In a 5-4 opinion, the U.S. Supreme Court tightened the screws on certification of a Rule 23(b)(3) damages class. See Comcast Corp. v. Behrend , No. 11-864, 569 U.S. __ (2013) (Slip Op. March 27, 2013) [Available at http://www.supremecourt.gov/opinions/12pdf/11-864_k537.pdf]. The Comcast decision represents the third class action decision of the Supreme Court in the past two months.
The Comcast case was brought on behalf of 2 million current and former cable subscribers in the Philadelphia market area, alleging antitrust claims of “clustering” that eliminated competition and thereby allowed Comcast to charge higher subscription rates. The district court certified the class, the court of appeals affirmed, and the Supreme Court granted certiorari. While the issue before the Court was thought to be the evidentiary standard for expert opinion testimony at the class certification stage, the Court – to the dismay of the dissent – recast the question as “whether certification was improper because [plaintiffs] had failed to establish that damages could be measured on a classwide basis.” The March 27, 2013 Opinion, which overturned class certification and thus effectively ended the case, is notable for two principal reasons.
First, the Court doubled down on its landmark decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S.Ct. 2541 (2011), in which the Court reversed certification of a class consisting of present and former female employees of Wal-Mart. In Dukes, the Court held that the district court must, if necessary, delve into the underlying merits to determine if the Rule 23 prerequisites have been satisfied, a rigorous process that looks to whether there is common, classwide evidentiary proof of the underlying claim. In Comcast, the Court reaffirmed that the district court must determine if Rule 23’s requirements are satisfied “even when that requires inquiry into the merits of the claim.”
Second, the Court held that the rigorous scrutiny of the class certification prerequisites extends to the proffered methodology for calculating damages, underscoring the necessity under Rule 23(b)(3) that “damages are susceptible of measurement across the entire class,” and also that such measurement in fact corresponds to the particular wrongdoing being alleged. In the words of the Court, class certification is improper if the methodology, even if applicable classwide, measures “damages that are not the result of the wrong.”
The Court described its ruling in Comcast as turning on the “straightforward application of class certification principles,” and those principles offer some basis to reconcile the Court’s class certification decision in Amgen, Inc. v. Conn. Retirement Plans and Trust Funds, No. 11-1085, 568 U.S. __ (2013) (Slip. Op. February 27, 2013) [see Ulmer & Berne LLP Client Alert]. In Amgen, the Court took up the issue of whether the “materiality” element of a fraud-on-the-market claim, which is susceptible to preliminary attack on a Rule 12(b)(6) motion to dismiss, must be established at the class certification stage. In a ruling that was generally described as disappointing to business interests, the Court held that the materiality issue does not bear on the Rule 23 prerequisites and thus that the merits-based materiality issue was off-limits on class certification. In particular, the Court held that materiality, although an element of a fraud-on-the-market claim, is an objective standard and therefore, for class certification purposes, presents a common question. In other words, the merits ruling on materiality at summary judgment or trial will apply to the class on an across-the-board basis.
If Amgen was disappointing to business interests, Comcast will be more favorably received. In Comcast, the Court tightens Rule 23’s “commonality” and “predominance” prerequisites to require classwide evidentiary proof of both liability and damages. Thus, while the dissent maintains that “individual damages calculations do not preclude class certification,” the clear implication of Comcast is that such a notion could apply only to differing dollar amounts where (and if) the damages methodology applies on a classwide basis and narrowly – and reliably – corresponds to the underlying liability theory. The real action following Comcast will be in the district and appellate courts, where companies will view the Court’s decision as a green light to attack the damages calculation methodology as part of a comprehensive class certification defense. The Comcast decision also sets the stage for a subsequent case presenting the issue that Comcast was anticipated to resolve, i.e., the evidentiary standard for admitting expert testimony at the class certification stage.
While the outer reaches of Comcast will unfold in the coming months and years, the impact of Comcast assuredly will be more direct following the Court’s recent decision in Standard Fire Ins. Co. v. Knowles, No. 11-1450, 568 U.S. __ (2013) (Slip. Op. March 19, 2013) [see Ulmer & Berne LLP Client Alert]. In Knowles, the Court held that a putative class action plaintiff cannot defeat CAFA’s expansive federal court jurisdiction over class action cases by artificially attempting to limit potential damages to below the threshold jurisdictional amount of $5 million. Thus, although state courts applying the states’ versions of Rule 23 will be urged to follow Comcast (which was decided under Federal Rule 23), the implication of Knowles is that CAFA’s jurisdictional reach will continue to reel class actions into federal court, where Comcast is controlling precedent.
