Romero v. Philip Morris Incorporated

109 P.3d 768

137 N.M. 229

Beatrice C. ROMERO and Michael Ferree, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. PHILIP MORRIS INCORPORATED, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Liggett Group, Inc., and Brooke Group, Ltd., Defendants-Appellants.

No. 24,034.

Court of Appeals of New Mexico.

February 8, 2005.

Gabrielle M. Valdez, Eaton, Martinez, Hart & Valdez, P.C., Shane Charles Youtz, Youngdahl, Youtz & Youngdahl, P.C., Pilar Vaile, N.M. Ctr. on Law & Poverty, Albuquerque, NM, Jonathan W. Cuneo, Daniel Cohen, The Cuneo Law Group, P.C., Washington, DC, Gordon Ball, Law Offices of Gordon Ball, Knoxville, TN, for Appellees.

Eric R. Burris, Brownstein, Hyatt & Farber, P.C., Albuquerque, NM, Michael T. Williams, Heller Ehrman White & McAuliffe LLP, Los Angeles, CA, for Appellant Philip Morris USA Inc.

Andrew G. Schultz, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, for Appellants R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., and Lorillard Tobacco Co.

Thomas F. Cullen, Jr., William V. O'Reilly, Edwin L. Fountain, Jones, Day, Reavis & Pogue, Washington, DC, for Appellant R.J. Reynolds Tobacco Co.

Stephen R. Patton, Andrew R. McGaan, Barack S. Echols, Kirkland & Ellis, Chicago, IL, for Appellant Brown & Williamson Tobacco Corp.

Peter D. Isakoff, Weil, Gotshal & Manges, LLP, Washington, DC, Irving Scher, Weil, Gotshal & Manges, LLP, New York, NY, for Appellant Lorillard Tobacco Co.

Patricia G. Williams, Wiggins, Williams & Wiggins, P.C., Albuquerque, NM, for Appellants Liggett Group, Inc. and Brooke Group Holding, Inc.

OPINION

SUTIN, Judge.

{1} We have here first impression issues for New Mexico relating to certification of an indirect (consumer) purchaser antitrust (price-fixing) class action. Defendant cigarette manufacturers appeal from an order certifying a statewide class of all consumers who bought Defendants' cigarettes during an approximate seven-year period.

{2} Plaintiffs allege Defendants violated the New Mexico Antitrust Act, NMSA 1978, §§ 57-1-1 to -17 (1979, as amended through 1987), by entering into a conspiracy to inflate their cigarette list price increases to wholesalers and distributors. Plaintiffs claim injury and damages from the pass-on of overcharges down the chain of distribution. We affirm, holding that under the requirements for class certification in Rule 1-023(B)(3) NMRA, the methodologies Plaintiffs presented to prove antitrust injury and damages are sufficient for class certification. Questions of law and fact common to the members of the class predominate over any questions affecting only individual members, and the class action is superior to other available methods for the fair and efficient adjudication of the controversy.

{3} As Background (¶¶ 4-34 infra), we generally discuss: (1) the Antitrust Act; (2) New Mexico's class certification rule, Rule 1-023; followed by (3) and (4) Plaintiffs' and Defendants' proofs and positions; and (5) the district court's determinations and Defendants' points on appeal. In our Discussion, we: (1) set out our general approach to Rule 1-023 (¶¶ 35-39); (2) identify the standard of review (¶¶ 40); then, (3) we discuss Rule 1-023(B)(3)'s predominance standards for injury and damages; and (4) the superiority (manageability) standard (¶¶ 51-55); following which, (5) we analyze the cases supporting certification using classwide injury and damages through generalized proof (¶¶ 56-67); (6) cases supporting the need to prove individual injury and individualized damages through common proof (¶¶ 68-77); and (7) we analyze the Antitrust Act's "damages actually sustained" language (¶¶ 78-83). We close the opinion with a summary and the result (¶¶ 84-98).

BACKGROUND

1. The Antitrust Act: Indirect-Purchaser Standing and Elements of Claim

{4} In Illinois Brick Co. v. Illinois, 431 U.S. 720, 728-29, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the United States Supreme Court held that indirect purchasers of a product from a manufacturer did not have standing to sue under the federal antitrust law for overcharges that were "passed on" to the indirect purchasers. The Court's decision built on its previous ruling in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 489, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), that antitrust defendants could not use the defense that overcharges were not absorbed by direct purchasers but were "passed on" to indirect purchasers, adopting the reasoning that to allow indirect purchaser lawsuits would unnecessarily complicate matters given "the economic uncertainties and complexities involved in proving pass-on." Illinois Brick, 431 U.S. at 725 & n. 3, 97 S.Ct. 2061. In his dissenting opinion in Illinois Brick, Justice Brennan preferred to limit the Hanover Shoe rule to prohibiting the use of a pass-on defense, thus permitting indirect purchasers to prove overcharges. Illinois Brick, 431 U.S. at 753, 97 S.Ct. 2061 (Brennan, J., dissenting).

{5} In response to Illinois Brick, many states enacted provisions allowing indirect purchaser lawsuits under their antitrust law. The viability of these state provisions was confirmed when the United States Supreme Court limited Illinois Brick to construing federal antitrust policy and not "defining the interrelationship between the federal and state antitrust laws." California v. ARC Am. Corp., 490 U.S. 93, 103, 105, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989). New Mexico's indirect purchaser provision is contained in Section 57-1-3(A) of the Antitrust Act.

{6} Section 57-1-3(A) reads:

All contracts and agreements in violation of Section 57-1-1 or 57-1-2 NMSA 1978 shall be void, and any person threatened with injury or injured in his business or property, directly or indirectly, by a violation of Section 57-1-1 or 57-1-2 NMSA 1978 may bring an action for appropriate injunctive relief, up to threefold the damages sustained and costs and reasonable attorneys' fees. If the trier of fact finds that the facts so justify, damages may be awarded in an amount less than that requested, but not less than the damages actually sustained.

Commensurate with the grant of standing to indirect purchasers, the Antitrust Act allows defendants to assert as a defense that the plaintiffs "passed on all or any part of [an] overcharge... to another purchaser or seller in [the distribution] chain." § 57-1-3(C).

{7} To recover antitrust damages under federal law, a plaintiff must prove: (1) an antitrust violation; (2) that the violation caused damage to the plaintiff's business or property, characterized in antitrust cases as "injury," or "fact of damage," or "impact," hereinafter referred to as "injury"; and (3) the amount of damages sustained. See Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 & n. 9, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969) (distinguishing the injury element establishing causation, which requires proof of "some" damage from a conspiracy, from the damages element that measures the extent of damage); Bell Atl. Corp. v. AT & T Corp., 339 F.3d 294, 302 & n. 12 (5th Cir.2003); Windham v. Am. Brands, Inc., 565 F.2d 59, 67 (4th Cir.1977) (involving allegations by tobacco growers of tobacco company price-fixing). "Antitrust injury, causation, and damages all are necessary parts of the proof because `Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation.'" Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1055 (8th Cir.2000) (quoting Hawaii v. Standard Oil Co., 405 U.S. 251, 262-63 n. 14, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972)). We interpret the Antitrust Act in harmony with federal antitrust laws when, as here, we have no New Mexico authority on point to guide us. Griffin v. Guadalupe Med. Ctr., Inc., 1997-NMCA-012, ¶ 9, 123 N.M. 60, 933 P.2d 859. We determine, and the parties do not disagree, that the same three elements, i.e., a violation, causing injury, resulting in damages, must be proven under the Antitrust Act. See Ren v. Philip Morris Inc., No. 00-004035-CZ, 2002 WL 1839983, slip op. at *2 (Mich. Cir. Ct. June 11, 2002) (involving state antitrust allegations by consumers against manufacturers); Keating v. Philip Morris, Inc., 417 N.W.2d 132, 137 (Minn.Ct.App.1987) (involving state antitrust allegations by retailers against tobacco manufacturers).

2. Class Certification Rule

{8} Under Rule 1-023(A), to be certified as a class, New Mexico plaintiffs must satisfy the prerequisites commonly referred to as numerality, commonality, typicality, and adequacy. These prerequisites are not at issue in this appeal. The district court may only certify a class action for the recovery of damages if plaintiffs establish and the court finds these further prerequisites exist:

[T]he 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 matters pertinent to the findings 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.

Rule 1-023(B)(3); Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614-16, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997).

{9} These Rule 1-023(B)(3) prerequisites are commonly referred to as the predominance and superiority requirements, see Amchem Products, 521 U.S. at 615, 117 S.Ct. 2231 and they are directly at issue in this appeal. As we shall discuss, the predominance requirement brings...