The landmark antitrust case brought by a group of indepen dent recyclers against CHEP USA recently ran into a major roadblock. Federal Judge Robert Dawson denied a request to certify the class in its antitrust lawsuit against CHEP. This is a major win for CHEP, which would have been under significant pressure to settle if the case had been granted class action status.
At the very least, the court’s recent decision means there will be a delay for any financial remuneration to recyclers over and above what CHEP already pays through its Asset Recovery Plan (ARP).
This lawsuit was brought by Jim Taylor of Best Pallets Inc. in Fort Smith, Ark. along with a group of recyclers. They hope to challenge CHEP and its alleged cost shifting and anti-competitive business practices toward U.S. pallet recyclers by winning one major lawsuit to represent the industry. Although the case was filed in the Western District of Arkansas, it could have national ramifications if the class is ever certified. Class certification is a crucial stage to prove that the lawsuit has merit and can adequately represent the class beyond just the named plaintiffs.
Judge Dawson concluded that the recyclers had failed to make their case on two critical areas. He did not rule against the recyclers’ position on any merit of the law that they adequately proved.
This opens up the possibility that the lawyers for the recyclers could regroup and try again. Another option would be for the lawyers to proceed with the case without seeking class certification, which would limit the impact to primarily the companies named in the lawsuit.
The lead attorney for the recyclers refused to comment on their plans.
The lead plaintiff indicated that the case was far from over. Jim Taylor, president of Best Pallets, said, “We’re moving forward. We may have to narrow the focus a bit. But we still want to represent the industry.”
Some in the industry have speculated that the recent decision has pretty much ended the chances of a recycler victory. But the recyclers don’t appear to be giving up yet. Although it is difficult to overcome a class certification denial, it is not unheard of in the U.S. legal system.
Judge Dawson stated in his decision, “Plaintiffs have failed to show that their methodology can reliably produce class-wide proof because (1) Plaintiffs have failed to define the relevant geographic market and (2) this failure, taken in conjunction with Plaintiffs’ proposal to
use an average damages calculation, creates improper assumptions relating to their satisfaction of the requirements of Rule 23.”
Lawyers for the recyclers could regroup and try again. They could appeal the decision or resubmit the case with more proof to answer the questions raised by Judge Dawson. Another option would be for the lawyers to proceed with the case without seeking class certification, which would limit the impact to primarily the companies named in the lawsuit.
Derek Hannum, spokesperson for CHEP USA, said, “CHEP does not comment on pending matters, however, we believe Judge Dawson provided a thorough and rigorous review and we are pleased with his ruling.”
Since the lawyers have fronted much of the cost of the case, it will be up to the lead firm in conjunction with the named recyclers to decide how to proceed. The fact that the court did not rule against the recyclers on any aspect of the case that they presented adequate proof on indicates that there could be a second effort.
What exactly did the court rule? Well, the court ruled that the recyclers did not adequately prove two key areas necessary under Federal Rule 23, which governs class action requirements. These were “Predominance” and “Superiority.”
Predominance requires that the common questions of law or fact prevail over individual questions. This means that the experience of the various parties must be similar enough to counter any differences. In this particular case, the concern is that recycler costs tend to vary too much to be able to come up with adequate numbers that would apply across the industry. Differences in shipping distances, core acquisition strategies, contractual obligations, sorting and storage costs, etc. might not be normalized. The court asserted that the recyclers failed to show proof to back up its claim.
Superiority requires that the mechanism of a class action lawsuit be proven to be more effective than other methods of legal remedy, such as individual lawsuits. Judge Dawson wrote, “Where issues are individual in nature and divergent proof is required to prove the merits of a case, the class action device cannot be said to be superior.”
As the first class action effort brought by recyclers to challenge CHEP practices, the case has profound importance. The issue of proprietary pallets and their effect on the industry remains a concern. Recyclers are sometimes caught in the middle even though they are the solution not the problem.
The Pallet Enterprise will continue to cover this case and provide updates as additional information becomes available. The industry is currently in a waiting game to see what may happen. In the meantime, recyclers have to decide how best to treat proprietary pallets and work with companies like CHEP to recover as much of their cost as possible.
