In a 5-4 decision rendered on March 27, 2013, in Comcast Corp. v. Behrend, the United States Supreme Court restricted the ability of individuals to proceed with class actions without sufficiently showing at the outset that damages ultimately sought to be recovered in the action can be measured on a class-wide basis. The Supreme Court held that lower courts improperly determined that a class action could proceed, that is, improperly “certified” it as a class action, on the basis of an expert econometric model presented by the proposed class representatives that failed to measure alleged damages attributable to the specific theory of liability on which they were proceeding, and failed to establish that damages attributable to that theory were susceptible of measurement across the entire identified class. Lower courts had refused to consider shortcomings of the model because to do so would have, in their view, impermissibly required reaching a determination on the merits of the class plaintiffs’ claims at the preliminary class certification stage, as opposed to at trial. The Supreme Court, however, rejected this concern and declared that courts must assess the validity of a damages model without regard to the fact that doing so requires inquiry into the merits of a claim.
The decision in Comcast raises the bar for plaintiffs in meeting requirements for proceeding with a class action by making plain not only the meaningful burden that plaintiffs present evidentiary proof of commonality and the predominance of damages on a class-wide basis, but also that the validity of the evidence itself be open to attack without regard to the fact that the evidence is also pertinent to an ultimate determination of the merits of claims.
A Key Class Action Requirement
Class actions in federal courts must be “certified” as such before proceeding, and in that process, proposed class representatives must affirmatively demonstrate compliance with several requirements imposed by procedural rules. These include a showing that questions of law or fact involved in the case are common to members of the identified class of persons, and that those common issues predominate over questions affecting only individual members. Historically this has meant that proposed class representatives must present evidentiary proof at the class certification stage of a case that the commonality and predominance requirements (along with others) are satisfied. That said, federal courts have not delved significantly into the merits of an underlying claim at this stage, instead looking only to the merits to the extent necessary to determine that procedural requirements for class action status are met.
There is no clear line of demarcation between what is or is not an appropriate consideration of the merits of a case in the class certification process. However, federal courts, with guidance of the Supreme Court, recognize that frequently there will be some overlap with the merits of an underlying claim in making the necessary class action status determinations as courts look, for example, to determine whether common questions predominate over individual ones. Arguments and evidence that bear on the propriety of certifying a case as a class action will to some degree be pertinent to the eventual merits determination in the case. As discussed below, in Comcast the issue was brought into sharp focus as lower federal courts rejected the argument that in the class certification process a court should examine the merits of the methodology for determining alleged class-wide damages sought to be recovered in the case. Under this view, whether a methodology for determining damages is ultimately valid or invalid is not a matter for consideration in deciding whether a case should proceed as a class action.
The Setting For Comcast
The individual plaintiffs in Comcast filed a class action antitrust suit against Comcast on behalf of subscribers to Comcast’s cable television services. They claimed that Comcast had engaged in a “clustering” scheme through unlawful swap agreements with competitor cable providers by which it was allegedly able to amass a 69.5 percent market share in the “cluster,” made up of 16 counties located in Pennsylvania, Delaware and New Jersey (the “Philadelphia cluster”). Plaintiffs alleged that the clustering strategy and unlawful swap agreements with competitors harmed subscribers in the Philadelphia cluster by eliminating competition and holding prices for cable services above competitive levels. This, plaintiffs alleged, violated provisions of the federal antitrust laws, with Comcast monopolizing or attempting to monopolize services in the Philadelphia cluster.
To proceed as a class action, plaintiffs faced the burden of first demonstrating to the court that injury resulting from the alleged antitrust violations (referred to as “antitrust impact”) was common to the proposed class of subscribers, and was capable of being proved at trial through evidence that is common to the class rather than individual to each of its members. Likewise, plaintiffs had to show that the damages resulting from the antitrust impact were measurable on a class-wide basis, through a common methodology. Thus, plaintiffs had to demonstrate that whatever theory of liability on which they sought recovery could be determined in a manner common to all of the proposed class members. They presented four theories of antitrust impact, and relied on an expert’s testimony and econometric model to calculate damages. The expert evidence, however, did not attempt to isolate damages resulting from any one theory of injury offered by the plaintiffs.
Of the four theories of injury offered by the plaintiffs, only one was considered by the federal district court to be susceptible of class-wide proof, and on that basis the court certified the case as a class action to go forward only on that theory. Comcast appealed the class certification to the United States Court of Appeals, claiming that the expert model offered by plaintiffs was insufficient because it failed specifically to attribute damages to the only theory of injury on which the case would proceed. Although divided on the issue, the Court of Appeals affirmed the lower court decision, concluding that, at the class certification stage of a case, plaintiffs were not required to tie every theory of antitrust injury to an exact calculation of damages, and that to require otherwise would impermissibly have the court delve into the merits of the methodology, which would be considered later in the case. The Supreme Court agreed to hear an appeal from that determination.
The Comcast Decision: Proving Commonality of Damages for Class Certification
In a 5-4 decision authored by Justice Antonin Scalia, the Supreme Court reversed the lower court decisions in Comcast, concluding that the plaintiff class was improperly certified. The mistake in the lower courts, said Justice Scalia, was the refusal to entertain arguments against the plaintiffs’ damages model simply because those arguments would also be pertinent to the ultimate merits determination in the case. Any model offered at the class certification stage of a case as support for a plaintiff’s damage theory must be consistent with its liability theory, and for purposes of class certification, courts must determine whether that is so. It was wrong, he said, simply to conclude that the Comcast plaintiffs had provided a method to measure and quantify damages on a class-wide basis without considering the validity of the method or model used. A methodology that identifies damages that are not the result of an alleged wrong cannot suffice as the basis for determining, for class certification purposes, that a theory of liability is capable of class-wide proof. That inquiry is essential at the class certification stage of a case, and to challenge the validity of a model offered to support the requisite determination of commonality and predominance of class-wide damages on a particular theory of liability does not impermissibly venture into the merits of the case. It is rather an essential determination without regard to its pertinence to the merits of liability claims.
Comcast is an antitrust case. Speaking for the majority of the Court, however, Justice Scalia expressly rejected any suggestion that the analysis rested on anything other than a straightforward application of class action principles and the requirements laid out in the Federal Rules of Civil Procedure. The only issue was whether, under the proper standard for evaluating class certification, the plaintiffs’ evidentiary model demonstrated that damages were capable of measurement on a class-wide basis. That assessment is compelled without regard to the substantive law that would ultimately be applied in the case.
Some two years ago, in Wal-Mart Stores, Inc. v. Dukes the Supreme Court held that, before certifying a class action, federal courts must conduct a “rigorous analysis” to determine that prerequisites set out in the Federal Rules of Civil Procedures have been satisfied. In Comcast, simply put, the lower courts made it too easy for proposed class representatives to satisfy their burden. With Wal-Mart as the backstop, the Supreme Court has now made it tougher.
Plaintiffs in Comcast presented evidence that damages could be calculated on a class-wide basis, but without any attempt to link damages to an actual theory of liability on which they might ultimately be awarded. Held to a requirement to do so, the court would necessarily delve into the merits of the case in order to determine whether a class-wide basis for measuring damages was in fact the appropriate basis for measuring damages in relation to the specific theory of liability asserted, thus raising the question whether it would be wrong to do so at the class certification stage. The Supreme Court in Comcast answered the question no, and made clear that delving into the merits of claims to determine whether in fact damages sought as a result of alleged unlawful conduct presents a common issue, and one that predominates over any individual determination that might ultimately prove necessary, may be required.
Comcast erects no unreasonable, much less insurmountable, burden to the pursuit of class actions in federal courts. It does, however, convey the unmistakable message that courts in which these cases are brought must demand, and those persons who would be class representatives must expect to demonstrate, precision in the presentation of evidence such that, to whatever degree an examination of the merits of claims being made is necessary to make the assessment, damages are in fact susceptible of measurement on a class-wide basis.
Comcast Corp., et al v. Behrend, et al., No. 11-864 (Mar. 27, 2013)