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In re Domestic Drywall Antitrust Litigation

United States District Court, E.D. Pennsylvania

August 23, 2017

IN RE DOMESTIC DRYWALL ANTITRUST LITIGATION THIS DOCUMENT RELATES TO: All Direct Purchaser Actions No. 13-MD-2437

          MEMORANDUM RE: DIRECT PURCHASER PLAINTIFFS' MOTION FOR CLASS CERTIFICATION

          Baylson, J.

         TABLE OF CONTENTS

         I. Introduction ............................................................................................................................. 1

         II. Overview of Summary Judgment Opinion ............................................................................. 3

         III. Proposed Class and Class Certification Standard ............................................................... 5

         A. Standing .............................................................................................................................. 6

         1. L&W Purchasers ............................................................................................................. 6

         2. New Deal Lumber ........................................................................................................... 8

         i. New Deal's ownership interest in PRSCO does not confer Direct Purchaser standing ........................................................................................................................... 9

         ii. PRSCO validly assigned its claims to New Deal, and as a result, New Deal has standing to pursue its claims ......................................................................................... 10

         B. Rule 23(a) Prerequisites .................................................................................................... 11

         1. Numerosity .................................................................................................................... 11

         2. Commonality ................................................................................................................. 11

         3. Typicality and Adequacy .............................................................................................. 12

         i. Unique Defenses ..................................................................................................... 13

         ii. Factual Circumstances ......................................................................................... 14

         C. Rule 23(b)(3) Requirements ............................................................................................. 15

         1. Implied Ascertainability Requirement .......................................................................... 15

         2. Predominance ................................................................................................................ 15

         3. Superiority ..................................................................................................................... 16

         IV. Rule 23(b)(3): Predominance ............................................................................................ 17

         A. Admissibility of Expert Opinion ....................................................................................... 19

         B. Overview of Relevant Law: Antitrust Impact ................................................................... 20

         1. Tyson Foods .................................................................................................................. 20

         2. Antitrust Impact and Hydrogen Peroxide ..................................................................... 24

         3. Third Circuit class certification cases post-Hydrogen Peroxide ................................... 27

         i. In re Class 8 Transmission Indirect Purchaser Antitrust Litig., 689 F.App'x. 135 (3d Cir. 2017) ................................................................................................................ 27

         ii. In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012) .................................. 28

         4. Survey of E.D. Pa. Antitrust Impact Analyses after Hydrogen Peroxide ..................... 29

         i. In re Processed Egg Products Antitrust Litig., 312 F.R.D. 171 (E.D. Pa. 2015) .... 29

         a. Industry Characteristics ................................................................................ 30

         b. Statistical Analysis of Prices ......................................................................... 30 1) Co-movement of prices .......................................................................... 30

         2) Pricing explained by common set of factors .......................................... 31

         c. Regression to show effectiveness of conspiracy ........................................... 32

         ii. In re Mushroom Direct Purchaser Antitrust Litig., No. 06-0620 (E.D. Pa. Nov. 22, 2016) ....................................................................................................................... 34

         a. Bogosian Shortcut ......................................................................................... 34

         b. Nature of the Defendants' Conspiracy .......................................................... 35

         c. Structure of the Market ................................................................................. 36

         d. Defendants' observations about the effects of their agreement .................... 36

         e. Empirical analyses of Plaintiffs' expert, Professor Elhauge ......................... 36

         iii. In re Pharmacy Benefit Mangers Antitrust Litig., 2017 WL 275398 (E.D. Pa. Jan. 18, 2017) ................................................................................................................ 38

         iv. In re Plastics Additives, 2010 WL 3431837(E.D. Pa. Aug. 31, 2010) ................ 39

         a. Defendants' Pricing Behavior ....................................................................... 39 b. Economic Characteristics of the Market ....................................................... 39

         c. Pricing Structure ........................................................................................... 40

         d. Regressions ................................................................................................... 40

         C. Economics and Econometrics ........................................................................................... 40

         1. Background on Regression ........................................................................................... 41

         2. Cases admitting regression analysis as evidence .......................................................... 44

         D. Expert Evidence ................................................................................................................ 46

         1. Procedural Background and Relevant Filings ............................................................... 46

         2. Summary of Expert Opinions ....................................................................................... 47

         i. Plaintiffs' Expert's Opinion .................................................................................... 47

         a. Dr. Lamb opines that classwide evidence can show that drywall prices were artificially inflated ..................................................................................................... 48

         1) Commodity Nature of Wallboard .......................................................... 48

         2) Excess Production Capacity and Near Historically Low Demand ........ 48

         3) Multiple Regression Analysis ................................................................ 49

         b. Dr. Lamb opines that classwide evidence can show that all or nearly all proposed class members were overcharged .............................................................. 50

         1) Common evidence of a pricing structure in the drywall market ............ 50

         2) Structural characteristics of drywall industry indicate that buyers could not avoid price increase ................................................................................ 51

         3) Evidence of strict enforcement of the price increase among manufacturers ................................................................................................ 51

         4) Empirical analysis indicates everyone paid inflated prices ................... 52

         c. Damages are calculable on a classwide basis ............................................... 52

         ii. Summary of Defendants' Expert's Opinion and Plaintiffs' Expert's Reply ....... 52

         a. Pricing Structure ........................................................................................... 53

         b. National Market ............................................................................................ 53

         c. Critiques of Dr. Lamb's Regression Models ................................................ 53

         1) Measurement Error ................................................................................ 53

         2) Control Factors ....................................................................................... 54

         3) Benchmark Period .................................................................................. 54

         4) Structural Break ..................................................................................... 55

         5) Indicator Variable .................................................................................. 55

         d. Use of Average Overcharge to Establish Impact .......................................... 55

         iii. Summary of Technical Advisor Report .............................................................. 56

         a. Hausman Test: Measurement Error .............................................................. 57

         b. Application of Chow Test and F-Test ........................................................... 58

         iv. Parties' Responses to Technical Advisor Report ................................................ 60

         a. Plaintiffs' Response to TAR ......................................................................... 60

         b. Defendants' Response to Dr. Church and Dr. Lamb .................................... 61

         E. Antitrust Impact: Application of Hydrogen Peroxide ....................................................... 61

         1. Non-Expert Evidence .................................................................................................... 63

         2. Expert Evidence ............................................................................................................ 64

         i. Undisputed Economic Issues .................................................................................. 65

         ii. Economic Disputes: Non-econometric Issues ..................................................... 65

         a. National v. Local Market .............................................................................. 65

         b. Benchmark Period ......................................................................................... 67

         c. Capacity ........................................................................................................ 70

         iii. Economic Disputes: Econometric Issues ............................................................ 72

         a. Importance of Econometric Tests ................................................................. 73

         b. The Principal Issue - Demand ...................................................................... 74

         1) Category 1: Measurement Error ............................................................. 75

         2) Category 2: Structural Break ................................................................. 76

         c. Analysis of Econometric Issues .................................................................... 77

         1) Structural Break and Chow Test ............................................................ 77

         2) Benchmark Period .................................................................................. 79

         3) Importance of Capacity Utilization ........................................................ 81

         d. Summary of Conclusions on Economic Issues ............................................. 82

         3. Conclusion: Antitrust Impact ........................................................................................ 83

         F. Measurable Damages ........................................................................................................ 85

         1. Legal Framework .......................................................................................................... 85

         i. Comcast Issues ........................................................................................................ 86

         ii. Aggregation vs. Allocation ................................................................................. 87

         iii. Example of Treatment of Damages issue at Class Certification: Processed Egg 88 a. Comcast Issues .............................................................................................. 88

         b. Aggregation ................................................................................................... 89

         2. Analysis: Measurable Damages .................................................................................... 90

         V. Conclusion ............................................................................................................................ 91

         I. Introduction

         In the fall of 2011, several gypsum wallboard (drywall) manufacturers in the United States announced substantial changes to their pricing. These announcements ended a longstanding pricing practice called “job quotes” and scheduled a very large price increase to commence in January 2012 and to be effective for the entire year. Then, in fall 2012, the same manufacturers again announced a similar price increase to take effect in January 2013. In this multidistrict litigation (“MDL”), Plaintiffs allege that the Defendants' 2012 and 2013 price increases and other changes in pricing practices were the result of an agreement, in violation of federal and state antitrust laws.

         At the outset of the Direct and Indirect Purchaser actions, [1] a consensus was reached among counsel and the Court that discovery would be initially limited to whether there was an agreement between any Defendants in violation of Sherman Act § 1. (ECF 64). As a result, the Court postponed discovery on class certification issues. After the first-phase of discovery period was completed, with intra-party and third-party discovery, the Court set a deadline for Defendants to move for summary judgment. Following extensive briefing and argument, the Court filed an 85 page detailed opinion denying summary judgment as to all but one Defendant, Certainteed. In re Domestic Drywall Antitrust Litig., 163 F.Supp.3d 175 (E.D. Pa. 2016).

         The review of the evidence at the summary judgment phase deserves an important role in the “rigorous” examination required on the class action question, particularly as to whether common questions predominate, and more specifically, whether plaintiffs can prove antitrust impact and measurable damages on a classwide basis. The class action issues must pay respect to these findings, because as the Third Circuit has clearly annunciated, the class action issues, particularly predominance, may require some “overlap” with the merits. See In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008), as amended (Jan. 16, 2009).

         Presently before the Court is the Direct Purchaser Plaintiffs' (“DPPs” or “Plaintiffs”) Motion for Class Certification.[2] (ECF 431). Related to this motion is Defendants' Daubert Motion to Preclude the Testimony of Plaintiffs' Expert, Dr. Russell Lamb. (ECF 475). The Court previously ruled on the Motion to Preclude, and held that Dr. Lamb's expert opinion and testimony are admissible, and will be considered here in support of DPPs' Motion for Class Certification. (ECF 584).

         The Court has considered all submissions by the parties on the Motion for Class Certification, which include DPPs' motion and opening brief (ECF 431, 432, 433), Defendants' joint response in opposition (ECF 476), and DPPs' reply (ECF 530). The Court has carefully considered the expert reports submitted by Plaintiffs' expert Dr. Russel Lamb in support of Class Certification, and the reports of Defendants' expert Dr. Jerry Hausman in opposition to Class Certification.[3]

         In addition, the Court heard oral argument on March 8, 2017, [4] and, to more thoroughly assess the experts' opinions, the Court held an evidentiary hearing on April 25 and 27, during which both experts testified and were subject to cross-examination.[5] Following the evidentiary hearing, the parties submitted post-hearing briefing. Then, to help with its understanding of the econometric issues raised by the expert reports, the Court appointed a technical advisor, Dr. Jeffrey Church of the University of Calgary. Dr. Church submitted a report. Pursuant to the Court's invitation, the Parties responded to Dr. Church's Report.

         After considering all written submissions by the parties, oral argument of counsel, the testimony and reports of the parties' experts, and the Technical Advisor's report, the DPPs' Motion for Class Certification is GRANTED.

         II. Overview of Summary Judgment Opinion

         In denying the remaining Defendants' Summary Judgment motions, the Court found that Plaintiffs had created a genuine dispute of fact as to whether there was an agreement among the remaining Defendants to fix prices. Although this opinion will not repeat in great detail the findings on summary judgment, a brief outline of those findings will provide appropriate background for the class action discussion.

         Regarding the conditions of the Drywall market at the time of the alleged conspiracy, at summary judgment, the Court noted that it was undisputed that leading up to the outset of the alleged conspiracy, demand for drywall was low, having experienced a significant decline following the housing crisis. In re Domestic Drywall Antitrust Litig., 163 F.Supp.3d 175, 195 (E.D. Pa. 2016). Plaintiffs also presented evidence that prior to the alleged conspiratorial price increase, Defendants were operating at less than full capacity. Id. at 195-96. Further, there was evidence that Defendants had attempted to raise prices in the past but had failed to do so. Id. at 222-232.

         At summary judgment, Plaintiffs presented evidence of communications between the alleged co-conspirators, relying in particular on four sets of exchanges between them. Id. at 237. The Court credited this evidence, noting that while there are many permissible reasons why competitors may be communicating with one another, when considered as a whole with the remainder of the evidence presented, it raised a reasonable inference about an agreement among some Defendants. Id. at 237-38. In addition, Plaintiffs presented evidence that at least two Defendants had used research analysts at Thompson Research Group and Longbow Communications as conduits through which to communicate and further the alleged conspiracy. Id. at 241.

         Further, Plaintiffs presented evidence regarding Defendants' parallel price increases in January 2012 and January 2013, as well as corresponding elimination of job quotes. Id. at 231- 37. The Court held that this evidence could allow a jury to find that the elimination of job quotes price increases was a radical or drastic shift in behavior, given the longstanding nature of the practice in the industry, dating back to the 1980s. Id. at 255. Plaintiffs also presented evidence that could allow a reasonable inference that Defendants ensured the effectiveness of the price increase through restricting supply and refusing to compete for customers or market share. Id. at 248-251.

         The Court made admissibility findings under Federal Rule of Evidence 104, which led to a conclusion, as a preliminary question, that Plaintiffs had presented admissible evidence that could lead to the conclusion that six of seven Defendants entered into an agreement to fix prices. Id. at 228. The Court summarized the evidence with a chart showing announcement dates and effective dates, and amount of price increases for each Defendant - which graphically shows great similarity. This evidence included further detail regarding the price increases and the manner in which they were implemented (id. at 235), evidence in support of the conduit theory of communicating (id. at 242), evidence that Defendants had limited supply prior to effectuating the increases (id. at 248), and evidence that Defendants declined to compete for customers (id. at 250).

         The Court also found that the drywall industry contained a number of “structural” elements, including oligopolistic behavior. Finally, the Court found that Plaintiffs had shown evidence to support the “plus factors” that the Third Circuit has held relevant to determine whether an agreement to fix prices was achieved in an oligopolistic market, including motive and actions against self-interest.

         III. Proposed Class and Class Certification Standard

         Plaintiffs seek certification of a class of “all persons or entities that purchased PaperBacked Gypsum Wallboard in the United States from January 1, 2012 through January 31, 2013” directly from Defendants or their wholly-owned subsidiaries. DPP Mot. at 17. The proposed class is composed of about 14, 000 entities, and includes “distributors, buying cooperatives, and contractors.” Id.

         Plaintiffs seek certification under Federal Rule of Civil Procedure 23(b)(3). To be certified under this rule, Plaintiffs must meet the prerequisites set forth in Federal Rule of Civil Procedure 23(a), as well as the requirements in Rule 23(b)(3). As the Third Circuit clarified in Hydrogen Peroxide, 552 F.3d 305, plaintiffs bear the burden to establish each requirement by a preponderance of the evidence. Id. at 320. In determining whether or not the Plaintiffs have met these requirements, the District Court must undertake a “rigorous analysis” of the evidence, even if its determinations on class certification issues overlap with the merits of the case. Id. at 309, 317.

         A. Standing

         As a threshold issue, Defendants argue that three named plaintiffs - Grubb Lumber, Sierra Drywall, and Janicki Drywall - do not have antitrust standing to bring their claims because they did not purchase any drywall directly from Defendants during the class period, but rather purchased from L&W Supply Corporation (“L&W”), a wholly-owned subsidiary of Defendant USG Corp.[6] In addition, Defendants argue that the fourth named plaintiff, New Deal Lumber, lacks Article III standing because it obtained its claim through invalid assignment.

         1. L&W Purchasers

         The proposed class definition of the Direct Purchaser class includes plaintiffs who purchased directly from the wholly-owned subsidiaries of Defendants, which includes those who purchased from L&W Supply. Three named plaintiffs (Sierra, Janicki, and Grubb) are L&W Purchasers. Defendants argue that the L&W purchasers do not qualify as direct purchasers. As a result, Defendants argue that under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), these plaintiffs lack standing to bring federal antitrust claims. Plaintiffs do not dispute that under Illinois Brick, indirect purchasers generally lack antitrust standing. However, Plaintiffs counter that a well-recognized exception to the Illinois Brick rule is the “control exception, ” which allows antitrust claims by the “first non-controlled purchaser, ” and that L&W purchasers' claims fall within this exception. Defendants argue that the control exception is of “questionable validity in the Third Circuit, ” and even if it were good law, L&W purchasers do not fall within its definition.

         Under the control exception, antitrust claims are permitted by those who purchased from an entity that was the initial purchaser of the price-fixed good, where the initial purchaser is owned, dominated, and controlled by a defendant. See Howard Hess Dental Labs, Inc. v. Dentsply Int'l, Inc., 424 F.3d 363, 372 (3d Cir. 2005); see also Mid-West Paper Prod. Co. v. Cont'l Grp., Inc., 596 F.2d 573, 589 (3d Cir. 1979). Here the initial purchaser is L&W, which Plaintiffs allege is owned, dominated, and controlled by its parent company, Defendant USG Corp. Defendants argue that the control exception is no longer recognized in this Circuit following the Supreme Court's decision in Kansas v. UtilCorp United, Inc., 497 U.S. 199 (1990). This Court disagrees.

         The control exception to the Illinois Brick bar on indirect purchaser antitrust damages claims was recognized in Illinois Brick itself. The case cited by Defendants, UtilCorp, did not eviscerate the already-established Illinois Brick exceptions, but rather limited the application of those exceptions. At its core, UtilCorp stands for the proposition that case-by-case policy arguments by creative indirect purchasers will not be permitted.

         Indeed, the cases decided after UtilCorp confirm this reading. The Third Circuit most recently examined the control exception in Hess, 424 F.3d at 372. Though it ultimately concluded that the exception did not apply to the plaintiffs in the case before it, the panel did not question the availability of the control exception generally. The Third Circuit's decision in Hess does not suggest an abandonment of the control exception; rather it can be seen as an application of UtilCorp, implementing guardrails to the Illinois Brick exceptions. Hess, 424 F.3d at 372; accord In re Lower Lake Erie Iron Ore Antitrust Litig., 996 F.2d 1144, 1167 nn. 20 & 21 (3d Cir. 1993). Other Circuits have treated UtilCorp similarly. See, e.g., In re ATM Fee Antitrust Litig., 686 F.3d 741, 749 (9th Cir. 2012); Dickson v. Microsoft Corp., 309 F.3d 193, 214 (4th Cir. 2002).

         Here, the L&W purchasers fall squarely within the control exception to the Illinois Brick rule, and will be considered direct purchasers in this litigation. Plaintiffs have presented ample evidence to suggest that USG Corp. directed the pricing strategy of L&W, and generally controlled the relevant actions of L&W. This includes overlap in leadership, corporate structure of the USG entities, communications between USG Corp. and L&W, and communications regarding the USG Corp. / L&W relationship between other Defendants. See DPP Reply pp. 101-108. The evidence that Defendants point to in response is unpersuasive, because it largely relates to the relationship between L&W and its sister company, U.S. Gypsum, rather than between L&W and its parent, USG Corp. See Def. Br. pp. 57-61.

         2. New Deal Lumber

         Defendants argue that the fourth named Plaintiff, New Deal Lumber (“New Deal”), lacks standing. New Deal bought drywall through Philadelphia Reserve Supply Company (“PRSCO”), which is a purchasing co-operative for building materials dealers. New Deal contends that it has standing to pursue its claim through two separate avenues: (1) its ownership interest in PRSCO and role on PRSCO's Board of Directors, and (2) through PRSCO's assignment of its claims to New Deal.

         Defendants do not address whether New Deal has standing through its ownership and position within PRSCO, but they argue that PRSCO's claim assignment to New Deal was insufficient to confer standing for two reasons. First, Defendants argue that the assignment was invalid because it was not approved by the PRSCO board, and without that approval, the president of PRSCO lacked the authority to make the assignment. Second, Defendants argue that the PRSCO Board's subsequent reassignment of claims to New Deal was insufficient to cure this deficiency because it occurred after New Deal had filed its complaint.

         i. New Deal's ownership interest in PRSCO does not confer Direct Purchaser standing

         Plaintiffs cite In re OSB Antitrust Litigation, No. 06-md-826, 2007 WL 2253418 (E.D. Pa. Aug 3, 2007) in support of their assertion that members of group buying organizations with a significant ownership interest in the organization, or functional control over the organization, necessarily have standing as direct purchasers. OSB does not stand for that proposition. Rather, Judge Diamond in OSB analyzed members of group buying organizations under the control exception to the Illinois Brick rule, discussed supra.

         DPPs do not present evidence that New Deal “dominated” or “controlled” PRSCO. Instead, they point to deposition testimony merely indicating that New Deal was a part owner of PRSCO, and that the owner of New Deal served on PRSCO's board in senior leadership positions. See DPP Mot. p. 30 & n. 34; DPP Reply p. 109 & n. 155. There is no evidence regarding the level of influence or control that New Deal may have exercised over PRSCO. Indeed, the owner of New Deal (Mr. Phil Miller) admitted at his deposition that the President of PRSCO (not New Deal or Mr. Miller) was the person who negotiated the specific purchasing terms on behalf of PRSCO. See DPP Mot. Exh. 36 (Miller Dep. Tr.) at 117:23-118:8. As a result, according to the case DPPs cite, DPPs have not presented sufficient evidence for the Court to conclude that New Deal had standing by virtue of its ownership and position within PRSCO.

         ii. PRSCO validly assigned its claims to New Deal, and as a result, New Deal has standing to pursue its claims

         Antitrust claims can be assigned. See Wallach v. Eaton Corp., 837 F.3d 356, 366 (3d Cir. 2016) (“[A]n indirect purchaser may step into the shoes of a direct purchaser and bring an antitrust suit in that capacity if it receives a valid assignment of a direct purchaser's antitrust claims”). In order to be effective, the assignment must expressly relate to antitrust claims; a general assignment is insufficient. See Gulfstream III Assocs. v. Gulfstream Aerospace Corp., 995 F.2d 425, 437-39 (3d Cir. 1993). No consideration is necessary to make express assignment of antitrust claims valid. See Wallach, 837 F.3d at 371 (examining Illinois Brick rationale and concluding that requiring consideration in support of assignment would run contrary to those goals).

         Here, Plaintiffs have presented evidence that PRSCO expressly assigned its claims to New Deal, attaching an assignment of claims signed by PRSCO President, Kim Coleman. DPP Mot. Exh. 38 (“2013 Assignment”). From the face of this document, PRSCO expressly and validly assigned its claims to New Deal on March 6, 2013. Plaintiffs also submit evidence that in April 2015, the PRSCO Board explicitly resolved that Kim Coleman had the authority to execute the 2013 Assignment. DPP Mot. Exh. 39 (“2015 Reauthorization”).

         Defendants argue that the 2013 Assignment was invalid. In support, Defendants point to the deposition of Mr. Coleman, in which he testifies that he did not seek board approval for the assignment, and that he did not believe, in retrospect, the 2013 Assignment to be valid. See Def. Br. pp. 64-65 & Exh. 63 (Coleman Dep. Tr.). Further, Defendants point to August 2014 Board meeting minutes, which indicate that the board adopted the position that the 2013 Assignment was not valid because “Kim Coleman was not President at the time and had no apparent authority to sign the document.” See Def. Br. Exh. 65. Defendants argue that the 2015 Reauthorization is an admission that the 2013 Assignment was invalid, and that because the reauthorization took place after the operative Complaint was filed, it was insufficient to cure the standing deficiency. See Def. Br. p. 65.

         Defendants' challenges are not sufficient for the Court to hold the 2013 Assignment invalid. The evidence shows that Mr. Coleman was the President of PRSCO on March 6, 2013, and that he executed the 2013 Assignment in that capacity. His later deposition testimony expressing regret over having signed the assignment is not a legal basis to declare the assignment invalid. Further, the 2014 Board minutes have no legal import - at best they are a memorialization of the board's collective regret. In addition, the 2015 Reauthorization is not an admission that the 2013 Assignment was invalid; it is, as Plaintiffs put it, “belt and suspenders” in support of valid assignment. The assignment from PRSCO to New Deal was valid, and New Deal has standing to pursue its claims.

         B. Rule 23(a) Prerequisites

         1. Numerosity

         Rule 23(a)(1) requires that the class be so numerous that joinder of all class members be “impracticable.” Though there is no minimum number to meet this threshold, the Third Circuit has held that a proposed class of at least 40 members will satisfy the numerosity requirement. See Stewart v. Abraham, 275 F.3d 220, 227 (3d Cir. 2001). Here, Plaintiffs seek to certify a class of approximately 14, 000 entities, and Defendants do not challenge Plaintiffs' ability to meet this requirement. DPP Mot. at 17. The numerosity requirement is met.

         2. Commonality

         The commonality prerequisite contained in Rule 23(a)(2) requires that there be questions of fact or law that are common to the class. The Third Circuit has held that the bar to meeting this requirement is not a high one - a single common question can suffice. Rodriguez v. Nat'l City Bank, 726 F.3d 372, 382 (3d Cir. 2013). The question of whether there was an agreement to fix prices here is common to all class members, and is critical to all class members' claims. Defendants do not argue otherwise. The commonality requirement is met.

         3. Typicality and Adequacy

         Typicality and adequacy, though separate requirements, are closely related and are often analyzed together. Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 625-26 & n. 20 (1997). Both requirements attempt to prevent potential conflicts between the class representatives and the class members. Id.

         Rule 23(a)(3) requires that the claims or defenses of the representative parties are typical of the claims or defenses of the class. The purpose of the typicality requirement is to ensure that the class representatives are similarly situated to the rest of the class so that their representation of the class as a whole is fair. In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 597 (3d Cir. 2009) (noting that representatives should align with the class as to their legal claims, factual circumstances, and stake in the litigation). By requiring that the representatives' interests align with those of the class, the court can then be sure that the representatives will work to benefit the entire class. Pichler v. UNITE, 228 F.R.D. 230, 250 (E.D. Pa. 2005), aff'd, 542 F.3d 380 (3d Cir. 2008).

         Notably, variation in factual situations between the class representative and the other class members does not defeat typicality “if the claim arises from the same event or practice or course of conduct that gives rise to the claims of the class members.” In re Schering Plough, 589 F.3d at 598 (internal citations omitted); see also Newton v. Merrill Lynch, Pierce, Fenner & Smith, 259 F.3d 154, 184 (3d Cir. 2001). However, “a proposed class representative is not typical under Rule 23(a)(3) if ‘the representative is subject to a unique defense that is likely to become a major focus of the litigation.'” In re Schering Plough, 589 F.3d at 598 (citing Beck v. Maximus, Inc., 457 F.3d 291, 301 (3d Cir. 2006)).

         Rule 23(a)(4) requires that the class representatives will “fairly and adequately protect the interests of the class, ” and relates both to the class representatives and their counsel. Under this requirement, the court must (1) ensure that the named plaintiff and its counsel have the ability and the incentive to represent the claims of the class vigorously, and (2) that there is no conflict between the individual's claims and those asserted on behalf of the class. Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir. 2012). If there are intra-class conflicts, the court should ask whether the conflict is “fundamental, ” rendering the representation unfair to the unnamed class members. Id. at 184. A conflict is fundamental where some class members claim to have been harmed by the same conduct that benefitted other members of the class; a speculative conflict is not fundamental. Id.

         Defendants argue that Plaintiffs have not met these requirements. Specifically, Defendants argue (i) that the class representatives are subject to unique defenses, and (ii) that the class representatives are in different factual circumstances than Defendants' customers.

         i. Unique Defenses

         Defendants argue that the named plaintiffs are subject to unique defenses, which calls into question their ability to represent the class. One such unique defense relates to the standing issues discussed and resolved, supra, so those arguments are unpersuasive. Further, Defendants argue that separate and apart from the Illinois Brick standing rule, L&W purchasers will have to show two levels of overcharge.

         DPPs counter that it is a mischaracterization of the facts and the law to argue that the defenses applicable to the L&W purchaser plaintiffs are “unique” - they are defenses that would apply to many of the proposed class members. That is, though L&W purchases only account for 7.7% of drywall purchases in terms of dollar amount, in terms of number of plaintiffs, L&W purchasers make up the majority of the proposed class.

         The Court agrees that though the named Plaintiffs purchased drywall from L&W, that does not defeat typicality or adequacy. With respect to typicality, as Plaintiffs point out, the “typical” putative class member is an L&W purchaser. With respect to adequacy, there is no fundamental conflict that exists between class members who purchased from L&W and those who did not.

         ii. Factual Circumstances

         Defendants argue that the circumstances under which the named Plaintiffs made their drywall purchases were markedly different than Defendants' customers. That is, the named Plaintiffs purchased drywall from L&W, in relatively small quantities. Defendants' customers consist mostly of large mass merchandisers and gypsum specialty dealers, and account for 92.3% of class purchases. Defendants argue that this hampers the named Plaintiffs' ability to represent the class - because they are not similarly situated factually to the class as a whole. Plaintiffs respond in part that the majority of the proposed class members purchased from L&W, and not from Defendants. Further, Plaintiffs argue that factual differences in type or size of purchaser does not defeat typicality or adequacy.

         The Court agrees that the factual differences between the class members are not enough to defeat typicality and adequacy. Though they may have suffered different damages, the overall alleged scheme is the same, and the Plaintiffs' claims are the same. See Schering Plough, 589 F.3d at 597. That is, all DPPs, regardless of size, allege that they bought drywall at an artificially high price as a result of the Defendants agreement to fix prices. Indeed, Defendants do not argue that these factual differences create fundamental conflicts between class members.

         Therefore, the typicality and adequacy requirements are satisfied. Plaintiffs have met their burden as to all of the Rule 23(a) ...


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