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STATE OF ILLINOIS v. HARPER & ROW PUBLISHERS

United States District Court, Northern District of Illinois, E.D


April 25, 1969

STATE OF ILLINOIS, PLAINTIFF,
v.
HARPER & ROW PUBLISHERS, INC., ET AL., DEFENDANTS (AND RELATED CASES).

The opinion of the court was delivered by: Decker, District Judge.

  MEMORANDUM OPINION

Pursuant to 28 U.S.C. § 1407, more than forty separate antitrust actions have been transferred to this court for consolidated discovery and pretrial proceedings. Originally instituted in eight judicial districts, the private treble damage suits seek compensation for alleged conspiracies which inflated the prices for children's editions of library books. The plaintiffs, who are largely state and local governments, claim to have been overcharged as a result of either (1) a horizontal agreement among the industry's book publishers, or (2) a series of vertical conspiracies between each publisher and its wholesalers.

Under F.R.C.P. 23(b)(3), the attorneys general for several states claim to represent the public libraries, school districts, and boards of education in their respective jurisdictions. Similarly, the School District and the City of Philadelphia purport to represent a class composed of the 1324 largest public libraries and school districts in the nation. Although most of the antitrust actions may be returned eventually to their transferor courts for trial, the Judicial Panel on Multidistrict Litigation has ruled that the transferee court should decide class action questions. In Re Plumbing Fixture Cases, D.C., 298 F. Supp. 484 (December 27, 1968).

The congruence of issues in each class action request is remarkable. The underlying conspiracies, the accused defendants, and the aggrieved plaintiffs stand in virtually identical positions. Therefore, except as otherwise indicated, the opinion will discuss all motions collectively.

Initially, a class action must satisfy the four prerequisites specified in F.R.Civ.P. 23(a).*fn1 First, since the class members number in the hundreds in each action, joinder is impracticable. See, e.g., Cypress v. Newport News G. & N. Hospital Ass'n, 375 F.2d 648 (4th Cir. 1967); Clemens v. Central R. Co. of N.J., 264 F. Supp. 551 (E.D.Pa. 1967); Bowe v. Colgate-Palmolive Co., 272 F. Supp. 332 (S.D.Ind. 1967). Second, questions of law and fact are common to the class because the alleged conspiracies inflated the prices charged all purchasers of library editions.*fn2 Third, the claims of the representative parties are typical of the claims of the class because, having identical interests, all plaintiffs will offer the same evidence to prove the illegal conspiracies. See, e.g., Booth v. General Dynamics Corp., 264 F. Supp. 465 (N.D.Ill. 1967); Collins v. Bolton, 287 F. Supp. 393, 397 (N.D.Ill. 1968). Compare City of Chicago v. Allen Bradley Co., 32 F.R.D. 448, 451 (N.D.Ill. 1963).

Finally, the representative parties*fn3 will fairly and adequately protect the interests of each class. Having purchased substantial quantities of library books, the named plaintiffs may be expected to pursue the case diligently and thoroughly. Defendants do not question the technical competence of plaintiffs' attorneys. See Siegel v. Chicken Delight, Inc., 271 F. Supp. 722, 727-728 (N.D.Cal. 1967).

In addition to these prerequisites, F.R.C.P. 23(b)(3) requires that:

  "questions of law or fact common to the members of
  the class predominate over any questions affecting
  only individual members, and that a class action is
  superior to other available methods for the fair and
  efficient adjudication of the controversy."*fn4

Before analyzing these two factors, however, the opinion will describe more fully the litigation's factual setting. Then, detailed analyses of the common questions and of the superiority of the requested class actions will be made. The next section will consider the distinctive problems presented by the national suit. Finally, various administrative details will be explained.

I. State-Wide Class Actions

The children's books circulated by public libraries and schools receive harsh physical treatment, with the result that their bindings often deteriorate. In the late 1950's, the publishing industry therefore introduced a library edition with a reinforced binding specifically designed for use by these public institutions. According to the complaints, however, the defendants only quoted "net" prices for the library editions. Regardless of whether a publisher, a wholesaler, or a retail distributor sold the publications, the libraries and schools had no alternative but to pay the same "net" price.*fn5

After a Senate investigation into this pricing system, the Justice Department instituted grand jury proceedings in 1966. Although the federal government decided not to seek criminal indictments, it obtained consent judgments in 1967 against eighteen separate publishers, each of whom agreed not to fix prices for the next five years.

A. Common Questions

The single most important issue is whether the defendants' conspiratorial agreements actually existed. Offering the same facts, all class members will strive to establish a national conspiracy among the publishers.*fn6

The Justice Department's civil actions only charged vertical conspiracies. The defendants therefore prophesy that the libraries and schools can only prove conspiracies between each publisher and its wholesalers. Nevertheless, a common core of questions will persist. Having purchased titles from most of the publishers, each class member will need to establish all of these conspiracies in order to be fully compensated. Regardless of which plaintiff presents the evidence, the same facts will establish the defendants' liability.*fn7 The thousands of purchasers will then be able to recover from whichever publisher-wholesaler combination handled the particular titles that were bought.

Besides the overriding conspiracy question, each class member stands in an identical position with respect to the following issues: (1) whether prices were actually inflated, (2) whether the higher prices resulted from the illegal agreements, (3) whether defendants fraudulently concealed the conspiracies, thus tolling the statute of limitations, and (4) whether library books are "unique" products.*fn8 See Eisen v. Carlisle and Jacquelin, 391 F.2d 555, 565, 566 (2nd Cir. 1968); Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452, 458 (E.D.Pa. 1968).

The predominance of common questions contrasts sharply with the limited individual issues. Depending on the volume of purchases, each class member will need to establish his own damages. But, as stated in Dolgow v. Anderson, 43 F.R.D. 472, 490 (E.D.N.Y. 1968): "The common issues need not be dispositive of the entire litigation." See, e.g., Kronenberg v. Hotel Governor Clinton, Inc., 41 F.R.D. 42, 45 (S.D.N.Y. 1966); Brennan v. Midwestern United Life Ins. Co., 259 F. Supp. 673, 684 (N.D.Ind. 1966). Compare Zeigler v. Gibralter Life Ins. Co., 43 F.R.D. 169 (D.S.D. 1967); Iowa v. Union Asphalt and Roadoils, Inc., 281 F. Supp. 391, 402 (S.D.Iowa 1968).

If illegal conspiracies raised prices to noncompetitive levels, the purchasers were affected in the same manner and to the same extent. The common resolution of the preceding pervasive issues may therefore avoid the necessity for the parties' continual relitigation of the questions. Challenged by identical evidence, the defendants need not be subject to judgments which may vary according to the forum in which suit was instituted.

B. Fair and Efficient Adjudication

Though common questions overshadow individual issues, F.R.C.P. 23(b)(3) requires that a class action also be the superior means of litigation. Since each controversy involves a common core of identical questions, the efficiency of a class action is apparent. See Hohmann v. Packard Instrument Co., 399 F.2d 711, 715 (7th Cir. 1968). In addition, five mutually reinforcing factors demonstrate the superiority of class actions.

First, since many plaintiffs only purchased small quantities of the reinforced editions, most individual class members have little incentive to sue alone. Their financial claims do not justify the expense of complex antitrust litigation, especially in light of the defendants' persistent efforts to prevent document discovery. In Weeks v. Bareco Oil Co., 125 F.2d 84, 90 (7th Cir. 1941), the Seventh Circuit explained:

  "To permit the defendants to contest liability with
  each claimant in a single, separate suit, would, in
  many cases give defendants an advantage which would
  be almost equivalent to closing the door of justice
  to all small claimants. This is what we think the
  class suit practice was to prevent."

Only when the purchases are combined in a class action is the potential damage recovery sufficiently large to warrant litigation. See, e.g., Escort v. Barchris Const. Corp., 340 F.2d 731, 733 (2d Cir. 1965); Advisory Committee's Note, 39 F.R.D. 98, 104 (1966). Compare Gas Service Co. v. Coburn, 389 F.2d 831, 833 (10th Cir. 1968); Kainz v. Anheuser-Busch, Inc., 194 F.2d 737 (7th Cir. 1952).

Second, all class members have had ample opportunity to control their own litigation. Many libraries and schools have commenced individual actions. Moreover, some suits have been pending for over two years, allowing numerous plaintiffs to intervene.*fn9

Third, the extensive litigation already commenced illustrates the widespread, but diffuse nature of the injury inflicted upon the public libraries and schools. Recognizing the desirability of concentrating this interwoven, far-flung litigation in a single forum, the Judicial Panel transferred all cases to this Court for consolidated pretrial proceedings. Intensifying the concentration, class actions will promote desirable economies of time, effort and expense. For example, plaintiffs will no longer need to file new lawsuits,*fn10 most of which would eventually be transferred here anyway. See Fischer v. Cletz, 41 F.R.D. 377, 385 (S.D.N.Y. 1966); Advisory Committee's Note, 39 F.R.D. 98, 102-103 (1966).

In response, defendants suggest that permissive intervention and joinder is preferable. The recent history of this litigation dramatically illustrates the impracticality of these alternatives. In 1966 there was a single suit purporting to be a class action. The entire litigation might have been concluded without further complexity. But defendants successfully opposed the class suit, with the result that lawsuits have blossomed throughout the country.*fn11 Rather than the original handful of attorneys, lawyers are now so plentiful that the entire courtroom is filled at each pretrial conference. Section 1407 consolidation became mandatory.*fn12 When returned for trial, the subsequently filed cases will consume substantial amounts of the transferor courts' time. The prospect of further intervention and joinder, combined with the inevitable proliferation of lawsuits, is inimicable to economical adjudication.

Fourth, the defendants enumerate the "insurmountable" administrative difficulties*fn13 which may be encountered in these class actions.*fn14 Settlement may become more difficult since the expanded number of plaintiffs will each demand compensation. Naturally, the publishers and wholesalers are reluctant to see their liability increase. Even with thousands of class members, however, the imaginative and resourceful attorneys handling these cases can undoubtedly devise workable settlement procedures. For example, a lump sum could be set aside for the plaintiffs in each state; appropriate personnel might then apportion the fund among class members who substantiate their damage claims.*fn15

Another practical difficulty might arise if the defendants wanted to direct interrogatories and depositions to each class member. But, no further discovery appears to be necessary. Since defendants' records are relatively complete and accessible, they can prepare full answers to exhibit C (transaction data).*fn16 Until liability is established,*fn17 however, it would be wasteful for thousands of plaintiffs to search their files for similar data.*fn18 To prove their damages, of course, individual class members will eventually be required to establish their specific purchases. See, e.g., Brennan v. Midwestern United Life Ins. Co., 259 F. Supp. 673, 684 (N.D.Ind. 1966); Kronenberg v. Hotel Governor Clinton, Inc., 41 F.R.D. 42, 45 (S.D.N.Y. 1966). Compare F.R.C.P. 23(c)(4) with Advisory Committee's Note, 39 F.R.D. 98, 106 (1966).

Even though the class actions may expand administrative tasks, the benefits to be secured will more than outweigh the additional chores. As recently explained by Judge Becker in Technograph Printed Circuits, Ltd. v. Methode Electronics, 285 F. Supp. 714, 724-725 (N.D.Ill. 1968):

  "[T]he difficulties likely to be encountered in the
  management of a class action are not important when
  weighed against the benefits to the class * * * and
  to the administration of justice. * * * To process
  the pending litigation and most of the remaining
  active, inactive and the potential litigation by a
  large number of separate trials would `raise
  administrative difficulties far exceeding those
  present in this class action.'"

Most importantly, the fifth and final factor is the opportunity that class actions will provide for the publishers and wholesalers to receive a full and fair hearing on their defenses. Assuming that they did not conspire to maintain non-competitive prices, the defendants will not be subjected to the expensive ordeal of repeatedly demonstrating their innocence at trial. Nor will they be exposed to as great a threat that subsequent litigation could produce inconsistent results. Furthermore, in spurious class actions under old F.R.C.P. 23, class members could intervene after a favorable decision on the merits without risking the chance of an adverse judgment.*fn19 Defendants will not be victimized by such one-sided intervention.

In conclusion, the four prerequisites of F.R.C.P. 23(a) are satisfied by each of the state-wide class actions. Moreover, common questions of law and fact overshadow the damage issue that is peculiar to individual plaintiffs. Besides being the most efficient way to resolve the plaintiffs' widespread claims, class actions will protect the defendants' rights, guaranteeing that they will not be subject to numerous inconsistent judgments scattered throughout the nation.*fn20

II. National Class Action

The School District and City of Philadelphia filed the first lawsuit protesting artificial book prices. Two classes of plaintiffs are designated: (1) all public school systems in the United States with an enrollment of 12,000 students or more, and (2) all state and municipal agencies which maintain libraries for the use of the general public, such libraries having annual book funds in excess of $10,000. Totaling approximately 1324, the class members are listed in an exhibit attached to the complaint.*fn21 In April 1967 the Philadelphia transferor court ruled that the class action was not proper at that time.*fn22 Plaintiffs now request reconsideration, maintaining that subsequent developments have substantially altered the desirability of a class action.

In April 1967, discovery had only begun. The Justice Department's civil actions had just been filed. Thus, one could not determine whether common questions would predominate. Similarly, no related litigation was then pending, and it was impossible to predict whether other libraries and schools would institute suit. Therefore, a class action did not seem to be the superior means of adjudication.

In April 1969, however, the litigation's factual background is more fully known. With the generous benefit of hindsight, subsequent discovery, and the proliferation of lawsuits, the identity and nature of all plaintiffs' claims have become evident. Defendants concede the existence of the "net" pricing system. Harper and Row Publishers responded to interrogatory number 20 as follows:

  "Library editions are sold at net price or at a
  discount where the sale is to a
  wholesaler. * * * This method of pricing appears to
  be similar to the practice prevailing in the book
  publishing industry."

Although the national action has a broader geographical scope than do the state classes, all of the considerations discussed in the preceding section of this opinion apply fully to the School District of Philadelphia. In fact, the wholesalers tacitly admit that the state and the national actions are indistinguishable; without differentiation, their brief considers both motions together. Thus, in the national class, common questions predominate over individual issues,*fn23 and a class action is superior to other alternatives for the fair and efficient resolution of the plaintiffs' causes of action.

Nevertheless, the publishers highlight the selective composition of the two national classes. Representing only the largest purchasers, the School District and City of Philadelphia provide no redress for the numerical bulk of the nation's libraries and schools. The parties insinuate that the selection of potential plaintiffs was motivated by the Philadelphia attorneys' self-interest.

The desertion of the smaller purchasers is unfortunate. Therefore, if other plaintiffs had sought to represent all aggrieved purchasers, such an action would presumably have prevailed over the Philadelphia class. But this choice is not presented.

To the extent that other class actions do not cover the members of the national class, the Philadelphia suit may be the only relief they can receive. Many claims are too small to justify separate lawsuits, and 15 U.S.C. § 16(b)'s one-year suspension of the statute of limitations has expired. Thus, the only issue is whether the absent class members, allegedly the most seriously overcharged plaintiffs, should be denied recovery merely because smaller libraries and schools will not be compensated.*fn24 In the interests of justice, the 1324 purchasers deserve a chance to recover their excessive payments.

Moreover, other courts have sua sponte limited the size of class actions by deleting the smaller, less aggrieved members. See, e.g., Philadelphia Electric Co. v. Anaconda American Brass Co., 43 F.R.D. 452, 462 (E.D.Pa. 1968):

  "By analogy to concepts of diversity jurisdiction and
  venue, * * * I consider it appropriate to limit the
  definition of the class by setting up criteria of
  size of population served, area, and proximity to
  this district.

  "* * * [T]hese actions may be maintained as class
  actions on behalf of * * * (3) all cities in the
  United States having a population * * * in excess of
  50,000, and all school districts and public building
  authorities within such cities."

Furthermore, the singular importance of private treble damage actions in the antitrust field suggests that the size restriction should not defeat the class action. As recently declared by the Supreme Court in Minnesota Mining and Mfg. Co. v. New Jersey Wood Finishing Co., 381 U.S. 311, 318, 85 S.Ct. 1473, 14 L.Ed.2d 405 (1965):

  "Congress has expressed its belief that private
  antitrust litigation is one of the surest weapons for
  effective enforcement of the antitrust laws."

See generally Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968); Philadelphia Housing Authority v. American Radiator and Standard Sanitary Corp., 269 F. Supp. 540, 542 (E.D.Pa. 1967). Upholding the national class action will facilitate private antitrust litigation and will discourage future conspiracy violations. See Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y. 1968).*fn25

In conclusion, the two national classes proposed by the School District and City of Philadelphia meet all the criteria established by F.R.C.P. 23(a) and (b)(3). The class action is the superior method for the fair and efficient adjudication of the controversy. Although the restriction on the classes' scope appears arbitrary, the enumerated members should not be penalized solely because the unrepresented libraries and schools will not receive redress for their overpayments.

III. Administration of the Class Actions

Two administrative questions need to be resolved. The first is how the class members will be notified of the actions. Despite scattered contrary suggestions, most courts and commentators agree that the court need not perform all tasks associated with informing the absent parties.*fn26 The representative plaintiffs will therefore prepare a mailing list of all members of their classes. Along with the list, plaintiffs shall submit to the court a draft notification letter. If possible, plaintiffs in the various class actions should confer and submit a master letter which can be adapted to the individual classes. Copies of the draft notices shall be furnished to the defendants who will then have ten days in which to make suggestions. To avoid the appearance of claim solicitation,*fn27 the notices will be mailed by the court on official stationery. Similarly, class members' replies will be directed to the court.

The second administrative question concerns the overlap between various class actions. Both the national suit and several state actions include some of the same libraries and schools. Presumably, class members situated in a given state would prefer to be represented by the attorney general of that jurisdiction.*fn28 One may also assume that named plaintiffs who have instituted their own suits do not want to participate in a larger class suit.*fn29 Accordingly, notice in the national class action will not be sent to any named plaintiffs nor to any members of other class actions. Unless they voluntarily notify the court to the contrary, these members will not be represented by Philadelphia. As explained in State of Minnesota v. United States Steel Corp., 44 F.R.D. 559, 576 (D.Minn. 1968):

  "This over-lap in the court's judgment is best
  resolved by permitting the maintenance of
  the * * * [national] suits as class suits only to the
  extent that absent class members may request entrance
  to the class if so desired, within the time
  hereinafter prescribed by the court without, however,
  there being any notice on behalf of these plaintiffs
  sent from this court or otherwise * * *"

In New York and Minnesota, both the state's attorney general and a competing plaintiff seek to represent all the libraries and schools in the state. All of the potential representative plaintiffs meet the criteria established by F.R.C.P. 23.*fn30 To choose between the suits, one might use a first to file rule which would sanction a race to the courthouse. On the other hand, it seems preferable to consider which of the representative parties will most effectively serve the class members.

Unlike private attorneys, the state attorneys general will apparently not charge a fee. Moreover, the state officials are responsible for protecting their jurisdictions and its subdivisions from fraudulent overcharges.*fn31 Accordingly, although all of the requested class actions may be so maintained, the absent class members will only be notified of the actions brought by the attorneys general (68 C 2041 and 69 C 48).*fn32 If class members desire to be represented by Hempstead School District, 68 C 2259, the City of St. Paul, 68 C 2040, or School District #625, 69 C 797, they should so inform the court within the period specified for class members to respond to notices.

IV. Conclusion

F.R.C.P. 23(a) specifies four prerequisites for a class action, each of which is easily satisfied. The contentions of the representative plaintiffs are typical of the claims of the numerous class members. Since all purchasers of library editions share an identical position with respect to the crucial issues in the cases, the named plaintiffs will adequately protect the classes' interests.

In both the state-wide and the national class actions, questions of law and fact common to the members of the group predominate over any issues affecting only individual purchasers. Identical facts and evidence will be required to establish the existence and the effect of the alleged price fixing conspiracies. In contrast, the claimants' damage determinations may be easily computed.

Superior to other available means for just and economical resolution of the controversies, class actions will minimize the proliferation of lawsuits which would otherwise result from the alleged pervasive conspiracies. They will also diminish the duplication of judicial effort and attorneys' expense. Furthermore, class actions will relieve the defendants from the burden of defending numerous scattered cases and will reduce the likelihood of inconsistent judgments. Although including only the larger libraries and schools, the national class action provides both a fair and an efficient form of redress for its members.

Finally, the administration of these actions will not pose insurmountable difficulties. In situations where classes overlap, notice will only be sent to the members of one class, thus avoiding the confusion of having duplicate, conflicting communications. After plaintiffs prepare a mailing list and a draft letter, the court will direct individual notice to all members of the various classes who can be identified and located.

Accordingly, I have entered an order today allowing the following plaintiffs to maintain the specified class actions.

Case No.     Plaintiff                   Class

67 C 1899   Illinois         Chicago Board of Education and

                               approximately 1,338 public school
                               districts in Illinois.

  68 C 1835   Texas            Approximately 1,232 public school
                               districts and 354 tax supported
                               libraries in Texas.

  68 C 1999   Kansas           Approximately 330 public school
                               districts and 272 tax supported
                               libraries in Kansas.

  68 C 2014   Wisconsin        Approximately 572 public school
                               districts and 320 tax supported
                               libraries in Wisconsin.

  68 C 2041   Minnesota        Approximately 500 public school
                               districts and tax supported
                               libraries in Minnesota.

  68 C 2144   School District  Two national classes: (1) public
              and City of      school systems, and (2) public
              Philadelphia     libraries See "Amendment to
                               paragraph 4 of the amended
                               complaint," filed 3/6/67.

  68 C 2257   Indiana          Approximately 354 public school
                               corporations and 242 tax supported
                               libraries in Indiana.

  68 C 2258   Ohio             Approximately 656 public school
                               districts and 258 tax supported
                               libraries in Ohio.

  68 C 2302   City of Chicago  Chicago Public Library and
                               approximately 498 tax supported
                               libraries in Illinois.

  68 C 2303   Archbishop and   Approximately 776 diocesan and
              Bishops of       non-diocesan Catholic schools in
              Ohio             Ohio.

  69 C 48     New York         Public school districts and tax
                               supported libraries in New York.

  68 C 2259   Hempstead        Named plaintiffs and public
              School District  purcahsers in New York who request
                               inclusion.

  68 C 2040   City of St.      Public and private purchasers in
              Paul             Minnesota who request inclusion.

  69 C 797    School District  Public purchasers in Minnesota
              # 625            who request inclusion.


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