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The Seventh Circuit’s recent decision in Messner v. Northshore University HealthSystem, No. 10-2514, 2012 WL 129991 (7th Cir. 2012) built on a 2010 decision from the Circuit and held that, where the admissibility of an expert critical to class certification issues is challenged, the district court must conduct a Daubert review prior to denying class certification.  The decision also accepted a broader scope of “common evidence” of injury necessary to demonstrate predominance of common questions for class certification, at least in the context of a private antitrust challenge to a merger.

Defendant in Messner was a conglomeration of two Illinois hospital systems that had formed in a merger in 2000. In 2007, the FTC ruled that the merger violated the Clayton Act by substantially lessening competition for hospital services in the geographic area.  The FTC found that the merger allowed Defendant to exercise increased market power and that it used that power to substantially increase its prices.  The FTC ruling did not require Defendant to dissolve the merger.  Subsequent to this decision, Plaintiffs filed several class actions challenging the merger, which were consolidated into the instant case.  Plaintiffs moved for class certification under Federal Rule of Civil Procedure 23(b)(3), relying on expert testimony of an economist who compared Defendants’ price changes to those of a control group of local hospitals.  Defendants relied on their own expert witness, an economist on whose testimony it had relied in the FTC hearing as well. The district court denied certification and Plaintiffs appealed to the Seventh Circuit.

The Seventh Circuit reversed.  The court first held that the district court improperly denied Plaintiffs’ motion for class certification without first ruling upon Plaintiffs’ Daubert motion to exclude Defendants’ expert.  The district court found that the expert’s report included “misleading information and analysis,” but declined to undertake a Daubert analysis and instead merely stated it would give the report the weight it believed it was due.  The court held that the plaintiffs’ Daubert motion had to be ruled on before the class certification issue due to the criticality of the testimony on certification issues.  In so holding, the court expanded its prior holding in American Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. 2010) that a district court must make a conclusive ruling on the qualifications and admissibility of an expert’s report or testimony prior to granting a motion for class certification, where the report or testimony is “critical” to the certification analysis.  In so holding, the Messner court rejected Defendants’ plea for an asymmetric rule that would have only required the district court to conduct a Daubert analysis before granting class certification, but not before denying it

The Seventh Circuit also reversed the district court’s finding “that questions of law or fact common to class members” did not “’predominate’ over questions that are individual to members of the class,” as required by Rule 23(b)(3).  Under the Clayton Act, Plaintiffs have to prove that Defendants violated antitrust law and that the violation caused them some injury.  For class certification Plaintiffs needed to demonstrate that they could prove injury to the class members by use of common evidence.  To do so, Plaintiffs relied on expert testimony that conducted a “differences-in-differences” analysis, pursuant to which the Defendants’ price changes were compared over time those of a “control group” of local hospitals.  Plaintiffs’ expert asserted that Defendants’ prices increased disproportionately to those of the “control group” overall, thus establishing common evidence of Defendants’ alleged anti-competitive market power and, thus, the existence of a common antitrust injury.  The district court found this analysis to be insufficient and held that, to show common evidence of injury, Plaintiffs were required to prove that Defendants raised their prices at uniform rates affecting all class members.

In reversing the district court, the Seventh Circuit held that the district court held Plaintiffs to an unreasonable standard by requiring that each class member’s injury be uniform.  The court found this degree of uniformity was unnecessary for class certification, holding that “it is important not to let the quest for perfect evidence become the enemy of good evidence.”  Because the expert’s analysis could allegedly demonstrate injury to the class members using common evidence, even if each class member’s injuries were not uniform, Plaintiffs had met Rule 23(b)(3)’s predominance requirement.

Daubert in the Seventh Circuit After Wal-Mart