A critical and recurring issue in class-action litigation is the degree to which a district court must consider merits issues when deciding whether to certify a class under Rule 23 of the Federal Rules of Civil Procedure. Although in the past some courts had viewed merits questions as wholly separate from the question of class certification, the Supreme Court recently explained in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011),that the certification inquiry “[f]requently . . . will entail some overlap with the merits of the plaintiff’s underlying claim.”
On June 26, 2012, the Supreme Court granted certiorari in Comcast Corp. v. Behrend, No. 11-864, to decide “[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” Depending on how the Court answers that question, its decision may have a substantial impact on a wide variety of class-action lawsuits.
The plaintiffs in Comcast alleged that the cable company violated the Sherman Act by engaging in “clustering”—a strategy of concentrating its operations in specific geographic areas while giving up other, more scattered operations. According to the plaintiffs, Comcast’s clustering strategy deterred potential competitors who could have built new cable networks in areas already served by Comcast. The district court certified a class of over two million Comcast customers in the Philadelphia area. The court concluded that antitrust impact—an essential element of plaintiffs’ claims—could be proved at trial through evidence common to the class. In addition, the court ruled that a damages model proposed by the plaintiffs’ expert constituted sufficient evidence to calculate damages on a class-wide basis.
A divided panel of the Third Circuit affirmed. After concluding that proof of liability could take place on a class-wide basis, the majority held that the plaintiffs—through their expert’s damages model—had done enough to show that damages could be calculated on a class-wide basis. In the majority’s view, it was unnecessary to determine at the class-certification stage “whether the methodology is a just and reasonable inference or speculative.” Instead, the majority stated, “[a]t the class certification stage we do not require that Plaintiffs tie each theory of antitrust impact to an exact calculation of damages, but instead that they assure us that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.” Because, according to the majority, “attacks on the merits of the methodology . . . have no place in the class certification inquiry,” it was proper for plaintiffs to proceed on behalf of a class.
Judge Jordan dissented. While agreeing that the district court had not abused its discretion in deciding that questions of antitrust impact could be proved on a class-wide basis, he would have held that “damages cannot be proven using evidence common to th[e] entire class.” First, Judge Jordan explained that—applying the admissibility principles of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)—the methodology proposed by the plaintiffs’ expert failed to fit with “[p]laintiffs’ sole theory of antitrust impact” and therefore would result in an unreliable damages calculation. Second, Judge Jordan believed that, even if the damages model could be revised to account for the plaintiffs’ theory, there “remains an intractable problem with any model purporting to calculate damages for all class members collectively,” which is that “no model can calculate class-wide damages because any damages—such as they may be—are not distributed on anything like a similar basis” throughout the Philadelphia market area encompassing the class. As Judge Jordan colorfully put it, “to say that Comcast’s ‘but for’ share of the market throughout the Philadelphia [region] would be, on average, 40% is about as meaningful as saying that ‘with one foot on fire and the other on ice, I am, on average, comfortable.’”
In its petition for certiorari, Comcast had sought review of the broader question whether—both as to liability and as to damages—the district court was obligated to resolve merits issues in connection with the certification decision. In granting certiorari, the Supreme Court recast the question presented to address the issue of damages alone. Although narrower than the original question presented, the issue is of extraordinary importance to businesses defending themselves against class actions of all stripes. Especially at the class-certification stage, plaintiffs often make use of expert testimony in an effort to assure courts that damages calculations can readily be done on a class-wide basis. At least some courts have accepted those assurances, deferring the resolution of whether such damages models are in fact viable to the date of trial—a date that may never come, given the settlement pressures created by the class-certification decision itself.
For any business that faces class action lawsuits, Comcast is a case worth watching.