GARWOOD, Circuit Judge:
In this Rule 23(f) interlocutory appeal, the plaintiffs-appellants, Rochelle Communications, Inc. (Rochelle) and Adroit Medical Systems, Inc. (Adroit), challenge the district court's denial of their motion to certify two classes of plaintiffs allegedly injured by the refusal of the defendant, AT&T Corp. (AT&T), to permit the passage of caller identification (caller ID) data across its long-distance telephone network. Because we conclude that the appellants cannot satisfy the predominance requirement of Rule 23(b), we affirm.
Facts and Proceedings Below
In 1996, Bell Atlantic Corp. (Bell) brought suit under section 4 of the Clayton
A. Caller ID
The decision to certify a class may often necessitate a highly factual inquiry, see Alabama v. Blue Bird Body Co., Inc., 573 F.2d 309, 316 (5th Cir.1978), and the propriety of class certification here hinges in part upon evidence introduced below concerning the nature and operation of caller ID.
The record reflects that caller ID is a service marketed and provided by local telephone companies that permits the display, on a device either attached to or incorporated into the telephone of the recipient of a call, of the telephone number, and occasionally the name, of the calling party. The service operates by transmitting data containing, at a minimum, a calling party's telephone number (CPN) over the telephone networks until it ultimately reaches, and is displayed on, the call recipient's caller-ID display unit.
There is no dispute that access to caller ID information may be of benefit to a number of businesses and may, for certain businesses, produce substantial efficiency gains and accompanying cost savings. Businesses, for example, may use caller ID data to return calls received after hours where the caller left an incomplete message or no message at all. And because the display units also are sometimes able to record information for later recall, the caller ID display units may also be used to track call volume. In addition, businesses that maintain reverse-charge, long-distance telephone numbers benefit from caller ID by using the calling party number to screen out unwanted calls, thereby reducing long-distance calling expenses.
At a more sophisticated level, the caller-ID data transmitted to a call recipient may be linked, through the use of computer telephony integration (CTI) equipment and software, to a business's computerized database. CTI equipment thus allows a business to use a caller ID signal to rapidly retrieve information related to a particular
A number of technological prerequisites, however, must be met before a call recipient can receive a caller ID signal. Chief among these is the need for each portion of the telephone network that the caller ID signal must traverse to be connected to a telephone network known as the Signaling System 7 (SS7) network.
Even where there was complete SS7 connectivity, however, a number of additional factors, other than AT&T's conduct, may have prevented the unimpeded passage of a caller ID signal during the class period. Some states, concerned with the implications of caller ID for privacy rights and existing wiretapping legislation, imposed regulations that blocked the transmission of CPN on all calls, both local and long-distance. In re Rules and Policies Regarding Calling Number Identification Service—Caller ID, 9 F.C.C. Rcd. 1764 (1994). Thus AT&T alleged, and the plaintiffs do not dispute, that Texas prohibited the transmittal of CPN for a substantial portion of the class period, while California did not permit the passage of CPN at any time during the class period. Pennsylvania did not amend its statutes to permit caller ID service until December 1993. See 66 PA. CONS.STAT. § 2906(a) (providing for caller ID service and overruling Barasch v. Pennsylvania Public Utility Commission, 133 Pa.Cmwlth. 285, 576 A.2d 79 (1990), which held that caller ID violated state wiretap laws). Other states required, and still require, that telephone companies provide consumers with the option of blocking the display of their telephone numbers. See, e.g., CAL. PUB. UTIL.CODE § 2893(a) (West 2003) (requiring, with certain exceptions, that "every telephone call identification service ... shall allow a caller to withhold display of the
Assuming, however, that none of these various barriers would have impeded the receipt of caller ID, there is no question but that caller ID was unavailable on certain calls during the class period because of AT&T's decision to block the free transmission of caller ID signals over its long-distance network. Moreover, for purposes of deciding class certification, we shall simply assume without deciding, as did the district court, that such conduct amounted to an attempt to monopolize the market for caller ID service in violation of the Sherman Act. The only question remaining before this court, therefore, is the propriety of the district court's denial of class certification.
B. Class Definitions
The named plaintiffs, Rochelle and Adroit, initially sought to certify two classes of plaintiffs who they maintained suffered antitrust injury as a result of AT&T's blocking of caller ID data: (1) a reverse charge class comprising business and organizations who purchased AT&T's reverse-billed ("1-800") long-distance service; and (2) a call recipient class comprising businesses and organizations that were actual or potential purchasers of caller-ID service for long-distance calls.
After a hearing during which the district court received evidence concerning the operation of caller ID service and the nature of the antitrust injury alleged, the plaintiffs moved to redefine the putative classes.
The call recipient class, whose members who were not necessarily all AT&T subscribers, was defined as
In addition to defining the proposed classes, the plaintiffs' motion for certification also included a formula for calculating the amount of damages to which the plaintiffs claimed the class members were entitled. Specifically, the plaintiffs proposed to calculate damages for individual class members in both classes based upon the national "average number of seconds saved per call" [both long-distance and local] through the use of caller ID, an average wage rate for the typical employee answering and processing telephone calls, and the total number of AT&T calls to class members made during the class period.
AT&T opposed class certification arguing, inter alia, that the plaintiffs had failed to carry their burden of establishing predominance and numerosity. Specifically, AT&T contended that the plaintiffs' motion for certification failed the predominance bar on two grounds. First, AT&T maintained that the plaintiffs could not prove antitrust injury with regard to each class member absent an individualized inquiry into issues of causation. Second, even assuming the plaintiffs could establish liability on a classwide basis, AT&T argued that the plaintiffs still could not clear the predominance hurdle since the variegated nature of the class member businesses and organizations precluded a formulaic calculation of damages.
The district court, after holding a second hearing on the issue, denied class certification. Seizing on the first of AT&T's two above objections and relying on Alabama v. Blue Bird Body Co., Inc., 573 F.2d 309 (5th Cir.1978), the district court found that difficulties in establishing that AT&T had actually caused an antitrust injury to any given class member defeated predominance.
A. Standard of Review
We review the district court's decision to certify a class for an abuse of discretion, see McManus v. Fleetwood Enterprises, Inc., 320 F.3d 545, 548 (5th Cir.2003), and note that the district court must "conduct a `rigorous analysis of the Rule 23 prerequisites' before certifying a class." O'Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 738 (5th Cir.2003). We also note that in those cases where the plaintiff seeks to certify a class under Rule 23(b)(3), the Rules "invite a close look at the case before it is accepted as a class action." Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 2246, 138 L.Ed.2d 689 (1997) (quoting Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Criminal Procedure (I), 81 HARV. L.REV. 356, 375 (1967)). Finally, we stress that it is the party seeking certification who bears the burden of establishing that the requirements of Rule 23 have been met. O'Sullivan, 319 F.3d at 737-738.
B. Class Certification
There are no "hard and fast rules ... regarding the suitability of a particular type of antitrust case for class action treatment." Alabama v. Blue Bird Body Co., Inc., 573 F.2d 309, 316 (5th Cir.1978). Rather, "[t]he unique facts of each case will generally be the determining factor governing certification." Id.
Under Rule 23(a), a plaintiff seeking to certify a class must satisfy four threshold requirements: "(1) numerosity (a `class [so large] that joinder of all members is impracticable'); (2) commonality (`questions of law or fact common to the class'); (3) typicality (named parties' claims or defenses `are typical ... of the class'); and (4) adequacy of representation (representatives `will fairly and adequately protect the interests of the class')." Amchem Products, 117 S.Ct. at 2245.
Beyond these four prerequisites of Rule 23(a), Rule 23(b)(3) demands of a party seeking class certification yet two further requirements, namely the burden of demonstrating both (1) that questions common to the class members predominate over questions affecting only individual members, and (2) that class resolution is superior to alternative methods for adjudication of the controversy. Id. at 2246. By inquiring into predominance, Rule 23(b)(3) thus tests "whether the proposed classes are sufficiently cohesive to warrant adjudication by representation." Id. at 2249. The standard for certification imposed by Rule 23(b)(3) is also more demanding than the commonality requirement of Rule 23(a), and as such, mandates caution, particularly where "individual stakes are high and disparities among class members
Determining whether the plaintiffs can clear the predominance hurdle set by Rule 23(b)(3) also requires us to consider "how a trial on the merits would be conducted if a class were certified." Sandwich Chef of Texas, Inc. v. Reliance Nat'l Ins. Indem. Co., 319 F.3d 205, 218 (5th Cir.2003); Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir.1996). This, in turn, "entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class," a process that ultimately "prevents the class from degenerating into a series of individual trials." O'Sullivan, 319 F.3d at 738.
C. The Antitrust Violation
The offense of attempted monopolization in violation of section 2 of the Sherman Act has three elements, namely: (1) that the defendant engaged in predatory or exclusionary conduct, (2) that the defendant possessed the specific intent to monopolize, and (3) that there was a dangerous probability that the defendant would succeed in his attempt. Taylor Pub. Co. v. Jostens, Inc., 216 F.3d 465, 474 (5th Cir.2000).
Proof of these elements will necessarily be identical for the members of both proposed classes, and under the facts of the instant case, these issues, therefore, create no bar to class certification. Moreover, as indicated above, we assume, for purposes of addressing the issue of class certification, that AT&T's alleged conduct constituted a violation of section 2.
The plaintiffs' task, however, is not limited to establishing the elements of a completed offense under section 2 of the Sherman Act. Rather, to establish civil liability under the Clayton Act, a plaintiff must also establish that he has been injured in his "business or property by reason of anything forbidden in the antitrust laws." 15 U.S.C. § 15. Thus, where a plaintiff seeks a private civil remedy and treble damages for a violation of section 2, he must not only make out a violation of the antitrust laws, but also (1) establish that it was the defendant's conduct that actually caused injury to his business or property,
Establishing causation, or "fact of damage", requires the plaintiff to demonstrate a causal connection between the specific antitrust violation at issue and an injury to the business or property of the antitrust plaintiff. Id. This requirement is in no way lessened by reason of being raised in the context of a class action. Rather, this court has held that the issue of fact of damage "is a question unique to each particular plaintiff and one that must be proved with certainty." Id. at 327. Accordingly, we have repeatedly held that where fact of damage cannot be established for every class member through proof common to the class, the need to establish antitrust liability for individual class members defeats Rule 23(b)(3) predominance. See Nichols v. Mobile Board of Realtors, Inc., 675 F.2d 671 (5th Cir.
In addition to establishing fact of damage, section 4 of the Clayton Act also requires a plaintiff to show "some indication of the amount of damage" suffered. See Blue Bird Body, 573 F.2d at 317. We have recognized, however, that the nature of an antitrust claim means that "some plaintiffs can only hypothesize about what the state of their affairs would have been absent the wrong," H&B Equipment Co. v. International Harvester Co., 577 F.2d 239, 246 (5th Cir.1978), and we have, therefore, declined to hold antitrust plaintiffs to the same burden of proof of damages as demanded of plaintiffs in other civil cases. See Eleven Line, Inc. v. North Texas State Soccer Ass'n, 213 F.3d 198, 206-207 (5th Cir.2000). Such leniency notwithstanding, an antitrust plaintiff may not merely rely on "guesswork or speculation" to establish damages. Id. Rather, our cases indicate that the plaintiff must provide a "just and reasonable estimate of the damage based on relevant data." Id. (quoting Bigelow v. RKO Radio Pictures, 327 U.S. 251, 66 S.Ct. 574, 580, 90 L.Ed. 652 (1946)); see, e.g., Kestenbaum v. Falstaff Brewing Co., 575 F.2d 564, 569 (5th Cir.1978)("When asserting injury from the imposition of price ceilings, the plaintiff must show when prices would have been raised, by what amount, and approximately what sales would have been at the higher price."). And we have accordingly rejected claims where the plaintiff's proposed method of calculating damages failed to reasonably approximate actual economic losses. See Eleven Line, Inc., 213 F.3d at 208-209; Keener v. Sizzler Family Steak Houses, 597 F.2d 453, 457 (5th Cir.1979).
D. Damages and Predominance
Having thus identified fact of damage and the amount of damages as the two elements of the plaintiffs' claim that would be at issue at trial were the two proposed classes to be certified, we now address whether, in light of those elements, individual issues would predominate at trial.
The district court found that the plaintiffs failed to demonstrate that they could establish antitrust liability through common proof, and that individual issues concerning fact of damage, therefore, defeated predominance. The plaintiffs assign this finding as error and ask us to reverse. We demur, since even if we were to conclude that the district court's decision as to fact of damage was in error, we find that the plaintiffs' motion for certification nevertheless founders on the issue of the amount of damages.
The record indicates that rather than merely examining lost time and average labor costs, any adequate estimation of actual damages suffered would require consideration of the variegated nature of the businesses included in both the proposed classes, together with the range of uses, depending on the size and technological sophistication of any given business, to which caller ID could be applied. In light of the need for such individualized inquiries, we cannot conclude that the plaintiffs have established that the requirements of Rule 23(b)(3) can be satisfied in the present case.
In Eleven Line, Inc. v. North Texas State Soccer Ass'n, 213 F.3d 198, 208-209 (5th Cir.2000), we found inadequate an antitrust plaintiff's damages formula that, based on an average of the rates of return of similar businesses, failed to account, among other things, for differences in location and size between the various businesses used to calculate the average. We also rejected the argument that to disallow the plaintiff's damages formula would be to let anticompetitive conduct go unpunished because of "mere uncertainty in the amount of loss inflicted," noting instead that the lenient standard for proving the amount of damages under the antitrust laws should not be stretched so far as to permit recovery where there was no evidence that competition had actually been eroded. Id. at 209.
The plaintiffs' formula in the case sub judice suffers from the same flaws that proved fatal to the plaintiff's formula in Eleven Line, Inc. v. North Texas State Soccer Ass'n. Numerous factors that would have affected the amount of damages, if any, suffered by any given class member denied caller ID are not accounted for in the proposed formula. It is not contested that certain class member businesses were denied substantial efficiency gains because of their inability to receive caller ID with every call. Not every business included in the class, however, would have achieved the same per call savings, a fact that the plaintiffs conceded when during the second hearing on class certification, counsel for the class representatives agreed that while some class members may have a claim for substantial damages,
As AT&T has repeatedly pointed out, both before this court and before the district court, it is not difficult to conceive of a business that would fall within the definition of the call recipient class, but that would nevertheless not have suffered any economic injury by reason of being denied caller ID on one long-distance call each month while a caller-ID subscriber during the class period. Thus AT&T posits the local pizza-delivery business, that serves a local customer base, and that receives one long-distance call each month. Such a business falls within the definition of the reverse charge class, yet it is unlikely that such a business would ever suffer any actual economic injury by being denied caller ID data on a single long-distance call each month. Even assuming that such a pizza-delivery business utilized a non-local supplier, before concluding that the business suffered any actual economic injury from the absence of caller ID information on a call from the supplier, one would have to also make both of the following dubious and highly speculative assumptions about each such call, namely that had caller ID been present, the employee answering the call would have saved some amount of time and that the employee's time was otherwise fully utilized. The conclusion that such a local business would be actually economically injured from the absence of caller ID information in such a situation, is therefore equally speculative.
According to the record, most labor and time savings would only have been realized by those businesses that possessed both CTI equipment and software that would have enabled them to utilize caller ID in conjunction with a customer database. The class definitions, however, do not seek to distinguish between those businesses that did, and those that did not, possess CTI equipment. Moreover, even among those businesses that did possess CTI equipment, the amount of labor savings realized, if any, would have varied greatly. The record reveals that a wide variety of CTI equipment, ranging in expense and performance, was available during the class period, the effectiveness of which apparently depended, to at least some extent, on the type of database software with which it was used, a factor that also varied among businesses.
Not only does the plaintiffs' proposed damages formula thus fail to account for disparities in potential labor savings among class members due to variations in, or the absence of, CTI equipment, but it also fails to account for other differences among class members that would have affected the amount, if any, of actual economic damages suffered. The damages formula does not account for those businesses, included in the definitions of both classes, that employed PBX telephone systems (or received long-distance calls only or primarily from other business that employed PBX systems) and that, therefore, could never have received caller ID data
Where an antitrust plaintiff seeks to project lost profits by comparing like businesses, it is the plaintiff who must "demonstrate the reasonable similarity of the business whose earning experience he would borrow." Eleven Line, Inc., 213 F.3d at 208. Similarly, where the injury alleged is measured in terms of an average of lost labor savings and an average amount of time saved per phone call, it is the plaintiff who must demonstrate the reasonable similarity of the businesses used to calculate those averages. This the plaintiffs have failed to do. The plaintiffs' proposed damages formula instead attempts to project a measure of damages, for all the class members, that in no way accounts for the vast differences among those class members. Any reasonable approximation of the damages actually suffered by the various class members would instead require a much tighter inquiry into the nature of the class member businesses. Given the need for such individualized damages inquiries, we conclude that individual issues concerning damages predominate over questions common to the proposed classes.
We realize that relatively few motions to certify a class fail because of disparities in the damages suffered by the class members. Even wide disparity among class members as to the amount of damages suffered does not necessarily mean that class certification is inappropriate, see Gold Strike Stamp Co. v. Christensen, 436 F.2d 791, 798 (10th Cir.1970),
Although we have not, before the instant case, directly addressed the relationship between proof of antitrust damages and Rule 23(b)(3) predominance, this court quoted Windham v. American Brands with approval in Alabama v. Blue Bird Body Co., when we expressed "serious reservations about the manageability of a class" in an antitrust action where the determination of individual damages cannot be made by mathematical or formulaic computation. 573 F.2d 309, 329 (5th Cir.1978). More recently, we held in the context of a claim brought under Texas law, that "[w]here the plaintiffs' damage claims `focus almost entirely on facts and issues specific to individuals rather than the class as a whole,' the potential ... that the class action may `degenerate in practice into multiple lawsuits separately tried,'" renders class treatment inappropriate. See O'Sullivan v. Countrywide Home Loans, 319 F.3d 732, 744 (5th Cir.2003).
Upon reviewing the record in light of O'Sullivan, Blue Bird Body Co., and Windham, we cannot conclude that the plaintiffs' two proposed classes are appropriate for certification. As discussed above, there are vast differences among the numerous businesses that compose the two classes. The businesses that fall within those classes range from sole proprietorships, with customer bases comprising almost exclusively local consumers, that received a minimum of long-distance calls and for whom caller ID would have provided minimal, if any, labor savings, to large, interstate catalogue companies that maintained large call centers, possessed CTI equipment, and for whom caller ID might have produced substantial benefits in both labor savings and customer satisfaction. When applied to all the members included in the two proposed classes, however, the plaintiffs' damages formula — a formula based on nationwide averages that makes no effort to adjust for the variegated nature of the businesses included in the classes — cannot reasonably approximate the actual damages suffered by the class members by reason of AT&T's blocking of caller ID signals. In light of the requirements of Rule 23(b)(3), therefore, we hold that the plaintiffs have clearly failed to demonstrate that common issues of fact predominate over those individual issues of fact that are plainly necessary for any just
Because we conclude that the issue of damages defeats predominance, we decline to address the district court's holding that the plaintiffs failed to demonstrate that they would be able to establish antitrust impact, through common proof, for either proposed class. Even assuming that the plaintiffs can establish antitrust liability with respect to all the class members, we conclude that the plaintiffs, having had a fully adequate opportunity to address the issue of damages below, clearly failed to demonstrate that the calculation of individualized actual economic damages, if any, suffered by the class members can be performed in accordance with the predominance requirement of Rule 23(b)(3). We conclude, therefore, that class certification is not appropriate; the district court's order denying certification is therefore
The call recipient class was defined as
With respect to the damages owed members of the call recipient class, the plaintiffs' expert testified that
The district court reached a similar conclusion with respect to the call recipient class. According to the district court, with the exception of records covering only one year of the class period, no records were available from which the class members could determine the source of any given call during the class period. Absent records from which a call recipient could determine that he had been called on a certain date from a certain number, the court concluded that the plaintiffs could not identify the origin of a specific call, let alone whether that call originated from an area that was connected to the SS7 network. Absent that information, no given class member could establish the requisite element of causation.
AT&T also asserted, both on appeal and before the district court, that the plaintiffs had failed to allege a cognizable antitrust injury. See Bell v. Dow Chemical, 847 F.2d 1179, 1183 (5th Cir.1988) (holding that a "plaintiff's injury must be the type that the antitrust laws were intended to prevent"). The plaintiffs' asserted theory of antitrust injury is admittedly a novel one, consisting of the claim that by stripping calls of caller ID data, AT&T injured the class members by "degrading" the value of their caller ID service. Whether such a general, unquantifiable degradation in the value of a product, unconnected to any objective market indicators, amounts to an antitrust injury, however, is unclear. See H&B Equipment Co. v. International Harvester Co., 577 F.2d 239, 247 (5th Cir.1978) (noting that where a plaintiff relies on lost sales to show fact of damage, the plaintiff will have to "show a specific monetary loss"); Kestenbaum v. Falstaff Brewing Co., 575 F.2d 564, 569 (5th Cir.1978) (holding, in the context of a price fixing claim, that "the plaintiff must show when prices would have been raised, by what amount, and approximately what sales would have been at the higher price"); Midwestern Waffles Inc. v. Waffle House Inc., 734 F.2d 705, 723 n.3 (11th Cir.1984) (noting that a showing of injury to business or property within the meaning of the Clayton Act requires a plaintiff to "be able to demonstrate that it suffered economic damages which are quantifiable"). And although AT&T's argument may have some merit, because we hold that the plaintiffs cannot establish predominance under Rule 23(b)(3), it is not necessary to pass on that argument for the purposes of resolving the instant appeal.