Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Bankrupt class representative in putative antitrust class action can transfer interest to trustee, (Jul 9, 2013)

By Tobias J. Gillett, J.D., LL.M.

In a putative direct purchaser antitrust lawsuit against SanDisk Corp. for its alleged use of fraudulently-obtained patents to acquire a monopoly over the market for NAND flash memory, a bankrupt plaintiff company can transfer its interest as the named class representative to its bankruptcy trustee, the federal district court in Oakland has ruled (Ritz Camera & Image, LLC v. SanDisk Corp., July 5, 2013, Armstrong, S.). The court postponed a decision on the trustee’s adequacy as a class representative until the class certification stage.

On June 25, 2010, Ritz Camera & Image, LLC filed suit against SanDisk Corp. on behalf of itself and a putative class of direct purchasers of NAND flash memory products. Ritz alleged that SanDisk employed two patents obtained by failing to disclose prior art and making affirmative misrepresentations to the United States Patent and Trademark Office to monopolize the market for NAND memory products. SanDisk allegedly “established its monopoly position by enforcing its patents against its competitors, by threatening its competitors’ customers, by terminating Ritz’s supply of NAND flash memory, and by entering into an anti-competitive settlement with a competitor.”

Ritz later declared bankruptcy. In the present motion, Ritz moved to substitute the bankruptcy trustee, Alfred T. Giuliano, as the named plaintiff on the ground that Ritz’s claim had passed to the bankruptcy estate.

The court explained that Federal Rule of Civil Procedure 25(c) “allows a court to substitute a party upon a transfer of interest,” and that one of the recognized transfers of interest that support transfer under Rule 25(c) is the substitution of a Chapter 7 trustee in place of a bankrupt party.

SanDisk did not dispute that Ritz’s claims were the property of the bankruptcy estate, that the trustee was the real property in interest, or the transfer of Ritz’s interest to the trustee. Instead, SanDisk contended that the trustee could not serve as the class representative because his duties to the bankruptcy creditors would conflict with his duties to the members of the class. SanDisk cited the Seventh Circuit’s 2003 decision in Dechert v. Cadle Co., 333 F.3d 801, in which the court concluded that, although it would not establish a “flat rule” that a bankruptcy trustee could not serve as a class representative, “the trustee in that case was an inadequate representative due to the inherent conflict of interest in the trustee’s dual role as representative of both the estate and the class.”

Although it had “concerns” about whether the trustee could serve as an adequate representative, the court found that a determination regarding his adequacy would be premature at that stage. Class discovery was in its early stages, and no deadline had yet been established to amend the pleadings or file a class certification motion.

Moreover, the trustee was not so clearly inadequate that the motion to substitute the trustee should be denied, in the court’s view. The court noted that the trustee in Dechert had an additional conflict of interest, in that the trustee in that case was affiliated with a bankruptcy creditor and would therefore appear on both sides of the case, a conflict not faced in the present litigation.

Therefore, the court granted Ritz’s motion to transfer its interest to the bankruptcy trustee, and postponed a decision on whether the trustee would be an adequate representative until a motion for class certification had been filed.

The case is No. C 10-02787 SBA.

Attorneys: Colleen Duffy-Smith (Morgan Duffy-Smith & Tidalgo, LLP) for Alfred T. Giuliano. Raoul Dion Kennedy (Skadden Arps Slate Meagher & Flom LLP) for SanDisk Corp.

Companies: Ritz Camera & Image, LLC; SanDisk Corp.

Cases: Antitrust CaliforniaNews