Summary

The United States Supreme Court held in Comcast v. Behrend that the same analytical principles that govern class certification in Federal Rule of Civil Procedure 23(a) also apply to the further inquiry required by Rule 23(b). District courts must rigorously analyze whether the elements of Rule 23(b)(3) – allowing certification only if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members” – are satisfied even where such analysis will overlap with the merits of the underlying claims.

Here, the Court concluded that the district court was required to examine the merits of the proposed damages methodology. The Court held that Rule 23(b)(3) predominance could not be satisfied since (1) the damages methodology fell far short of establishing that damages were capable of measurement on a classwide basis, and (2) questions of individual damage calculations would inevitably overwhelm questions common to the class. 

On March 27, 2013 the Supreme Court issued a 5-4 decision in Comcast v. Behrend, holding that the Third Circuit’s approval of the certification of a class of more than 2 million current and former Comcast subscribers (“Plaintiffs”) was not appropriate under Federal Rule of Civil Procedure 23(b)(3).

The Plaintiffs alleged that Comcast gradually increased its share of cable subscribers in the Philadelphia area by acquiring rival cable providers or swapping its own cable systems outside of Philadelphia for those inside the Philadelphia area. The Plaintiffs claimed that by employing this “clustering” scheme, Comcast was able to obtain a dominant position in the Philadelphia market, and raise prices and prevent entry and expansion by competitors in violation of the Sherman Act. The Plaintiffs offered four separate theories of antitrust injury allegedly flowing from the “clustering” behavior.

Comcast argued that the district court had improperly certified the class because the Plaintiffs’ damages model failed to attribute damages to the only theory of injury deemed by the district court to be relevant for certification. The Third Circuit refused to consider this argument because it viewed it as an attack on the merits of the damages methodology – an issue, which it viewed as having “no place in the class certification inquiry.” The Supreme Court held that the district court’s refusal to consider the merits of the damages methodology was improper.

The Court concluded that that the Plaintiffs’ damages model plainly failed to measure damages resulting from the particular antitrust theory on which Comcast’s liability was premised. The Court held that a methodology that identifies damages that are not the result of the alleged violation could not possibly provide assurance that the case is susceptible to awarding damages on a class-wide basis. The Court found that the failure of Plaintiffs’ damages model was so fundamental that class certification could not be authorized under Rule 23(b)(3).

The Court rejected the Third Circuit’s rationale for avoiding further merits inquiry

The Court found that the Third Circuit had erred by holding that the district court was not required at the class certification stage to decide whether the Plaintiffs’ proposed methodology for calculating damages “was a just and reasonable inference or speculative.” If that were so, the Court concluded, “at the class certification stage any method of measurement is acceptable as long as it can be applied classwide, no matter how arbitrary the measurements may be. Such as proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity.” 

The Supreme Court made clear that a district court must rigorously analyze the persuasiveness of the evidence at the class certification stage. The decision is in line with the Ninth Circuit’s holding in Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011) (rigorous analysis of the persuasiveness of the presented evidence is required) and the Third Circuit’s prior Rule 23(b)(3) holding in Hydrogen Peroxide, 552 F.3d 305 (3d Cir. 2009) (the district court must resolve all factual or legal disputes relevant to class certification even if they overlap with the merits).

The ramifications of the holding

In one respect, the holding in Comcast is not a major surprise. The reasoning follows directly from the Supreme Court’s recent decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541 (2011): The district court must rigorously analyze whether the elements of Rule 23 are satisfied, irrespective of the fact that this analysis will frequently overlap with the merits of the plaintiffs’ underlying claim.

On the other hand, the Comcast decision appears to create another substantial hurdle for class plaintiffs, especially in complex litigation. The Supreme Court has firmly closed the door to class plaintiffs hoping to avoid rigorous review of their expert’s testimony and written report at the class certification stage. For antitrust cases it is now significantly more important for a class plaintiffs’ expert to devise rigorous and robust econometric models that are capable of effectively demonstrating classwide impact and damages. The class certification process will likely become a “mini trial,” where multi-day testimony by competing experts will be the norm – a fact likely to alter both litigation strategy and settlement opportunities in antitrust class actions.

Supreme Court enthusiasts only: A procedural twist

The Court’s masterful sleight of hand

One controversial aspect of the Court’s decision – which fascinated students of the Court and frustrated the litigants – was the Court’s reformulation of the initial question presented by Comcast. Comcast’s initial question focused precisely on the issue the majority ultimately addressed – whether the district court was required to consider merits arguments directly tied to Rule 23(b)(3)’s predominance requirement. Upon accepting Comcast’s petition, however, the Court reformulated the question to focus instead on whether the Plaintiffs’ evidence was admissible – an argument Comcast appeared to have waived.

The dissenting opinion was direct about calling the reformulation a mistake: “This case comes to the Court infected by our misguided reformulation of the question presented.” The majority opinion, written by Justice Scalia, addressed the issue more subtly (and only in a footnote). Instead of focusing on the problem with the reformulated question, the Court proactively stripped out the offending word “admissible,” and, in so doing, refocused on the predominance requirement of Rule 23(b)(3). The following illustrates what Justice Scalia appeared to accomplish: “Whether a district court may certify a class action without resolving whether the plaintiff class had introduced admissible evidence, including expert testimony, [sufficient] to show that the case is susceptible to awarding damages on a class-wide basis.”  

Though the Court made only minor revisions to the text, the change in the focus of the certified question was significant. The admissibility issue, now eliminated, had been central to the parties’ briefing and oral argument; in fact, there was little substantive discussion at all regarding the Plaintiffs’ damages model. The majority’s skillful reformulation, however, managed to avoid the central problem created by the recertified question, and provided the Court’s opinion with newfound relevance.

Importance to the Supreme Court practitioner

In addition to its obvious significance for class certification, Comcast may become important precedent for future litigants seeking to have that the Court consider issues beyond the certified question. The dissent raised a strong opposition against circumventing the question presented, highlighting the risk of inaccurate judicial decisionmaking, and the potential unfairness to respondents and the courts below. Nonetheless, future parties must now consider the possibility that the Court will address and rule on issues beyond the certified question.