On March 27, 2013, the U.S. Supreme Court issued a long-awaited opinion in Comcast Corporation v. Behrend, 569 U.S. __ (2013) and further defined the principal requirements for class certification. The Court, in a 5-4 decision written by Justice Scalia, held the class was improperly certified, reversing the decisions of the lower courts.
Respondents were more than 2 million current and former Comcast subscribers who filed an antitrust lawsuit alleging that Comcast was “clustering” cable services to concentrated regions which the parties referred to as the Philadelphia “Designated Market Area” (“DMA”). Respondents claimed Comcast’s used these “clusters” to monopolize the market and harmed subscribers by eliminating competition and holding prices for cable services above competitive levels.
Respondents offered four theories to establish “antitrust impact” under Rule 23(b)(3). The District Court accepted one theory – “the overbuilder” theory as capable of class wide proof.1 The District Court limited Respondents’ proof of “antitrust impact” and found that damages based on this theory could be calculated on a class-wide basis. In support of the class certification, Respondents relied solely on one expert who created a “regression model” that compared actual cable prices with hypothetical prices charged in a competitive market. The District Court certified the class.
The Third Circuit Court of Appeals affirmed the lower court, stating that “an attack on the merits of methodology [had] no place in the class certification inquiry.” The court further found that at class certification stage, Respondents were not required to “tie each theory of antitrust impact to an exact calculation of damages.”
In reversing the grant of class certification, the majority Court reasoned that this case turned on a straightforward application of class-certification principles. The Court found that in fulfilling the requirements of Rule 23(b)(3) it is necessary for the trial court to “probe behind the pleadings” and only after “a rigorous analysis” determine if the prerequisites of Rule 23(b)(3) are satisfied. The Court noted that the same analytical principals that govern Rule 23(a) govern Rule 23(b). The Court found that the trial court improperly certified the class under Rule 23(b)(3) because it refused to allow arguments against Respondents’ damages model simply because those arguments would be relevant to the merits. The Court affirmed that a damage model must measure only those damages attributable to that theory, and although calculations do not need to be exact at the certification stage, the model must be consistent with plaintiff’s liability assertions.
The Court found that both the District Court and Court of Appeals erroneously failed to require Respondents to tie each theory of antitrust impact to a calculation of damages because the courts reasoned “it would involve consideration of the merits.”
The dissent was led by Justices Ginsburg and Breyer who asserted that the case came before the Court “infected” because the initial issue presented was reformed by the Court, and therefore focused the Court’s inquiry away from the District Court’s Rule 23(b)(3) analysis and toward the admissibility of expert testimony under Federal Rule of Evidence 702. The dissent also criticized the majority for “gerrymandering the question presented to shift the focus to the admissibility of the expert opinion when that question was not preserved.” The dissent asserted that the majority opinion “breaks no new ground” on class certification issues.
Most viewers watching the Supreme Court were hoping that the Court would resolve the Circuit split on whether courts must decide Daubert challenges to expert testimony at the class certification stage. The Court, however, never reached this issue. Rather, the Court resolved the case on “predominance” grounds, holding that the Respondents’ expert methodology for calculating damages “fell short” of the liability theory certified to support a finding that proof of damages could be determined on a class-wide basis. Although the opinion may have disappointed some, the opinion did confirm the requirement that Plaintiffs seeking class certification must have defined methodology to prove class damages.
1 This theory alleged Comcast’s activities reduced the level of competition from “overbuilders” – companies that build competing cable networks in areas where an incumbent cable company already operates.