In Sullivan v. DB Investments, Inc., the en banc Third Circuit has affirmed the approval of a nationwide class settlement that includes people with no viable claim.
De Beers allegedly broke federal and state antitrust laws in its marketing of diamonds. After a long period of ignoring litigation in the United States, De Beers orchestrated a nationwide class settlement of the claims against it. After receiving district court approval, that settlement was thrown out by the Third Circuit. But now the Third Circuit, sitting en banc, has decided that the class and the class settlement comport with Rule 23.
I need to sit down with the opinions and examine them more closely, but my initial reaction is that the Third Circuit has erred significantly–and not simply by rejecting arguments advanced by Howard Bashman (which is a mark, but not a criterion, of infirmity).
The federal judiciary has no business overseeing conduct that does not involve a claim upon which relief can be granted. And it is hard to see how a federal court could have evaluated the fairness of a settlement that involved parties with no colorable claim to settle. But these are just initial reactions.
My overriding impression in going over the en banc opinion was that it was a throwback to an earlier era (not too long ago) when federal courts were much less careful than they should have been about Rule 23.
(The sense of a throwback was heightened when I saw the appellate court approvingly cite the district court opinion in McCoy v. Health Net, Inc., 569 F. Supp. 2d 448 (D.N.J. 2008), which approved the settlement of a class action previously vacated by the Third Circuit in Wachtel v. Guardian Life Ins. Co. of Am., 453 F.3d 179 (3rd Cir. 2006). While the two cases are different in many respects, it is worth noting that Judge Smith opposed class treatment in both the De Beers case and the Health Net case. Although the Third Circuit’s decision in Wachtel sounded in Rule 23(c), that may have reflected a compromise among the panelists, as there were serious predominance questions in the underlying class as well.)
[UPDATE: Welcome, readers of “How Appealing.” See here for another post on the DeBeers case, contending that a class that contains indirect purchasers with damages claims and indirect purchasers without damages claims fails under the typicality requirement of Rule 23(a)(3).)]