Comcast May Be A Class Action Game-Changer, But Not In Boston

In Comcast Corp. v Behrend, 133 S.Ct. 1426 (March 27, 2013), the Supreme Court held that the lower court erred in failing to consider flaws in plaintiffs’ damages model merely because the damages model would be pertinent on merits issues…..thus, "running afoul of our precedents requiring precisely that inquiry".  It was up to the district court to determine whether the expert’s methodology was "just and reasonable inference or speculative."  

Citing the Reference Manual on Scientific Evidence, the court held that the "first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event."  

Pre-Comcast, plaintiffs generally focused on getting over the hump of standing and/or alleging damages under various legal theories at the pleading stage, without knowing how they would ever prove up damages. No more! The ground has shifted beneath the feet of the plaintiff class action bar.  To cite the D.C. Circuit Court of Appeals, the new judicial mantra is "No damages model, no predominance, no class certification".

Despite Comcast’s holding, some federal trial courts continue to certify class actions of arguably questionable merit. An example of such a case is In re: Nexium (Esomeprazole) Antitrust Litigation which was handed down by the District of Massachusetts on November 14, 2013.

Plaintiffs alleged that they paid higher prices for Nexium because less expensive generic versions of Nexium were prevented from coming onto the market due to AstraZeneca’s settlement with three generic manufacturers. The end-payors (as the plaintiffs called themselves) sought to certify a sprawling Rule 26(b)(3) class consisting of virtually every consumer (insured and uninsured), commercial insurer, health plan and pharmacy benefit manager who had paid any portion of the purchase price for Nexium for a six year period in twenty-six states.

Although the district court referenced the Supreme Court’s rulings in Wal-Mart and Comcast, it certified a class despite plaintiffs’ adoption of a model that adopted the use of “aggregate damages calculations.” The defendants properly objected to the damages model because it failed to account for differences in injuries and losses among class members.

The use of an "average" price differential, even if capable of being proven, ignored the variations within the class and did not identify which end-purchasers would have saved money and which would have lost money if and when generic Nexium had entered the market. Even the district court acknowledged that under plaintiffs’ model certain class members who suffered no damages whatsoever would remain in the class.

Applying the reasoning of the D.C. Circuit in In re: Rail Freight Fuel Surcharge Antitrust Litig., one of the most important circuit court decisions applying Comcast, class certification would most likely have been denied because common questions of fact cannot predominate where there exists no reliable means of proving classwide injury in fact.

Plaintiffs’ expert conceded that the proposed class included tens of thousands of consumers who would continue to purchase branded Nexium after generic entry due to preference or their physician’s recommendation. Such brand loyalists would potentially have faced higher Nexium prices had generic Nexium been available.

Other consumers were not injured because their co-pays were the same for both generic and branded Nexium. Plaintiffs’ average price differential model ignored variations within the class and failed to distinguish between purchasers who would have lost money if and when generic Nexium would have entered the market and those who would not have lost money.

 In an almost identical situation involving a similar set of facts and the same plaintiffs’ expert, Dr. Meredith Rosenthal, a Philadelphia district court denied class certification in Sheet Metal Workers Local 1141 Health and Welfare Plan v. GlaxoSmithKline, No. 04-5898, 2010 WL 385552, at #27 (E.D.Pa. Sep. 30, 2010), class certification was denied by the Pennsylvannia district court (pre-Comcast) which rejected an analogous damages model proposed by Dr. Rosenthal in a case of alleged generic drug suppression involving the drug Wellbutrin SR.  There, as in the Nexium case, plaintiffs’ model failed to exclude uninjured class members. Because plaintiffs were unable to meet their burden of Rule 26(b)(3) that questions of law or fact common to class members predominated over any questions affecting only individual members, the district court denied class certification.

It is difficult to understand how the Massachusetts district court determined that the Nexium end-payors’ damages model met the “rigorous analysis” standard required by Comcast and Wal-Mart, particularly as there are many  thousands of plaintiffs in the class who have not suffered injury. Plaintiffs’ methodology indisputably failed to identify non-injured members of the class.  We look forward to the First Circuit’s analysis of the Rule 23(b)(3) issues presented by the case, assuming that an appeal is in the offing. 

Hand Over The Cash Or The Hard Drive Gets It!

In January 2013, GlaxoSmithKline (“GSK”) filed a complaint in New York state court alleging that its e-discovery vendor, Discovery Works Legal Inc., was “holding hostage over 20 terabytes of GSK’s most sensitive and confidential data, and threatened to withhold and destroy the data" unless GSK paid a ransom of more than $80,000. GSK is the second largest pharmaceutical company in the world by revenue, employing over 100,000 people in 117 countries. How could a mere  e-discovery vendor hold GSK’s data hostage?

Reportedly, Discovery Works is in control of roughly 3.75 billion pages of GSK documents in “unknown” locations. As Law360 reporter Andrew Strickler summarized the threat (and thereby inspired the title of this article)  “Hand over the cash or the hard drive gets it!”

In the case, GlaxoSmithKline LLC v. Discovery Works Legal Inc., et al., Case No. 650210/2013, Judge Shirley Werner Kornreich, who sits in New York County’s Commercial Part, sounded a note of caution, in a ruling on the case on September 25, 2013,  about the customary practice of corporations and law firms to outsource their electronic discovery to e-discovery vendors. She said that GSK’s experience with its vendor was a “cautionary tale.” She noted that GSK’s data is stored in far flung locations in a raw, uncoded form that is not indexed in any way, which makes it hard to retrieve without considerable IT work.

“It’s a frightening thought,” she said, that a multi-national company like GSK could find so much of its data in peril due to an e-discovery vendor’s failure and/or refusal to provide the data in usable form. Judge Kornreich urged GSK and others to rewrite their contracts to give themselves more protection with e-discovery vendors by requiring them to keep an index of all of the data the vendors are managing for the client.

However, having a good contract with the vendor is just the start. A company is legally obligated to be able to produce all relevant discovery, including ESI, in litigation. What happens when the vendor is unwilling or unable to provide the client with the data required for discovery? What if the discovery vendor shuts its doors? Will the company be hit with spoliation of evidence sanctions? How would Judge Shira Scheindlin respond if presented with a motion for spoliation sanctions? The short answer is that it probably depends on the circumstances.

But one thing is clear.  I would not want to be the lawyer who retained a problem-some vendor for my client. What due diligence should a law firm perform to ensure that the discovery vendor is a responsible choice for a client? Clearly, the lowest bid cannot be the determinant of what e-discovery vendor is selected, particularly after case,  Additionally, I would be unlikely to hire a small firm (no matter how brilliant and innovative the principals) because the firm’s stability and solvency over the long haul is a critical consideration. 

As Michael G. Van Arsdall at Crowell and Moring wrote recently: “There is a very low likelihood such a hostage situation would ever arise with the large number of reputable vendors that occupy the e-discovery space.” That said, Mr. Arsdall recommends some actions that companies can take to mitigate the risk, or, alternatively, provide the company or the law firm the opportunity to switch e-discovery vendors, if necessary. These actions include:

1. Insisting that the original collection media provided to the vendor (e.g., hard drives) be returned to the law firm or company for safekeeping;
2. Maintaining a copy of all production sets produced;
3. Negotiating reasonable archiving fees upfront, and require that at the end of the matter (or at reasonable intervals during the engagement) an archive set of the data is provided to the company or law firm for safekeeping; and
4. Requiring the vendor to certify that it has destroyed or returned all the company’s data at the conclusion of the matter or at the company’s or law firm’s instruction.

We are all increasingly tied at the hip to our e-discovery vendors in one form or another today. The e-discovery vendor is an important member of the litigation team. If, for any reason, the e-discovery vendor falters in its obligations, the entire team may suffer adverse consequences.