U.S. Supreme Court Throws Into Question Proof Of Damages Requirements For Class Certification

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On March 27, 2013, the U.S. Supreme Court issued its decision in Comcast Corp. v. Behrend, 569 U.S. ___, No. 11-864, 2013 WL 1222646 (Mar. 27, 2013).  In a 5-4 decision, the Court reemphasized its recent precedent in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), holding that in determining whether to certify a class, lower courts may not refuse to entertain arguments against plaintiffs’ evidence of damages bearing on the propriety of class certification “simply because those arguments would also be pertinent to the merits determination.”  Perkins Coie had submitted an amicus brief on behalf of Intel Corporation in support of this outcome. 

The opinion also throws into question, and leaves unresolved, the apparent conflict with long-standing precedent 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.”  Comcast, 2013 WL 1222646, at *9 (Ginsburg & Breyer, JJ., dissenting).  The decision thus potentially raises the bar for class-action plaintiffs to prove that damages are susceptible to proof on a classwide basis.

Background and Procedural History

In 2007, plaintiff subscribers to Comcast’s cable television services filed a class-action antitrust suit against Comcast and related entities alleging unlawful swap agreements in violation of § 1 of the Sherman Act, as well as monopolization or attempted monopolization in violation of § 2 of the Sherman Act. The action was based on Comcast’s alleged practice of “clustering”—concentrating operations within a particular region by acquiring competitor cable providers and swapping its own systems outside the region for the competitors’ systems within the region.

Plaintiffs offered four distinct theories of antitrust impact in moving for class certification under Fed. R. Civ. P. 23(b)(3), and the district court accepted only one.  To demonstrate damages, plaintiffs relied on a single expert who designed a regression model comparing actual cable prices with hypothetical prices that would have been available but for Comcast’s clustering practices.  The expert acknowledged, however, that his model did not isolate the damages based on the one accepted theory of impact from the three other rejected theories.

Nevertheless, the district court certified the class, and the U.S. Court of Appeals for the Third Circuit affirmed, refusing to consider the argument that plaintiffs had failed to show that damages were measurable on a classwide basis.  As the Third Circuit stated, to consider the argument would constitute “an attack[] on the merits of the methodology,” which “ha[ve] no place in the class certification inquiry.”  The Supreme Court granted certiorari.

The Supreme Court’s Decision

Siding with Comcast, the Court reaffirmed its recent decision in Wal-Mart Stores, Inc. v. Dukes, in instructing that it “may be necessary for the court to probe behind the pleadings before coming to rest on the certification question, and that certification is proper only if ‘the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.’”  Such an inquiry frequently “overlap[s] with the merits of the plaintiff’s underlying claim.”  The Court pointed out that the same principles apply, perhaps more rigorously, to the predominance requirements of Rules 23(a).  The following are key points from the decision:

  • The Court held that “[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, the Court of Appeals ran afoul of our precedents requiring precisely that inquiry.”
  • The Court found that certification should not have been granted.  Based on the damages expert, plaintiffs could not show that questions common to the class would predominate over individual damages calculations.
  • The Court found the expert’s model lacking because it failed to distinguish the accepted theory of antitrust impact from the three other theories.  “[A] model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory.  If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).”  Indeed, “[p]rices whose level above what an expert deems ‘competitive’ ha[ve] been caused by factors unrelated to an accepted theory of antitrust harm are not ‘anticompetitive’ in any sense relevant here.”
  • The Court of Appeals erred insofar as it found “it unnecessary to decide ‘whether the methodology [was] a just and reasonable inference or speculative.’  Under that logic, at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity.”

Dissent

Justices Ginsburg and Breyer jointly wrote a dissenting opinion, an unusual procedure, and Justices Sotomayor and Kagan signed on.  The dissent argued that certiorari had been improvidently granted based on the Court’s “misguided reformulation” of the question presented and that the majority opinion was “unwise[ly] and unfair[ly]” far reaching.  The dissenting justices warned that the case should not be read to break new ground on class certification standards, and “[i]n particular, . . . should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable ‘on a classwide basis.’” 

The minority emphasized that the predominance requirement of Rule 23 “test[s] whether proposed classes are sufficiently cohesive to warrant adjudication by representation” and does not “demand[] commonality as to all questions.”  Indeed, “the predominance standard is generally satisfied even if damages are not provable in the aggregate.”  “In 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.”