Fulbright & Jaworski L.L.P.: Supreme Court Further Refines Proof Standards For Class Certification And Ups The Ante For Antitrust Plaintiffs

On March 27, 2013, the U.S. Supreme Court issued its long-awaited opinion in Comcast Corp. v. Behrend ( subscribers may access Supreme Court briefs and the opinion for this case), addressing the quality of proof needed to satisfy Federal Rule of Civil Procedure 23's rigorous requirements for certifying a class. The federal circuit courts have taken diverse approaches as to whether and under what circumstances an expert's testimony can be used to satisfy the requirement that common issues predominate. Some have refused to consider expert challenges at the certification stage, others have permitted such challenges, while still others have required the district court to resolve any battles between the experts before deciding the certification question. Although the Court's initial framing of the issue suggested that it would use Comcast to resolve the circuit split on whether courts must decide challenges to experts at the class certification stage, the majority opinion never got that far. Instead, it resolved the case based on predominance grounds, holding that the expert's methodology for calculating damages was too far removed from the liability theory certified to support a finding that proof of damages could be determined on a classwide basis. In doing so, it has confirmed that plaintiffs must come forward with a specifically tailored (and presumably reliable) methodology to prove class damages to win a Rule 23(b)(3) certification. The Comcast decision relies heavily on the watershed decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) [an enhanced version of this opinion is available to subscribers], and continues the Court's recent trend toward reining in class actions. The decision also provides a roadmap for challenging class certification in antitrust cases, which some courts had previously treated as a foregone conclusion.

The putative class brought antitrust claims based on Comcast's alleged strategy of "clustering" cable television services to concentrate operations in the Philadelphia area, which they claimed harmed subscribers by keeping prices for cable service above competitive levels. The plaintiffs urged four factual theories to show antitrust impact, i.e., that the alleged anticompetitive conduct in fact injured each of the members of the proposed class, but the district court found that only one could be certified for class treatment. That theory was based on allegations that Comcast reduced competition from "overbuilders"-defined as "companies that build competing cable networks in areas where an incumbent cable company already operates." The district court found that, as to the plaintiffs' overbuilder-deterrence theory, both impact and damages could be determined based on proof common to the class. Consequently, it certified the class for purposes of that theory only under Federal Rule of Civil Procedure 23(b)(3), finding that the claim as limited satisfied all of the requirements of the class action rule.

The plaintiffs relied exclusively on their expert, Dr. James McClave, to substantiate their claim of class-wide damages. Dr. McClave created a regression model to determine the difference between the actual prices in the area and the "hypothetical prices" that would have been charged in a competitive market, absent all of the alleged anticompetitive conduct. The model thus measured the damages attributable to the purportedly anticompetitive impact in the aggregate and did not segregate the damages based on the single overbuilder-deterrence theory that was certified.

The Court of Appeals for the Third Circuit affirmed, ruling that challenges to the expert's methodology should be reserved for the merits and not addressed in the context of the class certification decision. In its view, at the time of certification, the proponents of the class did not have to "tie each theory of antitrust impact to an exact calculation of damages." Behrend v. Comcast Corp., 655 F.3d 182, 206 (3d Cir. 2011) [enhanced version]. Instead, the named plaintiffs need only provide assurance that the number could be calculated on a class-wide basis, which burden the court held was satisfied by the expert's proof that a damages model could be created to calculate the class-wide impact as a whole.

The Supreme Court, with Justice Scalia writing for the majority, reversed in a 5-4 decision, holding that the class was improperly certified. First, it concluded that the procedure for certification was infected by the district court's improper "refus[al] to entertain arguments against [plaintiffs'] damages model that bore on the propriety of class certification simply because those arguments would be pertinent to the merits determination . . . " The Court held the regression model "falls far short" of substantiating class-wide proof of damages because it was not consistent with the class's liability theory. Although the "[c]alculations need not be exact" for purposes of class certification, the methodology had to be consistent with their liability claim. It criticized the appellate court's refusal to consider the challenge to the expert's methodology as being speculative or disconnected from the liability theory because "[u]nder that logic, at the class certification stage, any method of measurement is acceptable so long as it can be applied class-wide, no matter how arbitrary the measurements may be. Such a proposition would reduce Rule 23(b)(3)'s predominance requirement to a nullity." Because the only methodology offered to satisfy Rule 23(b)(3)'s predominance requirement was inadequate, the plaintiffs failed to meet their burden to obtain class certification.

The Court's reasoning has important implications for antitrust cases as well. It no longer appears sufficient (if it ever was) for an antitrust plaintiff pursuing a class action to take a shortcut in proving damages by attributing damages to a monopolization defendant's increased market share, which allegedly resulted from anticompetitive conduct. This approach, advocated by the dissenting justices, was firmly rejected by the majority, which concluded it was an "unremarkable premise" that the plaintiff must account for only those damages stemming from the "theory of antitrust impact accepted for class-action treatment." Thus, a damages analysis in an antitrust class action that is based on a comparison to a theoretically competitive market should never be sufficient to meet the predominance requirement, unless the plaintiff has established that each and every theory of anticompetitive harm can be shown to have had a class-wide impact. As the Court explained, "[p]rices whose level above what an expert deems 'competitive' has been caused by factors unrelated to an accepted theory of antitrust harm are not 'anticompetitive' in any sense relevant here." As a result, the Court's decision provides defendants with enhanced means of challenging class certification in antitrust cases, retreating from the dicta in prior cases that "[p]redominance is a test readily met" in the antitrust context.

The Court did not directly answer the question of whether Daubert [enhanced version] challenges to experts are appropriate at the class certification stage-perhaps because Comcast had not objected to the expert's damages model on Daubert grounds in the courts below. But the conclusion that the regression study was insufficient to establish predominance is resonant with the "analytical gap" principle from General Electric Co. v. Joiner, 522 U.S. 136, 144-46 (1997) [enhanced version] ("A court may conclude that there is simply too great an analytical gap between the data and the opinion proffered."). And the majority pointedly quoted the Federal Judicial Center's Reference Manual on Scientific Evidence in stating that "'[t]he 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.'"

The dissent, authored by Justices Ginsburg and Breyer, accused the majority of gerrymandering the question presented to shift the focus to the admissibility of the expert opinion when that question was not preserved and then "[a]bandoning the question we instructed the parties to brief . . . ." As a result, the dissent believed that by answering a different "complex and fact-intensive question without the benefit of full briefing, the Court invites the error into which it has fallen." The dissent also asserted that the majority's decision "breaks no new ground" on the class certification issues, which appears to be a signal that the dissenters will attempt to limit the decision to its facts in future cases. In this regard, the dissent charged that the majority "sets forth a profoundly mistaken view of antitrust law" and misstated the facts. But it is of course the majority's holding that will govern such cases going forward.

The Comcast decision should help further define the roles of experts and standards of proof at the class certification hearing. The explicit message is that expert opinions will be scrutinized at the class certification stage if their opinions bear on whether proof of liability or damages can be established on a class-wide basis. The implicit message is that Daubert challenges should be made to experts testifying in connection with class certification if their methodology is unreliable or there is too great an analytical gap between their opinions and the liability theory to be certified. And the opinion sets the stage of the next important question, namely whether the district court must resolve any conflict between plaintiffs' and defense experts in determining whether to certify a class.

 This article was prepared by Marcy Hogan Greer ( or 512 536 4581), Darryl Anderson ( or 713 651 5562), Layne Kruse ( or 713 651 5194), Daniel McClure ( or 713 651 5159) and Anne Rodgers ( or 713 651 3797) from Fulbright's Class Actions and Antitrust Practices.

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