U.S. Supreme Court Raises Standards For Class Certification

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Class certification is the critical factor in many class actions. It occurs when a court authorizes a putative class representative, usually an individual or a small group, to represent a much larger class of people who have allegedly sustained the same or similar injuries. If certification is granted, defendants often settle for large sums, even though the claims may have little merit.

In a positive development for businesses faced with large class actions, two recent U.S. Supreme Court decisions – Comcast Corp. v. Behrend and Standard Fire Ins. Co. v. Knowles – will help to ensure that large, interstate class actions are decided in federal court where the standards for class certification are higher than in many state courts.

Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345 (2013) – Class Representatives Cannot Avoid Federal Court Jurisdiction By Stipulating To Limit Damages

On March 19, 2013, the U.S. Supreme Court closed a “loophole” in the Class Action Fairness Act of 2005 (“CAFA”), which some putative class representatives used to avoid federal court.

Congress passed CAFA amid concerns over perceived abuses in class actions, including putative class representatives forum shopping for favorable state courts with less stringent class certification requirements and “plaintiff friendly” judiciaries. To end this perceived practice, CAFA granted federal district courts original jurisdiction over large class actions so long as the class has over 100 members, at least one class member and one defendant are residents of different states, and the class’ aggregate claims total over $5 million.

To avoid CAFA’s implications, class representatives began stipulating, prior to certification, that the class would not seek damages over $5 million. Perhaps underlining Congress’ concerns over forum shopping, the attorneys in Knowles reportedly belonged to one of three law firms that used the stipulation to keep class actions in Miller County, Arkansas (population 44,000), where the firms collected $420 million in fees in eight years from just 23 class actions.

In Knowles, the U.S. Supreme Court put an end to this practice when it held that the stipulation was a legal nullity. Putative class representatives have no authority to enter any stipulation for the putative class members prior to certification.

Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) – Class Representatives Must Show Class-Wide Damages For “Rigorous Analysis” At The Class Certification Stage

Eight days after deciding Knowles, on March 27, 2013, the U.S. Supreme Court issued yet another decision putting the pressure on class representatives.

In Behrend, putative class representatives alleged that Comcast Corporation (“Comcast”) injured over two million cable television subscribers through anti-competitive acts. To obtain class certification, the representatives had to show proof (1) that Comcast’s alleged anti-competitive acts caused an “antitrust impact” affecting the subscribers; and (2) that the “antitrust impact” caused damages to the subscribers that were measureable on a class-wide basis.

While the class representatives presented four theories of “antitrust impact,” the U.S. District Court Eastern District of Pennsylvania granted class certification on only one of those theories.

Comcast appealed certification to the Court of Appeals, Third Circuit, where it argued that the representatives failed to show that the single “antitrust impact” certified by the district court caused damages that were measurable on a class-wide basis because the representative’s expert failed to isolate damages to any of the four theories. While the expert was able to calculate that the four alleged “antitrust impacts” together resulted in class-wide damages, he could not say whether the one “antitrust impact” certified by the district court resulted in such damages.

The Third Circuit refused to consider Comcast’s argument. It was satisfied that the representatives demonstrated a method for measuring class-wide damages and refused to analyze the representatives’ proof of damages because it believed that such an analysis would delve too far into the merits of the case for the class certification inquiry.

The U.S. Supreme Court disagreed and reversed both the district court and the Third Circuit. It held that the putative class representatives in Behrend were not entitled to class certification because they did not show proof that the single “antitrust impact” at issue caused the entire putative class to suffer damages that were measureable on a class-wide basis. The U.S. Supreme Court emphasized that the district courts must conduct a “rigorous analysis” and consider the merits, to the extent necessary, to ensure that certification is proper.

Even though Behrend’s antitrust subject matter is a bit esoteric, the decision will likely heighten the standard for class certification in federal court regardless of subject matter. In short, Knowles and Behrend are victories for businesses who will face large class actions in federal court where the standards for class certification are increasingly higher than in many state courts.

If you have any questions, or for additional information, please contact Kenneth A. Manning at (716) 847-7041,
kmanning@phillipslytle.com. Mr. Manning leads a team of 24 attorneys in the firm’s Class Action practice.