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From Antitrust Law Daily, August 5, 2016

Class certification of containerboard purchasers upheld in price fixing suit

By Jeffrey May, J.D.

In an action against producers and sellers of containerboard for conspiring to restrict output and raise prices, a nationwide class of purchasers was properly certified under Federal Rule of Civil Procedure 23, the U.S. Court of Appeals in Chicago has ruled. The district court did not commit reversible error when it concluded that the class issues predominated (Kleen Products, LLC v. International Paper Co., August 4, 2016, Wood, D.).

The class consisted of entities that purchased containerboard products directly from any of the defendants or their subsidiaries or affiliates for use or delivery in the United States roughly between February 2004 and November 2010. The defendants are the nation’s largest containerboard companies: International Paper Co.; Georgia-Pacific LLC; Temple-Inland Inc.; RockTenn CP, LLC, and Weyerhauser Co.

At the outset, the appellate court explained that classes are routinely certified under Rule 23(b)(3) where common questions exist and predominate, even though other individual issues will remain after the class phase. The court was satisfied that common methods of proof could be used to demonstrate the existence of the alleged collusion and its effect on prices in the containerboard market and that the existence and impact of any such collusion predominate over other factors that might affect an individual plaintiff’s damages.

The purchasers tendered extensive evidence, albeit largely circumstantial, that could prove the existence of the alleged conspiracy to restrict output, in the court’s view. The appellate court also agreed with the district court that the purchasers made an adequate showing that the conspiracy had an effect on the prices they paid.

As evidence of a cartel, the purchasers pointed to 15 attempted price increases, which all defendants joined at roughly the same time with one exception, the court noted. They also identified capacity declines in North America, with mill closures and idled production, while demand was constant or increasing.

Battle of the experts. In their motion for class certification, the purchasers relied on reports from two experts. One expert opined that the structure of the containerboard industry made it likely that a conspiracy could succeed and that the defendants’ strategy would not have made sense if it had been undertaken unilaterally by each company. The other expert constructed a regression model to estimate the overcharges from the conspiracy, which indicated that the class paid approximately $3.8 billion in overcharges.

According to the defendants’ experts, pricing behavior could be explained by oligopolistic interdependence or parallel but independent behavior undertaken by firms in a concentrated market. In addition, the defendants’ experts suggested that the purchasers’ experts had failed adequately to account for external factors influencing price and capacity.

On the conspiracy issue, the appellate court noted that, while the defendants’ experts "suggested ways in which the supply restrictions might have been rational under the circumstances . . .they never said that there might have been a cartel with respect to some purchasers and not with respect to others."

Fact of injury. Common evidence of the fact of injury on a classwide basis was a more difficult issue, in the court’s view. However, the purchasers satisfied this requirement for purposes of class certification. The court disagreed with the defendants’ suggestion that the purchasers had the burden of showing that every class member had to prove at least some impact from the alleged violation. While every class member would need to make such a showing in order ultimately to recover, this level of proof at the class certification stage was not necessary.

Common proof of damages. On the issue of common proof of damages, the appellate court noted that, while the damages theory must correspond to the theory of liability, it was the court's responsibility to see if there is a classwide method for proving damages, and if not, whether individual damage determinations will overwhelm the common questions on liability and impact. Although the defendants argued that it was wrong for the purchasers’ expert to calculate aggregate rather than individual damages for the class, plaintiffs were permitted to use estimates and analysis to calculate a reasonable approximation of their damages, according to the court. "The determination of the aggregate classwide damages is something that can be handled most efficiently as a class action, and the allocation of that total sum among the class members can be managed individually, should the case ever reach that point," the appellate court explained.

"Potential flies in the ointment." Lastly, the appellate court addressed "two potential flies in the ointment" identified by the defendants: (1) the significance of releases signed by some class members, and (2) the relevance of contract defenses. To address the settlements from an earlier lawsuit against the same companies, the court could limit the recovery period for any class member who signed a release to purchases made after that release was signed, as the purchasers suggested. Mandatory arbitration and mediation clauses, as well as forum-selection clauses, jury waivers, and other contract restrictions impacted only 190 class members and did not "destroy the cohesion of the class," as the defendants suggested.

The case is Nos. 15-2385 and 15-2386.

Attorneys: W. Joseph Bruckner (Lockridge Grindal Nauen PLLP), Michael J. Freed (Freed Kanner London & Millen LLC) and Daniel J. Mogin (Mogin Law Firm, PC) for Kleen Products LLC. James Timothy McKeown (Foley & Lardner LLP) and Nathan P. Eimer (Eimer Stahl LLP) for International Paper Co. Michael B. Kimberly (Mayer Brown LLP) for Temple-Inland, Inc.

Companies: Kleen Products LLC; International Paper Co.; Georgia-Pacific LLC; Temple-Inland Inc.; RockTenn CP, LLC, and Weyerhauser Co.

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