stabilizers has now become effective at all customers . . . uniformly across the board" but also that, "[w]hile it appeared that the TGA Stabilizer increase held, it appears to be weakening at a number of [k]ey [a]ccounts (Crane, PolyOne, Georgoe Gulf, Vycom, etc.) . . . . due to lack of support from Crompton, who were the first to announce"); P296 (June 1996 monthly report stating that "[a]ll suppliers have now announced a $0.03/lb. increase in epoxidized soybean oil[,] and it looks like this will hold"); P297 (September 1996 monthly report stating that "[a] recent $0.03/lb increase has held[,] and we are planning a further increase after the first of the year"); P299 (October 1999 highlights of operations document indicating that "[t]he price increase [for epoxidized soybean oil] is holding at a $0.03/ pound increase.").) Finally, some of the documents describe certain price increases as being "supported" by other producers, (see P162 (January 2002 monthly report stating that "[t]he MET tin increase appears to have been supported by all producers with few exceptions to report as on Jan[.] 31")), or "successfully implemented," (see P163 (March 2002 monthly comments document indicating that "[w]ith the exception of 2-ME stabilizers, where we have successfully completed implementation of a price increase of 7% on TM-694 and lesser amounts on the higher priced grades, pricing in all product families continues to be extremely competitive")). According to Plaintiffs, these documents serve as common evidence of impact because they show that price increases affected all customers. (Pls.' Post-Hr'g Mem. 7.)
We must first clarify what Plaintiffs mean when they claim that the documents described above demonstrate that the price increases "affected" all customers. Plaintiffs do not claim that Defendants were able to charge all customers the amounts set forth in their price lists or increase announcements; rather, they concede that customers individually negotiated prices, and that prices therefore varied from customer to customer. Nor do Plaintiffs claim that prices actually increased for tins and ESBO throughout the class period. In fact, Plaintiffs admit that prices for tins and ESBO fell from the beginning to the end of the class period. (See Pls.' Proposed Findings ¶ 32(h) (stating that "prices for tins and ESBO were generally declining" during the class period); Hr'g Tr. 85:5-7, June 28, 2010 AM Session (where Dr. Beyer stated that "[i]f you look at from the beginning to the end of the class period, the prices for tin stabilizers fell."); P20 p.15 (graph created by Dr. Beyer showing that Arkema's tin stabilizer prices declined during the class period); Hr'g Tr. 5:13-20, June 29, 2010 Evening Session (where Dr. Kaplan described one of Dr. Beyer's graphs as showing that ESBO prices remained stable or flat throughout the conspiracy period).) As summarized by Dr. Beyer, Plaintiffs claim that the documents cited above demonstrate that the price increases affected all customers because they did increase prices for the products at issue for at least "a limited period of time," and they additionally allow one to infer that, "even if there had been no visible effect on the [price], the price increase announcements could still have an effect [on] prices not being reduced further, compared to what they would have been without [the] alleged conspiracy." (Hr'g Tr. 84:21-85:2, June 28, 2010 AM Session; see also Pls.' Supplemental Mem. 7 n.9 ("Since tin and ESBO prices were generally decreasing after December 1998 . . . , one would not necessarily expect customers' transaction prices to increase after price increase announcements issued after that date."); id. ("[A] conspiracy to maintain prices could, in theory, impact the entire class despite a decrease in prices for some customers in parts of the class period, and despite some divergence in the prices different plaintiffs paid." (quoting Hydrogen Peroxide, 552 F.3d at 325)); Pls.' Post-Hr'g Mem. 11 ("[A] cartel can prevent prices from declining as far as they would have otherwise through the use of price announcements . . . , which is likely here where . . . prices for both tins and ESBO decrease over a portion of the class period.").)
The flaw in Plaintiffs' argument, at least with respect to their attempt to show that impact can be proven for all or substantially all class members through price lists and price increases, is that the prices actually paid by some customers for the tin and ESBO products at issue have no relationship with Defendants' price increases. Mr. Kaplan provided a number of charts that compare the date of a price increase announcement with the prices paid by individual customers before and after the price increase announcement. (Hr'g Tr. 6:7-7:5, July 29, 2010 Evening Session.) For example, Mr. Kaplan produced charts that list the average monthly prices paid by several purchasers of tin and ESBO products for several months before and after price increase announcements were issued for those products, and the charts show that the average monthly prices paid by the listed customers for the listed products did not change at all in response to the announcements. (Kaplan Orig. Aff. Exs. 25 & 51.) This evidence shows that while some price increases may have increased the actual prices paid by some class members for some products for some period of time, other class members experienced no increase in price for any period of time. More importantly, Mr. Kaplan produced graphs showing that, for several individual customers, the average monthly prices that they actually paid for certain tin and ESBO products did not correspond in any way to the price increase ...