On March 19, 2013, the U.S. Supreme Court held in Standard Fire Ins. Co. v. Knowles that named plaintiffs in class actions could not, before class certification, avoid going to federal court by stipulating to a cap on damages. Although Standard Fire was not an antitrust case, the decision will uniquely impact antitrust class action cases because the removal of state law claims to federal court for coordinated proceedings in a single court is critical to an antitrust defendant's ability to avoid duplicative damage awards and to reduce the notoriously high costs of antitrust discovery.
Background
The Court in Standard Fire considered the application
of the Class Action Fairness Act of 2005 (CAFA). CAFA gives the
federal courts jurisdiction over class action lawsuits in which
there is minimal diversity between the parties and the matter in
controversy exceeds $5 million. To remain in state court, the
plaintiff, on behalf of the proposed class, stipulated that he
sought damages of less than $5 million. The defendants removed
the case to federal district court under CAFA. In determining
to send the case back to the state, the federal court determined
that, although in the absence of the stipulated cap on damages the
plaintiff class could have sought damages over $5 million, the
stipulation meant that the CAFA threshold could not be met. The
Supreme Court agreed to hear the defendants' appeal of the
remand order because of conflicting decisions among the circuit
courts.
In a unanimous decision, the Court decided that a
named plaintiff's stipulation to seek less than the $5 million
CAFA threshold on behalf of a proposed class of plaintiffs could
not defeat federal jurisdiction. In the Court's view, the
stipulation was not binding on the proposed class: the names
plaintiff could not bind the rest of the class with his promise
before the class was certified. Standard Fire thus
reaffirms an earlier CAFA decision holding that a plaintiff class
representative could not bind the rights of absent class members
before class certification. The Court also observed that
allowing such stipulations to evade jurisdiction would undercut
CAFA's goal of having federal courts consider interstate cases
of national importance. For example, the plaintiff's position
would allow plaintiffs to subdivide a $100 million class action
worth into 21 separate state actions.
Importance of Standard Fire for antitrust class actions
Some background helps put the significance of this decision in
context. Antitrust claims arising out of alleged price-fixing
or other conduct affecting a marketplace with multiple distribution
levels may be brought by (a) so-called direct purchasers (the
entities who bought directly from the alleged antitrust violators),
(b) indirect purchasers (generally, consumers/end users), (c)
intermediate indirect purchasers (entities at levels in the
distribution chain between direct purchasers and consumers), and
(d) so-called "opt-outs," generally large direct or
indirect purchasers pursuing their claims on their own instead of
as part of a class.
Prior to 1977, the federal courts struggled with how to apportion
damages among these classes of plaintiffs, based on how much the
group was overcharged by the defendants and how much of that
overcharge was passed on at each level of the distribution
chain. In 1977, the U.S. Supreme Court in Illinois Brick v.
Illinois addressed this difficulty. Determining that
properly apportioning damages was too difficult, the Court simply
barred recovery under federal antitrust laws to any party but a
direct purchaser. In response, some state legislatures enacted
so-called "Illinois Brick repealer statutes,"
which permit indirect purchaser suits under their state antitrust
laws. These repealer statutes allowed indirect purchaser
plaintiffs to bring antitrust class actions under state law in
spite of Illinois Brick, but in state courts.
Pre-CAFA, antitrust defendants in class actions faced an expensive
battle on multiple fronts. State antitrust class actions were
brought in the state whose Illinois Brick repealer statute
was being invoked. This could result in dozens of lawsuits,
all arising from and seeking damages for the same alleged antitrust
violation, each having to be litigated by defendants in each state
with an Illinois Brick repealer statute as well as in
federal court. One prominent example of this came in the wake
of the DOJ's successful antitrust case against
Microsoft. After the U.S. prevailed on its Sherman Act claims
in 1999, indirect purchasers of Microsoft software brought suit in
more than a dozen different states. Microsoft had to defend each of
these state law claims, including 14 different class certification
decisions. Although each of the 11 indirect purchaser class
actions that were certified by a state court settled before going
to a jury, there would have been 11 different juries or judges
determining the appropriate amount of damages to be received by the
indirect purchaser plaintiffs bringing the claims. In the
pre-CAFA era, the likelihood that defendants would pay damages for
a single overcharge to multiple claimants was high. Even in
the cases that settled, the prospect of numerous expensive court
fights likely prompted defendants to offer higher settlements to
avoid protracted litigation in state courts across the
country.
CAFA enabled defendants to remove antitrust cases from states
courts to federal courts, from which the cases could then be
transferred to a single multidistrict litigation for coordinated
pretrial proceedings. The decision in Standard Fire
further ensures this coordination, which leads to the two benefits
especially important to antitrust defendants. First, with a
single judge hearing the cases in a coordinated manner, the threat
of duplicative recoveries by the various classes is diminished, and
even though defendants most frequently settle with classes that
obtain certification, those settlements are likely to be lower
given that the class plaintiffs know they will have to prove their
overcharges and damages in the same case, before the same judge and
likely the same jury, as the other classes. Even though cases
coordinated for pretrial proceedings should theoretically go back
to the originating district court for trial, as a practical matter
this rarely occurs; and in any event the coordination of
proceedings such as expert discovery would nevertheless reduce the
risk of duplicative recovery. Second, the parties do not need
to litigate the same issues in numerous fora, and the risk that
multiple judges will allow wide-ranging, but different, discovery
is reduced – a particular concern in antitrust cases where
discovery is especially broad and expensive.
The plaintiff in Standard Fire attempted with his
stipulation to roll back CAFA in a case that would have otherwise
qualified for removal to federal court. The Standard
Fire decision removes one potential crack in the CAFA dam by
preventing plaintiffs from staying out of federal court simply by
limiting the class's damages, and preserves the uniformity and
cost savings afforded by CAFA. These benefits are magnified
when applied to class actions brought under the antitrust
laws.
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