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In re Master Key Antitrust Litigation

decided: December 22, 1975.


Appeal from an order of the United States District Court for the District of Connecticut, M. Joseph Blumenfeld, Judge, certifying class actions, consolidating cases and ordering separate trials for liability and for damages in an antitrust suit. The district court refused to certify an interlocutory appeal from this order under 28 U.S.C. § 1292(b). Appellants urge appellate jurisdiction under 28 U.S.C. § 1291, on the basis that these are "final orders."

Waterman, Oakes and Meskill, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge:

We are here again called upon to determine the appealability of certain interlocutory orders made in a complex and protracted private antitrust action. The underlying claim in the litigation is that of numerous plaintiffs, who as building owners have been purchasers and users of "builders' hardware." They contend that the defendants, who are manufacturers of builders' hardware and of lock and key systems, have conspired to reduce competition and raise prices in those markets. The conspiracy is alleged to have been national in scope. This litigation was begun over five years ago*fn1 and has involved at least three years of discovery.*fn2 It has now reached the stage where the United States District Court for the District of Connecticut, M. Joseph Blumenfeld, Judge, has entered an order (1) denying the defendant-appellants' motion to decertify the class action established in City of Philadelphia v. Emhart Corp., 50 F.R.D. 232 (E.D. Pa. 1970), note 1 supra, (2) granting plaintiff-appellees' motion for certification of class actions,*fn3 (3) ordering a consolidation of all the cases filed in this controversy, and (4) ordering bifurcation, i.e., separate trials for the determination of liability and for the computation of damages.

Upon appellants' motion, the district court refused to certify any of these rulings for interlocutory appeal under 28 U.S.C. § 1292(b). Appellants argued to Judge Blumenfeld that a "generalized" showing of injury is insufficient to prove liability in an antitrust action brought under Section 1 of the Sherman Act, 15 U.S.C. § 1. They contended that particularized, individual harm to each plaintiff is a prerequisite to liability and, therefore, that it is unlikely that common issues will predominate at trial. They urged that the class action liability trial would be unmanageable and prejudicial to the defense, and that certification of the class action is therefore "serious to the conduct of the litigation," see Katz v. Carte Blanche Corp., 496 F.2d 747, 755 (3d Cir.), cert. denied, 419 U.S. 885, 42 L. Ed. 2d 125, 95 S. Ct. 152 (1974), and involves a "controlling question of law" within the meaning of 28 U.S.C. § 1292(b). Judge Blumenfeld agreed that there was a "substantial ground for difference of opinion" on this issue, see id.*fn4 He did not believe, however, that certifying this appeal would "materially advance the ultimate termination of the litigation," id. He apparently weighed the likelihood of reversal as sufficiently small to justify the risk of two complete trials. Judge Blumenfeld's refusal to certify the interlocutory appeal of his rulings is, of course, not appealable and hence not at issue here. The claim raised by appellants on this appeal is that under 28 U.S.C. § 1291 we have jurisdiction to review the rulings of the district court as "final orders." We conclude that appellants' contention cannot be sustained as to any of the rulings challenged here, and we therefore dismiss this appeal for lack of jurisdiction.

A brief exposition of the facts surrounding the litigation is necessary for a full understanding of the issues and arguments on this appeal. The order below consolidates 16 separate actions which were brought in various parts of the country by several states, cities and city agencies, as well as private and institutional building owners. Nine of these actions had been transferred to the District of Connecticut four years ago by the Judicial Panel on Multidistrict Litigation, In re Master Key Antitrust Litigation, 320 F. Supp. 1404 (J.P.M.L. 1971).*fn5 That consolidation and transfer followed agreement by the parties that there were common questions of fact among the related civil actions and that the convenience of the parties, witnesses and just and efficient conduct of the litigation would be served by a transfer to a single district. The parties had further agreed that the Connecticut district would be the most logical choice since all four defendant corporations were located in or near that state. The Multidistrict Panel agreed with these conclusions in its transfer order. See id. at 1406-07.

The appellants are manufacturers of "master key systems." These are lock and key systems designed specifically for a particular complex of buildings. Each system includes some keys which open only one lock in the system and "master keys" which open all or a group of locks within the system. The key systems are part of the "builders' hardware," which is sold on a contract basis for use in construction projects. The manufacturers ordinarily market the key systems through their own dealers who negotiate sales to general contractors as part of the latter's bids on construction contracts. The manufacturers also make some sales to wholesalers who resell at retail and to original equipment manufacturers who install the master key system in their own products, such as particular types of doors, before their sales. But only the sales to construction contractors are involved in these proceedings.

The appellees have alleged that appellants have violated Section 1 of the Sherman Act by entering into unlawful vertical agreements with their distributors providing that the distributors would not sell outside of their allocated territories, would not compete against other distributors of the same manufacturer, and would not bid on extensions to master key systems installed by another distributor.*fn6 They also allege that appellants have joined among themselves in a horizontal conspiracy, the purpose of which is to reduce competition by assisting each other in the enforcement of the vertical conspiracies.

Appellants make much of the fact that the master key system is normally sold as part of the builders' hardware package. This entire package is then marketed at a lump sum price to the general contractors. The master key system distributors typically call upon architects and general contractors to promote the use of their products and to prepare specifications for the builders' hardware required on a particular building or project. When the contract is awarded, the winning contractor will then negotiate with the distributor for the precise cost of the builders' hardware to be used in the building. In the order below specifically appealed from, the court has pointed out that "the damage claims arise from the horizontal, not the vertical, conduct." It is the alleged suppression in competition among the manufacturers which would effect the allegedly higher prices of the product.*fn7

It is in this factual and briefly stated legal context that we must consider the appealability of the parts of the order below concerning (1) class certification, (2) consolidation of cases and (3) bifurcation of the trials for liability and for damages. We will consider each portion of the order separately.

1. Class certification. As we have said, conditional class certification was granted in City of Philadelphia v. Emhart Corp., supra, prior to transfer to Connecticut of two of the 16 cases involved. Appellants sought below to have that conditional class certification set aside and to have class certification denied in the cases in which the issue had not been ruled upon. Judge Blumenfeld, however, adhered to Judge Wood's earlier certification and granted the appellees' motions for class certification. The trial judge pointed out that decertification, or certification of different classes, remains a possibility for purposes of damage determinations after the trial on liability is held.

In a succession of recent cases we have held that class action designations under Fed. R. Civ. P. 23(b)(3) are not "final orders" within the meaning of 28 U.S.C. § 1291, and therefore not appealable. Parkinson v. April Industries, Inc., 520 F.2d 650 (2d Cir. 1975); Handwerger v. Ginsberg, 519 F.2d 1339 (2d Cir. 1975); General Motors Corp. v. City of New York, 501 F.2d 639 (2d Cir. 1974); Kohn v. Royall, Koegel & Wells, 496 F.2d 1094 (2d Cir. 1974). See also Herbst v. International Telephone & Telegraph Corp., 495 F.2d 1308 (2d Cir. 1974). In these cases we have, of course, continued to recognize that the term "final order" is to be given a practical, rather than technical, construction. See Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546-47, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949). We have not chosen to adopt a strict rule denying appealability for class action certification orders in all cases, see Parkinson v. April Industries, Inc., supra, 520 F.2d at 659-60 (Friendly, J., concurring),*fn8 recognizing that there may be "exceptional circumstances" under which interlocutory review of such orders may be appropriate. But our cases have set a high threshold to the allowance of such an appeal. We have required that three factors all be present in conjunction before it may be concluded that the requisite finality is obtained. We have allowed appeal from a class action certification order only where the class action designation was "fundamental to the further conduct of the case," where review of the order was "separable from the merits" of the action, and where the order was likely to cause "irreparable harm to the defendant in terms of time and money spent in defending a huge class action . . . ." Parkinson v. April Industries, Inc., supra; General Motors Corp. v. City of New York, supra; Kohn v. Royall, Koegel & Wells, supra. None of these factors is present here.

We have stated that a "class action determination is 'fundamental to the further conduct of the case' when the individual damage claim of the class representative is relatively insubstantial, so that the suit probably would not be continued as a private action." Handwerger v. Ginsberg, supra, 519 F.2d at 1341. See also Parkinson v. April Industries, Inc., supra, 520 F.2d at 657. We recognize that this definition of "fundamentality" is but a mirror-image of the "death-knell" doctrine, which applies in cases where class certification is denied and the effect of the denial is to terminate all further litigation because of the small size of the individual claims. See, e.g., Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 121 (2d Cir. 1966), cert. denied, 386 U.S. 1035, 18 L. Ed. 2d 598, 87 S. Ct. 1487 (1967). We also recognize that, so applied, the concept of fundamentality may be subject to many of the same analytical shortcomings for which the death-knell doctrine has been criticized in the past. See Parkinson v. April Industries, Inc., supra, 520 F.2d at 656 n.6 (Waterman, J.); id. at 659-60 (Friendly, J., concurring); General Motors Corp. v. City of New York, supra, 501 F.2d at 657 (Mansfield, J., concurring). Nonetheless, the rule of law in our circuit is that "fundamentality" is an important ingredient of the determination which must be made as to whether irreparable loss to the party opposing the certification may ensue from absence of an immediate appeal. Cf. Cohen v. Beneficial Industrial Loan Corp., supra, 337 U.S. at 546. This is because if the class action order is "fundamental" in the sense the law of our circuit employs the term, then there will, by definition, be no additional litigation costs for the appellants if the order is reversed. On the other hand, if the order is not "fundamental" to the litigation, and appellees would pursue their actions as individuals should class certification be denied, then a reversal of a certification order would not avert substantial litigation expenses for the appellant but, rather, could even multiply such costs severalfold. It is on this basis that "fundamentality" has been treated as an appropriate inquiry for the determination whether a class action certification is a collateral order which effects a final disposition of rights and which yields irreparable injury through the absence of immediate review. See id.

It is plain enough that the class action order in this case is not one which is fundamental to the appellees' initiative to pursue this litigation. We anticipate that several of the appellees, which include 14 of our largest state governments,*fn9 can "reasonably be expected to continue the[ir] action[s] in [their] individual [capacities]," Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1099, were class certification to be removed. Discovery procedures have revealed that the claims of several of the appellees alone will involve sums running into tens, if not hundreds, of thousands of dollars. Thus this case is analogous to General Motors Corp. v. City of New York, supra, 501 F.2d at 645, where class action status was ...

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