On March 27, 2013, the U.S. Supreme Court decided Comcast Corp. v. Behrend, Case No. 11-864, which tightened class certification requirements in two respects. First, Behrend requires plaintiffs to show a method by which class-wide damages can be commonly calculated in Rule 23(b)(3) antitrust class actions. Second, the decision confirmed that the Court’s “rigorous analysis” standard set forth in Wal-Mart Stores, Inc. v. Dukes applies to class certification prerequisites under Rule 23(b) as well under Rule 23(a). Left unanswered, however, was perhaps the most significant question of all: whether the Daubert standard for expert witnesses applied to expert testimony at the class certification stage.
In Behrend, plaintiffs were a class of cable subscribers who brought a monopolization claim under Section 2 of the Sherman Act, claiming the defendant cable company used an anticompetitive “clustering strategy” that drove up prices in the Philadelphia media market. Plaintiffs sought to certify a Rule 23(b)(3) class and, to satisfy the predominance element, had to prove both that (1) the existence of individual injury resulting from the antitrust violation (“antitrust impact”) could be proven with evidence common to the class, and (2) damages to the class were measurable on a class-wide basis using a “common methodology.” (Slip op. pp. 2-3).
Here, Plaintiffs argued that the challenged “clustering strategy” raised cable subscription rates via four theories of antitrust impact. To show that damages could be measured on a class-wide basis, plaintiffs relied upon a statistical regression model that measured the effect of the four antitrust impacts on cable prices. (Id. 4). Ultimately, the District Court only accepted one of the four theories. (Id.)
The defendant argued that plaintiffs failed to prove that damages resulting from that one antitrust impact could be calculated on a class-wide basis. The defendant reasoned that plaintiffs’ model was designed to measure damages from all four antitrust impact theories, and did not isolate damages resulting from the single allowed theory. The District Court certified the class anyway, and the Third Circuit affirmed, finding that inquiring into the merits of plaintiffs’ damages calculation methodology was inappropriate at the certification stage and that plaintiffs were not required to “tie each theory of antitrust impact to an exact calculation of damages.” (Id.).
The Court reversed. Justice Scalia, writing for a 5-4 majority, began by reaffirming Dukes’ requirement that plaintiffs “affirmatively demonstrate,” with evidentiary proof, that they have satisfied the Rule 23 requirements for class certification. (Id. at 5). While Dukes only addressed the four elements of Rule 23(a), the Behrend court extended that rule to Rule 23(b), reasoning that a trial court’s duty to undertake a “rigorous analysis” of whether plaintiffs have satisfied Rule 23(a) certification requirements applies with equal force to Rule 23(b) requirements. (Id.)
The majority found that the lower courts ran afoul of those requirements by “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” of the case. (Id. 7). Instead, the Court required the plaintiffs to demonstrate that they could calculate class-wide damages attributable to the specific antitrust impact the District Court allowed.
While damage “calculations need not be exact,” the Court held that “any model supporting ‘a plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.’” (Id. 7, citing ABA Section of Antitrust Law, Proving Antitrust Damages: Legal and Economic Issues 57, 62 (2d ed. 2010)). The Court concluded that plaintiffs failed to meet that burden because their statistical model could not separately measure the pricing injury caused by the single allowed antitrust theory from the three other theories that were not allowed. (Id. 7-8). Thus, “in light of the model’s inability to bridge the differences between supra-competitive prices in general and supracompetitive prices attributable to the deterrence of overbuilding, Rule 23(b)(3) cannot authorize treating subscribers within the Philadelphia cluster as members of a single class.” (Id. 10-11).
It remains unclear how much impact Behrend will have on the broader class action landscape. The case applied Dukes scrutiny to Rule 23(b) requirements and further requires plaintiffs to prove, in Rule 23(b)(3) class actions, the predominance of common questions of both liability and damages in order to certify a class. But the Court gives fairly little guidance to lower courts as to how plaintiffs can satisfy that burden with respect to damages—an important question, given that, as the dissent points out, courts have in the past routinely certified classes that raise individualized damages issues. (See id., Ginsburg and Breyer, JJ., dissenting, 3-5)).
It appears that Behrend’s lack of guidance on that issue may have been caused by an unforeseen procedural defect in the case. The Court was widely expected to decide the question whether expert evidence at the class certification stage can be scrutinized under Daubert. Unfortunately, it turned out the Court could not decide that question because the defendant did not object to the admissibility of the plaintiffs’ expert’s testimony, thereby failing to preserve the issue for appellate review. That critical issue will therefore have to wait for another day and another case.