Litigation Against Dow Chemical Corporation: 'Class Action, Lots of Foam? That’ll Be $1 Billion.'
Upholding a $1.06 billion judgment in favor of a national class of industrial purchasers of polyurethane, a three-judge panel of the U.S. Court of Appeals for the 10th Circuit drew renewed attention to the still-formidable risks (or rewards, depending upon one’s perspective of this record jury verdict) in taking price-fixing class actions to trial. The panel’s Sept. 29, 2014 decision1 rejected in its entirety an appeal by Dow Chemical Corporation (Dow) and, in so doing, upheld: (i) the trial court’s finding that common questions of conspiracy and classwide impact predominated, underscoring that the Supreme Court’s decisions in Dukes2 and Comcast3 are not defense silver bullets on class certification; and (ii) the jury’s damages award, which was markedly different (here, less) than that offered by plaintiffs’ expert, even though the jury did not have access to the expert’s underlying calculations as a basis.
Dow is seeking en banc review by the 10th Circuit.
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Dow was the sole remaining defendant at the jury trial in Kansas federal court of the direct purchaser class action for alleged price-fixing of polyurethane products (most commonly used in foam cushions and foam insulation). Dow sustained a $400 million damages verdict, which, after trebling and then reduction by $140 million for settlements by other defendants, resulted in a $1.06 billion judgment. The district court denied Dow’s motions for decertification of the class and for judgment as a matter of law.
Before trial, Dow had moved to exclude the damages testimony of plaintiffs’ statistical expert, Dr. James McClave, and to decertify the class (the latter motion being made the day before trial). Following the verdict, the district court granted plaintiffs’ request to permit allocation of damages according to Dr. McClave’s model, adjusted pro rata to allow for the jury’s reduction from $497 million to $400 million. After both the conclusion of the trial and the Supreme Court’s decision inComcast, Dow renewed its motion to decertify the class – arguing that Dr. McClave’s damages model did not provide the required nexus between the liability theory and impact on class members – and the district court denied the motion.
Among Dow’s arguments on appeal was that the class should not have been certified because common questions did not predominate over individual ones. The appellate panel noted that the polyurethane market involved a “myriad of products, pricing structures, individualized negotiations, and contracts”4 reflected in long-term contracts as well as spot purchases, and that announced price hikes did not always result in actual price increases due to individual negotiations. Plaintiffs’ class expert – a familiar one, Dr. John Beyer – opined that a price-fixing conspiracy would affect all purchasers in the class. In certifying the class, the district court reasoned that product price lists and parallel price-increase announcements in the industry could establish an “artificially inflated baseline” price that would cause market-wide impact notwithstanding individual negotiations. For purposes of the threshold liability issues, then, the district court found class certification to be appropriate, and noted that the damages case could be bifurcated or the class later decertified as to damages if individualized questions predominated on those issues.5
On appeal, Dow argued that class certification ran afoul of Dukes because Dow had been denied the right to show in individualized proceedings that some class members suffered no injury.6 The appellate panel disagreed. While conceding that some class members might have avoided being injured by individual negotiations or switching to a substitute product, the panel declared that it was not an abuse of discretion for the district court to conclude that the common questions of conspiracy and, importantly, impact would predominate, particularly when “there is evidence that the conspiracy artificially inflated the baseline for price negotiations.”7 The appellate panel noted that trial testimony by some of Dow’s witnesses (which, the trial having been completed, was thus available to the district court for consideration on the renewed motion for decertification) acknowledged that price increase announcements had affected the starting point for price negotiations.8
Dow also raised on appeal a Comcast argument that Dr. McClave (also the damages expert inComcast) had employed a defective model because he had failed to distinguish between the impact and damages attributable to the liability theory actually pursued at trial and a theory that was not. In Urethane, plaintiffs dropped a customer allocation theory before trial, proceeding only on a price-fixing theory. As a threshold matter, the appellate panel observed that the Urethaneplaintiffs, unlike the Comcast plaintiffs, had not made the unusual concession that class certification required showing a common methodology for proving classwide damages. The panel also rejected this argument because, unlike in Comcast, Dow waited until after the trial to raise this issue – by which time Dr. McClave had already testified in the plaintiffs’ case as it was actually presented, and the district court therefore had the discretion to find a “fit” between the nationwide price-fixing theory and classwide damages.9
The 10th Circuit panel also rejected Dow’s arguments that the jury’s reduction of Dr. McClave’s damages figure was without an evidentiary basis. The court enumerated several possible bases for the reduction and noted that it was appropriate for a jury to make such adjustments even if it lacked the exact numbers to do so with “mathematical clarity.”10
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Author’s postscript: At a well-known annual antitrust economics conference barely a decade ago, a speaker asked for a show of hands of those who had successfully defeated class certification in a horizontal price-fixing case. Mine was one of only three hands that went up among scores of well-respected litigators. The odds have certainly improved for defendants in the intervening years with the Supreme Court’s decisions in Dukes and Comcast, as well as circuit court decisions requiring both satisfaction of class certification elements by a preponderance of the evidence and resolution of factual disputes relevant to class certification, like the Third Circuit’s decision in Hydrogen Peroxide.11 From this practitioner’s view, the Urethane decision does not signal a step backward in this trend, but rather a demonstration that in the unusual circumstances of post-trial hindsight following the rare occurrence of a jury verdict in a price-fixing case, a district court’s discretion on class certification can have enormous impact. While case law may have shifted, to the extent that the record available to a jury can reasonably be read to support classwide impact and a damages award, the respect afforded its decision by appellate courts remains constant and profound.
1 In re Urethane Antitrust Litig., No. 13-3215 (10th Circ. Sept. 29, 2014) (Urethane).
2 Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S. Ct. 2541 (2011) (class certification inappropriate in gender discrimination case where evidence did not show company-wide discrimination policy: what matters to class certification is not merely raising common questions, but capacity of the classwide proceeding to generate common answers).
3 Comcast Corp. v. Behrend, ___ U.S. ___, 133 S. Ct. 1426 (2013) (class certification inappropriate where plaintiffs conceded need for a method to prove classwide damages through a common methodology, but expert’s model measured aggregate damages based on four theories of antitrust impact, three of which had been rejected by the court).
4 Urethane, Slip Op. at 4.
5 In re Urethane Antitrust Litig., 237 F.R.D. 440, 452 (D. Kan. 2006).
6 Dow also argued that Dr. McClave’s extrapolation techniques in his modeling amounted to an improper “trial by formula.’ The appellate panel rejected this argument on the ground that such extrapolation was not used to prove liability but rather only to approximate damages, which is not prohibited by Dukes. Urethane, Slip Op. at 18-19.
7 Urethane, Slip. Op. at 14 (citing In re Rail Freight Fuel Surcharge Antitrust Litig., 287 F.R.D. 1, 61 (D.D.C. 2012), vacated in part on other grounds, 725 F.3d 244 (D.C. Cir. 2013)).
8 Urethane, Slip Op. at 15.
9 Id.at 23.
10 Id. at 43-44 (citations omitted).
11 In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008).