EXITING THE FUN HOUSE OF MIRRORS: CLAYWORTHv. PFIZER AND THE HANDLING OF PASS­ON IN POST-TRIAL ALLOCATION PROCEEDINGS IN FEDERAL AND STATE COURT Emilio E. Varanini*

Antitrust law has come to a general con~ensus that damages should be awarded for illegal acts such as price-fi>.iug or the illegal maintenance of a monopoly. The award of damages for such illegal acts is so valued that damage awards obtained at trial are trebled in order to ensure detetTence of such antitmst violations. 1 And the calculation of damages is subject to relaxed standards both as a matter of case law2 and, in some cases. as a matter of statute.3 Indeed, the European Union has come to recognize the need for victims of such actions to be able to recover damages as constituting im important component of a healthy competition policy.4 Yet no issue has posed more of a potential batTier to the ability of injured plaintiffi to obtain damages than the issue of pass-on. 5

On one hand, what is pass-on is simple to answer: pass-on is nothing more than the extent to which a company may pass-on an extra charge - such as an increase in taxes, an increase in wholesale prices due to price-fixing by productJnanufacturers, or a monopolist's

28

Deputy Attorney General, Antitrust Section, California Office of the Attorney General, San Francisco, California; Vice-Chair, Conununication and Digital Technologies Committee, American Bar Association, Antitrust Section; International Liaison Officer and Chair, Health Care Working Group, National Association of Attorneys General, Antitrust Task Force. Emilio Varanini is Chair of the multistate litigating group in the price-fixing case: Cafl{omia t~ l1!fiuc011 Teclmologies, No. C 06-4333 PJH. He served as Senior Editor, and co-author of three chapters, of the Stare Bar treatise on antitrust and unfair competition law. Antitrust and Unfair Competition Section, The State Bar of California, CALIFORNIA STATEANTITRJJST AND UNFAIR COMPETITION LAW (Mat<hew Bender & Co., 2009). The views expressed herein are those of the author only and should not be attributed to the California Attorney General's Office, to the National Association of Attorneys General, or to the American Bar Association.

See, e.g., Ca1. Bus. & Pro(. Code Section 16750(a); Uueedus 1~ Callfomia Shoppers, luc., 86 Cal.App. 3d 932, 942 (1978).

See, e.g . .] Tmetl Payne Co. v. Cilrysler Motors Corp., 451 U.S. 557,565-66 (1981); Bigelow v. RKO Radio Pictnres, 327 U.S. 251, 264 (1946); S11bnrban Motor Homes, 101 Cal. App. 3d 532, 545 (1980); accord, In rc Wllolesole Elec.Antitmst Cases I & /I,147 Cal.App. 4th 1293, 1309 (2007);see also, e.g., Diesel Elec. Sales & Serv., Juc.r~ .Marco Mariue Sau Diego, Inc., 16 Cal.App. 4th 202,218-20 (1993) (explaining and applying relaxed antitrust damages rule in context of claim for violation of Cal. Bus. & Prof. Code Section 17045 (forbidding secret rebates)).

See, e.g., Cal. Bus. & Prof. Code Section 16760(d) ("In any action under dlis chapter, where there has been a determination that a defendant agreed to fix prices, damages may be proved and assessed in the aggregate by statistical or santpling methods, by the pro rata allocation of illegal overcharges or of excess profits, or by any other reasonable system of estimating aggregate damages as the court in i~ discretion may permit without the necessity of separately proving the individual claim of, or amount of damage to, persons on whose behalf the suit was brought:').

Commission White Paper on Damages Actions for Breach of the EC Antitrust Rules, COM{2008) 165 final (Feb. 4, 2008) (hereinafter Commission White Paper on Damages).

See, e.g., Ju re Grapllics Proccssiug Unit Antitrust Litig. (hereinafter CPU lll), 253 F.R.D. 478, 503-04 (N.D. Cal. 2008); Califomia v. bifineon Tcclmologies, No. C 06-4333 PJH, 2008 WL 4155665, at *12 (N.D. Cal. Sept. 5, 2008).

charging of supra-competitive prices on its product to others, including original equipment manufacturers, resellers, retailers, or end-users.6 The extent to which pass-on occurs in various cmnpetitive envirorunents and in various industries is often studied: it is well­understood that some pass-on of overcharges or other cost increases is the normal rule.7

On the other hand, lzow pass-on is to be addressed by the federal or state court system is not so simple to answer. There appear no reported cases of an antitrust trial involving

6.

7

Sec, e.g., Jlliuois Brick Hllliuois, 431 U.S. 720, 758-59, 764 (1977) (Brennan,]., dissenting); 21 Cong. Rcc. 1767 (1890) (statement by Senator George during debates on Shennan Act) ("middleman ... buys only for profit on a subsequent sale fs]o whatever he pays he receives when he se1ls, together with a profit on the same, from the person necessarily damnified or injured."); Coordination Proceedings Special Title (Rule 1550(b)) Microsrift 1-V Cases, No.j.C.C.P. 4106, 2000WL 35568182 (Cal. Super. Ct. San Francisco, Aug. 29, 2000) (hereinafter .Microsqft 1- V Cases) (general economic theory and practice supports the contentio.n that at least some of the overcharge from illegal aces of monopoly maintenance will be passed on by distributors to end-consumers); Herbert Hovenkamp, Tite Indirect Purcltascr Rule and Cost­Plus Sales,!03 HAR\cL.REV 1717,1726 & n.45 (1990) (in the long run in a competitive market with constant returns to scale, there must be 100% pass-on of overcharges; if there are economies of scale, then there must be_ 100%+ pass-on of overcharges); Elmer J. Schaefer, Passing-Ou T1teory• in Autitrust 1i·cble Damage Ad ions: An Economic and Legal Analysis, 16 Wm. & Mary L. Rev. 883, 895-900 (1975) (concluding, based on economic analysis in various markets of pass-on of taxes of components of end products and of the end products themselves, thar pass-an was a function of the elasticities of the suppJy and demand curves of a market, that the p3ss-on of taxes would occur under a variety of scenarios, and that pass-on was especially likely on components which were essential to the final product but a relatively low percentage of that product's price).

Sec, e.g., Illinois Brick, 431 U.S. at 764 (Brennan,]., dissenting) ("{D]irect purchasers ... pass on the bulk of their increased costs to consumers farther along the chain of distribution"); Comes H Microsoft Corp., 646 N.W.2d 440,450 (Iowa2002); Microsrift I·V Cases, 2000WL 35568182 (general economic theory and practice supports the contention that at least some of the overcharge. from illegal acts of monopoly maintenance Will be passed on by distributors to end-consumers); JIA Phillip E. Arceda, Herbert Hovcnkamp, Roger D. Blair & Christine P. Durranch,ANTITRUST LAW, ~346k at 189 (3d ed. 2007) ("The obvious diffic;:ulty with denying damages to consumers buying from an intermediary is that they are injured, often more th~m the intermediacy, who may also be injured but for whom the entire overcharge is a windfall.") (hereinafter Areeda); Cynthia U. Kassis, Titr Indirect PurchaserS Right to Sue Uuder Section 4 cif the Clayton Act:Auolher Congressional Response to llliuois Brick, 32 Am. L. Rev. 1087 n.2 (1983) (citing economists and commentators for the proposition that pass-on normally occurs); Robert G. Harris & Lawrence A. Sullivan, Passing On the l\1ouopoly Overcharge: A Comprehensive Polit:y Analysis, 128 U. Pa. L. Rev. 269, 275-76 (1979) (hereinafter Harris & Sullivan); Schaefer, s11pra note 6, at 895-900; see al.so Emily Clark, Mat Hughes & David Wirth, Study on the Conditious of Claims for Damages ill Case of llifringemwt of EC Competitiou Rules: Aualysis of Ecot~omic Models for tl1e Calculation of Damages (Aug. 31, 2004) at 32 (hereinafter EU Study) available at http:/ /ec.europa.eu/comm/ competition/antitrust/actions/damages/index.html (noting that where the downstream market is competitive, pass-on should be 1 00%; where the downstream market is a monopoly, monopolists will pass-on some of their costs; and where the downstream market is characterized by imperfect competicion, pass-on will be somewhere in between a monopoly market and a perfectly competitive market). The EU St11dy was commissioned by the European Union as part ofits examination of whether there should be a private right of action for indirect purchasers.

29

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pass-on. Depending on the group of plaintiffs involved, pass-on has been portrayed as being of no conseguence,8 as affecting standing;9 as beat~ng on the existence of proximate canse, 10

or as a safeguard to ensnre that antitrust defendants do not pay duplicative damages. 11

At what stage of the judicial process is it to be addressed: is it best raised as part a motion to dismiss, 12 class certification, 13 sunm1aty judgment, 14 trial, or post-trial allocation?15 In that sense, pass-on has become like mirrors in a fun house in which it has become a challenging endeavor for courts and parties alike to try to discern which ·"reflection" of pass-on is closest to being the true one.

But in 2011 we may have an answer as to which reflection of pass-on is the true one. The recent California Supreme Court decision of Clayl/lorth v. Pflzd6 suggests that pass­on is nothing more that1 an eguitable allocation "issue, i.e. dmnages inflicted by antitrust defendants through overcharges must be partitioned among different groups of phiintiffs to avoid the payment of excessive damages.

By analogy to such state and federal procedural vehicles as interpleader, such allocation issues can be handled post-trial when different groups of plaintiffs have, in fact, been joined together in a single state or federal proceeding. If different groups of plaintiffi remain in separate forums, mechanisms may exist, such as oiliet or interpleader, by which these allocation issues could be handled.

This article posits that handling pass-on as a post-trial allocation issue best fits precedent that views damage partition issues as ones of eguity for the judge rather d1an ones ·oflaw for the jury. Because handling pass-on as a post-trial allocation issue prevents.defendants from using pass-on as a de facto affim1ative defense to class certification or to a deternlination of liability at1d damages at trial, it best serves the deterrent goals of state and federal antitrust law. Handling pass-on as a post-trial allocation issue also avoids jury confusion in having to wresde with complex economic analyses of pass-on involving the specific facts of a case

10

Ha11over Slloe, Iuc. v. Uuited Slloe .Machiuery Corp., 392 U.S. 481 (1968) (the viability of pass-an as a defense to an antitrust action for damages by dil-ect purchasers).

Cf In re DRAM Antitmsr Litig., 516 F. Supp. 2d 1072, 1090-93 (N.D. Cal. 2007) (finding that pass-on issues are appropriately raised in the prudential antitrust standing context ~nd distinguishing between pass-on of overcharges involving the price for a component of a final product and pass-on of overcharges involving the fina1 product itself).

See, e.g., In re lute/ Corp. Microprocessor Litig., 496 F. Supp. 2d 404,409-10 (D. Del. 2007) (applying federal antitrust standing test as a "guide" and rejecting at pleading stage defendant's argument that plaintiffi' damage claim involved too speculative a chain of events and so was roo remote).

11 See, e.g., Illinois Brick, 431 U.S. at 730-31; C/aywort/1 v. Pfizer, inc., 49 Cal. 4th 758,787 (2010).

12

13

14

15

16

30

See, e.g., In~< DRA.VJAntitniSt Litig., 536 F. Supp.2d 1129 (N.D. Cal.2008).

See, e.g.,llyillcon, 2008 WL 4155665, at *39.

See, e.g., Claywortl! v. Pfizer, Iuc., 83 Cal. Rptr. 3d 45, 50 (Cal.App. 1st Dist. 2008),judgmclll reversed by, 49 Cal. 4th at 758.

Cf, e.g., Illinois Brick, 431 U.S. at 761-64 (Brennan, J., disseming) (mentioning interpleader and consolidation as two possibilities to avoid double-recovery and ensure an apportionment of damages); In rc Cipro Cases I & 11,121 Cai.App. 4th 402,415-17 (2004) (mentioning administrative procedures for allocating damages as being within the discretion of the trial court).

49 Cal. 4th 758 (2010).

(even if pass-on itself is a simple concept) in order to make determinations that go neither to the culpability of defendants nor to the damages that they inflicted in the aggregate. It avoids creating conflicts of interest between different groups of plaintifls that distract from the "main event"-the t1~al to determine defendants' liability and to deternline aggregate damages-and that raise difficulties in the class certification context, which thwart the original objectives of federal and state class certification law. Finally, it avoids the need for policy-based exclusions of cases with ·pass-an issues under the guise of prudential antitrust standing rules, proximate cause principles, or the need to prove the "fact of injury." Consequently, Clayworth provides a final exit for federal and state courts alike from the fun house of miiTors created by the differing views of pass-an.

First, this article will discuss the Clayworth opinion itself Second, it will discuss how the observations of the Clayworth opinion properly suggest that pass-on is nothing more than an issue of partitioning damages and that, by analogy to such state and federal procedures as interpleader, the partitioning of damages should be handled in post-trial proceedings by courts. Third, it will discuss how handling pass-on as a partitioning guestion to be determined in post-trial proceedings serves the deterrent goals of state and federal antitrust law, avoids jury confusion, and helps to bring class certification back to its original objective, namely as a litigation-simplification device. Fourth, it will discuss how handling pass-an as an apportioning guestion avoids the need to trigger prudential antitrust standing, proximate cause, and i1:Uury-in-fact rules properly applicable to other circumstances. Fifth, the article will venture from the Clayworth opinion to the Class Action Fairness Act of 2005 (hereinafter CAFA) in discussing how Clayworth's statement calling for the joinder of different groups of plaintiili goes hand-in-hand with Clayworth's suggested view of pass-on as a post-trial allocation process to provide a means by which antitrust proceedings now can be conducted more expeditiously in state and .federal court. As part of this discussion, the article will touch on the extent to which opt-out plaintiili and especially state attomeys general may avoid such consolidation, the impact of such avoidance on the benefits of consolidation, and whether-insofar as state attorneys general are concerned-there are additional, countervailing benefits to such avoidance.

I. The Clayworth v. Pfizer Opinion

In Clayworth, the California Supreme Court addressed the guestion of whether manufacturers could avoid liability under the Cartwright Act by arguing that plaintiff resellers-here retail pharmacies that purchased pharmaceutical products manufactured or distributed by defendants and resold those products to consumers-passed on any overchargesY The Court answered that guestion in the negative based on federal

17 49 Cal. 4d1 at 763-66. More specifically, in Clayworth, plaintiffS were retail pharmacies located in California. Most defendants were manufacturers that marketed and/or distributed similar brand-name pharmaceutical products throughout the United States. The pharmacies filed suit under the Cartwright Act, Cal. Bus. & Pro[ Code Section 16720 and the Unfair Competition Law, Cal. Bus. & Prof. Code Section 17200. The pharmacies alleged that the manufacturers conspired to fix the price of their name._ brand pharmaceutical products in the United States, including California. IJ. at 764. The pharmacies moved for summary adjudication of the pass-en defense, arguing that the defense was unavailable under

.(1) the Cartwright Act in light of 1-Ianpvc~ Shoe, 392 U.S. at 481, (2) the subsequent legislative history of the Cartwright Act, and (3) public policy. The manufacturers cross-moved for summary judt,•ment, contending that a pass-en defense was available to them and defeated both the Cartwright Act and UCL claims. Id. at 764-65.

31

........ , ... , ... ,,,."'•"'''.'''" """"'1'

I

-~. .

precedent, the state legislative reaction to federal statutoty amendment' on parens patriae authority, legislative history regarding the state legislative enactment of the Illinois Brick repealer, and public policy regarding the objectives of the Cartwright Act.18

In reaching this holding, the California Supreme Court placed particular significance on the federal and state prohibitions against duplicative damages. As the Clayw011h Court observed, Congress amended the Hart-Scott-Rodino Act to allow for state attorneys general to file parens patriae lawsuits on behalf of injured consumers for violations of the Sherman Act; in so doing, Congress also added a prohibition on duplicative damages. 19

The congressional history as to this prohibition on duplicative damages w:is plain in the mind of the Clayworth Court: (1) Congress wanted to overdeter antitrust violators rather than underdeter them; (2) Congress wanted to make sure that antitrust violators had to fully disgorge their ill-gotten gains; and .(3) Congress expressly contemplated that both direct and indirect purchasers might sue and, rather than barring one group, Congress believed a prohibition on duplicative damages would suffice to remove any issue about a double award of the same damages20

The Clayworth Court further observed that this congressional history was important because the state legislature enacted the same parens patriae provision with the san1e prohibition on duplicative damages: it not only presumed the state legislature was aware of the congressional histmy smTotmding the earlier federal statutoty amendment but also found that the state legislature was, in fact, aware of t!J.is congressional history at the time it enacted the parens patriae provision. 21

Ultimately, the Clayworth Court held that the federal rule of Hanover Shoe--tl1at a defensive pass-on theory may not be used to defeat an antitmst damages clail1122-"should apply even as indirect purchasers are allowed to sue" under California's state antitrust law:

We therefore conclude, under the Cartwright Act as under federal law, that a pass-on defense generally may not be asserted. Instead, in an antitrust price-fixing case, the presumptive measure of damages is the an1ount of the overcharge paid by the plaintif£23

The Court declared, however, an important caveat on its newly announced rule that a pass-an defense generally is not available under the Cartwright Act:

While a pass-an defense is generally precluded, a few instances remain in which it will still be available. First, Hanover Shoe recognized an exception for 'cost­plus' contracts and, given the Legislature's endorsement of Hanover Slwe, that exception would apply to the Cartwright Act as well. Second, in light of the flliuois Brick repealer statute, cases may arise where application of the Hanol'er Shoe

18 Id. at 775.

19 I d. at 776.

20 Id. at 776-77.

21 /d. at 777-79.

22 ld. at 770 (citing Hau01'er Shoe, 392 U.S. at 48'1).

23 Id. at 787 (citations omitted).

rule raises the prospect of duplicative recovery. In instances where multiple levels of purchasers have sued, or where a risk remains they may sue, trial courts and parties have at their disposal and may employ joinder, interpleader, consolidation, and like procedural devices to bring all claimants before the court. In ·such cases, if damages must be allocated among the various levels of i1~ured purchasers, the bar on consideration of pass-on evidence must necessarily be lifted; defendants may assert a pass-on" defense as needed to avoid duplication in the recovery of damages. 24

·

With t!J.is final pronouncement, did the Court undo everything that it held in the rest of the opinion-essentially resurrecting the pass-an defense from the grave into wiJ.ich it had just been placed? It is axiomatic that dicta in opinions should not be interpreted so as to nullify the rest of the opinion. 25 Application of this axiom alone would suggest tl1at the Court had sometlJ.ing else in mind than the resunection of the pass-on defense, given the extensive nature of its holding that the pass-on defense should not be available to antitrust defendants because it would subvert the purpose of the Cartwright Act. 26 What that something else nJ.ight be-and how insightful this passage actually is in suggesting an appropriate treatment for pass-on-can be gleaned by its reference to the tools of joinder, interpleader, and consolidation to bring multiple levels of purchasers before tl1e court27

II. Pass,.On as a Partition of Damages and the Treatment of Damage Partitioning as an Equitable Post-Trial Proceeding

These tools are designed to sil11plify proceedings by ensuring that, even though there may be multiple groups of direct and indirect purchaser plaintiffs, there is one trial on

24

25

26

27

Id. (citations omitted).

C'J. Sallta Clara Couuty Local Tramp. Autlz. 1~ Guardino, 11 Cal. 4th 220, 235-36 (1995) (noting that generally statutes should be not interpreted so as to make provisions mere ·surplusage but deviating from rule because given public purpose of initiative, drafters would not have left open loophole that would swallow up the rule); Sheppard v. Edll'ard Mackay Enterprises, Inc., 148 Cal.App. 4th 1092, 1101 (2007) (refusing to adopt preemption argument because it direcdy conflicted with United States Supreme Court decision); People 1>. Smitlt, 206 Cal.App. 3d 340,344 & n.S (1988) (refusing to adopt interpretation of California Supreme Court holdings because interpretation would have effect of making prior California Supreme Court. case a nullity).

Clayu,ortlt, 49 Cal. 4tb at 777-79,782-86.

Id. at 787 (citations omitted).

.,,:

liability and one trial on damages.28 ·In this context, pass-on means that one specific group of plaintiffi cannot get 100% of damages for overcharges because other groups of plaintiffi up or down the distribution channel who have been or should be joined to the case may also have been hurt and, accordingly, may be entided to a percentage of cl1e total damage award for overcharges. 29 And defendants, having been found liable and having been required to pay a damages award, want nothing more than to wash their hands of how the damages award against them should be divided willie avoiding further proceedings in the matter. The different groups of purchaser plaintiffs-who have been joined together and presumably were required to collaborate in the presentation of a single case on liability and damages-want a simple split of the damages award among their respective groups so they can end ilie proceedings.30

Given this view of pass-on as being the allocation of an overcharges damages award · among the differing groups of plaintiffi up and down the distribution chain, pass-on is most naturally an equitable issue, not a legal one, because it involves nothing more than the partition of money.31 It logically follows that, since pass-on is an equitable issue

28 Sec Hf!!Jimw-La Roelle, luc. v. Sperliug, 493 U.S. 165, 170-71 (1989) (Regarding ADEA provisions that allow employees to bring actions ou behalf of thc111selves and others similarly situated, Couit observed that "(t]he judicial system benefits by efficient resolution in one proceeding of conunon issues of Jaw and fact arising from the same alleged discriminatory activity," and "[i]t follOws that, once an ADEA action is fLied, the court has a managerial responsibility to oversee the joinder of additional parties to ensure that the task is accomplished in an efficient and proper waY:');)asminc Ne11vorks, Iuc. v. Superior Court, 180 Cal. App. 4th 980, 995-96 (2009) Qoinder can be used to deal with the risk of multiple .or inconsistent liability; if potential claimants do not come fotward or wish to maintain their own action, then joinder, consolidation, or coordination may be compeJled; even if a defendant fails to act, the court has the power and "perh~ps the duty" to require the joinder of a necessary party); id. at 996 ("If the defendant concedes its duty to pay a sum of money, but fears conflicting demands by rival claimants, he

· may invoke the procedure of interpleader, which if sustained will permit him to pay the disputed sums into court and wash his hands of the controversy."); id. (''Far from viewing rival claims as obstacles to the plaintiff's action, our law reflects a strong preference for bringing aU genuinely interested parties into a single proceeding and adjudicating all of the affected rights and liabilities at once."); Cal. R. Ct. 3.500 (setting out rules applitable to request consolidation of two or more non "complex" cases ftled in different superior courts); id. 3.501-3.550 (same for consolidation of' complex" actions filed in different superior courts; complex cases typically include antitrust cases); 7 ChadesA.Wright,Arthur R. MiUer &

Mary K. Kane, FEDERAL PRACTICE AND PROCEDURE Section 1601 (3d ed. 2001) (discussing history of federal rules on joinder and noting that the idea was long present that parties "whose presence

:, was desirable and who should be joined if possible - those known as necessary- wao:; well-established in federal practice" and "developed from equity and equitable doctdnes" though it was "utilized on the law side of the federal courts long before the uniftcation oflaw and equity in 1938"); id., Section 1702 (describing interpleader as "a remedial joinder device that serves as a useful adjunct to the provision for the permissive joinder of parties.").

29 Sec, e.g., Claywortll, 49 Cal. 4th at 779,787.

30

31

34

Cf)asmiue, 180 Cal. App. 4th at 996 (discussing ways to bring all claimants before the court, or to protect potential claimants chat cannot be joined, including interpleader and cross-actiom against absent claimants, in order to eliminate potentially duplicative or inconsistent obligations).

Cj Marti11 v. Couuty of Los Augel", 5"1 Cal. App. 4th 688, 695-96 (1996) (equitable actions usually seek some form of specific relief other than money damages); id. at 696 Qisting partition of real property as among the traditional actions that sound in equity rather than in law). By way of analogy, in federal court, the allocation of punitive damages among multiple groups of plaintiffi seeking to partition a sing]e award is conducted by the court, not the jury. Sec gcucmll}' lu re Exxon [17/dc:z, 229 F.3d 790, 794-95 (9th Cir. 2000) {noting that court entered plan of allocation of punitive damages among multiple group of plaintiffi (Some of whom settled, some of whom had not) that was reviewable on appeal under abuse of discretion standard).

involving a division of money previously awarded by d1e jury, it should be asserted in a post-ttial equitable proceeding involving the allocation of damages. The natural force of this logic is reinforced by the reference of the Clayworth opinion to interpleader actions: an interpleader proceeding is govemed by equitable ptinciples, as its purpose is .to protect a stakeholder from multiple liability and the expense of multiple litigation, not to compensate the stakeholder. 32 As an equitable issue, pass-on does not need to be ttied in front of a jury but rather can be handled by the court after the jury hands down its verdict."

Moreover, the allocation of damages among multiple groups of plaintiffs by a jury following an assertion of pass-on in order to avoid duplicative damages would, of necessity, require special jury verdict fonns. In that context, the need for special jmy verdicts on duplicative damages may lead to jury confusion-and hence to erroneous verdicts on liability or other issues squarely within the provenance of the jury-a point that further· reinforces the conclusion that the issue of duplicative damages arising from pass-on should be handled in post-trial proceedings34

It is tme that seemingly analogous issues, such as comparative fault in negligence cases or equitable indemnity, go to the jury.35 However, those defenses affect the scope of liability found, or of damages assessed, against defendants. As such, these defenses are

32 Sec, e.g., Te:ms v. Florida, 306 U.S. 398,406-08 (1939);Aelua Uft Ins. Co. v. Bayona, 223 E3d 1030, 1034 (9th Cir. 2000); Shop<ff & Cm,al/o LLP v. Hyou, 167 Cal.App. 4th 1489, 1512-1515 (2008); see gweral/y Zechariah Chafee, Fcdcmlluterplcader Siucc the Act of 1936, 49YALE L.J. 377,414 (1940) ("The whole purpose of interpleader is ro settle the whole controversy among three or more parties. The stakeholder is discharged from liability at. the end of the first stage, and the dispute between the claimanl~ is settled at the end of the second stage.~1). Cla}'UIOrtlz is not the only opinion to have had this insight though it is the most prominent. Sec, e.g., Illinois Brick, 431 U.S. at 761-64 (Brennan,]., dissenting) (mentioning interpleader and consolidation as two possibilities to avoid double-recovery and ensure an apportionment of damages); Cipro Cases I & II, 121 Cal.App. 4th at 415-17 (mentioning administrative procedures for allocating damages as being within the discretion of the tria] court); sec also Bill Digest, AB 3222, California Assembly Committee on the Judiciary, at 1-2 (May 11, 1978) (in discussion on California's proposed Illitlois Brick repealer, Conunittee report set out joinder as one possible procedure to avoid double recovery); Areeda, supra note 7, 1!346k3 at 194 (noting consolidation as an option though also remarking without discussing on the many "procedural complications"); Roger D. Blair & Jeffrey L. Harrison, Rcexamiuiug the Role of Jlliuois Brick in Modem Antitmst Standing Aunlysis, 68 CEO. Wash.L. Rev. 1;31 n.245 (1999) {noting that if Illinois Brick were to be overruled, statutory interpleader could be used to address the issue of there being a great number ofindirect"purchasers).The author of tllis memorandum is aware that under federal law there is a distinction between statutory interpleader and rule interpleader. E.g., Wright, Miller & Kane, supra note 28, Section 1702 (diScussing history difFerences between rules based interpleader and statutory interpleader). Insofar as this distinction may be germane to this article, the amhor intends to refer to statutory interpleader, not rule interpleader, except where othef\Vise indicated.

33

34

35

Sec Cllmiffers, :[Cmnstcrs & Hclpers1 Local No. 391 v.Terr}',494 U.S. 558,564-65 (1990).

Sec Si11gh v. Southland Stolle, US.A., Inc., 186 Cal.App. 4th 338,475 (2010) {in cases where special verdict required, better procedute to avoid duplicative damages is not to instruct jury to make determination as to duplicative damages because of the risk of jury confusion on verdict forms as to liability and damages, but for: court to avoid awarding duplicative damages in judgment or in motion for new trial proceedings); sec also CaL Civ. Pro. Section 662.5(b) (court can condition grant of new trial in situation involving claim of excessive damages on C'ondition that plaintiff accept reduction jn damages).

See, e.g., Ewiug 1!, CIOIJcrlcqf Bowl, 20 Cal. 3d 389, 399; .Martin; 51 c~~App. 4th at 697-98.

35

... :

classically ones that sound in law and are appropriately reserved to the jury.36 But, the "defense" of pass-on affects neither the scope ofliabiliry found nor the amount of damages assessed against defendants and so is not appropriately grouped with these other defenses as ones that sound in law37

Tllis leaves one residual question: what happens if the different groups of plaintif!S cannot be joined or consolidated into one proceeding but rather remain in different proceedings or even different state and federal formm? The answer may be simple: assuming that one group of plaintiff< receives an early judgment on liability and/ or an award of damages, antitrust defendants could request vis-a-vis any other groups of plaintif!S proceeding later-in-time either (1) an interpleader type offollow-on proceedingl8

encompassing all other groups of plaintiff< that have filed sinlilar claiim, if the earlier action had proceeded to trial with a verdict on liability and damages and if the verdict on damages were large enough in the aggregate that a second (or subsequent) trial on damages involving

36 Sec Ervi11g, 20 Cal. at 399 ("chief affirmative defenses" to tort claims of negligence are questions for the jury); Marti11, 51 Ca1.App. 4th at 697-98 (action for equitable indemnity affects amount of money damages paid by defendants and so is an action at law reserved for the jury rather than at equity and as such reserved for the judge); if.Jazzabi v.Allstate lm. Co., 278 F.3d 979,985 (9th Cir. 2002) ("affirmative defenses often present ultimate issues because, as in this instance, they frequently determine whether the defendam will be liable. Accordingly, requiring civil juries to·come to unanimous agreement regarding aftirmative defenses ... is consistent with the· Seventh Amendment to the Constitution and Federal Rule of Civil Procedure 48.").

37 Cj .. Martin, 51 Cal.App. 4th ar 695-96 (equitable actions usually seek some form of specific relief other than money damages); id. (looking at "gist" of relief sought ro determine if a defense is one in Jaw, such Char a jury trial is required, or in equity such that a court trial is required). Surprisingly, there do not appear to be any reported stare or federal cases in which a pass-en defense was asserted at trial in an antitrust case. However, Martin teaches us that circumstances can exist in which historical circumstances provide no guide as to whether a defense sounds in equity or in Jaw. Id. (noting that the historical method of making the determination if a defense was one in equity or in law is of no assistance if rhe defense was not in existence when the California Constitution was first adopted in 1850).And. Cluudfcrs

teaches us we can look to historical analogies, here interpleader, to· determine whether an action·or defense sounds in equity or in law. 494 U.S. at 565-570.

38 The use of the term "interpleader type of proceeding" in this article is no accident.· First, one can eiivision the use of less formal processes aside from statutory interpleader by which damages allocation may take place through the joinder of other parties such as mediation. Further, the federal courts retain substantial common law power to fashion rules pertaining specifically to antitrust suits under federal law so long as they do not enlarge the scope ofreliefbeyond that set out by Congress. Compare Illinois Brick, 431 U.S. 720 (using common law power to rule based on policy considerations Jhat only direct purchasers can recover overcharges) with Texru Iudllstries,luc. v. Radclijf 1\tlatcrials,lllc., 451 U.S. 630,643-47 (1981) (refusing ro allow for a right to contribution among antitrust defendants because Congress was very specific as to the scope of relief that the courts could grant under the federal antitrust laws) .

36

other groups of plaintiffs would largely be duplicative,30 or (2) an offset if the earlier action had proceeded to settlement in lieu of trial or had proceeded to trial but resulted in a verdict for damages that is plainly non-duplicative. •o

However, "were antitrust defendants to file such an interpleader-type of proceeding, whether such a_ proceedmg would be successful depends on how a number of questions are resolved: the Size of the damages award in the first action versus remaining unliquidated damages clanm (If backed by some evidence presumably) of plaintiffs in other actions;• I the extent of the court's jurisdiction in which the first action had been filed;42 and the openness of the proceeding to the intervention of necessary third parties." The participation of the

39

40

41

42

43

Sec State Farm Pirc & Cas. Co. 1'. Iflshirc, 386 U.S. 523, 532-37 (1967); sec also Nortl1 Amcricau Jvlktg. Corp. ~~ K._ Cronlmcl' & As~ociatcs, luc., 221 ER.D. 296, 298-99 (D. Conn. 2002) (court noted that it wa5 a reqmrement for an mterpleader action that there be a single, identifiable fund for the claimants and questioned wl~ether plaintiffhad satisfied that requirement just because he set aside some holding funds to P~Y off clam~; court also found that plaintiff did nor f.1ce multiple adverse claims for chis fund as requued for an mtcrpleader action).

St:c ClayworJIJ,49 Cal. 4th at 777 (referring to federal law having codified a provision requiring an offset ro damages awards on state attorneys general parens patriae claims if there has been a previous award for the sa~1e injur}'); Newby l'. Vromau, 1 1 Cal. App. 4th 283, 289 (1992) (discussing state and federal law once JUry finds damages, and damages are trebled, any amounts previously obtained in settlement are subtr~cted tiom the total). !fa settlement or trial involving a specific group of plaintiflS were large enough m the aggregate that 1t would completely (or almost completely offiet) any later award of ~amages to other groups of plaintiffS, those other plaintiffs may be able to object to the size ofihe award m the settlement proceedings if they believe, based on a pass-an analysis, that it is excessive relative to the damages that they themselves believed they suffered. Assuming such an objection to be well­taken, the court can appoint a special matter to sort through tl1e pass-an issues and issue a report and recommendation.

Compaf/ State Farm, 386 U.S. at 532 (interpleader is proper even if not all claimants have reduced their clain~s t~ a_ ju_d~ment) with id. at 534-37 (interpleader by insurance company could not be used to acquuc JUnsdictton ove~ related state lawsuits against insured and other tortfeasor to the extent that those lawsuits went beyond the insurance policy that only one of the defendants had and which was the sole b~sis for the inte_rpleader action; interpleader actions are not an "all-purpose biD of peace"). Statutory_ mterpleader actmns do, however, require that the defendant deposit the verdict amount for damages m court or post an appropriate bond. See, e.g., Wright, Miller, & Kane, supra note 28, Sections 1702-03 (2001) (contrasting statutory and rules interpleader actions on this point). ·

State Farm, 386 U.S. at 53~ (in_terp~eader ~~es not require complete diversity, but only minimal diversity, such that as long as there IS diversity of cmzenship between two claimants, it does not matter whether other rival claimants are also co-citizens).

Se: ~cuel~lly_So_ut~z Caroliua ~~North Carolina, 130 S. Ct. 854,861-67 (2010) (an action based 011 Court's ong_mal JUrtsdi.cbon between states on equitable apportionment of water rights, intervention of third parties, whose mteresto; were sufficiently separate from the states themselves, was allowed).

37

.~ ..

state attomeys general would be advisable if they voluntarily consent.44 As discussed i•!Ji'a, absent their voluntarily consent, antitrust defendants would need to show in a post-trial

motion that any further award of damages to the state attorneys general is duplicative.

Ill. The Advantages of Handling Pass-On in A Post-Trial Allocation Proceeding

Leaving aside whether the pass-on defense must be heard by a jury rather .than by a court, trial courts continue to have great flexibility in how they want to handle damages-related issues such as pass-on. 45 In considering the exercise of such discretion, it is noteworthy that a decision by trial courts to handle pass-on as part of a post-trial allocation proceeding on damages similar to interpleader proceedings carries with it a number of advantages.

Most prominently, it best fits the objectives of federal and state antitrust law. Both federal and state antitrust laws favor overdeterrence-especially where per se or hard­core violations such as price-fixing are concerned-by ensuring the full disgorgement of ill-gotten gains by antitrust defendants 46 Allowing antitrust defendants to assert pass-on before trial in order to "block" at least some groups of indirect purchasers fi·mn proceeding to trial defeats the core purpose of federal and state antitrust laws of ensuring full disgorgement of ill-gotten gains-especially when hardcore or per se violations of the antitrust laws are present.

44 Sec Republic of Pllilippiues ~~ Pimeutel, 553 U.S. 851,865-73 (2008) (comi~ and dignity interests required joining of Republic of Philippi("!.eS in interpleader action filed to determine whether asset." could be seized to satisfy judgment of class; if Republic continued to refuse to join, asserting sovereign immunity, interpleader action could not go forward as the Republic had a colorable claim to the assecs); i\1orongo Baud of.Missioulndiaus !1. Cal. State Bd. ofEqualizatioll, 858 E2d 1376, 1381;-82 (9th Cir.1988) (because state is not a citizen for purposes of diversity, it is not a citizen for purposes of the interpleader statute); see also, e.g., Dyack R N. Mariaua Islands; 317 E3d 1030, 1037 (9th Cir. 2003) (citing Moor 11. County of Alameda, 411 U.S. 693,717 (1973) ("[t]here is no question that a State is not a 'citizen' for purposes of diversity jurisdiction."); Califomia v. Steelcasc Inc., 792 E Supp. 84, 86 (C.D. Cal. 1992) ("lFJor diversity purposes, a state is not a 'citizen of itself. Therefore, it cannot sue or be sued in a diversity action.'1, overruled 011 otlter grounds by Ca!ifomia ex rel. Lockyer v. Dyneg}~ lnc., 375 F. 3d 831,849 (9th Cir. 2004).

45 See, e.g., Rosack 1~ Volvo of Am. Corp., 131 Cal.App. 3d 741, 761 (1982) (suggesting a number of means by which complex liability and damages issues may. be tried in large class actions under state antitrust law, including bifurcating liability and damages trials and the use of subclasses); see also Cipro Cases 1 & II, 121 Cal. App. 4th at 415-17 (mentioning bifurcated trials, subclasses, and administrative procedures for allocating damages as all being within the discretion of the trial court).

46 See Claywortlt, 49 Cal. 4th at 763-66, 777-79. Canadian law, discussed infra, is similar. Sec Pro-Sys Cousultmlls Ltd. 1'. J,!fincou Teclmolo~f!ies, 2009 CarswellBC 3035, at mJ73-74 (B.C.App. Ct. 2009). Because the Claywortl1 Court believed that it was important to re'quire defendants to give up aU of their ill-gotten gains, it sanctioned not onl}' the recovery of overcharges but also the recovery of damages other than overcharges (so-called tertiary damages) such as lost profits and sales. Claywortl!, 49 Cal. 4th at 785.

Furthermore, it simplifies the issues that a court must address in the certification of a class of indirect antitrust purchasers. Generally speaking, class certification is greatly favored,'7 particularly in antitrust price-fixing actions,48 as a means by which potential victinlS can obtain effective redress for their injuries.

By handling pass-on in post-trial allocation proceedings, courts can prevent class certification and trial proceedings fi·om being hijacked by peripheral issues involving the allocation of damages. For example, the courts have had to wrestle with the certification

47 For California law, set; e.g., Discover Bauk 1~ SuperitJr Court, 36 Cal. 4th 148, 156-57, 161 n.3 (2005); Linder ~<Thrifty 0;! Co.,23 Cal. 4th 429,434 (2000); Callfomia" Lc•'i-S~nmss & Co.,41 Cal. 3d 460,471 (1986) ("the consumer class action is an essential tool for the protection of consumers against exploitative business practices."); AJicros~ft 1- V Cases, 2000 WL 35568182 (doubts about class cercificatiou should be

resolved in fiJVor of class certification).

48

For federal law, set' Amclwm Prods., Inc. 11. l..fliudsor, 521 U.S. 591,614-18 (1997); sec also Camcgic ~~Household llllem., Inc., 376 E3d 656, 661 (7th Cir. 2004) ("lA] class action has to be unwieldy indeed before it can be pronounced an inferior alternative-no matter how massive the fraud or other wrongdoing that will go unpunished if class treatment is denied-to no liti~,'11tion at all."). Federal case Jav.• has referred to class certification as playing an imporrant role in the private enforcement of antitrust Jaws. See, e.g., Hawaii 1~ Standard Oil Co. of Cal., 405 U.S. 261,262 (1972);see alsoAmchem, 521 U.S. at 625 {identifying antitrust as the type of case in which the key predominance requirement should be met for certiftcation of a class). Federal cases have noted that doubts about class certification should be resolved in favor of class certification in the antitrust context. See, e.g., Iu re flitamimAutitmst Litig., 209 F.R.D. 251,258 (D.C. Cir. 2002); In re Playmobil Alllitmsl Litig., 35 E Supp. 2d 231, 238 (E.D.N.Y. 1998). Admittedly,. however, federal court." have bet,TUn to stress the need for a "rigorous analysis" in applying federal class certification rules even in the antitrust context. See, e.g., 11!/inccn Tcclmologies, 2008 WL 4155665, at *5; see also, e.g., Dukes 1~ JVal-1\1art Storcs,luc., 603 F.3d 571, 581-590 (9th Cir. 201 0) (discussing this standard and viewing it as being applied by all of the circuits) granting certiorari in part,l31 S. Ct. 795 (2010); ]11

re Hydrogc11 Peroxide Autitmst Litig., 552 F.3d 305,321-22 (3d Cir. 2008) (discussing this standard in the ami trust context and noting that it means, i1~1er alia, that courts cannot either ignore doubts about c,lass certification or presume that a class should be certified in the antitrust context).

In ruling on motions for certification of a class of indirect antitrust purchasers, an inference or presumption of injury is allowed under California law where thefe is a price-fixing conspiracy and plaintiffi have purchased the price-fixed good or service. See, e.g., Iu rc New 1\1otor l?elticles Cauadiau ExportAutitmst Litig., 235 ER.D.,127, 135 (D. Me. 2006); Cijm> Cases I & 11, 121 Cal.App. 4th ar 412-14; B. WI. Custom Kitc/<en v. Oweus-lllinois, Iuc., 191 Cai.App. 3d 1341,1350-51 (1987). Federal law does not appear to have a siu1-ilar presumption, (see Hydrogen Pero."l:ide, 552 F.3d at 321-22, 325-26) though .the California presumption ma}' be applicable even in a motion for certification under federal law of a class of state indirect purchasers with California claims. Sec Shady Grove Orthopedic Assoc., P.A. v.Allstatc lm. Co., 130 S. Ct. 1431, 1448 (2010) (Stevens,]., concurring) (state class certification rules that are inextricably intertwined with a State's definition of substantive rights and remedies must be applied by federal courts sitting in diversity).

38 39

of classes of indirect purchasers when issues such as pass-an may render it questionable as to whether common issues predominate over individual ones as to damages for the class-notwithstanding the general principles discussed above that favor class certification. 49

In fact, the certification of a class of indirect purchasers that includes differing groups of plaintiffs, such as resellers and end-users, can carry within it a disabling conflict of interest if pass-an is uol handled as a post-trial allocation issue, as these groups could have divergent interests due to potentially divergent views on pass-an. In response, one could assert in the context of settlement proceedings that the creation of subclasses for thgse differing groups of indirect purchasers in a class certification context will retnove that conflict of interest. if the subclasses have separate legal representationY' Yet, in the trial context, subclassing does not completely remove the disabling effects of a conflict of interest: rather than focus on working together proving liabiliry and aggregate damages, counsel for the various subclasses must now take into account the possibility of being on opposite sides regarding issues such · as bifurcation (or trifurcation) of trial proceedings to enable damages or allocation issues to be heard separately, the allocation of time for the presentation of evidence (and later for argwnent) on pass-an, and even the instmctions to give the jury. The apparent lack of any reported cases involving actual trials of the pass-an issue further clouds the question ·for indirect purchasers regarding how the trial would be structured to address these issues.

In fact, because it is currently believed that pass-an must be addressed at trial in front of the jury rather than in a post-trial allocation proceeding in front of the court, antitmst plainti.lli and defendants alike have to·plan for multiple trials-leading to inefficiency in the court system and potential prejudice to the parties. In particular, because direct purchasers do not wish to undermine the protection afforded by Hanover Shoe against the .assertion by antitrust defendants of a pass-an defense vis-a-vis federal antitrust claims, they will make every effort to litigate and settle their cases separately from those brought by indirect purchasers. 51

49 Compare, e.g., Cipro Cases I & II, 121 Cai.App. 4th at 413 (in applying pt-csurnption of comm.on impact arising from price-ftxing, court observed that the price-fixing: occurred as to a final product, not as to a component of that product where the impact of the price fixing might be obscured}; CPU II/,253 ER.D. at 499-505 (court found that indirect purchasers could not rely on damages methodology of direct purchasers as direct purchasers could settle out separately; moreover, in assessing proposed methodology of indirect purchasers for purposes of class certification, court found manageability concerns would defeat class certification because the expert would need to do adjustments as to the pass-on rate for specif1c distribution channels which would raise an unacceptable risk eicher of being overly reliant on averages or of being unmanageably individualized, and because some of those distribution charll1e1s, were so specialized that pass-an even might need to be calculated on a reseller-by-reseller basis) and In rc i\Jfetlzoninc l111titmst Litig., 204 F.R.D. 161, 164 (N.D. Cal. 2001) (court rejected class of intermediate purchasers under Wisconsin law because plaintitfs failed, illlcr alia, to meet their burden of showi11g tl1at

"there is a reasonable mechod for determining on a class-wide basis whether and to what extenc that overcharge was passed on to each of the Wisconsin indirect purchasers at all levels of the distribution chain) witl1 JHicrosi.?ft I-V Cases, 2000 WL 35568182 (court found that individualized inquiry of harm, or proof that each and every class member paid overcharges due to illegal exclusionary conduct of . defendant, not required to certify class of indirect purchasers of computers containing defendants' software given that general economic theory supports the idea that at least some of the overcharges were passed on to consumers and that pass-an could be reasonably calculated rising several methods).

50 See Fed.R. Civ. P. 23(c)(5); Oritz" Fil>rcboard Corp., 527 U.S. 815,856 (1999); Alllc/JCIII, 521 U.S. at 626-29.

51 See, e.g., lu re DRAM Autitrust Litig., MDL No. 1486, 2007 WL 2416513 (N.D. Cal. Aug. 16, 2007) (Hamilton,].); Ju rc 11'T-LCD (Flat Paucl) Autitmst Litig., 267 ER.D. 583 (N.D. Cal. 2010). The author of this article is the Chair of the multistate litigation group in the l•ifiucou case, which was consolidated with the DRAlvl case for pre-trial purposes and has assisted counsel for California in the TFT LCD case.

This effort by direct purchasers to distinguish themselves from indirect purchasers-though qmte understandable-multiplies the determinations of liability and damages involving the s:une. set .of facts agamst the same set of defendants. The multiplication of trials detennining hability and damages lengthens the resolution of antitrust cases, increases costs on litigants and on courts, raises the specter of inconsistent rulings as neither issue nor claim preclusion would appear to ~pply,52 and. significantly increases the risk that duplicative damages may be. awarded 1f anotrust plamoffs push towards trial in lieu of settling. Set against this, the ab1lity of federal courts to consolidate federal cases for pre-trial purposes in multi-district litigation proceedings, 53 and to work out voluntary mechanisms for pre-trial coordination of fe~eral cases with state cases, insofar as discovery may be concerned, 54 does potentially ameliorate at least some of these problems, insofar as it allows differing groups of plaintiffS to address certain issues in a common fashion. Nonetheless, these measures do not do away Wlth the systematic problems discussed supra as trials of differing groups of plaintiffs must still be handled separately. ss

. Finally, given that the determination of pass-an does not involve a question for the jury m the first mstance, leavmg pass-an to a post-trial allocation proceeding avoids unnecessary

52

53

54

55

Se~, .e.g.,. Taylor. v. Stm;gell, 553 U.S. 880 (2008) (nonparties to earlier ruling cannot be precluded from reht1gatmg ~la1ms res.olved by that earlier ruling unless they agreed to be bound to that ruling or unless the ~onpartles we.re m s.ome sort of agency, control, representative, or other legaJ relationship with the partles to the earlier ruling); Srm MicrOS)1Stems luc. v. Hyuix Semiconductor Inc., 622 F. Supp. 2d 890, 896-902 (N.D. Cal. 2009) (court upheld liability of parent corporation in opt-out action, whereas it had fo~nd .no li.abili~ in original direct purchaser class action, because opt-outs raised agency theory not ra1sed m pnor direct purchaser class action).

See 28 U:S.C: Se~tion 140:(a). ("When civ~ actions involving one or more conunon questions of fact are pendmg m different d1stnc~, such acnons may be transferred to any district for coordinated or ~o.nso~dated pre~iaJ proc~edings. ·Such transfers shall be made by the judicial panel on multidistrict lmganon authonzed by th1s section upon its determination that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions.").

For examples of cases with such ~nformal federal-state coordination, see In re DRAM Amitmst Litig., MDL. No. 1486 (~.D.. Cal.) (Hamilton,].) (state indirect purchaser cases stayed and state class counsel coordmated pretnal discovery with federal class counsel); Ju re Compact Disc Miuimum Advertised Price (MAP) Litigatiou, MDL No. 1361 (D. Me.) (Hornby,].) (California superior court and district co~rt conferred ~d agreed that state court action would be stayed so that pretrial discovery could be conducted ln federal court). The auchor of this article served as counsel. for California in the Compact Disc .MAP case.

See 28 U.S.~. Section 1407(a) ("Each action so transferred shall be remanded by the. panel at or before the conclusiOn of such pretrial proceedings to tl1e district from which it was transferred unless it shall hav.e been previously _terminated .... "); Lexecon, l11c. v. A1ilbcrg H~iss Bcrshad Hyues & Lcrach, 523 U.S. 26 (1998) (cas~ transferred pursuant to MDL rules must be transferred back for trial; transferee court cannot self-asstgn case for trial eve.n pursuant to circuit rules); see also, e.g., In re DRAM Antitmst Litig., ~L No. 14~6 ~~.D. .Cal.) (Hamiltc~n!J.) (although direct and indirect purchasers conducted unified d1scovery on habtlity, dtrcct purchase£s were on separate track from indirect purchasers for trial and then settled separately).

... :

jury confusion. SimplifYing assumptions may be used to determine the scope of pass-on to indirect or downstream purchasers, 56 and advances in technology may make It easier to access the data necessary to calculate pass-on. 57 Nonetheless, pass-on involves not only the need to ~sp what can be complex economic models of an industry but also to assess the

a "fi . y degree of pass-on of overcharges in very fact-spec! c circun1Stances.

In fact, in contrast to assessing aggregate damages, there are serious limits to the ability of the parties and the courts to craft presumptions and allocate the burden of proof prop~rly in order to aid the jury in determining which set of plamuffs should be awarded which percentage of overcharges arising from the illegal actions of antitrust defendants. It IS true that in the context of the Unfair Practices Act, state antitrust law presumes pass-on accounts for ioo% of a company's cost plus a 6% markup in determining whether a company has

56

57

58/

42

Harris & Sullivan supra note 7, at 277-98 (employing such simplifying assumptions to show how pass­an operates ·in different markets); sec also, e.g., Pw-Sys, 2009 Carswe~c_ 3035, at ~64 ("lc. was conun~n ground that statistical regression analysis is in theory capable of prov1dmg reasonable esomates of gam or aggregate harm and the extent of pass-through in price-flXing cases."), lear:e [or appea~ refused b}' 2010 CarswellBC 1361 (Can. Sup. Ct. 2010);jonathan T. Tomlin & Dale ~ .. Gmh~ Feder~lum n~~d tl1e Indirect Pwrlwser Mess, 11 GEO. MASON L. REV: 157, 168 & n.56 (2002) (cltmg Pmelop•e KoujJanou Goldberg & Michael M. Kncuer, Goods Prices and Excf,_ange Rates: Wltat Have Hi' Leamed?, 35 J. ECON.

· LITERATUltE 1243 {1997) (noting that econometnc methods could be used to calcul~te pass on and that such methods were used to calculate the "exchange rate pass through" in intemat10nal ~de cases); Schaefer, supm note 6, at 896-97 (analyzing pass-an of taxes as proxy fo~ pass-an under vanous assumptions equating taxes with variable and with fiXed costs, and then find1~g that pass:on occurs under either scenario); Blane A. Smith, The Califomia Legislature Steers tile ~lllllniSt Cart Rrg~1t ?JJ tile Illiuois Brick Road,11 Pac. L.J. 121, 129-37 (1979) (hereinafter Smith) (agreemg th_at the tax ~nctdence analysis ·of Schaefer is a good proxy for pass-an, th~t _it. has predi_cated ~as~-011 when a~Justed for market conditions, that the asslunption of profit-maximtzmg f1rms m tax mc1dence analys1s reflec~ a

"fundamental principle of the capitalist system," that tax inci~ence a1~alysis "is as accurate. and probative as other tests which receive judicial recognition," and that tlliS analysts sets up a presumptiOn of pass-an).

Claywortli, 83 Cal. Rptr. 3d at 60-61 (citing Fed.Jud. Ctr., Manualfo~ Comple.x Litig. Section 2.717, at 80 (1978)); see also Smith, supra note 56, at 134-35 ("computerized evtdence could be ~tfe~ed to pro~e pass-an behavior directly in the form of summaries of the .?usiness records of each ennty m the cham

of distribution from initial ov(!rcharge to remote purchaser. ).

See, e.g., Kausas v. UtiliCorp United, Inc., 497 U.S. 199, 211 (1990) (noting, at least with respect to regu]ated utilities, that pass-an could be delayed in the short-term); _EU Study, supra note 7, at 33-34 (using different economic models for different markets although nonng that so~e a~ount o_f p~s-on occurs in almost all ofthem);Tomlin & Giali,supra note 56, at 16~ & n.56 (notmg Without cttano_n or discussion that the use of econometric methods used in international trade cases can be "'excessively complex" a.nd "necessitate the use of data tha.t is often not available"); Areeda, supra note 7 ,_,346k at 193 (noting the tracing issues become more complex as layers ~f distributors are added on, t_f, as they assume is conunon, different distributors at the same layer have dtfferent markups, and dependm~ upon the importance of the price-fixed good to the intermediary's selling price); Robert Cooter, Passmg C?" tlte Wlouopol}' Overclmrge:A Furtl1er Comment 011 EconomicTireory, 129 U. PA. L.Rev.1523, 1531 (1_981) (tn production factor markets subject to monopoly overcharges, pass-an of costs to consumers Will occur in the short term and in the long term; allocating ~vercharges over the long-run depends on the deg~e of factor substitution but can be done as consumers shoulder more of the burden in the lo~g-run w~le allocating overcharges in the short run can be more difficult becau~e the lo~ of profits for u~tcnnedmte resellers in the short-run complicates the allocation process); Harns & Sulhvan, supra note 7, ::tt 277-98

(same as EU Study).

priced its products below-costs. 59 However, whether and how such a presumption could be or should be applied to markets with multiple distribution levels, or markets of a good containing a price-fixed component, is an open question.60

Furthermore, the question of who carries the burden of proof on a pass-on defense is complex where the trial involves multiple groups of indirect purchaser plaintiffi. Is it enough for antitrust defendants to raise the defense with some colorable evidence that one or more group of indirect purchaser plaintiffi may have passed on the overcharges suffered to another group of such plaintif!S?61 Must they also meet some initial burden of Jlersuasion (if not also proof) that a relevant subgroup of indirect purchaser plaintiffs in the case (e.g., .resellers) may be entitled to nothing because of 100% pass-on of costs farther down the chain?62 What happens if, once the defense is asserted, indirect purchaser plaintiffS differ among themselves as to whether pass-on is 100%, 90%, or 40%, based on good-faith disagreements as to the import of pricing data?

While the European Commission, for example, has suggested that there be a rebuttable presumption that pass-on was 100% if plaintiffS are end-users,63 such a rebuttable presumption does not seem to fit the economic evidence that there is almost always some (though not almost always 1 00%) pass-on, nor does it suggest what a jury should do if reseller plaintiffs who have been joined· into a case .wish to rebut such a presumption. Moreover, there is no consensus as to the nature of the presumption that would apply

59 Cal. Bus. & Prof. Code Section 17206.

60 See, e.g.,]ohn Cirace,Apportioning Damages Between Direct and Indirect Purcllasers in ConsolidatedAntitniSl Suits: ARC America Unravels tlw Illinois Brick Rule, 35 Vill. L. Rev. 283, 318-330 (1990) (suggesting presumption in favor of pass-an to indirect purchasers on public or commercial construction contracts, and in cases involving price-ftxing on an end product, but not price-ftxed component cases, because whether· direct or .indirect purchasers would be better positioned to recover depends on a myriad of factors) (hereinafter Cirace);if., e.g., Cipro Cases I & II, 121 Cal.App.4th at 413 (in applying presumption of common impact arising from price-fixing, court observed that the price-fixing occurred as to a final product, not as to a component of that product where the impact of the price flXing might be· obsCured); Areeda, .supra note 7 ,1j346k at 193 (noting the tracing issues become more complex as lay'ers of distributors arc added on, if. as they assume is conm1on, different distributors at the same layer have different markups, and depending upon the importance of the price-fixed good to the intermediary's selling price).

61 See, e.g., Taylor, 553 U.S. at 906 (burden of defendant to plead and prove affirmative defenses).

62 See id.

63 Commission White Paper on Damages, supra note 4, at 8; see also Smith, supra note 56, at 129-37 (suggesting that tax incidence analysis should lead to presumption of pass-an).

43

. ,,

here. 64 Thus, the adjudication of pass-an issues in a post-trial allocation proceeding avoids the difficult-to-satisfY need of crafting appropriate presumptions or detennining the appropriate burden of proof to be placed on various parties.

IV.The Statements of the Illinois Brick Majority Do Not Prevent Treatment of Pass-On in Post-Trial Allocation Proceedings

Against all of these points favoring the treatment of pass-an as a post-trial allocation issue, the suggestion made in Clayworth, must be weighed against the statements of the majority of the United States Supreme Court in fllinois Brick65 Addressing the question of whether indirect purchasers can recover da1nages under federal antitrust law, the Court recognized

that passcon could be addressed by the use of consolidation and statutory interpleader to

ensure that both direct and indirect purchaser actions were t1ied together in one forum.66

However, the Rliuois. Brick Court found such a solution to be insufficient for addressing problems arising from pass-an: it did not prevent direct plaintiffs from settling their actions separately at the expense of defendants who could end up paying duplicative damages; and it meant that the federal courts would have to wrestle with complex apportionment issues. 67

lnstead, the illirwis Brick Court simply preferred to bar indirect purchasers as a federal matter fron1 re~overing antitrust damages. 68

Illinois Brick is not germane to state courts, as it is a holding of federal policy-nothing more--regarding federal antitrust damages in federal court. At bottom, however, one could argue that this holding of illinois Brick is no more gem1ane to federal courts than it is to state courts, given that federal courts face a mix of direct purchaser federal antitrust claims and indirect purchaser ~tate antitrust claims. That situation was not before the Illinois Brick Court. And the Court later found that states could allow indirect purchasers to recover antitrust damages under their own laws-illinois Brick notwithstanding69 Accordingly,

64 See e.g., Andrew I. Ga.vil, Tltiukiug Outside tile fllinois Brick Bo.."\:: A Proposal for Rt;form, 76 ANTITRUST L.J. 167,195 (2009) (Congress should overrule JWnois Brick and establish via legislation a series of presumptions for pass-an: if end users purchase direcdy fi·om direct purchasers, direct purchasers would receive 50% while end-users would receive 50%; if there is one level of indirect resellers in between, then direct purchasers would receive 50%, indirect end-users would receive 25%, and the indirect resellers would receive 25%; if there is more than one leveJ of indirect resellers, then direct purchasers would receive 50%, indirect end-users would receive 25%, and all of the levels of indirect resellers would. split the remaining 25%);Areeda, supra note 7, ,J346k at 196-97 (suggesting either that indire.ct purchaser resellers be limited to lost profits, which are their true damages, while end-users. recover overcharges); Cirnce, supra note 60, at 318-30 (suggesting presumption of pass-on appropriate for public or commercial contracts, or for cases involving price-fixing of an end product); Commission White Paper on Damages, supra note 4, at 8 (suggests rebuttable presumption of 100% pass-an if plaintiffi are end-users).

65

66

67

68

69

44

Illinois Brick, .431 U.S .. 720.

See id. at 731 n.11.

Id.

I d. at 730-31.

California ~~ARC America, Corp., 490 U.S. 93 (1989). That ARC America in effect nullified Illinois Brick has been noted by other conunentators. E.g., Gavil, supra note 64, at 172-3, 188.

Illinois Brick itself stands as no bar for federal courts, faced with the acute need to address federal and state anmmst cl:nms in one setting due to CAFA t t eli d · d' . , o ry rect an m 1rect purchaser actiOns together and address pass-an as part of a post trial ll · f any award of damages. 7o . - a ocanon process o

Indeed, the concems underlying this aspect of Illinois Brick have proven to be ill­founded. Even assunung direct purchasers continue to enter into. separate settlements in the event that the1r actiOns have been consolidated into or joined with those of indirect purchasers, such settlements simply can oive rise to of!Sets-a p · t di d d .1 . . . a~ o1n scusse supra an over ooked by the Illuw1s Bnck Court Moreover defendants a 1d d' · h b · • I trect pure asers presuma ly would wish to justifY any such settlements as being reasonable by demonstratin that the settlement was re~sonably proportional to the claims of the direct purchasers. Fo~ the defendants then to p1vot and argue that the settlements were so enormous that any further award of damages to indirect purchasers would be duplicative raises th t . f duplicitous, inconsistent conduct and thus would potentiall)• entl'tle ·nd· t e spl ec er o . . . . 1 uec pure 1asers to request defendants be JUdicially estopped from taking such a position.7l

~or~ov~r, in its discussion about the complexities of apportio~ment based on pass-an, the Illu·fol5 Bnck Court overlooked the possibility that the court, not the jury, could address appo~t10nment based on pass-an in a post-trial allocation proceeding. Certainly, the federal JUdiciary 1s called on to assess m court proceedings such seemingly complex matters as the clann construction of patents72 Apportionment based on pass-an should be no different especially given that simplifYing assumptions can be employed-another point discussed, Sllp!a, which was not addressed by the fllinois Brick Court.73 Such apportionments based

70

71

72

73

"A decision is n~t au;!tority for everything said in the opinion but only for the points actually involved and actu~y decided. Peo~le v. A'leudoza, 23 Cal 4th 896, 915 (2000) (internal citations and quotation marks ommed); if., e.g., Um1ed Slates v. Miller, 604 E Supp. 2d 1162, 1167 (WD. Tenn. 2009) (noting the wealth of c_ase law that states courts are not bound by dicta unless it is "[c]arefully considered st~tements of the [U~ut~d State~] Supreme Court" in which case it is almost as binding as an actual holding of that Court) (citation onutted).

See gen:rall}~ e.g.: New Hampshire v. A1aine, 532 U.S . .742, 749 (2001) (observing that judicial estoppel can be mvoked I~~ par~ succee~ !n persuading a court to accept tl1at party's earlier position such that acceptance of an mcons1stent pos1t1on by that same party in a later proceeding would mislead the co~rt and me~n that ?ne_ par~ would derive an unfair advantage). One could imagine indirect purchasers al~ernaovely ObJecong m the Settlement proceedings themselves to direct purchasers receiving such a wmdfall ?f dama~~s. b~ way_ of settlement-if it were clear that the settlement involved the award of such a ~mdfall VIS-a-VIS claimed damages-dms possibly setting the stage for a settle~ent allocation proceeding based on pass-on.

Markmau 11. Mlestview liiStmmeuts, Inc., 517 U.S. 370, 376-89 (1996) (ruling that claim construction is for the court, not the jury, and noting that the daims of patents have become highly technical in many respects) .

In the last a1:al~si~, the ~llinois Brick decision itself barring indirect purchasers from recovering antitrust damages by JUdicial fiat IS fa~y flawed, given the strong economic consensus that some pass-on almost al':'ay~ occurs, let alone that It may be 100% in a competitive market. This evolution of economic thinking, coupled with outsid_e developments such as CAFA, ARC America, ClaJ•worllr, and Pro-Sys, could s:rve as ~n adequate bas1s for the H_~gh Co~rt to disregard stare decisis and overrule Jlliuois Brick. CJ Lc~gm CreatiVe Leather P~ods., Iuc._ v. PS~S.Inc.~ 551 U.S. 877,900 (2007) {stare decisiS did not compel retentiOJ_l of per se rule agamst vertlcal pnce-fD..wg &ivcn that respected economic authorities in the econonu_c field _suggested that the per se rule was invalid, there \YaS wide-spread agreement that vertical resa~e pnce l~lamtenance could have pro-competitive effects, the developments of case law

011 ocher

vertical restramts, and the federal antitrust ~uthorities argued that th<: per se rule should be overruled.).

45

•I, •

on pass-an have already occurred in federal court in the context of indirect purchaser settlements, which include state antitrust claims for indirect purchasers at multiple levels of

the distribution chain, including resellers and end-users74

V. The Persuasive Treatment of Pass-On Under Analogous Canadian

Law

Indeed, the United States could ultimately take a page from the book of our Canadian neighbors on this point.75 Canadian antitrust law, si.:tnilar to the United States on most of t]1e points germane to this article, including many aspects of class certification, ~eparates apportionment of damages based on pass-an from the detenm~atlon of liability and aggregate damages. As the Court of Appeal for the Provmce ofBnush Columbia remarked recently in approving the certification of a class of direct and indirect purchasers m a case seeking damages for the purchase of products containing price-fixed DRAM:

76

The common issues trial will have detemrined the respondents' wrongful conduct as common issues and, as a practical matter, will have detennined the aggregate amount of the loss suffered by the class. It would then be open to the trial judge to distribute t11e award either by assessing loss on an individual basis, on an average or proportional basis pursuant to s. 32 of the CPA, or on a cy-pres basis pursuant

74

75

Sec, e.g., Report and Recommendation of Special Master, Sulfii1CIII. 1~ DB b111cslu~euts, Inc., No. 04-2819 (SRC} (Sept. 6, 2007), at 27-28, available at https:/ /dzlamondsdassacnon.com/pd!S/

Diamonds.R&R.1.pdf.

The referral to foreign law for whatever persuasive value it may have (as it is not dispositive} has its pl~ce in our system. At the outer, and most controversial, limit, a majority of the Court has refem;d .to foreign precedent for its persuasiveness - though making it clear it is nor determinative in and of 1tsel~- .on the constirutional question of whether punislunent is cruel and unusual under the Federal Constltutton. See, e.g., Roper v. Simmons, 543 U.S. 551, 575 (2005}; id. at 604-05 (O'Connor,]., dissenting}. Less controversially, the Court has referred to English law that is coextensive to, or precedes, the establis~ment of the United States to construe certain constitutional provisions such a s habeas corpus that duectly descend from their English counterpart. Sec, e.g. 1 Boumcdienc v. Bush,553 U.S. 723,739-742,745, 747~53 (2008}. Also,less controversially, the Court has stated that it will construe a. treat_Y not. only by r~ferrmg to its text and to its negotiation and drafting history but also to the post-rattficat~on lustory of Sl~tatory nations. Medelliu "Texas, 552 U.S. 491, 506-07, 516-17 (2008). The appropnateness of refernng· to foreign law for its persuasive value thus depends on the degree of its congruence or fit with the law

being construed. . . In the instant case, the Canadian class action procedure has a fatr degree of congruence or fit with its American counterpart. Although Canadian p:z;ovinces have removed certain obscacles to class certifacation present in Federal Rule of Civil Procedure 23 (e.g., apparently common issues need ~ot necessarily predominate over individual ones and a class action need be p~ferablc rather than supenor in resolving common issues), Canadian class action jurisprudence has modeled itself after and dr:"wn on its American counterpart for its own development and has devised many of the same solunons to address-many of the same problems such as the use ofsubdassing. See, e.g .. W.A.Bogart,Jasminka Kaladjzic & Ian Matthews, ClassActious ill Cauada:A Nalionai_Procedurc iu a Mnlti-Jurisdiclioual Sodety?: A Report Prepared for tl1e Globalizatiou of Class Actions Colifcrencc, Ox-ford University (December ~007}, available at http:/ /www.law.stanford.edu/display/images/dynam.ic/events_mcdia/Canada_Natlonal_ Report.pdf; McCarthy Tetrault LLP, DEFENDING CLASS ACTIONS IN CANADA, Chs. 1, 5-6 (CCH Canadian Ltd. 2d ed. 2002); Paul J. Martin, TI1e Dcvelopiug Role cf Class Actions in Canadian Civil justice Riform, Metropolitan Corporate Counsel (November 2000}, available at http://www. classactionlitigation.com/Developing_Role_of_Class_ Actions. pdf; Wikipedia, Class Action, available at

http:/ /en.wikipedia.org/wiki/ C1ass_action#Canada.

76 Pro-Sj•s, 2009 CarsweiiBC 3035, at ~70.

to s. 34(1), wlrich provides for an order that an 'aggregate award be applied in any manner tl1at may reasonably be expected to benefit class or snbclass members, even though the order does not provide for monetary relief to individual class or subclass members.' In any case, the participation of respondents would not be required beyond the conmmn issues trial.

VI. Distorted Reflections of Pass-On: The Inappropriate Insertion of Pass-On Into Questions of Prudential Antitrust Standing, Proximate Cause, and Injury-In-Fact

Once the United States Supreme Court found that states could allow indirect purchasers to recover antitrust damages under state law, notwithstanding Illinois Brick, the race was on. Defendants argued that pass-an had to be raised and addressed under one or more of the following doctrines: prudential antitrust standing, proximate cause, or injury-in-fact. The impulse to place questions of pass-an as belonging to a category located somewhere in antitrust law was enrinently understandable. After all, the Court had ducked the issue of pass-on altogether in Illinois Brick, thereby leaving a quandary as to how the courts should address the issue of pass-an when indirect purchasers at various levels of the distribution chain have all filed suit under state antitrust law. As discussed, supra, Clayworth suggests the correct answer as a matter of state and federal antitrust law: pass-an is a post­trial allocation issue, not an issue to be raised pre-trial in conjunction with any of these doctrines. A closer review of the doctrines of prudential antitrust standing, proxi.:tnate cause, and injury-in-fact in fact confim1S this answer.

A. Pass-On Does Not ·Involve Claims-Shifting Issues That Trigger Prudential Antitrust Standing Concerns

Prudential antitrust standing evolved as a doctrine to address antitmst claims for damages that the federal courts viewed as being tangential to the objectives of federal antitrust law. One skein of prudential antitrust standing developed out of the doctrine of antitrust injury. Best exemplified by the case of Bnmswick C01p. v. Pueblo Bowl-0 Mat, Inc.,77 the United States Supreme Court found that antitrust plaintif!S could not claim an mjury from acts of a business that served to increase competition, as such acts were outside the scope of congressional concem.78 The other skein of prudential antitrust standing arose out of fllinois Brick in which, as alluded to supra, the Comt believed that allowing mdirect purchasers to recover dan10ges would require costly and complex inquiries about how unlawful prices were absorbed, sustained, or passed on by each person in the chain of dist1ibution of the affected products. Fretting that such inquiries would enmesh the federal courts in multiple litigation and double recoveries, the Court decided simply to bar all indirect purchaser lawsuits as a matter of federal antitrust law.79

77 429 U.S. 477 (1977).

78 Id. at 486-87. Bmustvick .specifically rejected the claim of plaintiff that he should be able to recover the loss of profits occasioned by the igcrease in competition arising from che defendant bowling manufactur.er's p~rchase of f.'liling bowling centers.

79 Illiuois Brick, 431 U.S. at 761.

•1-,:

Both skeins of the doctrin~ of prudential antitrust standing came together in the seminal case of Associated General Contractors v. California State Council rf Cmpenters (hereinafter AGq.so AGC involved a lawsuit by plaintiff unions against a multi-employer association and its members who allegedly coerced third parties (contractors and subcontractors} into doing business with non-union firms and thereby adversely impacted unionized businesses. 81 In A GC, the Court articulated what has been generally snnm1arized as being a five-factor test for detemnning federal antitrust standing: (1) the existence of an antitrust violation with resulting harm to the plaintiff; (2) an injury of a type which the antitrust laws were designed to redress; (3) a direct causal connection between the asserted injury and the alleged restraint of trade; (4) the absence of more direct victims so that the denial of standing would leave a significant antitrust violation unremedied; and (5) the lack of a potential for double recovery 82 Applying this test, the A GC Court found that plaintiff unions were neither consumers nor competitors in the market that was restrained: "the chain of causation between the unions' injury and the alleged restraint in the market for construction subcontracts contains several somewhat vaguely defined link," and the lower court would have great difficulty in idet.ltifying and apportioning damages among directly victinnzed contractors·and subcontractors and indirectly affected employees and unions.83

A GC can best be understood as an articulation of the doctrine that tangential clailns­claims that are highly remote or speculative and involve injuries that were not intended by Congress to be remedied via the ·antitrust laws-should lack antitrust· standing as a prudential matter. Indeed, one California court case, Vinci 1'. Waste Management, Inc.,84

employed AGC to bar, on state standing grounds, a claim by an employee that he was entitled to antitrust damages because he had been ternnnated by Ins employer for his refusal to participate in anti-competitive practices against other companies. 85 Vinci reasoned that plaintiff was neither a consumer nor a competitor in tl1e market in winch trade was restrained, that plaintiff's job loss was not the type of loss which state antitrust law was intended to forestall, and that the direct victims of this scheme were the better parties to remedy any such violation. 86 A second California court case, Ju re Wholesale Electricity Market 1 & 11,87 employed A GC to bar on state standing grounds a claim by plaintiffi that they were entitled to damages for defendants' anti-competitive conduct as to rates charged on the wholesale electricity market, even though the Federal Energy Regulatory Cornrnission (FER C) had the exclusive authority to regulate those rates. 88 The Court of Appeal in that case carefully compared the scope of antitrust relief to which the plaintiffi

80

. 81

82

83

84

85

86

87

88

48

459 U.S . .S19 (1983).

Id. at 520-21.

Id. at 537-45;see, e.g., Novell, Inc. v. ivlicroscifi Corp., 505 E3d 302,311 (4th Cir. 2007) (summarizingAGC tesc as involving these five factors); Vinci v. J-Vaste ll1gmt.J Iuc., 36 Cal.App. 4th 1811,1814 (1995) (same).

459 U.S. at 541-45.

36Cal.App.4th 1811 (1995).

fd.at 1814-17.

Id. at 1816.

147 Cal. App. 4th 1293 (2007).

Id. at 1306, 1311, 1315-16.

wer~ entitled to the remedies available from FERC, concluding that the relief requested­eqUivalent to an entitlement to refunds-did not fall outside the scope of the remedies available· from FERC and so was preempted.89

What is striking about these cases, as well as A GC itself, is that other doctrines oflaw were bette~· suited for addressing these claims tl1an antitmst law. A GC involved activity anned at discouragmg (albeit mdirectly) the growth of unions; to the extent that unions have entitlement to any remedies at law or equity for that conduct, the residing place for those remed1es would be labor law, not antitrust90 Vinci involved a suit for wrongful temnnation by an employee; to the extent that the employee had an entitlement to any remed1es at law or at equtty where the termination occurred due to reasons that at least

mguably violated public policy-here a refusal to support illegal acts violating antitrust Jaws­employment law was the most natural residing place for those remedies, not antitrust. 91 Jn re Wholesale Electricity M~rket involved a suit for illegal acts that affected the rates charged m the wholesale electnc1ty market; to the extent that plaintiffs had any remedies at all for such acts, petitioning FERC to take action was the most logical fit for their complaints, not filing a state ant:J.trust lawsuit.

Viewed in this light, A GC is notlnng more than a prudential doctrine that shifts certain remote or speculative claims from antitrust-where they are an ill-fit - to other areas of the law that are a much better fit (even if the plaintiff's entitlement to relief may be no greater under those areas of the law than they were under the antitrust laws).92 "Claim shifting" prudential doctnnes are not unknown elsewhere in the law. Under Califonna law, for ~xample, with very linnted exceptions, breach of contract claims cannot be transmogrified mto tort cla1ms, I.e. clauns for the breach of the covenant of good faith and fair· dealing

89

90

91

92

ld. The _citation and discussim: by the author of Vinci and HIJ10lesalc Electridt)' should not be taken as a co~cess10n that AGC necessarily supplies the operative test for determining standing under California's antitrust law. Sec generally Antitrust and Unfair Competition Law Section, The Scate Bar of California, CALIFORNIA STATE ANTITRUST AND UNFAIR COMPETITION LAW Ch. 14 (Matthew Bender & Co., 2009) (d1scussmg the history, debate, and authorities on state antitrust standing).

~~Brown v. Pro Football, Iuc., 518 U.S. 23_1, 235-37 (1996) (e>.:empting from reach of antitrust laws certain JOlllt labor or management practices to prevent judicial use of antitrust to resolve "industrial conflict" in accordance with Congressional intent regarding the enactment of the labor laws in 1914 and again in the 1930s).

Sec Foley H flu~raclivc _Dat~ Corp., 47 Cal. 3d 654, 670 (1988) (employee can file tort daim against employer for willful Vlolat!OU of public policy such as refusal to conmllt a crime).

Ad1~tittedly, B~mswick, 429 U.S. 477, one of the cases discussed supra in this article, does not fit this model. While t~~ plamtiffin Brunswick claimed he suffered an injury in the form oflost profits due to increased competmon (and hence beyond the purview of the antitrust laws), it would not sec111 that tills claim caul~ be a~dresse~ u~tder _any other body oflav..~ However, Bnmswick was an injury case, not a standing cas~, 111 wlm~l~ pl~mtiff faded to allege that defendant's purchase of competing bowling alleys had an anti-competitive unp~ct on the market or that defendant had cotmnitted any other anti-competitive acts. ld. at 488-91. Accordmgly, Bnmswick presents a different issue than do the line of AGC cases discussed above -aU of which did involve allegatiOns of anti-competitive conduct in the first instance.

49

.~. :

cannot be brought under tort, even if the covenant is a duty implied in all contracts.93 Under federal law, certain claims that can be characterized as presentmg a political questiOn-or otherwise fall within the boundaries of prudential standing-can only be addressed. by the political branches, rather than by the judiciary, as those claims are th~~ght better smted for resolution under the Constitution by those branches of government.

In contrast, where issues of"claim shifting" are absent, courts have found no problems · £i · · g from applying .i!GC to claims that, albeit complex in some way, pla1nly fell 1n re rmmn . . . . 95 l S within the ambit of the antitrust laws. In Blue Sh1eld rf Vu;guua "· AtlcCreadr: t 1e upreme Court upheld, against a challenge based on lack of standing, a claim by a plamuffpauent that she should be able to recover da1nages due to the defendant msurer s refusal to reimburse her costs for psychological services, even thongh the underlymg anutru~t conspiracy involved conduct in. a different market: a conspiracy between the defendant msurer and a neuropsychiatric association to boycott psychologists in 9~wor of psychiatriSts .by refusmg to reimburse claims of patients involving psycholog~sts. . In Krtevclbamd Dallies '~· Krqft Foods, luc.,"7 the Ninth Circuit upheld, against an AGC challenge, clamlS .by plamtlff milk producers under both federal and state mtitrust law that they had to sell their milk at artificially depressed prices because cheese buyers rigged the auctiOn pn~~~ of bulk cheese, the auction price of bulk cheese being a component m the pnce of nulk.

At first blush, it would seem that claims of indirect purchasers in antitrust ~ases

involving price-fi.:.Ong or monopolization do not inv~lve issues of cla1m sh1ftmg. · Etther indirect purchasers can recover damages under the antitrust laws from antitrust defendants for paying overcharges due to the pass-an of overchar~es by resellers or they cmnot recover at all. No other body oflaw exists that would prov1de a more d1rect fit for the1r chums. This suggests that AGC should not apply to bar the claims of indirect purchasers.

Admittedly, as noted above, the impetus for three factors of AGC's five~factor test was lllinois Brick which had rejected indirect purchaser standing to sue for antitrust damages. However, once the Court blessed the ability of indirect purchasers to recover under state antitrust laws (should states make such a policy choice), 99 it gave federal courts (and state courts applying A cq the leeway to determine that such cla~nlS sansfied A GC notw1thstandmg fllimiis Brick. As noted above, pass-on can be (and m fact should be) handled ~ a po~t-trlal allocation proceeding to apportion damages, simplifYing the apportionment difficulties for the courts and the parties alike in per se and monopolization cases mvolvmg overcharg.es, and avoiding is~ues of multiple liability and duplicative damages. Pass-on can be read1ly

93

94

95

96

97

98

99

50

See, e.g., Foley, 47 Cal. 3d at 682-700.

Sec, e.g., Elk Grove Uuified Scltool Dist. v. Newdow, 542 U.S. 1, 12 (200~) (noting that ~err:un generalized grievances that do not involve a statut~ry right of action or do not mvolve a constuuuonal challen~e are more appropriately addressed to the political branches); Baker 11. Carr, 369 U.~. 187 (1962) (ce~t_am questions are non-judiciable because they present a political question more smted for the pohucal

branches).

457 u.s. 465 (1982).

Id. at 469-70,479-80.

232 E3d 979 (9th Cir. 2000).

Id. at 982,987-90.

ARC America, 490 U.S. 93.

calculated even in industries with multiple distribution layers such that the apportionment tasks can be even more simplified: not only do employable simplifYing assumptions exist but also· much economic literature exists from which the courts and parties can draw involving the malysis of pass-on in multiple industries'"" In fact, given that some pass-on of overcharges fi·om illegal acts, such as price-fixing, is prevalent in almost all economic circumstances (and may be 100% or more in competitive markets),' 01 it cannot be said either that the injuries suffered by indirect purchasers are outside the ambit of injuries that the antitrust laws intended to redress or that there necessm;{y exists more direct victims. That AGC did not extend to pass-on, but rather barred remote and speculative claims that were better brought under other areas oflaw than antitrust, was implicitly recognized by Justice Brennan, who dissented in Illinois Brick but who did not dissent in AGC.102 Since then (and the Court's decision in ARC America), this point about A GC's limit' has been more explicitly recognized by lower federal courts, which mostly have refused to apply A GC in such a manner as to bar indirect purchaser clainlS for overcharges.103 Accordingly, pass-an is not an issue properly raised in coJ1junction with prudential antitrust standing.

100 Sec, e.g., Timothy Bcsley & Harvey S. Rosen, Sales Taxes aud Pria:s:Au Empirical AnalJ•Sis, 52 Nat.Tax.J. No.2 157 (1999) (looking at data on prices and caxes for 12 very specific commodities, and controlling for various variables, in finding that pass-an of taxes was 10{1'/o or 100%+); Odey Ashenfelter, David Ashmore, jonathan B. Baker & Signe-Mary McKernan, Identifying the Firm·Spcc[fic Cost Pass-17zrough Rnte Qanuary 1998), mmifab/c at htcp://www.ftc.gov/be/workpapers/wp217.pdf, at 1-2, 15-16 (pass­throUgh rate of Staples was 57% for non-specific cost changes,12% for cost-changes specific to Staples, and 85% for industry-wide cost changes); id. at 3 n.8 (pass-an rates of 60o/u-70% most common in various studies); Goldberg & Knetter, supra note 56, at 12 (pass-an rate of tariffi re: trucks is SO% -63% andre: motorcycles is 100%).

101 Sec, e.g., Hovenkamp, s11pra note 6, at 1726 & n.45.

102 Justice Brennan also wrote the majority opinion in !11cCready- a not insignificant point given that he authored the dissent in fllinois Brick and !11cCready helps illustrate how the admittedly later-in-time AGC decision best can be viewed as a claim-shifting doctrine.

103 Compare, e.g., lu re TFJ:LCD (FlaJ Panel) Antitmst Litig., 586 F. Supp. 2d 1109 (N.D. Cal. 2008) (court fourid that plaintiffS' complaint that they paid more for products incorporating price-fixed flat panels sufficed under AGC); lu re Flash /v[emory Antitmst Litig., 643 E Supp. 2d 1133 (N.D. Cal. 2009) (court found that plaintiffi' complaint that they paid for more products incorporating Flash chips sufficed under

AGC); In re Graphics Processiug Units Antitmst Litig., 540 E Supp. 2d 1085 (N.D. Cal. 2007) (court found that plaintilli' complaint that they paid more for products incorporating price-fixed graphics chips sufficed under AGC); In re !mel Corp.lV!icroprocessor Autitmsl Litig., 496 F. Supp. 2d 404 (D. Del. 2007) (court found that plaintiffS' complaint that they paid more for products incorporating microprocessors sufficed under AGC) tvith, e.g., Lorenzo v. Qualcomm, Inc., 603 F. Supp. 2d 1291 (S.D. Cal. 2009) (court found that plaintiffi' complaint failed AGC: although plaintiffi alleged that they paid more for cell phones and services using cell phone because those phones incorporated chips that used technology covered by defendant's patent on which the patent license fee was too high because of defendant's anti-competitive patent licensing practices, nothing in the opinion indicates that plaintiffs had pled that such inflated license fees were traceable); DRAA-I, 516 E Supp. 2d at 1092 (finding that plaintilli' complaint that they paid more for products incorporating DRAM did not sufiice under AGC but noted that a con} plaint that plaintiffi paid more for a final product that in and of itself was price-fixed would suffice under AGC), mot. to certify imerlowtory appeal grautcd by, 2008 WL 863994 (N.D. Cal. Mar. 28, 2008), appeal docketed, actiou reported as settled (2010). It-is noteworthy that, when the DRAM case was taken off calendar because of a settlement agreement in principle, one defense attorney noted that one reason among others was the possibility the Ninth Circuit would reverse on the AGC issue. See Abigail Rubenstein, Scttlcmcut Looms in DRAA1 AJuitmst Baule, Law360 (Feb. 26, 2010), mtai/able at http://www. Jaw360.com/topnews/articles/152205/settlement-looms-in-dram-antitrust-battle ("The stakes of the appeal were high. A defense victory in tl1e Ninth C.ircuit would have jeopardized the plaintiff indirect business model. A reversal would have revived a substantial percentage of the claims on which plaintillS originally sued.").

51·

. ;.:

B. Pass-On Is Foreseeable Such That Proximate Cause Is Satisfied

. . . . properly raised in conjunction with. proximate cause. Neither 1s pass-on an Issue · d" der federal

P . which is independently an element of anntrust stan mg un . th roXImate cause- h d fi deral antitrust law of showmg at

law-is simply the requirement under_ blot state ~~~s ~~ot a "secondary," "consequential," . . ' flowed directly from the VIO ation an I

an :~JUJ:) " . I f th violation.'"' The antitrust violation need not _be the so e or or .remote resu t o e b · 1 f: t . 10> and the causal

. f h . . but rather need only be a su stantla ac or, controlling cause o t e mJu_ry . 1 . d tl • plaintiff's loss need be only established connection between an antitrust vio auon an le . . d b all facets of

' bl b bil. ·»106 Moreover a plaintiff need not be HlJUre y to a ' reasona e pro a 1t)' · ' . to7 . . . gh if a plaintiff is injured by one of 1ts facets. a consptracy; 1t 1s enou

Plainly the pass-an of overcharges from antitrust defendants-eit:ler a f~e-~xin~ ' . -throu h a multi-level distributor and supply clam o rec an

~~~~:~~r ;u:~:~~~~:~ntiffs to ~lf1e u~timate end-~,~~e iso:~~~i:r~::~om:~~~~~:r~r:x;;;;~:. cause standard. The pass-on o at east some o . . . . a matter of

foreseeable,1~"nd1te:se:~~~~~~~~~~ i~lna~~~o~u:~~~s ~~~:~::~b~~;~:~:.:e~~:~~~~~~~~- multi-level

econorlllcds. d. .b . h . ns wiili thin inventories and the -requirement of JUSt-m-tllne supply an 1stn ut1on c a1 ,

104

105

106

107

, ... $~ . 2d at 1141-42 (noting that plaintiffo;' indirect pu_rchas~r ~lainlS for d:mages' See, e.g., DRAM, 3~6 E • ~p . . but because that injury was not an anntrust uuurr as. requrred b) may plead a suffictentl? direct mjury . he issue of inconsistent rulings, tlte court declined to rule AGC, and the court did no~ w_a~~ to _r.nse t. . . roximate cause test); /utd Corp ,Microprocessor, 496 conclusively on whether plamufls clanns.satts~~d thedp . t" gat the pleading scage defendant's claim E Supp. 2d at 409-10 (applying AGC as a gutle. an_ rejlec ~ntoo speculative a chain of events and was

h I . "ffs' . d" ect purchaser damages c aun mvo ve . that t e p :nntt m tr . C 137 Cal A . 3d 709, 724 (1982); Saxer 11. Pllilip lvloms, therefore too remote); Kolfmg v. Dow Joues & o., . pp

Iuc. 54 Cal.App.3d 7,25 (1975). . . .

' . , A 3d at 23; if. Ill rc Tobacco II Cases, 46 Cal. ·4th 298, 326 (2009) (m false See, e.g., Saxer, 3~ C~: P~· . . h w that the misrepresentation ,vas an m1med1ate cause advertisement act1on: Whtle a plamutfl ~nu.; s o d t demonstrate it was the only cause."}; PPG Iudus.,

f h . . ry producina <.:onduct the p amtt nee no d l d fi d t's o. t e tnjU - . o 'J ,al 4th 310 315 (1999) (in tort action, court foun tlat e en an J11c. v. Trausamenca Ius. Co., ~0 C · ' f the laintiff's injury even if there was also actions were a necessary antecede~t, and thus, a cause o p

another cause of the plaintiff's injury). .

. . ' . out'/ Bakiu Co., Inc., 668 E2d 1014, 1051 (9th Cn·. 1981); William lug/IS &rdSo•4•~ ~·;~·~O~oJ~?I~l ~ir. 1957); f,, re H1•olesale Elec. Mkt. I & II, 147"Cal.App. 4th Flmkote " L]•;[io '2 ·- ' - . . I 101 Cal A 3d 53? 545 (1980).

09 s b 1 1\1 bile Homes Iuc ll AMF;.l.C Commumlles, nc., · PP· -· at 13 ; u ur Jail ' o ' . . . . . . . k sellers had sufficiently

Kuevdbaard, 232 F.3~ at 990 (applring this pn~lctple to ~i:~c::~\~~~~::~:~~n price ofbulk cheese as demonstrated causation even though the conspiracy was . . the auction price of bulk cheese was a component of the floor pnce of milk).

108 Seenotes6-7,100,supra .

52

delivery, involve such thin margins that pass-on of cost increases and decreases-e.g., those cost increases arising from overcharges from antitmst defendants-is common in many industries. 109 Modern economic techniques allow economics to control for potentially independent variables in order to show a reasonable probability that a given price increase to end-users originated from the anti-competitive effects of antitrust defendants.'"' And intermediate resellers, distributors, and other resellers often have computerized sales data -thus allowing economists to avoid speculating or using approximations in calculating the pass-through of overcharges to end-users. 111

Consequently, it is no surprise that courts generally find that indirect purchasers' injuries for paying overcharges directly flowed from the price-fixing or illegal monopolization activities of antitrust defendants, even if those overcharges flowed through the hands of

109 See, e.g., Seiche Sanders, Passiug 011 Price Iuarascs, SANITARY MAINTENANCE. Qanuary 2005), available a/ http:/ /www.cleanlink.com/sm/article/Passing-On­Pr.ice-lncreases--2453 (noting distributors routinelr pas.~-on cost increases); Richard]. Bcnson-Amer, Derek L. Dean & John C. Ke1leher, Gettiug Contract 114amifacwrers &ck on Track, MCKINSEY ON HIGH TECH Qune 2004), available at http:/ /mkqprcviewl.qdweb.net/PDFDownload.aspx?ar=1456 (discussing overseas contract manufacrurers employed by original equipment manufacturers to manufacture electronic products for them under cost-plus contracts); see also Ralph Jennings, Q,,ersupply Seuds DR.Alvf Prices to One-Year Low, IDG NEWS SERVICES Qan. 4, 2011) (article in possession of author) (decrease in DR.AM prices was expected to a11ow computer manufacturers to cut prices or to improve performance of the computer for the same price by adding me1llory); Nick Saint, Tile H'iuncrs and Losers from the Rise of A1auufaclllriug Cosls in China, BUSINESS INSIDER Quly 6, 2010), mtailabfc at http:/ /www.businessinsider.com/the-winners-and-1osers-from-the-rise-of-manufacturing-costs-in­china..:2010-7 (noting that the rise of manufacturing labor costs in China would have to be passed on by most gadget companies and by contract manufacturers like Foxconn unless they can find places with cheaper labor, but not by Apple which has fat margins);THE COMPETITIVE STATUS OF THE U.S. ELECTRONICS INDUSTRY (1984) 66 (Describing the shift in the computer industry to a model of low-cost, low margin producers who outsource production of parts and peripherals: "The computer industry has been transformed in recent years by the declining cost of computing power. As discussed in Chapter 4, the manufacturing costs of semiconductor memory and logic have dropped rapidly over the past decade. Moreover, the costs of some major peripheral items, particularly disk drives, have dropped almost as rapidly. The intensity Of competition in the compmer industry has, in mrn, forced manufacturers to pass duo ugh much of the decline in component costs to consumers in terms of increasing performance-price ratios for new models (and selective price cuts for old ones).") (footnote omitted).

110 See, e.g., Pierre Cremieux, Ian Simmons & Edward A. Snyder, Proof of Common Impact in Autitmsl Litig.: 17/C 111/ue 'If Regressiou Analysis, 17 GEO MASON L. Rev. 939, 945-46 (2010); see n&o Goldberg & l{netter, supra note 56, at 9-12 (noting that regression analysis is used co determine pass-on of exchange rate changes on balance of trade and describing studies that found such pass-an in controlling for various variables).

111 See note 57, supra.

53

intennediaries who may have absorbed them in part, as long as those charges appear to be potentially traceable.112 Yet, there may be outlier situations (rare given the general economic literature on pass-an) where the damages claimed by plaintiffs involve such a complex flow of alleged overcharges through derivative markets (i.e., plaintiffs in those markets are not even indirect as they are not in the chain of distribution flowing directly from ·tl1e price-fixed good) that traceability of those overcharges may not. even be plausible.113

C. Pass-On Typically Involves Injured Parties Up and Down the Distribution Chain in Most Market Situations

Nor is pass-an even an issue properly raised in conjunction with fuct of injury with one significant exception: defendants can show with unrebutted evidence that, for a specific group of plaintiffs, they could not have suffered an injury-in-fact because (1) the overcharges from the defendants' conduct was completely absorbed higher up the chain or (2) plaintiffS have cost-plus contracts with others downstream such that iliey can pass on the full amount of the overcharge.

The "fact of damage" or "injury" is proof iliat a plaintiff suffered some damage (as opposed to the amount) flowing from the unlawful conspiracy.114 As a matter of federal and state antitrust law, the "fact of damage" is not negated, insofar as direct purchasers (e.g., of a price-fixed component) or intetmediate resellers or retailers may be concerned, simply because, depending on market conditions, they could mitigate ilieir damages by passing-

112 See, e.g., Lorix v. Crowptoll Corp., 736 N.W. 2d 619, 633 (Minn. 2007) (plaintiffi pled that overcharges from price-fixing on rubber chemicals used in tires was traceable to the price of the tires they purchased; coun rejected the argument that this was speculative, as the discovery process could reveal the amount of the overch:uge, the chain of distribution through which it flowed to plaintiffs, the degree of absorption of the overcharge by more direct purchasers, and the impact of other market factors on the price of tires manufactured with price-fixed chemicals). Though this discussion of proximate cause assumes a state cause of action on behalf of indirect purchasers (as such purchasers have no cause of action in federal court), it is noteworthy that nothing in Illinois Brick itself assumes that claims for anyone beyond direct purchasers are too remote: after all, it does have a cost-plus exception in which indirect purchasers can recover if direct purchasers have cost-plus contracts with antitrust defendants. See lllinQis Brick, 431 U.S. at 732-33 & nn.12-13. A cost-plus contract is "[a] contract in which payment is based on a fixed fee or a percenrage added to the actual cost incurred." BLACK'S LAW DICTIONARY 260 (Abridged 7th ed. 2000).

113 This point seems to explain the raft of decisions that have rejected standing for plaintiff consumers in derivative or tangentially-related markets who sued Visa and MasterCard, fmding their claims to be remote and speculative: Visa and MasterCard had tied the sale of credit and debit networking processing services to their member banks, which allegedly cauSed their member banks to charge merchants excessive fees for processing debit tranSactions from consumers purchasing goods, and merchants allegedly passed on the excessive cost of processing those debit transactions to plaintiff consumers on thousands of uurelated retail goods that the merchants sold to the plaintiff consumers, and . independent reasons could explain price increases on those unrelated retail goods. Soutlrarel v. Visa U.S.A. Inc., 734 N.W.2d 192,194,199 (Iowa 2007) (distinguishing earlier case involving plaintiff purchaser.; of computers containing software sold by Microsoft); Kmme 11. Visa U.S.A.lnc., 723 N.W.2d 293, 298-99 (Neb. 2006).

114 Zeuitlt Ratlio Corp. v. Hazeltine Research, Iuc.,395 U.S. 100,113-14 n.9 (1969);j.P. Morgan & Co. I'. Superior Conrt,113.Cai.App.4th 195,216 (2003); B. WI. Custom Kitclleu,191 Cai.App.3d.at 1350 n.7.

54

on all or some of the overcharges farther down the chain Aft~ all tl 1 h ffi d · d , 1ose pure lasers may ;ve su ere an econ.omic injmy, 115 though there is an exception to tlus rule for purchaser

p ahmttffs who defimttvely suffered no injury because they have cost-plus contracts with ot ers downstrean1 frmn thetu.116

. Moreover, while some pass-an is foreseeable and inevitable in almost. every market sttuatwn, such that 1t would be fair to presume, as state antittust law does 111 tllat d _

· · d · . , en -user consumers are lllJUre by pnce-fixmg conspiracies further up the chain, it is possible that anmru~t ~~fendants may be able to show that pass-on is just not possible in tlle indust Stt~)l;dtcc. After all, antitrust defendants are likely to have information on the market ~ w 1c 1 they compete as well as closely related markets up or down the supply chain.

Consequently, while pass-on is not an aflinnative legal defense, it still remains possible that plamtlfE cannot show a triable issue of material fuct concern1·ng ""act f · · " · }' - d · . li 0 ll'JUf)' 111 very tmtte Clrcumstances. Those ctrcunlstances involve defendants showing with unrebutted

evtdence e1ther iliat overcharges could not have been passed 011 to end-user plaintiffs''" or that mtermedtate purchaser plaintiffS have cost-plus contracts.

D. The Analysis of Pass-On Does Not Change in Complex Pricing Cases

In the final analysis, this discussion of standing, proximate cause, and fact of injm , leaves out one residuaiiSSu_e :-whether the analysis should come out differently for comple: pncmg cases. Complex pncmg cases are cases in which defendants fixed prices on a good serv~ce, or. contract that had ripple downstream effects on the prices of other goods or' serv1ces patd for by consumers. They can involve the filXl·n.,. of P · f

0 nces on con1ponents o

115

116

117

118

119

See Hanover Shoe, .392 U.S. at 493 n.9; Claj•ll'orth, 49 Cal. 4th at 784-85.

Claywortll, 49 CaL 4th at 787;Areeda,5upm noLe 7, Section 346k4 at 196.

Cal. Dema/Ass'u v. Cal. Dental HygieuistsAss'n,222 Cal.App.3d 49 ~1 (1990)· B H'I C . 191 Ca1.App.3d at 1350. • • · · · ustom K1tc/tet1,

~J,de.f' ~i!icorp, 497 U.S. at 211 _(noting: ~t least with respect to regulated utilities, that pass-on could e e aye ~n the short-term unul the utiltty received approval to adjust its rates); Peter Forsyth, joi~t

J'~~por~~1011 ~ese~ch Centre, Tile Impact of Climate Chauge Policy 011 Competition in the Air Trausport ~~:{jd Iscusston/~er No. 2008-18, 22-24 (Sept. 2008), available at www.mlit.goJp/kokusai/

ocu~ents ~ ETF_UM/S2-ITF-sup4.pdf (capacity restrictions in the form of slot allowances at pbreferre)d airports can prevent airlines from passing on increased costs arising fro~ imposition of car on tax. ·

_ Claywort.lt hints at this result when it discusses the "rare" scenario, in which indirect purchaser resellers go to tr~al before_ end-user purchasers and recover 100% of the overcharges as damages leavin., end ~s~r b~smess~ wtth no damages to recover at the end of their own trial. See 49 Cal. 4th at 7~9. If t lc evidence lS rebutted enough to create a triable issue of tnatecial fact as to the pass-on of some art of the d~vercharge to end-users, then the issue of pass-an would be addressed jn post-trial alloca~on procee mgs.

55

I

other products with those components constituting either a major part of the pricing of the h . b 120

final product, a minor part of the pricing of the final product, or so mew ere 111 etween. They can involve the fixing of prices on futures contracts that then allegedly have npple effects on the prices of the underlying goods. 121 Or they can mvolve the fixmg of pnces in one market where those market prices are directly incorporated mto the calculatton of

prices of goods in a second market. 122

Defendants have argued that, even if the issue of pass-an should not serve as a bar in sinlple cases to the recovery by indirect put:chasers, t~ese "~on1plex" pricing cases prese~t particularly difficult calculation and apportiOnment tssues.'-3 However, one: pass-an tS properly understood as being a post-trial allocation procedure, these dtfficulttes fall away just as they do in more simple cases. The question of calculatmg aggregate damages (e.g., overcharges) iri such "complex" cases can be separated from the question of allo~a~ing those damages among direct and indirect purchasers affected by the pnce-fixing actlvttJes of defendants. As remarked supra, assuming overcharges can be calculated as an aggregate

120

121

122

123

56

SecTFT-LCD, 586 f. Supp. 2d 1109 (finding that plaintiffi' complaint- that they paid more for prod~cts incorporating price-fLxed flat panels- sufficed under AGC)~F~ash lvlww?', 643 F. Sup~.2d 1133 (findmg that plaintiffi' complaint that they paid for more products mcorporatmg Flash dups suffice~ under AGC); In re Grapllics Processing Uuits Antitrust Litig., 540 _E Supp. 2d_ at 10~5 (N.D. CaJ. 2~07) (~ndmg that plaintiffS' complaint that they paid more for products mcorporatmg pnce-fi~e~ g~phics c~tps sufficed under AGC); Intel Corp. l\1icroprocessor, 496 F. Supp. 2d 404 (finding that plamttffi complan~t that they paid more for products incorporating microprocessors sufficed under AGC); ~ut see DR.f!M, .:>16 F. Su~p. 2d at 1092 (finding that plaintiffs' complaint that they paid more for ~roducts mco~poratmg DRAM dtd not suffice under AGC). For example, according to a very recent arnde,DRAM Js about 100/o of a tornl computer's cost and the decrease in DRAM prices was expected to allow comput~r manufacturer:' to cut prices or to improve performance of the computer for the same price by adding memory;, Jenmngs, supra note 109 (article in possession of author); see Pro-Sys, 2009 CarsweliBC 3035, at 1!10, ( The c~st of DRAM as a component of electronics products typically represents a small percentage of the pnc~ of the various products in which it is used -less than 1% in most. App~ximately 81% of DRAM:: used in personal c:omputers. Durin~ the class period, DRAM's component cost repre:ented fr~m 1.1% to 8.6% of the average price ofmaJor-Qrand desktop personal computers and from 1Yo to 3.5Yo of the

average price oflaptop computers.").

See, e.g., J.P. Morgan, 113 Cal.App. 4th 195; Global Minerals & Metal~~ Superior Court, 113 Ca1.App. 4th 836 {2003) {courts dt!clined to certify nationwide class of parttctpants - some of w~om were both buyers and sellers of copper - on Americ<~:n copper exchanges ~ho had all~ged clauns un~er the laws of multiple states with variable standards that the defendants .Illegally ~ampulated the pnce of copper futures in London, which in turn inflated copper futures m the Uruted S~tes, and t~cn in tum may _ the courts had do~bts here - ha:e affected ~he ac~ual prices cha~ed _m the phystcal or cash copper markets). One can imagine a stmpler case m wluch damages ·to mdirect purc~asers may be better justified involving a more direct link ~etween p.rice-ftxing on a futures marke_t J1l the United States and the rise of the price of the underlymg good m response. CJ, e.g., Blake EllrsJ Coffee Prices 011 tire Rise, CNNMoney.com (Sept. 10, 2010), available at http:/ /money.cnn.com/2010~09/10/ markets/ coffee_prices/index.htm (rise in price of coffee futures caused coffee manufacturers to mcrease

prices in order to pass on rise in costs).

E.g., Kt~evelbaard, 232 F.3d at 982 (fixing prices for au~tion ofbuJk cheese to lower floor price of milk which government calculated using in part auction pnccs for bulk cheese).

Sec, e.g., Reply Memorandum in Support of Motion to Dismiss, Ju re Flash lvlcmory ~Uiitru~t Lit~., N~. C 07-0086-SBA (May 13, 2008) at 17;scc also DRAM, 516 F. Supp. 2d at 1072 (agrecmg wtth thiS pmnt).

matter, apportionment difficulties then could be more easily handled even in such complex cases by a judge in post-trial proceedings in which reasonable approximations and simplifYing assumptions can be used to figure out an equitable division of those overcharges.124

Indeed, resellers or other intermediate distributors may be able to demonstrate tertiary damages in these cases in the form oflost profits/sales.125 The ability to recover such tertiary losses provides support for the key point that the screening out of indirect purchaser claims via the use of antitrust standing, proxin1ate cause, or injury in fact doctrines in con1plex pricing cases is not equitable and fails to meet the deterrence goals of antitrust law.126

VII. Final Reflections in Leaving the Fun House: The Consolidation of

Related Antitrust Cases as a Corollary to the Handling of Pass-on in Post-Trial Allocation Proceedings and Its Limitations

It is no coincidence that the California Supreme Court in their unanimous C/aytporth opinion, and Justice Brennan in his dissent in Illinois Brick (among others), have focused on the same issues as being inextricably intertwined: the need for consolidation of cases brought by different groups of plaintiffs against the same antitmst defendants on largely the same set of facts coupled with the handling of pass-on in post-trial allocation proceedings.127

As discussed supra in this article, the handling of pass-on in post-trial proceedings works well where different groups of plaintiffi have been consolidated into one case so that there is one trial on liability and one trial on aggregate damages before damages are apportioned in the post-trial proceeding. Moreover, the consolidation of such related cases into one proceeding, as part of the post-trial apportionment of damages among these related groups of plaintiffi, has the salutary benefits discussed supra in comparing the present state of affairs to that which should exist based on Clayworth: easier class certification of antitmst plaintiffs'

124 See, e.g., Ilfiuois Brick, 431 U.S. at 758-59 (Brennan,]., dissenting) (noting that estimating pass-en was no more difficult than estimating the middleman's selling price, and that pass-en can be reasonably approximated even in component cases where the price-fiXed component was incorporated into another product that was sold to plaintiffs); see also, e.g., Pro-Sys, 2009 CarswellBC 3035, at 1j64 (in discussing a motion for class certification of the Canadian equivalent of the DRAM case in the United States, Canadian court of appeals for British Columbia stated:"(i]t was conunon ground that statistical regression analysis is in theory capable of providing reasonable estimates of gain or aggregate harm and the extent of pass-through in price-fixing cases). Using the DRAM case as an examp~e, a very recent article explained that DRAM is about 10% of a totaJ computer's cost and the decrease in DRAM prices was expected to allow computer manuf.1cturers to cut prices or to improve performance of the computer for the same price by adding memory. Sec Jennings, supra note 109 (article in possession of author). This article suggested that pass-en can, in some sense, be measured as the industry seems to be aware of the pass-an of DRAM costs to the final price of the DilAM-containing product. And, in fact, the DR.Akl court agreed to the appointment of a Special Master to allocate settlement proceeds in that case among different groups of indirect purchasers in a case that involved the price-fixing of what is a ubiquitous component of computers, printers, servers, routers, and other electronic equipment. Stipulation and Supplemental Reference Order, Jn rc DRAM Antitmst Litig., MDL No. 1486 (N.D. Cal. Nov. 29, 2010) (Hamilton,].) (document in possession of author).

125 Sec Clayworth, 49 Cal. 4th at 785;Areeda, supra note 7, 1j346k4 at 196; see also Christopher R. Leslie, Antitrust Damages aud Deadweight Loss, 51 ANTITRUST BULLETIN 521 (2006) (discussing deadweight loss as another form of tertiary damages).

126

127

See Clayworth, 49 Cal. 4th at 785.

Claywortl1, 49 Cal. 4th at 787; llliuois Brick, 431 U.S. at 761-64 (Brcnnan,J., dissenting).

57

claims in price-fixing and monopolization cases, avoidance of a conflict of interest between different plaintiffs' groups (e.g., direct and indirect purchasers) that can complicate pre­ttial and trial procedures, a more streamlined handling of liabiliry and aggregate damage issues without the need for multiple proceedings, a more equitable apportionment of damages between different plaintiffs' groups, and avoidance of scenarios involving the potential award of duplicative damages. Yet, set against these undeniable benefits remain t\vo fundamental questions: (1) is consolidation achievable in state court proceedings or in federal court proceedings without further action on the part of Congress; and (2) to the extent that consolidation is not achievable, how much of an impact.does that make on the benefits advanced in this article arising from such consolidation?

A. Consolidation Is Achievable in State Court Proceedings

Insofar as state court proceedings in California are concerned, the answer to these questions is an easy one: state courts can use joinder •. consolidation, and interpleader, as well as the rules of court governing complex cases, to ensure that all state antitrust actions arising out of the same set of operative £1cts - be they by direct purchasers, indirect purchasers, or the California Attorney General - be tried in one proceeding.128 The ability to ceflify easily a single class of purchasers - with potential subclasses of direct and indirect purchasers - under state antiu·ust law reinforces the tools available to state judges to achieve consolidation.129

Such consolidation, however, in state court still raises this question: what happens if individual-plaintiff purchasers choose to opt-out of any such class where, as large businesses, they have the resources and inclination to pursue individual damage clahns? The answer is that consolidation of these opt-out claims remains an option.130

Presumably, liabiliry issues involving the underlying facts remain the same for any opt­out plaintiffi as for the class of purchasers or a California Attorney General's parens pattiae action. Presumably, aggregate dan1age issues involving overcharges also remain the same insofur as overcharges are shown in the first instance through an analysis of the impact of the illegal antitrust conduct on prices in the market as a whole. (Indeed, opt-out plaintiffs, like class plaintiffi, can participate in the apportionment of those damages post-trial as part

128

129

130

58

See, e.g., Claywortll, 49 Cal. 4th at 787; Cipro Cases I & II, 121 Cal.App. 4th at 415-17; see also Jasmine Networks, 180 Cal. App. 4th at 995-96 Goinder can be used to deal with the risk of multiple or inconsistent liability; if potential claimants do not come forward or wish to maintain their own action, then joinder, consolidation, or coordination may be compelled; even if a defendam fails to act, the court has the power and "perhaps the duty" to require the joinder of a necessary parry); id. at 996 ("(i]f the defendant concedes irs duty is to pay a sum of money, but fears conflicting demands by rival claimants, he may invoke the procedure of interpleader, which if sustained will permit him to pay the disputed sums into court and wash his hands of the controversy."); id. ("Far from viewing rival claims as obstacles to the plaintiff's ;)Ction, our law reflects a strong preference for bringing all genuinely interested parties into a single proceeding and adjudicating all of the affected rights and liabilities at once."); Cal. R. Ct. 3.500 (setting out rules applicable to request consolidation of two or more non "complex" cases fiJed in different superior courts); id. 3.501-3.550 (same for consolidation of" complex" actions filed in different superior courts; complex cases typically include antitrust cases).

Sec, e.g., Cipro Cases I & 11, 121 Cal.App. 4th at 4JS-17.

See, e.g., note 128, supra.

of an. allocation pr~ceeding.) . And while it may be possible that any such opt-outs may have mdiv1dual clanns for tertiary damages such as lost profits or sales, 131 those claims for da~ages. on_ behalf of individual opt-out plaintiffi likely can be handled in a supplemental fashwn dunng the tnal1f done carefully with an eye to avoiding jury confusion.'32

B. Due to CAFA, Consolidation Is Achievable in Federal Court Absent (In Part) Opt-Out and State Attorneys General Actions

. At bottom, as explained ilifra, .CAFA 133 removes from state court virtually all antitrust plamt1ff pnce-fixmg and monopolization class action cases against antitrust defendants except for state attorney general actions and cases filed by individual businesses, that do not, run af~ul of t~e more general diversiry statute. The fundamental question here is whether consolidatiOn 1s achievable in a single federal court involving differing groups of purchaser plamuffi m the wake of CAFA. The answer to that question is yes, except where state attorneys general choose to bring their state antitrust claims in state court or in a different federal court of thei~ choice and where opt-out plaintiffs choose to bring their individual ~tate antitrust claims m a different federal court of their choice or (assuming diversiry is not Implicated) m state court. Nonetheless, neither exception strongly impacts the benefits of consohdatlon occasioned by the ability to consolidate other groups of plaintiffs into one federal court. And, both exceptions-especially the one involving the state attorneys general and the1r filing of cases m state court-give the states the countervailing benefit of bemg able to stay 111 the game in the development of their own state laws.

, Put simply, CAFA requires most class actions to be brought in federal court, including an) antltrust class acuons mvolvmg e1ther n~tlonal or international price-fixing cartels or mvolvmg monopolists whose reach IS either mterstate or international in effect. 134 Though

131

132

133

134

Claywortll, 49 Cal. 4th at 785;Areeda, supra note 7, ~346k4 at 196.

:~~~;use''- Graham, 19 Cal. 3~~9, 70-71 (1977);Harper Housc,luc. 1~ 1710mas Nelson, Jnc., No. CV 85-1;S9). 1\R, 1987 WL 30581' at o (C.D. Cal. Aug. 28, 1987), r<i>'d Oil other grollllds, 889 F.2d 197 (9cl1 Cir.

28 )J.S.C. Sections 1332(d), 1453, 1711-15.

Th~_result. is simple; ~he explanation is a bit more complex. CAFA applies to class actions under sta~e law ;n wluch the claims brought on behalf of t~e d~~ are in e.'\:cess of $5,000,000, 28 U.S. C. Section 133-(d)(2), (6), as long as at least one defendant IS a cmzen of a state different than any member of the proposed class (as opposed to all defendants being required to be citizens of a state different than an ~1e~n~er of th~ propo~ed class). I d. Section 1332(d)(2)(A)-(C). CAFA also applies to "mass actions" (i.:., mdtvtd~al actions) w~th 100 or more members in that it treats .such actions as if the)' were proposed class. acttons. _Id .. Se.ctton 13~2.(d)(ll)(B)(i). Though defendants carry the burden of showing, from a rea~mg of plalllbffi complatnt, that the amount in controversy is $5,000,000 or more, e.g., Miedema v. ~Ia~ tag Corp., 450 F.3d_ 1322,1330-31 (11th Cir. 2006),CAFA has resulted in the increased filing of state md~rect pu~chaser ~lam15. for damages because those claims often involve price-fixing cartels that ate ;;etlm;l or u~ernatlonalm ~cope _on eve~d~ produC[s, making it difficult to avoid CAFA's application.

G . U Ill, -53 F.R.D. at ::>00; LJsa M. Saven, Comments ou the Recellt History '-?[Class Actions Uuder tlte Cartumgh~Act, 17 COMPETITION 155,156 (Oct.2008);Scarpulla & Fu,B.WI., Cal!fomia's Favorable ~lass ActiO// )unspr~tdcucc, and. Tlzci~ Post-CAFA Application, 17 COMPETITION 159, 162-63 (Oct. -008). ~o.r a more m-d.epth d1scusston ofCAFA and its application in this area, see Amitrust and Unfair CompetitiOn Law Sect10n, The State Bar .. of California, CALIFORNIA STATE ANTITRUST AND UNFAIR COMPETITION LAW Ch. 22 (Matthew Bender & Co., 2009).

59

l Can be brouaht in diverse federal jurisdictions, multidistrict litigation rules nese cases " . · f< d al d. .· t would require their consolidation for pre-trial purposes m a smgle e er lSI:uct cour

known as a multidistrict litigation court (hereinafter MDL court).135

Consolidation for pre-trial purposes in a single federal court _would include the handlin of any class certification motions by that court. As discussed supra, class certifica~ion beconleS a far easier proposition once pass-on is retno_ved as a cert~ficatlon Jssue

d · d · legated _ where it belongs - to post-trial allocation proceedings. Once a

an mstea 1s re · dl of f h · tified by the MDL court the MDL court can, usmg a me ey

class 0 pure asers 1s so cer ' 36 I . tifi d tions retain jurisdiction over the case for trial purposes.' (If the c ass IS not so cer e '

~;en th~t holding is res judicata via any subsequent attempts to certify ~at ~~~~~n s~~- ~~ federal court, except insofar as it may be appealed and overtumed per Fe er e o lVI

Procedure 23(£)). 137

Individual businesses, i.e. direct purchasers, indirect p_urcl~aser resellers, or indire~~ urchaser retailers, may opt-out of such a class and file an actwn m the federalcourt of then

~hoice or, if general diversity requirements are uol met that would allow fm removal, m

135

136

137

60

Sec 28 U.S. C. Section 1407(a).

Ahhou the MDL court is normally obligated to transfer cases back to transferor distri~t co~rts once re-trit rocecdings have concluded, sec Lexccon, 523 U.S. 26, this prospect can be avotded _tf: (1) the

~L co~rt chosen is one in which a complaint was filed alleging that a class should be certt:~~d su~h that the MDL court can take the class action to tria1; (2) the MDL courc is :IDle to. foster the I mg o a co.nsolidated class action complaint as an original action in irs forum; (3) the partieS all_ consen~ to kthe MDL court retaining jurisdiction to try the case; (4) the t~ans~eror _conn~ t~nsfe~ the1r cases. ac to the MDL court for trial; (5) the MDL court see~ an intracucmt or mterctrcutt a.~signmen~, to, m effect,

reside over one trial of all actions; or (6) the MDL court can foster_ the_ use ~f test case approac~es ~or discover ', liti !arion, and trial with a stay of all other cases in coor~manon wtth state courts handh~~ · · \ g H . MANUAL FOR COMPLEX L!TIG. Section 20.132 (Ann. 4th ed. 2010), 1d.

sunilar cases. Sec en, 3, 1 1 ·?? (II 1 C >000) s f n ?? 36· see also In re Carbon Dioxide Industry A11titmst Litig., 229 F.3d 1 - • .:>---:- t 1

lf ....

(~~~011 d-~es :lot apply where plaintiffs expressly request that the MDL court try thetr cases).

Sec c In re Baycol Prods. Litig., 593 F.3d 716,721-25 (8th Cir. 2010). Baycol_notes that the presence of ~u:~~antive or procedural diEferences between class cercificaci~n stan~rds m federal law a~d class Certification standards in state law would present a different quesnon. Sec •d: Ho~vev~r, the ver~ re_cent

0 inion of the United States Supreme Court .in Shady Grove 1~1ay ~all thts pomt mto ques~on, the

c:ntrollin 0

inion of justice Stevens suggests that such substannvc .dttferenc~s may _b~ recogruzed a~d applied byg fe~eral courts only if they are inextricably intertwined w1th a states defimtton of substantive

rights and remedies. Sec Slrady Grove, 130 S. Cr. at 1448.

state court. CAFA does not apply to those actionsB8

If those "opt-outs" file their actions in the federal court of their choice, multidistrict rules would still require their consolidation for pre-trial purposes in the same MDL court that had certified the class. 139 Moreover, it is likely that the "purchaser class case" would proceed to trial before any of the opt-out cases: the opt-out cases will need to be transferr-ed back to their home federal courts with the judges in those courts being brought up to speed and then finding time on often congested calendars to try an unfamiliar case. (Insofar as an opt-out case may be filed in state court, these constraints may not apply; however the author of this article is not aware of opt-outs in large antitrust price-fixing or monopolization actions having been filed in state court. Aside from any tactical reasons that come to play, this lack of opt-out filings in state court may be for the simple reasons that damages of such opt-outs are likely to exceed $75,000 and that such opt-outs must be located in the same states as at least one or more of the defendants to avoid removal under general diversity provisions. 140) If the purchaser class case proceeds to trial and they obtain an award of aggregate damages, such as overcharges, antitrust defendants can then file a statutory interpleader action in federal court against any such opt-outs to force any opt-outs either (1) to participate in post-trial allocation proceedings in the purchaser class case or (2) to declare that they have no claim on the fund and then have their claims be assessed to determine if the damages requested are duplicative of those already dispenseby

138 An opr-out action is not a proposed class action and a lawsuit by one entity separately represented (or even a joint lawsuit by fewer than 100 entities) does not trigger the alternative mass action provision that would result in removal to federal court under CAFA. Sec 28 U.S.C. Section 1332(d)(2), (6), (11) (B)(i); see also Iu rc Brit(~cstone/Fircstonc, inc., 333 E3d 763,769 {7th Cir. 2003) ("a person who opts our {of a certified class] receives the right to go it alone, not to launch a competing class action."). Thus,

only general diversity provisions govern here. Sec 28 U.S.C. Section 1332(a). Under general diversity provisions, defendants must show that the amount in controversy involved in the opt-out suit is $75,000 or more and that there is complete diversity, e.g. no defendant resides in rhe same state as the opt-our plaintiff. Sec id.Sections 1332(a), 1441(b); H'is. Depl. cifCorr. v. Schadu, 524 U.S. 381,388 (1998). The test for determ.ining"residency" insofar as corporations are concerned is simple: (1) In what state or states was the corporation actually incorporated? or (2) )n what state or states does the corporation have its principal place of business where the determination of principal place of business is made by reference to its nerve cemer, e.g. where the corporation's officers direct, control, and coordinate the activities 9f the corporation. Hertz Corp. v. Friend, 130 S. Ct. 1181, 1190, 1192-93 (2010). A similar scenario to the one discussed .in the text above would be presented if said businesses simply fLied their own case in the first instance in state or federal court, and then optcd-.out if a class were to be certified. However, this is a distinction widmut a difference for purposes of this article.

139

140

For an example of a MDL case where opt-outs by retailers (intermediate distributors) occurred following certification of an indirect purchaser class to be then followed by pre-trial consolidation in that MDL court, see TFT-LCD, 267 F.R.D at 5~3 (opt-outs included Wal-Mart, Target, and Best Buy).

As previously remarked, "location" for purposes of diversity is determined by looking to a corporation's

headquarters and to it~ principal place of business (e.g., the place where its officers direct, coordinate, and control its activities). Hertz, 120 S. Ct. at 1190, 1192-93. Coupled with the requiremem for complete diversity, sec Hlis. Dept. of Corr., 524 U.S. at 388, tltis means that an opt-out plaintiff can bring its claims in state court only ifits headquarters or principal place of business iS located in the same. state

as the headquarters or principal place of business of any one of the defendants.

61

·1.:

the verdict in federal court.141 (If an opt-out filed an action in state court, and was not removed to federal court, antitrust defendants could still file a post-trial motion in state court to dismiss the damages .~!aims of opt-outs as being duplicative based on the federal award.' 42) Unless those opt-out plaintiffs can argue that their pursuit of damages i(l federal court is not duplicative because it pertains to tertiary damages that they themselves suffered (or to the extent that any such plaintiffs are in state court that the jury verdict pertained to such damages), the federal interpleader action (or state motion for dismissal) should be well­taken.143 Accordingly (assuming that the trend continues for opt-out actions in large price­fixing and monopolization cases to be flied in federal court rather than state court), such opt-out actions should have a relatively minimal impact on the benefits of consolidation discussed in this article.

The state attorneys general may flle and have filed actions in the same federal court as the MDL proceeding; they m,ay flle and have flied actions in a different federal court as the MDL proceeding; or they niay file, have filed, and assuming they can escape CAFA's pull, 144 may remain in state court. 145 To the extent that they choose to file in the same

141 Sec Stale Farm, 386 U.S. at 532-37; see also Republic of Plu'lJjJpiues, 553 U.S. at 865-73 (interpleader can go forward, even if allegedly indispensable party cannot be joined, if that party does not have a colorable claim to the assets); North America lvlktg., 221 F.R.D. at 298-99 (noting that it was a requirement for an interpleader action that there be a single, identifiable fund for the daiman~ and questioned whether plaintiff had satisfied that requirement just because he set aside some holding funds to pay off claims; court also found that plaintiff did not face multiple adverse claims for this fund as required for an interpleader action).

142

143

144

Siuglr, 186 Cal.App.4th at 361. A state post-trial motion to dismiss a duplicative damages award would require, as a preliminary step, that the opt-out plaintiff or (as discussed i•ifra) the state attorney general with a state court case, was invited to participate in the post-trial allocation proceedings in federal court: Otherwise, the failure to do so could be seen as a waiver of the argument that the jury awarded duplicative damages. CJ Republic t?_( Philippines, 553 U.S. at 865-73 (comity and dignity interests required joining of Republic of Philippines in interpleader action filed to detennine whether assets could be seized to satisfy judgment of class; if Republic continued to refuse to join, asserting sovereign immunity, interpleader action could not go forward as the Republic had a col~rable claim to the assets).

It is conceivable that such opt-out plaintiffs could demonstrate that the award of aggregate overcharges by the jury in the purchaser class case was so small that, even compared to only the overcharges they suffered on their own purchase of products, it is manifestly insufficient. Essentially, however. this would be aldn to trying to prove specific damages - albeit without the potential difficulties that proving tertiarY damages may entail- and should be·treated the same way.

Whether CAFA applies to actions brought by state attorneys general and, if so, to what extent. is being actively litigated as of the time of this article in Ju rc TFT-LCD (Flat Paucl) Amitmst Litig., MDL No. 3:07-MD-1827-Sl (N.D. Cal.) (Illston,J.). This article will not address those arguments but rather will assume that CAFA does not apply in whole or in part to actions br<?ught by state attorneys general. For a brief overview some of the cas.es and issues specific to parcus patriae clain1s insofar as CAFA is concerned, see Antitrust and Unfair Competition Law Section, The State Bar of California, CALIFORNIA STATE ANTITRUST AND UNFAIR COMPETITION LAW Ch. 22,830 n.46 (Matthew Bender & Co., 2009).

145 Ju rcTFT-LCD (Flat Pauei)Autitrust Lit(g., MDL No. 3:07-MD-1827-SI (N.D. Cal.) (IUston,J.) (Florida fLied its own action in the MDL court; Missouri, joined by four other states, filed its own action in the MDL court; California, New York and Washington all fUed in state court and have been provisionally removed to federal court; Oregon filed in a federal district court in Oregon rather than the MDL court in the Northern District of California).

federal court in which proceedings, including class certification, have been consolidated under MDL rules, their cases can and should be completely consolidated with an purchaser class actions in that case. The liability and damages theories of the state attorne ~ general in the kinds of cases discussed in this article are likely to be closely aligned with t~e liability and damages theories of the various proposed purchaser classes. There are MDL c~urts that have made the decision to treat state attorneys general actions as warranting a different track than purchaser class actiOns on the basis that the actions of the state attorneys general were filed far later-m-tnne. 146 However, a limited re-opening of discovery for non-duphcatJVe p~rposes and .. shortened periods for the filing of answers and the bringing of motlons to disnnss m such tag-along" cases are among the tools that federal courts have at their disposal to ensure that cases filed in the same federal court can be brought to trial a.t the satne t1n1e 111 a consolidated 1nanner.

. To the extent that state attorneys general file in a different federal court than the one m winch rests the MDL action, and their cases are then consolidated with the MDL action for pre-trial purposes, their cases raise a similar scenario as opt-out cases but with a couple of key differences. In the first instance, it is more questionable, even as to state attorneys general wlto have. already filed in a federal court, whether state attorneys general can be compelled to partiCipate 111 a differeut federal statutory interpleader action in the purchaser 1 · 147 b

c ass actlon; a sent the voluntary consent of the state attorneys general to so participate, 148

anmrust defendants may then be left with the sole remedy of filing a post-trial motion in the state attorney general action in federal court to reduce or eliminate a damages award on

146

147

. 148

E.g., lu rc DRAMAmitniSI Lit(g., MDL No. 1486 (N.D. Cal.) (Hamilton,J.).

A court in which a federal interpleader action was flied has no subject matter jurisdiction over the states. iHorongo, 858 F.2d at_1381-82 (because state is not a citizen for purposes of diversity, it is not a citizen for purposes ?f the lllter~leader statute). Moreover, subject matter jurisdiction issues in federal court cam~ot be :vatved ~r forfeite~ an~ m~st be raised and addressed by a federal court sua sponte even if the parties have ~lOt raised them 1f fmly m doubt. Ashcroji ~~Iqbal, 129 S. Ct. 1937, 1945 (2009); Arbaugh v. Y&H Corp., ~46 U.S. 500, 514 (2006). Nonetheless, once a state has voluntarily chosen to file suit in fe~ez:t c~urt, t~at choic~ ~na~ be deemed to constitute assent to the rules that govern federal courts, ceit<nnly mduding ~ulttdistnct rules but perhaps induding - though more far afield and subject to much more uncertamty -statutory federal interpleader actions specifically relating to the federal case brought by the state atton:eys general. CJ Lapides 11. Bd. of Regeuts oJUnil'. of Ga., 535 U.S. 613,619-20 ~2002) (state that voluntanly ftles claim in federa1 bankruptcy court, or srate that is involuntary sued m state court but then voluntarily agrees to remova1 to federal court, cannot ·then assert Eleventh Amendment sovereigninununity); Cousol. Edisou Co. o[N Y., Iuc. v. US., 83 Fed. Cl. 455,456-59 (2008) fj~mder o~n_vo pan_tes mto one proceeding allowed under Federal Rules of Civil Procedure 19(a) \\'here faJlure to JOlll parttes V·muld expose defendant to risk of inconsistent verdicts and paying duplicative damages).

The volunt~~y consent_ o~ a ~ta~c at~orney ~encral to participate in a federal interpleader action may not present subject matter JUr~'idtcnonlssues gtvcn the nature ofintel'p]eader actions, if. Republic of Plu"lippines, 553 U.S. at 865-73, _an? gtven cl1at the voluntary participation of a .state attorney general would be akin to settlement negotiations over the division of a ftxed fund.

-~. :

the ground that it is duplicative.'49 But willie state laws m;~y well bar state attorneys general from seeking duplicative damages for violations thereof, bO such a mot1on would need to be limited in a number of respects in any event: first, insofar as state attorneys .general have proprietary claims on damages on behalf of government entities, 151 those claims would not be subject to such a motion, as the jury's verdict on damages for aggregate overcharges in the purchaser class case for natural persons and businesses would not p~rtain to those entities; second, insofar as the state attorneys general also have a clam> for tertwry damages of their own, i.e. deadweight Joss,152 that claim would not be subject to such a motion as the jury's verdict on aggregate damages for overcharges would not pertain to this claim; and third, insof.1r as the state attorneys general could argue that the jury's verdict for aggregate overcharges in the purchaser class case was insufficient vis-a-vis their own parens clauns for damages (in focusing on that part of the jury's verdict on aggregated damages that was allocated to the persons represented by the state attorneys general), the state attorneys general may be able to claim that defendants are entided to nothing more than an <ffset.

153

With such an offset, the claims of the state attorneys general for damages could h":dly be labeled as being duplicative such that they would run afoul of state and federal prohibmons

against the award of duplicative damages.

C. The Countervailing Benefits to Non-Consolidated State Attomey

General Actions in State Court

This analysis as to the difficulties involved with consolidation is different for state attorneys general who choose to file in state court - as opposed to state attorneys general who file in a non-MDL federal court - only insofar as the fom1er act1ons are plamly outside the jurisdiction of any federal interpleader actions. 154 B.ut state actions brought by

149

150

151

152

Cf, e.g., Geu Tel Co.'!{ tbe Nw. v. EEOC, 446 U.S. 318,333 (1980) (courtscan and should prevent double recovery by an individual when the EE9C is seeking rchef on behalf of that mdividual and there ts a

. pri"vate cause of action if the EEOC prevails in its action); Alex11ndcr 1~ Gardner-Denver Co., 41_5 U.S. 36, 51 n.l4 (1974)' (if the employee prevails in arbitration, judicial relief can be structured underTttle VII to avoid windfall gains); Bauk Que, Tex., NA. v. Taylor, 970 F.2d 16,34 (5th Cir. 1992) (FDIC brought post­trial motion asserting irriproper award of duplicative damages; while court .agreed wtt~ ~nnctple, court found argument to be waived because there was not full and complete bnefing of dus Issue); lvlalone v. Hecker, No. 06-10210-GAO, 2007 WL 4200951, at *1 (D. Mass. Nov. 27, 2007) (motion to vacate award of duplicative damages granted as only one aWard of actual damages may be made).

E.g., Cal. Bus. & Prof. Code Section 16760(a)(1)'.

See, e.g., Cal. Bus. & Prof. Code Section 16750(b) (attorney general can bring claims on behalf of s.t~te agencies); id. Section 16750(c) (attorney general can bring claims on behalf oflocal government entJnes

if certain prerequisites met).

One way to explain deadweight loss is that it is essentially the losS to the genera1 economy ~f the St~1.te because a pri-ce-fixing cartel or an illegal monopoly causes less goods to be produced at a h1gh~r pnce than would occur in a competitive market, causing resources to be devoted to less-producnve uses. Sec, e.g., Leslie, supra note 125. While such tertiary damages are likely not r.ecoverable by clas~ counsel, because the lost opportunity of consumers to buy more goods at a lower pnce can not be atmbu~ed to individuals, it can be calcUlated and recovered in a parens action. See id. Although Claywortl1 d1d not list deadweight loss as a tertiary- damage, see 49 Cal 4th at 787, the California Attorney GenerJ~ was not involved in that case and nothing in that opinion suggests that its list of tertiary damages was mtended

to be exhaustive.

153 See, e.g., Cal. Bus. & Prof. Code Section 16760(a)(1); if. Newby, 11 Cal.App. 4th at 289.

!54 See note 147, supra.

64

state attorneys general carry with them an additional substantial advantage, an advantage that 1s Important to the core values of federalism underlying the Federal Constitution and compares f.worably even with actions brought by state attomeys general in federal court. Furthermore, this advantage more than counterbalances any loss of benefits of the kind discussed infra in this article because state attorneys general actions cannot be readily consolidated in federal court with private actions.

This advantage is that the filing of state attorney general claims in state court allows th~ chief law enforcen1ent officer of the state - nan1ely, the state attorney general - to get rulinb'S from state courts on laws passed by its legislature and affecting those of its citizens w_ho have been injured due to the defendants' violations of state la\v. 155 Rulings of state rna] courts - whose job it is to interpret and apply state law - can be appealed direcdy to state appellate courts. In contrast, in federal court, a state attorney general must wait for a state law issue to percolate up the chain to the federal appellate level and then obtain feedback on that issue from the state courts, depending on the exercise of discretion of the federal appellate court in making a certification request, the state rules pertaining to the certification of state law issues, and the exercise of discretion by the state supreme court in accepting that request for certification. 156 The certification process can take an average of one an_d one half years in California }imn the date that the issue is certified b]' tile federal appellate courts. b? Thus, the filing by a state attorney general of state claims in state courts best allows for the orderly development of state law by state courts_158

Set against this advantage, too much can be said about the ability of state attorneys general W avoid consolidation as having a detrimental impact on the advantages inherent m consolidat1on once pass-an is handled as a post-trial allocation process. The California Attorney General, for example, cannot represent corporations.159 Moreover, what if a purchaser class in a federal case goes to trial first on claims that include natural persons, or reaches a setdement first on claims that involve natural persons, and achieves an impressive

155 See, e.g., J Jason Boyesk.ie, A ll1artcr '![Opinion: Federal Rule of Appellate Procedure 32.1 mzd Citation to U1~published Opi11io11, 60ARIC L. REV. 955, 976-78 {2008); Coby W Logan & Margie Alsbrook, Not Fmr at All: The Class Actwn Fmmcss Act '![ 2005 ls Based on Flawed Reasouing aud J11ill Harm Botlz Federal and State Courts, 41 ARK. LAWYER 10,12-13 (Winter 2006).

156 See, e.g., Cal. R. Ct. 8.548; Peny "- Scluvarzeuegger, 628 F.3d 1191, 1193 {9th Cir. 2011).

157 Krcmcn lJ. Cohen, 325 E3d 1035, 1052 (9th Cir. 2003) {Kozinski,]., dissenting).

158 Arguably, though, even if a state attorney general chooses to file his or her claims i~ a local federal district court ~n l_ieu of a lvlDL court that may be up to thousands of miles away, she at least will get the benefit of a dtstnct court, and a Court of Appeals, that may be better versed in state law than the MDL court. However, "may" is the operative word. The United States Supreme Court presumes that the federa~ .appellate co_urts correctly decide questions of state Jaw only because this presumption reflectS

.. ~he utility of t~e Htgh Court's havin~ to review determinations of state law by federal appellate courts m_ most c~s~~· not_ because of a behef that the fedcra1.appellatc courts have "a natural advantage in t1us dom~n. Lem111t Rjauc L., 518 U.S. 137,145 {1996) (reaching this conclusion in refusing to apply presumptton because of clear error of federal appellate court on construction of state law}; accord, Toum of Castle Rock, Colo.". Gouzales, 545 U.S. 748,757 (2005) (following Lcavill and refusing to defer to federal appellate cou1·t ruhng on state Jaw where court did not draw on "a deep well of state-specific expertise" but mcrel}' quoted language from an ord~r, the statutory text, and a legislative-history transcript).

159 See Cal. Bus. & Prof. Code Section 16760(a)(1).

65

result?160 State attorneys general who are responsive to the citizens of their states likely will not continue to litigate parens claims in another forum instead of voluntarily participating in the allocation process - if private plaintiffs truly have achieved a good result. Indeed, state attorneys general such as the California Attorney General often work closely with class lawyers for purchasers to obtain significant relief for their citizens and government entities

and then help craft and administer an allocation plan for the proceeds.161

VIII. Conclusion

Clayworth got it right with its suggestion that differing groups of purchaser plaintiffi be consolidated into one proceeding and that pass-an be handled as an equitable matter in post-trial allocation proceedings. Furth~rmore, Clayworth's suggestion should not be limited to proceedings in California's state courts. Not only can pass-an be handled as an equitable matter in federal courts post-trial but also, as demonstrated in this article, federal courts have ample reasons and room to go down the path illuminated by Clayworth. As explained, the benefits of proceeding down such a path are multifarious for the courts, for antitrust defendants, and for antitrust plaintiffs, including the more expeditious resolution of damages claims in cases involving per se illegal conduct or involving illegal monopolization. The more expeditious resolution of damages claims serves the end goals of deterrence in state and federal antitrust law. lf state attorney general parens patriae actioll5 are exempt from consolidation, the benefits to the development of state law - and to federalism -outweigh any negative.I62

160 For a description of the impressive results achieved in state indirect purchaser actions to date, including settlements in the millions and billions of dollars, see Claywo1th, 83(Cal. Rptr. 3d at 69.

161 Sec Stipulation and Supplemental Reference Order, Ill rc DRAM Antitmst Litig., MDL No. 1486 (N.D. Cal. Nov. 29, 2010) (Hamilton,J.) (document in possession of author) Qawyers for proposed indirect purchaser class and state attorneys general working together on allocation issues pertaining to settlement proceeds obtained via joint settlement of both plaintiffi' groups with the defendants in the underlying action); see also In rc Vitamin Cases, 107 Cal.App. 4th 820,824 (2003); b1 re Vitamiu Cases, No. 301803, 2004 WL 5137597, at *10 (Cal. Super. Ct. San Francisco Apr. 12, 2004).

162 Without the need to formally separate out representatives of different groups of purchasers and require multiple-track litigation by those different purchaser groups prior to trial, the arrangements set out in the federal Ha·ndbook for Litigation and the California Deskbook Oil tile Mauagement of Complex Civil Actiolr for the -appointment of counsel and the conduct of litigation may become even more efficient and cost-effective. As class certification may become easier due to the relegation of pass-an to the post-trial allocation phase, there may be even more room for state and federal courts to experiment with innovative procedures to handle complex antitrust cases. See, e.g., 1\tlicros,yi I-V Cases, 2000WL 35568182, at 19. Nonetheless, counsel will still b.e needed to represent the interests of different groups of purchasers in preparation for any post-trial or settlement allocation of proceeds. See Amclrem, 521 U.S. at 626-29. And counsel representing the individual interests of a specific group of purchasers should be compensated for their reasonable expenditure of costs in engaging in that representation, including the u.c;e of experts in those allocation proceedings.

66