Supreme Court confirms that courts must evaluate merits issues in connection with class certification

On March 27, 2013, the Supreme Court, in an opinion by Justice Scalia, held that putative antitrust class plaintiffs must affirmatively establish that damages are capable of measurement on a class-wide basis to satisfy Rule 23(b)(3)’s predominance requirement.  In the case before it, Comcast Corp. v. Behrend, the Court found that the putative antitrust class had failed to satisfy this burden and that the Third Circuit had erred by refusing to scrutinize plaintiffs’ proffered damages methodology at the class certification stage.  Justices Ginsburg and Breyer issued a joint dissent in which Justices Sotomayor and Kagan joined. 

This case is consistent with a line of recent Supreme Court decisions setting strict evidentiary standards for class certification.

Case Background

In Comcast Corp. v. Behrend, a putative class of plaintiffs brought antitrust claims under Sections 1 and 2 of the Sherman Act based on Comcast’s creation of a “cluster” of cable systems in and around the Philadelphia area, which, plaintiffs alleged, resulted in supra-competitive prices.  The plaintiffs initially alleged four distinct theories of antitrust impact, but all but one of plaintiffs’ theories were rejected by the district court.

At class certification, the putative class relied upon the econometric model and testimony of a statistician, Dr. James McClave, to carry its burden of demonstrating that damages could be measured using evidence common to the class.  Dr. McClave’s model, as he acknowledged, did not isolate damages resulting from any one of the plaintiffs’ original four theories of antitrust impact, but instead aggregated the impact and damages resulting from all four.  The district court nevertheless certified the class because, in relevant part, it determined that Dr. McClave’s model was sufficient to show that damages could be proven on a class-wide basis.  A divided panel of the Third Circuit affirmed, holding that “attacks on the merits of the [damages] methodology . . . have no place in the class certification inquiry” and finding that it was premature for the court to reach “the stage of determining on the merits whether the [damages] methodology is a just and reasonable inference or speculative.”  Behrend v. Comcast Corp., 655 F.3d 182, 207 (3d Cir. 2011).

Supreme Court’s Analysis

The Supreme Court began its analysis by noting that class actions are an exception to typical litigation.  Relying upon its 2011 decision in Wal-Mart v. Dukes, the Court emphasized that, to fit within this exception, a class “must affirmatively demonstrate . . . compliance” with Rule 23.  Before certifying a class, therefore, a court must conduct a “rigorous analysis” to ensure that issues common to the class predominate over individual issues in accordance with Rule 23(b)(3), even if such a determination necessarily touches on the merits of the case.  As Justice Scalia wrote, “[b]y 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, the Court of Appeals ran afoul of our precedents requiring precisely that inquiry.”

The Court held that plaintiffs had not satisfied the predominance requirement because plaintiffs’ proffered damages methodology “failed to measure damages resulting from the particular antitrust injury on which petitioners’ liability in this action is premised,” as it attributed damages to all four of plaintiffs’ original theories of antitrust impact rather than to the single theory remaining in the case.  Due to this shortcoming, plaintiffs’ proffered model “falls far short of establishing that damages are capable of measurement on a class-wide basis.”  Accordingly, the Court held, the class was improperly certified under Rule 23(b)(3).

Dissent

A dissent authored jointly by Justices Ginsburg and Breyer focused largely on procedural issues unique to Supreme Court practice and concluded that the Court should have dismissed the appeal.  The dissent criticized the majority for disregarding a portion of the question presented and, thus, further revising the question after the Court already had reformulated it when granting certiorari.  The dissent further took issue with the majority’s analysis of antitrust damages, arguing that the majority should not have disturbed what it viewed as a factual finding of the district court that was left intact by the Third Circuit on appeal.

Issues to Watch

This decision marks another case in the line of Dukes demonstrating that courts must engage in merits analysis at the class certification stage if necessary to ensure that Rule 23’s requirements are satisfied and that plaintiffs must affirmatively put forth evidence, including expert evidence where warranted, sufficient to satisfy the requisite “rigorous analysis” before a class can be certified.