The U.S. Court of Appeal for the Sixth Circuit recently rejected the Defendant’s petition in In Re VHS of Michigan, Inc., dba Detroit Medical Center, No. 14-0107, 2015 U.S. App. LEXIS 1816 (6th Cir. Feb. 3, 2015), to appeal the order to certify a class estimated to exceed 20,000 registered nurses in a compensation suppression antitrust case. We have previously blogged on this case here, here, here, and here. Although short and not recommended for full-text publication, the opinion raises important issues related to the development of class certification law following the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013), and the extent to which class representatives may forgo potential damages available to the class in order to achieve class certification.
The District Court Proceedings
Plaintiffs brought a two count complaint alleging that eight hospitals in the Detroit Metropolitan Area unlawfully suppressed registered nurse compensation in violation of federal antitrust laws. In count one, Plaintiffs alleged that the hospitals unlawfully fixed registered nurse compensation in per se violation of Section 1 of the Sherman Act. In count two, Plaintiffs alleged that Defendants violated the Sherman Act under the rule of reason by exchanging wage and benefits information in a way that “softened” competition for registered nurse compensation. The District Court awarded Defendants summary judgment on the per se claim, but denied it on the rule of reason claim. It then granted the Plaintiffs’ motion for class certification. Thereafter, the Sixth Circuit ordered the District Court to reconsider its certification decision in light of Comcast. The District Court did so and concluded that Comcast did not call into question its prior certification decision. Id. at *3.
The Sixth Circuit’s Decision
Considering the petition, the Sixth Circuit rejected the Defendant’s argument that the District Court’s application of Comcast was an abuse of discretion. According to the Sixth Circuit, “Comcast applies where multiple theories of liability exist, those theories create separable anticompetitive effects, and the combined effects can result in aggregated damages. … Where there is no chance of aggregated damages attributable to rejected liability theories, the Supreme Court’s concerns do not apply.” Id. at *5 (internal citations omitted). The Sixth Circuit agreed with the District Court that in this case the two theories of liability (per se and rule of reason) were mutually exclusive. The Court reasoned that if compensation had been fixed by the hospitals, then there was no wage and benefit competition to be “softened.” Moreover, in the Sixth Circuit’s view the Plaintiffs’ expert’s damages calculation applied to either theory of liability and damages were not improperly aggregated. Thus, the concerns raised by Comcast did not apply. Id.
The Sixth Circuit went on to acknowledge that “after Comcast [a] class must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.” Id. (internal quotation marks and citations omitted). And it concluded that in this case the Plaintiffs had produced “sufficient evidence” that the damages stemmed from the information sharing that created the “softened” competition. It also agreed with the District Court that the expert’s damage model was adequate even though it understated the total damages from the “softened” competition. Id. at *6.
Based on this analysis, the Sixth Circuit held that the Defendant failed to show that it was likely to succeed in making the requisite “strong showing” that the District Court abused its discretion. It also concluded that none of the other factors that the Sixth Circuit considers when analyzing petitions to appeal weighed in favor of permitting the appeal in this case. Accordingly, it denied Defendant’s petition. Id. at *7.
Implications for Employers
Although not a detailed or lengthy opinion, there are several aspects of the decision that are potentially troubling. The Sixth Circuit clearly states that the Plaintiffs must “show” that the claimed damages were caused by the Defendant’s conduct that created the legal liability, and that Plaintiffs in this case had produced “sufficient evidence” on that issue. But there is no discussion of what that evidence was or what constitutes “sufficient evidence” of causation at the class certification stage. In its decision reinstating class certification, the District Court expressly noted that Plaintiffs’ expert made “no attempt to marshal any evidence to demonstrate that either of the two antitrust violations alleged by Plaintiffs actually caused or contributed to the harm measured in his benchmark analysis[.]” It further noted that this absence of expert testimony left Plaintiffs with “thorny issues of proof” in establishing the requisite causal link between the alleged antitrust violations and the injury suffered by the plaintiff class. Cason-Merenda v. VHS of Michigan, Inc., Case No. 06-15601, 2014 U.S. Dist LEXIS 29447, at *20 n.5 (E.D. Mich. Mar. 7, 2014). Yet, according to both the District Court and the Sixth Circuit, the causation showing was adequate.
Second, the Sixth Circuit was untroubled by the fact that the damage model understated the total damages from the “softened” competition. Indeed, in the District Court’s decision initially certifying the class, it noted that the expert admitted that his damage model disfavored experienced nurses more than less experienced nurses. Cason-Merenda v. VHS of Michigan, Inc., Case No. 06-15601, 2013 U.S. Dist. LEXIS 131006, at *48 (E.D. Sept. 13, 2013). Yet, there were no questions raised about the amount of the understatement or whether utilizing such a damage model violated the class representatives’ fiduciary duty to the class. See Back Doctors Ltd. v. Metropolitan Property, 637 F.3d 827, 830 (7th Cir. 2011) (“Second, Back Doctors has a fiduciary duty to its fellow class members. A representative can’t throw away what could be a major component of the class’s recovery.”)
Finally, in denying the petition, the Sixth Circuit made no mention of the Defendant’s argument that the request for review should be accepted because the $1.7 billion potential damage figure would put extraordinary pressure on the Defendant to settle regardless of the merits of the case. Certainly, that is a lot of money to be ignored in this context.