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by William A.S. Magrath
William Magrath performs an in-depth analysis of the Third Circuit's en
banc review of Sullivan v. DB Investments. Mr. Magrath notes that while a
prediction of a decision based on the judges' questions during oral
argument requires "reading the tea leaves," the en banc panel's decision
in Sullivan may provide important guidance on at least some key
questions related to the interpretation of Rule 23.Excerpt:Background The Sullivan
case arose out of alleged price fixing activity by the De Beers family
of companies in the wholesale market for gem-quality diamonds.
Plaintiffs brought claims against De Beers under the Sherman and Clayton
Acts as well as the antitrust, consumer protection, and unjust
enrichment laws of all fifty states and the District of Columbia.
Plaintiffs were divided into two classes. The first class of plaintiffs,
the direct purchaser class, consisted of those plaintiffs who had
bought rough gem diamonds directly from De Beers during the relevant
time period. The second class of plaintiffs, the indirect purchaser
class, consisted of those plaintiffs who purchased gem diamonds during
the relevant time period from sources other than De Beers or one of its
competitors. Consumers and jewelry retailers who bought their diamonds
from middlemen fell into this category.
Plaintiffs entered into settlement negotiations with De Beers that
ultimately resulted in a proposed settlement dividing the plaintiffs
into the two putative classes and creating a settlement fund of $295
million to be shared by the two classes. The United States District
Court for the District of New Jersey overruled the objections of several
plaintiffs to the settlement, certified the two classes, and approved
the settlement agreement. Third Circuit Panel Opinion
One of the objectors appealed the case to the Third Circuit where it
was heard before a panel composed of Judge Rendell, Judge Jordan, and
Judge Ambrose, a United States District Court judge for the Western
District of Pennsylvania sitting by designation.
In an opinion authored by Judge Jordan and joined by Judge Ambrose, the
panel held that a nationwide settlement-only class could not be
certified when there was not a legal right to recovery in all of the
jurisdictions implicated by the class. The
panel majority found that the trial court's certification of the
indirect purchaser class for settlement purposes under Federal Rules of
Civil Procedure Rule 23(b)(3) was improper. The panel analyzed the
antitrust, consumer protection, and unjust enrichment law of the fifty
states and District of Columbia and concluded "it was improper for the
District Court to certify a nationwide class of plaintiffs based on
state law when many states withhold antitrust standing from indirect
purchasers and where the variability in consumer protection and unjust
enrichment law in a context like this is extreme." With respect to the
state antitrust claims, the court found that "[t]he variations in state
law identified by the objectors preclude the requisite finding of
predominance under Rule 23(b)(3) because indirect purchasers do not have
a right to recover in all states, and, therefore, no question of law or
fact regarding their legal rights is uniform throughout the class."Lexis.com subscribers can access the complete commentary, Third Circuit En Banc Review of Sullivan v. DB Investments, Inc. Additional fees may be incurred.
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William A.S. Magrath is an associate in the San Francisco office of
Gibson, Dunn & Crutcher. He currently practices in the firm's
Litigation Department. Mr. Magrath received his law degree cum laude in
2010 from New York University School of Law, where he was an editor of
the New York University Law Review and a Florence Allen Scholar. Prior
to attending law school, Mr. Magrath worked for three and a half years
for the U.S. Department of Defense. Mr. Magrath received his M.S. and
B.S. in Computer Science from Stanford University in 2003.