Co-Authored By: Dustin M. Dow

In the latest class action case before the U.S. Supreme Court, a majority of the Court extended the Wal-Mart v. Dukes analysis to damages and held:  proposed damages must be measurable on a classwide basis.

The Justices waged yet another class action philosophical battle on Wednesday when the Court issued its opinion in Comcast Corp. v. Behrend, No. 11-864, 569 U.S. __ (2013).  The majority opinion, authored by Justice Antonin Scalia, created a new analytical model by which class action plaintiffs must adhere.  At the same time, Justice Scalia created for class action defendants a potentially valuable tool to combat against class certification efforts.  The opinion commanded a slim 5-4 majority and prompted an aggressive dissent from Justices Ruth Bader Ginsburg and Stephen Breyer who attempted to minimize the impact of Justice Scalia’s opinion, arguing it was limited to merely the underlying antitrust case.

The thrust of Justice Scalia’s opinion, however, was clear: an action cannot be certified under Rule 23(b)(3) for class treatment when it is evident that “individual damage calculations will inevitably overwhelm questions common to the class.”  In Comcast, plaintiffs fell “far short of establishing that damages are capable of measurement on a classwide basis.”  What’s more, Justice Scalia held, a district court may consider as much of the merits of a claim as necessary to determine whether a putative class of plaintiff’s meets the certification requirements of Rule 23. “Repeatedly,” he wrote, “we have emphasized that it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.”

Although Justice Scalia labeled his opinion as a “straightforward application of class-certification principles,” it nevertheless raised the bar for certification of class actions.  Before Comcast, several Court decisions, including Wal-Mart v. Dukes, held that class certification pursuant to Rule 23(b)(3) could only occur if common questions of fact or law were applicable to the class from a liability standpoint.  Whereas Dukes is widely viewed as a business-friendly decision for its strict common “question of law or fact” requirement with respect to class liability, Comcast takes Dukes a step further by applying that same commonality test to classwide damages.  As the dissenting Justices pointed out, until Comcast, “individual damages calculations [did] not preclude class certification under Rule 23(b)(3).”  Indeed, Justices Ginsburg and Breyer tried to limit the Comcast majority’s influence by writing “the decision 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.”

Yet, the dissent’s attempt to restrain the opinion’s influence is difficult to square with what the majority opinion actually says.  In applying what Justice Scalia termed “the proper standard for evaluating certification,” he reversed a Third Circuit decision certifying an antitrust class where damages were “not capable of measurement on a classwide basis.”

The facts of Comcast illustrate how the case may alter the contours of class certification.  Comcast plaintiffs were Philadelphia area cable subscribers who alleged that cable operator Comcast violated federal antitrust laws by illegally obtaining a monopoly over the Philadelphia market.  And as Justices Ginsburg and Breyer noted, the plaintiffs had no trouble showing that potential liability could be measured on a classwide basis because Comcast, with more than 60 percent of the Philadelphia market share, had “power to raise prices significantly above the competitive levels.”  As to damages, the plaintiff proffered expert analysis purportedly showing general damages throughout the Philadelphia area because of the alleged anticompetitive behavior but untethered to a particular theory of anti-trust impact.

For the dissenting Justices, any damage model that showed class members generally would suffer because of such anticompetitive behavior by Comcast was sufficient to certify a class.  Justices Ginsburg and Breyer asserted that only liability need be measured on a classwide basis.  But for the majority, the plaintiffs’ damages model was not sufficient because—even though liability could be measured classwide—the model revealed that it could not measure classwide damages for the type of injury involved.  In fact, the majority expressly disagreed with the Third Circuit’s conclusion that the damages model would “not require labyrinthine individual calculations.”  And so because common questions as to both liability and damages could not be shown to predominate over individual questions, the Court reversed the Third Circuit’s certification grant.

Notably, the majority did not explicitly address whether a district court must conduct a Daubert evidentiary analysis when considering a motion to certify a class.  Both sides had briefed and presented oral arguments on whether a Daubert analysis, which examines whether expert evidence is admissible, should be required for certification.  In addition, BakerHostetler attorneys filed an amicus brief on behalf of the Cato Institute, arguing that Daubert analyses are necessary prior to certification.  The brief also asserted that the Court should enforce the basic commonality requirement of Rule 23.    The majority sidestepped dealing with Daubert head-on by concluding that the plaintiffs’ damages measurement could not comport with Rule 23 requirements. 

One implication of the majority opinion may be that a Daubert-like analysis should be used at the class certification stage if an expert opines on whether the type of damages proposed can be measured classwide.  In Comcast, application of the damages model classwide depended on whether the model could apply to the underlying theory of the case.  So the Court had to examine the plaintiffs’ damages model to gauge its relevance to the merits of the type of injury alleged.  Ultimately, the Court concluded that the damages model could not apply to the underlying theory of the case, and therefore was not capable of classwide application, leaving it short of meeting Rule 23’s common question predominance requirement.

The dissenting consistency opinion seized on the majority’s factual interpretations regarding the damages model, accusing it of “[i]ncautiously entering the fray” and thereby articulating “a profoundly mistaken view of antitrust law.”  By focusing on the larger standards of Rule 23(b)(3), however, Justice Scalia’s majority opinion discounted any limited application to antitrust law and instead laid down broad coverage for Rule 23 requirements. Analysis of the facts supporting the damages model was necessary, Justice Scalia wrote, because plaintiffs had to show that the model could be applied to measure damages on a classwide basis.  And Comcast, although it arguably forfeited the right to argue admissibility of the evidence by failing to object to the district court, did not forfeit its right to argue that the damages model “failed to show that the case is susceptible to awarding damages on a class-wide basis.”

Bottom Line:

The Comcast ruling sheds new light on plaintiffs’ burdens for meeting Rule 23(b)(3)’s requirements.  Comcast articulates a Rule 23 standard that requires a putative class to show that both liability and damages can be measured on a classwide basis and that common questions are not overwhelmed by individualized determinations.  The holding grants district courts broad authority to analyze the merits of underlying claims in determining class certification, particularly when analyzing whether a proposed measure of damages is applicable classwide.