The State Of Alabama v. Blue Bird Body Company

We are presented today with an interlocutory appeal from a district court order certifying this antitrust case as a class action on behalf of two plaintiff classes. The issue is whether the district court erred when it certified both a "national class" and a "state class" under Fed.R.Civ.P. 23(b)(3). For a number of reasons, we feel that the granting of class action status as to the plaintiff national class was inappropriate, and, as to that class, we reverse the district court's order and remand for further proceedings.

This is a private antitrust class action brought under § 4 of the Clayton Act, 15 U.S.C. § 15, by the State of Alabama, its Superintendent of Education, and the Perry County (Alabama) Board of Education against six manufacturers of school bus bodies1 and seven Alabama distributors of those bus bodies.2 The amended complaint alleges two claims. Plaintiffs assert their first claim (the "state" claim) on behalf of a class of all governmental entities within the state of Alabama which purchase school bus bodies, and allege a conspiracy to fix prices on the part of these manufacturers and their Alabama distributors through a process of rotation of bids and accommodation bidding.3 Plaintiffs' second claim (the "national" claim) is asserted on behalf of all governmental entities in the United States which purchase school bus bodies.4 This national claim is only against the manufacturers, and it alleges, in addition to a price-fixing charge, a conspiracy to monopolize in violation of § 2 of the Sherman Act.

On July 15, 1976, District Judge Robert E. Varner entered the order forming the basis of this interlocutory appeal.5 In that order, Judge Varner proposed a plan which he felt would allow this case to proceed as a class action. The plan consisted of bifurcating the trial between the liability and damage issues,6 and, after a jury determination on the issue of liability of the nationwide defendants, severing the cases of class members by states and transferring the severed cases to the district courts in their respective states for the determination of the damage issues.7 As to such transfers, Judge Varner relied upon 28 U.S.C. § 1404(a) which provides:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.

Judge Varner, however, also pointed out in his July 15th order that he would not certify the national class if this Court were to determine that his plan to handle this litigation through bifurcation and transfer was improper. He reached this conclusion because in his opinion the national class "would so heavily burden this Court's docket as to paralyze the federal court system in this district, and because of the impropriety of requiring parties throughout the United States to try this cause of action in Alabama." App. 177.

An analysis of the propriety of Judge Varner's order requires us to examine closely the school bus industry and to attempt to understand the product, the sellers and the buyers.8 While an inquiry into the merits of a cause of action is never appropriate when making a class action determination, a full understanding of the underlying facts is usually essential if one hopes to correctly apply the requirements of Fed.R.Civ.P. 23.

School buses are comprised of two basic parts bodies and chassis which are separately manufactured. These bodies and chassis are sometimes sold as complete bus units and other times are sold separately. Plaintiffs brought this lawsuit only against the six manufacturers and seven Alabama distributors of school bus bodies and did not join as defendants other distributors throughout the country or the manufacturers of school bus chassis. The manufacturer defendants in this lawsuit are said to be the only manufacturers of school bus bodies in the United States, but there are approximately 400 local distributors of school buses across the country.

Each school bus body is a passenger coach for which the structure, configuration, and equipment are designed to meet an individual purchaser's specifications. The fifty states have varying and comprehensive school bus specifications. These specifications prescribe the physical configuration, materials, construction, and equipment for school buses used in that state. Also, many local governmental purchasers require even more stringent standards than those contained in the state specifications. In addition to the differences in school buses required by minimum state or local specifications, significant variations result from the particular needs of a purchaser. For example, special equipment and design must be utilized to accommodate the handicapped; the number of pupils that require carriage dictates size; engine size varies according to the terrain that must be traveled; and the climate determines the heating and cooling equipment to be installed. A. 243. Thus, a school bus is not a homogeneous product. Each bus must meet the individualized specifications of thousands of different public entities which purchase school buses each year.9

There are also substantial differences in the ways in which public entities purchase school buses. Initially, it must be recognized that school buses are, for the most part, sold to the independent distributors in the various states who in turn resell them to their customers.10 In all, the defendant manufacturers and their local distributors sell school bus bodies to more than 16,000 governmental entities nationwide. The authority for these governmental entities to purchase school buses is generally granted by a state statute, but in some instances local school systems may require buses to be purchased in a particular manner. Thus, state purchasing procedures may be governed by statute, by state-wide regulations, by rules of various purchasing entities, or by local customs and habits.

The most common purchasing practice utilized by the states is the solicitation of competitive bids and the awarding of the contract to the lowest responsible bidder.11 Several states maintain complex systems whereby the state government's purchasing department solicits competitive bids,12 and, based on such bids, establishes a maximum bid price for each basic type of school bus. Other public bodies or agencies authorized to make school bus purchases are then free to purchase buses at the maximum state bid price or to solicit bids on their own behalf and enter into purchase agreements with the lowest responsible bidders provided that these bids do not exceed the maximum state bid. Several other states have unique purchasing procedures. For example, the defendants point to Florida where the purchase prices may be negotiated rather than bid when it is determined to be in the best interest of the school district. App. 249. In Maine, there is no detailed statutory procedure governing purchases. Rather, Maine law gives local school superintendents broad discretion to purchase school buses "in the most economical manner that is consistent with the welfare and safety of pupils," subject only to approval by the State Commissioner of Educational and Cultural Services. App. 249. Finally, the defendants bring to our attention the practices employed in three other states13 which do not require the public agencies to solicit bids at all, but instead authorize each agency to establish its own purchasing practices and procedures. App. 250.

The plaintiffs' claims against the defendants are that the defendants have since 1960 unlawfully engaged in a conspiracy to restrain trade, and have illegally entered into and maintained contracts and agreements in restraint of trade. In the first claim (the state claim) of their amended complaint, the plaintiffs allege that these violations have consisted of:

(C)ontinuing contracts, agreements, understandings, concert of action or courses of conduct among the defendants to do the following:

(a) Fix, maintain and stabilize prices for the sale of school bus bodies to the State of Alabama and local agencies within said State purchasing the same at artificially high, noncompetitive levels; and

(b) Allocate customers and sub-markets in such trade or commerce among themselves; and

(c) Not compete in such trade or commerce.

App. 95.

The national claim is almost identical,14 but rather than limiting the scope of the claim to the "State of Alabama and local agencies within said State," the national claim alleges violations on behalf of all "similarly situated governmental or public bodies or agencies within the United States except for the State of Georgia, which have been and will continue to be injured in their business and property by the contracts, agreements, conspiracies, and course of conduct herein described." App. 88.

The plaintiffs, unfortunately, have not been very specific in explaining how and why the defendants conspired to fix prices, etc. Their lack of specificity at this stage might be attributed to the fact that they have not been allowed any discovery in this area. However, the plaintiffs do set forth in their amended complaint some generalized descriptions of how they perceive the defendants to have acted illegally. For example, in their state claim the plaintiffs initially contend that certain of the defendants have agreed among themselves not to sell school bus bodies and not to compete for the sale of school bus bodies with respect to purchases by the State of Alabama or any board of education or other public agency within Alabama. The plaintiffs allege that from time to time some defendants have submitted bids to county boards of education or other public agencies within Alabama, but such bids were not competitive and were submitted solely to give the appearance of competition. App. 96. Secondly, the plaintiffs contend that the defendants have each year fixed a price range for the sale of school bus bodies to the State of Alabama and to county boards of education within Alabama. The defendants used this price range to rotate bids among themselves for the purpose of allocating among themselves certain percentages of the annual sales to the Alabama purchasers. App. 96. The plaintiffs also contend that the price range fixed each year within the State of Alabama has consistently exceeded the prices at which buses manufactured by these defendants have been sold to other public agencies outside of Alabama, and that these prices are artificially maintained at a non-competitive high level. The national claim contains the same averments as the state claim and alleges generally that the illegal patterns of conduct which took place in Alabama were implemented in each individual state in the country.

After the filing of this cause of action by the State of Alabama, it was the duty of the trial court to determine "as soon as practicable" whether the case should be allowed to be maintained as a class action. Fed.R.Civ.P. 23(c) (1). In making this determination under Rule 23, the district court must decide whether the plaintiffs have satisfied all the requirements of section (a) of Rule 23, and whether the proposed class properly falls within one of the subsections of 23(b). Section (a) provides that a class may be certified if:

(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

If the above prerequisites have been met, the district court then directs its inquiry into the propriety of the class under one of the subsections of 23(b). In our case, the parties agree that the only subsection of 23(b) we need to consider is subsection (3) which provides that an action may be maintained as a class action if:

(T)he court finds 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 is superior to other available methods for the fair and efficient adjudication of the controversy.

The factors pertinent to the required findings of predominance and superiority are delineated in the remainder of subsection (3). These factors include:

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum, (D) the difficulties likely to be encountered in the management of a class action.

It is important that the district court be mindful of the policy underlying Rule 23 when making the determinations required for a (b)(3) certification. This policy is set forth in the Advisory Committee's note on the 1966 amendment to Rule 23. The note explains that a (b)(3) action "encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decisions as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results." Fed.R.Civ.P. 23, Advisory Committee Note (1966). With this policy in mind, the note then sets forth various legal situations which are either particularly suited or unsuited for class action treatment.15 This list of examples, however, provides us with little guidance on how to handle the controversy before us, because the note specifically states that, "Private damage claims by numerous individuals arising out of concerted antitrust violations may or may not involve predominating common questions." Id. The lesson to be learned from the examples set forth in the Advisory Committee Note and from the many cases discussing the propriety of class certification in antitrust cases is that there are no hard and fast rules which have developed regarding the suitability of a particular type of antitrust case for class action treatment. The unique facts of each case will generally be the determining factor governing certification.

B. The Elements of an Antitrust Cause of Action Under § 4 of the Clayton Act.

In order to make the findings required to certify a class action under Rule 23(b)(3) (that common issues predominate, etc.), one must initially identify the substantive law issues which will control the outcome of the litigation. In our case, the plaintiff's principal allegation against the defendants involves a violation of § 1 of the Sherman Act which provides that "every contract, combination . . . or conspiracy in restraint of trade or commerce . . . is . . . illegal." The word "every", of course, is not meant literally, and for many restraints a standard of reasonableness has been adopted to judge their lawfulness. See, e. g., Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911); Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918). Certain practices, however, have been deemed to have such a "pernicious effect on competition," Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958), that they are considered to be per se violations of § 1. Included among these per se violations is price-fixing.16 The Supreme Court has stated that any combination or agreement between competitors "formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se." United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223, 60 S.Ct. 811, 844, 84 L.Ed. 1129 (1940). No defense or justification of any kind is recognized where price-fixing is shown because "whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit inquiry into their reasonableness. They are all banned because of their actual or potential threat to the central nervous system of the economy." Id. at 226 n.59, 60 S.Ct. at 845. Hence, it is no defense that the price fixed was actually a "reasonable price." United States v. Trenton Potteries Co., 273 U.S. 392, 397-98, 47 S.Ct. 377, 71 L.Ed. 700 (1927), nor is it necessary to show an actual effect on prices in order to show a violation. It is the purpose of the agreement which renders it unlawful, regardless of its actual effect. United States v. Socony-Vacuum Oil Co., 310 U.S. at 225-26 n.59, 60 S.Ct. 811.

A distinction, however, must be made between proving a violation of the Sherman Act, and the establishment of civil liability under § 4 of the Clayton Act, 15 U.S.C. § 15. Section four provides:

That any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee. (emphasis added)

Proof of a violation of the Sherman Act standing alone does not establish civil liability under § 4 of the Clayton Act. There must under § 4 be proof of "injury to business or property" before a Sherman Act violation becomes cognizable as a private civil remedy. As we shall see in the case before us, awareness of the distinction between conduct which violates § 1 of the Sherman Act, and the elements which establish liability in private party litigation under § 4 of the Clayton Act, is vital.17

This Circuit has clearly set forth the elements which must be established in order to recover treble damages under the antitrust laws. In Terrell v. Household Goods Carriers' Bureau, 494 F.2d 16 (5th Cir. 1974), we explained that a prerequisite to recovery was a showing by the plaintiff of a violation of the antitrust laws, the fact of damage, and some indication of the amount of damage. Id. at 20. Terrell established that "liability" for § 4 purposes means a showing of both an antitrust violation and fact of damage.18 The term "fact of damage" can be likened to the causation element in a negligence cause of action. The term means simply that the antitrust violation caused injury to the antitrust plaintiff. To make this showing, however, an antitrust plaintiff need not prove that the violation was the sole cause of any alleged injury, but he does need to show that the violation was a material cause. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 114 n.9, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969). This showing, of course, may not be based on speculation. Rather, the required causal link must be proved as a matter of fact and with a fair degree of certainty. Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1321 (5th Cir. 1976); Terrell v. Household Goods Carriers' Bureau, 494 F.2d at 20.

This Circuit has also explained that the meaning of liability for antitrust purposes does not change simply because a trial is bifurcated under Fed.R.Civ.P. 42(b). In Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307 (5th Cir. 1976), this court stated that there was "no basis in law or logic to give liability different meanings depending upon the trial procedure used." Id. at 1321. The Leasco opinion explained that bifurcation in no way diminishes the requirement that a plaintiff show some evidence that a violation caused him injury before a defendant is found liable. Thus:

(I)f the trial is bifurcated between liability and damages, there must be some evidence showing a causal link between the violation and alleged injury in phase I, before plaintiff may enter phase II.

Just as the meaning of liability does not vary because a trial is bifurcated, the requisite proof also in no way hinges upon whether or not the action is brought on behalf of a class under Rule 23. It is axiomatic that a procedural rule cannot "abridge, enlarge, or modify any substantive right."20 Consequently, this court has no power to define differently the substantive right of individual plaintiffs as compared to class plaintiffs.

C. Bifurcation Under Fed.R.Civ.P. 42(b).

According to Judge Varner, the certification of the national class rests largely on his authority to bifurcate the trial between the issues of liability and damages. Rule 42(b) allows a district court "in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy," to order a separate trial of any "claim, cross-claim, counter claim, or third-party claim, or of any separate issue or of any number of . . . issues" as long as the court preserves inviolate the right of trial by jury as declared by the Seventh Amendment or as given by a statute of the United States. This Court has approved bifurcation procedures on several occasions. However, this Court has cautioned that separation of issues is not the usual course that should be followed, and that the issue to be tried must be so distinct and separable from the others that a trial of it alone may be had without injustice. Swofford v. B & W, Inc., 336 F.2d 406, 415 (5th Cir. 1964). This limitation on the use of bifurcation is a recognition of the fact that inherent in the Seventh Amendment guarantee of a trial by jury21 is the general right of a litigant to have only one jury pass on a common issue of fact. The Supreme Court recognized this principle in Gasoline Products Co., Inc. v. Champlin Refining Co., 283 U.S. 494, 51 S.Ct. 513, 75 L.Ed. 1188 (1931) wherein it held that no Seventh Amendment violation occurs when an appellate court orders a new trial on the issue of damages, but lets stand the original jury's findings on liability. The Court explained, however, that a partial new trial may not be "properly resorted to unless it clearly appears that the issue to be retried is so distinct and separable from the others that a trial of it alone may be had without injustice." Id. at 500, 51 S.Ct. at 515. Such a rule is dictated for the very practical reason that if separate juries are allowed to pass on issues involving overlapping legal and factual questions the verdicts rendered by each jury could be inconsistent.

In an antitrust action brought under the Clayton Act, it is most important to be aware of the Seventh Amendment limitations on a Rule 42(b) bifurcation. This awareness is important because liability under § 4 necessarily includes proof of injury to business and property. Therefore, bifurcation to separate juries of liability and damages in a § 4 case inevitably introduces the possibility that in the liability phase the first jury might find that there was such injury, while the second jury might on the same evidence of injury in the damage phase, find none.

It is exactly this possibility of disparate findings that prompted this Court to earlier say that "in a private antitrust suit there is no neat dividing line between the issue of liability and damages." Terrell v. Household Goods Carriers' Bureau, 494 F.2d 16, 21 (5th Cir. 1974). And, because of this vague dividing line between liability and damages, this Court has also cautioned that separate trials of liability and damages "must be approached with trepidation," Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d at 1324, and the use of bifurcation "must be grounded upon a clear understanding between the court and counsel of the issue or issues involved in each phase and what proof will be required to pass from one phase to the next." Id.

An analysis of the national class certification should begin by examining the district court's order. Judge Varner's "Order and Memorandum Opinion" deals initially with the requirements of 23(a). After establishing that these requirements have been satisfied,22 the court then turns to the predominance and superiority requirements of 23(b)(3). As to the first of these requirements (that questions of law or fact predominate over any questions affecting only individual members), the district court begins by rejecting the defendants' argument that individual proof of injury and damages will be necessary as to each class member, and, therefore, common issues will not predominate. The court reasoned that:

Acceptance of this argument would effectively preclude the use of class actions in antitrust cases. It is too widely recognized to require citation that antitrust price-fixing cases are particularly suited for class action treatment in spite of the fact that the fact of injury and the amount of damages may require individual proof by class members. . . . Furthermore, the Court cannot share Defendants' viewpoint that the fact of injury, as distinct from the amount of damages, will not be susceptible of generalized proof. . . . It is the opinion of this Court that proof, that artificially high price levels prevailed in the national school bus market as a result of the conspiracy alleged herein will constitute proof of the fact of injury to the class of purchasers of such buses. . . . In the opinion of this Court, none of Defendants' other arguments on the issue of predominance of common questions is of sufficient weight to counterbalance the fact that the central and predominant issue herein is whether or not Defendants have acted to monopolize or restrain trade in school buses.

App. 166-167.

The contention of the defendants which the district court considered the "more serious" is whether the class action is the superior method to deal with this controversy, and, in particular, the question of manageability. The manageability problem envisioned by the district court was whether the certification of the nationwide class would "cause this court to be swamped with . . . hundreds of individual proceedings to determine the amount of individual damages suffered by individual class members." App. 168. The district court recognized that, in light of the variations in purchasing methods and other incidents of sale presented by the defendants, it may indeed be necessary to treat all or many damage claims individually. Thus, the court stated:

In the face of this possibility, it would be irresponsible for the Court to certify the classes herein, and especially the nationwide class, without first satisfying itself that there exists a mechanism for avoiding such a paralyzing development. Upon consideration, the Court has proposed that it can, without going beyond its statutory powers and without violating the constitutional and statutory rights of Defendants, bifurcate the trial of the matter, and, after a jury determination, if any, of the issue of liability of nation-wide Defendants in this Court, sever the cases of class members or groups of members separated geographically and transfer the severed cases to other district courts for trial of all remaining issues, which will be primarily or exclusively damage issues.

App. 169.

A reading of the district court's order seems to lead to the conclusion that the court intended to allow a nationwide class to exist only for a determination of the issue of liability. In fact, Judge Varner recognized that the national class would be totally unmanageable if he alone had to handle all the issues of the case. A review of the district court's order, therefore, must focus in on the propriety of the certification for this limited purpose, and then, if appropriate, examine the bifurcation, severance, and transfer plan proposed by Judge Varner.

Judge Varner certified the national class for a determination of "liability" after explaining that the question common to the class was the existence of an antitrust violation. App. 167. We stated earlier, however, that the issue of liability in antitrust cases includes not only the question of violation, but also the question of fact of injury, or impact. See Terrell v. Household Goods Carriers' Bureau, 494 F.2d 16, 20 (5th Cir. 1974). Therefore, for the certification of the national class to be upheld, we must determine whether the existence of the antitrust violation is a question common to all members of the class, and, if so, whether this question predominates over all other issues which affect only individual members of the class. In making the determination as to predominance, of utmost importance is whether "impact" should be considered an issue common to the class and subject to generalized proof, or whether it is instead an issue unique to each class member, and thus the type of question which might defeat the predominance requirement of 23(b)(3).A. The Antitrust Violation and the Requirement of a Question Common to the Class.

The district court's order finds that proof of the national conspiracy is a question common to the class.23 Unfortunately, we are presently unable to agree with this conclusion because the little evidence that there is in the record as to how the plaintiffs intend to establish the conspiracy seems to indicate that proof of the conspiracy cannot be made in a manner common to all members of the class.

The evidence brought to our attention by the plaintiffs as to how they plan to establish this nationwide conspiracy was set forth in their brief and consists of a deposition of one of the Alabama distributors. According to the plaintiffs, this deposition is "substantial evidence that the manufacturers decide what price their distributor is to bid in any given situation." Brief of Appellees at 6. An examination of this deposition, however, reveals that it is evidence of nothing more than the fact that antitrust violations might have occurred in Alabama and several other southern states. The deposition in no way establishes a nationwide conspiracy. For example, the Alabama distributor gave the following response when asked about how he would seek "competitive allowances" from one of the manufacturers:

Q. And what would you tell (the manufacturer)?

A. Tell him I had an invitation to bid in such and such a county for five buses, what do you want me to do. I mean, are you going to help me on this bid, or do you know you know, I can't bid if you don't help me, you know. . . .

Q. All right. If he couldn't help you, then you just didn't bid at all?

A. I just couldn't bid or either just send a complimentary bid.

App. 70-71.

The distributor testified further that the manufacturer he dealt with had never given him a competitive allowance in Jefferson and Montgomery counties and that he had also never been the low bidder in those counties. The situation, however, was different in Mobile County where the distributor was the low