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Employer Law Report

United States Supreme Court Delivers Major Win for Employers – Once Again Raising the Bar for Certifying Class Actions

Posted in Employment Class & Collective Actions

A bitterly divided United States Supreme Court last week added even more height to the barriers facing plaintiffs who seek to certify their claims as class actions. In Comcast Corp. v. Behrend, No. 11-864, a 5-4 decision penned by Justice Antonin Scalia, the Court held that a district court improperly certified a mammoth class action covering more than two million current and former subscribers of Comcast who claimed to have paid inflated cable bills based upon Comcast’s violation of federal antitrust laws. The decision is particularly notable for its holding that plaintiffs seeking to certify class actions for money damages are entitled to certification only after they affirmatively demonstrate an adequate method for calculating damages on a class-wide basis.

The plaintiffs’ allegations in Comcast centered on Comcast’s alleged practice of entering into swap agreements with competitors so as to eliminate rivals from entering Comcast’s market territory – a practice plaintiffs claimed violated federal antitrust laws and artificially raised cable prices. The plaintiffs sought to certify a class of current and former Comcast subscribers in the Philadelphia cable market and claimed damages in excess of $875 million. Although the plaintiffs proposed four different theories of how Comcast’s allegedly anticompetitive business practices had caused them to pay higher cable bills, the district court limited the plaintiffs to proceeding on just one of these theories: that Comcast had deterred the entry of “overbuilders” (i.e. Comcast’s competitors) onto Comcast’s Philadelphia turf. The district court’s ruling caused a potential problem for the plaintiffs, as the statistical model used by their damages expert did not isolate damages resulting from the sole theory of damages accepted by the district court. Nevertheless, the district court found that damages could be calculated on a class-wide basis and thus certified the case as a class action. The Third Circuit Court of Appeals affirmed, refusing to consider Comcast’s attack on the model used by the plaintiffs’ damages expert because to do so would require improperly wading into the merits of plaintiffs’ claims at the class-certification stage. The Supreme Court granted certiorari and reversed.

The Supreme Court held that the lower courts had erred in refusing to consider attacks on the plaintiffs’ damages model when these attacks bore directly on the propriety of granting class certification. The Court dismissed the Third Circuit’s rationale that to entertain such arguments would require delving into the merits of plaintiffs’ claims, reaffirming its pronouncement in Dukes that trial courts must conduct a “rigorous analysis” in determining whether to grant certification and that such a rigorous analysis will inevitably overlap with the merits of the plaintiffs’ underlying claims. The Court further held that the rigor with which the trial court was required to analyze the certification issue was at its zenith in Comcast because the plaintiffs sought certification under Federal Rule of Civil Procedure 23(b)(3) – the most demanding of the avenues for seeking class certification and the one typically used for certifying class actions seeking money damages. Rule 23(b)(3) is unique among the provisions for granting class certification because, in addition to Rule 23(a)’s general requirements that there be sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation, the party seeking class certification must demonstrate that “questions of law or fact common to class members predominate over any questions affecting only individual members.”

Jared Klaus

Rule 23(b)(3)’s “predominance” inquiry, the Court held, required the district court in Comcast to find that plaintiffs’ damages would be “capable of measurement on a class-wide basis” so that individual damages calculations would not overwhelm the case. And the Court found that the damages model put forth by the plaintiffs fell far short of meeting this standard as a result of the model’s inability to isolate damages resulting from the sole theory of damages remaining in the case.

The Comcast Court’s holding that plaintiffs pursuing certification under Rule 23(b)(3) must prove that damages are capable of measurement on a class-wide basis – although downplayed by the majority as “turn[ing] on the straightforward application of class-certification principles” – actually marks a significant raising of the threshold for obtaining Rule 23(b)(3) certification. As noted in the strongly-worded four-justice dissent authored by Justices Ruth Bader Ginsberg and Stephen Breyer, Rule 23(b)(3) has previously been interpreted to allow for certification even if damages are not provable in the aggregate, as long as common questions of liability “predominate” over individualized damages considerations. The Comcast decision appears to wipe this precedent off the books by holding that the failure to prove damages in the aggregate is per se fatal to certification under Rule 23(b)(3).

Although the issues before the court related to subscribers and not employees, this decision has great importance to employers. In discrimination class actions the question of how compensatory and other damages are to be computed is central to the case. That was a major debate in the lower courts in Dukes, but the Supreme Court did not directly address and resolve that. Now it has. Employers should argue that Comcast requires demonstration of a clear method for awarding damages on a class-wide basis in the discrimination context and that failure to meet that standard alone defeats class certification.