Comcast v. Behrend Sets a Higher Bar for Class Certification

by Sheppard Mullin Richter & Hampton LLP
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On March 27, 2013, the U.S. Supreme Court continued its recent trend of imposing more stringent standards for class certification in Comcast Corporation v. Behrend, 569 U.S. ___ (2013). At issue was whether the proponents of certification satisfied Federal Rule of Civil Procedure 23(b), which requires that “questions of law or fact common to class members predominate over any questions affecting only individual members,” when calculating damages with a regression model that did not isolate the effect of specific misconduct. In a 5-4 decision authored by Justice Scalia, the Court held that the class was improperly certified, reversing the decisions of the lower courts.

Background

The respondents consisted of approximately two million current and former Comcast subscribers from December 1, 1999 to the present within the Philadelphia “Designated Market Area” (“DMA”). They alleged that Comcast entered into unlawful agreements and monopolized or attempted to monopolize the DMA through a strategy of “clustering,” i.e., purchasing a competitor’s system in one region in exchange for Comcast’s system in another region, violating Sections One and Two of the Sherman Act.

At the district court level, respondents offered four forms of “antitrust impact” to meet Rule 23(b)(3)’s predominance requirement. However, only one theory was accepted—that Comcast’s clustering reduced competition from companies that built competing cable networks in areas where an incumbent cable company already operates. The court determined that the damages arising out of “overbuilder-deterrence” could be calculated on a class-wide basis. Respondents’ expert calculated damages of $875,576,662 using a regression model that combined the effects of the original four theories of injury. A divided court of appeals affirmed the lower court’s decision to certify the class, reasoning that “at the class certification stage, respondents were not required to ‘tie each theory of antitrust impact to an exact calculation of damages.’” Maj. Op. at 4 (citation omitted).

Analysis

The Majority Opinion

The Court reversed the grant of class certification. Justice Scalia emphasized that the rigorous standards used in Rule 23(a) analyses applied with equal if not more force to scrutiny of Rule 23(b)’s predominance requirement. To that end, it “may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.” Maj. Op. at 6 (citations omitted). Here, the court of appeals erred “[b]y refusing to entertain arguments against respondents’ damages model that bore on the propriety of class certification simply because those arguments would also be pertinent to the merits determination.” Maj. Op. at 6-7 (citations omitted). Although the damages calculations “need not be exact . . . at the class-certification stage (as at trial), any model supporting a ‘plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.” Maj. Op. at 7 (citations omitted). Because the potential award of damages was premised exclusively on overbuilder-deterrence, “a model purporting to serve as evidence of damages . . . must measure only those damages attributable to that theory.” Maj. Op. at 7. From the majority’s perspective, certifying a class based on respondents’ inclusive methodology “would reduce Rule 23(b)(3)’s predominance requirement to a nullity.” Maj. Op. at 8.

The Dissent

After criticizing the Court’s post-briefing decision to recast the issue under review, the dissent, led by Justices Ginsburg and Breyer, insisted that the majority opinion “breaks no new ground on the standard for certifying a class action” pursuant to Rule 23(b). Dissent at 3. From the dissent’s vantage point, “[i]n the mine run of cases, it remains the ‘black letter rule’ that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members.” Dissent at 5 (citation omitted).

Nonetheless, the dissent maintained that the majority opinion “sets forth a profoundly mistaken view of antitrust law.” Dissent at 5. The dissent found it sufficient that respondents’ model demonstrated Comcast’s conduct resulted in higher prices in the Philadelphia DNA, rather than focusing on precisely how Comcast achieved this outcome. Accordingly, the Court should not have overturned the lower court’s determination that the regression model “could measure damages suffered by the class—even if the damages were limited to those caused by deterred overbuilding.” Dissent at 10.

Implications

Commentators will likely debate whether the Comcast decision has added an extra layer of rigor or a dose of common sense to antitrust damages calculations. However, despite the dissent’s assertion to the contrary, the “universal” principle that individual damages calculations do not preclude class certification under Rule 23(b)(3) appears to be at risk. Dissent at 4. In rendering its opinion, the Court has added a potent weapon for rebuffing class certification.

What this means for antitrust cases, where the predominance test was once “readily met,” Dissent at 5, will be resolved by lower courts through fact-intensive opinions or seemingly inconsistent decisions. Comcast may articulate the law of the land today, but the Court will need to revisit its words when circuit splits inevitably occur.

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