Supreme Court Raises Bar for Class Certification

In Comcast Corporation, et al. v. Behrend, the US Supreme Court reversed two lower courts in concluding that the Plaintiffs failed to satisfy Rule 23(b)(3) because their expert’s report did not establish that damages could be measured on a class-wide basis. In reaching this conclusion, the Court held that evidentiary proof satisfying Rule 23(b)(3) is required to certify a class.

Plaintiffs, subscribers to Comcast’s cable-television services in the Philadelphia market area, alleged that Comcast violated Sections 1 and 2 of the Sherman Act when it entered into “clustering transactions” with competitors. Through these transactions, Comcast acquired competitor cable systems – and subscribers -- in the Philadelphia market in exchange for Comcast’s systems and subscribers in other markets. As a result, Comcast increased its subscriber base in the Philadelphia market from 23.9 percent in 1998 to 69.5 percent in 2007.

Plaintiffs alleged four theories of antitrust impact, but only one – that Comcast reduced competition from “overbuilders” that would have built competing cable networks in the Philadelphia market but for Comcast’s anticompetitive clustering conduct – survived class certification. The District Court, in certifying a class of Comcast subscribers in the Philadelphia market on the overbuilder theory, concluded that Plaintiffs’ expert’s regression model, that compared actual prices in the Philadelphia market with those that would have prevailed but for Comcast’s alleged antitrust violation, could be used to calculate class-wide damages resulting from overbuilder-deterrence. The District Court reached this conclusion, and the Third Circuit affirmed, despite the expert’s acknowledgment that his regression model did not isolate damages resulting from overbuilder-deterrence, separate and apart from the other theories of antitrust liability rejected by the District Court.

In granting certiorari, the Court reframed the question presented as “[w]hether a district court may certify a class action without resolving whether the plaintiff class had introduced admissible evidence … to show that the case is susceptible to awarding damages on a class-wide basis.” The Court’s answer: plaintiffs seeking to represent a Rule 23(b)(3) class must satisfy its requirements with evidentiary proof. The Court therefore rejected the Third Circuit’s concern that examining the merits of Plaintiffs’ expert’s methodology is inappropriate at the class certification stage. Instead, the Court observed that Rule 23(b)(3)’s requirement that common questions of law and fact predominate over questions affecting individual class member entails the same “rigorous analysis” as applies for purposes of Rule 23(a) under Walmart Stores, Inc. v. Dukes. As the Court observed in Walmart, class determinations generally involve considerations that are enmeshed in the factual and legal issues underlying plaintiff’s cause of action.

Applying this more rigorous test, the Court concluded that the Third Circuit erred when it refused to consider arguments attacking Plaintiffs’ expert’s model because the arguments were also relevant to the merits determination. According to the Court, Plaintiffs could not establish Rule 23(b)(3) predominance without presenting a methodology that would establish damages on a class-wide basis. Plaintiffs’ expert’s model admittedly did not distinguish between supra-competitive prices in general and those attributable to the deterrence of overbuilding, or distinguish how such deterrence would have affected subscribers in different counties within the Philadelphia market. It therefore failed the first step in a damage study: translating the legal theory of the harmful event into an analysis of the economic impact of that event. On that basis, the Court reversed the Third Circuit.

Justices Ginsburg and Breyer authored a joint dissent, joined by Justices Sotomayor and Kagan. In addition to arguing that cert was improvidently granted because Comcast had failed to object to Plaintiffs’ expert report, the dissent stresses that the Court’s decision “should not be read to require, as a prerequisite to class certification, that damages attributable to a class-wide injury be measurable ‘on a class-wide basis.’” Citing commentators and case law, the dissent argues that Rule 23(b)(3)’s predominance requirement is meant to ensure that proposed classes are sufficiently cohesive, and does not demand commonality as to all questions. In particular, the dissent rejected the Court’s apparent conclusion that class certification is inappropriate in the absence of a methodology to calculate damages on a class-wide – as opposed to an individualized – basis. It argued that the District Court’s conclusion that the expert’s model sufficiently reflected the higher Philadelphia price (compared with “benchmark counties”) from the alleged anticompetitive conduct was a factual finding regarding how the model worked, and not a legal conclusion regarding what it proved. Accordingly, the dissent criticized the Court’s decision to reverse the Third Circuit’s conclusion that the District Court’s finding was not an abuse of discretion.

Despite the dissent’s caution that Comcast breaks no new ground with respect to analyzing predominance under Rule 23(b)(3), the decision should prove useful to defendants opposing class certification, at least in antitrust actions. While the Court’s decision did not address whether a full-blown Daubert analysis is required at the class certification stage, it gives defendants a strong argument that District Courts now need to confirm that plaintiffs have introduced admissible evidence showing that damages can be calculated on a class-wide basis before certifying a Rule 23(b)(3) class. And plaintiffs seeking certification may be frustrated after Comcast if they can offer the District Court nothing more than an assurance that they will be able to prove antitrust injury and resulting damage that “will not require labyrinthine individual calculations.”

Topics:  Class Action, Class Certification, Comcast, Comcast v. Behrend, Damages, Daubert Hearing, SCOTUS

Published In: Antitrust & Trade Regulation Updates, Civil Procedure Updates, Civil Remedies Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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