In Comcast Corp. v. Behrend, 133 S. Ct. 1426, 2013 WL1222646 (Mar. 27, 2013), cable television subscribers sued a cable service provider and its subsidiaries in the United States District Court for the Eastern District of Pennsylvania, alleging defendants had pursued an illegal anticompetitive strategy known as “clustering” by which they acquired competitor cable providers’ systems within a particular region while simultaneously selling their own systems outside that region to the competitor. Plaintiffs alleged that as a result of these “swapping” agreements, both defendants and their competitors dramatically increased their market shares in their respective regions, thus eliminating competition and holding prices for cable services above competitive levels in violation of Sections 1 and 2 of the Sherman Act.
Plaintiffs moved to certify a class of similarly-situated Philadelphia-area cable subscribers under Fed. R. Civ. P. 23(b)(3), which permits certification only if, among other things, “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members.” The district court held that to meet this predominance requirement, plaintiffs needed to show both that (1) the existence of individual injury resulting from the alleged anticompetitive conduct was capable of proof by evidence common to the class, and (2) the damages resulting from that injury were measurable on a classwide basis through use of a common methodology. Although plaintiffs proposed four distinct theories as to how they had been injured by defendants’ anticompetitive conduct, the trial court held that only one -- that defendants’ clustering reduced the level of competition from “overbuilders,” i.e., competing companies that build cable networks in an area where another cable company already operates -- was capable of classwide proof. The trial court then found that under an economic regression model designed by plaintiffs’ expert, the damages caused by deterrence of overbuilders could be calculated on a classwide basis, and the court certified a class under that theory.
On appeal to the United States Court of Appeals for the Third Circuit, defendants argued certification was inappropriate because plaintiffs’ expert had acknowledged that his model measured damages resulting from all four of plaintiffs’ theories of harm, not just the overbuilder-deterrence theory. Nevertheless, the circuit court affirmed certification, holding that objections to the scope of the expert’s damages model were not appropriate at the class certification stage because such an inquiry would require reaching the merits of plaintiffs’ claims, contrary to certain language in prior decisions of the United States Supreme Court.
After granting certiorari, the Supreme Court reversed, holding the Court of Appeals had erred in refusing to consider defendants’ arguments that plaintiffs’ damages model was insufficient to establish their alleged damages on a classwide basis. Citing its recent decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (see April 2012 Foley Hoag Product Liability Update), the Court reaffirmed that class certification requires the court to determine that the prerequisites of Rule 23 are satisfied, even if that necessitates some degree of inquiry into the merits of plaintiffs’ claim. Although damages calculations need not be exact at the classcertification stage, the Court held that any model supporting a plaintiff’s damages case must at least be consistent with its liability case, particularly with respect to the anticompetitive effect of the violation. Here, because the trial court certified only one of the plaintiffs’ four theories of harm, the class would be entitled to damages resulting only from that species of harm. It follows, then, that for purposes of establishing that damages are measurable on a classwide basis in accordance with Rule 23(b)(3), a model that does not even attempt to measure the damages attributable to the lone surviving theory is insufficient under the rule.