565 F. 2d 59 - Windham v. American Brands Inc

Murray Bring, Washington, D. C. (Arnold & Porter, Washington, D. C., Willcox, Hardee, Palmer, O'Farrell, McLeod & Buyck, Florence, S. C., on brief), for appellee Philip Morris, Inc.

Robinson, McFadden, Moore & Pope, Columbia, S. C. (Davis, Polk & Wardwell, New York City, on brief), for appellee R. J. Reynolds Tobacco Co.

Henry B. Smythe, Buist, Moore, Smythe & McGee, Charleston, S. C., Paul G. Pennoyer, Jr., Chester J. Hinshaw, Chadbourne, Parke, Whiteside & Wolff, New York City, on brief, for American Brands, Inc.

Richard E. Richards, Richards, Caskey & Richards, Lancaster, S. C., N. R. Coleman, Jr., Milligan, Coleman, Fletcher & Gaby, Greenville, Tenn., on brief, for The Austin Co., Inc. and Mullins Leaf Tobacco Co., Inc.

E. LeRoy Nettles, Nettles, Thomy, Floyd & Smith, Lake City, S. C., Norwood Robinson, Hudson, Petree, Stockton, Stockton & Robinson, Winston-Salem, N. C., on brief, for Brown and Williamson Tobacco Corp. and Export Leaf Tobacco Co.

Jack Nettles, McGowan, Nettles, Keller & Eaton, Florence, S. C., Howard Alder, Jr. and Larry D. Sharp, Bergson, Borkland, Margolis & Adler, Washington, D. C., on brief, for Dibrell Brothers Inc. and C. W. Walters Co., Inc.

D. Laurence McIntosh, Wright, Scott, Blackwell & Powers, Florence, S. C., Tommy W. Jarrett, Dees, Dees, Smith, Powell & Jarrett, Goldsboro, N. C., William R. Glendon, Guy C. Quinlan, Rogers & Wells, New York City, on brief, for Gallaher Limited.

C. Weston Houck, Florence, S. C., Z. Hardy Rose, Lucas, Rand, Rose, Meyer, Jones & Orcutt, Wilson, N. C., Fred D. Turnage, Cleary, Gottlieb, Steen & Hamilton, Washington, D. C., on brief, for Imperial Group Limited.

John W. Thomas, Roberts, Jennings & Thomas, Columbia, S. C., George R. Humrickhouse, John O. Peters, Samuel W. Hixon, III, Williams, Mullen & Christian, Richmond, Va., on brief, for J. P. Taylor Co. Inc., Universal Leaf Tobacco Co., Inc.

Joseph O. Rogers, Jr., Rogers, Riggs & Rickenbaker, Manning, S. C., on brief, for Liggett & Myers, Inc.

Douglas McKay, Jr., McKay, Sherrill, Walker, Townsend & Wilkins, Columbia, S. C., Joseph W. Gelb and H. Adam Prussin, Weil, Gotshal & Manges, New York City, on brief, for Loews Theaters, Inc.

Raymond W. Fullerton, Atty., U. S. Dept. of Agriculture, Washington, D. C. (James D. Keast, Gen. Counsel, J. Michael Kelly, Harold Carter, Asst. Gen. Counsels, John C. Chernauskas, Director Marketing Div., Edward M. Silverstein, Atty., Marketing Div., U. S. Dept. of Agriculture, Washington, D. C., Mark W. Buyck, Jr., U. S. Atty., Wm. Reynolds Williams, Asst. U. S. Atty., Columbia, S. C., on brief), for appellee Secretary of Agriculture of the United States.

Before HAYNSWORTH, Chief Judge, BRYAN, Senior Circuit Judge, and CRAVEN,* BUTZNER, RUSSELL, WIDENER and HALL, Circuit Judges, en banc.

This is an interlocutory appeal, pursuant to Rule 54(b), Fed.R.Civ.P., from an order denying class certification under Rule 23(b)(3), Fed.R.Civ.P., in a private action brought by certain South Carolina tobacco growers, who allege that the defendant tobacco companies and the Secretary of Agriculture violated Sections 1 and 2 of the Sherman Anti-Trust Act1 during the years 1970 through 1974.2 When the appeal was initially heard, the majority of the panel thought that the district court should have allowed the suit to proceed as a class action, at least on the issue of "violation."3 However, we now conclude that the denial of class certification was not an abuse of discretion on the part of the district court. We therefore affirm.

This action concerns the sale at auction of flue-cured tobacco on the South Carolina markets. Flue-cured tobacco is a non-standardized or non-fungible commodity. It is raised in the Pee Dee section of South Carolina. Under a long established pattern of marketing, it is sold, when ready for market, at auctions conducted at some 36 warehouses in 11 geographic markets distributed throughout that section. All tobacco, before being offered for sale at auction, must be graded by government inspectors for the information of both sellers and buyers. These inspectors classify the tobacco within the range of 161 grades, depending upon the location of the leaf on the tobacco stalk, beginning with the top of the plant. Every buyer, however, has his own grading system. His classifications of grades are considerably less than those used by the government inspectors and vary from 10 to 32.

All tobacco is grouped, according to government grades, in individual piles weighing approximately 200 pounds each, and is offered for sale by an auctioneer at competitive bidding. The warehouses where the tobacco is brought, graded and sold are owned by independent individuals or concerns having no connection with the defendants. The auctioneer at the sales is employed by the warehouses and likewise has no connection with the defendants. Under the established procedure for bidding, a representative of the warehouse (known as a "starter") begins the bidding as each pile is offered for sale at the warehouse and the auctioneer proceeds from that point to receive bids in the normal auction manner from the prospective buyers present at the sale.

The defendants are buyers of flue-cured tobacco. Some purchase tobacco at all of the warehouses in the several South Carolina markets; others participate in the sales at only some of such markets and warehouses. There are other buyers than the defendants who are present and bidding at some or all of the South Carolina markets.

The prices which prevail at the auctions vary from day to day and are not uniform, even for tobacco which may be graded alike by government inspectors. Normally, these prices increase as the season progresses. To some extent this is because the early marketing generally consists of the lower grades commanding lower prices. As the marketing season continues, the grades generally increase in quality and market demand. Because of short supply, the price range between the lower and higher grades, however, had narrowed in the 1970's, which is the period involved in this lawsuit. Thus, in 1970, the average price on the South Carolina markets was 71.88 cents per pound; in 1974 it was 103.96 cents.

Just as there is a variation in price from market to market, from day to day, and from governmental grade to governmental grade, and even among grades, during a season, so there may be a considerable variation in the governmental grades for which the various buyers compete and in the quantities purchased by the different buyers from day to day on the various markets. Some buyers, for instance, do not bid on certain grades, because their principals do not use such grades in their processing, or they may already have purchased as much as they wish of those grades at that particular market. In such cases, the buyers either withdraw from the bidding or sharply curtail their bidding. An illustration of this situation is the experience at the Pamplico market during the marketing season of 1973. One of the defendants did not buy any tobacco at this market in 1973; another did not buy during a quarter of the sales days at such market in this period. A further indication of the fluctuations in purchases at this market is evidenced by the record of purchases during this same 1973 season by the defendant Reynolds at this market. Its percentage of purchases, on a daily basis, fluctuated widely between 1 per cent and 27 per cent of the sales. It is interesting, too, that the largest buyer at the market during that season, is not a defendant in this action.

At the bidding, it was not infrequent that the warehouseman would intervene to bid up the price of a particular pile of tobacco. He would do this to "stabilize" the market, as one warehouseman phrased it, that is, to stimulate the bidding. Should a seller, on the other hand, feel that his tobacco was being sold too cheaply he could withdraw it from sale and later reoffer it or put it under the support loan program to the Stabilization Fund, operated under the authorization of § 1445, 7 U.S.C. From time to time, the bidding for a particular pile of tobacco, particularly if of high quality, would end with a tie-bid from two or more of the buyers. Occasionally, this tie-bid might be broken by another buyer, who would intervene with a higher bid. More often, though, the auctioneer would, in case the tie was not broken, make a choice between the bidders and award the tobacco to one of the tie-bidders. In selecting the tie-bidder to whom to assign the tobacco, the auctioneer would in many cases favor the bidder who had bid higher on the lower quality tobacco at that warehouse. The plaintiffs have disclaimed any intention of charging that the auctioneer participated in any way in any conspiracy to fix prices or to allot the tobacco according to any plan or agreement among the buyers; his complete impartiality is conceded.4

In their complaint seeking both individual and class relief, the plaintiffs set forth three separate causes of action under the anti-trust laws: The first asserted a conspiracy of the defendant companies, "with the knowledge, consent and acquiescence" of the Secretary of Agriculture to fix prices and rig bids on flue-cured tobacco at the South Carolina tobacco auction markets; the second, a conspiracy of the defendant companies, "with the knowledge, consent and acquiescence" of the Secretary of Agriculture, to monopolize these same markets by percentage purchase agreements and collusive bidding; and, finally, in conjunction with the Secretary of Agriculture, a conspiracy "to fix, control, and restrict" unreasonably "the amount of flue-cured tobacco which could be sold per day and per week in the auction warehouses," primarily by an inequitable assignment of inspectors to such warehouses as opposed to those assigned to warehouses in the Georgia market. To this complaint, all parties filed answers. In addition, the Secretary of Agriculture moved to dismiss but the motion was denied.

After joinder of issues, the plaintiffs moved to certify the action as a class action under Rule 23. Before passing on the certification issue, the district judge permitted full discovery on that issue alone, presided at the depositions of more than twenty witnesses heard during that discovery, and examined extensive documentary evidence produced.5 On the basis of the record thus developed, he filed a comprehensive opinion containing what was described in the panel opinion as "full, precise, and apposite findings." In these findings, he concluded that the plaintiffs had not borne their burden,6 that while the standards of Rule 23(a) for class certification had been satisfied the requirements of 23(b)(3) that "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members" and that a class action would be "superior to other available methods for the fair and efficient adjudication of the controversy" were not satisfied. Included as a part of his findings under 23(b)(3), was the finding that, if certified as a class action, the action would become unmanageable, because of the complexity of proof of injury and damage.7 For those reasons, he concluded that the standards for certification as set forth in (b)(3) of Rule 23 could not be met and he denied certification.

Primarily, the decision of the district judge turned upon a finding of the unmanageability of the action as a class action considered under the requirements of Rule 23(b)(3). In any review of either a grant or denial of class certification on grounds of manageability under Rule 23(b)(3), we must begin by recognizing the firmly established principle that the issue of manageability of a proposed class action is always a matter of "justifiable and serious" concern for the trial court and peculiarly within its discretion.8 This is so because the issue is one of fact, subject to determination by the district court; it is "a practical problem, and primarily a factual one with which a district court generally has a greater familiarity and expertise than does a court of appeals. Consequently, it is an area in which the trial court must of necessity be granted a wide range of discretion."9 And this is particularly true in actions governed by Rule 23(b)(3).10 Accordingly, the plaintiffs in this appeal have the burden of establishing that the exercise of discretion by the district judge in denying, as he did, class certification was clearly wrong.

It must be borne in mind, too, that there are three essential elements in every private anti-trust action: They are (1) a violation of the anti-trust law, (2) direct injury to the plaintiff from such violations, and (3) damages sustained by the plaintiff.11 It follows, therefore, that a mere finding of violation does not result in liability. The statute gives a right of action only to the extent that one has been "injured in his business or property by reason of anything forbidden in the anti-trust laws."12 The gravamen of the complaint is not the conspiracy; the crux of the action is injury, individual injury.13 While a case may present a common question of violation, the issues of injury and damage remain the critical issues in such a case and are always strictly individualized.14 As Professor Handler has aptly declared:

"(The treble-damage remedy provided by Clayton Act § 4, 15 U.S.C. § 15) is . . . limited by its (own) terms, the only person who may recover damages is one who had been 'injured in his business or property by reason of' a violation. The amount of his recovery, except for costs, is limited to 'threefold the damages by him sustained.' The language that Congress used in this statute . . . leaves no room for awarding damages to some amorphous 'fluid class' rather than, or in addition, to one or more actually injured persons. It likewise does not permit any person to recover damages sustained not by him, but by someone else who happens to be a member of such class." (Italics author's) (p. 37).

Generalized or class-wide proof of damages in a private anti-trust action would, in addition, contravene the mandate of the Rules Enabling Act15 that the Rules of Civil Procedure "shall not abridge, enlarge or modify any substantive right." It follows that in determining manageability, the District Court must have in mind these essential elements of a private anti-trust action and the proof that may be required to establish these elements.16

As we have already stated, the district judge carefully and thoughtfully reviewed the facts and concluded that the issue of anti-trust violation did not predominate, that class action treatment was not superior to other available remedies in the case and, under the required standards of proof of the plaintiffs' action, class certification would render it unmanageable. He referred to the multiplicity of claimants who might be involved, the complexity of their claims as they would relate to injury and damages, and the highly individualized character the proof of injury and damages would assume, making necessary a mini-trial in all the individual claims, probably with a separate jury. He noted the numerous potential parties that might be injected into the action by class certification. Parties to whom notice would have to be given if class certification were allowed would, it seems, be above 20,000. The sheer cost of preparing a list of these potential parties was estimated at $30,000. The claims of the parties would involve thousands upon thousands of sales during four separate annual marketing seasons. Moreover, the claims could not be proved by any set method of mathematical or formula calculation but would require individual proof and trial, necessitating the examination of countless invoices, warehouse records, etc. In some cases, the calculation might be complicated, the district judge found, by the need to allow off-sets against the claims.17 This problem is also increased not simply by the necessity of individual proof and calculation but also by the variety of claims as asserted by the various plaintiffs themselves arising out of the several violations alleged by the plaintiffs. Some of the plaintiffs complain only of tie-bids in connection with the court's finding on price-fixing and would restrict their damage claim accordingly. They express no objection to the auction system as conducted except as it results in a tie-bid, which they criticize as illegal because the tie-bid improperly converts, in their opinion, the auction into an allocation system. Others would predicate a claim upon the fact that the same government grade of tobacco may have sold at auction at different prices. Still others find price-fixing because the prices bid do not allow properly for increased costs of production. The monopoly charge, on the other hand, had to do, it may be assumed, more with the relative quantities purchased by several defendants at either one market or at all markets as evidence going to establish an allocation of the product on some agreed basis. The third count dealing with an alleged conspiracy to restrict the number of inspectors at any warehouse, thereby impeding orderly sales of tobacco as it matured, would involve proof that, as a result of the delays in marketing occasioned thereby, the quality of the grower's tobacco, which, so far as quality is concerned, is a perishable commodity, deteriorated, and the grower was forced to sell his tobacco at depressed prices because of its reduced grade. There is, also, some basis for assuming, as did the district judge, that, in some instances at least, any alleged conspiracy would relate, not to the over-all market area but to a single market in the area. In calculating any potential party's claim, the court thus would be required not simply to consider his individual sales on an individual basis, but to relate those sales to one of the conspiracy violations alleged by the plaintiffs. Confronted with this congeries of both separate allegations of conspiracy violations and individualized claims of injury and damage, all intertwined, the district judge found that, if he certified this action as a class action, the court would be swamped by an overwhelming deluge of mini-trials, in which the potential claimants would be entitled to a jury trial, and which would engage the time and attention of the court for years to come. He gave consideration to severance of issues but found that the resulting dilemma could not be resolved by any severing of issues. In view of the overwhelming nature of the individual claims and their complexity, he found, as we have said, that the issue of violation did not predominate nor was a class action a superior remedy in the case.18

The plaintiffs argue, however, that the district judge was "plainly wrong" in his denial of certification on the ground of manageability. In support, they assert that he rested his findings substantially on the difficulties of establishing injury and damages. Such a ground, in their view, will not justify a denial of class certification. There is no question, as they contend, that there are authorities which at least in result support this view.19 On the other hand, there are equally respectable authorities in which certification of an anti-trust action was denied because of the complexity of, and the difficulties connected with, the proof of individual injury and damages.20 This conflict in result among the decisions seems to reflect more a factual difference in the cases themselves than a difference over legal principles.21 Thus in cases where the fact of injury and damage breaks down in what may be characterized as "virtually a mechanical task,"22 "capable of mathematical or formula calculation,"23 the existence of individualized claims for damages seems to offer no barrier to class certification on grounds of manageability.24 On the other hand, where the issue of damages and impact does not lend itself to such a mechanical calculation, but requires "separate 'mini-trial,(s)"25 of an overwhelming large number of individual claims, courts have found that the "staggering problems of logistics"26 thus created "make the damage aspect of (the) case predominate,"27 and render the case unmanageable as a class action.28 And this latter view accords with the purpose of Rule 23 which, was to "achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results."29 The district court must accordingly consider in every case the effect of possible class certification on the judicial system itself. If the effect of class certification is to bring in thousands of other possible claimants, all of whom may assert individualized claims requiring mini-trials with juries, a procedure which "will be tremendously time-consuming and costly," the justification of class certification is absent especially so if the individual plaintiffs are financially able to prosecute individual actions, Yanai v. Frito Lay, Inc. (N.D.Ohio 1973), 61 F.R.D. 349, 353, or, if a "test case" approach will likely accomplish the same result under principles of collateral estoppel without involving the court in a morass of individual claims that will bog the court system down interminably. Gelman v. Westinghouse Electric Corp. (W.D.Pa.1976), 73 F.R.D 60, 68-9;30 Link v. Mercedes Benz, supra 550 F.2d at 869 (Van Dusen, dissenting). Several of the plaintiffs testified categorically that, whether this action was certified as a class action, they were able financially to continue the suit and intended to do so. Their recovery, if their action is successful, is under the district judge's findings, sufficient to induce them to persevere in the prosecution of their action, whether class certification is granted or not.31 There was accordingly no "death-knell" justification for class action certification. Indeed, it can well be argued that the individual actions, regarded as test cases, would be in this situation a superior procedure to a class action.32

The district court concluded, as we have seen, that in this case computation of damages would be a complex, highly individualized task, imposing an intolerable burden on the judicial system. As we have already indicated, he went to considerable pains to illustrate and pinpoint the difficulties that would be encountered and the reasons no mechanical or simple mathematical method of calculation was feasible. In view of these findings, which are clearly supported by the record, we think that there is a substantial basis for the district court's conclusion that there appears to be no workable formula to aid in computing the damages of each member of the plaintiff class and that the action was unmanageable as a class action.33 The district court estimated conservatively, we think that, in the absence of a practical damage formula, determination of individual damages in this case could consume ten years of its time. The propriety of placing such a burden on already strained judicial resources seems unjustified.34

Plaintiffs answer by declaring that they "expect" to develop a formula, which will simplify the computation of individual damages, at some later point in the litigation. Concededly, a district court should not decline to certify a class because it fears that insurmountable problems may later appear.35 But where the court finds, on the basis of substantial evidence as here, that there are serious problems now appearing, it should not certify the class merely on the assurance of counsel that some solution will be found. See In re Hotel Telephone Charges, supra, 500 F.2d at 90, where the Court said:

"The District Court in this case has relied on the 'imagination' of appellees' counsel to provide solutions that will, at some point in the future, prevent these individual issues from splintering the action into thousands of individual trials requiring years to litigate. Thus far the appellees have not been able to demonstrate to our satisfaction that the individual questions will not overwhelm the common questions . . . The issues raised by the apparent existence of numerous individual questions must be resolved before a class is certified, even if certification is conditional." (Emphasis added)

Plaintiffs suggest another procedure which they contend would obviate the necessity of individualized proof of the fact and amount of damages. They argue that any difficulties created by that problem could be minimized by the simple expedient of bifurcating the trial, trying first the common issue of "liability" and then (if liability is found) trying the issue of damages either in one mass trial or in a series of mini-trials. The panel opinion would refine the concept of liability into the two elements of violation and injury or causation, and would find that the district judge was clearly wrong in not severing the issue of violation from the other issues in the case and directing a bifurcated trial.36 It viewed the violation issue as presenting a considerably simpler issue than the other issues in the case and for that reason concluded that a class action would "not present unusual complexities at least so long as only issues of violation are before the tribunal." This view would give no consideration to the fact that generally " 'in a private antitrust suit there is no neat dividing line between the issues of liability and damages' " and because of the difficulty of establishing this " 'dividing line' " any severance of issues in such a case "must be approached with trepidation."37 In this case, there is such intertwining of the two issues of liability and damages but the panel opinion dismisses such fact with the observation that the "intertwined matters can be appropriately limited by the common sense, skill, and discretion of the trial judge." It is difficult to understand, though how a trial judge, however skillful, could deny or limit a litigant's right to offer relevant "intertwined matter," whether addressed to the issue of violation or that of injury and damage. Even more important: a trial judge cannot, in determining the manageability of a proposed class action, look exclusively to only one aspect of the case as the panel opinion seeks to do; he can and must look at the case as a whole and, as we have seen, consider proof of damages as well as other issues in the case.38 In this case, it is obvious that no severance of issues could remove or even alleviate the overwhelming burden of damage mini-trials that class certification would impose on the judicial resources in this case.39 Whether dealt with in a unitary trial or in a severed trial, the problem of proof of the individual claims and of the essential elements of individual injury and damage will remain and severance could only postpone the difficulty of such proof.40 We think, therefore, it is well within the "wide range of discretion" granted the trial court to find that in this case bifurcation would not make the case manageable or warrant class certification.

Nor, as the district judge held, can the difficulties inherent in proving individual damages be avoided by the use of a form of "fluid recovery." Such a method of computing damages in a class action has been appropriately branded as "illegal, inadmissible as a solution of the manageability problems of class actions and wholly improper."41 The district court found, as did Judge Gessel in Newberry v. Washington Post Co., supra, 71 F.R.D. at 27, that "(d) amage proof (in this case) would be unmanageable if the case proceeds as a class action," because there is no "easy formula" by which individual proof of damages may be avoided and that it was "undesirable and impractical for a jury to consider the issue of damages in a separate proceeding independent from the proceeding on liability." We cannot say that a similar finding in this case was clearly wrong. The order of the district court denying class certification is accordingly affirmed.42

I dissent for the reasons stated in the opinion Judge Wyzanski wrote for the panel in Windham v. American Brands, Inc., 539 F.2d 1016 (4th Cir. 1976).