Yesterday, in In re Modafinil Antitrust Litig., 3d Cir. No. 15-3475 the Third Circuit provided a framework for analyzing the oft-overlooked numerosity requirement of Rule 23(a)(1).. The court’s decision both clarified and seemingly bolstered the numerosity threshold.
The district court had certified a class of 22 direct purchasers of the drug Provigil that alleged a global conspiracy between the brand manufacturer and four generic manufacturers. The crux of the alleged scheme was an agreement to delay the entry of a generic form of the drug into the market in violation of antitrust laws, which caused the class members to suffer injury. The Third Circuit, however, reversed and remanded the class certification order, stating as follows:
When thinking of a class action brought under Rule 23(b)(3), we typically think of a large aggregation of individuals (hundreds or even thousands), each with small claims. This case is quite different from that. Here, we are faced with a putative class of twenty-two large and sophisticated corporations, most of which have multi-million dollar claims . . . . While we do not foreclose the possibility of class status in this case, or where the putative class is of similar composition, Plaintiffs have not met their burden of showing that the numerosity requirement of Rule 23(a)(1) has been satisfied. We now provide a framework for district courts to apply when conducting their numerosity analyses . . . .
The Third Circuit acknowledged leading treatises that indicate that classes of 20 or fewer are usually insufficiently numerous, classes of 41 or more usually are, and classes in between are given varying treatment. Yet the Court did not set a bright-line rule. Instead, it identified the following list of non-exhaustive factors that district courts should analyze for its numerosity analysis: judicial economy, the claimants’ ability and motivation to litigate as joined plaintiffs, the financial resources of class members, the geographic dispersion of class members, the ability to identify future claimants, and whether the claims are for injunctive relief or for damages. It stated that it would not at this point consider the possibility that plaintiffs may bring individual suits, citing the text of Rule 23(a)(1) that refers to whether “the class is so numerous that joinder of all members is impracticable,” not whether the class is so numerous that failing to certify presents a risk of many different lawsuits. In focusing on the joinder issue, the Court was careful to distinguish between numerosity and superiority – both of which require a judicial economy inquiry – stating that the former is a requirement in all class actions, while the latter only applies actions under Rule 23(b)(3).
The Third Circuit found that the district court did not properly analyze the judicial economy and ability/motivation factors. First, it stated that “[j]udicial economy does not permit consideration of the sunk costs from past discovery and litigation, or the need to conduct further discovery if the class is not certified.” As such, the district court erred when it factored in the late stage of the litigation in determining whether the numerosity requirement was met. Second, the Third Circuit found that that district court did not properly analyze the ability/motivation factor, focusing instead on whether the individual plaintiffs could have brought their own, individual suit. As the Third Circuit stated: “the numerosity rule does not envision the alternative of individual suits; it considers only the alternative of joinder.” Recognizing that 3 of the 22 class members’ claims were over $1 billion, and 13 of the other 19 were over $1 million, the Third Circuit instructed the district court to analyze whether class status was appropriate.
Those defending class actions should review the Third Circuit’s decision in In re Modafinil Antitrust Litig. to ensure that plaintiffs carry their numerosity burden. We will continue to monitor developments in the class-action defense space.