The head of the Justice Department’s antitrust division, Christine A. Varney, is to announce the policy reversal in a speech she will give on Monday before the Center for American Progress, a liberal policy research organization. She will deliver the same speech on Tuesday to the United States Chamber of Commerce.

The speeches were described by people who have consulted with her about the policy shift. The administration is hoping to encourage smaller companies in an array of industries to bring their complaints to the Justice Department about potentially improper business practices by their larger rivals. Some of the biggest antitrust cases were initiated by complaints taken to the Justice Department.

Ms. Varney is expected to say that the administration rejects the impulse to go easy on antitrust enforcement during weak economic times.
She will assert instead that severe recessions can provide dangerous incentives for large and dominating companies to engage in predatory behavior that harms consumers and weakens competition. The announcement is aimed at making sure that no court or party to a lawsuit can cite the Bush administration policy as the government’s official view in any pending cases.

In the speeches, Ms. Varney is expected to explicitly warn judges and litigants in antitrust lawsuits not involving the government to ignore the Bush administration’s policies, which were formally outlined in a report by the Justice Department last year. The report applied legal standards that made it difficult to bring new cases involving monopoly and predatory practices.
As a result of the Bush administration’s interpretation of antitrust laws, the enforcement pipeline for major monopoly cases — which can take years for prosecutors to develop — is thin. During the Bush administration, the Justice Department did not file a single case against a dominant firm for violating the antimonopoly law.

Many smaller companies complaining of abusive practices by their larger rivals were so frustrated by the Bush administration’s antitrust policy that they went to the European Commission and to Asian authorities. Ms. Varney’s new policy more closely aligns American antitrust policy on monopolies and predatory practices with the views of antitrust regulators at the European Commission.

Herbert Hovenkamp, a leading antitrust scholar regarded as a centrist between those seeking more aggressive enforcement and those who generally argue for restraint, said the guidelines by the Bush administration were “a brief for defendants.”

He said that the repudiation of those guidelines by the Obama administration “will almost certainly have a greater impact than the guidelines themselves had.”

“This will be bad news for heavyweights in the tech industries — companies like Google and Microsoft,” said Professor Hovenkamp, who teaches at the University of Iowa College of Law.
“People aligned with plaintiffs will rejoice. Those aligned with defendants will wring their hands. A lot of law firms will be indifferent because they take money from both sides.”

Ms. Varney is expected to say that the Obama administration will be guided by the view that it was a major mistake during the outset of the Great Depression to relax antitrust enforcement, only to try to catch up and become more vigorous later. She will say the mistake enabled many large companies to engage in pricing, wage and collusive practices that harmed consumers and took years to reverse.

While Ms. Varney is not expected to mention any specific companies or industries vulnerable under the new policy, those who have talked to her about the speech say she is aiming at agriculture, energy, health care, technology and telecommunications companies. She may also be reviewing the conduct of some in the financial services industry, which is now undergoing a wave of consolidation as a result of the financial crisis. Ms. Varney, who headed the Internet practice group of the Washington-based Hogan & Hartson law firm, served as a commissioner at the Federal Trade Commission in the 1990s after working in the White House during the early years of the Clinton administration.

Signaling her intent to revive a moribund antitrust program, she has recruited a collection of senior aides, many of whom are seasoned antitrust litigators or worked in the Clinton administration and the Federal Trade Commission and were involved in many prominent cases, including the one against Microsoft. They include Molly S. Boast, William Cavanaugh, Gene Kimmelman, Carl Shapiro and Philip J. Weiser.

Antitrust policy is set by Washington in two ways: by the interpretation of laws announced by the Justice Department and the Federal Trade Commission through guidelines for the courts and private litigants, and by the enforcement cases that those agencies decide to bring. The government’s guidelines are often cited by lawyers and given considerable weight by judges in antitrust cases, including those lawsuits that the government does not participate in.

It is not unlawful for a company to gain control of a market. It becomes unlawful if the company engages in conduct to exclude or harm competitors with no business justification.

Conservative antitrust experts, some judges and defendants in such cases have said that the line is too difficult to draw and that it is better to let rivalries play out in the marketplace than in the courts.
After more than a year of hearings and studies, the Justice Department in 2008 published a 215-page report analyzing Section 2 of the Sherman Antitrust Act, explaining the government’s approach to the monopolistic and predatory practices of companies.
Reflecting deep skepticism of the role of government in the marketplace, the 2008 report made formal a set of policies that had largely been followed by the Justice Department, but not by the Federal Trade Commission, during the Bush administration.

When the report was issued, Thomas Barnett, then the head of the antitrust division and the architect of the guidelines, said that they were meant to articulate “clear standards” for determining whether certain types of conduct by large companies would harm competition.

In a rare split with the Justice Department, three of the four commissioners at the Federal Trade Commission denounced the guidelines, calling them “a blueprint for radically weakened enforcement” against anticompetitive practices.

A version of this article appeared in print on May 11, 2009, on page A1 of the New York edition.

This article is a very short and informal analysis of the effect of the Supreme Court’s decision in Illinois Brick Co. v Illinois 431 U.S. 720, from a practitioner’s point of view. Most class action antitrust cases involve allegations of price fixing or other anticompetitive conduct by manufacturers or party’s at the inception of the chain of distribution. Therefore, the effect of the Illinois Brick decision is to disenfranchise most consumers from pursuing antitrust claims in federal courts.

The language in the Sherman Act as amended by the Clayton Act provides that “any person injured in his business or property” may sue. The Clayton Act was specifically passed to provide a private right to sue to injured parties. In other words, the litigation should be pursued by those with the most at stake — participants in the market at issue. Before Illinois Brick, this included consumers who bore the brunt of unlawful overcharges.

In Illinois Brick, the Supreme Court decided that tracing damages through the chain of distribution was too difficult and therefore limited claims in federal court to direct purchasers only, with very few exceptions, i.e. buying groups that have a preexisting cost plus contract see, e.g. KANSAS v. UTILICORP UNITED INC. 497 U.S. 199 (1990). Technically, a number of courts have held consumers still have standing to bring suit, they just cannot collect in federal court for policy reasons. This is a classic right without remedy and is ironic in light of the goals of consumer welfare that underlines all antitrust law. It adds insult to injury.

In the modern economy, in most instances consumers do not purchase directly from the parties leveling the anticompetitive overcharge. Instead they deal with those parties only indirectly by buying goods through distributors, wholesalers, retailers and others in the distribution chain. These direct purchasers and intermediaries usually pass-on at least 100% of the anticompetitive overcharge to consumers or end-users, since it is embedded in their cost of goods. Sometimes direct purchasers and intermediaries are actually beneficiaries of the fix if the demand is relatively inelastic. Yet under Illinois Brick, only the direct purchasers, who have the least incentive to seek redress, have the ability to pursue claims in federal court under federal law.

Notably, a number of states allow indirect purchaser actions under state law and the U.S. Supreme Court has held that these statutes –Illinois Brick repealers–are not preempted by federal law. (California v. Arc America Corp. 490 U.S. 93 (1989)) However, this usually confines such cases to the specific state, which may significantly limit the damages that can be collected to the point where litigation is not economic as a practical matter).

For many years, Illinois Brick was believed to be limited to Section 1 cases. This was probably due to the fact that most Section 2 (monopolization) cases are pursued by competitors, such that the issue was rarely addressed. However, in a recent case, the Ninth Circuit extended the doctrine to all private Sherman Act cases. Courts were never receptive to merger cases brought by non-competitors.

The net result is that although federal antitrust law was designed to protect and benefit consumers and even post-Chicago jurisprudence measures everything by the consumer welfare standard (Brooke Group), consumers cannot pursue claims in federal court.

Daniel J. Mogin is a San Diego attorney specializing in antitrust and consumer protection matters.

Reprinted in part at http://www.competitivemarkets.com/membersarch/ocmmo26.htm

Peter Scheer’s editorial “Better Gates than a Judge as Microsoft CEO” is an example of what’s wrong with the “debate” regarding Microsoft in particular and the antitrust laws in general. It is really nothing more than a thinly veiled argument for unbridled laissez-faire economics. But those are not the economics of a free market, competition or a democratic society.

Frankly, I don’t like the fact that Microsoft has come to dominate such an important market. Generally, that type of domination, however obtained, tends to reduce competition, technological innovation and consumer choice. On the other hand, it is hard to get worked up over the fate of a multi-billion dollar wanna be monopolist, Netscape. We have to wonder why the Justice Department is using its scarce resources when the market participants could easily afford to litigate the issues in a suit between themselves. By the same token, however Microsoft, Netscape and other high tech players have their own very effective PR and legal teams; the nation’s editorialist don’t have to do their proselytizing for them by a misguided attack on the antitrust laws. Microsoft is hardlybeing oppressed an over bearing Government.

The purpose of the antitrust/pro-competition laws is to protect consumers, to encourage free and open competition in the marketplace and to prevent unreasonable restraints of any trade or commerce. Each of those words and phrases means exactly what they appear to say. We want truly free and open markets. We want maximum competition. The goal is for consumers to receive better goods and services at the lowest cost.

It is no coincidence that Adam Smith was both the first free market economist and the first antitrust economist. It is also not an accident of history that Smith wrote his capitalist manifesto, The Wealth of Nations, in 1776, at the same time that America’s Founding Fathers were declaring their political independence. Economic self-determination and political self-determination go hand in glove. The Supreme Court has called the antitrust laws as the Bill of Rights for the economy.

Speaking of the Bill of Rights, Scheer complains that “the government’s claim is based on just 52 words in a consent decree.” That argument doesn’t work. Freedom of the press is based on just 9 words out of only 45 words in the entire First Amendment. The Ten Commandments aren’t much longer.

Scheer also confuses antitrust enforcement with regulation. This is a rhetorical device frequently used to tar antitrust with the well deserved discreditation of regulated or planned economies. Unlike regulation, however, the antitrust laws do not dictate outputs or prices. To the contrary, they attempt to allow customers and competitors in affected markets to challenge alleged restraints to effective competition. This is the legal equivalent of local control or decentralization. The purpose of the antitrust laws is to enhance competition and protect the free market, not regulate it. Antitrust litigants, including government enforcers, do not intervene in the operations of free markets, but attempt to restore freedom and competition — the status quo ante — through legal process checked by judges and juries. Unlike laissez-faire, antitrust does not allow sheer market power to corrupt the functioning of the free market. The antitrust laws were enacted specifically to prevent such corruption.

The antitrust laws also are not intended to punish successful companies simply because of their success or large companies simply because of their size. Because we want consumers to get the best for the least through the free market, only conduct that excludes competitors, stifles innovation, limits supply or raises prices is prohibited. Monopolies that are lawfully obtained, such as those with superior products, prices or management, are only liable if they abuse their monopoly power and exclude, stifle or limit competition. Can Scheer unequivocally say that Microsoft’s Internet browser practices don’t raise any of these issues or that they can be dismissed out of hand before any evidence is presented?? Or is he arguing for some form of high tech immunity??

The references to the AT&T and IBM antitrust cases of the 1970′s are also inaccurate. AT&T agreed to divest itself of certain assets including the local telephone companies known as the Regional Bell Operating Companies and agreed to a consent decree. IBM defeated the governments’ attempts to break it up. The stocks of AT&T, the RBOCs and their spin-offs has increased many times over as these companies have continued to evolve. (The same thing happened in the Standard Oil case — no doubt that there were many editorials decrying the break-up of the oil monopoly as judicial micro management.) In contrast, after winning its case, IBM refused to change. As a result, it was punished by the market and went through a long period of decline, downsizing and restructuring followed by rebuilding. Both the computer and telephone markets experienced profound technological change and innovation. Which companies are better off ?? Which consumers received better goods and services at a lower price?? These are the $64,000 questions. But neither case represents judicial regulation of high technology.

The Government’s case is about preventing regulation — restrictions on products, innovation, prices and outputs — of an emerging market by a private interest with vast market power. They may be right and they may be wrong. But what’s the problem with simply litigating it and making a decision based on the evidence and the law, rather than economic dogma and attacks on the antitrust laws ??

Daniel J. Mogin is a San Diego attorney specializing in antitrust and consumer protection matters.

Antitrust, monopolies, price gouging and deregulation have been in the news lately. The Justice Department case against Microsoft over its internet browser and operating system practices is about to resume, although rumors of settlement are in the wind. The FTC and Intel have announced a settlement of another highly publicized high technology antitrust case. The largest potential merger in history –Exxon-Mobil — is undergoing antitrust review. A number of other high profile cases have been in the headlines lately and the air is abuzz with the question of whether antitrust should apply to high technology industries. We will hear even more as the effects of 80′s and 90′s consolidation of the economy and economic power surface. What is antitrust?? Mere mention of the word often causes eyes to glaze over. Yet, the general public has a great intuitive understanding of antitrust — or pro-competition — and its relationship to our free market economy and democratic political system. It also has a huge stake in it. The purpose of this article is to briefly explore the history of our antitrust laws and their enforcement.

In a nutshell, the purpose of the antitrust/pro-competition laws is to protect consumers, to encourage free and open competition in the marketplace and to prevent unreasonable restraints of any trade or commerce. The meaning of these key words are not mysterious or arcane. Each word and phrase means exactly what they appear to say. We want truly free and open markets. We want maximum competition. The goal is for consumers to receive better goods and services at the lowest cost. The first antitrust economist was also the first free market economist — Adam Smith. It is no coincidence that Smith wrote his capitalist manifesto, The Wealth of Nations, in 1776, at the same time that America’s Founding Fathers were declaring their political independence. The American Revolution was every bit as much about escaping from monarchy and dispersing political power as it was about escaping from monopoly and dispersing economic power; economic self-determination and political self determination go hand in glove.

When Adam Smith wrote The Wealth of Nations, most nations were mercantilist economies. Mercantilism was a form of state directed capitalism where the monarchy granted monopolies to a privileged few. These quasi-governmental monopolies were particularly instrumental in the development of colonies, including in the New World. Their powers to control trade and commerce were vast. Indeed, the tea dumped in Boston Harbor belonged to one such monopoly, the British East India Company. The powers and problems of monopolies were not lost on the Founding Fathers. Their revolt against the monarchy of King George was also a revolt against his trading monopolies which extracted monopoly rents or private taxes. Fittingly, given this history, the Supreme Court has proclaimed that the antitrust laws are the Bill of Rights for the economy. Consider the following passages authored by Adam Smith more than 200 years ago. On individual initiative: “in promoting his own interest… an individual intends only his own gain, and is led by an invisible hand; thus promoting the social good.” On cartels: “people of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” On monopoly: “monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate.” Smith’s words are the philosophical backbone of our antitrust laws. At the turn of the century, America’s evolution from an agricultural society to an industrial state accelerated, causing dislocation. There are many parallels to our own transformation from an industrial to an information economy. Large combines controlled or monopolized many of our basic industries. These were organized as trusts that functioned as holding companies. Trusts facilitated what we now call horizontal arrangements between firms that would otherwise be competitors; mergers between competitors are the ultimate horizontal combination.

At the same time, trusts expanded their activities from production and to distribution to wholesaling and on to retail. For example, the railroads controlled not just transportation but vast resources like land, timber and mining properties as well as distribution channels. The Standard Oil Trust controlled the oil business from the wellhead through refining, transportation, shipping, pipelines, tank wagons, distributors, etc.– all in the age before gasoline and the automobile, when the “new light” of kerosene ruled the day. Such control throughout the distribution chain by a single firm is called vertical integration.

As the trusts grew and exercised their monopoly power, prices for basic goods and services rose dramatically. Western farmers and ranchers in particular felt that the railroads were squeezing them dry with high monopoly transportation rates and low crop prices paid by railroad affiliated distributors and middlemen. They believed that the railroads were leveraging their monopoly of the transportation platform into other areas and thus stifling competition– another form of private taxation without representation. Political scandals resulted when the trusts’ cozy relationships with lawmakers were exposed by muckrakers. One reaction to these forces was the rise of the Populist and Progressive political movements which protested against the power of the trusts. Antitrust was a hot political issue and enjoyed strong public support.

In 1890, Senator John Sherman, an Ohio Republican, introduced and Congress passed the Sherman Act. It was intended to codify and strengthen existing unfair competition laws so that any person injured in their business or property could sue for anticompetitive actions. It remains our basic antitrust law. Government enforcement actions, including criminal penalties, are allowed. The Act has two basic sections. The first prohibits combinations or agreements in restrain of trade, such as price fixing, output restrictions between competitors, group boycotts and the like. The second prohibits monopolization or attempts to monopolize. Woodrow Wilson’s election in 1912 paved the way for enactment of the Clayton Act in 1914. Its primary purposes were to combat price discrimination or selling a product at different prices to buyers that are similarly situated, to control corporate mergers that might tend to create a monopoly or substantially lessen competition and to allow private enforcement of the antitrust laws by injured parties. Congress also passed the Federal Trade Commission Act in 1914 in partial reaction to fears that the federal judiciary was predisposed to hobble effective antitrust enforcement. During this period, many states enacted their own antitrust and unfair competition laws.

Adam Smith’s declaration of economic independence thus evolved into law. The goals of a free market controlled by individual choice and individual action were codified. Monopolies, cartels and discrimination were outlawed. Like the civil rights laws, however, early judicial decisions refused to apply the antitrust laws in the intended manner. Courts imposed impossible burdens of proof contrary to statutory language or usually found the evidence somehow lacking. In its first case involving the Sherman Act, the Supreme Court refused to even apply the statute to the sugar trust that controlled over 98% of the country’s sugar refining capacity. Subsequent judicial decisions also stifled the legislative intent. The Justice Department adopted a policy of non-enforcement. It was not until trust-buster Teddy Roosevelt attacked the Standard Oil Trust that early antitrust enforcement gained any real traction with the federal judiciary. Even today, judicial attitudes toward antitrust enforcement and consumer protection range from outward hostility to strict enforcement. For example, the Supreme Court has acknowledged that consumer benefit is the paramount goal of our antitrust law. Yet one Supreme Court decision, Illinois Brick. V. Illinois effectively slams the federal courthouse door on consumers allowing only “direct purchasers” access to federal court. But if you buy a can of beans at the grocery store, or a computer at the discount store, you are not a direct purchaser of the product in relation to the manufacturers and distributors, even though you are most assuredly paying a higher price as the costs of antitrust violations–supra-competitive prices–are passed on through the chin of distribution. Executive branch enforcement policies change with each Administration’s attitude toward big business. (One famous incident involved allegations that a lobbyist for ITT offered a bribe to the Nixon Administration to drop an antitrust investigation into the company’s operations. Part of the alleged bribe would have brought the 1972 Republican convention to San Diego convention facilities owned by ITT. The lobbyist died of lung cancer just as the story was breaking). The Reagan Administration’s radical non-enforcement policies set off the merger wave of the 80′s and 90′s; its effects will not be fully understood for at least another decade.

One frequently misunderstood area is the prohibition against monopolies. It is often said that the goal of every vigorous competitor is to achieve a monopoly and reap the resulting profits. While this may be true, the antitrust laws are not intended to punish successful companies simply because of their success or large companies simply because of their size. Because we want consumers to get the best for the least through the free market, only conduct that excludes competitors, stifles innovation, limits supply or raises prices is prohibited. Obviously, monopolies that are obtained by unlawful means are not allowed. But monopolies that are lawfully obtained, such as those with superior products, prices or management, are only liable if they abuse their monopoly power and exclude, stifle or limit competition. The current Microsoft case raises all of these issues. Many argue that antitrust is arcane and applies only to smokestack industries. This is nonsense: the railroads and Standard Oil were the high technology companies of their day. Similarly, in the mid 1970′s the Government launched two giant monopolization cases involving some of the highest technology companies of the era. In one, AT&T agreed to divest itself of certain assets including the local telephone companies known as the Regional Bell Operating Companies. In the other, IBM defeated the governments’ attempts to break it up. The stocks of AT&T, the RBOCs and their spin-offs has increased many times over. The same thing happened in the Standard Oil case. In contrast, after winning its case, IBM refused to change. As a result, it was brutally punished by the market and went through a long period of decline, downsizing and restructuring followed by rebuilding. Both the computer and telephone markets experienced profound technological change and innovation. Which consumers received better goods and services at a lower price?? Which company and shareholders are better off ?? These are the $64,000 questions.

Another misconception is the belief that antitrust policy is a form of regulation. It is not. Linking antitrust with regulation is a rhetorical device that attempts to tar antitrust with the well deserved discreditation of regulated or planned economies by confusing the two. Antitrust policy lies between regulation and an “anything goes” or laissez-faire economic policy. Unlike regulation, the antitrust laws do not dictate outputs or prices. To the contrary, they attempt to allow customers and competitors in affected markets to challenge alleged restraints to effective competition. This is the legal equivalent of local control or decentralization. The purpose of the antitrust laws is to restore competition and protect the free market, not regulate it. Antitrust authorities do not intervene in the operations of free markets, but attempt to restore freedom and competition through legal process checked by judges and juries. Unlike laissez-faire, under antitrust laws sheer market power cannot be used to corrupt the functioning of the free market.

The federal antitrust laws also grant the government limited tools to practice some preventative medicine in the area of corporate acquisitions to prevent or limit monopolies from being created or enhanced. To block a merger, the Government must show that the combination might tend to create a monopoly or substantially lessen competition. Merger review duties are shared by the Justice Department and the FTC. If the 90′s have taught us anything, it is that runaway consolidation is an anathema to competition. Governmental antitrust enforcement is not and should never become a type of industrial policy. Since its beginning, meaningful enforcement of the antitrust laws has frequently been stifled by the judicial and the executive branches of government. Because it involves marketplace behavior, there are few bright lines. There is a lot of misinformation about its purposes. Big business is both powerful and creative when it attempts to bypass these laws. Challenges to the status quo are rarely welcome. But the public understands the linkage between antitrust and economic freedom of choice. Truly free markets mean more competition, more goods, more choices, lower prices and enhanced product quality. These are the result of individual initiative and Adam Smith’s “invisible hand”.

The antitrust laws are pro-competition, anti-collusion, anti-monopoly and anti-discrimination. What could be better than that?? Why shouldn’t they be enforced to the letter and spirit of the law?? Are any types of “judicial activism” or Executive Branch politics acceptable in this arena?? Why shouldn’t the public –sitting as jurors– after full review of the evidence determine whether real world acts and practices enhance or impede the functioning of the free market ?? They have the most to gain and the most to loose. Should manufacturers be allowed control over prices charged by others?? When do mergers and consolidations become anticompetitive?? These are the big questions; the answers aren’t easy. But we all benefit from understanding antitrust and the benefits of competition as well as by requiring the debate to be conducted in public, not in the towers of power. Daniel J. Mogin is a San Diego attorney specializing in antitrust and consumer protection matters.

Many antitrust and competition law cases are also class actions. Class actions are also common in other substantive areas of complex litigation that employ Competition‘s readers. In keeping with its move toward statewide uniformity in procedural rules, the Judicial Council‘s Complex Litigation Subcommittee drafted procedural rules for the management of class actions. California Rules of Court (“CRC”)1850-1861 became effective January 1, 2002 and apply to virtually all class actions initiated under state law.

California‘s basic laws authorizing class actions, Code of Civil Procedure section 382 (general class actions) and Civil Code section 1781 (Consumer Legal Remedies Act class actions) remain unchanged. Section 382, however, provides virtually no guidance for practical class action procedures. The Consumer Legal Remedies Act (“CLRA”) includes substantially more, but lacks practical procedural rules necessary for implementation or day-to-day administration of class actions.

Prior to adoption of the class action management rules of court, state court class action procedures were drawn from a variety of sources including the CLRA, CCP 382 – 384, former CRC 365, the CRC‘s evolving complex case rules, local class action rules, sporadic case law, federal practice (including Federal Rules of Civil Procedure Rule 23 and the Manual for Complex Litigation), Newberg on Class Actions, and other treatises. As the Drafter‘s Notes for the new rules state “litigants and judicial officers have relied on related statutes, rules, and case law for guidance on procedural issues. These new rules provide clear and consistent rules for class actions to be used by judges and attorneys statewide.”

The new CRC for the management of class action are printed below in their entirety. Readers are encouraged to make their own judgments about whether the new rules merely codify existing procedures, modify them or create new law. Look for such issues to be discussed here as class action practice in the California courts evolves under the new rules. The following is a brief synopsis of the new rules, sans commentary, but with some highlighting of interesting sections.

Rule 1850 states that the rules apply to all cases brought under section 382 or the CLRA. Courts, however, are empowered to relieve compliance where necessary.

Rule 1851 requires that complaints bear the words “CLASS ACTION” on the first page. Each complaint must include a separate section entitled “CLASS ACTION ALLEGATIONS,” describing how the case meets the requirements for class certification. In other words, a complaint must have a separate section alleging that the case meets the familiar litany for class certification, i.e. the class is ascertainable and the existence of a well defined community of interest in the litigation, numerosity, typicality, adequacy, the existence and predominance of common issues “of fact and law, superiority, etc.

Rule 1852 provides for non-evidentiary court conferences to discuss class issues, the conduct and scheduling of discovery, and other scheduling matters.

Rule 1853 allows the court to enter an order dealing with such issues at the conclusion of the conference(s).

Rule 1854 governs motions to certify or decertify a class or amend or modify an order certifying a class. Subsection (a) provides that any party may file such a motion. Subsection (b) states that a “motion for class certification should be filed when practicable” and encourages courts to set a schedule for certification proceedings. Subsection (c) deals with briefing schedules and format issues. Notice of a motion must be filed at least 28 days prior tothe hearing date; opposition briefs must be filed 14 before the hearing; replies are due not less than 5 days before the noticed or continued date of the hearing. Opening and opposition points and authorities must not exceed 20 pages; replies are limited to 15 pages. Required documents (notice of motion; memorandum of points and authorities, declarations and requests for judicial notice) are also listed. Subsection (d) regarding the presentation of evidence requires compliance with CRC 323 during the proceedings. Subsection (e) encourages the parties to resolve any uncontroverted issues by stipulation and allows that if all class issues are resolved by stipulation no hearing on class certification is necessary.

Rule 1855 deals with orders following proceedings under Rule 1854. Such orders must include a description of the class and any subclasses. Subsection (b), states that “when appropriate, an action may be maintained as a class action limited to particular issues”. Subclasses are also allowed.

Rule 1856 governs class notice. Subsection (a) provides that if a class is certified, the court may require either party to give notice. Subsection (b) requires the class proponent to loge both a statement regarding class notice and a proposed notice to class members. The statement must include: (1) whether notice is necessary; (2) whether class members may exclude themselves from the action; (3) the time and manner in which notice should be given; (4) a proposal for which parties should bear the costs of notice; and, (5) if cost shifting or sharing is proposed, an estimate of the cost involved in giving notice. Subsection (c) requires that upon certification of a class, or as soon thereafter as practicable, the court must make an order determining the issues raised listed in subsection (b). Subsection (d) lists the required [minimum] content of class notice in cases where class members are given the right to opt-out.

The notice must include the following:

1. A brief explanation of the case, including the basic contentions or denials of the parties;
2. A statement that the court will exclude the member from the class if the member so requests by a specified date;
3. A procedure for the class member to follow in requesting exclusion from the class;
4. A statement that the judgment, whether favorable or not, will bind all members who do not request exclusion; and
5. A statement that any member who does not request exclusion may, if the member so desires, enter an appearance through counsel.

Subsection (e) concerns the manner of giving class notice and lists the criteria that the court must consider including, the type of relief requested; the stake of the individual class members; costs of notice; the resources of the parties; possible prejudice to class members who do not receive notice; and the res judicata effect on class members. If personal notice is “unreasonably expensive” or “the stake of individual class members is insubstantial”, or if personal notice “cannot be made” (i.e. in cases where identification of individual class members is difficult, such as in indirect purchaser cases under the Cartwright Act), “the court may order a means of notice reasonably calculated to apprise the class members of the pendency of the action-for example, publication in a newspaper or magazine; broadcasting on television, radio, or the Internet; or posting or distribution through a trade or professional association, union, or public interest group.”

Rule 1857 is entitled “Orders in the conduct of class actions.” It allows the court to make orders that require class notice to be made, (see Rule 1856), including statements regarding the class members‘ opportunity “to seek to appear” and indicate whether they consider the representation fair andadequate, or to be heard regarding of the proposed extent of the judgment. Rule 1857 orders may also impose conditions on the representative parties or on interveners; require that the pleadings be amended to eliminate class allegations; facilitate case management through consolidation, severance, coordination, bifurcation, intervention, or joinder; and address similar procedural matters.

Rule 1858 governs discovery from unnamed class members. It provides that discovery from absent class members may be sought, through service of a subpoena and without a court order, by oral deposition, written deposition, and deposition for production of business records. Interrogatories to absent class members are not permitted without a court order. A class representative or other affected person may move for a protective order to preclude or limit such discovery. In deciding whether to allow such discovery, the court must consider, among other relevant factors: the timing of the request, the subject matter to be covered; materiality, the likelihood that class members have such information, the possibility of reaching factual stipulations that eliminate the need for such discovery, whether the class representatives are seeking discovery on the same subject(s) and whether discovery will result in annoyance, oppression, or undue burden or expense for the members of the class.

Rule 1859 provides a procedural framework for the settlement of class actions. Subsection (a) reiterates former CRC 365 requiring settlements to be approved by the court after a hearing. Subsection (b) requires disclosure in the application for approval or dismissal of any regarding the payment of attorney fees. Subsection (c) requires a written motion for preliminary approval of the settlement. The submission must include the settlement agreement, a proposed class notice and a proposed order for approval. Subsection (d) allows the court to certify a provisional settlement class. Subsection (e) requires that the order granting preliminary approval must include the time, date, and place of the final approval hearing and the class. Under subsection (f), notice of the final approval hearing must be given to the class members in the manner specified by the court and must contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it. Subsection (g) requires the court to conduct a fairness hearing before giving final approval. Subsection (h) states that if the settlement is approved the court must enter judgment, which must also include a provision for the retaining jurisdiction over the parties to enforce its terms.

Rule 1860 concerns dismissal of class actions. Dismissal of an entire class action, or of any party or cause of action in a class action, requires court approval. Requests for dismissal must be supported by a declaration setting forth the relevant facts. The declaration in detail any consideration connected to the dismissal. The court may grant the request without a hearing. A disapproval procedure is also established. If the court has certified the class, and notice of the pendency of the action has been provided to class members, notice of the dismissal must be given to the class in the manner specified by the court. If the court has not ruled on class certification, or if notice of the pendency of the action has not been provided to class members,notice of the proposed dismissal may be given in the manner and to those class members specified by the court, or the action may be dismissed without notice to the class members if the court finds that the dismissal will not prejudice them.

With that introduction, we bring you, in their unvarnished entirety, the new California Rules of Court, Management of Class Actions, Rules 1850-1861; produced by the Judicial Council, directed by its Complex Litigation Subcommittee and now playing in courtrooms throughout California. Look for reviews, critics and sequels to appear on these pages and on (computer) screens near you.

* Dan Mogin is the managing shareholder of The Mogin Law Firm , P.C. in San Diego, CA. His practice concentrates on class actions and complex litigation in the antitrust and consumer protection areas, as well as international business matters. He currently serves as Vice Chairœ Publications of the State Bar Section on Antitrust and Unfair Competition Law.

CHAPTER 2. Management of Class Actions
Title 5, Special Rules for Trial Courts-Division V, Complex Cases-Chapter 2,
Management of Class Actions adopted effective January 1, 2002.

Rule 1850. Applicability
Rule 1851. Form of complaint
Rule 1852. Case conference
Rule 1853. Conference order
Rule 1854. Motion to certify or decertify a class or amend or modify an order certifying a class
Rule 1855. Class action order
Rule 1856. Notice to class members
Rule 1857. Orders in the conduct of class actions
Rule 1858. Discovery from unnamed class members
Rule 1859. Settlement of class actions
Rule 1860. Dismissal of class actions
Rule 1861. Judgment

Rule 1850. Applicability

Rule 1850 adopted effective January 1, 2002.

Drafter’s Notes: 2002 – Code of Civil Procedure section 382 authorizes class actions generally but does not contain procedures for conducting these actions. As a result, litigants and judicial officers have relied on related statutes, rules, and case law for guidance on procedural issues. These new rules provide clear and consistent rules for class actions to be used by judges and attorneys statewide.

Rule 1851. Form of complaint

Rule 1852. Case conference

Rule 1852 adopted effective January 1, 2002.

Rule 1853. Conference order
At the conclusion of the conference, the court may make an order:
(1) Approving any stipulations of the parties;
(2) Establishing a schedule for discovery;
(3) Setting the date for the hearing on class certification;
(4) Setting the dates for any subsequent conferences; and
(5) Addressing any other matters related to management of the case.

Rule 1853 adopted effective January 1, 2002.

Rule 1854. Motion to certify or decertify a class or amend or modify an order certifying a class

Rule 1854 adopted effective January 1, 2002.

Rule 1855. Class action order

Rule 1855 adopted effective January 1, 2002.

Rule 1856. Notice to class members

Rule 1856 adopted effective January 1, 2002.

Rule 1857. Orders in the conduct of class actions

Rule 1857 adopted effective January 1, 2002.

Rule 1858. Discovery from unnamed class members

Rule 1858 adopted effective January 1, 2002.

Rule 1859. Settlement of class actions

Rule 1859 adopted effective January 1, 2002.

Rule 1860. Dismissal of class actions

Rule 1860 amended and renumbered effective January 1, 2002; adopted as rule 365 effective January 1, 1984.

Rule 1861. Judgment
The judgment in an action maintained as a class action must include and describe those whom the court finds to be members of the class. Notice of the judgment must be given to the class in the manner specified by the court.

Rule 1861 adopted effective January 1, 2002.