Respondent Caroline Behrend et al., cable television subscribers, brought an antitrust class action against Petitioner Comcast Corporation alleging anticompetitive activity. In order to be certified as a class, Respondents had to present evidence that they suffered damages on a class-wide basis. The evidence they submitted consisted of a damages model prepared by their expert witness. Comcast challenges the District Court’s reliance upon that evidence, claiming that it is inadmissible under standards set forth in Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993). In this case, the Supreme Court will address whether evidence presented in support of class certification must be admissible under those standards. The decision will likely significantly impact the ability of plaintiffs to certify as a class under Federal Rule of Civil Procedure 23, and it may also affect underlying commercial conduct, such as the future use of territory-swapping and clustering agreements.
May a district court certify a class action under Federal Rule of Civil Procedure 23 without resolving whether the plaintiff class has introduced admissible evidence to show that they may be awarded damages on a class-wide basis?
May a district court 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)?
Comcast is an entertainment, media, and communications company that provides cable services to businesses and residences. See Brief for Petitioners, Comcast Corporation et al. at 3. Starting in 1998, Comcast undertook a series of business transactions to increase its market share of cable television services in the Philadelphia Designated Market Area (“Philadelphia DMA”). See Behrend v. Comcast Corp., 655 F.3d 182, 185 (3d Cir. 2011). More specifically, Comcast purchased some of its competitors and contracted to “swap” cable systems it owned outside the Philadelphia DMA for other competitors’ systems within the DMA (a practice called “clustering”). See id. at 185, 187. Consequently, Comcast’s share of cable subscribers in the area allegedly increased from 23.9 percent in 1998 to 77.8 percent by 2002. See id. at 185–86.
In 2003, six Comcast customers brought a class-action antitrust lawsuit in the United States District Court for the Eastern District of Pennsylvania against the company, alleging anticompetitive and monopolistic conduct in violation of Sections 1 and 2 of the Sherman Act. See id. at 186. The proposed plaintiff class included nearly all Comcast non-basic cable television customers in the Philadelphia area since December 1999, who purportedly paid too much for their subscriptions as a result of the company’s conduct. See id. at 186–87. In 2007, the District Court certified the proposed class, per Federal Rule of Civil Procedure 23 (“Rule 23”), as a prerequisite to proceeding with the lawsuit. See Behrend, 655 F.3d at 187.
After the Third Circuit’s 2009 decision in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (1980), the District Court granted Comcast’s motion to reconsider its class-certification decision. See Behrend, 655 F.3d at 188. In 2010, following evidentiary hearings and oral argument, the District Court recertified the proposed class. See id. The District Court credited the testimony of the plaintiffs’ damages expert, Dr. James McClave, and found that the plaintiffs could establish antitrust damages for the entire class using common evidence on a class-wide basis, thereby satisfying Rule 23(b)(3). See id. However, the District Court accepted only one of the plaintiffs’ four theories of class-wide damages—namely, that Comcast engaged in anticompetitive “clustering” conduct in the Philadelphia DMA, deterring the entry of “overbuilders” (i.e., competitors). See id. at 187–88, 195. Comcast filed an interlocutory appeal to the Third Circuit. See Brief for Petitioners at 2.
In 2011, the Third Circuit affirmed “in all respects” the District Court’s recertification decision. See Behrend, 655 F.3d at 208. Comcast petitioned the Supreme Court for a writ of certiorari on the class-certification issue, but in the meantime reached a tentative settlement of the entire case with the plaintiffs. See Brief for Respondents, Caroline Behrend et al. at 18. Shortly thereafter, on June 25, 2012, the Supreme Court granted Comcast’s petition for certiorari. See id. Consequently, Comcast refused to finalize the settlement. See id. The plaintiffs motioned the District Court to enforce the settlement, but on September 25, 2012, the District Court denied the motion and stayed all proceedings pending the Supreme Court’s decision. See id. at 18–19; Behrend v. Comcast Corp., No. 03–6604, 2012 WL 4457766, at *1 (E.D. Pa. Sept. 25, 2012).
In the 2011 case Wal-Mart Stores, Inc. v. Dukes, 564 U. S. ____ , the Supreme Court reaffirmed that a party seeking certification in a class-action lawsuit “must affirmatively demonstrate . . . compliance” with Rule 23. Petitioner Comcast contends that the plaintiffs failed to meet their burden under Rule 23 for class certification. See Brief for Petitioners at 16. In particular, Comcast asserts that Dr. McClave’s expert testimony failed to demonstrate damages on a class-wide basis and was insufficient to satisfy minimum requirements for admissibility. See id. Respondents counter that Dr. McClave’s testimony was admissible and validly demonstrated class-wide damages. See Brief for Respondents at 20. More basically, respondents argue that Comcast failed to preserve its claims for appeal and that the Supreme Court should dismiss the writ of certiorari in light of the settlement reached in the case. See id. at 19–20.
The CATO Institute and others in support of Comcast urge a high bar for class certification to prevent prejudice to both defendants and plaintiff class members. See, e.g., Brief at 14. CATO explains that because the certification ruling is often the most important decision in a class action, and because class-action lawsuits often have the potential for extraordinarily high damages awards, certification creates tremendous pressure for defendants to settle, regardless of the merits of the case. See id. at 15–16. Thus, CATO argues that lenient certification would perpetuate “blackmail” and coerced settlements, thereby harming defendants. See id. at 16–17. CATO further reasons that, because a class-action judgment’s preclusive effect binds the entire class, lenient certification can harm class members by encouraging them to remain in the action rather than excluding themselves and proceeding individually. See id. at 17–18.
The American Antitrust Institute (“AAI”) and the American Independent Business Alliance (“AMIBA”) counter that class certification neither coerces settlements nor harms class members. See Brief in Support of Respondents at 18–22. AAI and AMIBA also argue that raising the bar for class certification would undermine the efficiency and accuracy of important private antitrust enforcement actions and deny plaintiffs their Seventh Amendment right to trial by jury. See id. at 23–28. Respondents, meanwhile, contend that the Supreme Court’s answer to the Question Presented would not affect the outcome of Comcast’s appeal because class certification in the case was appropriate under “any applicable test.” See Brief for Respondents at 20. In arguing for dismissal of the writ of certiorari in light of the settlement, respondents emphasize the public policy of encouraging settlements to “promote the amicable resolution of disputes and lighten the increasing load of litigation faced by federal courts.” See id. at 21–22 (internal quotations and citations omitted). In asserting that Comcast failed to preserve its claims for appeal, respondents stress the importance of fairness and efficiency in litigation and the notion that district courts are generally in the best position to resolve factual disputes. See id. at 27.
In sum, this case presents the Supreme Court with an opportunity to clarify the standard for class-action certification. The Court’s ruling may substantially impact future class-action litigation and settlement practices, as well as underlying commercial conduct.
A class action is a lawsuit in which the court authorizes a single person or group of people to represent the interests of a larger group. See Black’s Law Dictionary (9th ed. 2009). Plaintiffs who wish to bring suit as representatives of a class in federal court must be certified pursuant to Federal Rule of Civil Procedure 23. See Fed. R. Civ. P. 23. To satisfy Rule 23, plaintiffs must show that common questions predominate over individual questions. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997). Common questions are those that can be resolved on a class-wide basis. See Dukes, 564 U.S,, at ___.
Comcast argues that Respondents cannot satisfy class-certification standards under Rule 23 because the damages model upon which they relied cannot measure damages on a class-wide basis. See Brief for Petitioners at 16. Comcast further argues that even if the court assumes that damages are measurable on a class-wide basis, Respondents’ evidence is inadmissible. See id. Respondents counter that Comcast failed to preserve its claims for appeal and argue that the petition for writ of certiorari was improvidently granted in light of the pending settlement agreement. See Brief for Respondents at 19. Respondents also contend that even if the court reaches the merits of the case, Dr. McClave’s expert testimony is admissible and shows that damages can be assessed on a class-wide basis. See id. at 20.
COMMON EVIDENCE OF ANTITRUST IMPACT
Respondents sued Comcast for entering into an illegal agreement in restraint of trade and monopolizing in violation of Sections 1 and 2 of the Sherman Act. See id. at 1–2; Brief for Petitioners at 1. At trial, Respondents had to prove three elements of their claims: a violation of the Sherman Act, individual injury resulting from the violation (which is also called antitrust impact), and damages. See Behrend, 655 F.3d at 191. At the class-certification stage, Respondents had to show that these elements are “capable of proof at trial through evidence that is common to the class rather than individual to its members.” See id.
Comcast argues that Respondents cannot prove antitrust impact with evidence that is common to the class. See Brief for Petitioners at 13. During the class-certification stage, Respondents presented four different theories of antitrust impact, but the District Court threw out all but one. See id. Comcast argues that since Respondents’ damages model cannot measure damages based solely on the one theory of antitrust impact accepted by the court, the model cannot serve as evidence of antitrust impact on a class-wide basis. See id. Because proof of antitrust impact based on evidence common to the class is a necessary element of class certification, Comcast argues that the Supreme Court should vacate the District Court’s certification order. See id. at 12.
Respondents contend that Dr. McClave’s damages model does show antitrust impact on a class-wide basis, arguing that the evidence is consistent with standard economic models for determining anticompetitive effect. See Brief for Respondents at 37–39. Respondents further contend that the fact that the District Court did not accept all of the antitrust theories presented does not vitiate the testimony of Dr. McClave. See id. at 43.
ADMISSIBILITY OF EVIDENCE
Comcast argues that even if the report could prove antitrust impact on a class-wide basis, the evidence is inadmissible because it fails to satisfy reliability requirements for expert evidence under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc. See Brief for Petitioners at 14. Comcast argues that because plaintiffs seeking class certification must present evidence to satisfy Rule 23, the court must determine that that evidence is admissible. See id. at 15. Here, Comcast contends that Respondents’ damages model is “neither helpful nor reliable for assessing class-wide damages.” See id. First, Comcast argues that the model measured the economic impact of the alleged anticompetitive activity against benchmark markets that were not similar enough to the markets in which the alleged anticompetitive activity took place. See id. Second, Comcast contends that even if this first defect could be remedied, the substantial variation in conditions across the various regions of the Philadelphia DMA would make it impossible to calculate class-wide prices. See id.
Respondents contend that Comcast failed to preserve these arguments for appeal. See Brief for Respondents at 24. Failure to object to the admissibility of evidence normally results in the forfeiture of that claim on appeal. See Puckett v. United States, 556 U.S. 129, 138 (2009). Because of this forfeiture, Respondents argue that the standard of review is altered: instead of the abuse-of-discretion review that is normally required under Daubert, Respondents assert that Comcast must show plain error. See Brief for Respondents at 26. Plain-error review is a “stringently limited standard,” requiring that Comcast prove error “that is plain, affects substantial rights, and seriously affects the fairness, integrity, or public reputation of judicial proceedings.” See id. at 28 (internal quotations and citations omitted). Respondents claim that even if the damages model is inadmissible, it was not plain error for the court to certify the class based on that evidence because the Court had not yet articulated whether certification must be based on admissible evidence. See id. at 30–31. Any error could not be “plain” because the Court had thus far not addressed the issue. See id.
If the Court decides to reach the Question Presented, Respondents claim that district courts need not make final rulings on the admissibility of evidence in order to certify a class. See id. Rather, Respondents would have district courts apply a more flexible standard that takes into account the context of the pretrial certification proceedings. See id. at 33–34. Respondents highlight the differences between Daubert analysis during trial and during class certification. See id. They argue that since Daubert is intended to protect juries from being swayed by dubious scientific testimony, it should not apply as stringently during pretrial, where the judge is the decision maker. See id. at 35.
Finally, Respondents argue that the writ of certiorari should not have been granted in the first place. See id. at 21. In light of the pending settlement, Respondents argue that the Court should dismiss the writ as improvidently granted. See id. Respondents contend that “public policy wisely encourages settlements” and that the pending settlement effectively renders the case moot. See id. (internal quotations omitted). Respondents further argue that the combination of Comcast’s failure to preserve its evidentiary arguments for appeal and the pending settlement make this an inappropriate case for ruling on the Question Presented. See id. at 32.
The Court’s ruling in this case will likely determine the standard for admissibility of evidence at the class-certification stage. Petitioners argue that because the evidence presented did not satisfy admissibility standards under Federal Rule of Evidence 702 and Daubert, the class-certification order should be vacated. Respondents argue that Petitioners failed to preserve their claims for appeal and that the writ of certiorari was improvidently granted in light of the pending settlement. The Court’s decision may significantly affect the ability of prospective class-action litigants to be certified as a class, and it will likely significantly impact class-action-litigation and settlement practices, as well as future commercial conduct.
The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.
- Forbes, Daniel Fisher: Class-Action Lawyers Face Triple Threat At Supreme Court (Oct. 1, 2012)
- The Philadelphia Inquirer, Bob Fernandez: Appeal could delay resolution of class action against Comcast (Aug. 24, 2012)