A federal appeals court in Washington today, pointing to a recent U.S. Supreme Court ruling on class actions, struck down the certification of thousands of businesses pursuing a large-scale antitrust case against four major freight rail companies.
The ruling wasn't the final word on class certification, however. The court sent the case back to the trial judge, ordering him to take another look based on new Supreme Court guidance and to more carefully scrutinize evidence the plaintiffs presented to support certification.
The class—thousands of businesses that shipped products via freight rail—sued the four largest freight railroad companies in the United States for antitrust violations in 2007. U.S. District Senior Judge Paul Friedman certified a class last summer, which pushed up the total possible damages into the billions, according to court papers. The rail companies appealed.
In today's decision, the three-judge panel pointed to a Supreme Court ruling earlier this year in Comcast Corp. v. Behrend, which required trial judges to more carefully scrutinize evidence related to class certification. When it came to a model the plaintiffs' expert created to prove there were issues common to all proposed class members, the D.C. Circuit found Friedman only considered whether it was "plausible," a standard the Supreme Court reversed in Comcast.
Sidley Austin's Carter Phillips argued for the rail companies. "The railroads believed that Comcast was a game-changer in making class certification much harder to justify and clearly the panel agreed," Phillips, chair of Sidley's executive committee, said in an e-mail.
But Stephen Neuwirth of Quinn Emanual Urquhart & Sullivan, who argued for the plaintiffs, said that while today's ruling "was not our preferred outcome, we are gratified that the case was remanded."
"We are confident that we will be able to demonstrate that the damages model in fact satisfies the highest standards that have been set by the courts and that ultimately the case will move forward as a class action," he said.
Judge Janice Rogers Brown, sitting with Chief Judge Merrick Garland and Senior Judge David Sentelle, wrote the opinion for the appeals court.
Brown wrote that the plaintiffs ran into trouble on the issue of predominance—that is, that legal issues or facts common to all class members outweighed questions affecting only individual members. In moving for certification, the plaintiffs' experts presented two models attempting to prove the common issues.
Brown identified a flaw with one of the models, which calculated damages the plaintiffs suffered as a result of the alleged rate-fixing conspiracy. The problem, Brown wrote, was that the model also "detects injury where none existed," explaining that it identified damages for shippers bound to rates that were negotiated before the alleged conspiracy took place.
"No damages model, no predominance, no class certification," she wrote.
The panel found Friedman "never grappled" with the flaws identified in the damages model.
"Mindful that the district court neither considered the damages model’s flaw in its certification decision nor had the benefit of Behrend’s guidance, we will vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues in the first instance," Brown wrote.
The case is one of the latest to attempt to clarify class certification standards following the Supreme Court's 2011 decision in Wal-Mart v. Dukes, which raised the bar for plaintiffs seeking certification by requiring proof of common questions of law or fact.
A renewed fight over class certification isn't the only thing on the defendants' plate. Union Pacific Railroad, one of the defendants, is also fending off a pending motion to disqualify its lead trial counsel at Latham & Watkins. A class member is pursuing the motion, arguing Latham should be conflicted out of handling the case because of its past work for the class member. Friedman heard arguments in July.
Mike Scarcella contributed to this report.