Comcast and the Nexium Antitrust Case

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On November 14, 2013, Judge William G. Young of the District of Massachusetts entered an order certifying a class of individual consumers and other payors who alleged that anti-competitive practices of the defendant pharmaceutical companies resulted in overcharges for the drug Nexium.   Download In re Nexium Antitrust Litigation Civil Action No 12 md 02409 WGY.  Judge Young's order covers a lot of territory, including his rejection of defendants' challenges to Rule 23(a)(4) adequacy, his rejection of plaintiffs' request to certify a Rule 23(b)(2) injunctive class, and even a gratuitous swipe at the federal sentencing guidelines (which, Judge Young asserts, apply a lower standard to sentencing decisions than the “rigorous analysis” courts are required to apply to rulings on class certification).  

A major theme in the decision is what to make of the fact that the Rule 23(b)(3) damages class includes members that were not injured by the alleged practices.  Judge Young found that plaintiffs' expert adequately demonstrated “that all class members have been exposed to purchasing or paying for esomeprazole magnesium at a supracompetitive price,” but also concluded from the defense expert's report “that certain class members were not actually injured, including more than a de minimis number of TPPs [third-party payors] and consumers who – through rebates, contracts, and brand-loyal purchasing – suffered no damages from the foreclosure of a generic version of Nexium to the market.”  Still, he found the plaintiffs' expert's rebuttal to these challenges persuasive, concluding:  “At this stage in class certification, the Court determines that the incidience of uninjured consumers and TPPs are insufficient to overcome the showing of common antitrust impact to the putative class, but the Court preserves the Defendants' right to challenge individual damage claims at trial.”

Defendants argued that the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes requires the moving party to show that each class member was injured by the defendants' allegedly wrongful conduct.  Judge Young rejected this argument, choosing to follow federal appellate precedents holding that the inclusion of uninjured class members is not fatal to class certification, and concluding that these precedents are consistent with Wal-Mart.  

The court did not stop there, however, but went on to ask:  “What is one to make of the 5-4 decision of the Supreme Court in Comcast?”  And then, as if to answer his own question, Judge Young responded:  “Not much, say Justices Ginsburg and Breyer writing for the dissenters.”  The problem the Court faced in Comcast, Judge Young observed, was that “the putative class was unable to calculate damages resulting solely from the overbuilder theory of antitrust impact . . . .”  In contrast, plaintiffs in Nexium asserted three theories of liability, all of which “arise from a singular set of transactions.”  Because plaintiffs' expert's aggregate damages calculation reflected all three theories, the court found, the expert testimony offered to show a common impact was aligned with the damages theories in a way that the expert testimony in Comcast was not.

Defendants nevertheless challenged the sufficiency of the expert testimony under Comcast, arguing that, because some class members suffered no injury, individual damages inquiries would be necessary.  Judge Young, however, cited First Circuit and other precedent holding that the use of aggregate damages calculations, including “averages,” is sufficient to establish predominance despite variations in damages among class members.  In doing so, he stated:  “This is not the allocation stage of litigation.  Apportioning damages ought wait until liability is decided on the merits.”  In doing so, he accepted the narrow reading of Comcast set out in Justices Ginsburg's and Breyer's dissent:

As outlined above, Comcast has not changed the rule on what is required for damages models in establishing Rule 23(b)(3) predominance. . . . Comcast simply requires the moving party to present a damages model that directly reflects and is linked to an accepted theory of liability under Rule 23(b)(3).

Judge Young adds that a number of considerations may come up for managing the case for trial, a process that he refers to as “dynamic.”  For example, he states that, at the pretrial conference, “[i]t may be necessary to revisit the class certified in this order.  Perhaps a liability-only class may prove fairest and most manageable,” he posits, citing the 7th Circuit's decision in Butler v. Sears, Roebuck and Co.  If, he muses, a jury finds liability and an average amount of an overcharge, the average may become a baseline for further proceedings in which individual class members may seek greater damages, or defendants may seek to extinguish damages.  Presumably, what makes the possibility of such individual damages litigation following class-wide findings tolerable is the possibility that “[m]any of the litigants may accept this baseline figure as an appropriate measure of damages.”

The Nexium decision represents a thoughtful and bold venture into new territory opened up by the majority decision in Comcast.  In light of the complex trial management issues that it leaves open, however, it is a venture fraught with peril.  Defendants will be disappointed by the court's treatment of Comcast, and especially its failure to give effect to that portion of the Comcast majority opinion that would preclude certification of cases involving predominant individualized issues of damages.  As some of our earlier posts suggest, even the most intelligent and creative approaches to managing such cases after they are certified merely delay, rather than avoid, the need to resolve individual issues.  And certification of a case that leaves open the need for eventual resolution of such substantial individual issues conflicts with the proper application of Rule 23 as elucidated by the majority in Comcast.  Only time will tell whether and where the seed the Comcast majority planted will take root.