On March 27th, the Supreme Court issued a notable opinion addressing not only the interplay between class certification and merits issues, but also the relationship between Rule 23(b)(3) predominance and damages. The decision, Comcast Corp. v. Behrend, strongly reinforces the high court’s earlier decision in Wal-Mart Stores, Inc. v. Dukes that courts must closely examine plaintiffs’ damages theories even if that examination intersects with merits issues. It also undermines some courts' and commentators' long-held belief that individualized issues of damages are not an obstacle to class certification.
Behrend involved a suit by Comcast subscribers who alleged that Comcast violated antitrust laws by “clustering” its cable television services in Philadelphia through swaps of its systems outside the region for competitor systems in the region. The plaintiffs sought to certify a class under Rule 23(b)(3). While the plaintiffs proposed four damages theories, the district court accepted only one: that Comcast’s activities reduced the level of competition from “overbuilders,” companies that build competing cable networks in areas where an incumbent cable company operates. The district court nevertheless found that the plaintiff’s expert put forward a damages model that was sufficient to certify a class even though it did not isolate damages resulting from the “overbuilder” theory from the other three theories. On appeal, Comcast criticized the damages model on this basis, but the Third Circuit rejected the argument because, in its view, such an “attack[] on the merits of the methodology [had] no place in the class certification inquiry.”
The Supreme Court emphatically disagreed. Justice Scalia, writing for the majority, concluded that the Third Circuit’s approach “flatly contradict[ed]” the Supreme Court’s prior precedents, most recently Dukes, that require a “rigorous analysis” of the Rule 23 factors even if that rigorous analysis “entail[s] overlap with the merits of the plaintiff’s underlying claim.” The Court found this principle to be particularly applicable to the Rule 23(b)(3) analysis, as “the predominance citerion is even more demanding than Rule 23(a).” Citing Dukes, the Court reiterated that “the class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.”
The Court then applied these principles to the case before it. Observing that “at the class-certification stage (as at trial) any model supporting a plaintiff’s damages case must be consistent with its liability case,” the Court rejected the Third Circuit’s conclusion that it was unnecessary to determine whether the damages methodology was just and reasonable as long as it quantified damages on a classwide basis. “Under that logic,” the Supreme Court observed, “at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary. Such a proposition would reduce Rule 23(b)(3)’s predominance requirement to a nullity.”
Rejecting that outcome, the Court undertook its own examination of the damages methodology. The Court found it fatal that the damages model was not tied to the single allowed theory of damages, holding that because the plaintiffs’ damages theory might “identif[y] damages that are not the result of the wrong,” the plaintiffs had failed to show that they would be able to prove damages on a classwide basis. The Court also questioned whether the damages theory showed that the “extent of overbuilding . . . would have been the same” for class members in different areas. “Without presenting another methodology,” the Court held, “respondents cannot show Rule 23(b)(3) predominance: Questions of individual damage calculations will inevitably overwhelm questions common to the class.”
Behrend thus not only reaffirms that damages methodologies must be critically examined, but also emphasizes the relevance of individualized damages issues to the predominance calculus. This represents a significant clarification of the law and, to some, a shift in paradigm. As the dissent in Behrend observed, numerous courts have held that “individual damages calculations do not precludeclass certification under Rule 23(b)(3).” Perhaps alarmed by a majority opinion that calls this precedent into question, the dissent argued that the “Court’s ruling is good for this day and case only” because the plaintiffs had not challenged “the need to prove damages on a classwide basis through a common methodology.” But the dissent’s attempt to limit the decision is contradicted by a footnote in which Justice Scalia noted that the majority was squarely addressing the argument that “certification was improper because [plaintiffs] had failed to establish that damages could be measured on a classwide basis.” Thus, the Behrend majority made it clear that, in reversing the Third Circuit’s decision, it accepted the defendants’ argument that individualized issues of damages defeated class certification under Rule 23(b)(3).
Behrend is already making waves. On April 1st, the Supreme Court sent two highly-anticipated cases back to the appeals courts for reconsideration in light of its decision in Behrend. The first, Whirlpool Corp. v. Glazer, had raised the question whether it is proper to certify a class that would include both injured and uninjured members. The second, RBS Citizens, N.A. v. Ross, had raised an issue as to application of Rule 23(a)(2)'s commonality requirement in wage-and-hour litigation. Now both appeals courts will weigh in on whether Behrend changes their conclusions.