United States: The Hard Stop On 'Adventurous Innovation' In Class Action Litigation: The United States Supreme Court's Decision In Comcast v. Behrend, Remand Of Whirlpool v. Glazer And The Probable Return Of Defect Manifestation To Class Certification Determination

Last Updated: May 5 2013
Article by Michael Mallow and Livia Kiser

I. Comcast v. Behrend: The Class Action Mechanism Under Scrutiny

Comcast v. Behrend is the latest opinion issued by the U.S. Supreme Court interpreting and applying the procedural rules governing class actions set out in Federal Rule Civil Procedure 23. Writing for a 5-4 majority, Justice Antonin Scalia tags the class action mechanism as an ''exception to the usual rule that litigation is conducted by and on behalf of the individual named parties,'' which should only be utilized when circumstances clearly warrant its application.1

Rule 23 governs class actions in federal court. In order to obtain certification of a class under Rule 23, a plaintiff has to demonstrate that all of the factors enumerated in Rule 23(a) are satisfied (e.g., numerosity) and also meet at least one of the criterion identified in Rule 23(b) (e.g., that common issues of fact and law predominate).2

In Behrend, the Court expressly stated that the ''rigorous analysis'' that must be undertaken by a trial court to determine whether plaintiffs have met the Rule 23(a) factors also applies to the Rule 23(b) prerequisites. Further, the Court held the predominance criterion set forth in Rule 23(b)(3) includes the question of whether damages are capable of measurement on a classwide basis. If they are not, the ''adventuresome innovation'' of Rule 23(b)(3) is not available to plaintiffs, and a class may not be certified on that basis.3

II. Do Merits Matter For Purposes Of Rule 23(b)(3)?

The plaintiffs in Behrend sought class treatment of claims grounded in antitrust. Plaintiffs' proposed class included more than 2 million current and former Comcast subscribers, and plaintiffs sought certification under Rule 23(b)(3). In determining whether to certify the class, the trial court addressed whether any of plaintiffs' four theories of antitrust impact were viable such that damages were measurable on a classwide basis.4 Ultimately, although the trial court rejected three of the four theories put forth by plaintiffs, it certified a class based on the theory that Comcast's actions purportedly lessened competition from so-called ''overbuilders,'' companies that build competing networks in areas where an incumbent cable company already operates.

The trial court then determined that the damages suffered by the proposed class as a result of overbuilder deterrence could be determined on a classwide basis.5 In support of this finding, the trial court relied on the damages model prepared by Plaintiffs' expert that compared actual cable prices in the Philadelphia market area with hypothetical prices that purportedly would have prevailed but for petitioners' allegedly anticompetitive activities. This model, however, did not identify the damages that were separately attributable to each of respondents' four theories of antitrust impact. Rather, it identified the alleged ''damages'' that the class had purportedly suffered based on all four theories taken together, including the three that had been rejected by the trial court.6

A divided panel of the Third Circuit affirmed.7 Before the Third Circuit, Comcast argued that the trial court had improperly certified the class because plaintiffs' damages model, among other shortcomings, failed to identify damages resulting solely from overbuilder deterrence — the only theory of injury the trial court considered viable. The Third Circuit refused to consider Comcast's argument on this point, however, because doing so, the appellate court reasoned, would have required an improper evaluation of the merits of plaintiffs' damages theory at the class certification stage.8 To meet their burden under Rule 23, the Third Circuit held that plaintiffs need only establish that, assuming they can prove antitrust impact, the resulting damages are theoretically capable of classwide measurement. The appellate court then concluded that plaintiffs met this burden because their model calculated ''supra-competitive prices regardless of the type of anticompetitive conduct'' (which, as noted, included the overbuilder deterrence theory as well as other theories that had been rejected).9

III. The Supreme Court Answers: Merits Do Matter

The Supreme Court reversed, finding that plaintiffs failed to meet their burden under Rule 23(b)(3) that ''questions of law or fact common to class members predominate over any questions affecting only individual members.''10 Noting that a district court's Rule 23 analysis must necessarily in many cases ''overlap with the merits of the plaintiff's underlying claim,'' the Court concluded that the trial court (and appellate court) applied an improper legal standard when they failed to consider the ''merits'' of plaintiffs' flawed damages model. Moreover, when the Court undertook its own analysis of plaintiffs' damages model, it determined that the model fell ''far short of establishing that damages are capable of measurement on a classwide basis,'' thus precluding class certification.11

As the Court explained, plaintiffs' damages model failed to measure damages attributable solely to the impact of overbuilder deterrence. Thus, the model ''[could] not possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).''12 Indeed, the Court observed that the ''first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.''13 Because both the trial and appellate court simply ''ignored'' this first step entirely, and plaintiffs demonstrably failed to meet their burden under the correct standard, the Court held that a class could not be certified under Rule 23(b)(3).14

IV. Behrend's Aftermath: Whirlpool v. Glazer

Subsequently, and in light of its decision in Behrend, on April 1, 2013, the Supreme Court summarily vacated and remanded the Sixth Circuit's decision in Glazer v. Whirlpool for further consideration.15 In Glazer, Ohio purchasers of certain Whirlpool washing machines brought claims for breach of warranty, negligent design and negligent failure to warn under Ohio law. Plaintiffs claimed that the design of the washing machines contributed to residue buildup resulting in ''rapid fungal and bacterial growth.''16 Whirlpool objected to class certification, including on grounds that ''the vast majority'' of the members of the proposed class (some 97 percent) had not actually had the problem of which plaintiffs complained. The trial court certified a class over Whirlpool's objection, and Whirlpool appealed, reasserting its argument that a class could not be certified where so few class members had actually been injured by the alleged wrongdoing.17

The Sixth Circuit affirmed the decision of the trial court, rejecting Whirlpool's argument that the lack of injury to nearly all class members precluded certification under Rule 23(b)(3). To the contrary, the appellate court found that ''[e]ven if some class members have not been injured by the challenged practice, a class may nevertheless be appropriate.''18 In so holding, the Sixth Circuit approved a proceeding under which vast numbers of members of the proposed class would be eligible to recover ''damages'' despite having no legally-cognizable injury.

V. The Viability Of Wolin-Type Reasoning In Light Of Behrend

Glazer, however, is not an outlier. Rather, it is progeny of a line of cases where courts simply have taken at face value the damages and liability theories as pled in the complaint without subjecting them to ''rigorous analysis'' to determine whether and how they plausibly satisfy Rule 23(b)(3). For example, one of the principal cases the Glazer court relied upon is Wolin v. Jaguar LandRover.19 Glazer cited Wolin to support the notion that the named plaintiffs in Glazer satisfied the Rule 23 prerequisites by pleading a theoretical common injury (i.e., that proposed class members paid a ''premium'' for the washing machines as designed) even though most of the members of their proposed class in fact had never suffered injury (and thus presumably got what they paid for).

Like Glazer, Wolin is difficult to square with Behrend. In Wolin, a car manufacturer successfully argued before a district court that class certification under Rule 23(b)(3) was inappropriate because the named plaintiffs failed to introduce any evidence that a so-called ''alignment geometry defect'' alleged to cause premature tire wear manifested in the vehicles of the members of plaintiffs' proposed class.20 The district court denied Plaintiffs' motion for class certification, and Plaintiffs appealed. The Ninth Circuit reversed and directed a Rule 23(b)(3) class be certified, reasoning that ''proof of the manifestation of the defect is not a prerequisite to class certification.''21 Not only did the Wolin court certify a Rule 23(b)(3) class without requiring Plaintiffs to provide any evidence of legally-cognizable harm on a classwide basis, it failed to address how liability and damages could possibly be calculated by reference to common proofs given the admittedly numerous causes of tire wear, the lack of proof in the record as to the existence of a classwide ''defect,'' and the myriad factors that impact vehicle value.22

VI. Analysis Of Liability And Damages In Rule 23(b)(3) Class Actions Post-Behrend

As Glazer now has been vacated and remanded, the Sixth Circuit has the opportunity to review its opinion through the lens of Behrend. Although it is unclear how the Sixth Circuit will come out after reconsideration, the reasoning underpinning the analysis in Behrend clearly is in tension with the Sixth Circuit's holding in Glazer (and, for that matter, the Ninth Circuit's holding in Wolin). Behrend teaches that courts must engage in a ''rigorous analysis'' with respect to both Rule 23(a) factors and Rule 23(b) prerequisites, including reaching the merits as necessary to determine whether any plausible damage theory has been put forth that satisfies the predominance criterion of Rule 23(b)(3).23 Such analysis must include identification of ''the legal theory of the harmful event'' allegedly suffered not only by plaintiff but also each member of the proposed class. Behrend further holds that in order to satisfy Rule 23(b)(3), the harm must be legally cognizable, and damages suffered by all members of the proposed class must be susceptible to common proof.24

Fair application of Behrend would appear to warrant different analysis (and, perhaps, different results) in Glazer, Wolin and other cases similarly reasoned. Indeed, where the evidence suggests that few, if any, proposed class members actually have experienced the ''injury'' alleged in the complaint, Behrend suggests that a class is not certifiable based on the ''adventuresome innovation'' of Rule 23(b)(3) unless a plaintiff can set forth a coherent legal theory of harm that both satisfies Rule 23 and can properly be applied to all proposed class members, whether or not they have actually suffered injury. Behrend gives credence to the reality that plaintiffs bear the burden of establishing all of the Rule 23 factors, including predominance, particularly as such relates to injury and damages.

Footnotes

1. Comcast v. Behrend, ___ U.S. ___, 2013 U.S. LEXIS 2544 (Mar. 27, 2013).

2. Fed. R. Civ. P. 23.

3. Comcast, ___ U.S. at ___, 2013 U.S. LEXIS 2544 at *13.

4. Behrend v. Comcast, 264 F.R.D. 150, 156 (E.D. Pa. 2010).

5. Id. at 166.

6. Id. at 191.

7. Behrend v. Comcast, 655 F.3d 182 (3d Cir. 2011).

8. Id. at 204.

9. Id. at 205.

10. Comcast, ___ U.S. at ___, 2013 U.S. LEXIS 2544 at *6.

11. Id. at *14.

12. Id. at *15.

13. Id. at *20.

14. Id.

15. Whirlpool v. Glazer, 2013 U.S. LEXIS 2695 (Apr. 1, 2013).

16. Glazer v. Whirlpool, 678 F.3d 409, 414 (6th Cir. 2012).

17. Id. at 420.

18. Id.

19. Wolin v. Jaguar Land Rover, 617 F.3d 1168 (9th Cir. 2010).

20. Id. at 1170.

21. Id. at 1173.

22. Id. at 1173-74.

23. Comcast, ___ U.S. at ___, 2013 U.S. LEXIS 2544 at *13.

24. Id. at *20. _

Previously published by MEALEY'S LITIGATION REPORT: Class Actions, Vol. 13, #4 April 19, 2013.

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