In re New Motor Vehicles Can. Export Anti. Lit.

• Decision Date: 28 March 2008
• Docket Number: No. 07-2259.,No. 07-2257.,No. 07-2258.,07-2257.,07-2258.,07-2259.
• Citation: 522 F.3d 6
• Parties: In re NEW MOTOR VEHICLES CANADIAN EXPORT ANTITRUST LITIGATION, William H. Brown, et al., Plaintiffs, Appellees, v. American Honda, et al., Defendants, Appellants. In re New Motor Vehicles Canadian Export Antitrust Litigation, William H. Brown, et al., Plaintiffs, Appellees, v. General Motors Corporation, et al., Defendants, Appellants. In re New Motor Vehicles Canadian Export Antitrust Litigation, William H. Brown, et al., Plaintiffs, Appellees, v. Ford Motor Company, et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

522 F.3d 6

In re NEW MOTOR VEHICLES CANADIAN EXPORT ANTITRUST LITIGATION,

William H. Brown, et al., Plaintiffs, Appellees, v. American Honda, et al., Defendants, Appellants.

In re New Motor Vehicles Canadian Export Antitrust Litigation,

William H. Brown, et al., Plaintiffs, Appellees, v. General Motors Corporation, et al., Defendants, Appellants.

In re New Motor Vehicles Canadian Export Antitrust Litigation,

William H. Brown, et al., Plaintiffs, Appellees, v. Ford Motor Company, et al., Defendants, Appellants.

No. 07-2257.

No. 07-2258.

No. 07-2259.

United States Court of Appeals, First Circuit.

Heard October 3, 2007.

Decided March 28, 2008.

William J. Kayatta, Jr. with whom Clifford H. Ruprecht, Pierce Atwood LLP, James C. Egan, Jr., Kirsten A. Lockhart, Carrie M. Anderson, and Weil Gotshal & Manges were on brief for appellants Chrysler LLC, Chrysler Motors LLC, Chrysler Canada Inc., and Mercedes-Benz USA LLC.

Richard C. Godfrey, P.C., David J. Zott, P.C., Daniel E. Laytin, and Kirkland &

Ellis LLP were on brief for appellants General Motors Corp. and General Motors of Canada, Ltd.

Margaret M. Zwisler, William R. Sherman, and Latham & Watkins LLP were on brief for appellants Ford Motor Company and Ford Motor Company of Canada, Ltd.

John H. Rich III, Perkins Thompson, P.A., Robert A. Van Nest, Ragesh K. Tangri, Rachael E. Meny, Daniel Purcell, and Keker & Van Nest, LLP were on brief for appellants American Honda and Honda Canada Inc.

Peter Sullivan, Joshua Lipton, Gibson Dunn & Crutcher LLP, Harold J. Friedman, Laurence H. Leavitt, and Friedman Gaythwaite Wolf & Leavitt LLP were on brief for appellant Nissan North America, Inc.

Joseph J. Tabacco, Jr. with whom Glen DeValerio, Peter A. Pease, Todd A. Seaver, Matthew D. Pearson, Berman DeValerio Pease Tabacco Burt & Pucillp, Michael M. Buchman, J. Douglas Richards, Pomerantz Haudek Block Grossman & Gross, LLP, Robert S. Frank, and Harvey & Frank were on brief for appellees.

Before TORRUELLA, Circuit Judge, SELYA, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

This multi-district consumer action alleges a conspiracy by automobile manufacturers to illegally block lower-priced imports from Canada, which is alleged to have inflated the price of new cars sold in America. We granted this interlocutory appeal under Federal Rule of Civil Procedure 23(f) from the district court's certifications of (1) a nationwide plaintiff class seeking injunctive relief under, section 16 of the Clayton Act and Rule 23(b)(2), and (2) a class seeking damages under the antitrust and consumer protection laws of twenty states and Rule 23(b)(3).

Interlocutory appeals from class certification under Rule 23(f) are especially appropriate where the plaintiffs' theory is novel or where a doubtful class certification results in financial exposure to defendants so great as to provide substantial incentives for defendants to settle nonmeritorious cases in an effort to avoid both risk of liability and litigation expense. Tardiff v. Knox County, 365 F.3d 1, 3 (1st Cir.2004); Waste Mgmt Holdings, Inc. v. Mowbray, 208 F.3d 288, 293 (1st Cir.2000); see also West v. Prudential Sec, Inc., 282 F.3d 935, 937 (7th Cir.2002) ("The effect of a class certification in inducing settlement to curtail the risk of large awards provides a powerful reason to take an interlocutory appeal."). The defendants assert that the amount at stake in the damages classes alone, counting treble damages, could be as much as $3 billion, and these classes include roughly thirteen million car purchasers. There is no reliable means for measuring the size of the injunctive class, but it is potentially massive.¹

By the same token, an erroneous failure to certify a class where individual claims are small may deprive plaintiffs of the only realistic mechanism to vindicate meritorious claims. See, e.g., Tardiff, 365 F.3d at 7 (citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997)). All of these concerns are very much implicated here.

We summarize our holdings. We reverse the certification of the injunctive class under the Clayton Act for lack of a live controversy and order dismissal of the claim. Because there is no jurisdiction under the Clayton Act, we remand to the district court for determination of the several issues concerning the existence of federal jurisdiction. On the representation of the parties that there is diversity jurisdiction over at least some of the state damages claims, we review the certification of the damages classes. We vacate that certification; the district court is free to reconsider the class certification orders on a more complete record.

I. Background

The extensive background of this case is recited in many thoughtful decisions of the district court. See, e.g., In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles I), 307 F.Supp.2d 136 (D.Me.2004) (dismissing federal antitrust damages claims); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles II), 335 F.Supp.2d 126 (D.Me.2004) (asserting pendent personal and supplemental subject matter jurisdiction over state law claims); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles III), 350 F.Supp.2d 160 (D.Me.2004) (denying in part motion to dismiss); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles IV), No. MDL 1532, 2006 WL 623591 (D.Me. Mar. 10, 2006) (certifying federal injunctive relief class); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles V), 235 F.R.D. 127 (D.Me.2006) (certifying six exemplar state damages classes); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles VI), 241 F.R.D. 77 (D.Me.2007) (supplemental order on certification of state damages classes); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles VII), 243 F.R.D. 20 (D.Me.2007) (order certifying class action and appointing class counsel); In re New Motor Vehicles Canadian Export Antitrust Litig. (Motor Vehicles VIII), 243 F.R.D. 17 (D.Me.2007) (memorandum order in support of class certification order). Before describing the class certification issues, we sketch the outline of the underlying case.

The plaintiffs' claim is that from at least 2001 through 2003, the currency exchange rate differential between the strong United States dollar and the cheaper Canadian dollar created arbitrage opportunities² in the gray market³ to sell lower-priced Canadian cars in the United States. These arbitrage opportunities arose from the difference between the price at which a broker could buy a vehicle in Canada (plus the costs of exporting the vehicle to the United States) and the price at which the broker could resell the vehicle, whether to a dealer or consumer, in the United States. These arbitrage opportunities were enhanced by liberal trade agreements and the harmonization of automotive safety and environmental standards between the two countries in the 1990s. As a result, an exporter could make most new cars sold in Canada physically indistinguishable from comparable models sold in the United States by replacing the speedometer and odometer with gauges that measured miles instead of kilometers. All of these circumstances converged in what plaintiffs refer to as a "perfect storm" of cross-border arbitrage opportunities.

Plaintiffs allege that individual automobile manufacturers engaged in business practices, both legal and illegal, designed to restrict the flow of Canadian cars into the United States. Manufacturers allegedly refused to honor warranties on Canadian cars in the United States and discouraged dealers from installing domestic gauges on Canadian cars; they mandated "no export" clauses in sales agreements between dealers and consumers and required Canadian dealers to conduct due diligence into whether potential customers were likely to export their cars out of Canada; and they withheld information about safety recalls from exporting customers. Manufacturers also allegedly imposed disciplinary measures on Canadian dealers who sold to exporting customers. When Canadian cars were discovered in the United States, automakers would impose a "chargeback," a monetary penalty sometimes amounting to thousands of dollars, on the Canadian dealer who sold the car; manufacturers threatened to withhold inventory of desirable models from offending dealerships; and they threatened to terminate dealerships that sold to exporters.

Plaintiffs allege that these business practices had the effect of suppressing the supply of Canadian cars in the United States. This stifling of supply led to increases in two key prices in the domestic United States automobile market: the Manufacturer's Suggested Retail Price ("MSRP") and the dealer invoice price. The MSRP represents the retail price presented to the public. The dealer invoice price represents the manufacturer-determined net wholesale price to dealers.⁴ Both the MSRP and the list dealer invoice price are determined annually by manufacturers and apply nationally. Under plaintiffs' theory, these two prices in turn define the bargaining parameters for the price actually paid by consumers. Actual sales prices vary according to individual negotiations between dealers and consumers, but plaintiffs assume that negotiated prices fall within the range between the dealer invoice price and the MSRP.

Defendants⁵ take the position that the business practices described above amount to vertical restraints between manufacturers and their dealers that do not violate the antitrust laws. Plaintiffs, however, allege that defendants violated section 1 of the Sherman Act by conspiring to coordinate their anti-export business practices across the industry in response to increased arbitrage opportunities after 2000. Plaintiffs allege that defendants accomplished the illegal conspiracy over the course of several meetings and through dissemination...