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By Joan Grossman
WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on March 27 ruled 5-4 that a district court may not certify a class action under Federal Rule of Civil Procedure 23(b)(3) without resolving whether the class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis (Comcast Corporation, et al. v. Caroline Behrend, et al., No. 11-864, U.S. Sup.) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
The majority ruled that the Third Circuit U.S. Court of Appeals erred in affirming the certification of a class of more than 2 million nonbasic cable television customers in the Philadelphia market on claims that Comcast Corp. entered into unlawful swap agreements with its competitors in violation of Section 1 of the Sherman Act and monopolized or attempted to monopolize services in the Philadelphia market in violation of Section 2 of the Sherman Act.
"By refusing to entertain arguments against respondents' damages model that bore on the propriety of class certification, simply because those arguments would also be pertinent to the merits determination, the Court of Appeals ran afoul of our precedents requiring precisely that inquiry," Justice Antonin Scalia wrote for the majority.
Moreover, "it is clear that, under the proper standard for evaluating certification, respondents' model falls far short of establishing that damages are capable of measurement on a classwide basis," and, therefore, the customers failed to show Rule 23(b)(3) predominance.
Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas and Samuel Anthony Alito joined in the majority. Justices Ruth Bader Ginsburg and Stephen G. Breyer filed a dissenting opinion, in which Justices Sonia Sotomayor and Elena Kagan joined.
The U.S. District Court for the Eastern District of Pennsylvania certified a class under Federal Rule of Civil Procedure 23(b)(3) of all cable television customers who subscribe or subscribed at any time since Dec. 1, 1999, to video program services, other than solely basic cable services, from Comcast or any of its affiliates in the company's Philadelphia designated market area (DMA). The DMA is defined as all customers in Philadelphia and geographically contiguous areas representing the 16-county Philadelphia metropolitan area.
According to the customers, Comcast conspired with other cable providers to carve up the nation into separate markets so that cable providers would have the markets exclusively. The customers claimed that Comcast and its competitors struck deals whereby competitors agreed to exchange assets so that companies would be able to maintain exclusivity over clusters of markets. The customers relied on the testimony of Dr. James McClave to establish damages.
The customers proposed four theories of antitrust impact. The District Court accepted the "overbuilder" theory that Comcast's activities reduced the level of competition from companies that build competing cable networks in areas where an incumbent cable company already operates. The District Court also found that the damages resulting from overbuilder-deterrence impact could be calculated on a classwide basis, even though McClave acknowledged that his regression model did not isolate damages resulting from any one theory of antitrust impact.
A divided panel of the Third Circuit affirmed, refusing to consider Comcast's argument that the class was improperly certified because the model for calculating damages failed to attribute damages resulting from overbuilder deterrence, the only theory of injury that remained in the case.
The Third Circuit majority commented that "[a]t the class certification stage," the customers were not required to "tie each theory of antitrust impact to an exact calculation of damages." "Instead, we inquire whether the District Court exceeded its discretion by finding thatPlaintiffs had demonstrated by a preponderance of the evidence that they could prove antitrust impact through common evidence at trial."
The Third Circuit majority concluded that the customers met their burden because McClave's model calculated "supra-competitive prices regardless of the type of anticompetitive conduct."
1 Valid Theory
In reversing, the Supreme Court majority said the Third Circuit's reasoning contradicts Wal-Mart Stores, Inc. v. Dukes, 2011 U.S. LEXIS 4567, 564 U.S. ___ (2011) [an enhanced version of this opinion is available to lexis.com subscribers], which requires "a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim."
The Third Circuit's logic "would reduce Rule 23(b)(3)'s predominance requirement to a nullity," the majority said.
The majority found fatal that the expert calculated damages assuming the validity of all four theories of antitrust impact that were initially advanced by the customers, rather than resulting from reduced overbuilder competition only.
"In light of the model's inability to bridge the differences between supra-competitive prices in general and supra-competitive prices attributable to the deterrence of overbuilding, Rule 23(b)(3) cannot authorize treating subscribers within the Philadelphia cluster as members of a single class," the majority ruled.
The dissenting justices would have dismissed the writ of certiorari as improvidently granted. They noted that the court granted review of the question "[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" but that Comcast never preserved a claim of error in the admission of McClave's damages model.
Because the court rephrased the question to focus on predominance only after briefing was complete, the court's decision to review the merits of the certification order was "unfair to respondents," the dissenting justices said, adding that "[t]he need for focused argument is particularly strong here where, as we have said, the underlying considerations are detailed, technical, and fact-based."
Moreover, "[t]he oddity of this case" means that "[t]he Court's ruling is good for this day and case only. In the mine run of cases, it remains the 'black letter rule' that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members," they said.
Comcast is represented by Miguel Estrada, Mark A. Perry and Scott P. Martin of Gibson, Dunn & Crutcher in Washington, Sheron Korpus of Kasowitz, Benson, Torres & Friedman in New York and Darryl J. May of Ballard Spahr in Philadelphia.
The class is represented by Barry Barnett and Daniel H. Charest of Susman Godfrey in Dallas; Samuel D. Heins, Vincent J. Esades and David Woodward of Heins Mills & Olson in Minneapolis; Anthony J. Bolognese and Joshua H. Grabar of Bolognese & Associates in Philadelphia; and Joseph Goldberg of Freedman Boyd Hollander Goldberg Urias & Ward in Albuquerque, N.M.
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