For years now, some courts have been willing to allow class actions to proceed in the face of individualized damages issues, on the theory that those issues can be worked out later, in a separate damages proceeding. After the U.S. Supreme Court’s most recent class actions ruling, however, that should change. Last week, the Supreme Court held that a class cannot be certified under Federal Rule of Civil Procedure 23(b)(3) if “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.” For defendants resisting class certification, this ruling puts damages issues front and center.
The Court reached this decision in Comcast Corp. v. Behrend, an antitrust case decided on March 27, 2013. Writing for a 5-4 majority, Justice Scalia began with the Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes, which held that courts evaluating class certification must engage in a “rigorous analysis” requiring “evidentiary proof” that common questions will predominate. From there, the majority turned to the “unremarkable premise” that the same theory of the case must apply throughout the litigation, from class certification to damages. According to the majority, a plaintiff seeking class certification bears a duty to show that individualized inquiries will not predominate at any stage of the case, including at the damages phase. This duty is no mere pleading requirement; it requires giving the court an opportunity to evaluate whether the class will be able to prove class-wide damages through their proffered expert and common proof, even if that evaluation dovetails with the merits.
Writing together in dissent, Justices Breyer and Ginsburg (joined by Justices Kagan and Sotomayor) expressed concern about the fairness of reaching such a ruling in this case. The petitioners had sought certiorari on a question under Rule 23, but the Court’s order granting the petition had reformulated the question as a matter of evidence and admissibility, asking “[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” In deciding the case, the majority concluded that its reformulated question had been inapt, in light of how the case was litigated below. So, the majority reverted to a question under Rule 23. According to the dissent, this was unfair to the parties; once the Court concluded that it would not decide the admissibility question on which it granted review and sought briefing, it should have dismissed the case as improvidently granted.
Turning to the merits, the dissent recognized the sweeping shift in the Court’s approach to damages and class certification—citing what it called “[l]egions of appellate opinions” supporting the “well nigh universal” view that “individual damages calculations do not preclude class certification under Rule 23(b)(3).” The dissent then analyzed the case under antitrust principles, criticizing what it deemed the majority’s overturning of the factual review by the lower courts.
The impact of this decision is certain to become a central issue in class certification proceedings around the country. The dissent indicated it would have preferred to limit the ruling to the particular antitrust case before the Court. But the majority’s discussion of class action principles under Rule 23, including in antitrust cases, will likely have a broad application—giving defendants an additional tool for limiting the class action device to situations where common issues predominate over individual issues throughout the entire dispute, including in proving the measure of class damages.