Supreme Court Raises the Bar to Class Certification

by McCarter & English, LLP
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The United States Supreme Court has continued to raise the bar on class certification by requiring that plaintiffs be able to prove damages on a class-wide basis. In Comcast Corporation v. Behrend, a putative class alleged that Comcast monopolized the Philadelphia cable market in violation of Section 2 of the Sherman Antitrust Act.  The plaintiffs asserted four antitrust theories of liability against Comcast, but the District Court certified the class action as to only one of the theories. But the plaintiffs' damages model was based on all four, so Comcast appealed, arguing that the plaintiffs couldn't prove damages. The Third Circuit Court of Appeals affirmed, but the Supreme Court reversed, ruling that since three out of four theories of liability upon which the damages calculation was based didn't survive, damages could not be calculated across the entire class and the class could therefore not be certified.

The effect

This decision creates a new weapon for defendants to collaterally attack class certification. The Court's new standard for evaluating class certification appears to require plaintiffs to plead their damages claims such that they are able to establish the damages on a class-wide basis.  The decision invites the argument by defendants that, "[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class."  Comcast also appears to require plaintiffs to plead a damages theory that is consistent with their liability theory, particularly with respect to the alleged anti-competitive effects of the violation.

The case

Comcast cable television subscribers in the Philadelphia area sued Comcast, alleging that the company violated federal antitrust laws by engaging in "clustering" - a strategy of concentrating operations within a particular region.  The plaintiffs asserted four theories of liability, but the District Court certified the class as to only one of them - that Comcast acquired a significant share of the Philadelphia area, which deterred competitors, "overbuilders," from entering the greater Philadelphia cable market, thereby resulting in less competition and supra-competitive prices.

The District Court found that the class could prove class-wide damages, as required by Rule 23, despite the plaintiffs' reliance on an expert damages model based on the collective impact of all four of their liability theories, including the three theories that the court rejected.  Comcast appealed, arguing that plaintiffs failed to establish that damages could be measured on a class-wide basis.  The Third Circuit affirmed the trial court, refusing to consider Comcast's argument that the plaintiffs' damages model failed to attribute damages to overbuilder deterrence because doing so would require reaching the merits of the plaintiffs' claims at the class certification stage.

The United States Supreme Court granted certiorari and held that the plaintiffs' class was improperly certified under Rule 23(b)(3).  Justice Scalia, writing for the majority, found that the Third Circuit ignored key precedents when it "refus[ed] to entertain arguments against [the plaintiffs'] damages model that bore on the propriety of class certification simply because they would also be pertinent to the merits determination".  The majority  "emphasized" that under Wal-Mart v. Dukes (another Supreme Court case decided in 2011), courts must "probe behind the pleadings before coming to rest on the certification question," not only to determine whether the prerequisites of Rule 23(a) have been satisfied, but also to determine whether Rule 23(b)(3)'s "predominance" requirements have been met. "That is so because the 'class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action.'"  The majority found that the first step in determining damages requires "translation of the legal theory of the harmful event into an analysis of the economic impact of that event." The plaintiffs' damages model failed to isolate  supra-competitive prices caused by the alleged deterrence to overbuilding, their only remaining antitrust theory of liability.  Therefore, the Court concluded, damages were not measurable across the entire class, rendering the plaintiffs unable to satisfy Rule 23(b)(3)'s predominance requirements.

The dissent focused on the admissibility of the plaintiff's expert testimony, saying the Supreme Court never should have taken the case because Comcast didn't object to the expert's testimony at the District Court level. The dissent also noted that it was universally accepted that "individual damage calculations do not preclude class certification," opining that the Court's ruling was "good for this day and case only."

The Comcast ruling heightens the requirements for plaintiffs seeking class certification and will have significant implications for antitrust class actions in particular, and for class actions in general. 

The foregoing article was prepared by Richard Hernandez. If you would like more information or to discuss the impact of Comcast, contact Richard or another member of McCarter's Franchise/Antitrust and Trade Regulation group; the members' contact information appears below.

Disclaimer by McCarter & English, LLP: This publication is for informational purposes only and is not offered as legal advice as to any particular matter. No reader should act on the basis of this publication without seeking appropriate professional advice as to the particular facts and applicable law involved.

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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