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In re Domestic Drywall Antitrust Litigation

United States District Court, E.D. Pennsylvania

August 24, 2017

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

          MEMORANDUM RE: Indirect Purchaser Plaintiffs' Motion for Class Certification

          Baylson, J.

         TABLE OF CONTENTS

         I. INTRODUCTION..............................................................................................................1

         II. MOTIONS CURRENTLY BEFORE THE COURT..........................................................2

         III. PROPOSED CLASSES AND CLASS CERTIFICATION STANDARD.........................2

         IV. STATE DAMAGES CLASSES.........................................................................................4

         A. Rule 23(a) Prerequisites......................................................................................................5

         1. Numerosity..........................................................................................................................5

         2. Commonality.......................................................................................................................5

         3. Typicality and Adequacy....................................................................................................5

         a. Applicable Law...................................................................................................................6

         b. Analysis .............................................................................................................................7

         B. Rule 23(b)(3) Requirements...............................................................................................9

         1. Implied Ascertainability Requirement................................................................................9

         a. Summary of Parties' Arguments.........................................................................................9

         b. Third Circuit Opinions on Ascertainability......................................................................11

         i. Marcus v. BMW of North America.................................................................11

         ii. Hayes and Carrerra.........................................................................................12

         iii. Grandalski v. Quest Diagnostics....................................................................14

         iv. Byrd v. Aaron's Inc........................................................................................15

         v. City Select Auto Sales v. BMW Bank of North America...............................16

         c. Ascertainability Analysis..................................................................................................17

         2. Predominance....................................................................................................................21

         a. Violation of Antitrust Laws..............................................................................................21

         b. Antitrust Impact................................................................................................................22

         i. Daubert Motions..............................................................................................22

         ii. Economic Evidence........................................................................................23

         iii. Synopsis of Proposed Classwide Evidence....................................................24

         1. Step 1: All Direct Purchasers suffered impact............................................25

         2. Step 2: Direct Purchasers passed on the overcharge, and the end users were impacted ....................................................................................................................25

         iv. Analysis..........................................................................................................26

         1. Overcharge to Direct Purchasers................................................................26

         2. Pass-through to Indirect Purchasers............................................................27

         c. Measurable Damages........................................................................................................29

         i. Parties' Arguments..........................................................................................29

         ii. Analysis..........................................................................................................30

         d. Variations in State Law.....................................................................................................31

         3. Superiority.........................................................................................................................32

         V. ALTERNATIVE CLASSES.............................................................................................33

         A. Nationwide Injunctive Class.............................................................................................33

         B. Issue Classes.....................................................................................................................35

         VI. CONCLUSION.................................................................................................................36

         I. Introduction

         In the fall of 2011, several domestic gypsum wallboard (drywall) manufacturers announced substantial changes to their pricing. These announcements ended a long-standing 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.

         Discovery in this case was initially limited to whether there was an agreement between any Defendants in violation of Sherman Act § 1. ECF 64. After the first-phase of discovery period was completed, Defendants moved for summary judgment, arguing that there was insufficient evidence for a jury to conclude that the Defendants agreed to fix prices. 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).

         Through the summary judgment stage, the direct purchaser and indirect purchaser actions in this case proceeded together.[1] However, because class certification presents different issues for these two groups, the briefing schedules on class certification diverged. After substantial briefing, argument, expert reports, and expert testimony, the Court granted the Direct Purchaser's Motion for Class Certification on August 23, 2017. ECF 630.

         II. Motions Currently before the Court

         Pending now before the Court is the Indirect Purchaser Plaintiffs' ("Plaintiffs" or "IPPs") Motion for Class Certification. ECF 472. Related to Plaintiffs' Motion for Class Certification are Defendants' Daubert motions to preclude the testimony of Plaintiffs' experts, Dr. Mark J. Dwyer and Dr. Michael Harris. ECF 508, ECF 509. Also pending before the Court is the Defendants' Motion to Dismiss IPPs' Third Amended Complaint in Part. ECF 504.

         In their Motion to Dismiss, Defendants raise issues of standing and substantive state law. Because the issues raised in the Motion to Dismiss are intertwined to some extent with class certification issues, the Court has decided to deny Defendants' Motion to Dismiss without prejudice to Defendants re-raising the issues they deem still relevant, in light of this memorandum opinion and accompanying order.

         Defendants responded to Plaintiffs' Motion for Class Certification on December 12, 2016. ECF 510. Plaintiffs filed a reply on February 24, 2017. ECF 549. The Court heard Oral Argument on the Motion for Class Certification on June 28, 2017. ECF 603, ECF 604. Both parties submitted post-hearing briefs on July 11, 2017. ECF 607, ECF 608. Having considered all submissions by the parties and having heard oral argument on the Motion, for the reasons outlined below, IPPs' Motion is DENIED.

         III. Proposed Classes and Class Certification Standard

         Under Illinois Brick v. Illinois, 461 U.S. 720 (1977), indirect purchasers lack antitrust standing to bring claims for damages under federal antitrust laws. As a result, IPPs bring their damages claims under the laws of 11 different states. These claims fall under the states' antitrust, consumer protection, and unjust enrichment laws. Illinois Brick manifests a policy against double recovery for direct and indirect purchasers under federal antitrust law. However, the Supreme Court has made clear that this policy does not extend to preemption of state laws which enable indirect purchaser plaintiffs to pursue damages for antitrust violations. See California v. ARC Am. Corp., 490 U.S. 93, 105 (1989).

         IPPs seek certification of (1) a group of statewide classes seeking damages ("Statewide Damages Class") and (2) a nationwide class seeking injunctive relief. In the alternative, IPPs seek certification of alternate "issue classes" that would allow the Court to adjudicate for the class all issues on which the Court finds that common issues predominate.

         Plaintiffs define their Statewide Damages Class as follows: "All persons and entities who, from January 1, 2012 'through present' indirectly purchased gypsum board in [STATE] manufactured by any of the Defendants, their subsidiaries, affiliates, or joint-venturers for end use and not for resale." IPPs further define "end use" as "persons or entities purchasing drywall as a stand-alone product for their own use, and persons or entities purchasing drywall through a contractor or other vendor for use in a property then-owned by the person or entity." As characterized by IPPs, their case seeks to capture the "repair and remodel" segment of the market. See ECF 604, Oral Argument Tr. June 28, 2017 (hereinafter. "Tr."), 16:17-18.[3]

         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). Under Rule 23(a), Plaintiffs must Plaintiffs seek certification for the following states: Arizona, California, Illinois, Florida, Massachusetts, Michigan, Minnesota, Missouri, New York, Utah, and Wisconsin. ECF 473, IPP Mot. p. 3. meet the threshold requirements of (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation. Fed.R.Civ.P. 23(a). Then, under Rule 23(b)(3), the court considers whether (1) common questions predominate over individual issues, and (2) whether class resolution is superior to other available methods to decide the controversy. Fed.R.Civ.P. 23(b)(3). Courts have also implied an "ascertainability" requirement into the Rule 23(b)(3) inquiry. See, e.g., Marcus v. BMW of North America, 687 F.3d 583 (3d Cir. 2012).

         As the Third Circuit clarified in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008), as amended (Jan. 16, 2009), Plaintiffs bear the burden to establish each requirement by a preponderance of the evidence. Id. at 320. In determining whether or not 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. This Court conducts such a rigorous analysis below, and declines to certify any class of IPPs.

         IV. State ...


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