Third Circuit: Each Element of Federal Rule 23 Must Be Met Before Certifying a Class

In In re Hydrogen Peroxide Antitrust Litigation, No. 07-1689 (3d Cir. Dec. 31, 2008), the Third Circuit vacated a district court’s decision to certify a class in an antitrust lawsuit, and held that the lower court left unanswered disputed elements of Federal Rule of Civil Procedure 23.

The Court stated that the requirements set out in Rule 23 are not mere pleading rules." Szabo, 249 F.3d at 675-77. The court may “delve beyond the pleadings to determine whether the requirements for class certification are satisfied.“ Newton, 259 F.3d at 167.

Plaintiffs moved to certify a class of purchasers of hydrogen peroxide and other chemicals, alleging that the defendant manufacturers had fixed prices in violation of the Sherman Act. The district court granted the motion and defendants appealed arguing that plaintiffs failed to satisfy Rule 23(b)(3)’s requirement that common questions of law or fact predominate.

The Third Circuit held that three key aspects are necessary for class certification. “First, the decision to certify a class calls for findings by the court, not merely a “threshold showing” by a party, that each requirement of Rule 23 is met. Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence. Second, the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits-including disputes touching on elements of the cause of action. Third, the court’s obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking class certification or by a party opposing it.”

The Third Circuit further explained that a contested requirement is not forfeited in favor of the party seeking certification merely because it is similar or even identical to one normally decided by a trier of fact. Although the district court's findings for the purpose of class certification are conclusive on that topic, they do not bind the fact-finder on the merits.

The Court also analyzed conflicting expert testimony and stated that “weighing conflicting expert testimony at the certification state is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.”

The Court’s analysis relied on the 2003 amendments to Rule 23, which emphasize the need for a careful, fact-based approach, informed, if necessary, by discovery. See Fed.R.Civ.P. 23 advisory committee's note, 2003 Amendments (“[D]iscovery in aid of the certification decision often includes information required to identify the nature of the issues that actually will be presented at trial.”).

The Third Circuit’s holding in In re Hydrogen Peroxide clarified that in order to certify a class the district court must determine by a preponderance of evidence that all of Rule 23’s requirements are met.
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