Today the U.S. Supreme Court decided Comcast Corp. v. Behrend, No. 11-864 (slip opinion), which presented the question of whether a class action can be certified in federal court without admissible evidence that damages are susceptible to proof on a class-wide basis.  The Court’s answer was that, under Rule 23(b)(3)’s predominance requirement, the plaintiffs had failed to satisfy their obligation to establish that damages were susceptible to class-wide proof.  This decision appears to be a big win for defendants, substantially raising the bar for plaintiffs in class actions.  It effectively rejects lower court decisions stating that a need for individual damages calculations may not prevent a class from being certified.  What’s the downside for defendants?  The decision is likely to increase litigation costs on both sides and further complicate class certification proceedings in federal courts because of the need to focus on damages at the class certification stage.

Comcast is an antitrust case in which the plaintiffs allege that Comcast, by acquiring competitors in the greater Philadelphia area, improperly enabled itself to charge higher prices.  The district court certified the class on one theory, that Comcast deterred “overbuilders” (i.e., companies that would compete in areas where Comcast already was operating).  The plaintiffs’ expert, however, calculated damages that were not limited to the “overbuilder” theory but also took into account three other theories that were rejected by the district court for purposes of class certification.  This failure to segregate the damages calculation to the “overbuilder” theory ultimately was the death knell when the case reached the Supreme Court.  (For more detailed background on the case, see my previous blog posts about the oral argument and grant of certiorari.) 

Justice Scalia, writing for a 5-4 majority (including the Chief Justice and Justices Kennedy, Thomas and Alito), issued an 11-page opinion.  These short opinions are great because it makes it so much easier for lower courts and counsel to get through them and apply the Court’s reasoning (and for bloggers like me to get their posts out more quickly).  Here are the key points: 

• Rigorous Analysis Requirement:  The Court reiterated that a “rigorous analysis” of the class certification requirements is necessary, and that this extends to both Rule 23(a) requirements and Rule 23(b) requirements, including the requirement of predominance of common questions of law or fact where certification is sought under (b)(3).  This “will frequently entail ‘overlap with the merits of the plaintiff’s underlying claim.”  The Court described Rule 23(b)(3) as an “adventuresome innovation” designed for cases where class treatment may not be called for, and noted that the district court has a “duty to take a ‘close look’ at whether common questions predominate over individual ones.”  (Slip op. at 6.)  This largely reiterates what the Court said in Wal-Mart v. Dukes, except that the Court did not reach Rule 23(b) issues in Wal-Mart.  But lower courts have generally viewed the “rigorous analysis” requirement as applicable to Rule 23(b), including predominance. 
• Damages Requiring Class-Wide Proof:  The Court found that “respondents’ model falls far short of establishing that damages are capable of measurement on a classwide basis,” and that “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”  (Slip op. at 7.)  The Court further explained that “a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory [i.e., the theory on which the class was certified].  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.) 
• Consideration of the Merits at Class Certification:  The Court rejected the Third Circuit’s view that a more detailed calculation of damages was a merits issue not appropriate for resolution at class certification.  Justice Scalia wrote that the Third Circuit’s reasoning “flatly contradicts our cases requiring a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.”  (Id.)  This further emphasizes that lower courts must dig into the merits at class certification.  Of course, that increases the litigation cost and the time it takes to reach a decision on certification.

The dissent, authored jointly by Justices Ginsburg and Breyer, and joined by Justices Sotomayor and Kagan, argued that the Court should have dismissed certiorari as improperly granted.  When it granted certiorari, the Court had reformulated the question presented in a manner that suggested that the question presented was a Daubert question regarding whether admissibility of expert testimony was a proper consideration at the class certification stage.  In fact, Comcast had never filed a Daubert motion (but the majority concludes that the Court could still properly address whether the evidence, assuming it was admissible, satisfied Rule 23 requirements). 

The dissent also attempts at length (at pp. 3-5) to suggest that the Comcast decision is limited to the circumstances of this case, where apparently there was no dispute between the parties that the damages issue was an appropriate consideration at class certification.  The dissent suggests that the majority is not rejecting prior lower court decisions concluding that a need for individual damages calculations often does not prevent a class from being certified.  But Justice Scalia’s majority opinion says nothing of that sort, and does not suggest any agreement with the dissent on that point.  When the Court’s majority wishes to limit the scope of its decision, it typically says so expressly, and there was no such statement here.  The majority opinion appears to require that plaintiffs present, with admissible evidence, a method for proving damages on a class-wide basis.  While I’m sure plaintiffs’ lawyers will cite the dissent in attempting to limit the reach of the majority opinion, lower courts bound to follow the majority opinion may not be inclined to read it so narrowly.