In a 5-4 decision last week, the Supreme Court decided that putative class plaintiffs could not bring a class action antitrust lawsuit unless they could show that their damages could be measured on a classwide basis. Justice Scalia authored the decision for the majority, while Justices Ginsburg and Breyer issued a joint dissent.
Although this was an antitrust case, it has much broader implications for class actions generally by providing additional ammunition to litigants seeking to defeat class certification. In particular, this decision can be used to defeat certification of consumer class actions involving individualized damages.
In Comcast Corp. v. Behrend, the plaintiffs alleged that Comcast violated federal antitrust laws by taking steps to become the only cable television provider in the Philadelphia area. The plaintiffs alleged that Comcast engaged in a strategy of clustering its operations in the Philadelphia region, and that Comcast used its allegedly dominant market position to stifle competition. The plaintiffs sought to certify a class, which required them to show that the class members were all harmed by the same alleged anticompetitive conduct and that the harm could be measured the same way for all class members.
The plaintiffs proposed four theories for how Comcast’s activities had reduced competition and elevated prices, but the district court found only one of these theories capable of classwide proof and rejected the other three. The theory that survived the district court's scrutiny was that Comcast used its market position to deter "overbuilders" from opening competing cable networks in the region.
To show that damages could be measured on a classwide basis, plaintiffs produced a regression model comparing actual cable prices in the Philadelphia area with hypothetical prices that would have prevailed but for Comcast’s allegedly anticompetitive activities. But the plaintiffs’ damages model assumed the validity of all four theories of antitrust impact, even though the district court had rejected three of the four. Despite these flaws in the model, the court held that the plaintiffs had met their burden of showing that damages were capable of measurement on a classwide basis.
Comcast appealed the class-certification decision to the Third Circuit. It argued that the faulty damages model meant the plaintiffs had failed to establish that all class members’ damages could be measured in the same way. The Third Circuit refused to consider the argument on the grounds that it was premature, holding that an attack on damages methodology was appropriate only at the merits stage of the case.
The Supreme Court reversed the Third Circuit, holding that a party seeking to certify a class must be prepared to meet all of the certification prerequisites—including that damages be measurable on a classwide basis—at the class-certification stage. The Court further held that the Third Circuit erred when it refused to entertain Comcast’s argument against the use of the plaintiffs’ damages model. Despite protests from the plaintiffs’ bar that requiring a merits-like analysis at such an early stage would make it more difficult to file antitrust class actions, the Court explained that a class determination demands rigorous analysis and "generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action."
The Court held that the plaintiffs had not shown that certification was appropriate because the proffered damages methodology "failed to measure damages resulting from the particular antitrust injury on which petitioners' liability in this action is premised." In other words, the model did not measure impact caused solely by the remaining theory of Comcast's alleged deterrence of overbuilder competition.
Prior to the Court’s decision in Comcast, lower courts were often willing to certify consumer class actions even when it was clear that damages would require individualized proof. After Comcast, litigants can now argue against certification of consumer class actions where damages will need to be proven on an individualized basis across the class.
For instance, in cases where consumers seek damages under state UDAP statutes or actual damages under federal consumer protection statutes, it is very likely that individualized damages issues will exist. Comcast can be used to support the argument that the individualized nature of damages across the class makes certification improper. Of course, this case is unlikely to apply in cases where consumers seek only statutory damages, since the amount of such damages are predetermined by statute and are likely to be consistent across the class.
On a related note, the Whirlpool Corporation filed a petition for certiorari with the Court last September seeking review of the Sixth Circuit's decision upholding class certification in Whirlpool v. Glazer. This case had been on hold pending the Court's decision in Comcast.
In Whirlpool, the plaintiffs allege that their Whirlpool washing machines have a design defect that makes them prone to mold and noxious odors. In its petition for certiorari, the Whirlpool Corporation posed the following question to the Court:
Whether a class may be certified under [Federal] Rule [of Civil Procedure] 23(b)(3) even though most class members have not been harmed and could not sue on their own behalf.
Shortly after rendering its decision in Comcast, on April 1, 2013, the Court granted Whirlpool's petition, vacated the Sixth Circuit's prior decision, and remanded the case for reconsideration in light of the Court's decision in Comcast. Given the Court's directive in Comcast?that class members must satisfy all of the prerequisites for certification at the certification stage?it will be interesting to see whether the Sixth Circuit takes that instruction to heart upon reconsideration, which may result in a very different outcome this time around for Whirlpool.