UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
February 10, 1971
In re Coordinated Pretrial Proceedings in Antibiotic Antitrust Actions
Lord, D. J.
The opinion of the court was delivered by: LORD
(Consumer Class Actions)
LORD, D. J.
These seven actions were brought by the states of California, Hawaii, Kansas, Oregon, North Carolina, Utah and Washington against the five corporate defendants
for alleged price-fixing in the sale of certain broad spectrum antibiotic drugs. These states refused the defendants' settlement offer and were excluded from the settlement classes for government entities established by Judge Wyatt. State of West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710, 724 (S.D.N.Y. 1970). They were assigned to this judge, along with all other nonsettling cases, for the completion of pretrial proceedings. In re Antibiotic Drug Litigation, 320 F. Supp. 586 (J.P.M.L. 1970).
Prior to transfer here the states moved for the establishment of each of their actions as class actions on behalf of two classes -- one composed of government entities within each state and another composed of all retail purchasers of the drugs for human consumption within the state. Some states sought to allege a cause of action parens patriae on behalf of those individual consumers who failed to come forward with their claims in any class action
and to allege a cause of action parens patriae on behalf of the state for damages to its economy.2a
The government entity class was established in an earlier opinion. This leaves for consideration the retail consumer class and the individual consumer parens patriae claims. The defendants strongly oppose the states' requests in both of these areas. They assert that the proposed consumer class is unmanageable and that it may result in the compromise of their due process and jury trial rights.
We conclude that the plaintiffs have made a sufficient showing to warrant the establishment of the proposed classes, but only on the condition that no notice be sent to the class members until plaintiffs satisfy the court that these actions are manageable and that the classes can be adequately notified of the pendency of these actions. Cusick v. N.V. Nederlandsche Combinatie Voor Chem. Ind., 317 F. Supp. 1022 (E.D. Pa. 1970); City of Philadelphia v. Emhart Corp., 50 F.R.D. 232. Because of this disposition of the class action issue, the court deems it unnecessary to examine the proposed parens patriae claims of the states and those motions are denied.
The plaintiffs have satisfied many of the requirements of Rule 23 for the maintenance of a class action. First, they have met the tests imposed by Rule 23(a). There is no question but that the members of the consumer class within each state are so numerous that joinder is impractical. Many of the defendants' arguments concerning manageability proceed on that premise.
The representative parties are also asserting claims typical of the claims of the class members. All seven of the states support welfare programs which reimburse welfare recipients for the purchase of prescription drugs, including broad spectrum antibiotics of the type involved in this litigation. Because of these reimbursements the states stand in the shoes of a substantial number of purchasers of the drugs in question during the relevant periods and throughout their jurisdictions.
Finally, it is difficult to imagine a better representative of the retail consumers within a state than the state's attorney general. Historically the common law powers of the attorney general include the right and duty to take actions necessary to the maintenance of the general welfare and his presence in these actions is but a modern day application of that right and duty. His representation of the class provides the class with experienced counsel possessing sufficient resources and professional assistance to meet the obligations inevitably placed on a representative party under Rule 23.
Plaintiffs have also shown that common questions of fact predominate over individual questions in these actions. F.R. Civ. P. 23(b)(3). The prior opinion establishing the government entity class also concluded that common questions of fact and law were presented in the two aspects of the liability question, i.e., did the defendants violate the antitrust laws and did any violation injure the members of the plaintiff class. And the commonality of these questions has usually been considered sufficient to satisfy the predominance standard. City of Philadelphia v. Emhart Corp., supra ; State of Minnesota v. United States Steel Corp., 44 F.R.D. 559 (D. Minn. 1968); State of Iowa v. Union Asphalt & Roadoils, Inc., 281 F. Supp. 391 (S.D. Iowa 1968); Philadelphia Elect. Co. v. Anaconda Amer. Brass Co., 43 F.R.D. 452 (E.D. Pa. 1968); See Gold Strike Stamp Co. v. Christensen, 436 F.2d 791 (10th Cir. 1970).
The defendants seem to suggest, in arguing the manageability issue, that individual proof of damages is the predominant question. In attempting to determine which issues can be said to predominate, at least one court has rejected the defendant's suggestion that the court must compare the time required to resolve the liability and damage issues under Rule 23. State of Minnesota v. United States Steel Corp., supra 44 F.R.D. at 569. As that case suggests, a more appropriate test is to compare the time that would be spent on the common and individual issues in the absence of a class action. On this basis the question of liability is clearly predominant over the damage issue.
An important additional factor in the finding of predominance of common questions is the court's tentative conclusion that the amount of damages due the plaintiff class may also be litigated through representative parties under Rule 23. It is far simpler to prove the amount of damage to the members of the class by establishing their total damages than by collecting and aggregating individual damage claims as a sum to be assessed against the defendants. And it is the court's tentative conclusion that this can be done without sacrificing the rights of the defendants. The questions of the amount of overcharge paid by retail consumers, variations in that overcharge within the state and certain affirmative defenses to the claims of retail purchasers, such as reimbursement from an insurer or welfare program, are common to substantial groups of retail consumers within each state. These questions could be resolved through subclass litigation which would preserve the defendants' right to jury trial and due process without necessitating the expensive and unnecessary relitigation of these questions in individual cases. Individual claims would then be made against the judgment awarded to the class.
The defendants argue that Rule 23 requires each class member to come forward with his claim prior to trial. The cases cited by the defendants do not go this far. In Philadelphia Elect. Co. v. Anaconda Amer. Brass Co., supra, the requirement that a proof of claim form be filed was imposed on several classes whose members were readily identifiable, whose claims were relatively easily calculable, and who could, presumably, bear the expense of such a procedure. The court imposed the requirement because it "would reveal the true scope of the litigation, and would either greatly reduce the trouble and expense of any subsequent notices which may be required, or provide a basis for informed re-appraisal of the class action question under 23(c)(1)."
In Harris v. Jones, 41 F.R.D. 70 (D. Utah 1966), the court required a second round of notices, after the initial Rule 23(c)(2) notices, informing the members of a stockholder class that they must file "simple statements of their claims" or face dismissal. The purpose of this requirement was not to gather in all damage claims but to gather information enabling the court "to determine the adequacy of existing representation, more effectively to define the class or to establish or eliminate subclasses, and to establish practical guides for the trial of cases and, it is hoped, for the submission of the issues for meaningful determination by a jury." A similar objective is served in the present case by the requirement that plaintiffs satisfy the court concerning certain manageability and notice questions. If these cases cited by the defendants are relevant at all, it is on the question of when absent class members must come forward with proof of their claims, and it is doubtful that such a burdensome requirement should be imposed on a class like the present one where the injury has been spread over a large number of purchasers, none of whom may have a claim large enough to justify the expense of preparing a proof of claim form until they are assured of a recovery. Cf. Korn v. Franchard Corp., 50 F.R.D. 57 (S.D.N.Y. 1970). It would seem far better to defer the filing of proof of claims by the individual members of these classes until after these cases have gone to trial and judgment. If the representatives of these classes are successful on behalf of the absent class, the members will know that their efforts in proving their individual claims will be rewarded. On the other hand, should the defendants prevail, there will be no need for the class members to search their records for proof of purchases of antibiotic drugs during the relevant period. The court is unwilling to impose so great an expense and burden on the absent members of these classes at this time.
The defendants' principal concern seems to be that, in the event liability is found, a small number of claims will be filed against the judgment "fund" and that the balance remaining after satisfaction of these claims will go to the representative parties, not injured consumers. We see no reason why this problem need ever occur for one of the court's objectives in requiring plaintiffs to respond to the questions contained in the court's order is to devise a program of notice which will produce a large number of claimants and return most of the judgment to individual consumers. In any event, the court sees no reason why any residue must necessarily pass to the representative parties, but reserves judgment on the question until it becomes apparent that such a problem in fact exists.
These cases also meet several of the qualifications listed in Rule 23(b)(3) for determining the "superiority" of class action. As to factors (A), (B) and (C), the superiority of the class action is clear. The individual members of the class have little, if any, interest in maintaining separate actions. Their claims are large in the aggregate but small on an individual basis, giving them little incentive to enforce their rights individually. State of Illinois v. Harper & Row Publishers, Inc., 301 F. Supp. 484, (N.D. Ill. 1964). In addition, the common questions are so predominant that an individual class member could have little objection to his representation by a competent plaintiff. Cf. Hobbs v. Northeast Airlines, 50 F.R.D. 76 (E.D. Pa. 1970).
Finally, there is the question of whether difficulties in the management of these actions preclude a finding that the class action is "superior to other available methods for the fair and efficient adjudication of the controversy." It should be noted at the outset that difficulties in management are of significance only if they make the class action a less "fair and efficient" method of adjudication than other available techniques. This perspective is particularly important in the present cases where the defendants, after reciting potential manageability problems, seem to conclude that no remedy is better than an imperfect one. The court would be hesitant to conclude that conspiring defendants may freely engage in predatory price practices to the detriment of millions of individual consumers and then claim the freedom to keep their ill-gotten gains which, once lodged in the corporate coffers, are said to become a "pot of gold" inaccessible to the mulcted consumers because they are many and their individual claims small.
The court's tentative conclusions concerning the trial of the damage issue eases the management problems considerably. Damages would be awarded on a class-wide basis, if and when liability was established, and individual claims could then be processed administratively after entry of judgment.
Many questions remain, however, concerning the manner in which these cases should be administered and the feasibility and method of any notice to the class members. And the court is mindful of the language of Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 570 (2d Cir. 1968):
It may be that in some situations it is better at the outset to decide that the proceeding may be prosecuted as a class action and leave for later resolution some of the debatable matters, such as the sufficiency of the representation or the notice to be given, or the feasibility of meeting problems of judicial administration. In this particular case, with its millions of possible claimants, we think it would be most amiss to let the case go ahead until it becomes hopelessly entangled in a mass of procedural detail and expense from which it may not be easy or even possible to extricate it with justice to the parties by the simple means of deciding at a later day that the order permitting the case to proceed as a class action was improvidently granted.
Accordingly, it seems appropriate to require that before notice is sent to the members of the consumer class plaintiffs must demonstrate that these actions are sufficiently manageable and that satisfactory notice to the class is possible. Cusick v. N.V. Nederlandsche Combinatie Voor Chem. Ind., supra ; City of Philadelphia v. Emhart Corp., supra. In addition to making the order conditional in this manner, the court specifically reserves the right to alter or amend it as provided in Rule 23(c)(1). While the parties are responding to the court's order on these questions, the court will proceed, with the help of the parties, to consider and resolve the many preliminary questions which can be dealt with independently of the class action issue.