Comcast Corp. v. Behrend: The Supreme Court Reaffirms Class Certification Basics

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For an opinion that “breaks no new ground on the standard for certifying a class,” and “turns on the straightforward application of class-certification principles,” the U.S. Supreme Court’s most recent decision on class action certification, Comcast Corp. v. Behrend, 2013 LEXIS 2544 (March 27, 2013), sure struck a nerve.

A robust dissent challenged virtually every aspect of the majority decision and predicted that the “Court’s ruling is good for this day and case only.” Indeed, Comcast doesn’t so much break new ground as it emphatically insists on adherence to common ground: class plaintiffs “must affirmatively demonstrate . . . compliance” with Rule 23. Wal-Mart Stores v. Dukes, 564 U.S. ___, 131 S. Ct. 2541, ___, 180 L.Ed. 2d 374 (2011). Insistence on an evidentiary basis for compliance with the elements of Rule 23 — as well as the timing for that showing — lies at the heart of the dispute in this case. Here’s what happened.

The Case

The Comcast plaintiffs sought to certify a class under Rule 23(b)(3) alleging violations of antitrust law under Sections § 1 and 2 of the Sherman Act. According to the plaintiffs, Comcast engaged in a strategy of acquiring competitor cable providers in the Philadelphia “Designated Market Area” (DMA), which includes 16 counties located in Pennsylvania, Delaware and New Jersey. Comcast, 2013 LEXIS 2544 at *5. The plaintiffs alleged that the strategy resulted in Comcast’s acquisition of 69.5 percent of the Philadelphia DMA by 2007. Id. at **5-6.

To support their damages argument, the plaintiffs advanced four theories of antitrust impact from Comcast’s alleged activities:

• Comcast’s clustering made it profitable to withhold local sports programming from competitors, which discouraged them from entering the market;
• Comcast’s activities discouraged competition from “overbuilders” who would otherwise have built competing networks in the Philadelphia cluster;
• Comcast reduced the level of “benchmark” competition on which cable customers rely to compare prices; and
• Clustering increased Comcast’s bargaining power relative to content providers.

Id. at **7-8.

In support, the plaintiffs relied solely on expert testimony based on a regression model comparing “actual cable prices in the Philadelphia DMA with hypothetical prices that would have prevailed” absent the alleged conduct. Id. at *9. Significantly, the expert acknowledged that his regression analysis did not distinguish between the four types of antitrust theories he advanced. Id. at *17.

However, the district court permitted class certification to proceed only with respect to the second theory of antitrust impact: the “overbuilder” theory. Id. at *8 (citing Behrend v. Comcast Corp., 264 F.R.D. 150, 165, 174, 178, 181 (E.D. Pa. 2010)). Accordingly, it was at least questionable whether the expert’s conclusion that Comcast customers had suffered $875.5 million in damages was supported in whole, part or even at all by the “overbuilder” theory alone.

But neither the district court nor the Third Circuit ever addressed this critical question. Why? According to the Third Circuit, that inquiry would touch upon the merits of the case. And such an “‘attac[k] on the merits of the methodology [had] no place in the class certification inquiry.’” Id. at *10 (citing Behrend v. Comcast Corp., 655 F. 3d 182, 207 (3rd Cir. 2011)). Instead, the court said that it’s good enough if the plaintiffs can “‘assure us that if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.’” Id. (emphasis added).

The Supreme Court reversed and, just as the dissent notes, did not break “new ground” in the process. It didn’t have to.

The Majority

First, the Court said that class plaintiffs “‘must affirmatively demonstrate . . . compliance’ with Rule 23,” which means that they must “‘prove that there are in fact sufficiently numerous parties, common questions of law or fact,’” etc. Id. at **11-12 (quoting Dukes, 131 S.Ct. at 2551). This burden is even higher where the class is to be certified under Rule 23(b)(3), which requires an evidentiary showing that “questions of law or fact common to class members predominate over any questions affecting only individual members.” Id. at *12; see also Anchem Prods., Inc. v. Windsor, 521 U.S. 591, 623-24 (1997).

Then the Court emphasized, as it has “repeatedly,” that it “‘may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.’” Id. at *12. That this process may touch upon the merits of the underlying claim is to be expected, since “‘class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.’” Id. at *13 (quoting Dukes, 131 S. Ct. at 2552).

The problem, the Court said, was the lower courts’ complete abdication of this crucial role. Indeed, the Third Circuit found it unnecessary to decide “‘whether the methodology [was] a just and reasonable inference or speculative.’” Comcast, 2103 LEXIS 2544 at *15. Its refusal to explore the evidentiary basis for the expert’s opinion, as well as the crucial question whether damages could be supported by the “overbuilder” theory alone, “ran afoul of [the Supreme Court’s] precedents requiring precisely that inquiry.” Id. at *14. This was especially so since the model assumed the validity of each of the four theories of antitrust impact, yet the expert himself conceded that his model did not isolate damages to any one of his theories. “If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).” Id. at *15.

Notably, the Court was clear that such “[c]alculations need not be exact,” as long as they are “consistent with [plaintiff’s] liability case . . .” Id. But if a plaintiff’s “assurance” that its model will yield a class-wide damages measurement was enough, it “would reduce Rule 23(b)(3)’s predominance requirement to a nullity.” Id. at *16.

Because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class,” the Court reversed. This result, said Justice Scalia, is simply a “straightforward application of class-certification principles.” Id. at *14.

The Dissent

The dissent disagreed with the majority in almost every respect. They felt that the majority had strayed so far from the question originally accepted for review — which was itself rephrased by the Court — that the entire case should have been dismissed as improvidently granted. Id. at **21-22. As a result, the dissent argued that the focus shifted from the Rule 23(b)(3) analysis to the question of whether “the standards for admissibility of expert evidence” applied. Id. at *22.

Waiver of Objections to Expert Testimony

With that segue, the dissent argued that challenges to the efficacy of the damages model were waived because Comcast neither objected to the admissibility of the expert’s report under Rule 702 or Daubert, nor moved to strike the expert report. Id. at **22-23.

This procedural argument is odd. As the majority pointed out, while Comcast may have waived the right to challenge the admissibility of the expert’s testimony, it did not waive the right “to argue that the evidence failed ‘to show that the case is susceptible to awarding damages on a class-wide basis.’” Id. at *11, n.4.

In similar circumstances, other courts have permitted challenges to the relevance and sufficiency of expert testimony in the absence of Daubert challenges. A case in point is Hirsch v. CSX Transp., Inc., 656 F.3d 359 (6th Cir. 2011). (We previously discussed this case in No Harm, No Class: Damage Element Still Standing in Sixth Circuit.)

There, the court noted that even if an expert’s opinion is admissible and relevant under Daubert standards, the district court retains the discretion — indeed the obligation — to take “a close review of the expert evidence” and decide whether the evidence of damages “amounts to no more than a mere scintilla.” Id. at 362. In that case, the Sixth Circuit agreed that expert testimony that plaintiffs had “somewhere around 50% of a one in a million additional risk of developing cancer” was insufficient to support class certification. Id. at 363. The defendant’s election to challenge the sufficiency of that opinion was not waived simply because it chose not to file a motion to exclude the expert.

One takeaway from the Comcast dissent is this: defense counsel is well advised to assert a Daubert challenge to expert testimony even if the argument focuses more on the sufficiency of the evidence than its admissibility. Otherwise, the Comcast dissent creates a heightened risk that a trial court could find that such challenges have been waived.

Individualized Damages Are Okay

The dissent’s next argument is far more interesting. Justice Ginsburg wrote: Comcast “should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable ‘on a class-wide basis.’” Comcast, 2013 LEXIS 2544 at *25. According to the four dissenters, “[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh universal.” Id. at *27. Accordingly, “[i]n 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.” Id. at *28 (emphasis added). Referring to the majority decision as “infected,” “unwise” and “unfair,” Justice Ginsburg predicted that the “Court’s ruling is good for this day and case only.” Id.

But what point was the dissent trying to make? The issue before the Court was not whether liability issues predominated over damage issues. It was the absence of any evidence to support any class-wide theory of damages at all. Is the dissent suggesting that a class can be certified without ever considering whether damages may be resolved on a class-wide basis? Because that’s exactly what the Third Circuit did, and the dissent said it “would not disturb” that judgment. Id. at *38.

Can’t We All Just Get Along?

What is really odd about Comcast is that the majority and the dissent are almost talking past each other. To be sure, there is a distinction between permitting class certification where there are individualized damages issues, on the one hand, and certifying a class without considering whether there is evidence to support class-wide damages — no matter how individualized — on the other hand.

But there is more common ground between the justices than the opinions suggest. First, Comcast should be the easy case. The lower courts simply abdicated their responsibility to examine the evidentiary basis for the damage modeling for the wrong reason — that it would touch upon the merits of the underlying claims. Both the majority and the dissent agree that was wrong. Courts must examine each element of Rule 23 even if it touches on the merits of the case.

Moreover, there is a distinction between a common “injury” and common “damages.” At the heart of the plaintiff’s expert theory was the question of whether there was any evidentiary support to show common causation. By offering four distinct theories of liability with only one damage calculation, it was all but impossible to discern whether the “overbuilder” theory alone could have caused all of the damages the plaintiff was asserting.

Even more important, it was impossible to determine whether each class member was injured because of the “overbuilders,” or because of one of the other theories. Even the dissent would agree that “[c]ommonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’” not “merely that they have all suffered a violation of the same provision of law.” Dukes, 131 S. Ct. at 2551.

Comcast is important because it reaffirms one of the most fundamental procedural principles of class certification: courts must rigorously examine the evidentiary basis supporting each of the elements of Rule 23 — including both damages and causation — even where they may touch on the merits of the case. Whether the dissent muddies these waters on this critical point will be the big question as lower courts begin to apply this case.