Cordes & Co. v. A.G. Edwards & Sons, Inc., No. 06-2143 (2d Cir. 2007)

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The court issued a subsequent related opinion or order on September 28, 2007.

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06-2143-cv Cordes & Co. v. A.G. Edwards & Sons, Inc. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2006 4 (Argued: March 19, 2007 Decided: September 11, 2007) 5 Docket No. 06-2143-cv 6 ------------------------------------- 7 8 9 CORDES & COMPANY FINANCIAL SERVICES, INC. and EQUALNET COMMUNICATIONS CORPORATION, on behalf of themselves and all others similarly situated, 10 Plaintiffs-Appellants, 11 - v - 12 13 14 15 16 17 18 19 20 21 22 23 24 A.G. EDWARDS & SONS, INC., BANCBOSTON ROBERTSON STEPHENS & COMPANY, BEAR STEARNS & CO., CHASE HAMBRECHT & QUIST, INC., CIBC OPPENHEIMER CORP., COWEN & CO., CREDIT SUISSE FIRST BOSTON CORPORATION, DB ALEX. BROWN LLC formerly known as BT ALEX BROWN INC., DONALDSON, LUFKIN & JENRETTE, INC., EVEREN SECURITIES, INC., THE GOLDMAN SACHS GROUP, INC., HANIFEN INHOFF INC., ING BARINGS LLC, J.C. BRADFORD & CO., J.P. MORGAN SECURITIES, INC., JEFFERIES & COMPANY, INC., JOHNSON RICE & COMPANY, LEGG MASON WOOD WALKER INC., LEHMAN BROTHERS INC., MERRILL LYNCH & CO., MORGAN STANLEY DEAN WITTER & CO., NATIONSBANC MONTGOMERY SECURITIES, PAINE WEBBER GROUP, INC., PIPER JAFFRAY & CO., INC., PRUDENTIAL SECURITIES INCORPORATED, RAYMOND JAMES & ASSOCIATES, INC., SALOMON SMITH BARNEY, INC. and UBS WARBURG LLC, 25 Defendants-Appellees. 26 ------------------------------------- 27 Before: SACK, B.D. PARKER, and HALL, Circuit Judges. 28 Appeal from a Memorandum and Order of the United States 29 District Court for the Southern District of New York (Lawrence M. 30 McKenna, Judge) denying the plaintiffs' motion for class 31 certification pursuant to Federal Rule of Civil Procedure 23. 32 conclude that although the plaintiffs do not fall within the We 1 definition of the class as set forth in the complaint, as 2 assignees of class members who brought the suit, they are not 3 categorically excluded from acting as class representatives. 4 also conclude that the district court erred with respect to the 5 basis on which it concluded that individual questions predominate 6 over common ones. 7 We Reversed and remanded. 8 9 10 11 ROGER W. KIRBY, Kirby McInerney & Squire LLP (Randall K. Berger, Henry P. Monaghan, of counsel), New York, NY, for Plaintiffs-Appellants. 12 13 14 15 16 17 ROBERT F. WISE, JR., Davis Polk & Wardwell (Edmund Polubinski III, Christopher Withers, Kavita Kumar, of counsel), New York, NY, for DefendantAppellee Morgan Stanley (sued as Morgan Stanley Dean Witter & Co.). 18 19 20 21 22 23 James B. Weidner, Clifford Chance US LLP (Jon R. Roelke, Jeffrey H. Drichta, of counsel), New York, NY, for DefendantsAppellees Merrill Lynch, Pierce Fenner & Smith Incorporated, and Merrill Lynch & Co. 24 25 26 27 28 29 Gandolfo V. DiBlasi, Sullivan & Cromwell LLP (Steven L. Holley, Penny Shane, David Rein, of counsel), New York, NY, for Defendant-Appellee Goldman, Sachs & Co. (sued as The Goldman Sachs Group, Inc.). 30 31 32 33 34 35 Robert B. McCaw, Wilmer Cutler Pickering Hale and Dorr LLP (Ali M. Stoeppelwerth, Fraser L. Hunter, Jr., of counsel), New York, NY, for Defendant-Appellee Citigroup Global Markets, Inc. (sued as Salomon Smith Barney, Inc.). 36 37 38 39 Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom LLP (Shepard Goldfein, Gary A. MacDonald, of counsel), New York, NY, for Defendants-Appellees CIBC 2 1 2 3 4 5 6 World Markets Corp. (sued as CIBC Oppenheimer Corp.), ABN AMRO Inc. (as successor-in-interest to ING Barings LLC) and Cowen and Company, LLC (f/k/a SG Cowen & Co., LLC and SG Cowen Securities Corp.; sued as Cowen & Co.). 7 8 9 10 11 12 13 14 15 Gregory A. Markel, Cadwalader, Wickersham & Taft LLP (Ronit Setton, Amanda Kosowsky, of counsel), New York, NY, for Defendants-Appellees Banc of America Securities LLC (sued as NationsBanc Montgomery Securities) and Robertson Stephens, Inc. (sued as BancBoston Robertson, Stephens & Company). 16 17 18 19 20 21 22 Bradley J. Butwin, O'Melveny & Myers LLP, New York, NY, for DefendantsAppellees UBS Securities LLC f/k/a UBS Warburg, LLC (sued as UBS Warburg LLC), J.C. Bradford & Co. and UBS Financial Services Inc. f/k/a UBS PaineWebber Inc. (sued as Paine Webber Group, Inc.). 23 24 25 26 A. Robert Pietrzak, Sidley Austin LLP (Joel M. Mitnick, Benjamin R. Nagin, of counsel), New York, NY, for DefendantAppellee Bear, Stearns & Co. Inc. 27 28 29 30 31 Thomas J. Kavaler, Cahill Gordon & Reindel LLP (Elai Katz, of counsel), New York, NY, for Defendant-Appellee Prudential Equity Group, LLC (sued as Prudential Securities Incorporated). 32 33 34 35 Joseph Ingrisano, Kutak Rock LLP (Robert A. Jaffe, of counsel), Washington, D.C., for Defendant-Appellee A.G. Edwards & Sons, Inc. 36 37 38 39 40 41 Charles E. Koob, Simpson Thacher & Bartlett LLP (Joseph F. Tringali, of counsel), New York, NY, for DefendantsAppellees Lehman Brothers Inc. and J.P. Morgan Securities Inc. (sued as Chase Hambrecht & Quist). 42 43 44 Jeremy G. Epstein, Shearman & Sterling LLP (Kenneth M. Kramer, Richard F. Schwed, of counsel), New York, NY, for 3 1 2 3 4 5 Defendants-Appellees Credit Suisse Securities (USA) LLC, f/k/a Credit Suisse First Boston LLC (sued as Credit Suisse First Boston Corporation) and Donaldson Lufkin & Jenrette, Inc. 6 7 8 9 10 11 12 Jay N. Varon, Foley & Lardner LLP (Samuel J. Winer, Bryan B. House, of counsel), Washington, D.C., for Defendants-Appellees EVEREN Securities, Inc., Raymond James & Associates, Inc. and Piper Jaffray & Co. (sued as U.S. Bancorp Piper Jaffray Inc.). 13 14 15 16 17 Douglas A. Rappaport, DLA Piper US LLP (Lewis A. Noonberg, Philip Huynh, of counsel), New York, NY, for DefendantAppellee Deutsche Bank Securities, Inc. (sued as BT Alex. Brown). 18 19 20 21 Bernard J. Garbutt III, Morgan Lewis & Bockius LLP (Leza M. DiBella, of counsel), New York, NY, for DefendantAppellee Jefferies & Company, Inc. 22 23 24 25 Charles O. (Joseph M. Baltimore, Legg Mason 26 27 28 29 30 David Radlauer, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. (Mark A. Cunningham, of counsel), New Orleans, LA, for Defendant-Appellee Johnson Rice & Company. 31 32 33 L. Norton Cutler, Perkins Coie, LLP, Denver, CO, for Defendant-Appellee Hanifen Imhoff Inc. 34 Monk II, Saul Ewing LLP Fairbanks, of counsel), MD, for Defendant-Appellee Wood Walker, Inc. SACK, Circuit Judge: 35 The first of the named plaintiffs in this lawsuit -- 36 Cordes & Company Financial Services, Inc. ("Cordes") -- is the 37 assignee of an antitrust claim against the defendants formerly 38 asserted by Western Pacific Airlines Inc. ("Western Pacific"). 39 The interests in this litigation of the second named-plaintiff -4 1 EqualNet Communications Corporation ("EqualNet") -- are being 2 pursued by the Unsecured Creditors Trust ("Creditors Trust") of a 3 subsidiary of EqualNet: EqualNet Corp. ("EN"). 4 acquired a two-thirds stake in any proceeds EqualNet obtains 5 through this lawsuit. 6 Consolidated Class Action Complaint (the "Complaint") that the 7 defendants, who are initial public offering ("IPO") underwriters, 8 violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by agreeing 9 to charge all corporations conducting mid-size IPOs who used Creditors Trust The plaintiffs allege in their 10 their services a fee equal to 7% of the proceeds of the offering. 11 Cordes and Creditors Trust sought class certification pursuant to 12 Federal Rule of Civil Procedure 23. 13 The United States District Court for the Southern 14 District of New York (Lawrence M. McKenna, Judge) denied the 15 motion for class certification because, it concluded, two Rule 23 16 requirements -- the adequacy requirement of Rule 23(a)(4) and the 17 predominance requirement of Rule 23(b)(3) -- were not met. 18 Rule 23(a)(4) provides that it is a prerequisite to 19 pursuit of an action as a class that "the representative parties 20 will fairly and adequately protect the interests of the class." 21 Fed. R. Civ. P. 23(a)(4). 22 because Cordes and Creditors Trust are assignees of the entities 23 that instituted this lawsuit and are not themselves members of 24 the putative class, they are not qualified to act as 25 representatives of the class. 26 think that the fact that the assignee-plaintiffs do not The district court reasoned that For reasons set forth below, we 5 1 themselves fall within the definition of the class as set forth 2 in the Complaint does not, ipso facto, foreclose their ability to 3 act as class representatives in lieu of the entities that 4 originally brought the claims, both of them members of the class. 5 On remand, the district court should decide whether, on the facts 6 presented in this case, Cordes and Creditors Trust are each 7 adequate representatives of the class. 8 Rule 23(b)(3) requires, inter alia, that for a lawsuit 9 to be pursued as a class action, "the questions of law or fact 10 common to the members of the class [must] predominate over any 11 questions affecting only individual members . . . ." 12 Civ. P. 23(b)(3). 13 plaintiffs failed to establish that this litigation meets that 14 requirement because they did not offer evidence to establish that 15 antitrust injury -- one of the elements of the antitrust claim 16 alleged in the Complaint -- could be proved by a method common to 17 the class. 18 Fed. R. The district court concluded that the The antitrust injury element raises both factual 19 questions related to whether the plaintiff has suffered harm and 20 legal questions related to whether that harm is "of the type the 21 antitrust laws were intended to prevent and that flows from that 22 which makes defendants' acts unlawful." 23 Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). 24 the district court should have distinguished between antitrust 25 injury's factual questions -- as to which both parties offered 26 evidence -- and its legal questions -- as to which neither party 6 Brunswick Corp. v. We think that 1 offered evidence. 2 the legal questions raised by the antitrust injury element of 3 this case are common to the class. 4 should therefore decide whether the factual questions are common 5 to the class. 6 questions relevant to antitrust injury here are individual to 7 each class member, the court should then determine (1) whether 8 common questions nonetheless predominate, and (2) whether 9 certification of a part of the case would be appropriate even if 10 We conclude, for reasons set forth below, that On remand, the district court And if the court determines that the factual certification of the whole would not be. BACKGROUND 11 12 Cordes, the first named-plaintiff, purchased the 13 interest supporting its claim in this lawsuit from the bankruptcy 14 estate of Western Pacific. 15 an IPO of its capital stock, the proceeds of which were 16 approximately $47 million. 17 filed for Chapter 11 bankruptcy protection in the United States 18 Bankruptcy Court for the District of Colorado. 19 proceeding was converted to a liquidation proceeding under 20 Chapter 7. 21 filed a complaint in this action in the United States District 22 Court for the Southern District of New York. 23 that beginning in the mid-1990s, the defendants, investment banks 24 that had underwritten mid-size IPOs, engaged in a horizontal 25 price-fixing scheme of which Western Pacific was a victim during 26 the course of its IPO. In 1995, Western Pacific engaged in Two years later, Western Pacific In 1998, that In 2001, the trustee of the estate in bankruptcy The trustee alleged In 2004, the bankruptcy court entered an 7 1 order permitting Western Pacific's Chapter 7 trustee to sell by 2 auction Western Pacific's claim and interest in the antitrust 3 litigation. 4 winning bidder be willing to act as a named class representative. 5 Cordes acquired Western Pacific's claim and interest, with the 6 approval of the bankruptcy court, for $11,000. 7 memorializing Western Pacific's assignment of its claim stated 8 that Cordes agreed to pursue the litigation in good faith as a 9 named class representative. 10 The bankruptcy court required, inter alia, that the The instrument In 1995, EqualNet, the second named-plaintiff, held an 11 IPO of its capital stock. 12 bankruptcy protection under Chapter 11. 13 Bankruptcy Court for the Southern District of Texas converted the 14 Chapter 11 proceeding to Chapter 7. 15 also filed for bankruptcy, which resulted in the formation of 16 Creditors Trust. 17 former claims, acquired a two-thirds interest in EqualNet's 18 potential recovery in this case by foreclosing on security 19 interests that EN held in certain assets of EqualNet. 20 It, too, subsequently filed for The United States EN, EqualNet's subsidiary, Creditors Trust, which is pursuing EqualNet's The plaintiffs allege in the Complaint that the 21 defendants, IPO underwriters, fixed their underwriting fees at 22 seven percent of the IPO proceeds for all corporations conducting 23 mid-size IPOs -- i.e., IPOs generating between $20,000,000 and 24 $80,000,000 in proceeds. They assert that the defendants thereby 8 1 violated Section 1 of the Sherman Act, 15 U.S.C. § 1.1 2 ninety percent of issuers of mid-size IPOs since 1994 were, 3 according to the Complaint, charged such a fee in that amount. 4 The plaintiffs further allege that IPOs are managed by a 5 syndicate of underwriters, each of which has a lead manager and 6 several co-managers. 7 manager for some IPOs and as co-manager for others, each was 8 allegedly able to monitor the fees charged by other defendant 9 underwriters. More than Because each defendant participated as lead The plaintiffs also submitted expert testimony to 10 support their allegations that the defendants entered into a 11 horizontal price-fixing agreement and have been able to enforce 12 it. 13 Western Pacific and EqualNet brought the lawsuit 14 15 16 17 18 19 20 21 22 23 24 25 pursuant to Rule 23 of the Federal Rules of Civil Procedure, on their own behalf and as representatives of a class . . . of all corporations and other entities (excluding defendants and their respective parents, subsidiaries and affiliates and issuers of government securities) who, during the [period from at least January 1994 through the present], issued an initial public offering of securities with an aggregate value between $20 million and $80 million using the services of any defendant. 26 Compl. ¶ 50. After the assignment of Western Pacific's and 27 EqualNet's claims and interests in this litigation, Cordes and 1 Section 1 of the Sherman Act makes illegal any "contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations . . . ." 15 U.S.C. § 1. 9 1 Creditors Trust filed a motion to certify a class of plaintiffs 2 pursuant to Rule 23. 3 Cordes and Creditors Trust submitted a declaration of 4 their expert, Gustavo Bamberger, in an attempt to establish that 5 they could prove the elements of their claim by common proof and 6 that those elements are predominant, as required for 7 certification under Rule 23(b)(3). 8 had been asked whether he could measure the damages suffered by 9 each class member "by the use of a formula common to all class Bamberger reported that he 10 members." 11 the affirmative. 12 difference between the fee actually paid and the "but-for fee" -- 13 the fee that would have been charged to the putative class 14 members in connection with the IPO in the absence of the alleged 15 conspiracy. 16 a common formula for deriving the but-for fee by (1) establishing 17 a benchmark fee from a set of prices paid in temporal or 18 geographic isolation from the conspiracy, and (2) applying a 19 multiple regression analysis to isolate the "explanatory 20 variables" that influence the benchmark fee. 21 but-for fee for each class member could then be determined by 22 substituting the appropriate values for the explanatory 23 variables. 24 Bamberger Decl. ¶ 3, Sept. 16, 2004. Id. He responded in Damages in this case were, he said, the Id. at ¶ 8. Bamberger asserted that he could devise Id. ¶¶ 9, 16. The Id. ¶¶ 20-24. The defendants countered with an expert report prepared 25 by Robert D. Willig (the "Willig Report"). 26 Willig "whether the plaintiffs' allegations that members of the 10 The defendants asked 1 proposed issuer class have been injured by the alleged price- 2 fixing conspiracy are capable of being proved on a common basis 3 for the purported class members." 4 asserted in response that in order to determine whether a class 5 member was injured, one must first determine the "but-for gross 6 spread" -- that is, the fee that the underwriter would have 7 charged but for the conspiracy. 8 Willig, calculating the but-for gross spread requires an 9 individualized, plaintiff-by-plaintiff analysis of ten factors, Willig Report at 2. Id. at 11-12. Willig But, according to 10 including underwriter costs, price stabilization, and the risk of 11 the offering. 12 The district court denied certification. The court 13 first determined that neither Cordes nor Creditors Trust 14 satisfied the adequacy prerequisite of Rule 23(a)(4). 15 noted that "a class representative must be a member of the class" 16 and that both Cordes and Creditors Trust were assigned their 17 interests in the litigation. 18 Litig., 2006 WL 1026653, at *2-3, 2006 U.S. Dist. LEXIS 21076, at 19 *9, *11-13 (S.D.N.Y. Apr. 18, 2006) (the "District Court 20 Opinion"), amended by 2006 WL 1120498, 2006 U.S. Dist. LEXIS 21 24321 (S.D.N.Y. Apr. 26, 2006). 22 analysis that Cordes and Creditors Trust met the other class 23 certification qualifications, it ruled that they were not members 24 of the proposed class and thus could not represent it. 25 *4, 2006 U.S. Dist. LEXIS 21076, at *13. 26 membership as a transferable asset could, in the words of the The court In re Pub. Offering Fee Antitrust Assuming for purposes of its 11 Id. at Treating class 1 court, "lead to a very serious problem indeed in the class action 2 field." 3 Id. at *4, 2006 U.S. Dist. LEXIS 21076, at *13-14. The district court concluded further that Rule 4 23(b)(3)'s predominance requirement also had not been met. 5 Cordes and Creditors Trust argued that because their expert had 6 provided a formula for assessing damages for all class members, 7 they had also established that they would be "able to prove 8 antitrust impact by common proof." 9 LEXIS 21076, at *26-27. Id. at *8, 2006 U.S. Dist. The district court rejected this 10 argument because the "plaintiffs [were] ignoring the distinction 11 between antitrust injury or impact, on the one hand, and damages, 12 on the other." 13 expert had "been asked, and ha[d] answered, meaningfully 14 different questions." 15 Although the court "[a]ccept[ed] both opinions as 'not fatally 16 flawed' and 'sufficiently reliable,'" only the defendants' 17 expert's analysis, the court concluded, "addresses the question 18 before the Court -- which is whether antitrust injury or impact 19 can be proved by evidence common to the class." 20 Dist. LEXIS 21076, at *27-28 (quoting In re Visa 21 Check/MasterMoney Antitrust Litig., 280 F.3d 124, 135 (2d Cir. 22 2001) ("Visa Check")).2 Id., 2006 U.S. Dist. LEXIS 21076, at *26. Each Id., 2006 U.S. Dist. LEXIS 21076, at *27. Id., 2006 U.S. "The questions are different," the court 2 In In re Initial Pub. Offering Sec. Litig., 471 F.3d 24 (2d Cir. 2006), decided after the district court's ruling, we perceived "a major shift away from the . . . 'not fatally flawed' language of . . . Visa Check." Id. at 37. "[W]e can no longer continue to advise district courts that . . . an expert's report 12 1 continued, "because there is considerabl[y more] leeway allowed 2 in proving damages, once antitrust liability is established, than 3 is permitted in proving antitrust liability." 4 Dist. LEXIS 21076, at *28. 5 Id., 2006 U.S. Cordes and Creditors Trust, relying on Visa Check, also 6 argued that certification was appropriate because common 7 questions regarding the nature of the conspiracy in a price- 8 fixing case predominate over all other questions, including those 9 regarding injury. The court concluded, however, that Visa Check 10 supported only the proposition that the need for individualized 11 inquiry into damages should not prevent certification of a class 12 with common questions on liability.3 13 that Cordes and Creditors Trust did not establish that in this 14 case there are common questions on liability, the district court 15 rejected this argument, too. Based on its conclusion 16 Cordes and Creditors Trust petitioned this Court, 17 pursuant to Fed. R. Civ. P. 23(f), to hear an interlocutory 18 appeal of the denial of class certification under Rule 23(f). 19 August 1, 2006, a panel of this Court granted the petition. On will sustain a plaintiff's burden so long as it is not 'fatally flawed . . . .'" Id. at 40. The use of the phrase by the district court does not affect our analysis, however, and we therefore do not address it further below. 3 Cordes and Creditors Trust contended, as they do on appeal, that when faced with allegations of a horizontal pricefixing conspiracy, we should presume that the entire class suffered antitrust injury. We need not evaluate that argument in order to resolve the merits of this appeal, and therefore express no view as to it. 13 DISCUSSION 1 2 I. Standard of Review 3 We review a district court's denial of class 4 certification for abuse of discretion. In re Initial Pub. 5 Offering Sec. Litig., 471 F.3d 24, 31 (2d Cir. 2006) ("IPO 6 Securities"). 7 district court's "subsidiary rulings on each of the six 8 requirements for a Rule 23(b)(3) class." 9 district court by definition abuses its discretion when it makes We also apply abuse of discretion review to a Id. at 31-32. 10 an error of law." 11 (1996). 12 Rule 23 determination are reviewed for clear error, legal 13 conclusions de novo. "A Koon v. United States, 518 U.S. 81, 100 Findings of fact upon which the district court bases a See IPO Securities, 471 F.3d at 40-41. 14 II. Denial of Class Certification 15 Two questions are presented to us on this interlocutory 16 appeal: (A) whether the district court misconstrued Rule 23(a)'s 17 adequacy requirement, and (B) whether it misconstrued Rule 18 23(b)(3)'s predominance requirement, adversely in each case to 19 Cordes and Creditors Trust. 20 A. 21 22 23 24 25 26 27 28 29 Prerequisites to a Class Action -- Adequacy of Representation Rule 23(a) sets forth four "[p]rerequisites to a [c]lass [a]ction": (1) numerosity (a "class [so large] that joinder of all members is impracticable"); (2) commonality ("questions of law or fact common to the class"); (3) typicality (named parties' claims or defenses "are typical . . . of the class"); and (4) adequacy of representation (representatives 14 1 2 "will fairly and adequately protect the interests of the class"). 3 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997) (quoting 4 Fed. R. Civ. P. 23(a)). 5 first three prerequisites are met here. 6 consideration to the fourth -- adequacy of representation. 7 Determination of adequacy typically "entails inquiry as to 8 whether: 1) plaintiff's interests are antagonistic to the 9 interest of other members of the class and 2) plaintiff's The defendants do not contest that the We therefore confine our 10 attorneys are qualified, experienced and able to conduct the 11 litigation." 12 222 F.3d 52, 60 (2d Cir. 2000). 13 conflicts of interest between named parties and the class they 14 seek to represent." 15 Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., This process "serves to uncover Amchem, 521 U.S. at 625. The district court did not find it necessary to engage 16 in either part of the typical inquiry. The court decided that, 17 irrespective of whether Cordes and Creditors Trust could satisfy 18 the Baffa factors, they cannot be representatives of the class 19 because they do not themselves fit within the definition of the 20 class as set forth in the Complaint. 21 22 23 24 25 26 27 28 29 30 31 It is plain that Cordes and the Creditors Trust are not members of the proposed issuer class and that, as a consequence -- and assuming arguendo that they meet the other qualifications for class representation -they cannot represent the issuer class. Plaintiffs in response cite the undisputed proposition that antitrust claims are assignable. That is beside the point. To allow Cordes or the Creditors Trust to represent the proposed class would, in 15 1 2 3 4 effect, treat class membership as a transferable asset, and that could plainly lead to very serious problems indeed in the class action field. 5 District Court Opinion, 2006 WL 1026653, at *4, 2006 U.S. Dist. 6 LEXIS 21076, at *13-14 (footnote omitted). 7 The defendants urge us to adopt the district court's 8 conclusion, arguing (1) that Cordes and Creditors Trust are not 9 themselves members of the defined class; (2) in light of the 10 general principle that only a class member can adequately 11 represent the class, Cordes and Creditors Trust cannot represent 12 the class; and (3) "to allow the class action device to become a 13 mechanism for trafficking in litigation would fundamentally 14 undermine the administration of justice in federal courts." 15 Br. at 18. 16 Def. We disagree. 1. The Ability of Assignees to Serve as Class 17 Representatives. "To have standing to sue as a class 18 representative it is essential that a plaintiff . . . be a part 19 of that class, that is, he must possess the same interest and 20 suffer the same injury shared by all members of the class he 21 represents." 22 418 U.S. 208, 216 (1974) (citations omitted); see also Gen. Tel. 23 Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982) (quoting 24 Schlesinger, 418 U.S. at 216). 25 brought this lawsuit as putative class representatives, see 26 Complaint ¶ 50, they were indisputably members of the class they 27 sought to represent. Schlesinger v. Reservists Comm. to Stop the War, When Western Pacific and EqualNet We conclude that the subsequent assignment 16 1 of their claims and interests in this litigation to Cordes and 2 Creditors Trust, respectively, did not deprive Cordes and 3 Creditors Trust of the ability, as assignees, to continue to seek 4 recognition as representatives of the class. 5 6 a. Cordes and Creditors Trust's standing to pursue these claims as a class action. 7 The defendants do not contest the validity of the 8 assignments of the bankrupts' antitrust claims to Cordes and 9 Creditors Trust in this instance.4 See Def. Br. at 23; see also 10 D'Ippolito v. Cities Serv. Co., 374 F.2d 643, 647 (2d Cir. 1967) 11 ("Antitrust claims have been held assignable."). 12 undisputed that Cordes and Creditors Trust acquired through 13 Western Pacific's and EqualNet's bankruptcy proceedings all or a 14 portion of whatever substantive rights Western Pacific and 15 EqualNet held at the time of their respective bankruptcies to 4 It is The trustee of an estate in bankruptcy under Chapter 7 is required to "collect and reduce to money the property of the estate . . . and close such estate as expeditiously as is compatible with the best interests of parties in interest." 11 U.S.C. § 704(a)(1). "Under 11 U.S.C. § 541, the rights of action of the debtor pass to the estate created by the commencement of the bankruptcy proceeding . . . ." Mitchell Excavators, Inc. by Mitchell v. Mitchell, 734 F.2d 129, 131 (2d Cir. 1984). The trustee may "reduce to money" the "rights of action of the debtor" by litigating them on behalf of the estate, or, as the defendants concede, by assigning the rights of action to third parties. See Def. Br. at 23; see also Integrated Solutions, Inc. v. Serv. Support Specialties, Inc., 124 F.3d 487, 493-95 (3d Cir. 1997) (recognizing that property in the bankrupt's estate is alienable insofar as it would have been alienable outside the bankruptcy context). 17 1 recover for the injuries alleged in the Complaint.5 2 Nevertheless, the defendants argue, because neither Cordes nor 3 Creditors Trust is itself a member of the class as pleaded, 4 neither has standing to act as a class representative. 5 Standing has both constitutional dimensions rooted in 6 Article III's Case or Controversy Clause6 and prudential 7 dimensions that are "closely related to Art. III concerns but 8 [are] essentially matters of judicial self-governance." 9 Seldin, 422 U.S. 490, 498-500 (1975). Warth v. The rule that "a class 10 representative must be part of the class," Falcon, 457 U.S. at 11 156 (citation and internal quotation marks omitted), is one of 5 As the defendants put it in their brief: The district court did not suggest that [Cordes, as] an owner of a claim by assignment[,] does not possess a right to bring suit individually to recover the proceeds of [its] claim. Nor do plaintiffs contend that the district court's order bars them from proceeding individually or receiving the proceeds to which their assignors would be entitled should there be a class recovery. Thus, the district court did not affect any substantive right to recovery that they acquired by assignment. Def. Br. at 23 (footnote omitted; emphasis in original). 6 Several doctrines "'cluster about Article III -- not only standing but mootness, ripeness, political question, and the like . . . .'" Allen v. Wright, 468 U.S. 737, 750 (1984) (quoting Vander Jagt v. O'Neill, 699 F.2d 1166, 1178-79 (D.C. Cir. 1983)). Article III standing, which is "perhaps the most important of these doctrines," id., requires, at an "irreducible constitutional minimum," that the plaintiff suffered injury-infact, "fairly traceable" to the defendant's acts, and redressable by a decision in the plaintiff's favor, in order for a federal court to address the dispute, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal quotation marks and brackets omitted). 18 1 prudential standing, related to the broader principle that "the 2 plaintiff generally must assert his own legal rights and 3 interests, and cannot rest his claim to relief on the legal 4 rights or interests of third parties," Warth, 422 U.S. at 499; 5 see also Allen v. Wright, 468 U.S. 737, 751 (1984) (recognizing 6 "the general prohibition on a litigant's raising another person's 7 legal rights" as one of "several judicially self-imposed limits 8 on the exercise of federal jurisdiction"). 9 requires in the class action setting that "[a]n individual 10 litigant seeking to maintain a class action . . . meet 'the 11 prerequisites of numerosity, commonality, typicality, and 12 adequacy of representation' specified in Rule 23(a)." 13 457 U.S. at 156 (quoting Gen. Tel. Co. of N.W., Inc. v. EEOC, 446 14 U.S. 318, 330 (1980)). 15 the class claims to those fairly encompassed by the named 16 plaintiff's claims.'" 17 446 U.S. at 330); see also id. ("'[A] class representative must 18 be part of the class and "possess the same interest and suffer 19 the same injury" as the class members.'" (quoting East Tex. Motor 20 Freight Sys. v. Rodriguez, 431 U.S. 395, 403 (1977) (quoting 21 Schlesinger, 418 U.S. at 216))).7 This principle Falcon, "These requirements effectively 'limit Id. (quoting Gen. Tel. Co. of N.W., Inc., 7 In some circumstances, requiring class representatives to be members of the class may also ensure that the litigation complies with Article III limits on federal jurisdiction. The Supreme Court referred to a possible connection between standing to represent a class, Rule 23(a), and Article III standing in Kremens v. Bartley, 431 U.S. 119, 131 n.12 (1977). See also O'Shea v. Littleton, 414 U.S. 488, 494 (1974) ("[I]f none of the named plaintiffs purporting to represent a class establishes the 19 1 We return, then, to the basic principle that "[t]o have 2 standing to sue as a class representative it is essential that a 3 plaintiff must be a part of that class, that is, he must possess 4 the same interest and suffer the same injury shared by all 5 members of the class he represents." 6 216 (citations omitted); see also Fed. R. Civ. P. 23(a) 7 (providing that "[o]ne or more members of a class may sue or be 8 sued as representative parties" only if the four prerequisites of 9 subsection (a) are met). Schlesinger, 418 U.S. at Western Pacific and EqualNet were both 10 members of the class. As a result of Western Pacific's and 11 EqualNet's assignments of their respective claims and interests 12 in this litigation to Cordes and Creditors Trust, Cordes and 13 Creditors Trust stood before the district court in the shoes of 14 Western Pacific and EqualNet, for the purposes of this 15 litigation, as assimilated members of the class. 16 the assignments, they do, as Western Pacific and EqualNet did, 17 possess the same interest and thus may continue to assert a claim 18 for the same injury shared by all members of the class. By virtue of requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other member of the class." (citing, inter alia, Bailey v. Patterson, 369 U.S. 31, 32-33 (1962))); Lynch v. Baxley, 744 F.2d 1452, 1456 (11th Cir. 1984) ("If the named plaintiff seeking to represent a class fails to establish the requisite case or controversy, he may not seek relief on his behalf or on that of the class." (citing O'Shea, 414 U.S. at 494)); DuPree v. United States, 559 F.2d 1151, 1153 (9th Cir. 1977) ("When the suit takes the form of a class action, Article III requires that the representative or named plaintiff must share the same injury . . . ." (citing Warth, 422 U.S. at 502)). 20 1 The fundamental requirement, in other words, is that 2 the "class claims [be] 'fairly encompassed' within" the 3 representative's claims. 4 Cordes and Creditors Trust, premised as they are on the harms 5 allegedly suffered by Western Pacific and EqualNet, "fairly 6 encompass" the claims of the class. 7 economy that permit claims to be pursued as part of a class 8 action in the first place do not vanish as a result of the 9 assignments. Falcon, 457 U.S. at 158. The claims of Reasons of efficiency and As assimilated class members by virtue of the 10 assignments, Cordes and Creditors Trust have standing to pursue 11 the assigned claims as class representatives. 12 Finally, we do not think that allowing Cordes and 13 Creditors Trust to serve as class representatives threatens the 14 district court's power under Article III to hear this dispute. 15 The assignment of a claim from a person who suffered an injury to 16 someone who did not does not make the claim any less a "case or 17 controversy" which the courts have the constitutional capacity to 18 resolve. 19 or continue an action of his or her assignor on an assigned claim 20 even though he or she, apart from the assignment, is without 21 standing, and the court, apart from the assignment, would be 22 without power to decide the case. 23 25(c) (providing that in the case of "any transfer of interest, 24 the action may be continued by or against the original party" or, 25 upon motion, by or against the transferee); Official Comm. of 26 Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, It is indeed commonplace for an assignee to institute 21 See, e.g., Fed. R. Civ. P. 1 LLP, 322 F.3d 147, 156 (2d Cir. 2003) ("As assignee of the Color 2 Tile bankruptcy estate, Color Tile Committee 'stands in the shoes 3 of [Color Tile] and has standing to bring any suit that [Color 4 Tile] could have instituted had it not petitioned for 5 bankruptcy.'" (citation omitted)). 6 class claim by a person who purports to be a class representative 7 does not render the claim less amenable to resolution as a class 8 action, nor class action treatment less beneficial to the 9 litigants, after the transfer of the asserted cause or causes of 10 Similarly, an assignment of a action than before. 11 12 b. The perils of permitting assigneeplaintiffs to represent the class. 13 The defendants argue that as assignees, Cordes and 14 Creditors Trust are not "squarely aligned in interest with the 15 represented group." 16 Continuing Work of the Civil Committee: 1966 Amendments of the 17 Federal Rules of Civil Procedure (I), 81 Harv. L. Rev. 356, 387 18 n.120 (1966)) (internal quotation marks omitted). 19 characterize Cordes and Creditors Trust as "textbook examples of 20 the 'very serious problems' referenced by the district court that 21 would ensue if the ability to serve as a class representative 22 could be treated 'as a transferrable asset.'" 23 District Court Opinion, 2006 WL 1026653, at *4, 2006 U.S. Dist. 24 LEXIS 21076, at *14). 25 view, Cordes's and Creditors Trust's interests are antagonistic 26 to interests of the class and why they are otherwise deficient as Def. Br. at 20 (quoting Benjamin Kaplan, They Id. at 25 (quoting They explain in some detail why, in their 22 1 class representatives. Id. at 25-30. Irrespective of the extent 2 to which Cordes's and Creditors Trust's interests are or are not 3 in fact antagonistic to the interests of other members of the 4 class in this particular case -- a matter on which it is 5 premature for us to express a view -- we do not think that they 6 are necessarily antagonistic solely because Cordes and Creditors 7 Trust are assignees of Western Pacific's and EqualNet's interests 8 in the class action that they are pursuing. 9 The unhappy consequences of permitting "trafficking" 10 (to use the defendants' characterization) in causes of action, 11 thereby permitting one person who has suffered no injury to 12 pursue actions in the stead of another solely to maximize his or 13 her personal monetary return, are not fanciful. 14 such assignments, because of their potential use by 15 "intermeddle[rs to] stir up litigation for the purpose of making 16 a profit," Accrued Fin. Servs., Inc. v. Prime Retail, Inc., 298 17 F.3d 291, 298 (4th Cir. 2002), has been reflected from time 18 immemorial in the laws of champerty and its kin.8 The aversion to See In re 8 Commentators have traced the doctrine of champerty, and its doctrinal near-cousins of maintenance and barratry, back to Greek and Roman law, through the English law of the Middle Ages, and into the statutory or common law of many of the states. See generally, Susan Lorde Martin, Syndicated Lawsuits: Illegal Champerty or New Business Opportunity?, 30 Am. Bus. L.J. 485, 486-89 (1992); Max Radin, Maintenance by Champerty, 24 Cal. L. Rev. 48, 48-66 (1936). Elliott Assocs., L.P. v. Banco de la Nacion, 194 F.3d 363, 372 (2d Cir. 1999). Champerty, a tort governed largely by state law, 23 1 Primus, 436 U.S. 412, 424 n.15 (1978) ("[P]ut simply, . . . 2 champerty is maintaining a suit in return for a financial 3 interest in the outcome . . . ."). 4 The purchasing of claims, whether before or after suit 5 has been brought upon them, for the purpose of turning a profit 6 is nonetheless not categorically forbidden. 7 Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 17 (2d 8 Cir. 1997) ("In general, claims or choses in action may be freely 9 transferred or assigned to others."); see also Elliott Assocs., See Advanced 10 L.P. v. Banco de la Nacion, 194 F.3d 363, 372 (2d Cir. 1999). 11 the contrary, such assignments are widely permitted, presumably 12 in order to allow holders of claims to transfer the risk of loss 13 to someone better able or more willing to pursue the claim or to 14 undertake the risk. 15 salvaged. 16 To Valid claims otherwise lost may thus be The defendants' arguments and the district court's 17 conclusions as to the transferability of the ability to represent 18 a class fail to account for the countervailing value of allowing 19 an assignee to stand in the shoes of the assignor before a court. 20 This case might be termed a "textbook example" of that value in 21 the bankruptcy context inasmuch as the assignments pursuant to has been narrowed to focus on the prevention of litigation by lawyers for the primary purpose of recovering their costs and fees. See, e.g., id. at 374 (recognizing that the object of New York's champerty statute is "'to prevent attorneys, etc., from purchasing things in action for the purpose of obtaining costs by the prosecution thereof, and it was not intended to prevent a purchase for the purpose of protecting some other right of the assignee'" (quoting Moses v. McDivitt, 88 N.Y. 62, 65 (1882)). 24 1 which Cordes and Creditors Trust are litigating this case 2 promoted the winding up of complicated estates in bankruptcy to 3 the benefit of creditors. 4 claim assignment in the context of class membership and class 5 representation that is qualitatively different from similar 6 dangers that inhere in permitting the pursuit of assigned legal 7 claims generally, which, as we have noted, is allowed. 8 9 We see nothing about the perils of We conclude that Cordes and Creditors Trust, pursuing their claims and interests as assignees of the claims brought by, 10 and interests in this litigation of, purported members of the 11 class seeking to act as class representatives, are not excluded, 12 for that reason alone. 13 2. The Determination of Adequacy of Representation. 14 That is hardly the end of the matter. As with any class member 15 seeking to act as a class representative, Cordes and Creditors 16 Trust must demonstrate that "1) [their] interests are [not] 17 antagonistic to the interest of other members of the class and 2) 18 [their] attorneys are qualified, experienced and able to conduct 19 the litigation." 20 categorical approach to Rule 23(a)(4)'s adequacy requirement, the 21 district court has not addressed these questions. 22 the reasons advanced by the defendants in support of their 23 assertion that assignees can never act as class representatives, 24 Cordes, Creditors Trust, or both, may in fact not be an adequate 25 class representative here. 26 sufficiently "'aligned in interest with the represented group,'" Baffa, 222 F.3d at 60. In light of its For some of If, for example, either is not 25 1 Def. Br. at 20 (citation omitted), see also id. at 28-33, or has 2 insufficient knowledge or access to information, id. at 26-28, it 3 may not qualify. 4 decline, to make that determination in the first instance. 5 mean to imply no views on the question. 6 the sound discretion of the district court on remand.9 7 B. But we are in no position, and therefore We We leave the matter to Predominance 8 If this lawsuit meets the "prerequisites" of a class 9 action under Rule 23(a), it must then also "qualif[y] under at 10 least one of the categories provided in Rule 23(b)" before it may 11 be certified as a class action. 12 Cordes and Creditors Trust assert that this action qualifies 13 under the third Rule 23(b) category, where, although class 14 treatment is not necessary to avoid adjudications mandating 15 inconsistent standards of conduct under Fed. R. Civ. P. 23(b)(1), 16 or to remedy class-based discrimination under Fed. R. Civ. P. 17 23(b)(2), "class suit [is] nevertheless . . . convenient and 18 desirable." 19 and citation omitted). Visa Check, 280 F.3d at 133. Amchem, 521 U.S. at 615 (internal quotation marks 9 Of course, if the district court certifies the class after a determination that either or both of the plaintiffs are adequate class representatives, it can always alter, or indeed revoke, class certification at any time before final judgment is entered should a change in circumstances render the plaintiffs inadequate class representatives. Fed. R. Civ. P. 23(c)(1); see also Visa Check, 280 F.3d at 141 (recognizing a district court's ability to modify a class certification order or decertify a class if it becomes necessary to do so). 26 1 To qualify for class treatment, then, the proposed 2 class must meet the requirement of predominance -- that is, that 3 "the questions of law or fact common to the members of the class 4 predominate over any questions affecting only individual 5 members" -- and the requirement of superiority -- that is, "that 6 a class action is superior to other available methods for the 7 fair and efficient adjudication of the controversy." 8 Civ. P. 23(b)(3).10 9 focus -- together with the requirement of "superiority," which Fed. R. The predominance requirement on which we 10 has not been separately raised on this appeal -- ensures that the 11 class will be certified only when it would "achieve economies of 12 time, effort, and expense, and promote . . . uniformity of 10 Rule 23(b)(3) provides: An action may be maintained as a class action if the prerequisites of [Rule 23](a) are satisfied, and in addition: . . . (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action. Fed. R. Civ. P. 23(b)(3). 27 1 decision as to persons similarly situated, without sacrificing 2 procedural fairness or bringing about other undesirable results." 3 Amchem, 521 U.S. at 615 (citation and internal quotation marks 4 omitted). 5 The district court began with the notion that "[i]n 6 order to prevail on their price-fixing claims, plaintiffs must 7 demonstrate: (1) a violation of the antitrust laws by defendants; 8 (2) some injury to plaintiffs' business or property as a result 9 of the violation (causation or impact) and (3) the amount of 10 damages sustained by the plaintiffs." 11 2006 WL 1026653, at *5, 2006 U.S. Dist. LEXIS 21076, at *16 12 (quoting In re Indus. Diamonds Antitrust Litig., 167 F.R.D. 374, 13 381 (S.D.N.Y. 1996)) (citation and internal quotation marks 14 omitted). 15 three required elements of an antitrust claim [are] (1) a 16 violation of antitrust law; (2) injury and causation; and (3) 17 damages . . . ." 18 District Court Opinion, We have stated the point somewhat differently: "[T]he Visa Check, 280 F.3d at 136. There is no controversy here regarding the first Visa 19 Check element. Horizontal price-fixing agreements are per se 20 violations of the Sherman Act. 21 Socony-Vacuum Oil Co., 310 U.S. 150, 210-28 (1940). 22 Creditors Trust's allegations of the existence of a price-fixing 23 conspiracy are susceptible to common proof and, if proven true, 24 would satisfy the first element of the plaintiffs' antitrust 25 cause of action. See generally United States v. 28 Cordes and 1 The second element -- whether termed "antitrust 2 injury," "causation or impact," or "injury and causation" -- is 3 more complicated. 4 1. Does Antitrust Injury Pose Common or Individual 5 Questions? 6 person who shall be injured in his business or property by reason 7 of anything forbidden in the antitrust laws may sue 8 therefor . . . ." 9 require that to prevail in an antitrust suit, a plaintiff "must 10 prove [that it has suffered] antitrust injury, which is to say 11 injury of the type the antitrust laws were intended to prevent 12 and that flows from that which makes defendants' acts unlawful." 13 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 14 (1977) (emphasis added). 15 Section 4 of the Clayton Act provides that "any 15 U.S.C. § 15(a). This has been read to In Brunswick, the defendant, Brunswick, had purchased a 16 nearly bankrupt bowling alley, thus keeping the purchased 17 business alive. 18 rival bowling alleys, sought to challenge the purchase because it 19 kept their competitor in business. 20 Plaintiffs doubtless suffered real harm -- they had lost the 21 "income that would have accrued had the acquired centers gone 22 bankrupt," id. at 487, but this was insufficient to meet the 23 antitrust injury requirement. 24 case would have given Pueblo Bowl-O-Mat and the other plaintiffs 25 26 27 The plaintiffs, Pueblo Bowl-O-Mat and other See id. at 480-81. The damages recovered in such a the profits they would have realized had competition been reduced. The antitrust laws, however, were enacted for "the 29 1 2 3 4 5 6 protection of competition not competitors," Brown Shoe Co. v. United States, 370 U.S. [294, 320 (1962)]. It is inimical to the purposes of these laws to award damages for the type of injury claimed here. Brunswick, 429 U.S. at 488. 7 Similarly, in Atlantic Richfield Co. v. USA Petroleum 8 Co., 495 U.S. 328 (1990), independent gas stations could not 9 recover from a gasoline producer that had allegedly fixed the 10 maximum resale prices its affiliated gas stations could charge. 11 The lower prices that resulted from the scheme had pro- 12 competitive, not anti-competitive, effects in the markets in 13 which the plaintiffs were engaged. 14 that non-predatory price competition is pro-competitive with 15 respect to other suppliers of the same goods or services); cf. 16 id. at 345 (noting that even though competitors could not show 17 that they suffered antitrust injury because of their rival's 18 vertical price-fixing scheme, "consumers and the manufacturers' 19 own dealers may bring suit"). 20 See id. at 335-41 (reasoning Rule 23(b)(3) requires that the district court 21 determine what "questions of law or fact [are] common to the 22 members of the class." 23 added). 24 Brunswick and Atlantic Richfield, we think that the second 25 element of an antitrust cause of action -- "antitrust injury" -- 26 poses two distinct questions. 27 question whether the plaintiff has indeed suffered harm, or 28 "injury-in-fact." Fed. R. Civ. P. 23(b)(3) (emphasis Insofar as Rule 23(b)(3) is concerned, and in light of One is the familiar factual The other is the legal question whether any 30 1 such injury is "injury of the type the antitrust laws were 2 intended to prevent and that flows from that which makes 3 defendants' acts unlawful." 4 Brunswick, 429 U.S. at 489. Rather than relying on the distinction between the 5 legal and factual questions raised by the antitrust injury 6 element of an antitrust suit, the district court focused on the 7 distinction between antitrust injury and damages. 8 Check, 280 F.3d at 136. 9 expert, Bamberger, was asked to opine as to damages and the See Visa It accurately noted that the plaintiffs' 10 defendants' expert, Willig, as to injury. Compare Bamberger 11 Decl. ¶ 3 (stating that the plaintiffs' expert was "asked . . . 12 to determine whether it would be possible to measure damages 13 suffered by members of [the] proposed class . . . by the use of a 14 formula common to all class members" (emphasis added)), with 15 Willig Report at 2 (stating that the defendants' expert was 16 "asked . . . to consider whether the plaintiffs' allegations that 17 members of the proposed issuer class have been injured by the 18 alleged price-fixing conspiracy are capable of being proved on a 19 common basis for the purported class members" (emphasis added)). 20 Reasoning that the plaintiffs' and defendants' experts "have been 21 asked . . . meaningfully different questions," the district court 22 accepted the testimony of the defendants' expert, Willig, because 23 only he had "addresse[d] the question before the Court -- which 24 is whether antitrust injury . . . can be proved by evidence 25 common to the class." 26 at *8, 2006 U.S. Dist. LEXIS 21076, at *27-28. District Court Opinion, 2006 WL 1026653, 31 The district 1 court therefore concluded that the antitrust injury element of 2 Cordes and Creditors Trust's lawsuit presents questions 3 individual to each class member. 4 We disagree. Although the questions asked of the 5 experts differed precisely as described by the district court, we 6 think their answers were directed to the same question: whether 7 injury-in-fact is susceptible to common proof in this case. 8 Neither expert offered any views on the legal question of whether 9 common evidence could prove that the injury allegedly suffered 10 was "of the type the antitrust laws were intended to prevent and 11 that flows from that which makes defendants' acts unlawful." 12 Brunswick, 429 U.S. at 489. 13 The defendants' expert, Willig, was of the view 14 15 16 17 18 19 20 21 22 23 24 that any determination of whether a particular member of the purported issuer class has been injured by the clustering or alleged "standardization" of gross spreads would require an individualized factual analysis about whether, absent such alleged standardization, the issuer would have paid a gross spread of less than 7% for IPO net proceeds, the same or equal to the proceeds the issuer actually received as a result of its offering. 25 Willig Report at 2. And the plaintiffs' expert, Bamberger, 26 opined that "the difference between each proposed class member's 27 but-for fee and the actual fee it was charged measures damages." 28 Bamberger Decl. ¶ 24. 29 would be possible to measure the but-for fee -- that is, the fee 30 an issuer would have paid absent the conspiracy -- by common 31 proof. Each expert thus evaluated whether it The plaintiffs' expert thought that the court could use a 32 1 single formula to establish the supracompetitive prices a 2 plaintiff had paid; the defendants' expert thought no such 3 formula could be constructed. 4 This disagreement goes to a single question -- whether 5 injury-in-fact can be proved by common evidence. Although the 6 plaintiffs' expert would use a single formula while the 7 defendants' expert would conduct many individualized inquiries, 8 both experts would determine injury-in-fact by calculating the 9 but-for fee and comparing it to the fee paid. If the fee paid 10 were higher than the but-for fee, then the plaintiff suffered an 11 injury-in-fact. 12 between the but-for fee and the actual fee paid is relevant to 13 the question of damages, but it is from a comparison between the 14 two that the court would be asked to decide the question of 15 injury-in-fact.11 16 employed to make a valid comparison between the but-for fee and 17 the actual fee paid, then it seems to us that the injury-in-fact 18 question is common to the class. 19 ones. 20 correct. In this case, the extent of the difference If the plaintiffs' single formula can be Otherwise, it poses individual The district court did not determine which expert is We leave this question for it to resolve on remand. 11 It is conceivable that one could create a common formula for determining whether the but-for fee was higher or lower than the fee paid, but would need to conduct individualized inquiries to determine the extent of the spread between the two fees. But the experts before us would each use one approach (the plaintiffs' expert a common one and the defendants' expert an individualized one) to answer both the injury-in-fact question -that is, whether a plaintiff was harmed -- and the damages question -- that is, by how much a plaintiff was harmed. 33 1 Notwithstanding the existing open question as to 2 injury-in-fact, we think that the legal question raised by the 3 antitrust injury element of Cordes's and Creditors Trust's case 4 is common to the class. 5 in the Complaint -- overcharges paid to a horizontal price-fixing 6 conspiracy. 7 same type of injury, the legal question of whether such an injury 8 is "of the type the antitrust laws were intended to prevent and 9 that flows from that which makes defendants' acts unlawful," 10 There is only one type of injury alleged Because each class member allegedly suffered the Brunswick, 429 U.S. at 489, is a common one.12 11 2. Do Common Questions Predominate? The predominance 12 requirement is met if the plaintiff can "establish that the 13 issues in the class action that are subject to generalized proof, 14 and thus applicable to the class as a whole, . . . predominate 15 over those issues that are subject only to individualized proof." 12 The issue is not only common, but appears to be readily resolved. The defendants were asked at oral argument: "[I]f there is injury, assuming the conspiracy, . . . it is antitrust injury. Isn't that right?" The defendants responded, "It's of the type that's antitrust injury. That's correct, your Honor." Oral Arg. Tr. at 19:16-20 (Mar. 19, 2007). As far as we can tell, the concession was warranted. See New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1079 (2d Cir. 1988) (recognizing that "[i]n general, the person who has purchased directly from those who have fixed prices at an artificially high level in violation of the antitrust laws is deemed to have suffered . . . antitrust injury"). Of course, not every injury caused by a per se violation of the antitrust laws is antitrust injury and even a plaintiff alleging a per se violation must demonstrate that his injury amounts to antitrust injury. See Atl. Richfield, 495 U.S. at 341 (rejecting "respondent's suggestion that no antitrust injury need be shown where a per se violation is involved"). But the defendants have never contended that overcharges paid to a horizontal price-fixing cartel are not antitrust injuries; nor would any such contention be persuasive in this case. 34 1 Visa Check, 280 F.3d at 136 (internal quotation marks and 2 citation omitted; ellipsis in original). 3 met in certain cases alleging . . . violations of the antitrust 4 laws." 5 the district court must make a "definitive assessment of Rule 23 6 requirements, notwithstanding their overlap with merits issues." 7 IPO Securities, 471 F.3d at 41.13 8 9 Amchem, 521 U.S. at 625. It is "a test readily In deciding whether it is met, As we have explained, the legal question raised by the antitrust injury element here is common to the class. If the 10 factual question -- injury-in-fact -- is also common, then the 11 predominance requirement of Rule 23(b)(3) is likely met. 12 Even if the district court concludes that the issue of 13 injury-in-fact presents individual questions, however, it does 14 not necessarily follow that they predominate over common ones and 15 that class action treatment is therefore unwarranted. 16 sure, the defendants concede that any plaintiff who has suffered 17 the type of injury alleged in the Complaint has suffered 18 antitrust injury. 19 But "a concession does not eliminate a common issue from the 20 predominance calculus." 21 461 F.3d 219, 227 (2d Cir. 2006) ("Nassau County"); see id. at 22 227-29. To be Oral Arg. Tr. at 19:16-20 (Mar. 19, 2007). In re Nassau County Strip Search Cases, 13 "[T]he determination as to a Rule 23 requirement is made only for purposes of class certification and is not binding on the trier of facts, even if that trier is the class certification judge." IPO Securities, 471 F.3d at 41. 35 1 These questions, at least, are common: (1) all factual 2 and legal questions that must be resolved to determine whether 3 the defendants violated Section 1 of the Sherman Act; and (2) all 4 factual and legal questions that must be resolved to decide 5 whether, assuming a plaintiff paid supracompetitive prices, that 6 payment was caused by the defendants' antitrust violation and 7 constitutes the kind of injury with which the antitrust laws are 8 concerned. 9 equivalent to whether a particular plaintiff would have paid more The question of injury-in-fact, which in this case is 10 in the but-for world,14 may not be common. 11 the possibility that the individual questions raised by injury- 12 in-fact might then predominate over the several common questions. 13 Perhaps a trial would focus largely on what particular plaintiffs 14 would have paid in the but-for world. 15 necessarily so. 16 question, too, is best left to the sound discretion of the 17 district court on remand. 18 3. We do not discount But that is not Under these circumstances, the predominance Certification of Particular Issues. Subsequent to 19 the district court's denial of class certification and our grant 20 of the motion to certify this appeal, we issued our opinion in 21 Nassau County. 22 of a class of individuals who were subject to the Nassau County 23 Correctional Center's allegedly unconstitutional blanket strip- 24 search policy. 14 The plaintiffs in that case sought certification Nassau County, 461 F.3d at 222. Recognizing that The related damages question is: if so, how much more. 36 1 individual questions concerning damages and defenses might defeat 2 certification of the entire case, the plaintiffs also sought 3 certification as to liability pursuant to Rule 23(c)(4)(A). 4 at 223; see also Fed. R. Civ. P. 23(c)(4)(A) (providing that 5 "[w]hen appropriate . . . an action may be brought or maintained 6 as a class action with respect to particular issues"). 7 Circuit had held that Rule 23(c)(4)(A) certification "as to a 8 specific issue" is available only if common questions predominate 9 in the claim as a whole. Id. The Fifth Nassau County, 461 F.3d at 226 (citing 10 Castano v. Am. Tobacco Co., 84 F.3d 734, 745 n.21 (5th Cir. 11 1996)). 12 23(c)(4)(A) is available to certify particular issues "regardless 13 of whether the claim as a whole satisfies Rule 23(b)(3)'s 14 predominance requirement." 15 Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996) 16 (recognizing that "[e]ven if the common questions do not 17 predominate over the individual questions so that class 18 certification of the entire action is warranted, Rule 23 19 authorizes the district court in appropriate cases to isolate the 20 common issues under Rule 23(c)(4)(A) and proceed with class 21 treatment of these particular issues"). 22 We adopted, instead, the Ninth Circuit's view that Rule Id. at 227; see also Valentino v. On remand, if the district court concludes that the 23 action ought not to be certified in its entirety because it does 24 not meet the predominance requirement of Rule 23(b)(3), Cordes 25 and Creditors Trust may seek certification of a class to litigate 26 the first element of their antitrust claim -- the existence of a 37 1 Sherman Act violation -- pursuant to Rule 23(c)(4)(A) and Nassau 2 County.15 3 would lie within the district court's sound discretion to certify 4 such a class under either Rule 23(b)(3) or Rule 23(c)(4)(A). CONCLUSION 5 6 7 We do not, of course, express a view as to whether it For the foregoing reasons, the order is vacated and the case remanded to the district court for further proceedings. 15 We also leave to the district court to determine whether the issue of damages -- which here may be resolved using the same evidence as that presented for injury-in-fact -- is a common question or requires individual determinations, and whether class certification is appropriate on the question of damages. 38

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