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Legal Alert: Supreme Court Fails to Clarify Standard of Evidence for Class Damages

March 29, 2013

The United States Supreme Court held Wednesday in Comcast Corporation v. Behrend that a district court may not certify a class action without first resolving whether the plaintiff class has introduced adequate evidence to show that the case is susceptible to an award of classwide damages.  Click here for the opinion.

Respondents, the named plaintiffs in an antitrust class action against Comcast, sought to certify a class of two million cable television customers allegedly harmed by the company’s business practices in the Philadelphia market. For certification purposes, the district court required the plaintiffs to show (1) that the antitrust impact of the purported violation could be proved at trial through evidence common to the class, and (2) that the damages were measurable on a classwide basis through a common methodology.  The trial court ultimately accepted only one of the plaintiffs’ four proposed theories of antitrust impact: that Comcast’s actions lessened competition from “overbuilders,” i.e., companies that build competing networks in areas where an established provider already operates.  The district court found that the damages from overbuilder deterrence could be determined on a classwide basis, based on the testimony and regression analysis performed by the plaintiffs’ expert, who compared actual prices against the hypothetical prices that would have existed but for Comcast’s allegedly anticompetitive practices.  Though the plaintiffs’ expert acknowledged that his regression analysis did not isolate damages resulting from each of the four proposed impact theories, the district court nonetheless certified the class.  A divided panel of the U.S. Court of Appeals for the Third Circuit affirmed the class certification, rejecting claims by Comcast that the plaintiffs’ expert’s model failed to attribute damages to the specific theory of overbuilder deterrence.  The Third Circuit refused to entertain Comcast’s arguments, concluding that any attack on the merits of the expert’s methodology had “no place in the class certification inquiry.”

In a 5-4 opinion authored by Justice Scalia, the Court rejected the Third Circuit’s conclusion, noting that such reasoning “flatly contradicts our cases requiring a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.”  (Slip op. at 8, citing Wal-Mart Stores v. Dukes, 131 S. Ct. 2541)  Both the district court and the Third Circuit improperly evaluated certification by deeming it unnecessary to decide whether the expert’s methodology made reasonable inferences or was instead speculative. The Court noted that, under that logic, any method of measuring damages would be acceptable at the class certification stage, regardless of how arbitrary the measurements might be, so long as the method could be applied classwide.  In the majority’s view, such a standard “would reduce Rule 23(b)(3)’s predominance requirement to a nullity.”  (Slip op. at 8)  Rather, the plaintiffs should have been required to “tie each theory of antitrust impact” to a calculation of damages.  Id.   Applying that requirement, the majority concluded that the model advanced by the plaintiffs was inadequate, and the class should not have been certified pursuant to Rule 23(b)(3) because the trial court erroneously refused to decide whether the plaintiffs’ proposed damages model could show damages on a classwide basis.   

Justices Ginsburg and Breyer, joined by Justices Sotomayor and Kagan, dissented on both procedural and substantive grounds.1   Primarily, the dissent argued that certiorari had been “improvidently granted”:  though Comcast argued that certification was improper because respondents had failed to establish the measurability of damages on a classwide basis, the real question presented centered on the admissibility of plaintiffs’ expert testimony.2    (Ginsburg, J. and Breyer, J., dissenting, slip op. at 12)  Because Comcast neither objected to the expert’s damages model (under Federal Rule of Evidence 702 or Daubert) nor moved to strike the expert’s report, the dissent argued that Comcast forfeited any objection to the expert’s regression model at the certification stage.

In the dissent’s view, moreover, even if such an objection had not been waived, the plaintiffs should not have been required to show that damages attributable to a classwide injury were measurable on a classwide basis.  Rather, according to the dissent, “it remains the ‘black letter rule’ that a class may obtain certification under Rule 23(b)(3) when liability questions common to a class predominate over damages questions unique to class members,” because it “is well nigh universal” that “individual damages calculations do not preclude class certification” under Rule 23.  (Ginsburg, J. and Breyer, J., dissenting, slip op. at 15-16)

The majority in Comcast makes clear that it did not reach the question of whether the testimony offered by the plaintiffs’  expert was admissible, because “[t]he question addressed is whether certification was improper because Respondents failed to establish that damages could be measured on a classwide basis.”  (Slip op. at 5, fn. 4)  To the majority, any potential forfeit of an admissibility argument did not preclude Comcast from arguing “that the evidence failed to show that the case is susceptible to awarding damages on a classwide basis.”  Id.  In so ruling, the Court failed to clarify what level of scrutiny applies to expert testimony proffered at the class certification stage—an issue the Court originally left unresolved in Wal-Mart v. Dukes.  In Dukes, the district court had declined to address a Daubert objection to the plaintiff’s expert at the class certification stage; nonetheless, the Supreme Court in dictum expressed “doubt” that “Daubert d[oes] not apply to expert testimony at the certification stage.” 131 S.Ct. at 2554.

The Comcast opinion also fails to clarify what standard should apply at the certification stage when a court weighs competing expert testimony on whether the claims at issue are susceptible to common proof.  The Court appeared to conclude that the plaintiffs could not furnish adequate evidence of commonality of damages unless they “plausibly showed that the extent of overbuilding (absent deterrence) would have been the same in all counties.” (Slip op. at 11, fn. 6)  In so concluding, the Court passed on the opportunity to provide definitive guidance on this important issue.

Despite the additional lack of guidance from the Court on the standard for the admissibility of expert testimony at the class certification stage, the Comcast decision could be nevertheless important beyond the antitrust context, particularly in litigation where there is competing expert testimony on whether (and to what extent) the damages sought by the putative class are susceptible to common proof on a classwide basis.  

1The crux of the dissent’s substantive argument is that the district court found the expert’s model capable of measuring damages on a classwide basis, even after striking three of the four injury theories.  Because this was a factual finding about how his model worked, rather than a legal conclusion about what the model proved, the district court’s findings should not have been disturbed upon review.  (Ginsburg, J. and Breyer, J., dissenting, slip op. at 20-21)
2 Comcast sought review of the following question: “[W]hether a district court may certify a class action without resolving ‘merits arguments’ that bear on [Federal Rule of Civil Procedure] 23’s prerequisites for certification, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3).”  The dissent argued that the Court granted review of a different question: “Whether 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 classwide basis.”  (Ginsburg, J. and Breyer, J., dissenting, slip op. at 12 (emphasis in original))

If you have any questions about this Legal Alert, please feel free to contact any of the attorneys listed or the Sutherland attorney with whom you regularly work.

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