The U.S. Supreme Court has reaffirmed that courts must conduct a "rigorous analysis" to determine whether antitrust class action plaintiffs meet the requirements for class certification, even when that requires inquiry into the merits of the underlying claims, and individual issues of damages may preclude class certification. The recent decision in Comcast Corp. v. Behrend, No. 11-864 (U.S. Mar. 27, 2013), affirms that plaintiffs must prove that damages for the class as certified are in fact capable of proof on a class-wide basis.
Background
Comcast provides cable services to businesses and residences.
Starting in 1998, Comcast began efforts to increase its
market share of cable television services in the Philadelphia
Designated Market Area ("Philadelphia DMA"). One of
these efforts was a "clustering" strategy in which
Comcast purchased competitor cable providers in the Philadelphia
DMA and then swapped their cable systems outside the region for
competitor systems located in the region. As a result of nine
clustering transactions, Comcast's share of subscribers in the
Philadelphia DMA allegedly increased from 24 percent in 1998 to 70
percent in 2007.
In 2003, the named plaintiffs, subscribers to Comcast's
cable-television services, filed a class action antitrust suit
against Comcast, claiming that Comcast entered into unlawful swap
agreements, in violation of Sherman Act § 1, and monopolized
or attempted to monopolize services in the cluster, in violation of
§ 2. The proposed plaintiff class included nearly all
Comcast non-basic cable television customers in the Philadelphia
area since December 1999, who purportedly paid too much for their
subscriptions as a result of Comcast's conduct. In 2007,
the District Court certified the proposed class pursuant to Federal
Rule of Civil Procedure 23(b)(3), which requires that
"questions of law or fact common to class members predominate
over any questions affecting only individual members."
Following the Third Circuit's late 2008 decision in
In re Hydrogen Peroxide Antitrust Litigation, the District
Court granted Comcast's motion to reconsider its class
certification decision. In clarifying the appropriate
standard of proof for class certification determinations in
Peroxide, the Third Circuit had stated that it is proper
for a district court to inquire into the merits of a suit to the
extent necessary to determine if a requirement under Rule 23 is
met.
In 2010, following evidentiary hearings and oral argument, the
District Court recertified the proposed class. In doing so,
the District Court accepted the testimony of plaintiffs'
damages expert and found that plaintiffs had demonstrated that they
would be able to establish antitrust damages for the entire class
using common evidence on a class-wide basis. However, the
District Court accepted only one of the plaintiffs' four
theories of antitrust impact, namely that Comcast's clustering
strategy in the Philadelphia DMA had deterred the entry of
"over builders" (companies that build competing networks
in areas where an incumbent cable company already operates).
The District Court certified the class despite the
expert's acknowledgement that the model "did not isolate
damages resulting from any one theory of antitrust impact,"
but instead included damages for all four theories of liability,
including the three that had been rejected by the District
Court.
A divided panel of the Third Circuit Court of Appeals affirmed.
On appeal, Comcast argued the class was improperly certified
because the model failed to attribute damages resulting from over
builder deterrence, the only theory of injury remaining in the
case. The court refused to consider the argument because, in
its view, such an "attac[k] on the merits of the methodology
[had] no place in the class certification inquiry." The
Court of Appeals emphasized: "At the class certification
stage," plaintiffs were not required to "tie each theory
of antitrust impact to an exact calculation of damages."
According the court, it had "not reached the stage of
determining on the merits whether the methodology is a just and
reasonable inference or speculative." Rather, the court
said, plaintiffs must "assure us that if they can prove
antitrust impact, the resulting damages are capable of measurement
and will not require labyrinthine individual calculations."
In the court's view, that burden was met because
plaintiffs' model calculated "supra-competitive prices
regardless of the type of anticompetitive conduct." In
this respect, the Third Circuit appeared to go back on its decision
in Peroxide, where the Third Circuit ruled that the
decision whether to certify a class requires a rigorous analysis of
the evidence and arguments, which may include an inquiry into the
merits of the claim.
The Supreme Court granted certiorari and, on March 27, 2013, ruled
in favor of Comcast, holding the Third Circuit should have taken a
closer look at the plaintiffs' damages model before certifying
the class. Specifically, the Supreme Court held that the
Third Circuit's decision contradicted precedents, including the
Supreme Court's 2011 Wal-Mart Stores v. Dukes
decision, that require courts facing a class certification question
to "probe behind the pleadings" and conduct a
"rigorous analysis" that "will frequently entail
'overlap with the merits of the plaintiff's underlying
claim.'"
In particular, the Court ruled that courts must conduct a rigorous
analysis to determine whether the damages model supporting
plaintiff's damages theory is consistent with its liability
case. "By refusing to entertain arguments against
[plaintiffs'] 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."
In doing so, it appears that the Supreme Court affirmed the
standard set forth in Peroxide.
In addition, the Supreme Court found that, because only one of
Plaintiffs' theories of antitrust impact had been accepted by
the District Court, a model purporting to serve as evidence of
damages must measure only those damages attributable to that
specific theory. Since Plaintiffs' expert admitted that
his model did not, the Supreme Court found that Plaintiffs'
model "falls far short of establishing that damages are
capable of measurement on a class wide basis," which precluded
Plaintiffs from demonstrating Rule 23(b)(3) predominance.
The Supreme Court thus reversed the Third Circuit's class
certification order.
Importance of Comcast
for antitrust class actions
There are some important lessons in the Supreme Court's
Comcast ruling:
- District courts facing a class certification question must undertake a "rigorous analysis" of whether Rule 23(b)(3)'s predominance requirement is satisfied, even if that analysis overlaps with the merits of Plaintiffs' underlying claims.
- A plaintiff seeking class certification in federal court must demonstrate that damages can be established on a class-wide basis. This means that defendants may be able to defeat class certification by demonstrating individualized proof of damages.
- Expert evidence offered by the proponent of class certification may be insufficient if it is not reasonably tied to plaintiff's liability theory.
At bottom, the Supreme Court's decision is the latest in a
line of cases from the Supreme Court and lower courts demonstrating
that district courts facing a class certification question must
conduct a rigorous analysis to determine if Rule 23(b)(3)'s
requirements are met, and that individualized proof of damages may
preclude class certification.
The Supreme Court's decision can be found here: http://www.supremecourt.gov/opinions/12pdf/11-864_k537.pdf
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