Law360: What 3rd Circ. Niaspan Decision Means For Class Cert.

Rimon Partner, Michael Lazaroff, discusses what the U.S. Court of Appeals for the Third Circuit Niaspan decision means for class certification in Law360’s recent article. Read the article below.

Republished with consent from Law360

In a decision unsealed May 4, a three-judge panel from the U.S. Court of Appeals for the Third Circuit affirmed the U.S. District Court for the Eastern District of Pennsylvania’s denial of class certification in In re: Niaspan Antitrust Litigation.

The putative class of end-payors — for mainly union health and welfare insurance plans — claimed that defendants had entered an anti-competitive agreement to delay entry of a generic version of Niaspan.[1]

In its decision, the Third Circuit used and confirmed its stringent two-element test for ascertainability[2] and applied it to this putative class in the context of an alleged anti-competitive reverse payment settlement agreement between a brand and generic pharmaceutical manufacturer.[3]

This decision to reaffirm the robust two-element ascertainability requirement occurred despite the rejection of this standard and approach by a number of other courts and an apparent more relaxed application of this standard from a recent different Third Circuit panel. The Third Circuit has already rejected the plaintiffs’ motion for reconsideration or rehearing en banc.

If the parties proceed to further appeal this matter, this case ultimately may provide a good vehicle for the U.S. Supreme Court to consider the current split in the circuits and confusion in the courts concerning the question of the implicit ascertainability requirement for class certification under Rule 23 of the Federal Rules of Civil Procedure.

Case Background 

This case is a consolidation by the judicial panel on multidistrict litigation of many actions resulting in three direct-purchaser plaintiff actions and 14 end-payor plaintiff actions, which were consolidated into two separate class actions, respectively.[4] A class was certified for the direct-purchaser plaintiffs in 2019.[5]

The end-payor purchasers initially moved for class certification in 2020 for a broad class “including both consumers and end-payors, with ten exclusions.”[6]

The district court denied this initial class certification motion without prejudice “on several grounds, including the Appellants’ failure to establish ascertainability” because the appellants “‘failed to carry their burden of showing a reliable and administratively feasible mechanism for identifying class members by a preponderance of the evidence,'” according to the opinion.[7]

The appellants then filed a renewed motion for class certification “with a significantly narrowed class definition” that removed “consumers from the class definition, reduc[ing] the number of exclusions from ten to six.”[8]

The district court also denied this renewed motion for class certification by the appellants because they still had not “presented an administratively feasible mechanism to distinguish between class members and mere intermediaries such as fully insured plans.”[9]

The appellants appealed to the Third Circuit, arguing mainly that the district court had erred in making its factual and legal findings; and the Third Circuit should reconsider its understanding of the ascertainability requirement for class certification because the “majority of other courts of appeals to have considered the question have rejected the ascertainability requirement as an extratextual hurdle to class certification.”[10]

The Third Circuit Decision

The Third Circuit panel affirmed the district court’s decision denying class certification for many reasons. First, the Third Circuit explained that pursuant to its precedent, a class action under Rule 23(b)(3) requires that class members be “‘currently and readily ascertainable based on objective criteria.'”[11]

The Third Circuit explained that to satisfy this requirement, the appellants must show that “‘(1) the class is defined with reference to objective criteria; and (2) there is a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.'”[12]

The Third Circuit noted that this ascertainability requirement, like the other Rule 23 class certification requirements, required a court to engage in a rigorous analysis and find that the standard has been met by a preponderance of the evidence before granting certification.[13] The Third Circuit noted that it has discussed and applied this standard in several cases.[14]

Second, the Third Circuit rejected the appellants’ request to reconsider its ascertainability requirement. The court held that it would not overrule this precedent even if it had the authority to do so.[15]

The Third Circuit explained that without an ascertainability requirement, the very purpose of Rule 23 is thwarted, because the class could not be identified in an economical and administratively feasible manner.[16]

The Third Circuit clarified that its ascertainability requirement eliminates serious administrative burdens by insisting on “easy identification of class members”; protects absent class members by providing the “best notice practicable” as required by Rule 23; and protects defendants by making “clearly identifiable” those who will be bound by a final judgment.[17]

The Third Circuit then observed that:

The ascertainability standard, including the administrative feasibility principle it contains, is true to the text, structure, and purpose of Rule 23. That is because, absent some mechanism to establish whether the standards of Rule 23 are met, courts could not meaningfully apply the Rule.[18]

Further, the court noted that the U.S. Courts of Appeal for the First, Second, Fourth and Fifth Circuits all apply its ascertainability standard, or “a standard that is substantively the same.” [19]

The Third Circuit continued that even in some of those circuits that disagreed with this standard, “some version of an administrative feasibility test is applied, albeit under a different name” and cited to the U.S. Courts of Appeal for the Sixth, Seventh, Eighth, Ninth and Eleventh Circuits.[20]

Third, the Third Circuit found that the district court made no reversible factual or legal errors. The appellants had claimed that:

the District Court’s factual findings were clearly erroneous because the Court misunderstood their proposed methodology, overstated the prevalence of intermediaries in the PBM [pharmacy benefit managers] data, and failed to consider the use of affidavits as a means of identifying class members.[21]

The Third Circuit disagreed. It held that the district court’s finding that:

the prevalence of intermediaries is a significant problem, especially since the same players in this industry may be end-payors, fully insured health plans, or merely administrators in any given transaction, and the PBM data does not indicate which role they are playing … is not clearly erroneous.[22]

The appellants further claimed that the district court erred by “failing to consider the use of affidavits to resolve ambiguities when two entities are identified as potential end- payors.”[23]

The Third Circuit rejected that argument because the appellants “did not adequately present their argument about the use of affidavits to the District Court, and we will not consider it now.”[24]

The appellants also argued that the district court erred by not finding that “PBMs can identify end-payors for every Niaspan purchase, and that this data set meets the ascertainability standard.”[25]

However, the Third Circuit rejected that argument too, finding that the district court concluded that “PBMs cannot identify class members because their data does not show whether, in any given transaction, an entity is an end-payor, a fully insured health plan, or an administrative intermediary.”[26] The Third Circuit explained that this conclusion was not clearly erroneous and had ample support in the record.[27]

Analysis and Impact of the Decision

As noted above, this decision reaffirms the Third Circuit’s particularly stringent understanding of the implicit ascertainability requirement. This reaffirmation is important because of confusion in the courts about this aspect of class certification.

For example, the U.S. Court of Appeals for the Eight Circuit and the U.S. Court of Appeals for the Ninth Circuit do not recognize any implicit ascertainability requirement, as the language of Rule 23 does not explicitly mention any such requirement.[32] Other circuits recognize an implicit ascertainability requirement but do not require administrative feasibility as part of that requirement.[33]

Yet, other circuits, such as the U.S. Court of Appeals for the First Circuit and the U.S. Court of Appeals for the Fourth Circuit, agree with the Third Circuit’s approach and also require administrative feasibility.[34] Even in the Third Circuit itself, two judges in separate concurring opinions in separate cases — Byrd v. Aaron’s Inc. in 2015 and City Select Auto Sales Inc. v. BMW Bank of North America Inc. in 2017 — have questioned the heightened requirement for administrative feasibility.[35]

Prior to the Niaspan decision, some thought that the Third Circuit in a 2022 Kelly v. RealPage Inc. decision, from a different panel, had limited its understanding of the implicit ascertainability requirement.[36]

In that decision, the Third Circuit found that a putative subclass of consumers who directly requested reports from a credit reporting agency met the ascertainability requirement for class certification. The court articulated the same “two-pronged ‘rigorous analysis'” for the ascertainability requirement as prior Third Circuit decisions.[37]

However, the Eastern District of Pennsylvania had denied class certification because “identifying putative class members would require ‘[a] review of each individual file,'” which was not administratively feasible.[38] The Third Circuit in Kelly reversed the decision because the district court erred in believing that there was a per se rule that a process of reviewing each individual file is never administratively feasible.[39]

The Third Circuit said there was no such per se rule, but rather the question of what was administratively feasible was contextual. Certification would be denied where the determination requires a “sort of mini-trial or individualized fact finding” that was not at issue in the Kelly case.[40]

All that was necessary in Kelly was “matching of records [that] is precisely the sort of exercise we have found sufficiently administrable to satisfy ascertainability in other cases.”[41]

The Third Circuit also added that class members “should not bear the cost of the [defendant’s] faulty record keeping” if that is the reason for lack of feasibility.[42]

While the Kelly decision was issued after oral argument in the Niaspan case, the appellants filed a Rule 28 letter with the court, arguing that the Kelly decision supported their case for certification. The appellants also filed a petition for rehearing and rehearing en banc, arguing inter alia that this decision is inconsistent with RealPage.[43]

The Third Circuit denied this motion June 5. This may be in part because it is unclear there is any inconsistency. While the Third Circuit in the Niaspan decision did not directly address the Kelly case, it evidently did not see that case as inconsistent with its conclusions or that of prior Third Circuit decisions.

The Third Circuit specifically discussed many of its previous cases to show the consistency of its ascertainability opinions across time. While the Kelly decision opposed a per se rule that needing to review individual files was always not feasible, the Niaspan decision was clear that the district court did not adopt a “bright line rule.”[44]

Rather, the Third Circuit understood that the district court had decided that the “plaintiffs’ proposed methodology would leave an enormous amount of individualized fact-finding to be done.”[45] Thus, it appears that both Kelly and Niaspan were contextually based decisions as to whether a specific proposed methodology was administratively feasible or not.

In any event, this decision has emphasized and heightened the confusion in the courts. Additionally, if this case is presented to the U.S. Supreme Court, it may be that it will present a good opportunity for the high court to finally consider the disagreement among the circuits concerning the existence and strength of an implicit ascertainability requirement as an independent Rule 23 requirement.

The current situation and conflicts among the courts create inconsistency in the interpretation of Rule 23, threatening uneven results and increasing the risk of forum shopping. The Supreme Court has denied certiorari on this issue a number of times.

This case though highlights the stringent Third Circuit interpretation of Rule 23 and its opinion that other courts may be using a similar approach under a different name. Additionally, the PBM data used in this case was extensive and has been and will continue to be at issue in other pharmaceutical class action cases. Thus, this may be a good vehicle for Supreme Court consideration.

The appellants additionally argued that the district court erred in finding that the appellants cannot use automated data to identify class members without individualized.

Michael Lazaroff is a partner at Rimon Law.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See In re Niaspan Antitrust , 67 F.4th 118 (3d Cir. 2023).

[2] Evans Bringham Young University, 2023 WL 3262012, *8 (10th Cir. 2023).

[3] See In re Niaspan, 67 4th at 129-130.

[4] Id. at 128.

[5] Id. at n.6.

[6] Id.

[7] quoting In re Niaspan Antitrust Litig., 464 F.Supp.3d 678, 701 (E.D. Pa. 2020).

[8] In re Niaspan, 67 4th at 129.

[9] In re Niaspan Antitrust , 555 F. Supp. 3d 155, 169 (E.D. Pa. 2021).

[10] In re Niaspan, 67 4th at 132.

[11] Id. at *8 (quoting Hargrove v. Sleepy’s LLC, 974 F.3d 467, 477 (3d Cir. 2020)).

[12] In re Niaspan, 67 4th at 129-130 (quoting Hargrove, 974 F.3d at 469-470).

[13] In re Niaspan, 67 4th at 130.

[14] Id.

[15] Id. at 132.

[16] Id.

[17] Id. (internal citations omitted).

[18] Id.

[19] Id. at 133 and n.9.

[20] Id. at 134.

[21] Id.

[22] Id. at 135.

[23] Id.

[24] Id. at 136.

[25] Id.

[26] Id.

[27] Id.

[28] Id. at 138.

[29] Id.

[30] Id. at 138-139.

[31] Id. at 139.

[32] See, e.g., Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1124 n.4 (9th Cir. 2017)(“ConAgra cites no other precedent to support the notion that our court has adopted an ‘ascertainability’ requirement. This is not surprising because we have not.”); Sandusky Wellness Center, LLC Medtox Scientific, Inc., 821 F.3d 992, 996 (8th Cir. 2016) (declining to adopt ascertainability as an independent requirement and instead “adher[ing] to a rigorous analysis of the Rule 23 requirements, which includes that a class ‘must be adequately defined and clearly ascertainable’ “).

[33] See, g., Cherry v. Dometic Corp., 986 F.3d 1296, 1304 (11th Cir. 2021); Seeligsonv. Devon Energy Prod. Co., 761 F. App’x 329, 334 (5th Cir. 2019); In re Petrobras Sec., 862 F.3d 250, 267 (2d Cir. 2017); Rikos v. Procter & Gamble Co., 799 F.3d 497, 525 (6th Cir. 2015); Mullins v. Direct Digit., LLC, 795 F.3d 654, 662 (7th Cir. 2015).

[34] See, e.g., In re Nexium Antitrust Litig., 777 F.3d 9, 19 (1st Cir. 2015); EQT Prod. Co. v. Adair, 764 F.3d 347, 358 — 59 (4th Cir. 2014).

[35] See Byrd Aaron’s, Inc., 784 F.3d 154, 177 (3d Cir. 2015) (Rendell, J., concurring) (it may be time to “retreat from [the Circuit’s] heightened ascertainability requirement”); City Select Auto Sales, Inc. v. BMW Bank of North America, 867 F.3d 434, 443 (3d Cir. 2017) (Fuentes, J., concurring) (recommending that the Third Circuit “join the Second, Sixth, Seventh, and Ninth Circuits in rejecting our added ascertainability requirement”).

[36] See, g., DeJaco, J. and Moore, L. (2023) Kelly v. RealPage Inc.: The Third Circuit Lowers the ‘Heightened Standard’ for Ascertainability, JD Supra. Available at: https://www.jdsupra.com/legalnews/kelly-v-realpage-inc-the-third-circuit-9937804 (Accessed: May 16 2023).

[37] Id. at 222.

[38] Id.

[39] Id. at 223.

[40] Id. at 224.

[41] Id.

[42] Id. at 223 (internal citations omitted).

[43] Id. 128 n.7.

Michael Lazaroff is a partner in the Rimon Litigation group in the New York office.  He is an experienced trial and appellate lawyer with over two decades of experience in complex commercial litigation and arbitration representing both defendants and plaintiffs. Read more here

Rimon has 46 offices across five continents. The firm is widely known as being at the vanguard of legal innovation. The firm has been repeatedly recognized by the Financial Times as one of North America’s most innovative law firms. The firm’s Founding Partners were both named ‘Legal Rebels’ by the American Bar Association’s ABA Journal and have spoken on innovations in the practice of law at Harvard and Stanford Law Schools. Rimon and its lawyers have also received numerous awards for excellence, including from Best Lawyers and Chambers.