In another victory for class action defendants, today the United States Supreme Court held that courts must conduct a “rigorous analysis” of plaintiffs’ damages theories prior to certification under Rule 23(b)(3), which requires that questions of law or fact common to class members predominate over any questions affecting individual members. In Comcast v. Behrend, the Court overturned class certification after looking to the merits of the plaintiffs’ damages model and finding that individual damages calculations outweighed questions common to the class. This decision comes just one week after the Court issued a unanimous opinion in Standard Fire Ins. Co. v. Knowles, effectively prohibiting plaintiffs from avoiding federal court through pre-class certification damages limitations.
The November 2012 issue of Nelson Levine’s Class Action Quarterly analyzed the underlying decision, briefing and oral argument in Comcast — an antitrust action brought against Comcast and its subsidiaries in the greater Philadelphia area by subscribers who claimed they paid too much for the cable provider’s services. The plaintiffs alleged that Comcast “clustered” or consolidated regional services, a legally acceptable practice that in this instance had the illegal effect of deterring competition and, as a result, increasing costs to consumers. The plaintiffs’ expert attempted to show class-wide damages based on four theories of liability, only one of which was accepted by the Eastern District of Pennsylvania. Nevertheless, the trial court held that because the expert’s testimony “could evolve” into admissible evidence by the time of trial, the plaintiffs’ damages theory satisfied Rule 23(b)(3)’s predominance requirement. The U.S. Court of Appeals for the Third Circuit affirmed certification, holding that the trial court properly refrained from “determining on the merits whether the methodology is a just and reasonable inference or speculative.”
In a 5-4 opinion authored by Justice Antonin Scalia, the Court rebuked the Third Circuit’s conclusion that it did not need to evaluate the merits of the plaintiffs’ damages model at the class certification stage. The Court repeatedly cited its 2011 decision in Wal-Mart v. Dukes, where it held that courts’ inquiries at class certification must often overlap with the merits. In fact, the Court pointed out that the inquiry into whether a plaintiff has met Rule 23(b)(3)’s predominance requirement is “even more demanding” than the commonality requirement addressed in Wal-Mart. If courts do not analyze the merits of a plaintiff’s damages model at the certification stage, the Court continued, they would effectively “reduce Rule 23(b)(3)’s predominance requirement to a nullity.”
Comcast affirms the “rigorous analysis” courts must use in evaluating the merits of a case at class certification and specifically addresses how damages theories must be evaluated prior to a finding of predominance under Rule 23(b)(3).