The Supreme Court's decision in Comcast Corporation v. Behrend, an antitrust case involving a class of more than two million current and former cable television subscribers in the Philadelphia area, raises the bar for plaintiffs to obtain certification of antitrust class actions.
On March 27, 2013, the Supreme Court of the United States issued an opinion in an antitrust case that will make it more difficult for plaintiffs to obtain certification of antitrust class actions. In future cases, plaintiffs seeking class certification must present a method for proving damages on a class-wide basis, and that method must be tied to the plaintiffs' theory of liability. Failure to do that can preclude class certification.
Decision a Decade in the Making
The case, Comcast Corporation v. Behrend, has been closely watched by the defense and plaintiffs' bar as well as the business community. In 2003, a group of cable subscribers filed a complaint alleging that Comcast's "clustering" of its Philadelphia-area operations deterred entry and increased cable subscription prices. Years of struggle ensued as the cable provider fought class certification. In 2010, the U.S. District Court for the Eastern District of Pennsylvania certified a class of more than two million current and former cable television subscribers in the Philadelphia area. Significantly, the district court rejected three of plaintiffs' four theories of antitrust impact, but it accepted a fourth. Comcast appealed, contending that the class was improperly certified because the damages model developed by the plaintiffs' expert failed to isolate the damages that could be attributed to the only remaining theory of antitrust impact.
In 2011, a divided panel of the U.S. Court of Appeals for the Third Circuit, relying on dicta from the Supreme Court's 1974 Eisen v. Carlisle & Jacquelin decision, ruled that Comcast's challenge to the expert testimony prematurely reached the merits of the case. The Third Circuit panel expressly rejected Comcast's argument that more recent Supreme Court jurisprudence permitted the court to disregard the expert report. On appeal to the Supreme Court, Comcast highlighted the conflict between the Third Circuit's opinion and the more recent Supreme Court cases. Comcast asked the Supreme Court to decide whether a class could be certified without resolving "merits arguments" that bear on Rule 23's prerequisites for certification.
The Supreme Court accepted Comcast's appeal but reformulated the question to focus on whether the admissibility standard established in Daubert v. Merrell Dow Pharmaceuticals should apply to expert testimony at the class certification stage. The Supreme Court's opinion, however, did not ultimately answer that question. Rather, the Supreme Court addressed the merits of the district court's class certification decision and broader issues relating to the proper standard to be applied by district courts under Rule 23. The Supreme Court has long held that district courts must conduct a "rigorous analysis" of the requirements of Rule 23 before certifying a class. Comcast reaffirmed that principle.
Breaking New Ground
But the Supreme Court went further. In three major respects, it raised the bar for plaintiffs to obtain class certification in antitrust class actions. First, plaintiffs must satisfy "by evidentiary proof" that they meet one of the prerequisites of Rule 23(b)(3). Second, district courts may not decline to resolve issues bearing on Rule 23 even if those issues overlap with the merits of the plaintiffs' underlying claims. Third, and perhaps most important, individualized questions of damages can defeat class certification.
This last point represents the key innovation and the most far-reaching aspect of the Supreme Court's opinion. Recognizing this, the dissent tries to minimize the impact of the holding by claiming that the majority's opinion "breaks no new ground." The decision, however, does just that.
The elements of a class action antitrust claim are (1) a violation of the antitrust laws, (2) individual injury (also known as antitrust impact) resulting from that violation and (3) measurable damages. Prior to the Supreme Court's opinion in Comcast, challenges to class certification generally focused on (2), the antitrust impact prong, and some cases held that issues regarding the amount of damages suffered by individual members of the class were not sufficient to defeat class certification. Indeed, as the dissenting opinion claimed, "[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh universal." Comcast calls that "universal" recognition into question. Now, failure of plaintiffs to demonstrate a way to prove damages on a class-wide basis alone can defeat class certification.
In this case, the Supreme Court ultimately held that the district court should not have certified the class because the expert's model failed to measure damages resulting from the particular antitrust injury on which liability was premised.
The reach of Comcast will be heavily litigated in the lower courts. Plaintiffs will argue, like the dissent, that the Supreme Court's ruling "breaks no new ground" or "is good for this day and case only." For defendants trying to defeat class certification, however, the language of Comcast is broad and potentially applicable to a broad array of class actions. The Supreme Court held that "under the proper standard for evaluating certification," plaintiffs must "establish[] that damages are capable of measurement on a classwide basis." If a plaintiff does not present such a methodology, then "[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class." The Supreme Court left no doubt as to its holding when it wrote in footnote 4, "[Comcast] argued below, and continue[s] to argue here, that certification was improper because [the plaintiffs] had failed to establish that damages could be measured on a classwide basis. That is the question we address here."
In the last several years, federal courts have required greater scrutiny of expert opinion at the class certification stage. Comcast represents an important continuation of this trend. While the Supreme Court did not address whether district courts must conduct a full-fledged Daubert analysis, it held that plaintiffs must put forward a methodology for proving damages on a class-wide basis that is tied to the plaintiffs' theory of liability. Prior to Comcast, some courts held that individualized questions regarding the amount of damages suffered by members of the class should not preclude certification. After Comcast, individualized proof of damages can, in appropriate cases, preclude class certification. In this regard, Comcast provides defendants with a new line of argument in existing and future class certification battles.
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