Class Action Defense Cases–In re Scrap Metal: Sixth Circuit Affirms $34 Million Class Action Judgment In Antitrust Class Action Case Holding District Court Properly Certified Litigation As A Class Action

Aug 4, 2008 | By: Michael J. Hassen

Jury Verdict in Antitrust Class Action Affirmed because Plaintiffs Satisfied Rule 23(b)(3) Predominance Requirement for Class Action Certification and because Notice to Absent Class Members was Adequate Sixth Circuit Holds

In 2002, plaintiffs filed a class action against various defendants, including Columbia Iron and Metal Company, alleging violations of federal antitrust laws. The class action complaint sought to represent the interests of plaintiffs and “a class of industrial scrap-generating companies in Northeastern Ohio.” In re Scrap Metal Antitrust Litig., 527 F.3d 517, 523 (6th Cir. 2008). According to the class action, plaintiffs sell unprocessed scrap metal, generated as a byproduct of their manufacturing, to brokers and dealers, “who then haul, clean, sort, and process the scrap before selling it to end users, such as steel mills.” Defendants allegedly violated the Sherman Act by “agreeing not to compete with one another, submitting rigged bids, setting prices for the purchase of unprocessed scrap metal, and imposing financial penalties on co-conspirators for disobeying allocation agreements.” Id. In March 2004, the district court certified the litigation as a class action, id., at 523-24. In 2005, Columbia’s defense attorneys moved to decertify the class on the grounds that notice to the class was inadequate, but the district court denied the motion. Id., at 524. A jury awarded plaintiffs more than $20 million, including $11.5 million against Columbia which the district court trebled, pursuant to 15 U.S.C. § 15(a). Id., at 524. Columbia appealed the jury verdict; the Sixth Circuit affirmed.

The Circuit Court explained at page 523, “The movement of unprocessed scrap from generators to dealers generally works as follows: The dealers submit bids to the generators for the purchase of unprocessed scrap during a specified time period at a set price. In setting their bid price, dealers consult various trade publications, which report the prevailing prices that dealers can expect to charge users for the scrap after they have processed it. To ensure that they turn a profit, dealers set their bid price for the unprocessed scrap below the amount they will ultimately charge the users for the processed scrap. If the bid is accepted by the scrap generator, the generator and the dealer enter into a contract at the bid price for the bid period.” As noted above, the class action complaint alleged that defendants conspired to deflate the prices they paid for scrap metal. Defense attorneys raised several arguments, but we focus only on the claim that the district court should not have permitted the litigation to proceed as a class action. Specifically, Columbia argued that the district court erred in certifying a class action because the “predominance” test of Rule 23(b)(3) had not been satisfied as “damages could not be calculated on a class-wide basis.” Id., at 535. Columbia also challenged the notice given to absent class members on the ground that it failed to adequately inform them of “the binding effect of a class judgment.” Id., at 536.

The Sixth Circuit explained at page 535 that class action certification will be disturbed on appeal “‘only upon a strong showing that the district court’s decision was a clear abuse of discretion.’” (Quoting Olden v. LaFarge Corp., 383 F.3d 495, 507 (6th Cir.2004).) Rule 23(b) requires that common questions predominate over individual questions, and that class action treatment be the superior means of resolving the dispute. In re Scrap Metal, at 535. The Circuit Court held that “Columbia erroneously assumes that the issue of damages must predominate.” Id. The Court disagreed, holding that in antitrust class action lawsuits the predominance test is not difficult to satisfy because proof of the conspiracy is a common question applicable to the claims of the class members. Id. Whether individual damages issues remain does not automatically defeat class action treatment. Id. The Circuit Court held that the district court did not err in finding that “the ‘fact of damages’ was a question common to the class even if the amount of damages sustained by each individual class member varied.” Id., at 535-36 (citations omitted).

With respect to the notice provided to the class, the Sixth Circuit began by noting that the district court issued the challenged notice in April 2004, but that Columbia delayed objecting until only three (3) days before trial, in January 2006. In re Scrap Metal, at 536. The Court nonetheless addressed the merits of the objection, and concluded that in “three distinct places” the notice informed absent class members of “the effects of remaining a member of the class.” Id. Based on its review, the Circuit Court held that the notice satisfied the requirements of Rule 23 and of due process. Id. Accordingly, the Circuit Court affirmed the judgment. Id., at 538.

NOTE: We do not discuss the other issues addressed by the Sixth Circuit, including whether the trial court erred in failing to exclude certain expert testimony, see In re Scrap Metal, at 524-32, and whether the lump sum awarded by the jury constituted an impermissible fluid recovery, see id., at 532-35. We note, that the Circuit Court characterized the first of these issues as the “most critical question on appeal,” as it concerned the reliability of plaintiffs’ expert witness on damages, id., at 523. We note only that the Sixth Circuit concluded that the district court did not err in admitting the expert’s testimony.

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