WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court
today 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.; See
November 2012) (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
"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
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
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,
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