Kleen Prods. LLC v. Int'l Paper Co.

• Decision Date: 04 August 2016
• Docket Number: 15-2386,Nos. 15-2385,s. 15-2385
• Citation: 831 F.3d 919
• Parties: Kleen Products LLC, et al., Plaintiffs–Appellees, v. International Paper Company, et al., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

831 F.3d 919

Kleen Products LLC, et al., Plaintiffs–Appellees,

v.International Paper Company, et al., Defendants–Appellants.

Nos. 15-2385

15-2386

United States Court of Appeals, Seventh Circuit.

Argued December 8, 2015

Decided August 4, 2016

W. Joseph Bruckner, Attorney, Brian D. Clark, Attorney, Devona L. Wells, Attorney, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, Michael J. Freed, Attorney, Steven A. Kanner, Attorney, Robert J. Wozniak, Attorney, Freed Kanner London & Millen LLC, Bannockburn, IL, Daniel J. Mogin, Attorney, Jodie M. Williams, Attorney, Mogin Law Firm, San Diego, CA, Aaron Martin Panner, Attorney, Gregory G. Rapawy, Attorney, Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, Washington, DC, for Plaintiffs–Appellees.

Matthias A. Lydon, Attorney, James Franklin Herbison, Attorney, Michael P. Mayer, Attorney, Chicago, IL, Elizabeth Petrela Papez, Attorney, Washington, DC, Winston & Strawn LLP, William P. Ferranti, Attorney, Ferranti Firm LLC, Portland, OR, for Defendant–Appellant.

Before Wood, Chief Judge, and Bauer and Williams, Circuit Judges.

Wood

, Chief Judge.

The antitrust laws prohibit competing economic actors from colluding to agree on prices, either directly or through such mechanisms as output restrictions. See United States v. Socony–Vacuum Oil Co. , 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940)

; Palmer v. BRG of Georgia, Inc. , 498 U.S. 46, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990). That is just what the plaintiffs in the case before us allege the producers and sellers of containerboard did. The plaintiff-purchasers filed this suit under Sherman Act § 1, 15 U.S.C. § 1, seeking to recover treble damages for the overcharges they allegedly paid. See Clayton Act § 4, 15 U.S.C. § 15. What brings the case before us at this time—well before the merits have been resolved—is the district court's decision to certify a nationwide class of purchasers under Federal Rule of Civil Procedure 23. The defendants, International Paper Company, Georgia–Pacific LLC, Temple–Inland Inc., RockTenn CP, LLC, and Weyerhauser Company (to whom we will refer collectively as Defendants unless the context requires otherwise), asked us to accept this interlocutory appeal from the certification decision pursuant to Rule 23(f). We agreed to do so. Finding no abuse of discretion in the district court's decision, however, we affirm.

I

The Purchasers allege in their complaint that the defendant companies agreed “to restrict the supply of containerboard by cutting capacity, slowing back production, taking downtime, idling plants, and tightly restricting inventory.” These actions predictably led to an increase in the price of containerboard—a price increase that caused Purchasers to pay more for containerboard products than they would have paid in the absence of the illegal agreement. The named plaintiff on the complaint is Kleen Products LLC. It asked the district court to certify the following class:

All persons that purchased Containerboard Products directly from any of the Defendants or their subsidiaries or affiliates for use or delivery in the United States from at least as early as February 15, 2004 through November 8, 2010.

The proposed definition carved out the defendants themselves, entities or personnel related to them, and governmental entities. The Defendants opposed class certification on a number of grounds: whether common questions predominate; whether antitrust injury can be proved using a common method; whether the amount of damages can be proved using a common method; and whether a class action is superior.

As the Supreme Court emphasized in Wal–Mart Stores, Inc. v. Dukes , 564 U.S. 338, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011)

, “Rule 23 does not set forth a mere pleading standard. A party seeking class certification must affirmatively demonstrate his compliance with the Rule....” Id. at 350, 131 S.Ct. 2541. We must therefore take a careful look at the evidence that the Purchasers presented in support of class certification as we assess the district court's ruling. Some of that evidence was provided by experts, but at this stage we need say little about them, because no defendant challenged the Purchasers' experts under Federal Rule of Evidence 702 or the Supreme Court's decision in Daubert v. Merrell Dow Pharm., Inc. , 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). See Tyson Foods, Inc. v. Bouaphakeo , –––U.S. ––––, 136 S.Ct. 1036, 1049, 194 L.Ed.2d 124 (2016) (where there is no Daubert challenge, district court may rely on expert evidence for class certification). The district court also pointed out that “[f]or the most part, the parties agree on the basic facts, and both parties' experts rely upon the same data, so there are little if any factual disputes that the Court must resolve to decide class certification.” For that reason, the court concluded that there was no need for a comprehensive evidentiary hearing. This, in our view, was a case-management decision that we have no reason to second-guess, despite Defendants' complaints. See American Honda Motor Co. v. Allen , 600 F.3d 813, 815 (7th Cir. 2010) (evidentiary hearing should be held “if necessary”); West v. Prudential Sec., Inc. , 282 F.3d 935, 938 (7th Cir. 2002) (same).

Two final points are worth making before we turn to the evidence. First, nothing in Wal–Mart

changed the applicable standard of review, which is deferential (as the cases say, only for “abuse of discretion”). Messner v. Northshore Univ. HealthSystem , 669 F.3d 802, 811 (7th Cir. 2012). Second, it remains true that Rule 23 does not demand that every issue be common; 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. See, e.g.,

McMahon v. LVNV Funding , 807 F.3d 872, 875–76 (7th Cir. 2015) ; Pella Corp. v. Saltzman , 606 F.3d 391, 393 (7th Cir. 2010).

II

Although the requirements for class certification under Rule 23

are familiar, we set out the critical sections of the rule here for ease of reference:

(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

* * *

(b) Types of Class Actions. A class action may be maintained if Rule 23(a)

is satisfied and if:

* * *

(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

Our focus is on the predominance requirement of subpart (b)(3), since, as the district court noted, “Defendants have conceded that typicality, commonality, and adequacy have been satisfied so long as [Purchasers] have adequately proven predominance,” and no one is arguing about numbers either.

A

We begin with some background facts about the containerboard industry. “Containerboard” is the term for a sheet of heavy paper with a smooth top and bottom (the linerboard) and a fluted layer between the two (the corrugated medium). It is made in large, expensive mills; as of 2008, no new mills had been built in the United States for more than 12 years. The containerboard sheets are cut and folded into products such as boxes of varying sizes. The industry is dominated by vertically integrated producers, which means simply that the fabrication of the containerboard and then its processing into final products are handled internally by a firm. This means, importantly for antitrust purposes, that the Purchasers bought directly from the alleged conspirators, not through intermediaries. See Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977)

(distinguishing between direct-purchaser suits, which are permitted under Clayton Act § 4, and indirect-purchaser suits, which are not).

Containerboard is a commodity, sold in standardized compositions and weights. The final products are also standardized; one trade association commented that “boxes are essentially commodity items used in well established markets.” The most common containerboard product sold in the United States in 2010 was unbleached kraft linerboard weighing 42 pounds per thousand square feet. Pulp & Paper Week (PPW), an industry periodical, publishes weekly price indices that include the price for the 42-pound linerboard for delivery east of the Rocky Mountains. The PPW index, as it is called, is widely used within the industry as a benchmark.

A small and shrinking number of firms produce most of the containerboard in North America. As of 1997, the five largest firms (i.e. the current defendants or their predecessors) were responsible for 41% of North American production. By 2007, the Defendants furnished 74% of that production. Add in the next two firms, and the number swelled to 84%. (This evidence is ambiguous: a cartel's market share will shrink over time, to the extent that the high prices attract new entry from fringe competitors or imports, but its market share will grow to the extent that the cartel successfully uses exclusionary devices. The existing record does not resolve that ambiguity, but it does not matter for purposes of...