On February 12, 2025, the Fourth Circuit Court of Appeals affirmed the decision of the United States District Court for the Middle District of North Carolina not to grant class certification in a 17-year-old lawsuit accusing Inmar Inc. of fixing shipping prices for coupon processing services. Mr. Dee’s Inc. v. Inmar, Inc., No. 23-2165 (4th Cir. Feb. 12, 2025). The Fourth Circuit panel found the district court did not abuse its discretion when it rejected each of plaintiffs’ three proffered classes of manufacturers.
Plaintiffs, purchasers of coupon processing services, alleged that defendants Inmar and its subsidiaries, who sell processing services to retailers and manufacturers, entered into an illegal horizontal price-fixing agreement with competitor International Outsourcing Services, LLC (IOS) that resulted in higher shipping fees. According to the Fourth Circuit panel, coupon processing is what happens to coupons after they have been redeemed at grocery stores and other retailers, which involves sending the coupons to a “retail processor” to count them and invoice the manufacturer before being sent to a “manufacturer processor” hired to re-count them and verify the retailer processor’s invoice.
Plaintiffs sought certification for two classes, one of manufacturer purchasers of coupon processing services (which the district court denied) and another of retailer purchasers (which the district court granted). The denied class of manufacturer purchasers was granted permission to appeal.
Plaintiffs offered three different ways to define the class of manufacturers: (1) a “fixed list class” based on a fixed list of manufacturers identified as having paid observably higher shipping fees during the class period; (2) a “limited payer class” based on manufacturers who paid shipping fees to IOS for at least 2.2 million coupons during the class period; and (3) a class of “all payer” manufacturers that paid shipping fees during the class period to IOS or Inmar’s subsidiary Carolina Coupon Clearing, Inc. All three classes were rejected by the district court. The “fixed list class” mirrored an impermissible “fail-safe” class because the class membership was conditioned on having suffered antitrust injury or impact in the form of increased shipping fees. The “limited payer class” failed because, as identified by the district court, it excluded more than 2,000 manufacturers who allegedly were victims of the same Sherman Act violation. As a result of the exclusion, the “limited payer class” did not comply with the implicit ascertainability requirement of F.R.C.P. 23. The “all payer class” failed to satisfy F.R.C.P. 23(b)(3)’s predominance requirement as the district court found that 2,533 class members suffered no demonstrable antitrust injury.
Reviewing the district court’s decision for an abuse of discretion, the Fourth Circuit panel began with the rejection of the proposed “fixed list class,” which according to the panel suffered from the fatal flaw of failing to define a class at all. The panel noted it is the burden of the party seeking class certification, not the district court’s, “to demonstrate compliance with Rule 23” and added that a plaintiff cannot “affirmatively demonstrate” that the various requirements of Rule 23 have been met by merely providing a list of names (citing EQT Production Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014)).
With respect to the second proposed “limited payer class,” the Circuit Court found that, “if the criteria for class membership bear little relationship to the defendant’s conduct, then the class definition is untethered from the purpose of employing the class action procedure in the first instance.” Here, because more than 2,000 manufacturers were excluded by the plaintiff-imposed date and volume cutoffs to the “limited payer class,” the class definition was untethered from plaintiffs’ own evidence of harm and, therefore, impermissible.
Finally, the Circuit Court agreed with the district court’s rejection of the third proposed “all payer class,” and its rejection of plaintiffs’ arguments that it does not matter if one-third of the class was uninjured. The panel found it was not clearly erroneous for the district court to conclude that a portion of the class was uninjured given that plaintiffs lacked expert testimony showing impact and damages for almost a third of the class members and, as a result, it could not conclude that common questions of injury and damages would predominate where plaintiffs’ only expert witness failed to show harm for so many proposed class members. The panel also noted that attempting to define a class with such a high share of uninjured members would raise Article III standing concerns and considered the presence of 32% uninjured members in a proposed class “much too high.”
The panel concluded by noting that class actions are “a compromise” between “individuality and commonality.” The opinion reinforces the rigorous standards courts use in determining whether a group of plaintiffs can obtain class certification. It offers additional guidelines for plaintiffs seeking class certification and an overview of three class defects that may prevent a class from being certified.
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