Supreme Court Holds That Class Certification Under Rule 23(b)(3) Is Inappropriate if Class Plaintiffs Do Not Show Damages May Be Awarded on a Classwide Basis

On March 27, 2013, in Comcast Corp., et al. v. Behrend, et al., No. 11-864, the U.S. Supreme Court ruled 5-4 that a district court may not certify a class action under Federal Rule of Civil Procedure 23(b)(3) without first determining that damages may properly be awarded on a classwide basis. The decision can be found here.

Respondents initially filed suit against Comcast Corporation and its subsidiaries, alleging that Comcast had conspired with other cable providers to segment the Philadelphia cable market so that providers would be able to maintain exclusivity over the segments, in violation of Section 1 and Section 2 of the Sherman Act. Respondents claimed that Comcast “clustered” their cable television operations within a particular region by swapping their systems outside the region for competitor systems inside the region, thereby eliminating competition and holding prices for cable services above competitive levels. Respondents sought to certify a class under FRCP 23(b)(3), which requires that “the questions of law or fact common to class members predominate over any questions affecting only individual members.”

Respondents proposed four theories of antitrust impact, relying solely upon expert testimony that calculated damages on the basis of all four theories. The District Court accepted only one theory as capable of classwide proof and rejected the rest. The District Court further found that damages resulting from the one theory could be calculated on a classwide basis, even though the expert acknowledged that his model did not isolate damages resulting from any one theory of antitrust impact.  The 3rd U.S. Circuit Court of Appeals affirmed, holding that respondents were not required to “tie each theory of antitrust impact to an exact calculation of damages.” Behrend v. Comcast Corp., 655 F.3d 182, 207 (3d Cir. 2011). Instead, a calculation of supra-competitive prices regardless of the type of anticompetitive conduct was sufficient to satisfy Rule 23(b)(3).  Id.

The Supreme Court disagreed, holding that because the damages model failed to attribute supra-competitive prices specifically to the remaining theory of impact, “Rule 23(b)(3) cannot authorize treating subscribers within the Philadelphia cluster as members of a single class.” Justice Antonin Scalia, writing for the majority, cited the Court’s reasoning in Wal-Mart Stores, Inc. v. Dukes as requiring “a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.” At the class certification stage, “any model supporting a plaintiff’s damages case must be consistent with its liability case.”

The Court’s ruling will make it more difficult for class plaintiffs to satisfy Rule 23(b)(3)’s requirements without having more detailed expert reports regarding the ability to determine damages on a classwide basis. This likely will result in more robust expert reports and expert discovery during class certification proceedings.