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U.S. Supreme Court Tightens Requirement for Proof of Class-Wide Damages as a Condition to Class Action Certification (Comcast v. Behrend)

 by Robert N. Rapp and Matthew J. Kucharson


In a 5-4 decision rendered on March 27, 2013, in Comcast Corp. v. Behrend, 2013 U.S. LEXIS 2544 [an enhanced version of this opinion is available to subscribers], the United States Supreme Court restricted the ability of individuals to proceed with class actions without sufficiently showing at the outset that damages ultimately sought to be recovered in the action can be measured on a class-wide basis. The Supreme Court held that lower courts improperly determined that a class action could proceed, that is, improperly "certified" it as a class action, on the basis of an expert econometric model presented by the proposed class representatives that failed to measure alleged damages attributable to the specific theory of liability on which they were proceeding, and failed to establish that damages attributable to that theory were susceptible of measurement across the entire identified class. Lower courts had refused to consider shortcomings of the model because to do so would have, in their view, impermissibly required reaching a determination on the merits of the class plaintiffs' claims at the preliminary class certification stage, as opposed to at trial. The Supreme Court, however, rejected this concern and declared that courts must assess the validity of a damages model without regard to the fact that doing so requires inquiry into the merits of a claim.

The decision in Comcast raises the bar for plaintiffs in meeting requirements for proceeding with a class action by making plain not only the meaningful burden that plaintiffs present evidentiary proof of commonality and the predominance of damages on a class-wide basis, but also that the validity of the evidence itself be open to attack without regard to the fact that the evidence is also pertinent to an ultimate determination of the merits of claims.

A Key Class Action Requirement

Class actions in federal courts must be "certified" as such before proceeding, and in that process, proposed class representatives must affirmatively demonstrate compliance with several requirements imposed by procedural rules. These include a showing that questions of law or fact involved in the case are common to members of the identified class of persons, and that those common issues predominate over questions affecting only individual members. Historically this has meant that proposed class representatives must present evidentiary proof at the class certification stage of a case that the commonality and predominance requirements (along with others) are satisfied. That said, federal courts have not delved significantly into the merits of an underlying claim at this stage, instead looking only to the merits to the extent necessary to determine that procedural requirements for class action status are met.

There is no clear line of demarcation between what is or is not an appropriate consideration of the merits of a case in the class certification process. However, federal courts, with guidance of the Supreme Court, recognize that frequently there will be some overlap with the merits of an underlying claim in making the necessary class action status determinations as courts look, for example, to determine whether common questions predominate over individual ones. Arguments and evidence that bear on the propriety of certifying a case as a class action will to some degree be pertinent to the eventual merits determination in the case. As discussed below, in Comcast the issue was brought into sharp focus as lower federal courts rejected the argument that in the class certification process a court should examine the merits of the methodology for determining alleged class-wide damages sought to be recovered in the case. Under this view, whether a methodology for determining damages is ultimately valid or invalid is not a matter for consideration in deciding whether a case should proceed as a class action.

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Robert N. Rapp is a partner in the Capital Markets Regulatory, Enforcement and Litigation practice at Calfee, Halter & Griswold LLP, Cleveland, Ohio. His contributions to legal scholarship include numerous published articles addressing securities and financial market regulatory topics, many of which have been cited by state and federal courts, including the United States Supreme Court. He has served on the adjunct faculty of the Case Western Reserve University School of Law, and as Distinguished Practitioner in Residence at the Cornell Law School. Mr. Rapp is a former member of the NASD Legal Advisory Board, and is currently a public member of the Market Operations Review Committee of the Nasdaq Stock Market. He has twice served as Public Chair of the Enforcement Advisory Committee of the Ohio Department of Commerce, Division of Securities. A graduate of Case Western Reserve University (B.A., 1969) and the Case Western Reserve University School of Law (J.D., 1972), Mr. Rapp also holds a Masters of Business Administration from the Cleveland State University School of Business (1989). Mr Rapp authors Matthew Bender's Blue Sky Regulation and is a contributing author to Federal Securities Act of 1933.

Matthew J. Kucharson is a member of the Litigation Practice and focuses on business, corporate and commercial litigation, securities litigation, public law litigation, and white collar defense and investigations. He assists publicly-traded and privately-held companies in a wide range of business and securities-related disputes, and governmental bodies in disputes involving issues of public and municipal law.