The Bogosian Shortcut Post-Hydrogen Peroxide

Demetrius Lambrinos

In In re Hydrogen Peroxide Antitrust Litigation, the Third Circuit held that “[c]lass certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23 are met.” In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 309 (3d Cir. 2008).

The specific issues on appeal in Hydrogen Peroxide were whether the district court erred in any of the following ways: “(1) by applying too lenient a standard of proof for class certification, (2) by failing meaningfully to consider the views of defendants’ expert while crediting plaintiffs’ expert,” and (3) by “erroneously presum[ing] the predominance requirement was met” by utilizing the Bogosian presumption, or what is sometimes referred to as the “Bogosian shortcut.”[1] Id. at 312, 325.

The Third Circuit recognized that the district court did not “have the benefit of the standards we have articulated” and, accordingly, remanded the case with instructions to the district court to apply the newly articulated standards, including those related to the Bogosian shortcut. The specific question addressed in this article is whether, and to what extent, the Third Circuit’s holding in Hydrogen Peroxide leaves the Bogosian shortcut intact.

As to the first two issues raised on appeal, Hydrogen Peroxide makes clear that district courts are required to make some “prediction” as to how specific issues, even those that overlap with the underlying merits of the case, will “play out” in order to determine whether individual issues predominate over common ones. Id. at 311.[2]

The elements of an antitrust claim under the Sherman Act are (1) a violation; (2) individual injury resulting from the violation (i.e., “impact”); and (3) measurable damages. Id. As to the issue of antitrust impact, the Third Circuit held that “[p]laintiffs’ burden at the class certification stage is not to prove the element of antitrust impact. ... Instead, the task for plaintiffs at class certification is to demonstrate that the element of antitrust impact is capable of proof at trial through evidence that is common to the class rather than individual to its members.” Id. at 311-12.

The extent to which district courts in the Third Circuit are required to delve into the merits on the issue of antitrust impact depends in large part on whether the Bogosian shortcut is available to the plaintiffs. Bogosian does not provide district courts with a mechanism to avoid these merits issues altogether, but it does offer a “shortcut” that may make the analysis less arduous.

For example, the Third Circuit noted that whether or not the “Bogosian concept of presumed impact” was properly applied would “depend on the circumstances of each case.” Hydrogen Peroxide, 552 F.3d at 325. The court noted that in Newton v. Merrill Lynch, 259 F.3d 154, 179 n.21 (3d Cir. 2001), it applied this concept and found that “[i]n antitrust class actions, injury may be presumed when it is clear the violation results in harm to the entire class.” 552 F.3d at 326.

According to the Bogosian court, it is “clear” that “that all members of the class suffered some damage, notwithstanding that there would be variations among all dealers as to the extent of their damage” when the following two factors are present: (1) a nationwide conspiracy to fix prices; and (2) an industry “price structure” in which the wholesale prices of the price-fixed goods tend to fluctuate within a range that is higher across all regions than would have existed in the but-for world of greater competition. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 455 (3d Cir. 1977); see also In re K-Dur Antitrust Litig., 2008 U.S. Dist., *44 (D.N.J. March 27, 2008) (“Properly understood, the Bogosian presumption (or shortcut) means that even if issues requiring individualized proof are present, evidence of a common antitrust injury to every class member flowing from an alleged antitrust violation can, in certain circumstances, satisfy the requirements of Rule 23(b)(3).”).

Courts considering whether pricing structures in various industries are amenable to the Bogosian analysis consider factors such as (1) the fungible nature of the product; (2) the broad-based nature of the alleged price increase; (3) the elasticity of demand; (4) a generalized restriction in supply; and (5) the absence of substantial price disparities among similarly situated class members. See In re Linerboard Antitrust Litig., 305 F.3d 145, 153 (3d Cir. 2002); Hydrogen Peroxide, 552 F.3d at 326.

The Hydrogen Peroxide court noted, for example, that “[i]n Linerboard, we found a strong argument could be made that the Bogosian concept of presumed impact was properly applied on the facts of that case.” 552 F.3d at 326. The court noted that in Linerboard, which was also a direct purchaser antitrust case, plaintiffs alleged a nationwide conspiracy among competitors “to reduce inventories to a 20-year low and boost prices” which extended over two years, and that plaintiffs offered proof that “[d]uring the two-year class period, prices had risen by 90 percent.” Id.

The Linerboard court determined that the district court appropriately applied the Bogosian shortcut because, inter alia, “[t]he economic laws of supply and demand run in tandem with the tenets of logic,” and ultimately supported plaintiffs’ theory. Linerboard, 305 F.3d at 152-53. The Linerboard court gave the following description of how these fundamental economic principles supported the plaintiffs’ case for class certification:

"A reduction in supply will cause prices to rise. A deliberate cut in supply, as alleged here, is a deliberate interference with market forces. Coincident with this interference with the normal market forces, linerboard prices in the eastern United States rose in six consecutive price increases. ... If the facts do, in fact, support plaintiffs’ theory that an individual plaintiff could prove fact of damage simply by proving that the free market prices would be lower than the prices paid and that he made some purchases at the higher price, this would be a demonstration of the laws of supply and demand at work." Id.

The Hydrogen Peroxide court felt that even though some of these factors appeared to be present, there was conflicting evidence presented by the defendants’ experts, and it was “not apparent that the district court considered, or believed it had the authority to consider, all the evidence in the record with respect to this dispute.” 552 F.3d at 326.

Defendants’ expert presented empirical evidence, for example, which showed that during the class period “the production of hydrogen peroxide was increasing rather than decreasing, [and] there was an active dispute between the experts as to the price structure in the industry.” Id. Defendants’ expert also offered evidence that there were “substantial price disparities among similarly situated customers.” Id.

Because it was unclear whether the district court fully considered the defendants’ expert analyses, the Third Circuit remanded the cases and provided the instruction that “[t]he district court, upon review of all the evidence consistent with this opinion, may again consider whether the reasoning in Bogosian is compatible with the record of this case.” Id.

The court, therefore, did not close the door on the Bogosian shortcut; rather, it held that the availability of the shortcut would vary depending on the circumstances of each case, and that in deciding whether to apply the shortcut district courts must consider competing analyses of each side’s experts as to the relevant factors. Id. Moreover, the Hydrogen Peroxide court specifically endorsed the manner in which the Bogosian shortcut was applied previously in Linerboard. Id.

What is also clear from Linerboard and Hydrogen Peroxide, however, is that litigants may not rely solely on the Bogosian shortcut to establish impact, but are advised to take the so-called “belt-and-suspenders” approach. Under this approach, plaintiffs should submit expert testimony and reports which analyze the relevant data and should not place “exclusive reliance on the presumed impact theory.” See, e.g., Linerboard, 305 F.3d at 153 (Bogosian shortcut correctly applied where plaintiffs submitted expert “opinions that were supported by charts, studies and articles from leading trade publications”).

The Third Circuit later explained in American Seed Co. v. Monsanto Co., 271 Fed. Appx 138, 140-41 (3d Cir. 2008), that in affirming the district court’s grant of certification in Linerboard, “we found it important that plaintiffs’ expert witnesses had utilized supporting data to conduct analyses that authenticated their professional opinions.”[3]

Similarly, in Sullivan v. DB Investments, the district court found that the expert report and direct evidence of injury submitted by the plaintiffs “support[ed] the use of the Bogosian shortcut,” and stated that “based on the nature of the diamond industry, it is appropriate to presume potential injury to all class members and allow them to prove injury on a common basis.” See 2008 U.S. Dist., *29 (D.N.J. May 22, 2008), vacated on other grounds, 613 F.3d 134 (3d Cir.), and reh’g en banc granted, 619 F.3d 287 (3d Cir. 2010).

Thus, it is clear that that the Bogosian shortcut remains open in the Third Circuit, but the belt-and-suspenders approach is preferred over bald assertions of the presumption unaccompanied by expert analyses or direct proof of injury.

[1] See, e.g., In re Pressure Sensitive Labelstock Antitrust Litig., No. 3:03-MDL-1556, 2007 U.S. Dist., *49 (M.D. Pa. Nov. 19, 2007).

[2] The question of how deeply a district court can or should delve into the merits at the class certification stage has been largely answered by the Supreme Court’s recent decision in Wal-Mart Stores Inc. v. Dukes, No. 10-277, 2011 U.S., *22 n.6 (June 20, 2011). There the court characterized language from Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974), that some courts interpreted as categorically prohibiting any inquiry into the merits at the class certification stage, as “the purest dictum” that “is contradicted by our other cases.” Those other cases — Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), and General Telephone Co. of Southwest v. Falcon, 457 U.S. 147 (1982) — were relied upon by the Third Circuit in Hydrogen Peroxide, which teaches that “Eisen is best understood to preclude only a merits inquiry that is not necessary to determine a Rule 23 requirement.” Hydrogen Peroxide, 552 F.3d at 316-17.

[3] This fact was detrimental to plaintiffs’ motion for class certification in American Seed because in that case plaintiffs’ expert had not performed “any analysis of the data” produced in discovery and at the hearing plaintiffs “stuck to their theory that a presumption of impact alone was adequate.” 271 Fed. Appx. at 141; see also K-Dur, 2008 U.S. Dist., *45 (Bogosian shortcut did not apply where plaintiffs presented “no additional evidence of class-wide impact”).

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