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October Term, 2012

March 27, 2013

Today the Supreme Court issued one decision, described below, of interest to the business community.

Class Actions—Class Certification Standards

Comcast Corp. v. Behrend, No. 11-864 (previously discussed in the June 26, 2012, Docket Report)

An important and recurring issue in class actions is whether a district court must consider particular merits issues when deciding whether to certify a class under Federal Rule of Civil Procedure 23. Today, in Comcast Corp. v. Behrend, No. 11-864, the Supreme Court reversed the certification of an antitrust class action because the district court failed to conduct a “rigorous analysis” of whether the testimony of the plaintiffs’ damages expert satisfies Rule 23(b)(3)’s requirement that “questions of law or fact common to class members predominate” over individualized questions. The lower courts had concluded that they were unable to scrutinize the expert’s damages model because that would involve examining the merits of the underlying antitrust claims.

The plaintiffs in Behrend had sought to certify a class action involving federal antitrust claims against Comcast. Rule 23(b)(3), which governs class actions for money damages, requires a plaintiff to show that common questions of law or fact predominate over individualized questions. Accordingly, the plaintiffs were required to show that the “antitrust impact” of the alleged violation could be proved at trial through evidence common to the class and that the damages could be measured on a classwide basis through a “common methodology.” Although the plaintiffs presented four theories of antitrust impact, the district court accepted only one. And although the plaintiffs’ damages expert conceded that his economic model for damages did not measure damages flowing from that single theory of antitrust impact, the district court nonetheless certified the class. The Third Circuit affirmed, declining to consider Comcast’s objection to the expert’s model because doing so would require delving into the merits of the underlying claims.

The Supreme Court reversed by a 5-4 vote, holding that the plaintiffs had failed to satisfy Rule 23(b)(3)’s predominance requirement. Writing for the majority, Justice Scalia explained that the Third Circuit erred in refusing to take a “close look” at the methodology underlying the proposed classwide-damages model. As the Court explained, courts must consider challenges to class certification even if those challenges would also be pertinent to the merits. The majority noted that district courts considering whether a plaintiff has satisfied Rule 23(b)(3) must conduct a “rigorous analysis” that will frequently “overlap with the merits of the plaintiff’s underlying claim,” because determining whether common questions predominate over individualized ones “generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.” The majority then explained that because the plaintiffs’ damages model in this case failed to measure only those damages that would be attributable to the sole theory of classwide antitrust liability, the plaintiffs had failed to prove that damages could be measured on a classwide basis. Because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class,” the majority held that class certification was improper.

Justices Ginsburg and Breyer, joined by Justices Sotomayor and Kagan, dissented. They first explained that they believed that review had been improvidently granted because the Court had granted certiorari to consider a question—whether Daubert objections to expert testimony must be resolved at the class-certification stage—that in their view had not been preserved for review. The dissenting justices next expressed their view that the reach of the Court’s holding is limited because the plaintiffs had failed to argue that predominance would be satisfied even if damages could not be shown on a classwide basis. Finally, the dissenting justices explained their view that, as a matter of substantive antitrust law, the plaintiffs’ damages methodology was sufficient to support class certification.

The Behrend decision is important for any business that may be the target of class actions. Among other things, Behrend confirms that district courts must scrutinize plaintiffs’ evidentiary showing that common questions will predominate over individualized ones—including questions relating to damages—even if any challenges to that showing overlap with the merits of the underlying claims.

Any questions about this case should be directed to Archis Parasharami (+1 202 263 3328) or Kevin Ranlett (+1 202 263 3217) in our Washington office.

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